U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended July 31, 1999
--------------
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from to
--------------- ---------------
Commission file number 0-17623
----------------------------------
PALM DESERT ART, INC.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 02-429620
------------------------------- -------------------
(State or Other Jurisdiction of (I.R.S.Employer
Incorporation or Organization) Identification No.)
74-350 Alessandro Drive, Suite A2, Palm Desert, CA 92260
---------------------------------------------------------
(Address of Principal Executive Offices)
(760) 346-1192
------------------------------------------------
(Issuer s Telephone Number, Including Area Code)
N/A
----------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the last practicable date.
Common Stock, $.001 par value per share, 5,225,620 shares outstanding
at July 31, 1999
Transitional Small Business Disclosure Format (check one)
Yes No X
----- -----
PALM DESERT ART, INC.
INDEX TO FORM 10-QSB
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of July 31, 1999 and April 30, 1999 3
Statements of Income for the three months
ended July 31, 1999 and July 31, 1998 5
Statement of Changes in Stockholders' as of
July 31, 1999 6
Statements of Cash Flows for the three months ended
July 31, 1999 and July 31, 1998 7
Notes to Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submissions of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
PALM DESERT ART, INC.
Balance Sheets
ASSETS
07/31/99 04/30/99
-------- --------
(Unaudited) (Unaudited)
Assets
Current assets
Cash $ 486 $ 201
Accounts receivable 619,540 624,899
Inventory 489,821 436,441
Prepaid expense - 15,000
Direct response advertising 168,074 194,342
--------------------------
Total current assets 1,277,921 1,270,883
--------------------------
Property and equipment
Leasehold improvements 48,074 48,074
Furniture and fixtures 11,500 11,500
Vehicles 33,544 4,552
Equipment 11,697 11,197
--------------------------
104,815 75,323
Less accumulated depreciation 13,137 9,859
--------------------------
Net property and equipment 91,678 65,464
--------------------------
Other assets
Prepaid Rent 111,979 119,792
Deposits 200,843 170,184
Note receivable 308,315 308,315
Direct response advertising - 29,757
--------------------------
Total other assets 621,137 628,048
--------------------------
Total assets $1,990,736 $1,964,395
==========================
07/31/99 04/30/99
-------- --------
(Unaudited) (Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 223,142 $ 151,719
Loans payable 607,834 536,494
Accrued liabilities 232,215 162,377
Income taxes payable 4,691 4,691
Deferred taxes- current - 15,474
--------------------------
Total current liabilities 1,067,882 870,755
Deferred taxes-long term - 22,531
Total liabilites 1,067,882 893,286
--------------------------
Stockholders' equity
Common stock - $.001 par value, 25,000,000
shares authorized, 5,225,620 shares outstanding
as of July 31, 1999 and 3,828,526 shares
outstanding as of April 30, 1999 (after
deducting 2,500 shares in treasury) 5,226 3,829
Common stock subscribed 164,000 164,000
Common stock subscription receivable (164,000) (164,000)
Additional paid-in capital 998,042 871,210
Retained earnings, (deficit) (79,769) 196,715
Treasury Stock (645) (645)
--------------------------
Total stockholders' equity 922,854 1,071,109
--------------------------
Total liabilities and stockholders' equity $1,990,736 $1,964,395
==========================
PALM DESERT ART, INC.
Statements of Income
Three Months Ended July 31, 1999 and 1998
07/31/1999 07/31/1998
(3 Months) (3 Months)
---------- ----------
(Unaudited) (Unaudited)
Sales $ 284,777 231,935
Cost of sales $ 105,496 67,975
==========================
Gross profit $ 179,281 163,960
Selling, general, and administrative
expenses $ 479,208 207,814
Operating income (loss) $(299,927) (43,854)
Income tax benefit 38,005 -
Interest expense $ 14,562 2,072
--------------------------
Net income (loss) $(276,484) (45,926)
==========================
Income (loss) per share - Basic $ (0.05) (0.02)
==========================
Income (loss) per share - Diluted (0.05) (0.02)
==========================
PALM DESERT ART, INC.
Statement of Changes in Stockholders' Equity As of July 31, 1999
Retained
Common Stock Additional Earnings
Common Common stock Subcription Paid-In Treasury (Accumulated
Stock Subscribed Receivable Capital Stock Deficit) Total
------ ------------ ------------ ---------- -------- ------------ -----
Balance, April 30, 1998, as
previously reported (audited) 225,750 245,000 (245,000) 268,080 35,910 529,740
Reclassification of equity accounts (223,250) 223,250 0
Net income 160,805 160,805
Issuance of common stock 1,329 (81,000) 81,000 379,880 381,209
Acquisition of treasury stock (645) (645)
-----------------------------------------------------------------------------------------
Balance, April 30, 1999, 3,829 164,000 (164,000) 871,210 (645) 196,715 1,071,109
Net loss (276,484) (276,484)
Issuance of Common Stock 1,397 126,832 126,832
-----------------------------------------------------------------------------------------
Balance, July 31, 1999 $ 5,226 $164,000 $(164,000) $998,042 $(645) $ (79,769) $ 922,854
=========================================================================================
PALM DESERT ART, INC.
Statements of Cash Flows
Three Months Ended July 31, 1999 and 1998
07/31/1999 07/31/1998
---------- ----------
(Unaudited) (Unaudited)
Cash flows from operating activities
Net income (loss) $(276,484) $ (45,926)
Adjustments to reconcile net income to net
cash used by operating activities
Depreciation and amortization $ 66,636 $ 3,769
Stock issued for payment of expenses $ 35,123 -
(Increase) in
Accounts receivable $ 5,359 $(123,027)
Inventory $ (43,064) $ (41,318)
Prepaid expenses $ 15,000 -
Direct acquisition costs - $ (57,167)
Deposits $ (15,659) $ (14,368)
Direct response advertising - $ (13,414)
Increase (decrease) in
Accounts payable $ 96,423 $ 87,633
Accrued liabilities $ 69,838 $ 10,158
Accrued interest - $ 2,072
Deferred taxes $ (38,005) $ -
-------------------------
Net cash used by operating activities $ (84,833) $(191,588)
=========================
Cash flows from investing activities
Additions to property and equipment $ 28,992 $ (10,212)
-------------------------
Cash flows from financing activities
Net short term borrowing - cash overdraft - $ (13,270)
Common stock deposits received - $ 233,600
Proceeds from borrowings 71,340 $ 147,151
Proceeds from sale of stock 42,770 $ -
-------------------------
Net cash provided by financing activities $ 114,110 $ 367,481
=========================
Net increase in cash $ 285 $ 165,681
Cash, beginning of quarter $ 201 $ -
=========================
Cash, end of quarter $ 486 $ 165,681
=========================
PALM DESERT ART, INC.
Notes to Financial Statements
Basis of Presentation
- ---------------------
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310
of Regulation S-B. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements and should be read in conjunction with the
Company's audited financial statements at, and for the fiscal year ended,
April 30, 1999. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three months
ended July 31, 1999 are not necessarily indicative of the results that
may be expected for the year ending April 30, 2000.
1. Direct Response Advertising
---------------------------
The Company expenses the costs of advertising the first time
advertising takes place, except for direct-response advertising,
which is capitalized and amortized over its expected period of future
benefits.
Direct-response advertising consists primarily of magazine
advertisements that include response coupons for the Company's
products. The capitalized costs of the advertising are amortized as
sales are recognized over a period, not to exceed two years.
2. Loans Payable
-------------
Loans payable consist of:
Loan payable to a minority stockholder, interest at 9%, due
July 1998. This note is guaranteed by the majority stock-
holder, and the guarantee is collateralized by all of the shares
the majority stockholder owns of the Company's stock. The
pledged stock is in the hands of the noteholder. The original
terms have been extended with no due date. $ 55,000
Unsecured notes payable to individuals, due on demand, with
interest rates ranging from 5% to 15%. $607,834
========
4. Commitments and Contingencies
-----------------------------
The note receivable of $308,315 represents the amount management believes
the Company is owed from the transfer of the RM&M Framemakers, Inc.
business operations. The Company is reviewing its legal options for
collection. If management is not able to enforce its ability to collect
through legal action it will have to reserve or write off the receivable.
As of September 17, 1999, management does not believe the asset is
impaired.
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995.
The statements which are not historical facts contained in this
Quarterly Report on Form 10-QSB are forward looking statements that involve
a number of known and unknown risks, uncertainties and other factors, all
of which are difficult or impossible to predict and many of which are
beyond the control of the Company, which may cause the actual results,
performance or achievements of the Company to be materially different from
any future results, performance or achievements expressed or implied by
such forward looking statements. Such factors include, but are not limited
to, uncertainty regarding market acceptance of current artwork and the
ability to successfully develop and market new artwork, the impact of
supply constraints, uncertainties relating to customer plans and
commitments, competition, uncertainties relating to economic conditions in
the markets in which the Company operates, the ability to hire and retain
key personnel and the ability to obtain additional capital if required. The
words "believe", "expect", "anticipate", and "seek" and similar expressions
identify forward-looking statements. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of
the date the statement was made.
LIQUIDITY AND CAPITAL RESOURCES
The Company's ability to meet its financial needs depends upon funds
generated from operating activities, accounts receivable and inventories,
short-term borrowing capacity and the ability to obtain long-term capital
on satisfactory terms. Liquidity has been and will continue to be an
intermittent problem because revenues from operations do not generate
sufficient cash flow.
The Company will continue its efforts to increase sales, maintain
margins, reduce inventory levels and collect its accounts receivables.
The Company seeks to raise additional capital through the sale of a
convertible debenture or commoon stock or some type of debt financing
during the fiscal year ending April 30, 2000. However there can be no
assurances that financing can be obtained or, if obtained, that it will be
of a sufficient quantity to meet the company's immediate needs or that it
will be on reasonable terms.
The proceeds from the raising of capital will be used for expansion,
providing liquidity and the promotion and enhancement of its e-commerce
site, E-ArtNow.com
RESULTS OF OPERATIONS
THREE MONTHS ENDED July 31, 1999
Sales for the three months ended July 31, 1999 were $284,976, an
increase of $53,041 or 23% compared with the same period in 1998. This
increase was due to its promotional activities, sales of artwork through
the publishing side of Registrant's business and the opening of its
gallery in New York City. Cost of sales as a percentage of sales was
37% and 29% for the three months ended July 31, 1999 and 1998,
respectively. The increase in the cost of sales percentage from 1998 to
1999 was primarily the result of the changes in sales mix. Selling, general
and administrative expenses increased $236,271, or 114% in the first three
months ended July 31, 1999, compared with the same period the previous
year.
Selling expenses include such items as retail sales location
occupancy costs, advertising, sales commissions, brochures and other
promotional material costs, freight and certain salary expenses. General
and administrative expenses include all corporate overhead costs. Selling
expenses have remained relatively higher primarily due to increased
promotional costs and fixed and variable compensation associated with the
increase in sales. Sales location occupancy costs also increased over the
same period last year due to the opening of the Company's new galleries in
New York City and West Palm Beach, FL.
Overall, the net loss for the first quarter ended July 31, 1999, is
reflective of the seasonality of the Registrants business in it Palm
Desert, CA and West Palm Beach, FL. Galleries. These galleries are not
expected to contribute to sales significantly until the third and fourth
quarters.
The Company's strategy is to continue to seek to attract new
promising artists and to promote their works while providing the consumer
with substantial value at reasonable prices. The Company intends to
continue to seek out acquisition candidates for privately-owned art
galleries throughout the country. Although management is of the opinion
that administrative expenses will continue to rise as a result of its plan
to acquire and consolidate art galleries, the Company believes it will
realize economies of scale and increase its margins when it sells the
artwork it publishes in newly acquired galleries.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
N/A
Item 2. Changes in Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities
N/A
Item 4. Submissions of Matters to a Vote of Security Holders
N/A
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits None
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended July
31, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PALM DESERT ART, INC.
By: /s/ Hugh G. Pike
-----------------------------
Hugh G. Pike, President
(Duly Authorized Officer)
(Principal Financial Officer)
Date: September 20, 1999