<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 JUNE 30, 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
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(State or other Jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
11828 8 ST.
CULVER CITY, CA 90230
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(Address of principal office) (Zip Code)
Registrant's telephone number, including area code: (310) 636-8432
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INAPPLICABLE
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(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, 1997: 2,954,000
Transactional Small Business Disclosure Format Yes /X/ No / /
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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, consumer response to the
Company's products and advertising, and the Company's ability to consummate
its proposed acquisition. 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
PACIFIC COAST APPAREL COMPANY, INC. DBA ACA JOE
CONDENSED BALANCE SHEET
JUNE 30, 1997 JUNE 30, 1996
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(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash $ 20,983 $ 51,688
Short-term investments 1,450,830 -
Due from factors 93,498 1,921
Inventories 1,067,964 183,946
Prepaid expenses and other current assets 132,899 16,282
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Total Current Assets 2,766,174 253,837
PROPERTY AND EQUIPMENT, at cost, net of
accumulated depreciation 156,175 9,207
OTHER ASSETS 78,312 -
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$3,000,661 $ 263,044
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 451,541 $ 316,331
Other current liabilities 178,421 -
Loan payable, officer/stockholder 6,899 382,732
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Total Current Liabilities 636,861 699,063
LONG-TERM DEBT 2,049 4,740
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 5,777,163 653,780
Additional paid-in capital 162,500 162,500
Deficit (3,577,912) (1,257,039)
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Total Stockholders' Equity 2,361,751 (440,759)
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$3,000,661 $ 263,044
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PACIFIC COAST APPAREL COMPANY, INC. DBA ACA JOE
STATEMENT OF OPERATIONS
NINE MONTHS ENDED
JUNE 30
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1997 1996
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(UNAUDITED)
NET SALES $ 630,054 $ 191,626
COST OF GOODS SOLD 474,005 114,976
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GROSS PROFIT 156,049 76,650
OPERATING EXPENSES
Design and Production 160,268 206,628
Selling 274,476 104,431
Advertising 101,835 -
Shipping 11,846 12,330
General and administrative 1,089,513 638,778
Interest expense ( income ) (41,585) 112,187
1,596,353 1,074,354
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LOSS BEFORE INCOME TAXES (1,440,304) (997,704)
PROVISION FOR INCOME TAXES (800) (1,100)
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NET LOSS $(1,441,104) $ (998,804)
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NET LOSS PER SHARE (0.48) (0.62)
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 3,012,000 1,600,000
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PACIFIC COAST APPAREL COMPANY, INC. DBA ACA JOE
STATEMENT OF OPERATIONS
THREE MONTHS ENDED
JUNE 30
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1997 1996
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(UNAUDITED)
NET SALES $ 222,448 $ 135,750
COST OF GOODS SOLD 189,889 81,430
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GROSS PROFIT 32,559 54,320
OPERATING EXPENSES
Design and Production 72,443 90,087
Selling 114,887 34,000
Advertising (2,192) -
Shipping 3,337 6,956
General and administrative 378,754 334,270
Interest expense (income) (16,230) 114,817
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550,999 580,130
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LOSS BEFORE INCOME TAXES (518,440) (525,810)
PROVISION FOR INCOME TAXES (800) (1,100)
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NET LOSS $ (519,240) $ (526,910)
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NET LOSS PER SHARE (0.18) (0.35)
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 2,954,000 1,500,000
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PACIFIC COAST APPAREL COMPANY, INC. DBA ACA JOE
STATEMENT OF CASH FLOW
INCREASE (DECREASE) IN CASH
NINE MONTHS ENDED
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JUNE 30, 1997 JUNE 30, 1996
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(UNAUDITED)
CASH FLOW FROM OPERATION ACTIVITIES
Net loss $(1,441,104) $(998,804)
Adjustment to reconcile net loss to
Cash used by operating activities:
Depreciation 22,096 1,880
Amortization of deferred income - (10,000)
Issuance of stock for services - 57,500
Amortization of interest on loan payable, other - 108,333
Changes in assets and liabilities
Increase in due from factors (93,498) (1,921)
Increase in inventories (810,884) (183,946)
Increase in prepaid expenses
and other current assets (167,429) 5,221
Increase in accounts payable 402,780 247,177
Increase in other current liabilities 63,512 -
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Total Adjustments (583,423) 224,244
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Net cash used by Operating Activities (2,024,527) (774,560)
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of property and equipment (170,233) -
Decrease in short-term investments 2,248,721 -
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Net Cash Provided by Investing Activities 2,078,488 -
CASH FLOW FROM FINANCING ACTIVITIES
Increase in loan receivable, officer/stockholder 14,027
Proceeds from loan payable, officer/stockholders - 30,000
Reacquisition of common stock (142,955) -
Proceeds from issuance of preferred stock - 150,000
Proceeds from issuance of common stock 670
Proceeds(Payments) on loan payable, other 400,000
Payments on long-term debt, other (1,856)
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Net Cash (Used) Provided
by Financing Activities (142,955) 592,841
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NET INCREASE IN CASH (88,994) (181,719)
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CASH, BEGINNING 109,977 $ 233,407
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CASH, ENDING $ 20,983 $ 51,688
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4
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PACIFIC COAST APPAREL COMPANY, INC. DBA ACA JOE
CONDENSED STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
NINE MONTHS ENDED
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JUNE 30, 1997 JUNE 30, 1996
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(UNAUDITED)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
CASH PAID DURING THE PERIOD FOR:
Interest 13,686 112,187
Income Taxes 800 1,100
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PACIFIC COAST APPAREL COMPANY, INC. DBA ACA JOE
CONDENSED STATEMENT OF STOCKHOLDER'S EQUITY
YEAR ENDED SEPTEMBER 30, 1996
AND NINE MONTHS ENDED JUNE 30, 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
Purchase of common stock (116,000) (142,955) - - - - (142,955)
Buy back of common stock (Retired) - - - - - - -
Net loss for the nine months ended
June 30, 1997 - - - - - (1,441,104) (1,441,104)
Balance, June 30, 1997 2,954,000 5,777,163 - - 162,500 (3,577,912) 2,361,751
---------- --------- ------- --------- ------- ----------- ----------
---------- --------- ------- --------- ------- ----------- ----------
</TABLE>
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF 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 introduced a
boys' line similar in style to its men's line in April. The test has been
expanded and the Company is now distributing its boys' line through
department and specialty stores across the United States. The Company uses
independent sales representatives to sell both its men's and boys' lines.
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 costs 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
NINE MONTHS ENDED JUNE 30, 1997
The Company's operating expenses for the nine months ended June 30, 1997
were $1,596,353. The $521,999 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 nine months ended June 30,
7
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1997, net sales were $630,054, and cost of goods sold was $474,005. 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 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 $450,735 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.
NINE MONTHS ENDED JUNE 30, 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 June 30,
1997 is $3,526,267, excluding a one-time preferred stock dividend of $51,645.
Approximately $2,129,313 working capital was available at June 30, 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 experienced some degree of retailer
acceptance. However, sales of the Fall 1997 line have not met expectations.
The Company has been considering a strategic combination with a branded
apparel company, in order to provide more critical mass and to provide
economies of sale. A letter of intent has been signed to purchase the assets
and assume the trade liabilities of Cotton Stuff, Inc., a privately-held
manufacturer of men's and women's casual sportswear under the Cotton Stuff
label; its 1996 sales were approximately $5 million. Consummation of this
transaction is subject to execution of a definitive purchase agreement and
other conditions. There can be no
8
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assurance that this proposed or any other 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 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 $1.26 per share (a total of $144,966).
Management believes these purchases 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.
9
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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
August 12, 1997
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 20,983
<SECURITIES> 1,450,830
<RECEIVABLES> 93,498
<ALLOWANCES> 0
<INVENTORY> 1,067,964
<CURRENT-ASSETS> 2,766,174
<PP&E> 156,175
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,000,661
<CURRENT-LIABILITIES> 636,861
<BONDS> 0
0
0
<COMMON> 5,777,163
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,000,661
<SALES> 630,054
<TOTAL-REVENUES> 630,054
<CGS> 474,005
<TOTAL-COSTS> 474,005
<OTHER-EXPENSES> 1,596,353
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,440,304)
<INCOME-TAX> (800)
<INCOME-CONTINUING> (1,441,104)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,441,104)
<EPS-PRIMARY> (0.48)
<EPS-DILUTED> 0
</TABLE>
