10QSB 1 a2050167z10qsb.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 March 31, 2001 [ ] 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, 3,479,916 shares as of May 11, 2001. Transitional Small Business Disclosure Format: Yes [ ] No [ X ] 1 RETROSPETTIVA, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS ASSETS
DECEMBER 31, MARCH 31, 2000 2001 ------------ ------------ (UNAUDITED) CURRENT ASSETS Cash $ 26,069 $ 96,461 Accounts receivable, net, pledged 247,084 643,236 Due from factor 164,471 423,665 Note receivable, stockholder,pledged 156,997 160,298 Inventories, pledged 8,368,237 6,968,165 Income taxes receivable 955,714 406,244 Other current assets 112,537 112,537 ------------ ------------ Total Current Assets 10,031,109 8,810,606 PROPERTY AND EQUIPMENT, at cost, net 1,030,565 1,002,396 RESTRICTED INVESTMENT, PLEDGED 300,000 300,000 OTHER ASSETS 18,845 18,845 ------------ ------------ $ 11,380,519 $ 10,131,847 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable, trade $ 2,530,447 $ 2,005,730 Line of credit 2,274,376 1,831,440 Accrued expenses 101,859 7,184 Payroll taxes payable -- 15,539 Loans payable-other -- 74,588 ------------ ------------ Total Current Liabilities 4,906,682 3,934,481 ------------ ------------ 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; issued and outstanding 3,479,916 shares 6,892,820 6,892,820 Subscription receivable (164,790) (164,790) Additional paid-in capital 230,000 230,000 Accumulated deficit (484,193) (760,664) ------------ ------------ Total Stockholders' Equity 6,473,837 6,197,366 ------------ ------------ $ 11,380,519 $ 10,131,847 ============ ============
2 RETROSPETTIVA, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 2001 ----------- ----------- (UNAUDITED) (UNAUDITED) SALES $ 6,429,651 $ 6,259,405 ----------- ----------- Total Sales 6,429,651 6,259,405 COST OF SALES 5,510,954 5,694,996 ----------- ----------- GROSS PROFIT 918,697 564,409 OPERATING EXPENSES Selling expenses 178,380 89,752 General and administrative 606,446 700,269 ----------- ----------- Total Operating Expenses 784,826 790,021 ----------- ----------- INCOME FROM OPERATIONS 133,871 (225,612) OTHER INCOME (EXPENSES) Interest income 197 5,258 Interest expense (105,368) (89,556) Other income 1,320 33,439 ----------- ----------- Net Other Income (Expenses) (103,851) (50,859) ----------- ----------- INCOME BEFORE INCOME TAXES 30,020 (276,471) PROVISION FOR INCOME TAXES -- -- ----------- ----------- NET INCOME $ 30,020 $ (276,471) ----------- ----------- NET INCOME PER SHARE, BASIC $ 0.01 $ (0.08) =========== =========== WEIGHTED AVERAGE NUMBERS OF SHARES OUTSTANDING, BASIC 3,103,198 3,479,916 =========== =========== NET INCOME PER SHARE, DILUTED $ 0.01 $ (0.08) =========== =========== WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING, DILUTED 3,648,157 3,479,916 =========== ===========
3 RETROSPETTIVA, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2000 2001 ----------- ----------- (UNAUDITED) (UNAUDITED) CASH FLOWS FROM (TO) OPERATING ACTIVITIES: Net income $ 30,020 $ (276,471) Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization 34,330 36,369 Changes in: Accounts receivable (678,779) (396,152) Prepaid income taxes (12,058) 549,470 Due from factor (180,124) (259,194) Product development cost (126,852) -- Advances to vendor 134,362 -- Inventories 1,087,088 1,400,072 Accounts payable and accrued expenses (642,712) (529,265) Customer advances 50,000 -- ----------- ----------- Cash flows (used) by operating activities (304,725) 524,829 ----------- ----------- CASH FLOWS FROM (TO) INVESTING ACTIVITIES: Purchase of fixed assets (5,552) (8,200) Advances on notes receivable -- (3,301) Payments on notes receivable 9,000 -- ----------- ----------- Cash flows provided (used) by investing activities 3,448 (11,501) ----------- ----------- CASH FLOWS FROM (TO) FINANCING ACTIVITIES: Vendor advance 104,588 -- Loans to stockholder (3,996) -- Line of credit, net 135,171 (442,936) ----------- ----------- Cash flows provided by financing activities 235,763 (442,936) ----------- ----------- NET INCREASE (DECREASE) IN CASH (65,514) 70,392 CASH IN BANK, beginning of period 85,857 26,069 ----------- ----------- CASH IN BANK, end of period $ 20,343 $ 96,461 =========== ===========
4 RETROSPETTIVA, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED 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 three months ended March 31, 2001 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, 2000. NOTE 2 - INVENTORIES Inventories at March 31, 2001 consisted of the following: Raw Material $1,543,964 Work-in-process 3,981,420 Finished goods 1,442,781 ---------- Total $6,968,165 ==========
5 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. See Item 1. 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 a consolidating warehouse in Astoria, New York. Since early 2001, when hostilities commenced in Macedonia, the Company has experienced a significant reduction in new purchase orders for its products. This reduction in new purchase orders, together with a substantial loss incurred by the Company for the three months ended March 31, 2001 and for the year ended December 31, 2000, has required the Company to reduce its operations and overhead expenses. Such overhead reductions have included the layoff of nine employees and the reduction of general and administrative expenses in the amount of approximately $500,000 on an annualized basis. The Company is in default on its credit facility with the Imperial Bank. The current amount outstanding on the credit facility is $1,831,000. The Company anticipates repaying the remaining amount due under the credit facility from its existing cash flow, during the second quarter of 2001. Should hostilities in Macedonia continue, with a corresponding decrease in new purchase orders, the Company expects that it will be required to further reduce or even discontinue its operations. 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. 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; 6
THREE MONTHS ENDED MARCH 31, 2000 2001 ------ ------ Revenues 100.0% 100.0% Cost of goods sold 85.7% 91.0% Gross profit 14.3% 9.0% Selling, General and Administrative 12.2% 12.6% Operating income 2.0% (3.6%)
THREE MONTHS ENDED MARCH 31, 2001 ("2001") COMPARED TO THREE MONTHS ENDED MARCH 31, 2000 ("2000") SALES Sales for 2001 were $6,259,405 which represented a decrease of $170,246 or 2.6% from 2000 net sales of $6,429,651. The decrease in sales was primarily attributable to decreased purchases by existing customers due to continuing conflicts in Macedonia. COST OF GOODS SOLD Cost of goods sold in 2001 was $5,694,996 or 91% of sales, an increase of $184,042 from $5,510,954 or 85.7% of sales in 2000. The increase in cost of goods sold was primarily attributable to the decrease in sales and increase in freight and customs charges. GROSS PROFIT Gross profit was $564,409 for 2001, a decrease of $354,288 from $918,697 for 2000. The gross profit percentage was 9% in 2001, a decrease from 14.3% in 2000. The decrease in gross profit was primarily attributable to lower margins on goods shipped by air. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative ("SG&A") expenses were $790,021 or 12.6% of sales for 2001, an increase of $5,195 from $784,826 or 12.2% of sales for 2000. The net increase was a result of decreased commissions and increased professional fees. INTEREST EXPENSE Interest expense for 2001 was $89556 compared to $105,368 for 2000. The decrease in interest was primarily attributable to the decrease in the utilization of existing financing vehicles. 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 2001. Without exercise of those warrants, the Company may need to limit its growth in order to more efficiently manage its available funds and funds generated by operations. 7 The Company is utilizing its line of credit and its credit facility arrangement with a New York factoring company. At May 11, 2001 the Company was not in compliance with the covenants of the loan and expects to pay off the loan during the second quarter of 2001. CAPITAL RESOURCES Since its formation, the Company has financed its operations and met its capital requirements primarily through its public offering, cash flows from operations, customer advances, exercise of Stock Options and credit facilities. 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. As a result of the Macedonian hostilities, Company's revenue has been significantly reduced, causing it to significantly cut all operations in order to reduce overheads. If revenues does not improve the Company will be required to further reduce or even discontinue its operations. 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. Typically, the Company experiences its highest sales in the first and fourth quarters and its lowest sales in the second and third quarters. In 2000 the Company experienced its highest sales in the first and third quarters. 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 8 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: May 21, 2000 RETROSPETTIVA, INC. ------------------- (Registrant) /s/ Hamid Vaghar ------------------------------- Hamid Vaghar Chief Financial Officer (Principal Accounting Officer) 9