<PAGE>
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 MARCH 31, 1997
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 (I.R.S. Employer Identification No.)
incorporation or organization)
11828 Teale St.
CULVER CITY, CA 90230
(Address of principal office) (Zip Code)
Registrant's telephone number,
including area code (310) 636-8432
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, 1997 2,954,000
Transactional Small Business Disclosure Format Yes / / No / X /
<PAGE>
FORWARD-LOOKING INFORMATION
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, could cause actual
results and future events to differ materially from those set forth or
contemplated in the forward-looking statements: economic conditions,
competitive products and pricing, new product development, the Company's lack
of operating history and the prolonged absence of ACA JOE products from the
market place, the need for additional capital, 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 annual report on Form
10-KSB and other reports filed from time to time with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934.
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
1
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PACIFIC COAST APPAREL COMPANY, INC. dba ACA JOE
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31, 1997 SEPTEMBER 30, 1996
------------------ ------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 52,027 $ 109,977
Short-term investments 1,961,897 3,699,551
Due from factors 129,547 -
Inventories 846,593 257,083
Prepaid expenses and other current assets 108,509 30,000
----------- -----------
Total Current Assets 3,098,573 4,096,611
PROPERTY AND EQUIPMENT, at cost, net of
accumulated depreciation 166,162 8,514
OTHER ASSETS 77,248 13,782
----------- -----------
$ 3,341,983 $ 4,118,907
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Due to factors $ - $ 5,000
Accounts Payable 276,289 44,240
Other current liabilities 177,726 114,909
Loan payable, officer/stockholder 6,899 6,899
----------- -----------
Total Current Liabilities 460,914 171,048
LONG-TERM DEBT 2,049 2,049
STOCKHOLDER'S EQUITY
Preferred stock
Authorized, 600,000 shares
No shares outstanding - -
Common stock, no par value
Authorized, 10,000,000 shares
issued and outstanding 2,954,000
and 3,070,000 shares 5,775,152 5,920,118
Additional paid-in capital 162,500 162,500
Deficit (3,058,632) (2,136,808)
----------- -----------
Total Stockholders' Equity 2,879,020 3,945,810
----------- -----------
$ 3,341,983 $ 4,118,907
----------- -----------
----------- -----------
</TABLE>
Page 2
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PACIFIC COAST APPAREL COMPANY, INC. dba ACA JOE
STATEMENT OF OPERATIONS
SIX MONTHS ENDED
MARCH 31
1997 1996
---- ----
NET SALES $ 407,606 $ 55,876
COST OF GOODS SOLD 284,404 33,546
---------- ---------
GROSS PROFIT 123,202 22,330
OPERATING EXPENSES
Design and Production 87,799 116,541
Selling 159,212 70,431
Advertising 104,027 -
Shipping 8,509 5,374
General and administrative 710,033 304,508
Interest expense ( income ) (25,354) (2,630)
---------- ---------
1,044,226 494,224
---------- ---------
LOSS BEFORE INCOME TAXES (921,024) (471,894)
PROVISION FOR INCOME TAXES (800) (1,100)
---------- ---------
NET LOSS $ (921,824) $ (472,994)
---------- ---------
---------- ---------
NET LOSS PER SHARE (0.31) (0.34)
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 3,012,000 1,400,000
Page 3
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PACIFIC COAST APPAREL COMPANY, INC. dba ACA JOE
STATEMENT OF OPERATIONS
THREE MONTHS ENDED
MARCH 31
1997 1996
---- ----
NET SALES $ 351,971 $ 55,876
COST OF GOODS SOLD 263,656 33,546
---------- ---------
GROSS PROFIT 88,315 22,330
OPERATING EXPENSES
Design and Production 67,295 93,162
Selling 126,737 70,431
Advertising 97,562 -
Shipping 6,318 5,374
General and administrative 374,330 180,676
Interest expense ( income ) (14,967) (748)
---------- ---------
657,275 348,895
---------- ---------
---------- ---------
LOSS BEFORE INCOME TAXES (568,960) (326,565)
PROVISION FOR INCOME TAXES (800) (300)
---------- ---------
NET LOSS $ (569,760) $ (326,865)
---------- ---------
---------- ---------
NET LOSS PER SHARE (0.19) (0.23)
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 2,954,000 1,400,000
Page 4
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PACIFIC COAST APPAREL COMPANY, INC. dba ACA JOE
STATEMENT OF CASH FLOW
INCREASE (DECREASE) IN CASH
SIX MONTHS ENDED
(UNAUDITED)
MARCH 31, 1997 MARCH 31, 1996
-------------- --------------
CASH FLOW FROM OPERATION ACTIVITIES
Net loss $ (921,824) $ (472,994)
Adjustment to reconcile net loss to
Cash used by operating activities:
Depreciation 13,038 1,187
Amortization of deferred income - -
Changes in assets and liabilities
Increase in due from factors (129,547) 25,960
Increase in inventories (589,510) (129,462)
Increase in prepaid expenses
and other current assets (141,975) (3,490)
Increase in accounts payable 227,048 115,754
Increase in other current liabilities 62,817 -
----------- ---------
Total Adjustments (558,129) 9,949
----------- ---------
Net cash used by operating Activities (1,479,953) (463,045)
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of property and equipment (170,685) -
Proceeds from receipts of deferred income - (10,000)
Decrease in short-term investments 1,737,654 -
----------- ---------
Net Cash Provided by Investing Activities 1,566,969 (10,000)
CASH FLOW FROM FINANCING ACTIVITIES
Increase in loan receivable,
officer/stockholder - 42,307
Reacquisition of common stock (144,966) -
Proceeds from issuance of long-term debt - 101,153
Proceeds from issuance of stock - 150,650
----------- ---------
Net Cash (Used) Provided
by Financing Activities (144,966) 294,110
----------- ---------
NET INCREASE IN CASH (57,950) (178,935)
----------- ---------
CASH, BEGINNING 109,977 233,407
CASH, ENDING $ 52,027 $ 54,472
----------- ---------
----------- ---------
Page 5
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PACIFIC COAST APPAREL COMPANY, INC. dba ACA JOE
CONDENSED STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
SIX MONTHS ENDED
(UNAUDITED)
MARCH 31, 1997 MARCH 31, 1996
-------------- --------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
CASH PAID DURING THE PERIOD FOR:
Interest 10,921 11,764
Income Taxes 800 1,100
Page 6
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PACIFIC COAST APPAREL COMPANY, INC. dba ACA JOE
CONDENSED STATEMENT OF STOCKHOLDER'S EQUITY
YEAR ENDED SEPTEMBER 30, 1996
AND SIX MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
CONVERTIBLE TOTAL
COMMON STOCK PREFERRED STOCK ADDITIONAL STOCKHOLDERS'
---------------------- ---------------------- PAID - IN EQUITY
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT (DEFICIENCY)
---------- ---------- ---------- ---------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, October 1, 1995 1,400,000 $ 20,610 170,000 $ 425,000 $ - $ (258,235) $ 187,375
Issuance of stock for services 23,000 57,500 - - - - 57,500
Sale of stock 2,000 20 60,000 150,000 - - 150,020
Value of warrants issued in connection
with a loan - - - - 162,500 - 162,500
Exercise of warrants 65,000 650 - - - - 650
Conversion of preferred stock to
common stock 230,000 575,000 (230,000) (575,000) - - -
Issuance of stock in public offering 1,350,000 5,266,338 - - - - 5,266,338
Dividends on preferred stock - - - - - (51,645) (51,645)
Net loss for the year ended
September 30, 1996 - - - - - (1,826,928) (1,826,928)
---------- ---------- ---------- ---------- ----------- ----------- -------------
Balance, September 30, 1996 3,070,000 5,920,118 - - 162,500 (2,136,808) 3,945,810
Reacquisition of common stock (116,000) (144,966) - - - - (144,966)
Net loss for the six months ended
March 31, 1997 - - - - - (921,824) (921,824)
---------- ---------- ---------- ---------- ----------- ----------- -------------
Balance, March 31, 1997 2,954,000 5,775,152 - - 162,500 (3,058,632) 2,879,020
---------- ---------- ---------- ---------- ----------- ----------- -------------
---------- ---------- ---------- ---------- ----------- ----------- -------------
</TABLE>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
INTRODUCTION
The Company was formed in April 1995 for the purpose of designing,
sourcing and marketing the ACA JOE brand of men's casual sportswear, pursuant
to an exclusive U.S. trademark license. The Company sources and designs the
ACA JOE products through the use of sub-contractors and independent agents,
which allows the Company to avoid the fixed overhead cost of maintaining its
own production facilities. The business strategy of the Company is primarily
focused on reintroducing the ACA JOE products in the United States through
national and regional advertising, marketing and customer service programs
designed to promote the ACA JOE name and products. Specifically, the Company
is focusing its efforts on: (1) expanding its distribution in the department
store and retail men's specialty store categories; (2) developing targeted
licensees in the accessories categories; (3) further developing its Quick
Response Program for the basic apparel collection for better customers; and
(4) developing alternative marketing techniques. The Company is using the
net proceeds of its August 1996 initial public offering (approximately
$5,267,000) to implement its business strategy.
During the development stage of the Company, the Company's primary
activities have included product development and design, organizing the sales
force, marketing, arranging for production sources, and the opening of a
retail outlet store. The cost of products sold includes design, selling,
shipping, and general and administrative expenses. To date, the Company has
not capitalized development costs associated with the development of the ACA
JOE products and has instead expensed all payroll and related costs for such
development. Design expenses consist of payments to sub-contractors for
design and development of new product lines. Selling expenses consist
primarily of salaries, commissions and administrative costs associated with
the Company's payroll and marketing personnel. General and administrative
expenses include the costs of consultants and other administrative functions
of the Company.
RESULTS OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1997
The Company's operating expenses for the six months ended March 31, 1997
were $1,044,226. The $550,002 increase over the prior year period reflects
an increase in selling, design and general and administrative expenses
incident to the commencement of operations, specifically the selling and
shipping of its ACA JOE products and the company's first major production
introduction. During the six months ended March 31, 1997, net sales were
$407,606, and cost of goods sold was $284,404. While operating expenses were
disproportionally large in relation to sales, management believes that if
sales increase, design and general and administrative expenses will decline
substantially
8
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as a percentage of sales. There can be no assurance, however, that the
Company will operate profitably in the future.
The advertising expense in the period reflects primarily a monthly
retainer paid to an advertising firm from December 1996 to March 1997. This
program has been discontinued for the present, in favor of co-operative
advertising with retailers. The $405,525 increase in general and
administrative expenses over the prior period resulted primarily from
expenses related to increased production and quality control, and increased
administrative expenses due to the change in status from a private to a
publicly-held company.
SIX MONTHS ENDED MARCH 31, 1996
The Company began conducting business in August of 1995. The Company's first
shipment of product took place in February 1996. Design expenses were
incurred primarily to design the Company's initial line of ACA JOE products.
The general and administrative expenses relate primarily to accounting, legal
and consulting fees associated with the start-up expenditures of the Company.
LIQUIDITY AND CAPITAL RESOURCES
In September 1996, the Company realized net proceeds of approximately
$5,267,000 from an initial public offering of common stock and warrants to
purchase common stock. A portion of these proceeds was used to repay all of
the indebtedness then outstanding.
The Company experienced losses from operations of $258,335 for the
period from April 28, 1995 (inception) to September 30, 1995 and $1,826,928
for the year ended September 30, 1996. The cumulative loss through March 31,
1997 is $3,206,987, excluding a one-time preferred stock dividend of $51,645.
Approximately $2,637,659 of working capital was available at March 31, 1997.
Sales of the Company's initial, Spring 1997 product line did not meet
expectations. To remedy this, the Company retained a new designer to create
its Fall 1997 line, and retained an advertising firm to develop and implement
a marketing program. The Fall 1997 line is experiencing a degree of retailer
acceptance to date. At March 31, 1997, the Company had obtained orders from
approximately 150 stores. Sell through of products (i.e., consumer
acceptance) is not yet known, however. If sales of the Fall 1997 line do not
meet expectations, the Company would likely require additional capital. The
Company is also considering a strategic combination with a branded apparel
company, in order to provide more critical mass and to provide economies of
sale. However, there can be no assurance that any such strategic combination
will be consummated.
In the event of unanticipated developments or to satisfy future funding
requirements, the Company may seek to fund its operations through public or
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
9
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terms acceptable to the Company. If adequate financing is not available, 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 itself.
In November 1996, following a decline in the market price of the
Company's common stock, the Board authorized the Company's purchase of up to
150,000 shares of its common stock. From December 1996 to March 1997, the
Company purchased a total of 116,000 shares of its common stock in the open
market at an average price of $1.25 per share (a total of $144,966).
Management believes these purchases at current price levels were in the
interests of the Company and its shareholders, and will not affect the
Company's ability to fund its business plan for the remainder of the current
fiscal year. This program has now been discontinued.
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K.
None.
10
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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 13, 1997
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 52,027
<SECURITIES> 1,961,897
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 846,593
<CURRENT-ASSETS> 3,098,573
<PP&E> 184,743
<DEPRECIATION> 18,581
<TOTAL-ASSETS> 3,341,983
<CURRENT-LIABILITIES> 460,914
<BONDS> 0
0
0
<COMMON> 5,775,152
<OTHER-SE> (2,896,132)
<TOTAL-LIABILITY-AND-EQUITY> 3,341,983
<SALES> 407,606
<TOTAL-REVENUES> 407,606
<CGS> 284,404
<TOTAL-COSTS> 284,404
<OTHER-EXPENSES> 1,044,226
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (921,024)
<INCOME-TAX> 800
<INCOME-CONTINUING> (921,824)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (921,824)
<EPS-PRIMARY> (.31)
<EPS-DILUTED> (.31)
</TABLE>
