<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, 1998
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.
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(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)
1620 SO. LOS ANGELES ST.
LOS ANGELES, CA 90015
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(Address of principal office) (Zip Code)
Registrant's telephone number, including area code: (213) 748-9724
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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 March 31, 1998: 2,958,000
Transactional Small Business Disclosure Format Yes /X/ No / /
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1
PACIFIC COAST APPAREL CO., INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended March 31
---------------------------
1998 1997
---- ----
<S> <C> <C>
NET SALES $1,349,148 $407,606
COST OF GOOD SOLD 668,925 284,404
GROSS (LOSS) PROFIT 680,223 123,202
OPERATING EXPENSES
Design and production 189,335 87,799
Selling 232,451 263,239
Shipping 54,497 8,509
General and administrative 314,892 710,033
Interest (income) expense 14,138 (25,354)
Total Operating Expenses 805,313 1,044,226
LOSS BEFORE INCOME TAXES (125,090) (921,024)
PROVISION FOR INCOME TAXES 0 (800)
NET LOSS ($125,090) ($921,824)
NET LOSS PER SHARE (0.04) (0.31)
WEIGHTED AVERAGE NUMBER OF 2,958,000 3,012,000
COMMON SHARES OUTSTANDING
</TABLE>
See notes to condensed financial statements
<PAGE>
2
PACIFIC COAST APPAREL CO., INC.
BALANCE SHEET
MARCH 31, 1997
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $38,851
Due from factors $329,862
Accounts receivable $59,052
Inventories $793,780
Prepaid expenses and other current assets $55,146
Note receivable, stockholder $10,000
Total current assets $1,286,691
PROPERTY AND EQUIPMENT - at cost, net of $124,218
accumulated depreciation
OTHER ASSETS $26,542
$1,437,451
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $272,658
Accrued expenses $219,571
Current maturities of long-term debt $108,000
Total current liabilities $600,229
LONG TERM DEBT, LESS CURRENT MATURITIES $165,462
NEGATIVE GOODWILL $166,798
STOCKHOLDERS' EQUITY
Preferred stock
Authorized, 600,000 shares
No shares outstanding
Common stock - no par value $5,452,718
Authorized, 1,000,000 shares
Issued and outstanding 2,958,000 shares
Additional paid-in capital $479,860
Deficit ($5,427,616)
Total stockholders' equity $504,962
$1,437,451
</TABLE>
See notes to condensed financial statements
<PAGE>
3
Page 1 of 2
PACIFIC COAST APPAREL CO., INC.
CONDENSED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
Three Months Ended March 31
---------------------------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ($125,090) ($921,824)
Adjustments to reconcile net loss to
cash used by operating activities:
Depreciation $9,247 $13,038
Amortization of negative goodwill ($2,884)
Changes in assets and liabilities, net
of effect of assets and liabilities
acquired:
Increase in due from factors ($102,914) ($129,547)
Decrease in accounts receivable ($24,130)
Increase in inventories $116,721 ($589,510)
Increase in prepaid expenses and ($14,001) ($141,975)
other current assets
Increase in other assets ($5,000)
Increase in accounts payable ($52,824) $227,048
Increase (decrease) in accrued expenses $19,351 $62,817
Total Adjustments ($56,434) ($558,129)
Net Cash Used By Operating Activities ($181,524) ($1,479,953)
</TABLE>
See notes to condensed financial statements
<PAGE>
4
Page 2 of 2
PACIFIC COAST APPAREL CO., INC.
CONDENSED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
Three Months Ended March 31
---------------------------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment ($3,401) ($170,685)
Decrease in short term investments $1,737,654
Net Cash (used) Provided by ($3,401) $1,566,969
Investing Activities
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long term debt ($27,342)
Reacquisition of common stock ($144,966)
Net Cash Used by
Financing Activities ($27,342) ($144,966)
NET DECREASE IN CASH AND
CASH EQUIVALENTS ($212,267) ($57,950)
CASH AND CASH EQUIVALENTS, beginning
as previously stated $251,118 $109,977
CASH AND CASH EQUIVALENTS,
beginning, as restated $251,118 $109,977
CASH AND CASH EQUIVALENTS, ending $38,851 $52,027
</TABLE>
See notes to condensed financial statements
<PAGE>
5
PACIFIC COAST APPAREL CO., INC.
CONDENSED STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
<TABLE>
<CAPTION>
Three Months Ended March 31
---------------------------
1998 1997
---- ----
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash paid during period for:
Interest $14,138 $10,921
Income Taxes $800
</TABLE>
See notes to condensed financial statements
<PAGE>
6
PACIFIC COAST APPAREL CO., INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1997
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 with 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,
1997
See notes to condensed financial statements
<PAGE>
7
PACIFIC COAST APPAREL CO., INC.
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
YEAR ENDED SEPTEMBER 30, 1997
AND THE SIX MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
Common stock Preferred stock Additional Total
---------------------- ------------------------ Paid-in Stockholders'
Shares Amount Shares Amount Capital Deficit Equity
<S> <C> <C> <C> <C> <C> <C> <C>
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
Reacquisition of stock during the
year ended September 30, 1997 (121,000) ($471,900) $317,360 ($154,540)
Net loss for the year ended
September 30, 1997 ($3,035,423) ($3,035,423)
---------- ----------- ------- ------- --------- ----------- -----------
Balance, September 30, 1997, 2,958,000 $5,452,718 0 $0 $479,860 ($5,172,231) $760,347
as previously reported
Prior period adjustment, (Note 2) $81,085 $81,085
---------- ----------- ------- ------- --------- ----------- -----------
Balance, September 30, 1997, 2,958,000 $5,452,718 0 $0 $479,860 ($5,091,146) $841,432
as restated
Net loss for the six months ended
March 31, 1997 ($336,470) ($336,470)
---------- ----------- ------- ------- --------- ----------- -----------
Balance, March 31, 1997 2,958,000 $5,452,718 0 $0 $479,860 ($5,427,616) $504,962
</TABLE>
See notes to condensed financial statements
<PAGE>
Item 2. Management's discussion and analysis or plan of operation
Introduction
The Company was formed in April 1995 with the business strategy of
reintroducing the Aca Joe apparel brand through major department stores in the
United States. The Company's focus initially was to capitalize on the
strength of the Aca Joe name and the perceived value of the apparel products.
To date, the Company has not been successful in placing product in the
target market of the major department stores nor has it been successful in
placing significant product in the secondary market which is the specialty
store base. The Company believes that it's lack of success is due to a
number of factors including, lack of direction in the design of the apparel
and the continued erosion of smaller vendors from the department store matrix
system. In addition, the continued prolific growth of the major men's
designers; which include Polo, Nautica and Tommy Hilfiger, in the category
in which the Company competes has limited the floor space available to
potential new vendors. The department store buyers are more likely to give
additional floor space to successful existing vendors that historically have
produced significant dollar sales per square foot than they are to use their
resources to test new vendors.
After the disappointing results for Aca Joe from the major men's show in
February, the Company has decided to funnel it's resources into the continued
development of the Cotton Stuff men's line. Orders that were taken for Aca Joe
styles during and immediately after the February show were converted to
corresponding styles of items in the Cotton Stuff men's line which proved to be
successful since both the Cotton Stuff and Aca Joe men's lines were targeted to
the same market.
In February, the Company amended it's exclusive license agreement with
Action Down Under, Ltd, the owners of the Aca Joe trademark, to allow for the
sub-licensing of the boy's line to Happy Kids Ltd. a manufacturer and licensor
of branded children's wear. The Company is guaranteed $12,500 per year as a
minimum payment and will receive 2.5% of the revenues generated from the sale of
boy's apparel under the Aca Joe label. In conjunction with this agreement, the
Company was able eliminate the cost of development of the boy's line.
The Company continues to develop both the Cotton Stuff men's and the Cotton
Stuff women's line. The Company purchased the assets of Cotton Stuff in August
1997.
The Cotton Stuff lines are sold through better catalogs such as Saks Folio,
better specialty stores such as Fred Siegel, Neiman Marcus and Bloomingdales.
<PAGE>
On 10, March 1998, the Company announced the signing of a letter of
intent to purchase CMG a privately owned, Los Angeles based designer and
manufacturer of women's and men's apparel. CMG revenues were in excess of
$65 million in 1997. CMG sells to department stores including Federated,
Dayton Hudson, Dillard's and Proffit's under the company's brand name Chazzz.
In addition to it's branded business, CMG produces private label apparel for
J.C. Penney, Sears, Mervyn's and other major chains. CMG headquarters in Los
Angeles and has offices in Hong Kong and Mexico. The companies plan to
integrate their operations upon closing. The companies currently share
warehouse and administrative facilities in Los Angeles. The Company is in
the process of identifying an investment banker, drafting a definitive
purchase agreement and obtaining financing to complete the acquisition of the
assets of CMG. There is no certainty that the Company will be successful in
closing this acquisition.
QUARTER END MARCH 31, 1998
The results of the quarter ended March 31, 1998 reflect an increase in
Cotton Stuff revenues over the comparable period ended March 1997 of
approximately 14.1 %. Revenues from the Aca Joe line are the results of selling
off the majority of out of season fabrics and finished goods to wholesalers. No
significant retail sales were generated from the Aca Joe brand. The Company has
eliminated the majority of the overhead which was associated with the
development of the Aca Joe line.
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 was used to repay the
approximately $550,000 of indebtedness then outstanding. The Company has
experienced cumulative losses from operations of $(5,302,526) for the period
from April 28, 1995 (inception) through March 31, 1998.
In February the Company was notified that it was out of compliance of the
net tangible asset requirement which became effective February 23, 1998 for
maintaining it's listing on NASDAQ SmallCap Market. The CEO and Controller of
the Company made an oral presentation before a NASDAQ Listing and Qualifications
Panel in Washington DC on March 25, 1998 to discuss the violation and it's plan
for compliance. On April 15, 1998 the Company was notified by counsel to the
NASDAQ Listing and Qualifications Panel, that it had been granted an exemption
to the requirement and would be allowed to continue it's listing.
<PAGE>
The exemption expires May 15, 1998 at which time the Company must meet the
net tangible asset requirement.
May 13, 1998 the Company contacted the NASDAQ Hearings Qualifications Panel
and requested an extension to the exemption stating that it had not been able
to meet the net tangible asset requirement. The hearings panel requested that
the Company provide information necessary for the panel to evaluate its
request. The Company has complied with the panel's request.
As of this filing the Company has not received a decision regarding its
request for an extension to the exemption from the NASDAQ Qualifications
Hearings Panel. In the event the panel does not award an extension, the
Company's securities could cease to be listed on the NASDAQ Small Cap Market.
The securities would be listed on the OTC Bulletin Board. During the
exemption the Company's NASDAQ Symbol has been ACAJC. The Company's warrant
is listed as ACAWC.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 38,851
<SECURITIES> 0
<RECEIVABLES> 388,914
<ALLOWANCES> 0
<INVENTORY> 793,780
<CURRENT-ASSETS> 1,286,691
<PP&E> 124,218
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,437,451
<CURRENT-LIABILITIES> 600,229
<BONDS> 0
0
0
<COMMON> 5,452,718
<OTHER-SE> (4,947,756)
<TOTAL-LIABILITY-AND-EQUITY> 1,437,451
<SALES> 1,349,148
<TOTAL-REVENUES> 1,349,148
<CGS> 668,925
<TOTAL-COSTS> 680,223
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (125,090)
<INCOME-TAX> 0
<INCOME-CONTINUING> (125,090)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (125,090)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> 0
</TABLE>
