<PAGE>
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended January 25, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____________ to ____________
Commission file number 33-42701
PREMIER CONCEPTS, INC.
----------------------------------
(Exact Name of Registrant as Specified in its Charter)
Colorado 84-1186026
- - ----------------------------------- ---------------------
(State or other jurisdiction I.R.S. Employer
of incorporation or organization) Identification number
3033 South Parker Road, Suite 120, Aurora, Colorado 80014
---------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 338-1800
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- ---------------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be contained,
to the best of Issuer's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. []
The Issuer's revenues for the fiscal year ended January 25, 1998 were
$12, 57 8,683.
As of May 4, 1998, the aggregate market value of the Common Stock of the
Issuer based upon the closing bid price of the Common Stock as quoted on the
NASDAQ held by non-affiliates of the Issuer was $3,660,990.
As of May 4, 1998, 1,775,025 shares of Common Stock of the Issuer were
outstanding.
<PAGE>
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant incorporates by this reference the following documents:
Part III
--------
Item 9. Directors, Executive Officers, Promotions and Control Persons,
Compliance with Section 16(a) of the Exchange Agreement
Item 10. Executive Compensation
Item 11. Security Ownership of Certain Beneficial Owners and Management
Item 12. Certain Relationships and Related Transactions
The foregoing are incorporated by reference from the Registrant's
Definitive Proxy Statement relating to its Annual Meeting of Shareholders
which will be filed as an amendment within 120 days of January 26, 1997.
Item 13. Exhibits
1. Incorporated by reference from the Company's Registration
Statement on Form SB-2; SEC File No. 333-08741.
2. Incorporated by reference from the Company's Registration
Statement on Form SB-2; SEC File No. 333-19901.
3. Incorporated by reference from the Company's Registration
Statement on Form S-1; SEC File No. 33-42701.
4. Incorporated by reference from the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1994.
5. Incorporated by reference from the Company's Annual Report on
Form 10-KSB for the fiscal year ended January 28, 1996.
Forward-Looking Statements
- - --------------------------
In addition to historical information, this Annual Report contains
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, and are thus prospective. The forward-looking
statements contained herein are subject to certain risks and uncertainties
that could cause actual results to differ materially from those reflected in
the forward-looking statements. Factors that might cause such a difference
include, but are not limited to, competitive pressures, changing economic
conditions, those discussed in the Section entitled "Management's Discussion
and Analysis of Financial Condition and Results of Operations," and other
factors, some of which will be outside the control of the Company. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which reflect management's analysis only as of the date hereof. The Company
undertakes no obligation to publicly revise these forward-looking statements
to reflect events or circumstances that arise after the date hereof. Readers
should refer to and carefully review the information in future documents the
Company files with the Securities and Exchange Commission.<PAGE>
<PAGE>
PART I
BUSINESS
Overview
- - --------
Operating under the names "Impostors" and "Elegant Pretenders," Premier
Concepts, Inc. (the "Company" or "Premier") specializes in the marketing and
retailing of high-end reproduction jewelry ("faux jewelry") and 14-karat gold
jewelry with cubic zirconia and other synthetic stones. Through a national
chain of 39 operating retail stores, the Company sells jewelry that emulates
classic fine jewelry as well as pieces designed by famous jewelers such as
Tiffany & Co.-Registered Trademark-, Cartier -Registered Trademark-, Bulgari -
Registered Mark- and Harry Winston. The product line also includes replicas
of jewelry owned by Princess Diana, The Duchess of Windsor, Elizabeth Taylor
and other celebrities. Faux jewelry is created with layered gold, cubic
zirconia and Austrian crystal to simulate the look of fine jewelry. Also
recently introduced is a new collection of genuine sterling silver jewelry
featuring semi-precious and synthetic stones. The products are purchased from
several domestic vendors and from vendors in China, England, Hong Kong, Italy,
Korea, Spain, Taiwan and Thailand.
The Impostors and Elegant Pretenders stores are designed to match the
elegant look of the Company's products and to provide customers with the
feeling of shopping in an upscale, fine jewelry environment. The stores are
located in shopping malls and tourist locations, currently in Southern
California, Northern California, the states of Arizona, Colorado, Florida,
Louisiana, Maryland, Missouri, Nevada, New Jersey, New York, Pennsylvania,
Texas, Virginia, Washington and in the Washington, D.C. area. The largest and
most visible store is located in the prime retail area of San Francisco's
Union Square. Since January 29, 1996, the Company has opened seventeen (17)
additional retail locations. In the last year, four retail stores were closed
due to lease expirations and unprofitable operations, bringing the total
number of stores currently operating to thirty-nine (39). In addition,
leases for two new retail stores in California and Nevada have been executed,
and are scheduled to open over the next six months.
Business Strategy
- - -----------------
In March 1994, the Company acquired out of bankruptcy substantially all
of the assets and assumed certain liabilities associated with the operation of
a nationwide chain of 27 faux jewelry stores which were then operating under
the trademark "Impostors." In the months following the Company's entry into
the faux jewelry industry, results of operations continued to deteriorate
principally due to the continuing burden of excessive operating and overhead
expenses, pre-petition and post-petition bankruptcy liabilities, the
unprofitability of certain stores, as well as the continuation of ineffective
marketing and merchandising strategies.
Premier's business strategy the past four years has included growing the
retail chain in profitable markets, closing unprofitable stores, remodeling
existing stores, development of new marketing channels including direct mail,
and the marketing of its high-end jewelry reproductions and store concept
internationally through licensing arrangements. Although record revenues of
$12,578,683 were achieved in its fiscal 1998 year, results from operations
decreased from an operating profit of $326,439 for the year ended January 26,
1997, to an operating loss of $484,030 for the year ended January 25, 1998.
The Company's strategies continue to focus on the leveraging on its name and
goodwill to achieve additional distribution for its products as well as
seeking new retail locations that offer potential for above average return on
investment.
Principal Products
- - ------------------
The Company's products are comprised of approximately 55% fine jewelry
reproductions and emulations of merchandise inspired by classic designers such
as Cartier -Registered Trademark-, Tiffany & Co.-Registered Mark-, Bulgari -
Registered Mark- and Harry Winston, and approximately 35% of 14-karat gold
featuring cubic zirconia and other synthetic stones and 5% sterling silver
with semi-precious stones and cubic zirconia. The jewelry ranges from
solitaire rings and faux pearl necklaces to earrings, pendants and bracelets.
Since the products are set in layered 18-karat gold over jewelers' bronze or
18-karat gold over sterling silver, the jewelry can be offered at
substantially less cost than the original pieces. The use of cubic zirconia
and other laboratory grown stones offers a more affordable product by
emulating the look and feel of expensive gemstone jewelry.
Approximately 2,500 different jewelry items are offered, with none
representing more than 10% of the total annual sales. As a group, 14-karat
gold items constitute the largest classification, representing 40% of total
inventory. Throughout the year, individual stores offer between 1,000 and
2,000 different pieces, with certain specialty items being added from time to
time for seasonal or other marketing purposes.
Most of the products are selected from existing inventory offered by
vendors. However, from time to time, purchases are made of exclusive items
that are manufactured under special order for the Company. Because the
products are high-quality emulations of classic fine jewelry designs that
change little from year to year, no significant problems associated with
inventory obsolescence have been experienced.
Remodeling and Expansion Strategy
- - ---------------------------------
A new interior design has been developed to match the elegant look of its
products and to provide customers with the feeling of shopping in a high-end,
fine jewelry environment. During the past two years, nine remodels of
existing stores have been completed at an average cost of $30,000 per store.
Additional remodeling activity will depend upon the availability of working
capital from future operations, or additional capital infusion, of which there
can be no assurance. Further remodeling of existing locations will also depend
on the lease terms, as well as the expected return on such leasehold
improvements. Since January 29, 1996, the Company has opened seventeen
additional retail stores and two more are planned in California and Nevada,
which are scheduled to open over the next six months. Other potential real
estate sites in Florida, Nevada, South Carolina and New York are currently
being evaluated, although to date no leases for additional new locations other
than the two mentioned above have been executed. Further expansion of the
retail chain beyond the current 39 locations will require additional capital
infusion.
In selecting and evaluating new sites, Premier has developed criteria
that consider local population demographics, customer base, sales per square
foot of other retailers in the area, and most significantly, location. Of
particular focus are centers and malls with a heavy tourist trade. Absent a
high tourist component, a regional mall would be considered only if the
location offered is in a high traffic area with a mix of other fashion
tenants. The Company also continues to pursue opportunities in casinos and
high-profile hotels. Financial projections for any new proposed site are
prepared and any location where management believes break-even operations
cannot be achieved within a six to twelve month period are rejected. The
opening of a new retail location represents an aggregate capital requirement
of approximately $100,000 to $200,000, depending on location and size, which
includes initial leasehold expenses and improvements, purchases of furniture,
fixtures and equipment and initial inventory costs.
Since the Company's inventory, accounting and information systems are
highly automated, management believes that it has the present capacity to
handle the accounting, informational and inventory tracking needs for up to
100 stores. However, significant further additions beyond the 41 locations
expected to be operating in the next six months, will require increased
staffing.
In addition to developing new store locations, Premier is continually
investigating the possibility of acquiring companies in similar lines of
business, including faux jewelry, fine jewelry and accessories. Potential
candidates include small retail chains, companies currently engaged in
multimedia faux jewelry sales, as well as former Impostors franchisees. While
the Company continually investigates such acquisition opportunities, there are
no substantive negotiations, arrangements, agreement or understandings with
respect to any potential acquisition.
Other Marketing and Distribution Channels
- - -----------------------------------------
Currently, over 99% of total revenues are derived from retail store
sales. The Company also wholesales products nationally and internationally to
licensees and a few smaller retailers. Limited resources exist to focus on
the international demand, however, products have been sold in limited amounts
to accounts in Australia, Brazil, Chile, and Taiwan. Plans to increase the
international wholesale business by hiring additional persons and/or agents to
represent the line of products internationally are subject to the availability
of working capital. The ability to fully develop the business opportunities
offered by the international marketplace depends upon both overcoming legal
obstacles and the availability of additional working capital from future
operations, of which there can be no assurance.
In November 1997, a catalogue was launched featuring approximately 200
jewelry styles, which initially has been distributed through the Company's
tourist retail stores. As the catalogue generates sales both at the corporate
office and at the store level, it is difficult to measure the total sales
generated by the catalogue to date. However, although direct sales from the
catalogue independent of the stores have been minimal, plans are to continue
to market a new catalogue annually featuring best sellers. Although, in the
future, distribution of the catalogue may broaden to include direct mailings
to new potential customers, the current plans call for continued distribution
primarily through the tourist locations.
The Company has also explored multimedia distribution of its jewelry. In
October 1996, an Internet web site and catalogue (www.impostors.com) was
developed and completed. Subject to availability of capital, plans are to
continue to update the site and expand the Internet distribution channels, as
new technology becomes available. Additionally, discussions have been
initiated to market the concept and products to the home shopping networks.
However, as of the date of this filing, no contracts have been signed.
Market and Customers
- - --------------------
The Impostors' niche bridges the markets between costume and fine jewelry
by offering high-quality reproductions of classic and designer fine jewelry
and also a collection of 14-karat gold and sterling silver with cubic
zirconia, semi-precious and synthetic stones. Faux jewelry distinguishes
itself from traditional fashion jewelry by the quality of the metals, stones
and craftsmanship utilized in the design and manufacturing process. While
costume jewelry is typically price-pointed in the $5 to $30 range, the
majority of Premier's faux jewelry is priced in the $30 to $100 range. The
14-karat gold collection has price points between $45 to $1,000, with the
majority in the $100 to $400 range.
The market for the Company's products is to a large extent defined by a
knowledgeable customer's desire to have the look, feel and design of classic
fine jewelry and expensive diamond and gemstone jewelry, without the cost.
The target market is women between the ages of 30 and 60 who are either
purchasing jewelry reproductions in place of, or to complement expensive fine
jewelry, or professional women who want the look of fine jewelry but are
unwilling or unable to pay the fine jewelry price tag. This target market is
expected to continue to grow in accordance with the continued increases in the
number of women entering the professional workplace. The Company also expects
to benefit from the maturation of the baby boomer generation that, according
to the United States Census Bureau, will have reached the average age of 45 by
the year 2000. It has been the Company's experience that the vast majority of
its retail customers are women purchasing for themselves rather than men
purchasing for others.
Suppliers and Vendors
- - ---------------------
The Company purchases its products from vendors who have an established
history of manufacturing high quality jewelry products. These vendors offer a
standard product line through catalogues and trade shows, and also manufacture
certain products specifically for Premier, for which the Company will
typically be given a 12 to 18 month exclusivity for that item by the vendor.
Premier's relationships with its vendors of high-quality product are
considered a component of its strategic advantage over other competitors. The
Company works closely with its vendors to constantly upgrade the quality of
its products.
The Company's products are currently being purchased 60% from domestic
vendors and 40% from vendors in England, Hong Kong, Italy, Korea, Spain,
Taiwan and Thailand. Most of the inventory is purchased from vendors'
existing inventory and designs, while some is manufactured under special
order. Orders from foreign vendors take 6 to 8 weeks to fill, with U.S.
vendors delivering in approximately 3 to 4 weeks. Most domestic vendors offer
terms of payment of between 30 and 60 days and some offer up to 90 days, while
many international vendors require either prepayment or payment prior to
shipment. The Company continually investigates new sources of merchandise in
order to maximize profit margins and expects to concentrate future purchases
to a larger degree from vendors in the Pacific Rim. The Company considers the
identity of its sources of supply to be proprietary to the extent that a
product's quality, source and price bear directly upon the Company's
competitive advantage. The Company does not rely on any single source of
supply and could readily obtain product from new suppliers should any given
source become unavailable. The Company has not experienced any difficulty in
obtaining merchandise and does not anticipate any future problems or
restriction of availability.
Competition
- - -----------
Because the Company's products address a market niche for the look and
feel of fine jewelry without the cost, it experiences both indirect and direct
competition from others. Indirect competition comes from costume and fashion
jewelry at the low end and fine jewelry on the upper end, with the Company's
faux jewelry and 14 karat gold with synthetic stones bridging the gap. The
Company believes its products are superior both in design and quality to
jewelry offered by traditional fashion jewelry retailers. Conversely, the
Company's advantage over expensive fine gemstone and diamond jewelry is one of
cost without a commensurate sacrifice in appearance or durability.
The Company competes directly with department stores and other retailers
of faux jewelry, including home shopping channels, and indirectly with
specialty retailers of accessories and related items. Department stores
typically offer lower-end costume and fashion jewelry, or on occasion will
offer higher-end faux jewelry designed by their own exclusive designers. The
Company's exclusive emphasis on the faux jewelry specialty market niche is
designed to attract the customer who has already decided to purchase designer
inspired jewelry rather than either costume jewelry or the high cost piece of
genuine fine jewelry. However, the Company is not alone in this marketing
approach, as there exist a few other chains of retailers offering faux jewelry
in a directly competitive manner. The Company is aware of only one other
business, N. Landau Hyman, which has a comparable number of specialty retail
stores that focus on the sale of faux jewelry. Other specialty retailers who
focus on the sale of faux jewelry include Elegant Illusions, which has
approximately 20 faux jewelry stores, Mystique which has 4 stores in Florida,
and Diamond Essence which has a retail store in New York and another in
Chicago, and a direct marketing catalogue concentrating exclusively on 14
karat gold jewelry with faux gemstones. The Company's advantage, if any, over
these other retailers lies in its relationships with its vendors, some of
which it considers to be highly proprietary, economies of scale offered by the
Company's ability to purchase large quantities of inventory from vendors who
have certain minimum quantity requirements, and in its store locations.
Nevertheless, in order for the Company to continue to be competitive, it must
maintain and expand its desirable store locations and distribution channels,
and continue to develop strong vendor relations, none of which can be assured.
Intellectual Property
- - ---------------------
Copyrights, trademarks and trade secrets are the principal protection for
the Company's products, services and reputation. The Company owns federally
registered trademarks for the following names: Impostors Registered Mark-,
Impostors De Classique Copy Jewels -Registered Mark-, Impostors Copy Jewels -
Registered Mark-, Elegant Pretenders -Registered Mark-, and The Latest In Faux
- - -Registered Mark-. All of the trademarks are considered by the Company to be
valuable property rights. The protection afforded by these intellectual
property rights and the law of trade secrets is believed by the Company to be
adequate protection for its products and or services.
As a reseller of emulations and copies of fine designer jewelry, the
Company must avoid infringing any copyrights or trademarks claimed by the
original designer. A copyright protects the manner of expression of a piece
of a jewelry rather than the idea or concept behind making it. As the
Company's products do not purport to be exact copies, but rather emulations
inspired by other designs, it believes that the sale of faux jewelry does not,
"per se," violate the copyright interest of others. Nevertheless, if a
particular jewelry design is subject to copyright protection, that copyright
expires after 75 years, if owned by a corporation, or after 50 years after the
creator's death, if an individual. Prior to 1988, in order for a designer to
claim copyright protection to a piece of jewelry, a copyright notice would
have to have been affixed to the original piece. Thus, any jewelry sold in
the United States before 1988 without a copyright notice is considered to be
in the public domain. However, fine jewelry designed and sold in the United
States after 1988 could be subject to copyright protection without the
necessity of a copyright notice on the original piece. As a result, there is
no effective way of determining if a particular piece of fine jewelry is
subject to copyright protection claimed by its original designer. It is,
therefore, important for the Company to ensure that its products do not
purport to be exact copies of an original, but only inspired by the original
designs.
Although infrequent, it is possible for a designer to claim trademark
protection if it can establish that the customer realizes that a particular
piece of jewelry comes from a particular manufacturer. In order to be
claimed, however, a registered trademark indication must usually be placed on
the original piece. The Company takes meticulous precaution to avoid
advertising and marketing strategies that might lead to confusion in the minds
of its customers as to the source or origins of its emulation jewelry.
The Company has developed and adopted methodologies designed to prevent
its infringement of the intellectual property rights of third parties;
however, there can be no assurance that it will not be subject to claims for
inadvertent infringement from time to time. While there have been only four
instances of claimed infringement in the past, when the Company has received
notice of inadvertent infringement, it has been its policy to voluntarily
cease and desist selling the particular product. As an average store has more
than 1,000 different items of jewelry on display and offered for sale, the
Company has not experienced, and does not expect to experience, any material
adverse effects on its revenues in these instances.
License Arrangements
- - --------------------
The Company has granted a total of three licenses to former Impostors
franchisees granting to them the right to use the Impostors trademark in a
total of five retail locations for a period of one year. Each license
requires the payment of $5,000 per store per year, and is renewable annually
at the discretion of the Company. It is not expected that these license
arrangements will represent a material portion of the Company's future
activity. The Company has also licensed the use of the Impostors name to
individuals in Brazil who markets the company's products on a retail and
wholesale basis.
Employees and Consultant
- - ------------------------
The Company currently has approximately 110 full-time and 120 part-time
employees, of which 17 are employed in the Company's corporate offices.
Additional part-time employees are typically hired during the peak holiday
season. A manager and assistant manager, as well as one or more sales
personnel staffs each retail store. The Company also has six area managers
and two regional store directors (East and West Coasts). Store managers are
hired and supervised by area managers. All management and staff personnel are
employed directly by the Company.
As President and Chief Executive Officer, Ms. Greenberg serves under a
written employment agreement expiring on June 20, 1999. She receives a base
salary of $10,833 per month and is also eligible to participate in the
Company's Incentive Stock Option Plan ("ISOP"). Ms. Greenberg was granted
incentive stock options pursuant to the ISOP exercisable to purchase, in the
aggregate, 40,000 shares of Common Stock of the Company at an exercise price
of $1.875 per share, all of which are fully vested, and incentive stock
options exercisable to purchase an additional 20,000 shares of common stock at
a price of $2.50 per share, and incentive stock options exercisable to
purchase an additional 25,000 shares at a price of $3.25 per share, of which
15,000 are vested and 10,000 will vest on June 20, 1998. On August 5, 1997,
the Company's Board of Directors awarded Ms. Greenberg a performance bonus of
8,000 shares of the Company's common stock.
In January 1996, the Company hired Todd Huss as its Chief Financial
Officer. Mr. Huss brings with him nearly 10 years of experience as a licensed
certified public accountant, primarily with KPMG Peat Marwick and nearly five
years experience in the retail industry as Controller/Chief Financial Officer.
Effective February 1996, the Company retained Jack Brandon, the former
Vice-President of a 200 store portrait studio retail chain. It is expected
that Mr. Brandon will devote approximately 30 to 40 hours per month on behalf
of the Company, exclusive of his services as a director. Mr. Brandon also
provides construction oversight services for new Impostor locations and
remodels. Fees for these services are paid on a job-by-job basis, which have
averaged approximately $4,000 per month.
Seasonality
- - -----------
The Company's business is highly seasonal with its mall locations
generating approximately 20% of revenues during the December holiday season.
The Company's 15 tourist locations experience fluctuations, based upon such
factors as seasonality, economic conditions and other factors affecting
tourism in their particular locations.
Properties
- - ----------
The Company currently maintains executive offices at 3033 S. Parker Road,
Suite 120, Aurora, Colorado 80014. The offices consist of 6,890 square feet,
which the Company holds under a 5-year lease expiring in the year 2003, for a
rental of $7,464 per month. The Company's executive offices represented the
culmination of a strategic plan to close its executive offices in San
Francisco, California to reduce operating expenses. The Company expects the
move to represent substantial savings over the next several years.
The Company's 39 current retail locations are operated under commercial
leases with expiration dates ranging from 1998 to 2007. Store size varies
from 310 to 1,200 square feet with annual sales ranging from $170,000 to
$1,500,000. Each lease requires the payment of a minimum base rent and
additional payments for operating expenses, taxes, insurance, and in some
cases an additional rent based upon a percent of gross sales. On a daily
basis, sales, margin and inventory turnover for each store location are
monitored. This information is used not only to develop criteria for
additional store expansions but also to determine acceptable parameters for
lease renewals as they arise. In the ordinary course of business, the Company
is continually engaged in discussions with its various commercial landlords
over issues that arise from time to time under the leases. All of the
existing commercial retail leases are in full force and effect as of the date
of this Report.
LEGAL PROCEEDINGS
The Company from time-to-time is involved in commercial disputes in the
ordinary course of business with vendors, landlords and other parties, which
on occasion become the subject matter of litigation. At the present time, the
Company is not a party to any legal proceedings outside of the ordinary course
of business or which would have a material adverse impact upon the Company's
operations or properties.
MATTERS SUBMITTED TO VOTE OF SECURITY HOLDERS
The Company's 1997 Annual Meeting of Shareholders was held on November
21, 1997. At the meeting, the following matters were acted upon:
1. Election of Directors
---------------------
The following persons were elected to serve as members of the Board of
Directors:
Votes for Votes Against Abstentions
------------ -------------- ------------
Sissel Greenberg 1,232,681 -0- 26,727
Simona Katz Yuffa 1,232,681 -0- 26,727
William Nandor 1,232,681 -0- 26,727
Jack Brandon 1,232,681 -0- 26,727
2. A proposal to increase the number of shares authorized to be issued under
the Company's Incentive Stock Option Plan by an additional 100,000 shares was
not approved:
Votes For Votes Against Abstentions
--------- -------------- -------------
220,407 127,033 4,347
<PAGE>
<PAGE>
PART II
MARKET FOR THE REGISTRANT'S COMMON STOCK
AND RELATED SECURITY HOLDER MATTERS
Price Range of Common Stock.
- - ---------------------------
Prior to completion of the the Company's public offering on April 25,
1997, its outstanding shares of Common Stock were traded over-the-counter and
quoted on the OTC Electronic Bulletin Board on a limited and sporadic basis
under the symbol "PMRCA." The reported high and low bid and asked prices for
the Common Stock are shown below for the period through the fiscal year ended
January 26, 1997. The prices presented are bid and asked prices which
represented prices between broker-dealers and do not include retail mark-ups
and markdowns or any commission to the broker-dealer. The prices do not
necessarily reflect actual transactions.
Since April 23, 1997, the Common Stock and Warrants have traded on The
Nasdaq Stock Market under the symbols "FAUX," and "FAUXW," respectively. The
reported high and low trade information for the Common Stock is presented for
the periods beginning January 27, 1997, through April 26, 1998.
<TABLE>
<CAPTION>
High Low High Low
------ ----- ------ -----
Bid Ask
----- -----
<S> <C> <C> <C> <C>
Fiscal Year 1997
----------------
First Quarter $2.50 $1.875 $8.125 $4.375
Second Quarter 2.50 1.875 4.375 4.375
Third Quarter 3.44 2.50 5.94 4.06
Fourth Quarter 2.50 2.50 3.75 3.44
High Low
------ -------
Fiscal Year 1998
----------------
First Quarter $3.50 $3.25
Second Quarter $4.38 $3.00
Third Quarter $4.25 $3.00
Fourth Quarter $3.56 $1.63
Fiscal Year 1999
----------------
First Quarter $2.75 $1.63
- - ------------------------------
</TABLE>
(1) All prices have been adjusted to give retroactive effect to a
one-for-five reverse stock split that was effective on December 20, 1996.
The high and low sales prices of the Company's Common Stock on May 4,
1998, were $2.06 and $2.06, respectively, as listed on The Nasdaq Stock
Market. As of May 4, 1998 there were approximately 559 shareholders of record
of the Company's Common Stock.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Financial Statements and Notes thereto appearing elsewhere in this report.
Retail Fiscal Year
- - ------------------
The method of financial reporting is a fifty-two to fifty-three
(52-53) week fiscal year ending on the last Sunday in January of each year.
Likewise, reporting quarters end on the Sunday closest to the calendar end of
April, July and October. Each reporting quarter contains 13 weeks of
operations.
Liquidity and Capital Resources
- - -------------------------------
Approximately 20% of the Company's business is generated during the
December holiday season. The Company's cash position will therefore be the
highest at the end of December as compared to any other month of the year, and
tends to decrease during the first, second, and third quarters of the fiscal
year.
On April 25, 1997 a secondary public offering was successfully completed
in which 1,100,000 units were sold, each unit consisting of one share of
Common Stock and one Class A Common Stock Purchase Warrant (Warrant). Two
Warrants entitle the holder to purchase one share of Common Stock at a price
of $5.00 during the three year period ending April 21, 2000. Proceeds of
approximately $3.3 million were realized, after costs of the offering, of
which $1,120,000 was used to retire Convertible Promissory Notes (Convertible
Notes) issued on December 27, 1997 as part of a bridge financing completed to
repurchase shares of Common Stock from certain shareholders and to provide
working capital. An additional $273,887 was used to retire various other
short-term notes. Of the remaining $1.9 million, approximately $1.6 million
was used to complete payments for four stores opened in the fourth quarter of
fiscal year ending January 26, 1997, and to pay for the construction of eight
new retail stores and four stores remodeled during the fiscal year ending
January 25, 1998.
During the year ended January 25, 1998, merchandise inventories increased
$558,196, or approximately 32%, from $1,749,643 at January 26, 1997, to
$2,307,839 at January 25, 1998. This increase reflects merchandise purchased
for eight new stores opened during the year ended January 25, 1998, as
follows:
<TABLE>
<CAPTION>
Store Location Date Opened
- - ----- -------- -----------
<S> <C> <C>
Elegant Pretenders The Rio Hotel and Casino February 7, 1997
Las Vegas, NV
Impostors Miami International Mall February 17, 1997
Miami, FL
Impostors Beach Place February 14, 1997
Ft. Lauderdale, FL
Impostors The Falls June 28, 1997
Miami, FL
Impostors North County Fair July 13, 1997
Escondido, CA
Impostors Kiosk Washington National Airport July 19, 1997
Arlington, VA
Impostors Arizona Mills November 20, 1997
Tempe, AZ
Impostors Pointe Orlando November 21, 1997
Orlando, FL
</TABLE>
Prepaid expenses and other current assets increased $138,893, from
$118,536 at January 26, 1997, to $257,429 at January 25, 1998. Included in
prepaid expenses and other current assets are federal and state income tax
payments of approximately $63,000, which will be recovered in 1998 due to the
net loss for the year ended January 25, 1998. Also included in other current
assets are approximately $20,000 of insurance claims resulting from
merchandise stolen from a retail store during the fourth quarter, and a
$50,000 claim resulting from damage incurred at a retail store from a random
firebombing incident. Both claims were collected in the first quarter of
fiscal year ending January 31, 1999.
As a result of the foregoing, current assets increased by $1,284,750,
from $2,086,567 at January 26, 1997, to $3,371,317 at January 25, 1998.
During the year ended January 25, 1998, $864,520 was invested in property
and equipment, consisting of leasehold improvements in connection with the
April relocation of the store in the Valley Fair Shopping Center in Santa
Clara, California, the remodel of the Horton Plaza store in San Diego,
California, completed in July, 1997, the remodel of the Borgata store in
Scottsdale, Arizona, completed in October, 1997, the remodel of the store at
Union Square in San Francisco, California, completed in October, 1997, and the
eight new stores as noted above. In October, 1997 the Grossmont Center store
in La Mesa, California was closed upon expiration of the lease term, and in
January, 1998, the Paramus Park store in Paramus, New Jersey was also closed
upon expiration of the lease term. In addition, the Bayside Marketplace store
in Miami, Florida was closed due to continued poor sales performance. As a
result of these store closures, approximately $28,000 of leasehold
improvements was charged off in the fourth quarter. Therefore, property and
equipment, net of accumulated depreciation, increased $400,376, from
$2,033,939 at January 26, 1997, to $2,434,315 at January 25, 1998.
Trademark assets, representing the goodwill of the Impostors trademark
and other intellectual property was acquired as part of the acquisition of
Impostors in March, 1994. The asset is being amortized over a 10-year period
and had an amortized book value was $75,433 at January 25, 1998,.
Deferred offering costs of $425,423 at January 26, 1997 increased by
$186,717 prior to completion of the secondary public offering on April 25,
1997, as noted above. These costs, totaling $612,140, were netted against the
offering proceeds.
On January 26, 1997, a $39,000 deferred tax asset was recorded resulting
from certain net operating loss carry forwards used to offset taxable book
income for the year ended January 26, 1997. The net loss recorded for the
year ended January 25, 1998, resulted in a reversal of the deferred tax asset
due to the uncertainty of future benefits that may result from the asset.
As of January 25, 1998, total outstanding liabilities were $2,268,432
compared to $3,814,371 at January 26, 1997, a decrease of $1,545,939, which
generally reflects the retirement of the Convertible Notes and other long term
debt totaling approximately $1.4 million.
Total current liabilities increased $173,478, from $1,918,508 at January
26, 1997 to $2,091,986. Accounts payable decreased by $210,001, primarily
reflecting payments to contractors for new store projects completed in the
fourth quarter of fiscal 1996/97, and in the first quarter of the current
year.
Other accrued liabilities increased by $23,881 from $427,281 at January
26, 1997 to $451,162 at January 25, 1998. In the third quarter of fiscal
1998, the Company was named as a defendant in a civil action brought in the
District Court of the Southern District of New York. While the Company
believes that it would have been successful in its defense of this civil
action, Management's effort and costs of such defense could have been
significant and may have represented a material commitment of the Company's
limited working capital. In May 1998, the litigation was therefore settled by
mutual agreement of the parties. Included in other liabilities is $35,000
representing the settlement consummated in May 1998. The remaining other
accrued liabilities at January 25, 1998, represent expenses incurred in the
normal course of business.
In the first quarter, a $635,000 bank note held by a San Francisco
financial institution was reclassified as a current liability. The note had a
maturity date of February 24, 1998, and was subsequently extended to May 31,
1998. The Note carries interest at the rate of ten percent (10%) per annum.
Negotiations are ongoing with a Colorado financial institution to structure a
loan to retire the bank note with the San Francisco institution.
As a result of the foregoing, working capital increased by $1,111,272,
from $168,059 at January 26, 1997, to $1,279,331 at January 25, 1998.
Amounts borrowed from related parties of $74,420 at January 26, 1997,
were retired during the second quarter. Current notes payable increased from
$263,312 at January 26, 1997, to $697,330 at January 25, 1998, an increase of
$434,018, primarily as a result of the reclassification of the bank note as
discussed above.
Long-term debt, net of the current portion, was $14,600 at January 25,
1998, as compared to $1,792,624 at January 26, 1997, a decrease of
approximately $1.78 million, which was the result of the payments of the
Convertible Notes and reclassification of the bank note, as discussed above.
The remainder of long-term debt represents notes that were part of the
Impostors retail chain acquisition in March, 1994.
As a result of the Company's net loss for the year of $587,175, the
accumulated deficit increased from $1,361,507 at January 26, 1997 to
$1,948,682 at January 25, 1998. As discussed above, on April 25, 1997, the
Company successfully completed a secondary offering of 1,100,000 units
consisting of one share of Common Stock and two Warrants, which after costs of
the offering, increased stockholders' equity by $3,270,493. In addition,
12,650 shares of common stock were issued at a market value of $32,137 to
employees as bonus compensation for services performed for the year ended
January 26, 1997, and an additional 167 shares with a market value of $498
were issued under the Employee Stock Purchase Plan. As a result, total
stockholders' equity increased from $997,403 at January 26, 1997, to
$3,713,356 at January 25, 1998.
Net cash used in operating activities for the year ended January 25,
1998, was $829,530, compared with cash provided by operating activities of
$1,093,363 for the year ended January 26, 1997. This was primarily the result
of the net loss reported for the year, increases in merchandise inventory for
the eight new stores opened during the year, and the reductions of accounts
payable.
Cash used in investing activities of $864,520, represents investments in
stores as discussed above. This compares with net cash used by investing
activities of $1,332,575 during the year ended January 26, 1997, which also
represents investments in new stores and remodeled retail locations.
Net cash provided by financing activities for the year ended January 25,
1998, was $2,288,524, primarily representing the completion of the secondary
offering in April, 1997, and the retirement of the Convertible Notes and other
long term debt as discussed above. This compares to net cash provided by
financing activities of $123,589 for the year ended January 26, 1997, which
resulted from costs incurred in connection with the public offering, payments
on notes payable, issuance of the Convertible Notes as discussed above, the
redemption of 189,180 shares of common stock of former security holders to
facilitate listing of securities on The Nasdaq Stock Market, and proceeds of
$225,000 realized from the completion of a bridge financing in which an
aggregate of 416,670 shares of Series A Convertible Preferred Stock and
208,335 Class B Warrants were sold. The Preferred shares automatically
converted to 102,041 shares of common stock upon completion of the public
offering on April 25, 1997.
The foregoing resulted in an increase in cash and cash equivalents of
$594,474, from $211,575 at January 26, 1997, to $806,049 at January 25, 1998.
At January 25, 1998, the Company had a net operating loss carryforward
("NOL") for federal tax purposes of approximately $712,000 that may be
utilized to offset future profits. Due to the public offering, the usage of
the NOL may be limited in any one period under Section 382 of the Internal
Revenue Code.
As mentioned above, eight additional retail locations were opened during
the year ended January 25, 1998. In March and April, 1998, three new
locations were opened. These locations are at The Riverwalk in New Orleans,
Louisiana, Franklin Mills in Philadelphia, Pennsylvania, and at Palisades
Center in West Nyack, New York. In March 1998, the store at Jackson Brewery,
New Orleans was closed upon expiration of the lease. Leases have been
executed to open two new retail locations in fiscal 1999. These stores will
be located in Orange County, California, and Las Vegas, Nevada. Other sites
are currently being evaluated. Depending on location and size, the opening of
a new retail location represents an aggregate capital commitment of
approximately $75,000 to $200,000, which includes leasehold improvements,
furniture, fixtures, equipment and inventory.
The ability to further expand the retail chain and take advantage of
other distribution opportunities will be dependent upon the availability of
additional capital. Although new sources of capital are being sought to
finance such expansion, there can be no assurance of the availability of
capital, which may have a material adverse effect on future operations and
growth.
Results of Operations
- - ---------------------
Set forth below is selected summary financial data derived from the
financial statements and financial records:
<TABLE>
<CAPTION>
Fiscal Year Fiscal Yeaf
Ended Ended
January 25, January 26,
1998 1997
------------ ------------
<S> <C> <C>
STATEMENTS OF OPERATIONS DATA:
- - -----------------------------
Total Revenues $12,578,683 $ 9,773,700
Operating income (loss) (484,030) 326,439
Net income (loss) (587,175) 354,524
Net income (loss) available to
common shareholders (587,175) 341,919
Net income (loss) per common
share (basic) (.40) .47
Weighted average shares
outstanding (basic) 1,471,489 732,841
Net income (loss) per common
share (diluted) (.40) .45
Weighted average shares
outstanding (diluted) 1,471,489 790,465
STATISTICAL DATA:
- - ----------------
Store revenues $12,513,058 $ 9,747,344
Store gross margin 8,746,130 6,945,022
Store operating expenses 7,560,923 5,237,243
Store operating profit 1,185,207 1,707,779
Corporate overhead operating expenses 1,644,877 1,386,285
Gross margin percentage 69.7% 71.1%
Comparable same store sales (32 stores) 9,076,391 9,174,715
Comparable same store sales growth (1.1)% N/A
</TABLE>
Total revenues for the year ended January 25, 1998 were $12,578,683 as
compared to $9,773,700 for the year ended January 26, 1997, an increase of
$2,804,983, or 28.7%. The increase is due to the addition of the eight new
locations as discussed above. Comparable same store sales were $9,076,391 for
the year ended January 25, 1998 as compared to $9,174,715, a decrease of
approximately $98,000. The decrease in comparable same store sales is
attributable to unusually warm weather during the third quarter ended October
26, 1997, that caused a general decrease in regional mall and tourist traffic,
particularly in the mid-Atlantic, the southeast, and southwest. In addition,
the 1997 December holiday season did not meet expectations. A continued focus
on the merchandise mix and quality, promotions, and maintaining stock levels
in key items, is expected to continue to improve sales in existing locations.
As well, as the Company's new mall locations build a customer base, which
typically takes six to twenty-four months, it is expected that sales in the
new mall locations opened in fiscal 1998 will improve in fiscal 1999.
Sales from wholesale and non-store retail sales increased from $26,356
for the year ended January 26, 1997, to $65,625 for the year ended January 25,
1998, an increase of $39,269, or 149%.
For the year ended January 26, 1997, cost of goods sold was $2,823,733
and the gross margin was $6,949,967, or approximately 71.1%. For the year
ended January 25, 1998, cost of goods sold was $3,816,330 and the gross margin
was $8,762,353, or approximately 69.7%. The 1.4% decrease is due to an
increase in inventory shrinkage reserves at January 25, 1998, primarily
resulting from a "shopper friendly" concept implemented in fiscal 1998, in
which merchandise is presented more openly to our retail customers. Pricing
for certain inventory categories are being adjusted to reflect the anticipated
additional shrinkage resulting from this concept. Also, additional controls
over access to, and movement of merchandise are being implemented to reduce
excessive inventory shrinkage.
Selling, general and administrative expenses were $8,769,879 for the year
ended January 25, 1998, compared to $6,330,097 for the year ended January 26,
1997, or 69.7% and 64.8% of revenues, respectively. A significant portion of
these expenses were comprised of personnel expenses, which amounted to
$3,999,162, and $2,945,431 for the years ended January 25, 1998 and January
26, 1997, respectively, and occupancy costs of $2,832,770, and $2,067,727,
respectively. Included in selling, general and administrative expenses are
certain non-recurring professional and consulting fees of approximately
$50,000 associated with the secondary public offering completed in April,
1997. These costs were not offset against the offering proceeds and are being
amortized over periods ranging from six months to one year. Also included in
selling, general and administrative expenses are certain immaterial non-
capitalized in-store signage, fixtures, and supplies that are purchased from
time to time for store remodels and enhancements, which benefit future
periods.
Included in selling, general and administrative expenses are corporate
overhead expenses of $1,644,877, or 13.1% of total revenues for the year ended
January 25, 1998, as compared to $1,386,285, or 14.2% of total revenues, for
year ended January 26, 1997. It is expected that corporate overhead will
continue to decrease as a percentage of sales as new retail stores and
additional distribution are added. Efforts to continue to improve and utilize
technological resources and control administrative costs are ongoing.
Depreciation and amortization expense was $476,504 for the year ended
January 25, 1998, and $293,431 for the year ended January 26, 1997. The
increase is primarily due to the eight additional stores opened in fiscal
1998.
As a result of the foregoing, the loss from operations for the year ended
January 25, 1998 was $484,030, as compared with income from operations for the
year ended January 26, 1997 of $326,439.
Interest expense was approximately $143,300 and $117,000 for the year
ended January 25, 1998, and January 26, 1997, respectively. Interest expense
for the year ended January 25, 1998, was partially offset by approximately
$41,000 of interest income realized from the short-term investment of cash
proceeds from the public offering completed on April 25, 1997. Interest
expense for the year ended January 25, 1998 includes approximately $66,500
attributed to non-recurring interest paid and deferred financing costs written
off upon retirement of the Convertible Notes on April 25, 1997.
Unrealized gain on investments of $12,264 for the year ended January 26,
1997, related to holdings of common stock in Global Casinos, Inc. (Global).
Since January 26, 1997, all of the remaining investment in Global was
liquidated at a minimal gain.
During the year ended January 25, 1998, certain debt was negotiated
resulting in adjustments to principal in the amount of $3,420. For the fiscal
year ended January 26, 1997, gain on settlements of $55,626 was realized and
consisted of a $25,000 gain for a final settlement of a recorded liability and
funds held in escrow that were used to satisfy certain liabilities to
unsecured creditors of the predecessor company. Also included in settlements
is approximately $26,000 realized from settlements with former franchisees.
For the year ended January 25, 1998, other income was $34,318.
Approximately $45,600 represents a refund from the State of California for an
adjustment to sales taxes paid in 1994. In addition, recognized license fees
of $28,500 associated with extension agreements that will allow certain former
franchisees to use the Impostors trademark are included in other income. The
license agreements have a one year term expiring in January, 1998, and are
renewable at our option.
In the third quarter of fiscal 1998, the Company was named as a defendant
in a civil action brought in the District Court of the Southern District of
New York. While the Company believes that it would have been successful in
its defense of this civil action, Management's efforts and costs of such
defense could have been significant and may have represented a material
commitment of the Company's limited working capital. In May 1998, the
litigation was therefore settled by mutual agreement of the parties. Included
in other expenses is $35,000 representing the settlement consummated in May
1998.
Income tax expense of $39,000 for the year ended January 25, 1998
represents the reversal of a deferred tax asset recorded on January 26, 1997.
Because of the operating loss recorded for the year ended January 25, 1998,
and the lack of sufficient profitable operating history, the certainty of
future benefits that may result from the asset are uncertain, therefore no tax
asset has been recorded.
For the year ended January 26, 1997, income from discontinued operations
of $13,620, and income tax benefit of $8,000, represented negotiated
settlements with several creditors that had resulted from business activities
prior to the acquisition of Impostors.
Based on the foregoing, the net loss available to common shareholders for
the year ended January 25, 1998 was $587,175, which translates to a net loss
per common share (basic) of $(0.40) based on 1,471,489 weighted average common
shares outstanding (basic). This compares with net income available to common
shareholders for year ended January 26, 1997 of $341,949, or $.47 per common
share (basic), based on 732,481 weighted average common shares outstanding
(basic), as of that date.
Future profitability will depend on the ability to further expand the
number of retail locations in profitable markets, the ability to generate
favorable lease cost/sales ratios, the ability to continue to control overhead
expenses and the capability to take advantage of other distribution
opportunities.
Other than the foregoing, management knows of no trends, or other
demands, commitments, events or uncertainties that will result in, or that are
reasonably likely to result in a material impact on the income and expenses of
the Company.
Year 2000
- - ---------
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs that have date sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities. Based upon a
recent assessment, the Company has made a preliminary determination that it
may be required to upgrade or replace certain portions of its software so that
its computer systems will properly utilize dates beyond December 31, 1999.
The Company presently believes that with upgrades of existing software and
conversions to new software, the year 2000 Issue can be mitigated, However,
if such upgrades and conversions are not made, or are not completed or
available timely, the Year 2000 Issue could have a material impact on the
operations of the Company. However, the Company has initiated formal
communications with its significant suppliers and large customers to determine
the extent to which the Company is vulnerable to those third parties' failure
to remediate their own Year 2000 Issue. Expenditures in fiscal 1998 for the
year 2000 project were nominal and management expects that completion of the
project may result in additional expenditures which should not be material.
In view of the foregoing, there is reasonable assurance that the Year 2000
Issue will not have a material adverse effect upon the Company. However,
there can be no guarantee that the systems of other companies on which the
Company's business relies will be timely converted, or that failure to convert
by another company, or a conversion that is incompatible with the Company's
systems, would not have a material adverse effect on the Company.
Impact of Recently Issued Accounting Standards
- - ----------------------------------------------
Statement of Financial Accounting Standards 130 "Reporting Comprehensive
Income" and Statement of Financial Accounting Standards 131 "Disclosures About
Segments of an Enterprise and Related Information" were recently issued.
Statement 130 establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is
defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures,
Statement 130 requires that all items that are required to be recognized under
current accounting standards as components of comprehensive income be reported
in a financial statement that displays with the same prominence as other
financial statements. Statement 131 supersedes Statement of Financial
Accounting Standards 14 "Financial Reporting for Segments of a Business
Enterprise." Statement 131 establishes standards on the way that public
companies report financial information about operating segments in annual
financial statements and requires reporting of selected information about
operating segments in interim financial statements issued to the public. It
also establishes standards for disclosures regarding products and services,
geographic areas and major customers. Statement 131 defines operating
segments as components of a company about which separate financial information
is available that is evaluated regularly by the chief operating decision maker
in deciding how to allocate resources and in assessing performance.
Statements 130 and 131 are effective for financial statements for periods
beginning after December 15, 1997, and require comparative information for
earlier years to be restated. Because of the recent issuance of these
standards, management has not fully evaluated the impact, if any, that the
standards may have on future financial statement disclosures. Results of
operations and financial position, however, will be unaffected by
implementation of these standards.
FINANCIAL STATEMENTS
The following financial statements are filed as part of this report
beginning on page F-1.
1. Independent Auditor's Reports
2. Balance Sheet - For the Year Ended January 25, 1998
3. Statements of Operations - For the Fiscal Years Ended January 25,
1998 and January 26, 1997
4. Statements of Changes In Stockholders' Equity - For the Period from
January 29, 1996 through January 25, 1998
5. Statements of Cash Flows - For the Fiscal Years Ended January 25,
1998 and January 26, 1997
6. Notes to Financial Statements
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
There were neither changes in accountants nor disagreements of the type
required to be reported under this Item between the Company and its
independent accountants, Hein + Associates LLP, during the fiscal years ended
January 25, 1998, or January 26, 1997.
<PAGE>
<PAGE>
Premier Concepts, Inc.
Financial Statements
For the Fiscal Years Ended
January 25, 1998 and January 26, 1997
<PAGE>
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Independent Auditor's Report . . . . . . . . . . . . . . . . . . . . . . . F-2
Balance Sheet - As of January 25, 1998 . . . . . . . . . . . . . . . . . . F-3
Statements of Operations - For the Fiscal Years
Ended January 25, 1998 and January 26, 1997 . . . . . . . . . . . . . F-4
Statement of Changes in Stockholders' Equity -
For the Fiscal Years Ended January 25, 1998
and January 26, 1997. . . . . . . . . . . . . . . . . . . . . . . . . F-5
Statements of Cash Flows - For the Fiscal Years
Ended January 25, 1998 and January 26, 1997 . . . . . . . . . . . . . F-6
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . F-7
<PAGE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders
Premier Concepts, Inc.
Denver, Colorado
We have audited the accompanying balance sheet of Premier Concepts, Inc. as of
January 25, 1998, and the related statements of operations, changes in
stockholders' equity, and cash flows for the fiscal years ended January 25,
1998 and January 26, 1997. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Premier Concepts, Inc., as of
January 25, 1998, and the results of its operations and its cash flows for the
fiscal years ended January 25, 1998 and January 26, 1997, in conformity with
generally accepted accounting principles.
Hein + Associates LLP
Denver, Colorado
April 23, 1998
<PAGE>
<PAGE>
<TABLE>
PREMIER CONCEPTS, INC.
BALANCE SHEET
JANUARY 25, 1998
<CAPTION>
ASSETS
-------
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 806,049
Merchandise inventories 2,307,839
Prepaid expenses and other 257,429
-------------
Total current assets 3,371,317
PROPERTY AND EQUIPMENT, net 2,434,315
OTHER ASSETS:
Trademarks, net of accumulated
amortization of $68,567 75,433
Other 100,723
TOTAL ASSETS $ 5,981,788
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------
CURRENT LIABILITIES:
Notes payable and current portion of
long-term debt $ 697,330
Accounts payable 943,494
Accrued liabilities 451,162
-------------
Total current liabilities 2,091,986
LONG-TERM DEBT, less current portion 14,600
DEFERRED RENT 161,846
-------------
Total liabilities 2,268,432
-------------
COMMITMENTS (NOTE 5)
STOCKHOLDERS' EQUITY:
Preferred stock, $.10 par value, 20,000,000
shares authorized; no shares issued and
outstanding -
Common stock, $.002 par value; 850,000,000
shares authorized; 1,775,025 shares issued
and outstanding 3,550
Additional paid-in capital 5,658,488
Accumulated deficit (1,948,682)
-------------
Total Stockholders' Equity 3,713,356
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,981,788
-------------
</TABLE>
See accompanying notes to these financial statements.<PAGE>
<PAGE>
<TABLE>
PREMIER CONCEPTS, INC.
STATEMENTS OF OPERATIONS
<CAPTION>
For the Fiscal
Years Ended
------------------------------
January 25, January 26,
1998 1997
------------ ------------
<S> <C> <C>
NET REVENUES:
Retail $ 12,522,531 $ 9,739,844
Wholesale 56,152 33,856
------------- ------------
Total revenues 12,578,683 9,773,700
COST OF GOODS SOLD 3,816,330 2,823,733
------------- ------------
Gross margin 8,762,353 6,949,967
OPERATING EXPENSES:
Selling, general and administrative 8,769,879 6,330,097
Depreciation and amortization 476,504 293,431
------------- ------------
Total operating expenses 9,246,383 6,623,528
------------- ------------
OPERATING INCOME (LOSS) (484,030) 326,439
OTHER INCOME (EXPENSE):
Interest expense, net (101,883) (116,722)
Gain (loss) on marketable securities,
net - 12,264
Gain on settlements 3,420 55,626
Other 34,318 55,297
------------- ------------
Other income (expense), net (64,145) 6,465
------------- ------------
INCOME (LOSS) BEFORE INCOME TAX
(EXPENSE) BENEFIT AND DISCONTINUED
OPERATIONS (548,175) 332,904
Deferred income tax (expense) benefit (39,000) 8,000
------------- ------------
Income (Loss) Before Discontinued
Operations (587,175) 340,904
DISCONTINUED OPERATIONS -
Income from discontinued operations,
net of income tax expense of $8,000 - 13,620
------------- ------------
NET INCOME (LOSS) $ (587,175) $ 354,524
============= ============
NET INCOME AVAILABLE TO COMMON
SHAREHOLDERS $ (587,175) $ 341,949
NET INCOME (LOSS) PER COMMON SHARE
(BASIC):
Before discontinued operations $ (.40) $ .45
Discontinued operations - .02
------------- ------------
Net income (loss) per basic
common share $ (.40) $ .47
============= ============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (BASIC) 1,471,489 732,841
NET INCOME (LOSS) PER COMMON SHARE
(DILUTED):
Before discontinued operations $ (.40) $ .43
Discontinued operations - .02
------------- ------------
Net income (loss) per
diluted common share $ (.40) $ .45
============= ============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (DILUTED) 1,471,489 790,465
============= ============
</TABLE>
See accompanying notes to these financial statements.
<PAGE>
<PAGE>
<TABLE>
PREMIER CONCEPTS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE FISCAL YEARS ENDED JANUARY 26, 1997 and JANUARY 25, 1998
<CAPTION>
ADDITIONAL
PREFERRED STOCK COMMON STOCK PAIN-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES,
January 29, 1996 - $ - 749,347 $ 1,498 $ 2,756,737 $ (1,716,031) $ 1,042,204
Preferred stock issued
for cash 416,670 41,667 - - 183,333 - 225,000
Redemption and cancellation
of common stock - - (189,180) (378) (623,947) - (624,325)
Net income - - - - - 354,524 354,524
------------ ------------ ------------ ------------ ------------ ------------ ------------
BALANCES,
January 26, 1997 416,670 41,667 560,167 1,120 2,316,123 (1,361,507) 997,403
Proceeds from sale
of units in public
offering, net - - 1,100,000 2,200 3,268,293 - 3,270,493
Conversion of preferred
stock (416,670) (41,667) 102,041 204 41,463 - -
Shares issued to
employees - - 12,650 25 32,112 - 32,137
Shares issued under
employee stock
purchase plan - - 167 1 497 - 498
Net (loss) - - - - - (587,175) (587,175)
------------ ------------ ------------ ------------ ------------ ------------ ------------
BALANCES,
January 25, 1998 - $ - 1,775,025 $ 3,550 $ 5,658,488 $ (1,948,682) $ 3,713,356
============ ============ ============ ============ ============ ============ ============
</TABLE>
See accompanying notes to these financial statements.
<PAGE>
<PAGE>
<TABLE>
PREMIER CONCEPTS, INC.
STATEMENTS OF CASH FLOWS
<CAPTION>
For the Fiscal
Years Ended
------------------------------
January 25, January 26,
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (587,175) $ 354,524
Adjustments to reconcile net income
(loss) to net cash from
operating activities:
Stock compensation to employees 32,137 -
Gain on settlements of debt (3,420) (55,626)
Reduction of accounts payable -
discontinued operations - (21,620)
Depreciation and amortization 476,504 293,431
Deferred tax asset 39,000 (39,000)
Gain on marketable securities (303) (12,264)
Other, net 38,329 (46,584)
Changes in operating assets and
liabilities:
(Increase) decrease in:
Marketable securities, net - 50,564
Merchandise inventories (558,196) (355,718)
Other assets (138,891) (23,033)
Increase (decrease) in:
Accounts payable and accrued
liabilities (186,122) 901,609
Other liabilities 58,607 47,080
------------- ------------
Net cash provided by (used in)
operating activities (829,530) 1,093,363
CASH FLOWS FROM INVESTING ACTIVITIES -
Capital expenditures for property
and equipment (864,520) (1,332,575)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sales of marketable
securities 7,116 -
Deferred offering costs (186,717) (425,423)
Proceeds from the issuance of
preferred stock - 225,000
Proceeds from issuance of common stock 3,883,131 -
Proceeds from issuance of notes payable - 1,130,000
Payment on notes payable (1,415,006) (181,663)
Redemption of common stock - (624,325)
------------- ------------
Net cash provided by (used in)
financing activities 2,288,524 123,589
------------- ------------
INCREASE (DECREASE) IN CASH 594,474 (115,623)
CASH AND CASH EQUIVALENTS,
beginning of period 211,575 327,198
------------- ------------
CASH AND CASH EQUIVALENTS,
end of period $ 806,049 $ 211,575
============= =============
SUPPLEMENTAL SCHEDULE OF CASH
FLOW INFORMATION -
Cash paid for interest $ 147,614 $ 111,744
============= =============
</TABLE>
See accompanying notes to these financial statements.<PAGE>
<PAGE>
PREMIER CONCEPTS, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES:
---------------------------------------------------------
NATURE OF OPERATIONS -
--------------------
Premier Concepts, Inc. (the Company) was incorporated in the state of
Colorado in 1988. During 1993, the Company acquired certain real estate
located in a limited stakes gaming city in Colorado, which were exchanged
during 1993 for common stock of Global Casinos, Inc. (Global), a company
which had two common directors. During 1994, the Company purchased out
of bankruptcy certain assets and liabilities of American Fashion Jewels,
Inc. (Impostors) and, in a separate transaction, Mirage Concepts, Inc.
(Mirage), both of which are retail chains of reproduction jewelry stores.
As of January 25, 1998 the Company operated 37 retail stores with a
geographic concentration of stores in California, including one store in
San Francisco, California that accounted for approximately 11% and 14% of
total revenues during the fiscal year ended January 25, 1998 and
January 26, 1997, respectively.
FISCAL YEAR -
-----------
The Company's year is a 52/53-week period ending on the last Sunday in
January. Fiscal year ended January 25, 1998 (fiscal 1998) and
January 26, 1997 (fiscal 1997) contained 364 days of activity.
INVENTORIES -
-----------
Inventories consist primarily of merchandise which is held for resale.
Inventories are stated at the lower of cost or market, as calculated
using the average-cost method.
PROPERTY AND EQUIPMENT -
----------------------
Property and equipment is stated at cost. Depreciation is computed over
the estimated useful lives of the assets using the straight-line method
generally over a 5 to 10-year period. Leasehold improvements are
amortized on the straight-line method over the lesser of the lease term
or the useful life. Expenditures for ordinary maintenance and repairs
are charged to expense as incurred. Upon retirement or disposal of
assets, the cost and accumulated depreciation are eliminated from the
account and any gain or loss is reflected in the statement of operations.
TRADEMARKS -
----------
A portion of the Impostors purchase price was allocated to trademarks
(see Note 2). This cost is being amortized over 10 years. The Company
evaluates the recoverability of this intangible based on projected,
undiscounted future cash flows exclusive of interest.
DEFERRED RENT -
-------------
Many of the Company's store leases contain predetermined fixed
escalations of the minimum rentals during the initial term. For these
leases, the Company recognizes the related rental expense on a straight-
line basis and records the difference as deferred rent.
FAIR VALUE OF FINANCIAL INSTRUMENTS -
-----------------------------------
The estimated fair values for financial instruments are determined at
discrete points in time based on relevant market information. These
estimates involve uncertainties and cannot be determined with precision.
The carrying amounts of accounts payable and accrued liabilities
approximate fair value. The fair value of certain notes payable is less
than their carrying value as generally their interest rates are lower
than the Company's current effective annual borrowing rate, however, the
difference is not considered significant.
CASH EQUIVALENTS -
----------------
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments with original maturities of three months
or less to be cash equivalents.
INCOME (LOSS) PER SHARE -
-----------------------
The income (loss) per share is presented in accordance with the
provisions of Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" (FAS 128). FAS 128 replaced the presentation of
primary and fully diluted earnings (loss) per share (EPS) with a
presentation of basic EPS and diluted EPS. Basic EPS is calculated by
dividing the income or loss available to common shareholders by the
weighted average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or
converted into common stock. Basic and diluted EPS were the same for
fiscal 1998 as the Company had losses from operations and therefore, the
effect of all potential common stocks was antidilutive. The following is
a reconciliation between basic and diluted earnings per common share for
the year ended January 26, 1997:
<TABLE>
Per Share
Income Shares Amount
---------------------------------
<S> <C> <C> <C>
Income before discontinued
operations $ 340,904
Less: preferred stock
dividends (12,575)
----------
Income available to common
stockholders (basic) 328,329 732,841 $ .45
Effect of common stock
equivalents:
Dilutive options - 49,121
Assumed conversion of
preferred stock 12,575 8,503
---------- ----------
Income before discontinued
operations (diluted) $ 340,904 790,465 .43
========== ========== ==========
</TABLE>
LICENSE AGREEMENTS -
------------------
The Company grants license agreements to entities for the use of the
Impostor's name. License fees are recognized as income on a straight-
line basis over the term of the agreement.
INCOME TAXES -
------------
The Company accounts for income taxes under SFAS No. 109 which requires
recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax
assets and liabilities are determined, based on the difference between
the financial statements and tax bases of asset and liabilities using
enacted tax rates in effect for the year in which the differences are
expected to reverse.
USE OF ESTIMATES -
----------------
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires the Company's
management to make estimates and assumptions that affect the amounts
reported in these financial statements and accompanying notes. Actual
results could differ from those estimates.
IMPAIRMENT OF LONG-LIVED ASSETS -
-------------------------------
In the event that facts and circumstances indicate that the cost of
assets or other assets may be impaired, an evaluation of recoverability
would be performed. If an evaluation is required, the estimated future
undiscounted cash flows associated with the asset would be compared to
the asset's carrying amount to determine if a write-down to market value
or discounted cash flow value is required. No impairment has been taken
for the year ended January 25, 1998 or January 26, 1997.
STOCK BASED COMPENSATION -
------------------------
In fiscal 1997, the Company adopted Financial Accounting Standards Board
"Accounting for Stock-Based Compensation" (FAS 123). FAS 123 encourages,
but does not require, companies to recognize compensation expense for
grants of stock, stock options, and other equity instruments to employees
based on fair value. Companies that do not adopt the fair value
accounting rules must disclose the impact of adopting the new method in
the notes to the financial statements. Transactions in equity
instruments with non-employees for goods or services must be accounted
for on the fair value method. The Company has elected not to adopt the
fair value accounting prescribed by FAS 123 for employees, and is subject
only to the disclosure requirements prescribed by FAS 123.
NEW PRONOUNCEMENTS -
------------------
Statement of Financial Accounting Standards 130 REPORTING COMPREHENSIVE
INCOME and Statement of Financial Accounting Standards 131 DISCLOSURES
ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION were recently
issued. Statement 130 establishes standards for reporting and display of
comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity except
those resulting from investments by owners and distributions to owners.
Among other disclosures, Statement 130 requires that all components of
comprehensive income shall be classified based on their nature and shall
be reported in the financial statements in the period in which they are
recognized. A total amount for comprehensive income shall be displayed
in the financial statements where the components of other comprehensive
income are reported. Statement 131 supersedes Statement of Financial
Accounting Standards 14 FINANCIAL REPORTING FOR SEGMENTS OF A BUSINESS
ENTERPRISE. Statement 131 establishes standards on the way that public
companies report financial information about operating segments in annual
financial statements and requires reporting of selected information about
operating segments in interim financial statements issued to the public.
It also establishes standards for disclosures regarding products and
services, geographic areas, and major customers. Statement 131 defines
operating segments as components of a company about which separate
financial information is available that is evaluated regularly by the
chief operating decision-maker in deciding how to allocate resources and
in assessing performance.
Statements 130 and 131 are effective for financial statements for periods
beginning after December 15, 1997 and require comparative information for
earlier years to be restated. Because of the recent issuance of these
standards, management has been unable to fully evaluate the impact, if
any, the standards may have on the future financial statement
disclosures. Results of operations and financial position, however, will
be unaffected by implementation of these standards.
2. DISPOSITIONS:
-------------
In 1993, the Company exchanged its ownership in certain real estate and a
note receivable for 2,500,000 and 200,000 shares of common stock,
respectively, in Global, of which 2,409,700 shares of Global's common
stock were distributed to stockholders' of the Company during 1993. The
remaining 290,300 shares were held by the Company, which represents less
than 5% of Global's outstanding common stock. After distributing the
Global common stock to the Company's stockholders, there remained
substantial liabilities to uncollateralized creditors related to prior
activities of the Company. As of January 25, 1998 and January 26, 1997,
the Company had accounts payable of approximately $40,000 that related to
the prior activities of the Company. Certain of these creditors have
filed claims against the Company demanding payment. The Company has
recorded approximately $24,000 of income during the year ended
January 26, 1997 as a result of the reduction in recorded amounts of
accounts payable based upon management's estimates of amounts which may
ultimately be paid, but the Company has not received formal releases from
payment from the creditors. Accordingly, these amounts were recorded as
income from discontinued operations, net of income tax expense.
3. PROPERTY AND EQUIPMENT:
-----------------------
At January 26, 1998, property and equipment consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Furniture, fixtures and equipment $ 1,489,395
Leasehold improvements 2,120,703
-------------
3,610,098
Less accumulated depreciation
and amortization (1,175,783)
-------------
$ 2,434,315
=============
</TABLE>
Related depreciation and amortization expense for the years ended
January 25, 1998 and January 26, 1997 was $464,064 and $269,044,
respectively.
4. NOTES PAYABLE AND LONG-TERM DEBT:
---------------------------------
At January 25, 1998, notes payable and long-term debt consist of the
following:
<TABLE>
<CAPTION>
<S> <C>
Note payable to a bank, interest payable
monthly at 10%, principal payable February 1998,
collateralized by cash and inventory.
Subsequent to January 25, 1998, the note was
extended to May 31, 1998. The Company intends
to refinance $560,000 of this note with
another financial institution. $ 635,000
Notes payable to creditors of Impostors from
bankruptcy settlement, payable in monthly
installments plus accrued interest at 6% to 8%,
over variable terms through December 1999.
A note totaling $35,000 is guaranteed by former
stockholders of the Company. 76,930
-------------
711,930
Less current portion (697,330)
-------------
$ 14,600
=============
</TABLE>
Principal payments on the above obligations at January 25, 1998 are due
as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1999 $ 697,330
2000 14,600
-------------
$ 711,930
=============
</TABLE>
On December 27, 1996, the Company completed the sale of $1,120,000 in
Convertible Notes and 200,000 Class B Warrants, realizing net proceeds of
$1,041,600. From the net proceeds, the Company utilized $624,325 to
redeem an aggregate of 189,180 shares of Common Stock and 32,500 Class C
Warrants from certain former security holders. The Convertible Notes had
an interest rate of 12% per annum, were payable quarterly and convertible
into shares of Common Stock commencing April 1, 1997, at the option of
the holder, at a conversion value of $2.80 per share. The Company
retired the Convertible Notes from the proceeds of the public offering
which occurred April 25, 1997.
5. COMMITMENTS:
------------
LEASE COMMITMENTS -
-------------------
The Company leases its offices and retail facilities under operating
leases for terms expiring at various dates from 1998 to 2012. The
corporate office lease has been guaranteed by a director and certain
former directors of the Company. The aggregate minimum annual lease
payments under leases for the fiscal year are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1999 $ 2,395,011
2000 2,400,123
2001 2,186,149
2002 1,998,379
Thereafter 5,472,109
-------------
Total minimum
lease payments $ 14,451,771
=============
</TABLE>
Most leases also provide for payment of operating expenses, real estate
taxes and in some cases for additional rent based on a percentage of
sales. Rental expense was $2,830,682 and $2,067,727 for the years ended
January 25, 1998 and January 26, 1997, respectively.
6. STOCKHOLDERS' EQUITY:
---------------------
PUBLIC OFFERING -
---------------
In April 1997, the Company completed a secondary public offering of
1,100,000 units and received net proceeds of $3,270,493. Each unit sold
for $3.90 and consisted of one share of common stock and one redeemable
warrant. The common stock and redeemable warrants began trading
separately after the offering. Two redeemable warrants entitle the
holder to purchase one share of common stock at a price of $5.00 through
April 21, 2000, unless extended by the Company. The warrants are
redeemable under certain circumstances by the Company. In connection
with this offering, the underwriter received an option to purchase
110,000 shares of common stock and 110,000 warrants at $4.50 per share
and $.18 per share, respectively. This option is exercisable through
April 2001. Also in connection with this offering, the underwriter
received and exercised an over-allotment option to purchase
165,000 warrants at $.15 per warrant on the same terms as described
above. No redeemable warrants have been exercised as of January 25,
1998.
STOCK REDEMPTION -
----------------
During December 1996, the Company redeemed from certain security holders,
189,180 shares of its common stock and 32,500 of its Class C warrants for
$624,325.
PREFERRED STOCK -
---------------
The Board of Directors has authority to divide the class of the preferred
stock into series and to fix and determine the relative rights and
preferences of the shares of any such series as permitted by the
Company's articles of incorporation at the time of designation.
During June 1996, the Company sold 208,335 units at $1.20 per unit in a
private offering. Each unit included two shares of Series A Convertible
Preferred Stock and one warrant. Five warrants entitled the holder to
purchase one share of common stock at $5 per share and were exercisable
through June 1998. Each share of Series A Preferred Stock was entitled
to $.051 per annum cumulative dividends and was convertible commencing in
June 1997 at a rate of five shares of preferred stock for one share of
common stock. Upon completion of the public offering in April 1997, the
preferred shares were automatically converted into 102,041 shares of
common stock and five warrants were automatically exchanged for two
redeemable warrants offered in the public offering.
COMMON SHARES -
-------------
In December 1996, the Company's shareholders approved a 1 for 5 reverse
stock split and a change in the par value from $.0004 to $.002 per share.
Accordingly, all common stock reflected in the accompanying financial
statements and notes reflect this reverse split.
During 1994, the Company sold, in a private placement, 92,750 units for
$10.00 per unit. Each unit consisted of two shares of common stock and a
warrant for the purchase one share of common stock at a purchase price of
$10.00 per share, exercisable through December 31, 1997. As discussed
above, the Company redeemed warrants for the purchase of 32,500 shares of
common stock for $10,000, and the balance has expired.
EMPLOYEE STOCK PURCHASE PLAN -
----------------------------
In June 1995, the Company adopted a qualified Employee Stock Purchase
Plan (ESPP). The Company has been authorized through the ESPP to offer
up to 20,000 shares per year over a three-year term, or a total of
60,000 shares, to the Company's employees. The ESPP includes certain
restrictions which preclude participation by part-time employees and
employees owning 5% or more of the Company's common stock. The purchase
price for the shares may not be less than 85% of the market value of the
stock on either the enrollment date or the exercise date as those terms
are defined in the ESPP. For the years ended January 25, 1998 and
January 26, 1997, 167 and -0- shares of common stock, respectively, have
been issued under the ESPP.
STOCK OPTION PLAN -
-----------------
The Company has an Incentive Stock Option Plan (Plan) which provides for
the grant of options to purchase up to 230,000 shares of the Company's
common stock to officers and employees of the Company. Options are
granted at a price equal to the market value at the date of grant.
Options were granted in 1994 to an officer/director on 40,000 shares at
an exercise price of $5; in fiscal 1996, the exercise price was reduced
to $1.875 per share, and the term was extended to June 20, 2001. An
additional 20,000 incentive stock options were granted to other employees
in fiscal 1996 at $1.875 per share, which expire in December 2000 and of
which 7,000 and 5,000 were forfeited in fiscal 1997 and 1998,
respectively. All of these options are currently vested. No options
have been exercised.
In March 1996, the Company granted incentive stock options for
80,000 shares to employees, at an exercise price of $2.50, which expire
in 2001. During 1996, 20,000 of these options were canceled due to
termination of an employee. Of the remaining stock options for
60,000 shares of common stock, 30,000 of these incentive stock options
vested immediately and 15,000 vest on each of the first and second
anniversary dates.
During the year ended January 25, 1998, the Company granted incentive
stock options for 25,000 shares of common stock to the Company's
president, at an exercise price of $3.25 and which expire in January
2002. Options for the purchase of (i) 15,000 shares of common stock
vested in June 1997, (ii) 10,000 shares of common stock vest in June
1998. The Company also granted incentive stock options for 28,000 shares
of common stock to employees at an exercise price of $3.25, and which
expire in January 2002. Options for the purchase of (i) 13,000 shares of
common stock vested immediately, (ii) 10,000 shares of common stock
vested in January 1998, and (iii) 5,000 shares of common stock vest in
January 1999.
In August 1997, the Company granted incentive stock options for
15,000 shares of common stock to an employee of which 5,000 vested
immediately. These options were subsequently canceled due to
termination.
In April 1996, the Company adopted an non-qualified option plan (Director
Plan) for outside directors. Each outside director is automatically
granted stock options on their anniversary date for each full year of
service for the purchase of 5,000 shares of common stock at a price equal
to 100% of the fair market value of the Company's common stock at the
date of grant. Each option is exercisable one year after the date of
grant and expires four years thereafter. During fiscal 1997, the Board
of Directors approved an increase in options from 5,000 to 10,000 that
will be granted to outside directors for years subsequent to January 26,
1997. During fiscal 1996, the Company issued options on a total of
25,000 shares to directors of the Company under the Director Plan and
options for 12,000 shares to directors in return for guaranteeing the
Company's corporate office lease, at an exercise price of $2.50 and which
expire in 2000. During fiscal 1997 and 1998, the Company granted 20,000
and 30,000 shares, respectively, under this plan. As of January 25,
1998, 57,000 shares are vested and no options have been exercised.
The following is a table of activity under these plans:
<TABLE>
<CAPTION>
1998 1997
----------------------- -----------------------
Weighted Weighted
Average Average
Number Exercise Number Exercise
of Shares Price of Shares Price
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Outstanding,
beginning of year 170,000 $ 2.371 97,000 $ 2.113
Granted to:
Employees 78,000 3.340 80,000 2.500
Directors 30,000 3.167 20,000 3.063
Forfeited (10,000) 2.768 (27,000) 2.338
---------- ----------
Outstanding,
end of year 268,000 2.728 170,000 2.371
========== ==========
</TABLE>
For all options granted during fiscal 1997 and 1996, the weighted average
market price of the Company's common stock on the grant date was
approximately equal to the weighted average exercise price. The fair
market value of the Company's common stock is determined by the quoted
closing price on the date of grant.
The weighted average contractual life for all options as of January 25,
1998 was approximately 3.64 years, with the exercise prices ranging from
$1.875 to $3.50. At January 25, 1998, options for 188,000 were
exercisable and options for the remaining shares become exercisable pro
rata through fiscal 2000. If not previously exercised, options
outstanding at January 25, 1998, will expire as follows:
<TABLE>
<CAPTION>
Weighted
Average
Number Exercise
of Shares Price
----------- -----------
<S> <C> <C>
1999 5,000 $ 2.50
2000 25,000 $ 3.35
2001 85,000 $ 2.79
2002 100,000 $ 2.25
2003 53,000 $ 3.25
---------- ----------
268,000 $ 2.73
========== ==========
</TABLE>
PRO FORMA STOCK-BASED COMPENSATION DISCLOSURES -
----------------------------------------------
The Company applies APB Opinion 25 and related interpretations in
accounting for its stock options which are granted to employees.
Accordingly, no compensation cost has been recognized for grants of
options to employees since the exercise prices were not less than the
fair value of the Company's common stock on the grant dates. Had
compensation cost been determined based on the fair value at the grant
dates for awards under those plans consistent with the method of FAS 123,
the Company's net income and earnings per share would have been reduced
to the pro forma amount indicated below.
<TABLE>
<CAPTION>
Fiscal Years Ended
January 25, January 26,
1998 1997
----------- -----------
<S> <C> <C>
Net income (loss) applicable to
common shareholders:
As reported $(587,175) $ 341,949
Pro forma (772,750) 200,834
Net income (loss) per common
share (basic):
As reported $ (.40) $ .47
Pro forma $ (.53) $ .26
Net income (loss) per common
share (diluted)
As reported $ (.40) $ .45
Pro forma $ (.53) $ .25
</TABLE>
The fair value of each employee option granted in fiscal year 1998 and
1997, was estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions:
<TABLE>
<CAPTION>
Fiscal Years Ended
January 25, January 26,
1998 1997
----------- -----------
<S> <C> <C>
Expected volatility 81% 176%
Risk-Free interest rate 6.1% 6.5%
Expected dividends - -
Expected terms (in years) 3.5 5.0
</TABLE>
7. INCOME TAXES:
-------------
The Company's actual effective tax rate differs from U.S. Federal
corporate income tax rate of 34% as follows for the fiscal year ended:
<TABLE>
<CAPTION>
Fiscal Years Ended
January 25, January 26,
1998 1997
----------- -----------
<S> <C> <C>
Statutory rate (34%) 34%
Effect of graduated rate - -
State income taxes, net of Federal
income tax benefit (3.3%) 3.3%
Increase (reduction) in valuation
allowance related to of net
operating loss carryforwards and
change in temporary differences 37.3% (38.3%)
Other -% 1%
---------- ----------
-% -%
</TABLE>
The components of the net deferred tax asset recognized as of January 25,
1998 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Long-term deferred tax assets
(liabilities):
Net operating loss carryforwards $266,000
Other (30000)
Valuation allowance (236,000)
---------
Net long-term deferred tax asset $ -
=========
</TABLE>
The valuation allowance was $71,000 at January 26, 1997 increased by
$165,000 for the year ended January 25, 1998.
At January 25, 1998, the Company had net operating loss carryforwards for
Federal tax purposes of approximately $712,000. Certain of the loss
carryforwards are subject to restrictions due to a greater than 50%
change in ownership in prior years. The loss carryforwards, unless
utilized, will expire from 2009 through 2013.<PAGE>
<PAGE>
PART III
Part III, Items 9, 10, 11 and 12 are incorporated herein by reference from
the Registrant's definitive proxy statement relating to its Annual Meeting of
Shareholders which will be filed in an amendment within 120 days of January
26, 1997.
PART IV
EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
--------
Exhibit No. Title
-------------- -----
*** 1.1 Underwriting Agreement
*** 1.2 Agreement Among Underwriters
*** 1.3 Master Selected Dealer Agreement
*** 1.4 Financial Advisory Agreement
*** 1.5 Form of Lock-up Agreement
*** 1.6 Letter of Intent with Cohig & Associates, Inc.
** 3.1 Articles of Incorporation
** 3.2 Certificate and Articles of Amendment
** 3.3 By-Laws
** 4.1 Specimen Certificate of Common Stock
* 4.2 Specimen Class A Warrant Certificate
* 4.3 Designations of Series A Convertible Preferred Stock
* 4.4 1992 Stock Incentive Plan
* 4.5 1995 Employee Stock Purchase Plan
4.6 Representative's Share Option Agreement
4.7 Representative's Warrant Option Agreement
*** 4.8 Specimen Convertible Promissory Note
*** 4.9 Specimen Convertible Promissory Note and Warrant
Purchase Agreement
5.0 Opinion of Neuman & Cobb
** 10.1 Copy of signed Stock Transfer Agent Agreement
* 10.2 Warrant Agreement
* 10.3 Employment Agreement with Sissel Greenberg
* 10.4 Consulting Agreement with Cohig & Associates, Inc.
____________________________________
* Incorporated by reference from the Company's Registration
Statement on Form SB-2, SEC File No. 333-8741.
** Incorporated by reference from the Company's Registration
Statement on Form S-1; SEC File No. 33-42701.
*** Incorporated by reference from the Company's Current Report on
Form 8-K dated March 3, 1994
Financial Statement Schedules
-----------------------------
None
Current Reports on Form 8-K
---------------------------
None
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this annual report to be
signed on its behalf by the undersigned, thereunto duly authorized.
PREMIER CONCEPTS, INC.
Date: 5/11/98 By: /s/ Sissel Greenberg
-------------- --------------------------------------
Sissel Greenberg, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Sissel Greenberg President, Chief 5/11/98
- - ------------------------- Executive Officer ---------------
Sissel Greenberg and Director
/s/ William Nandor Director 5/11/98
- - ------------------------- ---------------
William Nandor
/s/ Simona Katz Yuffa Director 5/11/98
- - ------------------------- ---------------
Simona Katz Yuffa
/s/ Jack Brandon Director 5/11/98
- - ------------------------- ---------------
Jack Brandon
/s/ Todd Huss Chief Financial Officer, 5/11/98
- - ------------------------- Principal Accounting ---------------
Todd Huss Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENT OF OPERATIONS FOUJND ON
PAGES F-3 AND F-4 OF THE COMPANY'S FORM 10-KSB FOR THE YEAR ENDED JANUARY 25,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-25-1998
<PERIOD-END> JAN-25-1998
<CASH> 806,049
<SECURITIES> 0
<RECEIVABLES> 129,650
<ALLOWANCES> 19,000
<INVENTORY> 2,307,839
<CURRENT-ASSETS> 3,371,317
<PP&E> 3,610,098
<DEPRECIATION> 1,175,783
<TOTAL-ASSETS> 5,981,788
<CURRENT-LIABILITIES> 2,091,986
<BONDS> 0
0
0
<COMMON> 3,550
<OTHER-SE> 3,709,806
<TOTAL-LIABILITY-AND-EQUITY> 5,981,788
<SALES> 12,578,683
<TOTAL-REVENUES> 12,578,683
<CGS> 3,816,330
<TOTAL-COSTS> 9,246,383
<OTHER-EXPENSES> 64,145
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 101,883
<INCOME-PRETAX> (548,175)
<INCOME-TAX> (39,000)
<INCOME-CONTINUING> (587,175)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (587,175)
<EPS-PRIMARY> (.40)
<EPS-DILUTED> (.40)
</TABLE>
