10QSB 1 0001.txt FORM 10QSB FOR THE QUARTER ENDING DEC. 31, 1999 1 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 December 31, 1999 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) 50 Ridgecrest Road Kentfield, CA 94904 --------------- ----- (Address of principal office) (Zip Code)
Registrant's telephone number, including area code (415) 925-0386 -------------- Inapplicable ------------ (Former name, former address and former fiscal year, if changed since last report) 1620 South Los Angeles Street, Los Angeles, CA 90015 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 DECEMBER 31, 1999 3,302,000 Transactional Small Business Disclosure Format Yes / / No /X/ 2 FORWARD LOOKING STATEMENTS 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 discussed herein, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statement: economic conditions, competitive products, and pricing, new product development, need for additional capital, development of the Cotton Stuff business, changes in fashion trends, dependence on key customers and personnel, and consumer response to the Company's products and advertising. 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 other reports to be filed from time to time with the Securities and Exchange Commission pursuant to the Securities and Exchange Act of 1934. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION INTRODUCTION Pacific Coast Apparel Company, Inc. ("the Company") was incorporated in California in April 1995 to design, source and market in the United States a collection of men's active sportswear under the brand name "Aca Joe" Registered Trademark through traditional department stores and men's specialty stores. In August 1997 the Company acquired the assets and business of Cotton Stuff, Inc. Because of the Company's inability to generate sufficient revenues it decided not to renew it's exclusive Aca Joe license agreement and ceased doing business under it's license with Action Down Under, Ltd. in June 1998. As previously stated the Company acquired the assets of Cotton Stuff, Inc. in August 1997. Cotton Stuff apparel is a collection of both men's and women's garment-dyed, better sportswear which is sold across the United States through better catalogs including Saks Folio, Coldwater Creek, Neiman Marcus and Nordstrom, better specialty stores such as Fred Siegel, Bloomingdales and My Friends Place and selected department stores including Macy's. On September 30, 1999, the Company signed an agreement with Capital Factors, Inc., allowing representatives of Capital Factors, Inc. to take possession of the majority of its operating assets specifically those which Capital Factors had taken as collateral for loans and advances to the Company under a Factoring Agreement dated September 8, 1997. Under the Factoring Agreement, the Company gave Capital Factors, Inc. a first lien on accounts receivable, cash and various other assets. The Company received notice of default from Capital Factors, Inc. pursuant to Section 9504 (3) of the California Uniform Commercial Code. On September 30, 1999, the Company entered into an agreement with Robert Mulder Inc. d/b/a/ Evans Unlimited to purchase the balance of the Company's assets which included piece goods, certain inventory, all trademarks and trade names, associated goodwill, orders and equipment. The agreement called for Robert P. Mulder Inc. to pay Capital Factors $110,000 representing the balance of the secured debt owed to Capital Factors by the Company. In addition, Robert P. Mulder, Inc. agreed to pay an additional $40,000 which was deposited in the trust account of the law firm of Ezra, Brutzkus and Gubner, the Company's counsel. These funds were used to pay unsecured creditors claims. In addition Robert P. Mulder, Inc. deposited an additional $10,000 in the trust account of the Company's counsel which was to defer legal fees associated with the distribution of the assets to the Company's unsecured creditors. 2 3 THREE MONTHS ENDED DECEMBER 31, 1999 The Company had no revenues during the period ended December 31, 1999. LIQUIDITY AND CAPITAL RESOURCES The capital resources of the Company consist of $40,000 which was deposited into the trust account of the Company's counsel. These monies are to be used to pay unsecured creditors claims. The Company has no other resources. The Company may seek to fund future operations through private offerings of securities, with collaborative or other arrangements with private corporate partners or from other sources. Additional financing may not be available when needed or on terms acceptable to the Company. FEDERAL TAXES Since its inception, the Company has been taxed as a "C" corporation. Accordingly the Company has available as of December 31, 1999 approximately $6,000,000 in net operating loss carryforwards to offset future federal taxable income expiring through the year ending September 30, 2004. LEGAL PROCEEDINGS The Company is currently involved in a law suit, which was filed by Ms. Jill Grossman, the Company's former sales manager. Ms. Grossman terminated her employment with the Company on September 22, 1997. Ms. Grossman claims she is owed approximately $440,000 of compensation due under an employment agreement. The Company filed a cross complaint based on the belief that, among other things, Ms. Grossman breached the employment agreement. Although the outcome of the litigation cannot be predicted with certainty, management believes that the Company has meritorious defenses to the claims alleged, and intends to defend this action with vigor. In March 2000. The Company's counsel was served with a levy from the Los Angeles Sheriff's department and the Company's trust account was attached. The Plaintiff was IRA Capital Corporation which received a judgement against the Company in the amount of $105,057.43 for the nonpayment of a promissory note. The total due the judgement creditors including fees is said to be approximately $108,716.33. The Company attempted to settle this obligation but was unsuccessful. 3 4 PACIFIC COAST APPAREL CO., INC. BALANCE SHEET
December 31, 1999 September 30, 1999 ASSETS CURRENT ASSETS Cash and cash equivalents $ 40,284 $ 44,128 Accounts receivable $ 0 $ 4,982 Loan receivable, stockholder $ 15,449 $ 14,384 Total current assets $ 55,733 $ 63,494 Total Assets $ 55,733 $ 63,494 LIABILITIES AND STOCKHOLDERS' DEFICIENCY CURRENT LIABILITIES Due from factors $ 185,128 $ 178,200 Accounts payable $ 284,710 $ 285,701 Accrued expenses $ 503,039 $ 503,039 Income taxes payable $ 2,105 $ 1,305 Total current liabilities $ 974,982 $ 968,245 STOCKHOLDERS' EQUITY Preferred stock Authorized, 600,000 shares No shares outstanding Common stock - no par value $ 5,453,798 $ 5,453,798 Authorized, 1,000,000 shares Issued and outstanding 3,302,000 shares Additional paid-in capital $ 480,460 $ 480,460 Deficit $(6,853,507) $(6,839,009) Total stockholders' equity $ (919,249) $ (904,751) $ 55,733 $ 63,494
See notes to condensed financial statements 4 5 PACIFIC COAST APPAREL CO., INC. STATEMENT OF OPERATIONS
Three Months Ended December 31 ------------------------------------ 1999 1998 ---- ---- NET SALES 0 $ 1,229,287 COST OF GOOD SOLD 0 673,602 GROSS (LOSS) PROFIT 0 555,685 OPERATING EXPENSES Design and production 118,638 Selling 125,798 Shipping 70,445 General and administrative 8,068 242,301 Total Operating Expenses 8,068 557,182 LOSS FROM OPERATIONS (8,068) 557,182 OTHER INCOME (EXPENSE) Gain on liquidation Interest expense (5,630) (20,193) Total Other Income (Expense) (5,630) (20,193) LOSS BEFORE INCOME TAXES $ (13,698) $ (21,690) PROVISION FOR INCOME TAXES (800) (800) NET LOSS (14,498) $ (22,490) NET LOSS PER SHARE (0) (0.01) WEIGHTED AVERAGE NUMBER OF 3,302,000 3,064,000 COMMON SHARES OUTSTANDING
See notes to condensed financial statements 5 6 PACIFIC COAST APPAREL CO., INC. CONDENSED STATEMENT OF CASH FLOWS INCREASE (DECREASE) IN CASH
Three Months Ended December 31 -------------------------------- 1999 1998 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $(14,498) $(22,490) Adjustments to reconcile net loss to cash used by operating activities: Depreciation $ 0 $ 9,000 Amortization of negative goodwill $ 0 $ (2,884) Changes in assets and liabilities, net of effect of assets and liabilities acquired: Increase in due from factors $ 6,928 $(23,619) Decrease in accounts receivable $ 4,982 $(55,222) Increase in inventories $ 0 $ 76,992 Increase in prepaid expenses and $ (1,065) $ 47,921 other current assets Increase in other assets $ 0 $ 1,064 Increase in accounts payable $ (991) $ 37,245 Increase (decrease) in accrued expenses $ 800 $(13,364) Total Adjustments $ 10,654 $ 77,133 Net Cash Used By Operating Activities $ (3,844) $ 54,643
6 7 PACIFIC COAST APPAREL CO., INC. CONDENSED STATEMENT OF CASH FLOWS INCREASE (DECREASE) IN CASH
Three Months Ended December 31 ------------------------------ 1999 1998 ---- ---- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment $ 0 $ (5,871) Net Cash (used) Provided by $ 0 $ (5,871) Investing Activities CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on long term debt $ 0 $(27,463) Net Cash Used by Financing Activities $ 0 $(27,463) NET DECREASE IN CASH AND CASH EQUIVALENTS $ (3,844) $ 21,309 CASH AND CASH EQUIVALENTS, beginning as previously stated $ 44,128 $(17,324) CASH AND CASH EQUIVALENTS, ending $ 40,284 $ 3,985
See notes to condensed financial statements 7 8 PACIFIC COAST APPAREL CO., INC. CONDENSED STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
Three Months Ended December 31 ------------------------------ 1999 1998 ---- ---- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during period for: Interest $5,630 $19,234 Income Taxes
See notes to condensed financial statements 8 9 PACIFIC COAST APPAREL CO., INC. NOTES TO CONDENSED FINANCIAL STATEMENTS December 31, 1999 1 - ACCOUNTING POLICIES Although the interim condensed financial statements of the Company are unaudited, it is the opinion of the Company's management that all normal recurring adjustments necessary for a fair statement of the results have been reflected therein. Operating revenues and net earnings for any interim period are not necessarily indicative of results that may be expected for the entire year. These statements should be read in conjunction with the financial statements and reflected notes which are incorporated by reference in the Company's Annual Report on Form 10 -KSB for the year ended September 30, 1999 9 10 CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY YEAR ENDED SEPTEMBER 30, 1999 AND THE THREE MONTHS ENDED DECEMBER 31, 1999
Common stock Additional ------------------------- Paid-in Shares Amount Capital Deficit Balance, October 1, 1996 3,070,000 $5,920,118 $162,500 $(2,136,808) Issuance of stock for services 9,000 $4,500 Reacquistion of stock during the year ended September 30, 1997 (116,000) $(452,400) $306,610 Other (5,000) $(19,500) $10,750 Net loss for the year ended September 30, 1997 $(2,954,339) --------- --------- --------- Balance, September 30, 1997, as previously reported 2,958,000 $5,452,718 $479,860 $(5,091,147) Issuance of stock 108,000 1,080 Cancellation of stock (2,000) Net loss for the year ended September 30, 1998 $(988,323) --------- --------- --------- ----------- Balance, September 30, 1998, 3,064,000 $5,453,798 $479,860 $(6,079,470) Contributions $600 Net loss for the year ended September 30, 1999 $(759,539) --------- --------- --------- ----------- Balance, September 30, 1999 3,064,000 $5,453,798 $480,460 $(6,839,009) Issuance of stock 238,000 Net loss for the three months ended December 31, 1999 $(14,498) --------- --------- --------- ----------- Balance, December 31, 1999 3,302,000 5,453,798 480,460 (6,853,507)
10 11 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 16, 1999 11 12 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT -------------- ----------------------- 27.1 Financial Data Schedule