1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 (Mark One) [X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the quarterly period ended May 4, 2001. [ ] Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from ___________ to ____________ . Commission File Number 0-21862 ------- OROAMERICA, INC. (Exact name of registrant as specified in its charter) Delaware 94-2385342 ---------------------- --------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or Identification No.) organization) 443 North Varney Street, Burbank, California 91502 -------------------------------------------- ------------- (Address of principal executive offices) (Zip Code) (818) 848-5555 -------------- (Registrant's telephone number, including area code) 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 Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date: SHARES OUTSTANDING AS OF CLASS June 13, 2001 ----- ------------------------- Common Stock, $.001 par value 5,294,598 2 OROAMERICA, INC. REPORT ON FORM 10-Q FOR THE QUARTER ENDED May 4, 2001 TABLE OF CONTENTS PART I - FINANCIAL INFORMATION

~~October~~Page ~~27,~~Item ~~January~~1. ~~28,~~FINANCIAL ~~(DOLLARS~~STATEMENTS INConsolidated ~~THOUSANDS)~~Balance ~~2000~~Sheets ~~2000~~........................................... ~~---------------------------------------------------------------------------------------------------------~~1 ~~(Unaudited)~~Consolidated ~~ASSETS~~Statements ~~Current assets: Cash and cash equivalents $ 10,818 $ 26,923 Accounts receivable less allowance for returns and doubtful accounts~~ of ~~$9,701~~Income ~~and~~..................................... ~~$11,840 33,623 15,270 Other accounts and notes receivable 610 865 Inventories (Note~~ 2) ~~15,991~~Consolidated ~~15,846~~Statements ~~Deferred~~of ~~income~~Cash ~~taxes~~Flows ~~3,449~~................................. 3~~,449~~ ~~Prepaid~~Notes ~~items~~to ~~and~~Condensed ~~other~~Consolidated ~~current~~Financial ~~assets~~Statements................... ~~1,358 780 Assets available for sale 144 468 ---------- ---------- Total current assets 65,993 63,601 Property and equipment, net 14,199 15,232 Goodwill and other intangible assets, net~~ 4~~,083~~ ~~4,428~~Item ~~Patents,~~2. ~~net~~MANAGEMENT'S ~~3,831~~DISCUSSION ~~4,198~~AND ~~Other~~ANALYSIS ~~assets~~OF ~~556~~FINANCIAL ~~635~~CONDITION ~~---------- ---------- $ 88,662 $ 88,094 ========== ========== LIABILITIES~~ AND ~~STOCKHOLDERS'~~RESULTS ~~EQUITY~~OF ~~Current~~OPERATIONS liabilities: Accounts payable $ 4,459 $ 5,726 Income taxes payable 2,282 1,092 Accrued expenses 9,872 8,733 ---------- ---------- Current and total liabilities 16,613 15,551 ---------- ---------- Stockholders' equity: Preferred stock, 500,000 shares authorized, $.~~001~~.................................. ~~par~~7 ~~value;~~PART ~~none~~II ~~issued and outstanding~~ - -OTHER ~~Common~~INFORMATION ~~stock,~~Items ~~10,000,000~~1 ~~shares~~through ~~authorized, $~~5.~~001~~ ~~par~~Not ~~value;~~Applicable ~~6,370,878~~Item ~~and~~ 6~~,368,878~~. ~~shares~~Exhibits ~~issued at October 27, 2000~~ and ~~January~~Reports ~~28,~~on ~~2000,~~Form ~~respectively 6 6 Paid~~8-inK ~~capital~~............................................... ~~43,574~~11 ~~43,564~~SIGNATURES ~~Accumulated~~...................................................................................... other comprehensive loss (67) (34) Note receivable from stock sale (190) (190) Treasury stock, 906,480 shares and 510,830 shares at October 27, 2000 and January 28, 2000, respectively (Note 5) (6,561) (3,841) Retained earnings 35,287 33,038 ---------- ---------- Total stockholders' equity 72,049 72,543 ---------- ---------- $ 88,662 $ 88,094 ========== ==========12

3 PART I - Financial Information Item 1. Financial Statements OROAMERICA, INC. CONSOLIDATED BALANCE SHEETS

~~For~~May ~~the For the Thirteen Weeks Ended Thirty-nine Weeks Ended October 27~~4, ~~October~~February 292, ~~October~~(Dollars ~~27,~~in ~~October 29~~thousands, ~~2000~~except ~~1999~~share ~~2000~~amounts) ~~1999~~2001 ~~----------~~2001 ------------ ------------- ---------- ~~Net sales $ 48,214 $ 54,863 $ 112,322 $ 120,838 Cost of goods sold, exclusive of depreciation 38,979 44,144 91,766 99,520~~ ---------- ------------ ------------- ---------- ~~Gross profit 9,235 10,719 20,556 21,318~~ ---------- ------------ ------------- --~~--------~~ ~~Selling,~~(Unaudited) ~~general~~ASSETS ~~and~~Current ~~administrative~~assets: ~~expenses~~Cash ~~5,188 4,386 15,177 12,739 Depreciation~~ and ~~amortization~~cash ~~expense~~equivalents ~~848~~$ ~~794 2~~36,~~604~~044 2$ 35,~~126~~331 ~~Interest~~Accounts ~~expense~~receivable ~~579~~less ~~746~~allowance ~~1,385~~for ~~1,334~~returns ~~Other~~and ~~income~~doubtful ~~(314)~~accounts ~~(181)~~of (1$9,~~802)~~621 ~~(688)~~and ~~---------- ------------ ------------- ---------- Total expenses 6~~$12,~~301~~627 520,~~745~~683 1720,~~364~~385 ~~15,511~~Other ~~----------~~accounts ~~------------~~and ~~-------------~~notes ~~----------~~receivable ~~Income~~651 ~~from~~487 ~~continuing~~Inventories ~~operations~~11,973 ~~before~~12,305 Deferred income taxes 23,~~934~~485 ~~4,974~~ 3,~~192~~485 ~~5,807~~Prepaid ~~Provision~~items ~~for~~and ~~income~~other ~~taxes~~current ~~1,086~~assets 1,~~806~~550 ~~1,181~~447 ~~2,139~~Assets ~~----------~~available ~~------------~~for sale 80 80 --------~~-----~~ ---------- ~~Net~~Total ~~income~~current ~~from~~assets ~~continuing~~74,466 ~~operations 1~~72,~~848~~520 3Property and equipment,~~168~~ 2net 13,~~011~~222 313,668 ~~Net~~Goodwill ~~income~~and ~~(loss)~~other ~~from~~intangible ~~discontinued~~assets, ~~operations~~net ~~185~~3,853 ~~(463)~~3,968 ~~238~~Patents, (1net 3,~~164)~~586 ~~----------~~3,708 ~~------------~~Other assets 530 531 --------~~-----~~ ---------- ~~Net income~~ $ 295,~~033~~657 $ 294,~~705~~395 ~~$ 2,249 $ 2,504~~ ========== ========~~====~~ ~~=============~~LIABILITIES ~~==========~~AND ~~Basic~~STOCKHOLDERS' ~~net~~EQUITY ~~income~~Current ~~(loss) per share~~liabilities: ~~Net~~Accounts ~~income~~payable ~~from continuing operations~~ $ ~~0.33~~11,709 $ ~~0.54~~8,868 $Income ~~0.35~~taxes $payable ~~0.60~~1,677 ~~Net~~1,483 ~~income~~Accrued ~~(loss)~~expenses ~~from~~7,347 ~~discontinued~~9,594 ~~operations 0.04 (0.08) 0.04 (0.19)~~ --------- --------~~----~~ Current and total liabilities 20,733 19,945 --------~~-----~~ ---------- ~~Net~~Stockholders' ~~income~~equity: ~~per~~Preferred ~~share~~stock, $500,000 ~~0.37~~shares $authorized, ~~0.46~~ $ 0.39001 $par ~~0.41~~value; ~~=========~~none ~~============~~issued ~~=============~~and ~~==========~~outstanding ~~Diluted~~-- ~~net~~-- ~~income~~Common ~~(loss)~~stock, ~~per~~10,000,000 ~~share:~~shares ~~Net~~authorized, ~~income from continuing operations~~ $ 0.33001 $par ~~0.53~~value; $6,370,878 ~~0.35~~shares $issued ~~0.60~~at ~~Net~~May ~~income~~4, ~~(loss)~~2001 ~~from~~and ~~discontinued~~February ~~operations~~2, ~~0.04~~2001 ~~(0.07)~~6 ~~0.04~~6 ~~(0.19)~~ Paid-~~--------~~in ~~------------~~capital ~~-------------~~43,574 ~~----------~~43,574 ~~Net~~Accumulated ~~income~~other ~~per~~comprehensive ~~share~~loss $(83) ~~0.37~~(83) $Note ~~0.46~~receivable $from ~~0.39~~stock $sale ~~0.41~~(190) ~~=========~~(190) ~~============~~Treasury ~~============= ========== Weighted average shares outstanding 5~~stock,~~519,731~~ 51,~~896~~076,~~158~~280 ~~5,687,642~~shares 6May 4,~~079,082~~ ~~Dilutive~~2001 ~~effect~~and ofFebruary ~~stock~~2, ~~options~~2001 34(7,~~296~~792) 30(7,~~047~~792) 33Retained earnings 39,~~864~~409 2938,~~297~~935 ---------- --------~~----~~ Total stockholders' equity 74,924 74,450 --------~~-----~~ ---------- ~~Weighted~~$ ~~average shares outstanding assuming dilution 5~~95,~~554,027~~657 ~~5,926,205~~$ 594,~~721,506~~395 ~~6,108,379~~ ========== ========~~==== ============= ==========~~

See accompanying notes to condensed consolidated financial statements. 1 4 OROAMERICA, INC. CONSOLIDATED STATEMENTS OF INCOME Thirteen Weeks Ended May 4, 2001 and April 28, 2000 (Unaudited)

~~For~~May ~~the~~4, ~~Thirty-nine~~April ~~Weeks~~28, ~~Ended~~(Dollars ~~October~~in 27thousands, ~~October~~except ~~29,~~per ~~(DOLLARS~~share ~~IN THOUSANDS~~amounts) 2001 2000 ~~1999~~ ---------------------------------------------------------------------------------------------------------------------~~-------------~~ ~~CASH FLOWS FROM OPERATING ACTIVITIES:~~ Net ~~income~~sales $ 237,~~249~~890 $ 237,~~504~~660 ~~Less~~Cost ~~income~~of ~~(loss)~~goods ~~from~~sold, ~~discontinued~~exclusive ~~operations~~of ~~238~~depreciation (130,~~164)~~768 30,902 ------------- ------------- ~~Net~~Gross ~~income~~profit ~~from continuing operations 2~~7,~~011~~122 36,~~668~~758 ~~Adjustments~~----------- to----------- ~~reconcile net income from continuing operations to net cash provided by (used in) continuing operations: Depreciation and amortization 2~~Selling,~~604~~ ~~2,126~~general ~~Provision for losses on accounts receivable 141 99 Provision for estimated returns (2,004) (152) (Gain) loss on sale of property (696) 20 Change in assets~~ and ~~liabilities:~~administrative ~~Accounts~~expense ~~receivable (16~~5,~~073)~~497 ~~(20~~4,~~383)~~709 ~~Other~~Depreciation ~~accounts~~ and ~~notes~~amortization ~~receivable~~expense ~~150~~813 5890 ~~Inventories~~Interest ~~(145)~~expense ~~(3,323)~~486 ~~Prepaid~~400 ~~income~~Other ~~taxes and~~ income ~~taxes payable 785 611 Prepaid items and other current assets~~ (77415) (~~341~~385) ~~Accounts payable, accrued expenses and deferred liabilities 240 3,042~~ ------------- ------------- ~~Net~~Total ~~cash~~expense ~~used in operating activities of continuing operations (13~~6,~~064)~~381 ~~(14~~5,~~628)~~614 ------------- ------------- ~~CASH~~Income ~~FLOWS~~before ~~FROM~~income ~~INVESTING~~taxes ~~ACTIVITIES:~~741 ~~Capital expenditures (952) (5~~1,~~054)~~144 ~~Proceeds~~Provision ~~from sale of property 772 10 Purchase of available~~ for ~~sale~~income ~~securities~~taxes -281 ~~(270)~~423 ------------- -----------~~---~~ Net ~~cash~~income ~~used~~from incontinuing ~~investing~~operations ~~activities~~460 of721 ~~continuing~~Net income from discontinued operations ~~(180)~~14 ~~(5,314)~~10 ------------- -----------~~---~~ ~~CASH~~Net ~~FLOWS~~income ~~FROM~~$ ~~FINANCING~~474 ~~ACTIVITIES:~~$ ~~Gross~~731 ~~borrowings~~=========== ~~under~~=========== ~~line-of-credit~~Basic ~~agreement~~net -income ~~5,700~~per ~~Purchase~~share ofNet ~~treasury~~income ~~stock~~from ~~(2,720)~~continuing ~~(3,265)~~operations ~~Issuance~~$ of0.09 ~~common~~$ ~~stock~~0.12 10Net 13income from discontinued operations 0.00 0.00 ------------- ------------- Net ~~cash~~income ~~(used~~per ~~in)~~share ~~provided~~$ by0.09 ~~financing~~$ ~~activities~~0.12 of=========== ~~continuing~~=========== ~~operations~~Diluted ~~(2,710)~~net ~~2,448~~income ~~-------------~~per ~~-------------~~share ~~CASH~~Net ~~(USED~~income ~~IN)~~from ~~PROVIDED~~continuing BYoperations ~~DISCONTINUED~~$ ~~OPERATIONS~~0.09 ~~(151)~~$ 210.12 Net income from discontinued operations 0.00 0.00 ------------- ------------- ~~DECREASE~~Net INincome ~~CASH~~per ~~AND~~share ~~CASH~~$ ~~EQUIVALENTS~~0.09 ~~(16,105)~~$ ~~(17,473)~~0.12 ~~CASH~~=========== ~~AND~~=========== ~~CASH~~Weighted ~~EQUIVALENTS~~average ATshares ~~BEGINNING~~outstanding OF5,294,598 ~~PERIOD~~5,826,131 26Dilutive effect of stock options 179,~~923~~996 3026,~~263~~170 ------------- ------------- ~~CASH~~Weighted ~~AND~~average ~~CASH~~shares ~~EQUIVALENTS~~outstanding ATassuming ~~END~~dilution ~~OF PERIOD $ 10~~5,~~818~~474,594 ~~$ 12~~5,~~790~~852,301 ============= =============

See accompanying notes to condensed consolidated financial statements. 2 5 OROAMERICA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

For the ~~Thirty-nine~~Thirteen ~~weeks~~Weeks ~~ended~~Ended May 4, April 28, (Dollars in thousands) 2001 2000 --------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 474 $ 731 Less income from discontinued operations 14 10 -------- -------- Net income from continuing operations 460 721 Adjustments to reconcile net income from continuing operations to net cash provided by (used in) ~~thousands~~continuing operations: Depreciation and amortization 813 890 Provision for losses on accounts receivable 65 61 Provision for estimated returns (3,577) ~~October~~(3,032) 27Loss on sale of property -- 1 Change in assets and liabilities: Accounts receivable 3,214 ~~2000~~(2,314) ~~October~~Other 29accounts and notes receivable (191) 521 Inventories 332 2,~~1999~~440 Prepaid income taxes and income taxes payable (536) 362 Prepaid items and other current assets (372) (419) Accounts payable, accrued expenses and deferred liabilities 597 1,498 -------- -------- Net cash provided by operating activities of continuing operations 805 729 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (133) (224) Proceeds from sale of property -- 10 -------- -------- Net cash used in investing activities of continuing operations (133) (214) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Purchase of treasury stock -- (618) Issuance of common stock -- 10 -------- -------- Net cash used in financing activities of continuing operations -- (608) -------- -------- CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS 41 (15) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 713 (108) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 35,331 26,923 -------- ~~Cash~~-------- ~~paid~~CASH ~~during~~AND ~~the~~CASH ~~year~~EQUIVALENTS ~~for:~~AT ~~Interest~~END OF PERIOD $1 36,~~308~~044 $~~986~~ ~~Taxes~~26,815 ~~$480~~======== ~~$839~~======== ~~Non-~~Supplemental disclosure of cash ~~investing~~flow ~~and~~information: ~~financing~~Interest ~~activities~~paid ~~Insurance~~$ ~~claim~~411 ~~(Note~~$ 3)456 Income taxes paid $ -827 $~~1,426~~ 53

See accompanying notes to condensed consolidated financial statements. 3 6 OROAMERICA, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - BASIS OF PRESENTATION The condensed consolidated financial statements of OroAmerica, Inc., a Delaware corporation (the "Company"), included herein include all adjustments, all of which are of a normal recurring nature, that, in the opinion of management, are necessary for a fair presentation of financial information for the thirteen week periods ended May 4, 2001 and April 28, 2000. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed consolidated statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company's February 2, 2001 audited consolidated financial statements. The results of operations for the thirteen-week period ended May 4, 2001 are not necessarily indicative of the results for a full year. Net income per share Basic net income per share excludes all dilution and is computed by dividing net income by the weighted-average number of common shares outstanding. Diluted earnings per share reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock. Diluted net income per share includes the dilutive effect of stock options. New Accounting Standard Adopted The Company adopted the Statement of Financial Accounting Standards No. 133, "Accounting for derivative and hedging activities" ("SFAS 133") in the first quarter of fiscal 2002. SFAS 133 requires the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. The adoption of SFAS 133 did not have a material impact on the earnings and financial position of the Company. NOTE 2 - INVENTORIES Inventories consist of the following (in thousands, except per ounce data):

~~October~~May 274, ~~January~~February 282, ~~2000~~2001 ~~2000~~2001 ------------- -------------- (Unaudited) Gold and other raw materials $ 32,~~090~~707 $ 32,~~264~~712 Manufacturing costs and other 139,~~620~~750 1310,~~478~~267 ------------- ------------- Jewelry inventories 1612,~~710~~457 1612,~~742~~979 LIFO cost less than FIFO cost (3984) (~~216~~274) Allowance for vendor advances (~~680~~400) (~~680~~400) ------------- ------------- $ 1511,~~991~~973 $ 1512,~~846~~305 ============= ============= Gold price per ounce $ ~~263~~266.8060 $ ~~286~~266.7570 ============= =============

4 7 The Company values its jewelry inventories using the last-in, first-out (LIFO) method. The Company has several consignment agreements with gold consignors providing for a maximum aggregate consignment of 335,000 fine troy ounces. In accordance with the consignment agreements, title remains with the gold consignors until the consigned gold is purchased by the Company. At May 4, 2001 and February 2, 2001, the Company held approximately 180,400 and 191,800 fine troy ounces of gold under consignment agreements, respectively. Consigned gold is not included in inventory and there is no related liability recorded at quarter end. The purchase price per ounce is based on the daily Second London Gold Fixing. Manufacturing costs included in inventory represent costs incurred to process consigned and Company owned-gold into finished jewelry products. The gold consignors and the Company's revolving credit lender (Note 3) have a security interest in substantially all the assets of the Company. The Company pays to the gold consignors a consignment fee based on the dollar equivalent of ounces outstanding, computed based on the Second London Gold Fixing, as defined in the gold consignment agreements. Each consignment agreement is terminable on 30 days notice by the Company or the consignor. The gold consignment agreements require the Company to comply with certain covenants with respect to its working capital, current ratio, and tangible net worth and to maintain the aggregate of its accounts receivable and inventory of gold at specified minimums. Additional provisions of the agreements (a) prohibit the payment of dividends, (b) limit capital expenditures, (c) limit the amount of debt the Company may incur, (d) prohibit the Company from engaging in mergers and acquisitions without prior approval, (e) prohibit termination of the chief executive officer's employment for any reason other than death or disability and prohibit any material amendment to his employment contract, and (f) require notice if the Company's principal stockholder (who is also its chief executive officer) ceases to own at least 40% of the Company's outstanding common stock. At May 4, 2001, the Company was in compliance with all of the requirements of its consignment agreements. NOTE 3 - NOTES PAYABLE The Company has a $10 million revolving credit facility with Bank of America, NT & SA which expires August 1, 2001. Available borrowings may not exceed the lesser of $10 million or 75% of eligible accounts receivable minus a reserve amount, as provided for under the credit facility. Advances under the credit facility bear interest at the lender's prime rate minus 0.25%, or, at the Company's option, at short-term fixed rates or rates determined by reference to offshore interbank market rates plus 1.75%. No short-term advances were outstanding at May 4, 2001 or February 2, 2001. The revolving credit facility also provides for the issuance of banker's acceptances and for the issuance of letters of credit in an aggregate amount not to exceed $2.5 million at any one time. Banker's acceptances bear interest at a rate based on the bank's prevailing discount rate at the time of issuance plus 1.75%. No banker's acceptances were outstanding as of May 4, 2001 or February 2, 2001. Stand-by letters of credit outstanding at May 4, 2001 and at February 2, 2001 totaled $500,000 and $1,000,000, respectively. Amounts outstanding under the Bank of America credit agreement are secured by substantially all of the Company's assets; the Company's gold consignors also have security interests in these assets, and all of the consignors and Bank of America are parties to a collateral sharing agreement. The revolving credit agreement contains substantially the same covenants and other requirements as are contained in the Company's gold consignment agreements (Note 2). At May 4, 2001, the Company was in compliance with all of the requirements of the revolving credit agreement. 5 8 Note 4 - PROPOSED MERGER WITH AURAFIN The Company has entered into an Agreement and Plan of Merger dated as of April 24, 2001 (the "Merger Agreement") with Aurafin LLC, a Delaware limited liability company ("Aurafin"), and Aurafin-OroAmerica LLC, formerly known as Bentley Acquisition LLC, a Delaware limited liability company and wholly owned subsidiary of Aurafin (the "Subsidiary"). Under the terms of the Merger Agreement, the Company will be merged with and into the Subsidiary, and the separate corporate existence of the Company will thereupon cease. Each share of common stock of the Company that is issued and outstanding immediately before the date and time when the merger becomes effective will be converted into and represent the right to receive $14.00 in cash. The $14.00 per share price is subject to reduction to the extent the total professional fees and expenses paid by the Company in the merger exceeds $1.5 million. The merger is contingent upon Aurafin's consummating financing for the merger price and for the credit and capital needs of the combined companies, clearance under the Hart Scott Rodino Antitrust Improvements Act of 1976 (which has been received), approval by a majority of the Company's stockholders, and other customary conditions for a transaction of this type. The Merger Agreement provides for the Company to call a special meeting of its stockholders to vote on the proposed merger as soon as practicable. This special meeting is scheduled to take place on June 19, 2001, in Beverly Hills, California. In conjunction with the Merger Agreement, the Company also entered into an Escrow Agreement with Aurafin and Wells Fargo Bank Minnesota, National Association, dated as of April 24, 2001, pursuant to which Aurafin placed $3 million in an escrow account for the purpose of ensuring payment of the termination fee, if any, payable by Aurafin to the Company as provided in the Merger Agreement. In addition, Guy Benhamou, a director, officer and majority owner of the common stock of the Company, and Aurafin entered into a Voting Agreement dated as of April 24, 2001, pursuant to which Mr. Benhamou agreed to vote his shares in favor of the adoption of the Merger Agreement at the special meeting of the stockholders. Mr. Benhamou will also enter into a non-competition agreement with Aurafin as of the closing of the Merger. 6 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read together with the financial statements and notes thereto. General The Company's business, and the jewelry business in general, is highly seasonal. Historically, the third and fourth quarters of the Company's fiscal year, which include the Christmas shopping season, have accounted for approximately 60% of the Company's annual net sales and a somewhat higher percentage of the Company's income before taxes. While the third and fourth quarters generally produce the strongest results, the relative strengths of the third and fourth quarters are subject to variation from year to year based on a number of factors, including the purchasing patterns of the Company's customers. The seasonality of the Company's business places a significant demand on working capital resources to provide for a buildup of inventory in the third quarter (which is primarily satisfied by an increase in the amount of gold held under consignment) and, in turn, has led to a seasonal buildup in customer receivables in the fourth quarter that must be funded by increased borrowings. Consequently, the results of first quarter operations are not necessarily indicative of the Company's performance for an entire year. Prices for the Company's jewelry products generally are determined by reference to the current market price of gold. Consequently, the Company's sales could be affected by increases, decreases or volatility in the price of gold. The Company accounts for its jewelry inventories at the lower of cost or market, using the last-in, first-out (LIFO) method to determine cost, less the allowance for vendor advances. As a result, the Company's gross profit margin can be affected by changes in LIFO reserves and the allowance for vendor advances, as well as by changes in the amount of gold owned at each period end and fluctuations in the price of gold. Results of Operations The following table sets forth, for the periods indicated, the percentage of net sales represented by certain items included in the consolidated statements of income. 7 10

ASAs Aa ~~PERCENTAGE~~Percentage OFof ~~NET~~Net ~~SALES~~Sales ---------------------------- Thirteen Weeks Ended ~~Thirty-nine~~May ~~Weeks Ended October 27~~4, ~~October~~April 2928, ~~October~~2001 ~~27, October 29,~~ 2000 ~~1999 2000 1999~~ -------~~---~~ -------~~---~~ ~~---------- ----------~~ Net sales 100.0% 100.0% ~~100.0% 100.0%~~ Cost of goods sold ~~80.8 80.5~~ 81.72 82.41 ------- -----~~---~~ ~~----------- ------------~~ Gross profit ~~19.2 19.5~~ 18.38 17.69 ------- -----~~---~~ ~~----------- ------------~~ Selling, general and administrative expenses 1014.~~8 8.0 13.~~5 1012.54 Depreciation and amortization ~~1.8~~expense 12.41 2.34 ~~1.8~~ Interest expense 1.23 1.4 1.2 ~~1.1~~ Other income (01.71) (~~0.3) (~~1.~~6) (~~0.6) ------- -----~~---~~ ~~----------- ------------~~ Total ~~expense~~expenses 1316.18 1014.59 ~~15.4 12.8~~ ------- -----~~---~~ ~~-----------~~Income ~~------------~~from ~~Income~~continuing operations before income taxes 62.10 93.0 ~~2.9 4.8~~ Provision for income taxes 20.38 ~~3.3~~ 1.1 ~~1.8~~ ------- -----~~---~~ ~~----------- ------------~~ Net income from continuing operations 31.82 ~~5.7~~ 1.89 ~~3.0~~ Net income ~~(loss)~~ from discontinued operations 0.~~4 (~~0~~.8)~~ 0.~~2 (1.~~0) ------- -----~~---~~ ~~----------- ------------~~ Net income 41.23% 41.9% ~~2.0% 2.0%~~ ======= =====~~=== =========== ============~~

THIRTEEN WEEKS ENDED MAY 4, 2001 COMPARED TO THIRTEEN WEEKS ENDED APRIL 28, 2000 Net sales for the thirteen weeks ended May 4, 2001 increased by $230,000, or 0.6%, from the comparable period of the prior year. Gross profit for the thirteen-week period ended May 4, 2001 increased by $364,000, or 5.4%, from the comparable period of the prior year. As a percentage of net sales, gross profit increased from 17.9% for the thirteen-week period ended April 28, 2000, to 18.8% for the current period. Excluding the effects of gold price fluctuations and LIFO reserve adjustments on the cost of goods sold, the gross margin for the thirteen-week periods ended May 4, 2001 and April 28, 2000 would have been 18.3% and 18.0% of sales, respectively. The increase on a comparable basis was due to changes in sales product mix. The gold prices used to cost inventory at February 2, 2001, May 4, 2001, January 28, 2000 and April 28, 2000, were $266.70, $266.60, $286.75 and $275.05, respectively. Selling, general and administrative expenses for the thirteen weeks ended May 4, 2001, increased by $788,000, or 16.7%, from the comparable period of the prior year. As a percentage of net sales, these expenses increased from 12.4% in the thirteen weeks ended April 28, 2000, to 14.5% in the thirteen weeks ended May 4, 2001. The increase in the dollar amount of selling, general and administrative expenses is primarily attributable to increased personnel costs of $365,000 and increased professional expenses of $323,000. Personnel costs have increased primarily due to expanded product development activities, including those related to the Company's Jeweler Country division, and annual salary and wage increases. Professional services have increased due to expanded use of accounting and legal consultants in connection with the proposed merger with Aurafin, Inc. and with certain ongoing litigation. Depreciation and amortization expense for the thirteen weeks ended May 4, 2001, decreased by $77,000, or 8.7%, from the comparable period of the prior year. As a percentage of net sales, these expenses decreased from 2.4% in the thirteen weeks ended April 28, 2000, to 2.1% for the current period. Interest expense for the thirteen weeks ended May 4, 2001, increased by $86,000, or 21.5%, from the comparable period of the prior year. As a percentage of net sales, these expenses increased from 1.1% in the 8 11 thirteen weeks ended April 28, 2000, to 1.3% for the current period. This increase is primarily attributable to expanded borrowing under consignment agreements. Other income for the thirteen weeks ended May 4, 2000 increased by $30,000, or 7.8%. As a percentage of net sales, this income increased from 1.0% in the thirteen weeks ended April 28, 2000, to 1.1% for the current period. The effective tax rate in the thirteen weeks ended May 4, 2001 was 38.0% as compared to 37.0% in the comparable period of the prior year. LIQUIDITY AND CAPITAL RESOURCES The Company has satisfied its working capital requirements through internally generated funds, a gold consignment program, and borrowings under its revolving credit facilities. A substantial portion of the Company's gold supply needs have been satisfied through gold consignment arrangements with various banks and bullion dealers. Under the consignment arrangements, the Company may defer the purchase of gold used in the manufacturing process and held in inventory until the time of sale of finished goods to customers. Financing costs under the consignment arrangements currently are approximately 3% per annum of the market value of the gold held under consignment, computed daily. The gold consignment agreements contain covenants restricting the amount of consigned gold the Company may reconsign or otherwise have outside its possession at any one time. The aggregate amount of gold that the Company may acquire under its consignment arrangements was approximately 335,000 ounces at May 4, 2001 and is subject to fluctuations based on changes in the market value of gold. As of May 4, 2001, the Company held approximately 180,400 ounces of gold on consignment. The Company has a $10 million revolving credit facility with Bank of America NT & SA, which expires August 1, 2001. Available borrowings may not exceed the lessor of $10 million or 75% of eligible accounts receivable minus a reserve amount, as provided for under the credit facility. For further information regarding the Company's gold consignment agreements and revolving credit facilities, see Notes to Condensed Consolidated Financial Statements. Net accounts receivable increased from $20.4 million at February 2, 2001 to $20.7 million at May 4, 2001. The allowance for returns and doubtful accounts decreased from $12.6 million at February 2, 2001 to $9.6 million at May 4, 2001. The decrease in the amount of the allowance at May 4, 2001 is primarily attributable to seasonal adjustments in the reserve for returns. Total inventories decreased from $12.3 million at February 2, 2001 to $12.0 million at May 4, 2001. The decrease is primarily attributable to the decrease in the manufacturing cost component of the Company's jewelry inventories. At May 4, 2001, a substantial portion of the gold included in the Company's finished goods and work-in-process consisted of gold acquired pursuant to the Company's consignment program. Consigned gold is not included in inventory. Accounts payable increased from $8.9 million at February 2, 2001 to $11.7 million at May 4, 2001. This increase is primarily attributable to seasonal gold purchases and the timing of payments thereon. Accrued expenses decreased from $9.6 million at February 2, 2001 to $7.3 million at May 4, 2001. This decrease is primarily due to the payment of payroll liabilities and decreased advertising accruals. The Company incurred capital expenditures of approximately $133,000 for the quarter ended May 4, 2001, principally related to computer equipment and 9 12 jewelry machinery. Subject to completion of the proposed merger with Aurafin, the Company expects to incur capital expenditures of approximately $3.0 million during the balance of fiscal 2002, principally for the acquisition of computerized distribution systems, and manufacturing and computer equipment. The Company believes that funds generated from operations, the gold consignment program and the borrowing capacity under its revolving credit facility will be sufficient to finance its working capital and capital expenditure requirements for the next 12 months. 10 13 PART II - Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: None (b) Reports on Form 8-K: On May 1, 2001, the Company filed a Report on Form 8-K disclosing, under Item 5, that the Company had entered into an Agreement and Plan of Merger dated April 24, 2001 with Aurafin LLC, a Delaware limited liability company and Bentley Acquisition LLC, a Delaware limited liability company and wholly owned subsidiary of Aurafin. Subsequent to this Form 8-K filing, Bentley Acquisition LLC changed its name to Aurafin-OroAmerica LLC. 11 14 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. OROAMERICA, INC. Date: June 13, 2001 By: /s/ SHIU SHAO ------------- ------------------------------------ SHIU SHAO, Chief Operating Officer, Chief Financial Officer and Vice President Date: June 13, 2001 By: /s/ BETTY SOU ------------- ------------------------------------ BETTY SOU, Controller 12

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