-----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, UPXoZph/wro+AxrwoaFPpYjsUQST2SPGh1kjr5qwu1aSFsWHU3VUGQyHuvTk0H22 gCaoYi5Rlb+YxTfwe7fYiQ== 0001047469-98-003770.txt : 19980206 0001047469-98-003770.hdr.sgml : 19980206 ACCESSION NUMBER: 0001047469-98-003770 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980205 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: 0930 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-28760 FILM NUMBER: 98522760 BUSINESS ADDRESS: STREET 1: 1920 S LOS ANGELES STREET CITY: LOS ANGELES STATE: CA ZIP: 90015 BUSINESS PHONE: 2137489724 MAIL ADDRESS: STREET 1: 1920 S LOS ANGELES STREET CITY: LOS ANGELES STATE: CA ZIP: 90015 10QSB 1 FORM 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 DECEMBER 31, 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) 1620 S. Los Angeles Street Los Angeles, CA 90015 --------------- -------- (Address of principal office) (Zip Code) Registrant's telephone number, including area code (213) 748-9724 -------------- 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 December 31, 1997 2,958,000 Transactional Small Business Disclosure Format Yes / / No /X/ 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, 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 CO., INC. BALANCE SHEET
DECEMBER 31, 1997 SEPTEMBER 30, 1997 ----------------- ------------------ ASSETS CURRENT ASSETS Cash and cash equivalents $251,118 $406,608 Due from factors $226,948 $173,577 Accounts receivable $34,922 $52,665 Inventories $910,501 $865,326 Prepaid expenses and other current assets $41,145 $17,637 Note receivable, stockholder $10,000 $10,000 Total current assets $1,474,634 $1,525,813 PROPERTY AND EQUIPMENT - at cost, net of $130,064 $138,011 accumulated depreciation OTHER ASSETS $21,542 $19,739 $1,626,240 $1,683,563 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $325,482 $241,303 Accrued expenses $200,220 $180,992 Current maturities of long-term debt $108,000 $98,000 Total current liabilities $633,702 $520,295 LONG TERM DEBT, LESS CURRENT MATURITIES $192,804 $230,355 NEGATIVE GOODWILL $169,682 $172,566 STOCKHOLDERS' EQUITY Preferred stock Authorized, 600,000 shares No shares outstanding Common stock - no par value $5,452,718 $5,452,718 Authorized, 1,000,000 shares Issued and outstanding 2,958,000 shares Additional paid-in capital $479,860 $479,860 Deficit ($5,302,526) ($5,172,231) Total stockholders' equity $630,052 $760,347 $1,626,240 $1,683,563
See notes to condensed financial statements 1 PACIFIC COAST APPAREL CO., INC. STATEMENT OF OPERATIONS THREE MONTHS ENDED DECEMBER 31 ------------------------------ 1997 1996 ------------- ------------- NET SALES $1,134,521 $66,022 COST OF GOOD SOLD 553,793 27,000 GROSS (LOSS) PROFIT 580,728 39,022 OPERATING EXPENSES Design and production 127,375 33,559 Selling 195,618 46,293 Shipping 55,926 2,601 General and administrative 392,652 296,972 Interest (income) expense 19,737 11,199 Total Operating Expenses 791,306 390,624 LOSS BEFORE INCOME TAXES (210,580) (351,602) PROVISION FOR INCOME TAXES (800) (800) NET LOSS ($211,380) ($352,402) NET LOSS PER SHARE (0.07) (0.12) WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 2,958,000 3,044,000 See notes to condensed financial statements 2 Page 1 of 2 PACIFIC COAST APPAREL CO., INC. CONDENSED STATEMENT OF CASH FLOWS INCREASE (DECREASE) IN CASH Three Months Ended December 31 ------------------------------ 1997 1996 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net loss ($211,380) ($352,402) Adjustments to reconcile net loss to cash used by operating activities: Depreciation $9,247 $6,000 Amortization of negative goodwill ($2,884) Changes in assets and liabilities, net of effect of assets and liabilities acquired: Increase in due from factors ($53,371) ($31,194) Decrease in accounts receivable $17,743 $0 Increase in inventories ($45,175) ($282,000) Increase in prepaid expenses and other ($23,508) ($79,877) current assets Increase in other assets ($1,803) Increase in accounts payable $84,179 $195,203 Increase (decrease) in accrued expense $19,566 ($2,599) Total Adjustments $3,994 ($194,467) Net Cash Used By Operating Activities ($207,386) ($546,869) See notes to condensed financial statements 3 Page 2 of 2 PACIFIC COAST APPAREL CO., INC. CONDENSED STATEMENT OF CASH FLOWS INCREASE (DECREASE) IN CASH Three Months Ended December 31 ------------------------------ 1997 1996 ---- ---- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment ($1,638) ($106,907) Decrease in short term investments $677,547 Net Cash (used) Provided by Investing Activities ($1,638) $570,640 CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on long term debt ($27,551) Reacquisition of common stock ($113,250) Net Cash Used by Financing Activities ($27,551) ($113,250) NET DECREASE IN CASH AND CASH EQUIVALENTS ($236,575) ($89,479) CASH AND CASH EQUIVALENTS, beginning as previously stated $406,606 $109,907 PRIOR PERIOD ADJUSTMENT $81,085 CASH AND CASH EQUIVALENTS, beginning, as restated $487,693 $109,907 CASH AND CASH EQUIVALENTS, ending $251,118 $20,428 See notes to condensed financial statements 4 PACIFIC COAST APPAREL CO., INC. CONDENSED STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION THREE MONTHS ENDED DECEMBER 31 ------------------------------ 1997 1996 ------------------------------ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during period for: Interest $20,179 $11,199 Income Taxes $800 See notes to condensed financial statements 5 PACIFIC COAST APPAREL CO., INC. NOTES TO CONDENSED FINANCIAL STATEMENTS DECEMBER 31,1997 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, 1997. 2 - PRIOR PERIOD ADJUSTMENT Prior period adjustment reflects the correction of an error made in the year ended September 30, 1997 relating to the understatement of cash equivalents due to a clerical error. Had the error not been made, the net loss and net loss per share would have been decreased by $81,085 and $.03 per share, respectively. See notes to condensed financial statements 6 PACIFIC COAST APPAREL CO., INC. CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY YEAR ENDED SEPTEMBER 30, 1997 AND THE THREE MONTHS ENDED DECEMBER 31, 1997
Common stock Preferred stock Additional Total -------------------- ---------------- Paid-in Stockholders Shares Amount Shares Amount Capital Deficit Equity Balance, October 1, 1996 3,070,000 $5,920,118 $162,500 ($2,136,808) $3,945,810 Issuance of stock for services 9,000 $4,500 $4,500 Reacquisition of stock during the year ended September 30, 1997 (121,000) ($471,900) $317,360 ($154,540) Net loss for the year ended September 30, 1997 ($3,035,423) ($3,035,423) --------- ---------- ------ ------ ---------- ------------ ------------ --------- ---------- ------ ------ ---------- ------------ ------------ Balance, September 30, 1997, 2,958,000 $5,452,718 0 $0 $479,860 ($5,172,231) $760,347 as previously reported Prior period adjustment, (Note 2) $81,085 $81,085 --------- ---------- ------ ------ ---------- ------------ ------------ --------- ---------- ------ ------ ---------- ------------ ------------ Balance, September 30, 1997, 2,958,000 $5,452,718 0 $0 $479,860 ($5,091,146) $841,432 as restated Net loss for the three months ended December 31, 1997 ($211,380) ($211,380) --------- ---------- ------ ------ ---------- ------------ ------------ --------- ---------- ------ ------ ---------- ------------ ------------ Balance, December 31, 1997 2,958,000 $5,452,718 0 $0 $479,860 ($5,302,526) $630,052
See notes to condensed financial statements 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION INTRODUCTION The Company was formed in April 1995 with the business strategy of reintroducing the ACA JOE apparel brand through major department stores in the United States. The focus has been to capitalize on the strength of the ACA JOE name and the perceived value of the apparel products. To date, the Company has not been successful placing product in the target market of the major department store chains. Lack of success has been due to a number of factors, including the retailers' comments that the lines that have been shown since the reintroduction lack specific direction. The Company feels that these issues have been addressed and in October hired a previously successful merchandiser/designer to give new direction to the ACA JOE line. The first line developed by the new designer was shown in New York in mid-January and received positive reaction from retailers. The true test of the trade's acceptance will happen later in February when the Company shows the line at the large men's show in Las Vegas. No significant shipments of ACA JOE products are anticipated until June. Another factor which has added to the lack of success of the reintroduction is the continued growth of other men's collections which include Tommy Hilfiger, Nautica and Polo. All three of these major collections continue to introduce additional product lines. Jeans lines were introduced by these companies in 1997 and consequently floor space available to other brands with less advertising and marketing dollars continues to shrink. The buyers are more likely to give the brands that produce historically above average dollars per square foot additional floor space for new lines when they are willing to allocate space to new or less widely distributed resources. Additionally, many of the larger department store chains have been focusing more and more in the development of their own brands which produce higher gross profit dollars. The Company acquired the Cotton Stuff product line in August 1997. The Company intends to expand Cotton Stuff sales, while continuing to attempt to launch the ACA JOE line. RESULTS OF OPERATIONS QUARTER ENDED DECEMBER 31, 1997 Revenues for the quarter ended December 31, 1997 were $1,134,621 compared to $66,022 for the comparable prior year's quarter. The significant increase in revenues reflects the Company's acquisition of the Cotton Stuff brand, in that all but $92,492 of the current quarter's revenues related to Cotton Stuff. Gross profit for the quarter was $580,726, compared with $39,022 in the quarter ended December 31, 1996, reflecting the 8 addition of the Cotton Stuff revenues. The Company's total expenses for the quarter ended December 31, 1997 were $771,571, compared to $390,602 for the quarter ended December 31, 1996. The increase over the prior year primarily reflects an increase in selling, design and general and administrative expenses attributable to the Cotton Stuff men's and women's line and the continued development of the ACA JOE line. The increase in design and production is attributable to the direction change in ACA JOE. The new ACA JOE line introduced in January reflects a slightly lower price point, making the retail price points more moderate. The Company believes that operating expenses as a percentage of sales will continue to decrease as the Company begins shipping the new ACA JOE line and the newly redesigned Cotton Stuff men's line. There can be no assurance, however, the Company will operate profitably in the future. QUARTER ENDED DECEMBER 31, 1996 The results of the quarter ended December 31, 1996 reflect the continued development of the ACA JOE brand. Revenues during the quarter reflect several small initial shipments to target customers. Expenses during the period reflect costs associated with the development of administrative and operations staff, sales organization and marketing, along with design and production of the initial line. 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 the approximately $550,000 of indebtedness then outstanding. The Company has experienced cumulative losses from operations of $5,302,526 for the period from April 28, 1995 (inception) through December 31, 1997. The August 1997 acquisition of Cotton Stuff was designed to provide a revenue base for the Company from which to grow both the ACA JOE and Cotton Stuff lines. Due to the continued lack of sales of the ACA JOE products, however, the revenues from Cotton Stuff alone are not sufficient to sustain the Company. At December 31, 1997, the Company's cash and equivalent balance was approximately $251,000, and $227,000 was due from the Company's factor. At its currently projected level of operations, the Company will require additional capital sometime during the quarter ending March 31, 1998. In order to sustain operations until such time as positive cash flow can be achieved, the Company is considering available alternatives, including a strategic alliance. In addition, the Company is implementing staff reductions and other cost cutting measures. The Company also 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 9 to the Company. 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. The Company incurred an adverse judgment totalling approximately $50,000 in a recent arbitration. In addition, the Company has been threatened with litigation relating to its June 1996 financing. The Company does not believe these claims are meritorious, and the Company does not have the funds necessary to pay any such claims. 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 116,000 shares for a total of $145,790 ($1.258 per share). Management believes these purchases were in the best interests of the Company and its shareholders at the time, but at present there are no plans to purchase any additional shares. PART II OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS (d) Use of Proceeds The following table sets forth the approximate use through December 31, 1997 of the $5,267,000 net proceeds of the Company's August 1996 initial public offering. DESIGN AND PRODUCTION OF DISPLAY FEATURES $ 113,000 DEVELOPMENT AND FIXTURE OF CITADEL OUTLET STORE $ 24,000 NATIONAL MARKETING PROGRAM $ 186,000 RETIREMENT OF BRIDGE PROMISSORY NOTES $ 417,000 RETIREMENT OF OFFICER LOANS $ 32,000 REPAYMENT OF WORKING CAPITAL LOANS $ 101,000 EXPENSE INCURRED IN CONJUNCTION WITH PURCHASE OF COTTON STUFF $ 604,000 REPURCHASES OF COMMON STOCK $ 145,790 WORKING CAPITAL AND GENERAL CORPORATE PURPOSES $3,393,210 TOTAL $5,016,000 BALANCE $ 251,000 10 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 27. Financial Data Schedule (b) Reports on Form 8-K. During the quarter ended December 31, 1997, the Company filed Form 8-K/A dated December 1, 1997, containing (in Item 7) financial information regarding the acquired assets of Cotton Stuff, Inc. 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 February 5, 1998 12 EX-27 2 EXHIBIT 27
5 3-MOS SEP-30-1997 OCT-1-1997 DEC-31-1997 251,118 0 261,870 0 910,501 1,474,634 130,064 0 1,626,240 633,702 0 0 0 5,452,718 (4,822,666) 1,626,240 1,134,521 1,134,521 553,793 791,308 0 0 0 (210,580) (800) (211,380) 0 0 0 (211,380) (0.07) 0
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