-----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, JJ0NWZAt73VR1RBoLL8hsuRMdFCVVBkazE/LCHXnhyrmY6eJpPq6gUeD4QWdeLYy Ihq4pM+WtDzkNWJ11vHVcg== 0001047469-99-032499.txt : 19990817 0001047469-99-032499.hdr.sgml : 19990817 ACCESSION NUMBER: 0001047469-99-032499 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 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: 99693019 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 EXCHANGE ACT OF 1934 For the quarterly period ended JUNE 30, 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 JUNE 30, 1999 3,064,000 Transactional Small Business Disclosure Format Yes / / No /X/ 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. 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 November 1998 the Company announced the signing of definitive merger agreement which called for the merger of Jodi Kristopher, Inc. and Pacific Coast Apparel Company, Inc. Should the merger be consummated, Pacific Coast Apparel Company, Inc. would be the surviving corporation. Jodi Kristopher, Inc. 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. Jodi Kristopher distributes their 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 transaction is being structured as a merger and is intended to be treated as a tax-free reorganization pursuant to the provisions of Section 368 of the Internal Revenue Code of 1986, as amended. The terms of the agreement called for the Company to pay to the existing shareholders of Jodi Kristopher, Inc. 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 Jodi Kristopher, Inc. Upon completion of the merger, Mr. Ira Rosenberg, president of Jodi Kristopher, Inc. will become the president and chief executive officer of Pacific Coast Apparel Company, Inc. Mr. McGovern will remain chairman of the board of the Company. 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 Jodi Kristopher, Inc. 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. In anticipation of the pending merger with Jodi Krisopher, Inc., the Company decided to re-focus all of it's energies and resources on the development of the Cotton Stuff women's line and has licensed the men's Cotton Stuff sportswear category to 34 Degrees West Apparel Company, Inc. a California Corporation formed by Dorian Bolick; the Company's former men's designer and associates specifically for the licensing of the Cotton Stuff men's line. The initial term of the license agreement is thirteen months. The licensee has the option to renew the agreement for one additional four year term. NINE MONTHS ENDED JUNE 30, 1999 Revenues for the nine months ended June 30, 1999 were $3,385,398 compared with $3,729,007 for the comparable period ended June 30, 1998. The decrease in revenues during the nine months ended, reflects the licensing of the Cotton Stuff Men's brand. Sales of the men's product for the period ended June 30, 1998 were approximately $607,000. There are no revenues for the men's line in the during the nine months ended June 30, 1999. The Company's operating expenses for the nine months ended June 30, 1999 were $1,650,570 compared with $2,249,552. The decrease in operating expenses are primarily due to the licensing of the men's line and savings from ongoing cost cutting measures . Operating expenses as percentage of sales has decreased from 59.7% in the period ended June 30, 1998 to 48.7% in the period ended June 30, 1999. General and administrative expenses have decreased from $947,405 to $587,396 primarily due to the elimination of overhead relative to the licensing of the men's line. Selling expense have decreased from $610,356 to $443,166 a decrease of approximately 27.3%. Design and production expenses decrease from $462,245 to $357,460. 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 $($6,259,576) for the period from April 28, 1995 (inception) through June 30, 1999. The company continues to experience loss from operations but expects the losses to continue narrowing as cost cutting measures continue. The revenues of the Cotton Stuff women's line are not sufficient to sustain the Company. At June 30, 1999 the Company's cash and cash equivalent balance was zero. At its current projected level of operations, the Company will require additional capital before the year ending September 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 June 30, 1999 approximately $5,254,348 in net operating loss carryforwards to offset future federal taxable income expiring through the year ending September 30, 2019. 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. 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 September 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 maintainance 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 Year 2000 issues, which could have a material adverse effect on the Company's business, operating results or financial conditions. PACIFIC COAST APPAREL CO., INC. BALANCE SHEET
June 30, 1999 September 30, 1998 ------------- ------------------ ASSETS CURRENT ASSETS Accounts receivable $65,658 $22,818 Inventories $350,940 $564,006 Prepaid expenses and other current assets $24,751 $82,068 Total current assets $441,349 $668,892 PROPERTY AND EQUIPMENT - at cost, net of $74,148 $92,206 accumulated depreciation OTHER ASSETS $36,666 $36,730 $552,163 $797,828 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Checks payable $14,113 $17,324 Accounts payable $221,456 $171,474 Accrued expenses $301,742 $279,049 Due from factors $49,969 $96,018 Current maturities of long-term debt $108,000 $108,000 Total current liabilities $695,280 $671,865 LONG TERM DEBT, LESS CURRENT $30,391 $110,713 MATURITY NEGATIVE GOODWILL $152,410 $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 $(6,259,576) $(6,079,470) Total stockholders' equity $(325,918) $(145,812) $552,163 $797,828
PACIFIC COAST APPAREL CO., INC. STATEMENT OF OPERATIONS
Nine Months Ended June 30 ------------------------------------- 1999 1998 ---------- ---------- NET SALES $3,385,399 $3,729,007 COST OF GOOD SOLD 1,925,971 1,979,612 GROSS (LOSS) PROFIT 1,459,428 1,749,395 OPERATING EXPENSES Design and production 357,460 462,245 Selling 443,166 610,356 Shipping 197,822 176,437 General and administrative 587,396 947,405 Interest (income) expense 64,726 53,109 Total Operating Expenses 1,650,570 2,249,552 LOSS FROM OPERATIONS (191,142) (500,157) OTHER INCOME Royalty income 11,836 LOSS BEFORE INCOME TAXES (179,306) (500,157) PROVISION FOR INCOME TAXES (800) (800) NET LOSS (180,106) $ (500,957) NET LOSS PER SHARE (0.06) (0.17) WEIGHTED AVERAGE NUMBER OF 3,064,000 2,958,000 COMMON SHARES OUTSTANDING
PACIFIC COAST APPAREL CO., INC. STATEMENT OF OPERATIONS
Three Months Ended June 30 ------------------------------------- 1999 1998 ---------- ---------- NET SALES $1,024,516 $1,245,338 COST OF GOOD SOLD 596,228 756,894 GROSS (LOSS) PROFIT 428,288 488,444 OPERATING EXPENSES Design and production 127,698 145,535 Selling 166,240 182,287 Shipping 64,843 66,014 General and administrative 150,200 239,861 Interest (income) expense 21,283 19,234 Total Operating Expenses 530,264 652,931 LOSS FROM OPERATIONS (101,976) (164,487) OTHER INCOME Royalty income 8,766 LOSS BEFORE INCOME TAXES (93,210) (164,487) PROVISION FOR INCOME TAXES NET LOSS (93,210) (164,487) NET LOSS PER SHARE (0.03) (0.06) WEIGHTED AVERAGE NUMBER OF 3,064,000 2,958,000 COMMON SHARES OUTSTANDING
Page 1 of 2 PACIFIC COAST APPAREL CO., INC. CONDENSED STATEMENT OF CASH FLOWS INCREASE (DECREASE) IN CASH
Nine Months Ended June 30 ------------------------------------- 1999 1998 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITES Net loss $(180,106) $(500,957) Adjustments to reconcile net loss to cash used by operating activities: Depreciation $27,000 $27,741 Amortization of negative goodwill $(8,652) $(8,652) Changes in assets and liabilities, net of effect of assets and liabilities acquired: Increase in due from factors $(46,049) $(112,941) Decrease in accounts receivable $(42,840) $24,537 Increase in inventories $213,066 $239,589 Increase in prepaid expenses and $57,317 $(77,402) other current assets Increase in other assets $64 $(6,803) Decrease in note receivable, stockholder $10,000 Increase (decrease) in accounts payable $49,982 $(921) Increase (decrease) in accrued expenses $22,693 $7,878 Total Adjustments $272,581 $103,026 Net Cash Used By Operating Activities $92,475 $(397,931)
Page 2 of 2 PACIFIC COAST APPAREL CO., INC. CONDENSED STATEMENT OF CASH FLOWS INCREASE (DECREASE) IN CASH
Nine Months Ended June 30 ------------------------------------- 1999 1998 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment $(8,942) $(5,899) Decrease in short term investments Net Cash (used) Provided by $(8,942) $(5,899) Investing Activities CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on long term debt $(80,322) $(82,308) Reacquistion of common stock Net Cash Used by Financing Activities $(80,322) $(82,308) NET DECREASE IN CASH AND CASH EQUIVALENTS $3,211 $(486,138) CASH AND CASH EQUIVALENTS, beginning as previously stated $(17,324) $406,608 PRIOR PERIOD ADJUSTMENT $81,085 CASH AND CASH EQUIVALENTS, beginning, as restated $(17,324) $487,693 CASH AND CASH EQUIVALENTS, ending $(14,113) $1,555
PACIFIC COAST APPAREL CO., INC. CONDENSED STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
Three Months Ended June 30 ------------------------------- 1999 1998 ------- ------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during period for: Interest $21,283 $19,234 Income Taxes
PACIFIC COAST APPAREL CO., INC. NOTES TO CONDENSED FINANCIAL STATEMENTS JUNE 30, 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 NINE MONTHS ENDED JUNE 30, 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 nine months ended June 30, 1999 $(180,106) $(180,106) --------- --------- -------- ------------ ---------- Balance, June 30, 1999 3,064,000 5,453,798 479,860 (6,259,576) (325,918)
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 EX-27 2 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PACIFIC COAST APPAREL COMPANY, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS SEP-30-1999 OCT-01-1998 JUN-30-1999 (14,113) 0 65,658 0 350,940 441,349 74,148 0 552,163 695,280 0 0 0 5,453,798 0 552,163 3,385,399 0 1,925,971 1,650,570 (11,836) 0 64,726 (179,306) 800 (180,106) 0 0 0 (180,106) 0.06 0
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