10QSB 1 a2031503z10qsb.txt FORM 10-QSB U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from __________ to ___________ For the quarterly period ended ________________________ Commission file number: 333-29295 RETROSPETTIVA, INC. (Exact name of small business issuer as specified in its charter) California 95-4298051 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 8825 West Olympic Boulevard Beverly Hills, CA 90211 (Address of principal executive offices) (310) 657-1745 (Issuer's telephone number) Check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 [ ] APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by court. Yes [ ] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: Common Stock, No Par Value, 3,279,916 shares as of October 19, 2000. Transitional Small Business Disclosure Format: Yes [ ] No [ X ] RETROSPETTIVA, INC. AND SUBSIDIARY FORM 10-QSB INDEX
Part I Financial Information Page Item 1. Financial Statements: Balance Sheets as of September 30, 2000 and December 31, 1999 1 Statements of Operations for the Three Months and Nine Months Ended September 30, 2000 and 1999 2 Statements of Cash Flows for the Nine Months Ended September 30, 2000 and 1999 3 Notes to Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 5 Part II Other Information and Signatures 9
RETROSPETTIVA, INC. AND SUBSIDIARY BALANCE SHEETS (UNAUDITED) ASSETS
DECEMBER 31, SEPTEMBER 30, 1999 2000 ------------ ------------ CURRENT ASSETS Cash $ 85,857 $ 20,438 Accounts receivable, net, pledged 1,088,811 694,182 Due from factor 742,950 337,867 Note receivable, current portion,pledged 36,000 36,000 Note receivable, stockholder 300,160 111,446 Inventories, pledged 10,253,949 8,306,278 Income taxes receivable 72,949 795,180 Accrued interest receivable, stockholder 78,551 78,551 Due from vendors 580,882 456,520 Product development costs 179,721 -- Other current assets 87,812 97,837 ------------ ------------ Total Current Assets 13,507,642 10,934,299 PROPERTY AND EQUIPMENT, at cost, net 1,085,117 1,054,220 RESTRICTED INVESTMENT -- 300,000 NOTE RECEIVABLE, net of current portion 50,851 23,851 DEFERRED TAX ASSETS, net of current portion 47,000 47,000 OTHER ASSETS 18,295 18,845 ------------ ------------ $ 14,708,905 $ 12,378,215 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable, trade $ 3,126,098 $ 1,162,932 Line of credit 2,110,817 2,375,632 Due to vendor -- 74,588 Accrued expenses 45,621 43,328 Payroll tax payable -- 7,558 ------------ ------------ Total Current Liabilities 5,282,536 3,664,038 ------------ ------------ COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY PREFERRED STOCK - AUTHORIZED 1,000,000 SHARES - NONE ISSUED OR OUTSTANDING Common stock - authorized 15,000,000 shares, no par value; 3,177,916 and 3,279,916 issued and outstanding, respectively 6,765,480 6,842,820 Subscription receivable (164,790) (164,790) Additional paid-in capital 230,000 230,000 Retained earnings 2,595,679 1,806,147 ------------ ------------ Total Stockholders Equity 9,426,369 8,714,177 ------------ ------------ $ 14,708,905 $ 12,378,215 ============ ============
SEE NOTES TO FINANCIAL STATEMENTS 1 RETROSPETTIVA, INC.AND SUBSIDIARY STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1999 2000 1999 2000 ------------ ------------ ------------ ------------ SALES $ 6,528,640 $ 4,343,044 $ 17,380,934 $ 14,803,715 COST OF SALES 5,719,893 3,608,152 15,215,862 12,669,520 ------------ ------------ ------------ ------------ GROSS PROFIT 808,747 734,892 2,165,072 2,134,195 OPERATING EXPENSES Selling expenses 124,345 170,323 417,512 498,195 General and administrative 308,271 1,377,277 1,181,545 2,466,537 Loss on product development costs -- 7,778 -- 357,235 ------------ ------------ ------------ ------------ Total Operating Expenses 432,616 1,555,378 1,599,057 3,321,967 ------------ ------------ ------------ ------------ INCOME(LOSS) FROM OPERATIONS 376,131 (820,486) 566,015 (1,187,772) OTHER INCOME (EXPENSES) Interest income 7,678 90 27,606 371 Interest expense (59,394) (81,615) (153,149) (306,131) Other income -- -- 70,691 -- ------------ ------------ ------------ ------------ Net Other Income (Expenses) (51,716) (81,525) (54,852) (305,760) ------------ ------------ ------------ ------------ INCOME(LOSS) BEFORE INCOME TAXES 324,415 (902,011) 511,163 (1,493,532) PROVISION (BENEFIT) FOR INCOME TAXES 129,000 (704,000) 188,000 (704,000) ------------ ------------ ------------ ------------ NET INCOME(LOSS) $ 195,415 $ (198,011) $ 323,163 $ (789,532) ============ ============ ============ ============ NET INCOME(LOSS) PER SHARE, BASIC $ 0.06 $ (0.06) $ 0.10 $ (0.24) ============ ============ ============ ============ WEIGHTED AVERAGE NUMBERS OF SHARES OUTSTANDING, BASIC 3,131,177 3,271,492 3,078,018 3,223,949 ============ ============ ============ ============ NET INCOME PER SHARE, DILUTED $ 0.05 $ 0.09 ============ ============ WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING, DILUTED 3,648,422 3,595,264 ============ ============
SEE NOTES TO FINANCIAL STATEMENTS 2 RETROSPETTIVA, INC.AND SUBSIDIARY STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30 1999 2000 ----------- ----------- CASH FLOWS FROM (TO) OPERATING ACTIVITIES Net income $ 323,163 $ (789,532) Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization 20,610 102,989 Common stock issued for services -- 67,315 Loss on product development costs -- 179,721 Loss on disposal of fixed assets -- 2,890 Changes in: Accounts receivable (115,008) 394,629 Prepaid income taxes 82,016 (722,231) Due from factor (1,758,834) 405,083 Accrued interest receivable, shareholder (23,181) -- Loans recievable Joint venture (82,669) Advances to vendor (30,939) 124,362 Due to vendor -- 74,588 Inventories 968,382 1,947,671 Other 7,523 (550) Accounts payable and accrued expenses (579,127) (1,965,459) Accrued income taxes 63,051 -- Accrued payroll taxes 6,780 7,558 Customer advances (17,454) -- ----------- ----------- Cash flows provided (used) by operating activities (1,135,687) (170,966) ----------- ----------- CASH FLOWS FROM (TO) INVESTING ACTIVITIES: Purchase of fixed assets (17,395) (74,982) (Loans) to stockholder (3,929) -- Purchase of restricted investment -- (300,000) Payments on loans to stockholders -- 188,714 (Advances) on note receivable (26,580) -- Payments on note receivable -- 27,000 ----------- ----------- Cash flows provided (used) by investing activities (47,904) (159,268) ----------- ----------- CASH FLOWS FROM (TO) FINANCING ACTIVITIES: (Payment)proceeds from line of credit 797,406 264,815 Proceeds from issuance of common stock 342,500 -- ----------- ----------- Cash flows provided (used) by financing activities 1,139,906 264,815 ----------- ----------- NET INCREASE (DECREASE) IN CASH (43,685) (65,419) CASH IN BANK, beginning of period 115,890 85,857 ----------- ----------- CASH IN BANK, end of period $ 72,205 $ 20,438 =========== =========== Supplemental Disclosure of Cash Flow Information: Cash paid during the period for interest $ -- $ 306,131 =========== ===========
SEE NOTES TO FINANCIAL STATEMENTS 3 RETROSPETTIVA, INC. AND SUBSIDIERY NOTES TO FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - BASIS OF PRESENTATION The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions for Form 10-QSB. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the consolidated financial statements contain all material adjustments, consisting only of normal recurring adjustments necessary to present fairly the financial condition, results of operations, and cash flows of the Company for the interim periods presented. The results for the nine months ended September 30, 2000 are not necessarily indicative of the results of operations for the full year. These financial statements and related footnotes should be read in conjunction with the financial statements and footnotes thereto included in the Company's Form 10-KSB filed with the Securities and Exchange Commission for the year ended December 31, 1999. NOTE 2 - LOSS ON PRODUCT DEVELOPMENT COSTS During 1999, the Company's subsidiary, Hamilton Toys, LLC, entered into a license agreement to produce dolls based upon the movie, "The Adventures of Rocky and Bullwinkle". The Company incurred development costs of $357,235 during 1999 and 2000. The Company received purchase orders for the dolls from national discount retail stores during 2000. The Company placed orders for the production based upon these purchase orders with a production company in New York. The production company did not produce the dolls as required by its agreement. The Company had all financing and distribution channels in place for the production and sale of the dolls and intends to seek financial recovery of its costs from the production company by legal means. Management believes that it will prevail and recover at a minimum its costs incurred to date. However, due to the uncertainty of collection, the Company has elected to reduce the carrying amount of the costs, until it is assured of collection. NOTE 3 - INVENTORY Inventories at September 30, 2000 consisted of the following: Raw materials $2,724,427 Work-in-process 4,273,863 Finished goods 1,307,988 ---------- Total $8,306,278 ==========
NOTE 4 - BAD DEBT EXPENSE At December 31, 1999, the Company was in the process of negotiating the purchase of the trademarks of its largest customer, which had ceased operations. During the nine months ended September 30, 2000, the Company's efforts proved unsuccessful and in October 2000, the Company received notice that the customer would be unable to make any additional payments other than a 5% payment on the outstanding balance of approximately $43,000. The Company wrote off the remaining balance of approximately $859,000 as of September 30, 2000 to bad debt expense. The Company was able to recover nearly all of the sales lost from this customer by selling to the large department store chains previously serviced by the customer. 4 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Company contracts for the manufacture of a variety of garments, primarily basic women's sportswear which includes suits, skirts, blouses, blazers, pants, shorts, vests and dresses, using assorted fabrics including rayons, linens, cotton and wool. The Company arranges for the manufacture of garments for customers under private labels selected by its customers. It markets its products exclusively in the United States directly to large wholesalers directly and indirectly to national retailers and buying organizations, and directly to women's chain clothing stores and catalogues. Substantially, all of the Company's garments are sold on a "package" basis pursuant to which the Company markets at fixed prices finished garments to the customer's specifications and quantity requirements, arranges for production of the garments and delivers the garments directly to the customer at the port of entry. In its marketing, the Company emphasizes these package arrangements and what it believes to be the better quality and lower prices of garments produced by skilled Macedonian workers as compared to lower paid workers in certain other regions. As a package provider, the Company sources and purchases fabrics and trims, arranges for cutting and sewing, and coordinates any other services required to provide a finished garment. Since the Company manufactures its finished products only upon receipt of purchase orders from its wholesale and retail customers, it therefore does not maintain an inventory of finished products. The Company believes that in this way it minimizes the marketing and fashion risk generally associated with the apparel industry. Fabrics and trims are purchased from suppliers in China, India, Russia, Romania, Italy and the United States. After dying the fabric, if necessary, the fabric and trim are shipped to factories selected by the Company (primarily located in Macedonia) where they are manufactured into finished garments under the Company's management and quality control guidance. The finished products are then shipped directly to New York City where the Company's customers claim the goods either at the port in New York City or at the Company's warehouse in Astoria, New York. In an effort to diversify, the Company has started manufacturing in China to achieve quicker turnaround in manufacturing of certain items. Company believes that production in China on certain higher volume packages, which require quicker turnaround, will enable the Company to utilize its resources in Macedonia in a more efficient manner. The Company believes this strategy will be effective for garments, for which there are no quotas or inexpensive quotas from China to United States. This arrangement will benefit Company's cash flows and may reduce financing expenses. On November 9, 2000 the Company entered in to a licensing agreement with "Donna Ricco" New York. Based on this agreement the Company will start selling women's sport wear such as blazers and pants under Donna Ricco labels. At the time of this filling the Company has made approximately $1,000,000 of sales based on this arrangement. The Company expects to have better gross profit on this line as it caters to a more upscale market. The Company believes that by exploiting this market it can achieve a better overall profitability. In the third quarter 2000, the Company launched its high fashion designer product line under "Kanary" label. This line involves different knit materials and fabrications and is produced primarily in Hong Kong and China. The Company plans to market this line to an exclusive segment of the market. The gross profit on this line is substantially higher than Company's traditional gross profit. The Company expects to improve the overall profitability as the business grows in this segment. Except for historical information contained herein, the matters set forth may include forward-looking statements that are subject to risks and uncertainty that may cause actual results to differ materially. Such forward-looking statements that may be contained in this document could include in particular statements concerning business back-logs, operating efficiencies and capacities, capital spending, and other expenses. Among other factors that could cause actual results to differ materially are the following; dependence upon unaffiliated manufacturers and fabric suppliers, dependence on certain customers, foreign operations, competition, risks associated with significant growth, uncertainties in apparel industry, general economic conditions, seasonality, political instability, concentration of accounts receivable and possible fluctuations in operating results 5 RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, the percentage relationship to net revenues of certain items in the Company's statements:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1999 2000 1999 2000 ------ ------ ------ ------ Revenues 100.0% 100.0% 100.0% 100.0% Cost of goods sold 87.6% 83.1% 87.6% 85.6% Gross profit 12.4% 16.9% 12.4% 14.4% Selling, General and Administrative 6.6% 35.6% 9.2% 20.0% Operating income (loss) 5.8% -20.8% 3.3% -10.1%
THREE MONTHS ENDED SEPTEMBER 30, 2000 ("2000") COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1999 ("1999") SALES Sales for 2000 were $4,343,044, which represented a decrease of $2,185,596 or 33.4% over 1999 net sales of $6,528,640. The decline in sales was primarily attributable to decreased purchases by existing customers and from new customers. During 1999 the Company sold many of its products through a third party distributor, which in turn sold those products to national chains. Beginning in the fourth quarter of 1999, the Company began selling directly to the distributor's national customers. COST OF GOODS SOLD Cost of goods sold in 2000 was $3,608,152 or 83.1% of sales, a decrease of $2,111,741 from $5,719,893 or 87.6% of sales in 1999. The decrease in cost of goods sold was primarily attributable to the decrease in sales. The Company successfully implemented the special shipping and distributing requirements of the Company's new customers and anticipates higher margins due to the direct sales to national chains, rather than through a distributor. The procedures necessary to meet these requirements were put in place during the end of the second and beginning of the third quarter. GROSS PROFIT Gross profit was $734,892 for 2000, a decrease of $73,855 from $808,747 for 1999. The gross profit percentage was 16.9% in 2000, an increase from 12.4% in 1999. The increase in the gross profit percentage was primarily attributable to the Company's implementation of special shipping and distribution requirements of its new customers and higher margins due to the direct sales to national chains, rather than through a distributor. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative ("SG&A") expenses were $1,547,600 or 35.6% of sales for 2000, an increase of $1,114,984 from $432,616 or 6.6% of sales for 1999. The increase in SG&A expense was primarily attributable to the Company's write off of bad debt from one customer of approximately $859,000 and payments related to sales commissions, travel and trade show expenses, salaries, professional fees, depreciation, factor charges, bank charges and rent. As a percentage of sales, SG&A expense increased because of decreased sales relative to the Company's fixed costs. 6 INTEREST EXPENSE Interest expense for 2000 was $81,615 compared to $59,394 for 1999. The increase in interest was primarily attributable to the increase in the utilization of the line of credit and an increase in the interest rates. PROVISION (BENEFIT) FOR INCOME TAXES The provision (benefit) from income taxes was ($704,000) and $75,000 for 2000 and 1999, respectively. The increase in the (benefit) from income taxes for 2000 was primarily attributable to a greater tax loss for the three months ended September 30, 2000, related to the Company's write off of certain bad debts. When the Company files its 2000 tax returns, it will carry back its net operating loss to prior years in which it paid income taxes. The Company anticipates receiving a refund of income taxes paid of approximately $795,000. NINE MONTHS ENDED SEPTEMBER 30, 2000 ("2000") COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1999 ("1999") SALES Sales for 2000 were $14,803,715, which represented a decrease of $2,577,219 or 14.8% of 1999 net sales of $17,380,934. During 1999, the Company sold many of its products through a third party distributor, which in turn sold those products to national chains. Beginning in the fourth quarter of 1999, the Company began selling directly to the distributor's national customers. The process of direct sales to these new customers have, in the short term, caused a slight decrease in sales, management believes that sales for the year will remain steady or decrease as compared to 1999. COST OF GOODS SOLD Cost of goods sold in 2000 was $12,669,520 or 85.6% of sales, a decrease of $2,546,342 from $15,215,862 or 87.6% of sales in 1999. The decrease in cost of goods sold was primarily attributable to the decrease in sales and the process of direct sales to new customers, bypassing the distributor and resulting in better profit margins. GROSS PROFIT Gross profit was $2,134,195 for 2000, a decrease of $30,877 from $2,165,072 for 1999. The gross profit percentage was 14.4% in 2000, an increase from 12.4% in 1999. The higher gross profit attributable to better mark up on direct sales to new customers. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative ("SG&A") expenses were $2,964,732 or 20.0% of sales for 2000, an increase of $1,365,675 from $1,599,057 for 1999. The increase in SG&A expense levels was primarily attributable to the Company's write off of bad debt from one customer of approximately $859,000 and payments related to sales commissions, travel and trade show expenses, salaries, professional fees, depreciation, factor charges, bank charges and rent. As a percentage of sales, SG&A expense increased because of decreased sales relative to the Company's fixed costs. LOSS ON PRODUCT DEVELOPMENT COSTS The loss on product development costs during 2000 was $357,235 as compared to $0 for 1999 and is attributable to the New York manufacturing firm's failure to produce goods as required by the Company's purchase order. The Company contracted for the production of dolls based upon 7 the movie, "The Adventures of Rocky and Bullwinkle" during 2000. The Company is seeking legal remedies for its loss. INTEREST EXPENSE Interest expense for 2000 was $306,131 compared to $153,149 for 1999. The increase in interest expense was primarily attributable to the increase in the utilization of existing financing facilities and higher interest rates. OTHER INCOME Other income for 2000 was $0 compared to $70,691 in 1999. The decrease in other income was primarily attributed to a lack of warehousing services rendered to one customer. PROVISION (BENEFIT) FOR INCOME TAXES The provision (benefit) from income taxes was ($704,000) and $188,000 for 2000 and 1999, respectively. The increase in the (benefit) from income taxes for 2000 was primarily attributable to a greater tax loss for the nine months ended September 30, 2000, related to the Company's write off of certain bad debts. When the Company files its 2000 tax returns, it will carry back its net operating loss to prior years in which it paid income taxes. The Company anticipates receiving a refund of income taxes paid of approximately $795,000. LIQUIDITY The Company has 575,000 warrants outstanding with an exercise price of $7.50 per warrant expiring September 23, 2002. The Company has 50,000 underwriter warrants outstanding with an exercise price of $14.40 per unit. Each unit consists of two shares of the Company's common stock and one warrant as described above. The Company does not know whether the warrants will be exercised in 2000. Without exercise of those warrants, the Company may be required to utilize its other financing vehicles to continue its growth and fund operations. It is the Company's intention to utilize its existing line of credit with a major lending institution and its credit facility arrangement with a New York factoring company. The Company's base line of credit of $3 million was increased to $3.5 million in second quarter 2000 and the Company placed $300,000 in a certificate of deposit as collateral. As of September 30, 2000 the Company re-negotiated the line to $3.3 million until January 15, 2001. CAPITAL RESOURCES Since its formation, the Company has financed its operations and met its capital requirements primarily through cash flows from operations, customer advances, from principals, credit facilities, bridge loans, a private placement and its IPO. The initial use of IPO funds was to repay certain debt and to purchase raw materials, for working capital and the eventual purchase of wool manufacturing equipment. The Company's primary need for cash is for working capital purposes. The Company may raise capital through the issuance of long-term or short-term debt, or the issuance of securities in private or public transactions to fund future expansion of its business. There can be no assurance that acceptable financing for future transactions can be obtained. INFLATION The Company does not anticipate a significant increase in inflation in the United States over the short-term. All of the Company's transactions worldwide are conducted on a dollar-denominated basis which is intended to mitigate the possible impact of volatile currencies that may arise as a result of global corporations crowding emerging markets in search of growth. SEASONALITY The Company's revenues and operating results have exhibited some degree of seasonality in past periods. 8 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Not applicable ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS CHANGES IN SECURITIES Not applicable USE OF PROCEEDS Not applicable ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable ITEM 5. OTHER INFORMATION Not applicable ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Not applicable 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 thereto duly authorized. Date: November 17, 2000 RETROSPETTIVA, INC. ------------------- (Registrant) ---------------------------- Hamid Vaghar Chief Financial Officer (Principal Accounting Officer) 9