-----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, ApFz3GaFKGo3t1f6V8d+aVX181PHKItdLB9p/CthXFqsfeFzKhbbO7WILH5/z30n plCC/RE8eDBy8zavS1Z56w== 0001047469-99-021179.txt : 19990518 0001047469-99-021179.hdr.sgml : 19990518 ACCESSION NUMBER: 0001047469-99-021179 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 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: 99627740 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 10-Q 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 MARCH 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) 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 MARCH 31, 1999 3,064,000 Transactional Small Business Disclosure Format Yes / / No /X/ FORWARD LOOKING STATEMENTS In addition to historical information, this Annual Report contains forward-looking statements, such as those pertaining to the Company's future sales and revenues, return on investment, profitability, cash requirements and possible merger transaction. 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, consumer response to the Company's products and advertising and the uncertainties associated with the Company's ability to consummate the possible merger transaction discussed herein. 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, under license, 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 and ceased doing business thereunder in June 1998. Cotton Stuff apparel is a collection of both men's and women's 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. Over the past three years, the women's line represented the significant portion of the Cotton Stuff business. In January 1998, the Company began to execute a plan to further develop the men's business. The Company hired Dorian Bolick a men's designer and merchandiser to head the product development of the men's line. Additionally, the Company recruited a sales force comprised of seven independent regional salesmen and began opening specialty store accounts across the country. In December 1998, the Company signed an agreement to license the Cotton Stuff men's brand to 34 Degrees West, a group headed by Dorian Bolick, designer of the Cotton Stuff men's line. The agreement called for a term of one year with a four-year option if certain milestones were achieved during the initial license term. The agreement calls for the Company to receive a 3% royalty on all revenues generated by the sale of the Cotton Stuff men's line. The Company decided to license the men's line because it felt it needed to focus on the growing women's Cotton Stuff business and considering its lack of capital the Company felt would be difficult to successfully grow both the men's and women's lines. In November 1998, the Company announced the signing of a definitive merger agreement which called for a merger with Jodi Kristopher, Inc. Jodi Kristopher, Inc. ("JKI") is a well-established Los Angeles maker of junior dresses with annual revenues of approximately $45M. The company is owned and operated by Ira Rosenberg, a successful industry veteran. JKI distributes its line through major department stores including the Federated Group, Robinson's-May, Dayton Hudson, Kohl's, Sears Roebuck & Company and J C Penney among others. The terms of the agreement called for the Company to pay to the existing shareholders of JKI at closing, $1,456,532 in cash, and to issue 2,506,900 shares of its common stock and 9,646 shares of Series A Preferred Stock with a valuation of $100 per share in exchange for all of the outstanding Class A and B common stock of JKI. Reference is made to the Reorganization Agreement and exhibits thereto governing the merger, which were included in the quarterly report for the period ended December 31, 1999 which will offer a more complete description of such transaction. Upon completion of the merger, Mr. Ira Rosenberg will become the president and chief executive officer of the Company and Mr. McGovern will remain chairman of the board of the Company. On April 29, 1999 Mr. McGovern and Mr. Rosenberg began discussing the basis upon which the agreement could be extended past the original termination date of April 30, 1999. Pacific Coast Apparel Company, Inc. continues to have discussion with several potential financing sources but as of this date no financing source has agreed to provide all the financing needed to close this transaction. There can be no assurance that the Company will secure financing that is acceptable to both the Company and Jodi Kristopher, Inc. If all conditions of the reorganization Agreement are met, the merger is anticipated to close in the Company's third or fourth fiscal quarter 1999. The Company plans to consolidate the operations of the two companies following the merger. The Company's ability to consummate the described transaction or any future acquisition or merger is subject to numerous uncertainties and conditions, including the ability to obtain financing on terms satisfactory to the Company and JKI receipt of third-party consents, adverse changes to the business of the Company or its target markets, and the uncertainties with the Company's operations. THREE MONTHS ENDED DECEMBER 31, 1998 Revenues for the quarter ended March 31, 1999 were $1,131,595 compared to $1, 349,148 for the comparable prior year's quarter. The Company reports that a significant portion of customer orders due to ship March 31, 1999 were shipped in the next reporting period because one of the Company's sewing contractors failed to deliver orders when promised. The Company was forced to get authorization from customers to ship these orders after the March 31, 1999 cancellation date. The Company was successful in all but a few cases. Gross profit for the quarter was $ 470,454 compared to $680,223 in the quarter ended March 31, 1998. The lower gross profit reflects the shipping of significant catalog orders which traditionally have a lower gross profit margin. Catalog sales during the quarter were significantly greater than those for the comparable prior quarter. Total expenses for the quarter ended March 31, 1999 were $542,726 compared to $805,313. The significant drop in operating expenses reflects the effects of the cost cutting program put in place during the first fiscal quarter 1998. Net losses for the period ended March 31, 1999 were narrowed to < $69,409 > compared to < $125,090 > for the comperable period ended March 31, 1998. 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 approximately $550,000 of indebtedness then outstanding. The Company has experienced cumulative losses from operations of $ < $6,171,369 > for the period from April 28, 1995 (inception) through March 31, 1999. The company continues to experience loss from operations but expects the losses to continue to decline during the balance of fiscal 1999, due to the discontinuation of the Aca Joe lines and the licensing of the Cotton Stuff men's line. The revenues of the Cotton Stuff women's line are not sufficient to sustain the Company. At March 31, 1999, the Company's cash and cash equivalent balance was zero. The Company is currently in default of a promissory note to IRA Capital which became due April 30, 1999. The Company is currently in discussions with IRA Capital about the possibility of restructuring the note. There is no assurance that the Company and IRA Capital can come to an agreement to restructure the note under terms satisfactory to both parties. In January 1999, a non-affiliate loaned the Company $50,000 which the Company used to purchase inventory and for working capital purposes. The loan calls for repayment on or before February 28, 1999 and bears interest at the rate of 1% per month. The Company repaid the note in full plus all accrued interest on the due date. At its current projected level of operations, the Company will require additional capital during the quarter ending June 30, 1999. In order to sustain operations until such time as positive cash flow can be achieved, the Company is considering available alternatives, including additional cost cutting. In addition, the Company may seek to fund its operations through 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. The Company may be required to delay, scale back or eliminate certain of its development programs, to relinquish rights to certain products or to license to third parties the right to commercialize products the Company would otherwise seek to develop itself. FEDERAL TAXES Since its inception, the Company has been taxed as a "C" corporation. Accordingly the Company has available as of March 31, 1999 approximately $4,000,000 in net operating loss carryforwards to offset future federal taxable income until expiring through the year ending September 30, 2108. 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 and employment agreement. The Company filed a cross complaint against Ms. Grossman 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. YEAR 2000 Many currently installed computer systems and software products are coded to accept only two digit entries in the date code field. These date code fields will need to accept four digit entries to distinguish 21st century dates. This inability to recognize or properly treat the Year 2000 may cause the Company's systems and applications to process critical financial and operational information incorrectly. The Company continues to assess the impact of the Year 2000 issue on its reporting systems and operations. The Company is currently in the process of investigating whether its internal accounting systems and other operations systems are Year 2000 compliant. The Company has been informed by the vendors of its internal accounting software that upgrades are currently available and will provide them to the Company under its existing software maintenance agreement. The Company expects to effect the conversion of its internal accounting system to such upgraded software by June 1999. The Company believes that necessary conversions of other operational systems can also be accomplished through vendor upgrades and enhancements as provided under its system maintenance agreements currently in effect. The Company does not anticipate significant costs associated with any necessary conversions. However, there can be no assurances that certain of the Company's internal computer systems or networks or those of its key vendors and distributors will not be adversely effected by such Year 2000 issues, which could have a material adverse effect on the Company's business, operating results or financial condition. PACIFIC COAST APPAREL CO., INC. BALANCE SHEET
March 31 1999 September 30 1998 ASSETS CURRENT ASSETS Accounts receivable $46,036 $22,818 Inventories $414,234 $564,006 Prepaid expenses and other current assets $40,037 $82,068 Note receivable, stockholder Total current assets $500,307 $668,892 PROPERTY AND EQUIPMENT - at cost, net of $83,148 $92,206 accumulated depreciation OTHER ASSETS $35,666 $36,730 $619,121 $797,828 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Checks payable $9,171 $17,324 Accounts payable $207,448 $171,474 Accrued expenses $290,176 $279,049 Due from factors $29,240 $96,018 Current maturities of long-term debt $108,000 $108,000 Total current liabilities $644,035 $671,865 LONG TERM DEBT, LESS CURRENT $57,501 $110,713 MATURITY NEGATIVE GOODWILL $155,294 $161,062 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 3,064,000 shares Additional paid-in capital $479,860 $479,860 Deficit ($6,171,367) ($6,079,470) Total stockholders' equity ($237,709) ($145,812) $619,121 $797,828
PACIFIC COAST APPAREL CO., INC. STATEMENT OF OPERATIONS
Six Months Ended March 31 -------------------------------- 1999 1998 ---- ---- NET SALES $2,360,882 $2,483,669 COST OF GOOD SOLD 1,334,743 1,222,718 GROSS (LOSS) PROFIT 1,026,139 1,260,951 OPERATING EXPENSES Design and production 231,120 316,710 Selling 275,569 428,069 Shipping 132,979 110,423 General and administrative 436,989 707,544 Interest (income) expense 43,444 33,875 Total Operating Expenses 1,120,101 1,596,621 LOSS FROM OPERATIONS (93,962) (335,670) OTHER INCOME Royalty income $2,863 LOSS BEFORE INCOME TAXES ($91,099) ($335,670) PROVISION FOR INCOME TAXES (800) (800) NET LOSS ($91,899) ($336,470) NET LOSS PER SHARE (0.03) (0.11) WEIGHTED AVERAGE NUMBER OF 3,064,000 2,958,000 COMMON SHARES OUTSTANDING
PACIFIC COAST APPAREL CO., INC. STATEMENT OF OPERATIONS
Three Months Ended March 31 -------------------------------- 1999 1998 ---- ---- NET SALES $1,131,595 $1,349,148 COST OF GOOD SOLD 661,141 668,925 GROSS (LOSS) PROFIT 470,454 680,223 OPERATING EXPENSES Design and production 112,482 189,335 Selling 149,771 232,451 Shipping 62,534 54,497 General and administrative 194,688 314,892 Interest (income) expense 23,251 14,138 Total Operating Expenses 542,726 805,313 LOSS FROM OPERATIONS (72,272) (125,090) OTHER INCOME Royalty income $2,863 LOSS BEFORE INCOME TAXES ($69,409) ($125,090) PROVISION FOR INCOME TAXES 0 0 NET LOSS ($69,409) ($125,090) NET LOSS PER SHARE (0.02) (0.04) WEIGHTED AVERAGE NUMBER OF 3,064,000 2,958,000 COMMON SHARES OUTSTANDING
Page 1 0f 2 PACIFIC COAST APPAREL CO., INC. CONDENSED STATEMENT OF CASH FLOWS INCREASE (DECREASE) IN CASH
Six Months Ended March 31 -------------------------------- 1999 1998 ---- ---- CASH FLOWS FROM OPERATING ACTIVITES Net loss ($91,899) ($336,470) Adjustments to reconcile net loss to cash used by operating activities: Depreciation $18,000 $18,494 Amortization of negative goodwill ($5,768) ($5,768) Changes in assets and liabilities, net of effect of assets and liabilities acquired: Increase in due from factors ($66,778) ($156,285) Decrease in accounts receivable ($23,218) ($6,387) Increase in inventories $149,772 $71,546 Increase in prepaid expenses and $42,031 ($37,509) other current assets Increase in other assets $1,064 ($6,803) Increase in accounts payable $35,974 $31,357 Increase (decrease) in accrued expenses $11,127 $38,917 Total Adjustments $162,204 ($52,438) Net Cash Used By Operating Activities $70,305 ($388,908)
Page 2 0f 2 PACIFIC COAST APPAREL CO., INC. CONDENSED STATEMENT OF CASH FLOWS INCREASE (DECREASE) IN CASH
Six Months Ended March 31 ------------------------------- 1999 1998 ---- ---- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment ($8,940) ($5,039) Decrease in short term investments Net Cash (used) Provided by ($8,940) ($5,039) Investing Activities CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on long term debt ($53,212) ($54,893) Reacquistion of common stock Net Cash Used by Financing Activities ($53,212) ($54,893) NET DECREASE IN CASH AND CASH EQUIVALENTS $8,153 ($448,840) CASH AND CASH EQUIVALENTS, beginning as previously stated ($17,324) $406,606 PRIOR PERIOD ADJUSTMENT $81,085 CASH AND CASH EQUIVALENTS, beginning, as restated ($17,324) $487,691 CASH AND CASH EQUIVALENTS, ending ($9,171) $38,851
PACIFIC COAST APPAREL CO., INC. CONDENSED STATEMENT OF CASH FLOWS SUPPLEMENTAL INFORMATION
Three Months Ended March 31 ------------------------------- 1999 1998 ---- ---- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during period for: Interest $23,251 $14,138 Income Taxes
PACIFIC COAST APPAREL CO., INC. NOTES TO CONDENSED FINANCIAL STATEMENTS MARCH 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 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, 1998 PACIFIC COAST APPAREL CO., INC. CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY YEAR ENDED SEPTEMBER 30, 1998 AND THE SIX MONTHS ENDED MARCH 31, 1999
Common stock Additional Total --------------------- Paid-in Stockholders' 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 Reacquistion of stock during the year ended September 30, 1997 (116,000) ($452,400) $306,610 ($145,790) Other (5,000) ($19,500) $10,750 ($8,750) Net loss for the year ended . September 30, 1997 ($2,954,339) ($2,954,339) ---------- ------------ ---------- ------------- ------------ Balance, September 30, 1997, 2,958,000 $5,452,718 $479,860 ($5,091,147) $841,431 Issuance of stock 108,000 $1,080 $1,080 Cancellation of stock (2,000) Net loss for the year ended . September 30, 1998 ($988,323) ($988,323) ---------- ------------ ---------- ------------- ------------ Balance, September 30, 1998 3,064,000 $5,453,798 $479,860 ($6,079,470) ($145,812) Net loss for the three months ended . March 31, 1999 ($91,899) ($91,899) ---------- ------------ ---------- ------------- ------------ Balance, March 31, 1999 3,064,000 5,453,798 479,860 (6,171,369) (237,711)
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 May 17, 1999 EX-27 2 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PACIFIC COAST APPAREL CO., INC AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS SEP-30-1999 OCT-01-1998 MAR-31-1999 (9171) 0 46,036 0 414,234 500,307 83,148 0 619,121 644,035 0 0 0 5,453,798 0 619,121 2,360,882 0 1,334,743 1,120,101 (2863) 0 43,444 (91,099) 800 (91,899) 0 0 0 (91,899) (.03) 0
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