-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VKIoYf/NdUqylQhua8S4HIW+wOeczU1I4LCYmkZk6qbTMy4hQ06SzV0Z/CT5rM0/ 0gikIykn3+9xJ0RPik2dGQ== 0000912057-97-028013.txt : 19970815 0000912057-97-028013.hdr.sgml : 19970815 ACCESSION NUMBER: 0000912057-97-028013 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PACIFIC COAST APPAREL CO INC CENTRAL INDEX KEY: 0001005185 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-APPAREL, PIECE GOODS & NOTIONS [5130] IRS NUMBER: 954536683 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-28760 FILM NUMBER: 97662843 BUSINESS ADDRESS: STREET 1: 11828 TEALE ST CITY: CULVER CITY STATE: CA ZIP: 90230 BUSINESS PHONE: 3106368432 MAIL ADDRESS: STREET 1: 11828 TEALE STREET CITY: CULVER CITY STATE: CA ZIP: 90230 10QSB 1 10QSB 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 AND EXCHANGE ACT OF 1934 For the quarterly period ended JUNE 30, 1997 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. Commission file number 0-28760 PACIFIC COAST APPAREL COMPANY, INC. ------------------------------------ (Exact name of registrant as specified in its charter) CALIFORNIA 95-4536683 ---------- ----------- (State or other Jurisdiction of (IRS Employer Identification No.) incorporation or organization) 11828 8 ST. CULVER CITY, CA 90230 ---------------- ------- (Address of principal office) (Zip Code) Registrant's telephone number, including area code: (310) 636-8432 ------------- INAPPLICABLE ------------ (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 / / Number of shares of common stock outstanding as of June 30, 1997: 2,954,000 Transactional Small Business Disclosure Format Yes /X/ No / / FORWARD-LOOKING INFORMATION In addition to historical information, this Report contains forward-looking statements, such as those pertaining to the Company's future sales and revenues, return on investment, profitability, and cash requirements. Forward-looking statements involve numerous risks and uncertainties. The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements: economic conditions, competitive products and pricing, new product development, the Company's lack of operating history and the prolonged absence of ACA JOE products from the market place, the need for additional capital, changes in fashion trends, dependence on key customers and personnel, consumer response to the Company's products and advertising, and the Company's ability to consummate its proposed acquisition. Readers are cautioned not to place undue reliance on forward-looking statements, which reflect management's analysis only as of the date hereof. The Company assumes no obligation to update forward-looking statements. See also the Company's annual report on Form 10-KSB and other reports filed from time to time with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934. PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PACIFIC COAST APPAREL COMPANY, INC. DBA ACA JOE CONDENSED BALANCE SHEET JUNE 30, 1997 JUNE 30, 1996 ------------- ------------- (UNAUDITED) ASSETS CURRENT ASSETS Cash $ 20,983 $ 51,688 Short-term investments 1,450,830 - Due from factors 93,498 1,921 Inventories 1,067,964 183,946 Prepaid expenses and other current assets 132,899 16,282 ----------- ---------- Total Current Assets 2,766,174 253,837 PROPERTY AND EQUIPMENT, at cost, net of accumulated depreciation 156,175 9,207 OTHER ASSETS 78,312 - ----------- ---------- $3,000,661 $ 263,044 ----------- ---------- ----------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts Payable $ 451,541 $ 316,331 Other current liabilities 178,421 - Loan payable, officer/stockholder 6,899 382,732 ----------- ---------- Total Current Liabilities 636,861 699,063 LONG-TERM DEBT 2,049 4,740 STOCKHOLDER'S EQUITY Preferred stock Authorized, 600,000 shares No shares outstanding - - Common stock, no par value Authorized, 10,000,000 shares issued and outstanding 2,954,000 and 3,070,000 shares 5,777,163 653,780 Additional paid-in capital 162,500 162,500 Deficit (3,577,912) (1,257,039) ----------- ---------- Total Stockholders' Equity 2,361,751 (440,759) ----------- ---------- $3,000,661 $ 263,044 ----------- ---------- ----------- ---------- 1 PACIFIC COAST APPAREL COMPANY, INC. DBA ACA JOE STATEMENT OF OPERATIONS NINE MONTHS ENDED JUNE 30 -------------------------- 1997 1996 ----------- ----------- (UNAUDITED) NET SALES $ 630,054 $ 191,626 COST OF GOODS SOLD 474,005 114,976 ----------- ---------- GROSS PROFIT 156,049 76,650 OPERATING EXPENSES Design and Production 160,268 206,628 Selling 274,476 104,431 Advertising 101,835 - Shipping 11,846 12,330 General and administrative 1,089,513 638,778 Interest expense ( income ) (41,585) 112,187 1,596,353 1,074,354 ----------- ---------- LOSS BEFORE INCOME TAXES (1,440,304) (997,704) PROVISION FOR INCOME TAXES (800) (1,100) ----------- ---------- NET LOSS $(1,441,104) $ (998,804) ----------- ---------- ----------- ---------- NET LOSS PER SHARE (0.48) (0.62) WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 3,012,000 1,600,000 2 PACIFIC COAST APPAREL COMPANY, INC. DBA ACA JOE STATEMENT OF OPERATIONS THREE MONTHS ENDED JUNE 30 ------------------------ 1997 1996 ---------- ----------- (UNAUDITED) NET SALES $ 222,448 $ 135,750 COST OF GOODS SOLD 189,889 81,430 ---------- ---------- GROSS PROFIT 32,559 54,320 OPERATING EXPENSES Design and Production 72,443 90,087 Selling 114,887 34,000 Advertising (2,192) - Shipping 3,337 6,956 General and administrative 378,754 334,270 Interest expense (income) (16,230) 114,817 ---------- 550,999 580,130 ---------- ---------- ---------- LOSS BEFORE INCOME TAXES (518,440) (525,810) PROVISION FOR INCOME TAXES (800) (1,100) ---------- ---------- NET LOSS $ (519,240) $ (526,910) ---------- ---------- ---------- ---------- NET LOSS PER SHARE (0.18) (0.35) WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 2,954,000 1,500,000 3 PACIFIC COAST APPAREL COMPANY, INC. DBA ACA JOE STATEMENT OF CASH FLOW INCREASE (DECREASE) IN CASH NINE MONTHS ENDED --------------------------- JUNE 30, 1997 JUNE 30, 1996 ------------- ------------ (UNAUDITED) CASH FLOW FROM OPERATION ACTIVITIES Net loss $(1,441,104) $(998,804) Adjustment to reconcile net loss to Cash used by operating activities: Depreciation 22,096 1,880 Amortization of deferred income - (10,000) Issuance of stock for services - 57,500 Amortization of interest on loan payable, other - 108,333 Changes in assets and liabilities Increase in due from factors (93,498) (1,921) Increase in inventories (810,884) (183,946) Increase in prepaid expenses and other current assets (167,429) 5,221 Increase in accounts payable 402,780 247,177 Increase in other current liabilities 63,512 - ------------ ---------- Total Adjustments (583,423) 224,244 ------------ ---------- Net cash used by Operating Activities (2,024,527) (774,560) CASH FLOW FROM INVESTING ACTIVITIES Purchase of property and equipment (170,233) - Decrease in short-term investments 2,248,721 - ------------ ---------- Net Cash Provided by Investing Activities 2,078,488 - CASH FLOW FROM FINANCING ACTIVITIES Increase in loan receivable, officer/stockholder 14,027 Proceeds from loan payable, officer/stockholders - 30,000 Reacquisition of common stock (142,955) - Proceeds from issuance of preferred stock - 150,000 Proceeds from issuance of common stock 670 Proceeds(Payments) on loan payable, other 400,000 Payments on long-term debt, other (1,856) ----------- ---------- Net Cash (Used) Provided by Financing Activities (142,955) 592,841 ----------- ---------- NET INCREASE IN CASH (88,994) (181,719) ----------- ---------- CASH, BEGINNING 109,977 $ 233,407 --------- --------- CASH, ENDING $ 20,983 $ 51,688 ----------- ---------- ----------- ---------- 4 PACIFIC COAST APPAREL COMPANY, INC. DBA ACA JOE CONDENSED STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION NINE MONTHS ENDED --------------------------- JUNE 30, 1997 JUNE 30, 1996 -------------- ------------- (UNAUDITED) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION CASH PAID DURING THE PERIOD FOR: Interest 13,686 112,187 Income Taxes 800 1,100 5 PACIFIC COAST APPAREL COMPANY, INC. DBA ACA JOE CONDENSED STATEMENT OF STOCKHOLDER'S EQUITY YEAR ENDED SEPTEMBER 30, 1996 AND NINE MONTHS ENDED JUNE 30, 1997
CONVERTIBLE TOTAL COMMON STOCK PREFERRED STOCK ADDITIONAL STOCKHOLDERS' ------------------------- ----------------------- PAID-IN EQUITY SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT (DEFICIENCY) ---------- ---------- --------- ---------- --------- ---------- ------------- Balance, October 1, 1995 1,400,000 $ 20,610 170,000 $ 425,000 $ - $ (258,235) $ 187,375 Issuance of stock for services 23,000 57,500 - - - - 57,500 Sale of stock 2,000 20 60,000 150,000 - - 150,020 Value of warrants issued in connection with a loan - - - - 162,500 - 162,500 Exercise of warrants 65,000 650 - - - - 650 Conversion of preferred stock to common stock 230,000 575,000 (230,000) (575,000) - - - Issuance of stock in public offering 1,350,000 5,266,338 - - - - 5,266,338 Dividends on preferred stock - - - - - (51,645 (51,645) Net loss for the year ended September 30, 1996 - - - - - (1,826,928) (1,826,928) ---------- --------- ------- --------- ------- ----------- ---------- Balance, September 30, 1996 3,070,000 5,920,118 - - 162,500 (2,136,808) 3,945,810 Purchase of common stock (116,000) (142,955) - - - - (142,955) Buy back of common stock (Retired) - - - - - - - Net loss for the nine months ended June 30, 1997 - - - - - (1,441,104) (1,441,104) Balance, June 30, 1997 2,954,000 5,777,163 - - 162,500 (3,577,912) 2,361,751 ---------- --------- ------- --------- ------- ----------- ---------- ---------- --------- ------- --------- ------- ----------- ----------
6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION INTRODUCTION The Company was formed in April 1995 for the purpose of designing, sourcing and marketing the ACA JOE brand of men's casual sportswear, pursuant to an exclusive U.S. trademark license. The Company sources and designs the ACA JOE products through the use of sub-contractors and independent agents, which allows the Company to avoid the fixed overhead cost of maintaining its own production facilities. The business strategy of the Company is primarily focused on reintroducing the ACA JOE products in the United States through national and regional advertising, marketing and customer service programs designed to promote the ACA JOE name and products. Specifically, the Company is focusing its efforts on: (1) expanding its distribution in the department store and retail men's specialty store categories; (2) developing targeted licensees in the accessories categories; (3) further developing its Quick Response Program for the basic apparel collection for better customers; and (4) developing alternative marketing techniques. The Company introduced a boys' line similar in style to its men's line in April. The test has been expanded and the Company is now distributing its boys' line through department and specialty stores across the United States. The Company uses independent sales representatives to sell both its men's and boys' lines. The Company is using the net proceeds of its August 1996 initial public offering (approximately $5,267,000) to implement its business strategy. During the development stage of the Company, the Company's primary activities have included product development and design, organizing the sales force, marketing, arranging for production sources, and the opening of a retail outlet store. The costs of products sold includes design, selling, shipping, and general and administrative expenses. To date, the Company has not capitalized development costs associated with the development of the ACA JOE products and has instead expensed all payroll and related costs for such development. Design expenses consist of payments to sub-contractors for design and development of new product lines. Selling expenses consist primarily of salaries, commissions and administrative costs associated with the Company's payroll and marketing personnel. General and administrative expenses include the costs of consultants and other administrative functions of the Company. RESULTS OF OPERATIONS NINE MONTHS ENDED JUNE 30, 1997 The Company's operating expenses for the nine months ended June 30, 1997 were $1,596,353. The $521,999 increase over the prior year period reflects an increase in selling, design and general and administrative expenses incident to the commencement of operations, specifically the selling and shipping of its ACA JOE products and the company's first major production introduction. During the nine months ended June 30, 7 1997, net sales were $630,054, and cost of goods sold was $474,005. While operating expenses were disproportionally large in relation to sales, management believes that if sales increase, design and general and administrative expenses will decline substantially as a percentage of sales. There can be no assurance, however, that the Company will operate profitably in the future. The advertising expense in the period reflects primarily a monthly retainer paid to an advertising firm from December 1996 to March 1997. This program has been discontinued for the present, in favor of co-operative advertising with retailers. The $450,735 increase in general and administrative expenses over the prior period resulted primarily from expenses related to increased production and quality control, and increased administrative expenses due to the change in status from a private to a publicly-held company. NINE MONTHS ENDED JUNE 30, 1996 The Company began conducting business in August of 1995. The Company's first shipment of product took place in February 1996. Design expenses were incurred primarily to design the Company's initial line of ACA JOE products. The general and administrative expenses relate primarily to accounting, legal and consulting fees associated with the start-up expenditures of the Company. LIQUIDITY AND CAPITAL RESOURCES In September 1996, the Company realized net proceeds of approximately $5,267,000 from an initial public offering of common stock and warrants to purchase common stock. A portion of these proceeds was used to repay all of the indebtedness then outstanding. The Company experienced losses from operations of $258,335 for the period from April 28, 1995 (inception) to September 30, 1995 and $1,826,928 for the year ended September 30, 1996. The cumulative loss through June 30, 1997 is $3,526,267, excluding a one-time preferred stock dividend of $51,645. Approximately $2,129,313 working capital was available at June 30, 1997. Sales of the Company s initial, Spring 1997 product line did not meet expectations. To remedy this, the Company retained a new designer to create its Fall 1997 line, and retained an advertising firm to develop and implement a marketing program. The Fall 1997 line experienced some degree of retailer acceptance. However, sales of the Fall 1997 line have not met expectations. The Company has been considering a strategic combination with a branded apparel company, in order to provide more critical mass and to provide economies of sale. A letter of intent has been signed to purchase the assets and assume the trade liabilities of Cotton Stuff, Inc., a privately-held manufacturer of men's and women's casual sportswear under the Cotton Stuff label; its 1996 sales were approximately $5 million. Consummation of this transaction is subject to execution of a definitive purchase agreement and other conditions. There can be no 8 assurance that this proposed or any other such strategic combination will be consummated. In the event of unanticipated developments or to satisfy future funding requirements, the Company may seek to fund its operations through public or private offerings of securities, with collaborative or other arrangements with corporate partners or from other sources. Additional financing may not be available when needed or on terms acceptable to the Company. If adequate financing is not available, the Company may be required to delay, scale back or eliminate certain of its development programs, to relinquish rights to certain of its products, or to license to third parties the right to commercialize products the Company would otherwise seek to develop itself. In November 1996, following a decline in the market price of the Company's common stock, the Board authorized the Company's purchase of up to 150,000 shares of its common stock. From December 1996 to March 1997, the Company purchased a total of 116,000 shares of its common stock in the open market at an average price of $1.26 per share (a total of $144,966). Management believes these purchases were in the interests of the Company and its shareholders, and will not affect the Company's ability to fund its business plan for the remainder of the current fiscal year. This program has now been discontinued. PART II OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 27. Financial Data Schedule (b) Reports on Form 8-K. None. 9 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. Pacific Coast Apparel Company, Inc. By /s/ Terrence L. McGovern -------------------------------- Terrence L. McGovern Chief Executive Officer and Chief Financial Officer August 12, 1997 10 EX-27 2 EXHIBIT 27 FDS
5 9-MOS SEP-30-1997 JUN-30-1997 20,983 1,450,830 93,498 0 1,067,964 2,766,174 156,175 0 3,000,661 636,861 0 0 0 5,777,163 0 3,000,661 630,054 630,054 474,005 474,005 1,596,353 0 0 (1,440,304) (800) (1,441,104) 0 0 0 (1,441,104) (0.48) 0
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