-----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, QXOFXgH/1UJeuCaJVGYjbv3Jy9G3isYG0cIuKmrh28Vnk3OM0xZUG2SpFJ84MxLP CoXjWb4fG3sf77pfbs2Cfg== 0001047469-98-031799.txt : 19980817 0001047469-98-031799.hdr.sgml : 19980817 ACCESSION NUMBER: 0001047469-98-031799 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 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: 98691610 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 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, 1998 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 SO. LOS ANGELES ST. 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 June 30, 1998: 2,958,000 Transactional Small Business Disclosure Format Yes /X/ No / / 1 PACIFIC COAST APPAREL CO., INC. BALANCE SHEET
June 30 1998 June 30 1997 ------------ ------------ ASSETS CURRENT ASSETS Cash and cash equivalents $1,555 $20,983 Short-term investments $1,450,830 Due from factors $286,518 $93,498 Accounts receivable $28,128 Inventories $625,737 $1,067,964 Prepaid expenses and other current assets $95,039 $132,899 Total current assets $1,036,977 $2,766,174 PROPERTY AND EQUIPMENT - at cost, net of accumulated depreciation $116,169 $156,175 OTHER ASSETS $26,542 $78,312 $1,179,688 $3,000,661 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $240,382 $451,541 Accrued expenses $188,870 $178,421 Current maturities of long-term debt $108,000 Loan payable, officer/stockholder $6,899 Total current liabilities $537,252 $636,861 LONG TERM DEBT, LESS CURRENT $138,047 $2,049 MATURITY NEGATIVE GOODWILL $163,914 STOCKHOLDERS' EQUITY Preferred stock Authorized, 600,000 shares No shares outstanding Common stock - no par value $5,452,718 $5,777,163 Authorized, 1,000,000 shares Issued and outstanding 2,958,000 shares Additional paid-in capital $479,860 $162,500 Deficit ($5,592,103) ($3,577,912) Total stockholders' equity $340,475 $2,361,751 $1,179,688 $3,000,661
2 PACIFIC COAST APPAREL CO., INC. STATEMENT OF OPERATIONS
Nine Months Ended June 30 ----------------------------- 1998 1997 ------------ ------------ NET SALES $3,729,007 $630,054 COST OF GOOD SOLD 1,979,612 474,005 GROSS (LOSS) PROFIT 1,749,395 156,049 OPERATING EXPENSES Design and production 462,245 160,268 Selling 610,356 376,311 Shipping 176,437 11,846 General and administrative 947,405 1,089,513 Interest (income) expense 53,109 (41,585) Total Operating Expenses 2,249,552 1,596,353 LOSS BEFORE INCOME TAXES (500,157) (1,440,304) PROVISION FOR INCOME TAXES (800) (800) NET LOSS ($500,957) ($1,441,104) NET LOSS PER SHARE (0.17) (0.48) WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 2,958,000 3,012,000
3 PACIFIC COAST APPAREL CO., INC. STATEMENT OF OPERATIONS
Three Months Ended June 30 ----------------------------- 1998 1997 ------------ ------------ NET SALES $1,245,338 $222,448 COST OF GOOD SOLD 756,894 189,889 GROSS (LOSS) PROFIT 488,444 32,559 OPERATING EXPENSES Design and production 145,535 72,443 Selling 182,287 112,695 Shipping 66,014 3,337 General and administrative 239,861 378,754 Interest (income) expense 19,234 (16,230) Total Operating Expenses 652,931 550,999 LOSS BEFORE INCOME TAXES (164,487) (518,440) PROVISION FOR INCOME TAXES 0 (800) NET LOSS ($164,487) ($519,240) NET LOSS PER SHARE (0.06) (0.18) WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 2,958,000 2,954,000
4 Page 1 0f 2 PACIFIC COAST APPAREL CO., INC. CONDENSED STATEMENT OF CASH FLOWS INCREASE (DECREASE) IN CASH
Nine Months Ended June 30 ----------------------------- 1998 1997 ----------- ------------- CASH FLOWS FROM OPERATING ACTIVITES Net loss ($500,957) ($1,441,104) Adjustments to reconcile net loss to cash used by operating activities: Depreciation $27,741 $22,096 Amortization of negative goodwill ($8,652) Changes in assets and liabilities, net of effect of assets and liabilities acquired: Increase in due from factors ($112,941) ($93,498) Decrease in accounts receivable $24,537 Increase in inventories $239,589 ($810,884) Increase in prepaid expenses and ($77,402) other current assets ($167,429) Increase in other assets ($6,803) Decrease in note receivable, stockholder $10,000 Increase (decrease) in accounts payable ($921) $402,780 Increase (decrease) in accrued expenses $7,878 $63,512 Total Adjustments $103,026 ($583,423) Net Cash Used By Operating Activities ($397,931) ($2,024,527)
5 Page 2 0f 2 PACIFIC COAST APPAREL CO., INC. CONDENSED STATEMENT OF CASH FLOWS INCREASE (DECREASE) IN CASH
Nine Months Ended June 30 ----------------------------- 1998 1997 ----------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment ($5,899) ($170,233) Decrease in short term investments $2,248,721 Net Cash (used) Provided by Investing Activities ($5,899) $2,078,488 CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on long term debt ($82,308) Reacquistion of common stock ($142,955) Net Cash Used by Financing Activities ($82,308) ($142,955) NET DECREASE IN CASH AND CASH EQUIVALENTS ($486,138) ($88,994) CASH AND CASH EQUIVALENTS, beginning as previously stated $406,608 $109,977 PRIOR PERIOD ADJUSTMENT $81,085 CASH AND CASH EQUIVALENTS, beginning, as restated $487,693 $109,977 CASH AND CASH EQUIVALENTS, ending $1,555 $20,983
6 PACIFIC COAST APPAREL CO., INC. CONDENSED STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
Three Months Ended June 30 ---------------------------- 1998 1997 ---------- ----------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during period for: Interest $19,234 $13,686 Income Taxes $800
7 PACIFIC COAST APPAREL CO., INC. NOTES TO CONDENSED FINANCIAL STATEMENTS JUNE 30, 1998 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 wth 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 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF 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 and specialty store chains in the United States. Because of it's inability to place goods in its target accounts and continued losses in the development of this plan, the Company decided not to renew its license for the Aca Joe brand which came up for renewal on June 30, 1998. The Company was not confident it would achieve profitability in the near future, and decided it would not be prudent to continue funding the Aca Joe operations with its significant historical losses. The Company has no further capital commitments or obligations to the Aca Joe brand. The Company is continuing to develop both the men's and women's Cotton Stuff lines. Revenues for the Cotton Stuff brand have increased approximately 16.5% since the brand was acquired in September 1997. The Cotton Stuff line is sold through better men's and women's specialty stores and better catalogs throughout the United States. Catalog customers include the Neiman Marcus and Saks Folio. Specialty stores include the Jacobson's stores and Fred Siegel. The Company continues to increase its marketing efforts for the Cotton Stuff brand. The Company now has a complete men's and women's sales force made up of independent sales representatives in major territories across the United States. Additionally the number of trade shows in which the Company participates has more than doubled in the last nine months. In addition to the branded Cotton Stuff business the Company is in the very early stages of developing a private label, product development program targeted at department stores and specialty store chains. The Company would use either its Cotton Gear label or a label chosen by the particular account. The Company believes it has an opportunity to increase its revenues by producing quality products at slightly lower costs and lower mark ups than its current Cotton Stuff line. To date the Company has no commitment from customers for these services and there is no assurance that this marketing effort will be successful. NINE MONTHS ENDED JUNE 30, 1998 Revenues for the nine months ended June 30, 1998 were $3,729,007 compared with $630,054 for the comparable period ended June 30, 1997. The significant increase during the nine months ended, reflects the revenues realized by the purchase of Cotton Stuff brand in September 1997. All of the revenues for the period ended June 30, 1997 were generated from the Aca Joe brand, while only $113,235 in revenues were generated from the Aca Joe brand in the nine months ended June 30, 1998. When comparing revenues generated by the Cotton Stuff brand, the revenues have increased approximately 16.5 % in the period ended June 30, 1998 compared to June 30, 1997. The Company's operating expenses for the nine months ended June 30, 1998 were $2,239,552 compared with $1,596,353. The increase in operating expenses is in relation to the significant increase in revenues. Operating costs as a percentage of sales has decreased from 253.3% of sales in the period ended June 30, 1997 to 59.7% in the period ended June 30, 1998. General and administrative expenses have decreased from $1,089,513 to $937,405, a decrease of approximately 15%. Selling costs have increased over the comparable period from $376,311 to $462,245. Selling cost as a percentage of sales has decreased from 59.7% in the period ended June 30, 1997 to 12.3% in the period ended June 30, 1998. Design and production expenses have increased during the comparable period from $160,268 to $462,245 in the period ended June 30, 1998 due to the development of both the men's and the women's line. Design costs as a percentage of sales has decreased from 26.6% in the period ended June 30, 1997 to 12.2% in the period ended June 30, 1998. All costs as a percentage of sales decreased over the comparable period ended June 30, 1997 because of the significant increase in sales. LIQUIDITY AND CAPITAL RESOURCES In September 1996 the Company realized net proceeds of approximately $5,267,000 from the initial public offering of common stock and warrants to purchase common stock. A portion of these proceeds were used to repay appxomimately $550,000 of indebtedness then outstanding. The Company has experienced cumulative losses from operation of [$5,592,103] for the period from April 28,1995 (inception) through June 30, 1998. In February, the Company was notified that it was out of compliance with the net tangible asset requirement (which became effective February 23, 1998) for maintaining it's lisiting on NASDAQ SmallCap Market. Company representatives made an oral presentation to the NASDAQ Listings and Qualifications Panel in Washington DC on March 28, 1998 to discuss the violation and it's plan for compliance. The Company was subsequently granted an exemption through May 15, 1998 at which time the Company was to have met the net tangible requirement. On May 13, 1998 the Company requested an extension to the exemption. On May 19, 1998 the Company was notified that its securities were being delisted effective the close of business May 19, 1998 for failure to comply with the net tangible asset requirement. The securities of the Company began trading on the OTC Bulletin Board, symbol (ACAJ and ACAJW) on May 21, 1998. The Company plans to reapply for listing on the NASDAQ SmallCap Market as soon as it is in compliance with all requirements. There can be no assurance however that the Company will be able to meet all of the requirements necessary to re-list on the NASDAQ SmallCap Market. In order to meet its cash flow needs, an officer of the Company has placed, with the Company's factor, sufficient collateral to guarantee a cash over advance of up to $108,000 above the Company's factor line. The Company may decide to continue to fund its current cash flow needs in this fashion, by securing additional collateral to cover over advances above the existing factor line, or the Company may attempt to fund its operations through public or private offerings of securities or debt, with collaborative or other arrangement with corporate partners or from other sources. Additional financing may not be available when needed or on terms acceptable 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 internally. In March the Company signed a non-binding Letter of Intent to purchase the assets of CMG, Inc., a Los Angeles based manufacturer of men's and women's apparel. The Company recently ceased discussions with CMG, Inc., deciding it was no longer an acquisition candidate. The Company continues to review and meet with companies that meet the acquisition criteria developed by the Company. Recently the Company entered into substantive discussions with a Los Angeles based women's apparel manufacturer. Various strategic combinations including a merger or an acquisition have been discussed, but to date no agreements have been signed. Consummation of this or any acquisition or merger is subject to the execution of a definitive purchase agreement and other conditions. There is no assurance that this or any other such strategic combination will be consummated. 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 14, 1998 EX-27 2 EXHIBIT 27
5 9-MOS SEP-30-1997 APR-01-1998 JUN-30-1998 1,555 0 314,646 0 625,737 1,036,977 116,169 0 1,179,688 537,252 0 0 0 5,452,718 4,771,768 1,179,688 1,245,338 1,245,338 756,694 652,931 0 0 0 (164,487) 0 (164,487) 0 0 0 (164,487) (0.06) 0
-----END PRIVACY-ENHANCED MESSAGE-----