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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(MARK ONE)
[X] ANNUAL REPORT UNDER TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999
[ ] TRANSITION REPORT UNDER TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-28760
PACIFIC COAST APPAREL COMPANY, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
CALIFORNIA 95-4536683
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
</TABLE>
50 RIDGECREST ROAD
KENTFIELD, CA 94904
(Address of principal executive offices)
ISSUER'S TELEPHONE NUMBER: (415) 925-0386
-----------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE EXCHANGE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE EXCHANGE ACT:
Common Stock, no par value
Common Stock Purchase Warrants
(Title of Class)
Check whether the registrant (1) has filed all reports required to be
filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 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 [ ] .
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X].
The registrant's revenues for the fiscal year ended September 30, 1999
were $4,062,468.
As of December 31, 1999, the aggregate market value of the registrant's
Common Stock held by non-affiliates of the registrant, based on the closing
price for the registrant's Common Stock on the OTC Bulletin Board on such date,
was approximately $217,312. This calculation does not reflect a determination
that certain persons are affiliates of the registrant for any other purposes.
The number of shares of Common Stock outstanding on September 30, 1999
was 3,064,000.
Transitional Small Business Disclosure Format: Yes [ ] No [X].
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FORWARD LOOKING STATEMENTS
In addition to historical information, this Annual 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 discussed herein, could cause actual results and
future events to differ materially from those set forth or contemplated in the
forward-looking statement: economic conditions, competitive products, pricing,
new product development, need for additional capital, development of the Cotton
Stuff business, 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 other reports to be filed from time to time with the Securities and
Exchange Commission pursuant to the Securities and Exchange Act of 1934.
ITEM 1. DESCRIPTION OF BUSINESS
SUMMARY
Pacific Coast Apparel Company, Inc. ("the Company") was incorporated in
California in April 1995 to design, source and market in the United States a
collection of men's active sportswear under the brand name "Aca Joe" -Registered
Trademark- through traditional department stores and men's specialty stores. In
August 1997 the Company acquired the assets and business of Cotton Stuff, Inc.
Because of the Company's inability to generate sufficient revenues it decided
not to renew it's exclusive Aca Joe license agreement and ceased doing business
under it's license with Action Down Under, Ltd. in June 1998.
Cotton Stuff apparel is a collection of both men's and women's
garment-dyed, better sportswear which is sold across the United States through
better catalogs including Saks Folio, Coldwater Creek, Neiman Marcus and
Nordstrom, better specialty stores such as Fred Segal, Bloomingdales and My
Friends Place and selected department stores including Macy's.
On September 30, 1999, the Company signed an agreement with Capital
Factors, Inc., allowing representatives of Capital Factors, Inc. to take
possession of the majority of its operating assets. Specifically those assets
which Capital Factors had taken as collateral for loans and over advances to the
Company under a Factoring Agreement dated September 8, 1997. Under the Factoring
Agreement, the Company gave Capital Factors, Inc. a first lien on accounts
receivable, cash and various other assets. The Company received written notice
of default from Capital Factors, Inc. pursuant to Section 9504(3) of the
California Uniform Commercial Code.
On September 30, 1999, the Company entered into an agreement with Robert
P. Mulder, Inc. d/b/a/ Evans Unlimited to purchase the balance of the Company's
assets, which included certain inventory, all trademarks and trade names and the
associated goodwill, orders, piece goods and equipment. The agreement called for
Robert P. Mulder, Inc. to pay Capital Factors, $110,000 representing the balance
of the secured debt owed to Capital Factors by the Company. In addition, Robert
P. Mulder, Inc. agreed to pay an additional $40,000 which was deposited in the
trust account of the law firm of Ezra, Brutzkus and Gubner, the Company's
counsel. These funds were used to pay unsecured creditors claims. In addition,
Robert P. Mulder, Inc. deposited an additional $10,000 in to the trust account
of the Company's counsel which was to defer legal fees associated with the
distribution of the assets to the Company's unsecured creditors.
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BUSINESS
The Company has no ongoing business operations. The primary activity of
the Company currently is to settle creditors claims. The Company has recently
begun speaking with several apparel companies who could be potential acquisition
candidates. The Company's ability to consummate an acquisition or merger is
subject to numerous uncertainties and conditions including the ability to obtain
financing on terms satisfactory to the Company and its merger/acquisition
target.
MARKETING
The Company has no ongoing marketing activities.
SIGNIFICANT CUSTOMERS
The Company has no customers.
EMPLOYEES
As of September 30, 1999, the Company had one employee.
LICENSE AGREEMENT
The Company signed an agreement to license the Cotton Stuff men's
sportswear line to 34 Degrees North, Inc. The Company assigned this license
agreement as part of the sale of its assets to Robert P. Mulder, Inc.
SELECTED FINANCIAL DATA
The statement of operations data set forth below for the years ended
September 30, 1998, 1999 (1998 and 1999 financial statements not presented
herein) and 1999 and the balance sheet data as of September 30, 1998, 1999 (1998
and 1999 financial statements not presented herein) and 1999 have been derived
from the audited financial statements of the Company. The selected financial
data set forth below should be read in conjunction with "Management's Discussion
and Analysis or Plan of Operation" and the financial statements of the company,
including the notes thereto, included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1999
<S> <C> <C> <C>
STATEMENT OF OPERATIONAL DATA
(IN THOUSANDS EXCEPT PER SHARE DATA)
Net Sales 1,270 $ 4,474 $ 4,062
Cost of Sales 1,943 2,655 2,612
Gross Profit (673) 1,819 1,450
Operating Expenses:
Design 227 226 331
Selling 748 826 553
Shipping 91 51 268
General and Administrative 1,233 1,633 1,070
Interest (Income) Expense (21) 70 82
Total Operating Expenses 2,278 2,806 2,225
</TABLE>
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<TABLE>
<S> <C> <C> <C>
Loss before Income Taxes (2,951) (951) (758)
Provision for Income Taxes (3) (2) (1)
Net Loss (2,954) (989) (759)
Basis Net Loss per Share $ (0.99) $ (.33) $ (.25)
Weighted Average Common Stock 1,850,000 2,974,000 3,064,000
Outstanding
BALANCE SHEET DATA (IN THOUSANDS)
Total Assets $ 1,684 $ 798 $ 63
Total Liabilities 923 944 (904)
(Accumulated Deficit) (5,172) (6,079) (6,839)
Shareholders Equity 760 (146) (904)
</TABLE>
CERTAIN RISK FACTORS
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING.
The Company does not have capital resources. There can be no assurances
that additional funds will be available on acceptable terms. If additional funds
are raised by issuing equity securities, substantial dilution to existing
shareholders may occur. If adequate funds are not available, it may be necessary
for the Company to file for protection under The United States Bankruptcy Code.
ILLIQUIDITY OF TRADING MARKET. The Company lost its NASDAQ SmallCap
listing in May 1998 because it could not maintain the Net Tangible Asset
Requirement of at least $2 million. Until January 26, 2000, the Company shares
have been trading on the OTC Bulletin Board under the symbol (ACAJ). On January
27, 2000 the Company lost its listing on the OTC Bulletin Board for failure to
file the necessary form 10-KSB. The Company's shares are now traded on the Pink
Sheets. As a result of the de-listing, the shareholders may find it more
difficult to dispose of or obtain accurate quotations as to the price of the
Company's securities. In addition the securities have become subject to the
so-called "penny stock" rules that impose additional sales practice and market
making requirements on broker-dealers who sell or make a market in the
securities and adversely affect the ability of shareholders to sell their
securities.
DEPENDENCE ON KEY PERSONNEL. The Company's success largely depends on
the personal efforts and abilities of Terrence L. McGovern, founder, chairman of
the board, chief executive officer and chief financial officer.
POTENTIAL ADVERSE EFFECT OF OUTSTANDING STOCK OPTIONS AND WARRANTS. As
set forth elsewhere herein (see "Index to Financial Statements Notes to the
Financial Statements Notes 11 and 12"), various warrants and options to purchase
the Company's common stock are outstanding and additional stock options are
authorized for issuance. For the term of these warrants and options, the holders
thereof will have, at nominal cost, the opportunity to profit from a rise in the
market price of the common stock without risk of ownership, with a resulting
dilution in the interest of the other security holders. As long as warrants and
options remain unexercised, the Company's ability to obtain additional capital
might be adversely affected. Moreover, the holders of the warrants and options
may be expected to exercise such warrants or options at a time when the Company
would, in all likelihood, be able to obtain any needed capital by a new offering
of its securities on terms more favorable than those provided in such warrants
or options.
NO DIVIDENDS. The Company has paid no dividends of its Common Stock and
does not anticipate doing so in the foreseeable future. Dividends will only
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be paid at such time as the cash flow of the Company is sufficient to justify
such payments.
BLANK CHECK PREFERRED STOCK. The Company is authorized to issue 600,000
shares of preferred stock on terms determined by the Board of Directors without
the need for shareholder approval. The issuance of preferred stock in the future
could dilute the common shareholders and discourage or impede a tender offer,
proxy contest or similar transaction involving a potential change in control by
the Company, which transaction might be viewed favorably by other shareholders.
GOING CONCERN CONSIDERATION. The Company has incurred significant losses
from operations and has a net deficit in accumulated earnings and stockholders'
deficiency. These factors raise substantial doubt about the Company's ability to
continue as a going concern. In the event the Company is unable to raise
additional capital, increase revenues and lower expenses, the Company may be
forced to liquidate.
SHARES ELIGIBLE FOR FUTURE SALE. Sales of shares of common stock by
existing shareholders, or by exiting holders of warrants, under Rule # 144 of
the Securities Act, or pursuant to the exercise of registration rights or
otherwise, could have an adverse effect on the price of the Company's common
stock. Certain current shareholders of the Company executed lock-up agreements
with the underwriter of the Company's initial public offering that restrict the
public sale or disposition of such shares until March or September 1997. These
shares are now eligible for sale in the public market subject to compliance with
Rule # 144 under the Securities Act of 1933.
EXECUTIVE OFFICERS AND KEY EMPLOYEES OF THE REGISTRANT.
The executive officer and key employee of the Company are:
<TABLE>
<CAPTION>
Year Joined
Name Age Position Company
---- --- -------- -----------
<S> <C> <C> <C>
Terrence L. McGovern 50 CEO/Chairman 1995
</TABLE>
ITEM 2. DESCRIPTION OF PROPERTY.
The Company leases its headquarters at 50 Ridgecrest Road, Kentfield,
California 94904. The monthly rental is $1.00
ITEM 3. LEGAL PROCEEDINGS
The Company is currently involved in a law suit which was filed by Ms.
Jill Grossman, the Company's former sales manager. Ms. Grossman terminated her
employment with the Company on September 22, 1997. Ms. Grossman claims she is
owed approximately $440,000 of compensation due under an employment agreement.
The Company filed a cross complaint against Ms. Grossman based on the belief
that, among other things, Ms. Grossman breached the employment agreement.
Although the outcome of the litigation cannot be predicted with
certainty, management believes that the Company has meritorious defenses to the
claims alleged and intends to defend this action with vigor. There are no
assurances that the Company will able to raise the funds necessary to defend its
action with Ms. Grossman.
In March 1998, the Company entered into a settlement agreement with OWN,
Inc., the Company's former advertising agency, arising from a judgment rendered
by the American Arbitration Association against the Company. The settlement
agreement called for the Company to pay to OWN, Inc. the sum of $69,593.99 to
satisfy all claims. The Company appealed the decision of the arbitrator but was
unsuccessful in changing the determination of the arbitrator.
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The arbitration stemmed from a disagreement between the parties. OWN,
Inc. was the advertising agency of the Company from December 1996 until
terminated by the Company two months prior to the expiration of the agreement in
September 1997. The Company terminated the agreement because it believed that
OWN, Inc. had not performed under the terms of the agreement. The termination
provision in the agreement called for a two month notice with payment of $22,000
per month. The settlement represented two months termination fee, plus prior out
of pocket expenses and interest. The settlement has been paid in full and the
Company has no further obligations to OWN, Inc.
In March 2000, the Company's counsel was served with a levy from the Los
Angeles Sheriff's department and the Company's trust account was attached. The
Plaintiff was IRA Capital Corporation which received a judgement against the
Company in the amount of $105,057.43 for the nonpayment of a promissory note.
The total amount due the judgement creditor including fees is said to be
$108,716.33. The Company attempted to settle this obligation but was
unsuccessful.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Inapplicable.
PART II
ITEM 5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
(a) The Company's common stock trades under the symbol "ACAJ" on the
Pink Sheets. The Company's warrants to purchase common stock at $6.00 per share
(which warrants expire August 22, 2001) also trade on the Pink Sheets under the
symbol "ACAJW"
The following table sets forth the range of high and low closing sale
prices for the common stock and the warrants on the OTC Bulletin Board for the
period from October 1, 1997 to September 30, 1999. These quotations reflect
inter-dealer prices without retail markups or markdowns or commissions and may
not represent the actual cost of transactions.
<TABLE>
<CAPTION>
Common Stock Warrants
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High Low High Low
<S> <C> <C> <C> <C>
FISCAL 1999
1st Fiscal Quarter 1999 5/8 5/8 $ .005 .005
2nd Fiscal Quarter 1999 1 11/16 1 11/16 .005 .005
3rd Fiscal Quarter 1999 3/4 3/4 .005 .005
4th Fiscal Quarter 1999 25/32 25/32 .005 .005
FISCAL 1998
1st Fiscal Quarter 1998 11/16 1/2 1/16 1/16
2nd Fiscal Quarter 1998 2/1/2 1 5/8 1/4 1/16
3rd Fiscal Quarter 1998 1 3/4 3/16 1/8
4th Fiscal Quarter 1998 13/16 13/16 1/8 1/16
</TABLE>
The closing price for the common stock on December 31, 1999 was $.125
per share. On that date, there were approximately 312 shareholders of record of
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the Company's common Stock.
ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
GENERAL
The Company currently has no operating activities. Its main objective at
this time is to settle unsecured creditors claims. The Company has begun
speaking with several apparel companies who could be potential acquisition or
merger candidates but the Company's ability to consummate an acquisition or
merger is subject to numerous uncertainties and conditions, including the
ability to obtain financing on terms satisfactory to the company and its
acquisition/merger target.
YEAR ENDED SEPTEMBER 30. 1999
The Company's total expenses for the year ended September 30, 1999, were
$2,225,370 which included ($82,845) in interest expense. The total expenses
primarily reflected a reduction in general and administrative expense due to the
layoff of personnel. Total expenses as a percentage of revenues fell to
approximately 56% of total revenues from 62% of total revenues in fiscal year
ended September 30, 1998.
YEAR ENDED SEPTEMBER 30. 1998
The Company's total expenses for the year ended September 30, 1998, were
$2,805,560 which included ($70,094) in interest income. The total expenses
primarily reflected an increase in selling and general and administrative
expenses compared to the same period in 1997. Selling expenses increased to
$825,538 from $748,535 reflecting the increase in revenues.
FEDERAL TAXES
Since its inception, the Company has been taxed as a "C" corporation.
Accordingly the Company has available as of September 30, 1999 approximately
$5,000,000 in net operating loss carryforwards to offset future federal taxable
income until expiration through the year ending September 30, 2018.
LIQUIDITY AND CAPITAL RESOURCES
In September 1996, the Company realized net proceeds of $5,267,000 from
an initial public offering of common stock and warrants to purchase stock. A
portion of these proceeds was used to repay approximately $550,000 of
indebtedness then outstanding.
The Company experienced losses of $258,235 for the period from April 28,
1995 (inception) to September 30, 1995, $1,826,928 for the year ended September
30, 1996, $2,954,339 for the year ended September 30, 1997 and $988,323 for the
year ended September 30, 1998. At September 30, 1999, the Company's cash and
cash equivalent balance was $44,128, which was set aside to settle creditors
claims.
The Company has no resources. The Company may seek to fund future
operations through 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.
ITEM 7. FINANCIAL STATEMENTS.
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In response to this item, the information contained on page through page of the
year end report for the year ended September 30, 1999is incorporated herein by
reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On January 22, 2000 the Company dismissed Fineman West, Certified Public
Accountants, as the Company's principal accountants. On April 7, 2000 the
Company engaged Smith Mandel & Associates, LLP as its new principal accounting
firm to audit its financial statement for the fiscal year ended September 30,
1999.
The Company believes that its financial statements did not contain any
adverse opinion or disclaimer of opinion nor was it modified as to uncertainty,
audit scope or accounting principals and there was no disagreement between the
Company and Fineman West or any matter of accounting principles or practices,
financial statement disclosure or accounting scope or procedure which if not
resolved to the former accountant's satisfaction would have caused it to make
reference to the subject matter of the disagreement in such report.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
MANAGEMENT
The following table sets forth the names and year of birth of the
Company's directors, executive officers and key employees.
<TABLE>
<CAPTION>
NAME YEAR OF BIRTH POSITION
---- ------------- --------
<S> <C> <C>
Terrence L. McGovern (1), (2) 1949 Chief Executive Officer
Chief Financial Officer
Chairman of the Board
of Directors and
Secretary
James A. McDermott (1),(2) 1936 Director
</TABLE>
(1) Compensation Committee member
(2) Audit Committee member
Mr. McDermott serves as the IT Director for Group B Clothing company.
Mr. McDermott served as President and Chief Operating Officer of the Company
from April 1995 to December 1997. Mr. McDermott was terminated in December 1997
as a cost savings measure. From 1991 to 1994, he was president of Choose, a
private label apparel manufacturer. From 1990 to 1991 Mr. McDermott served as
president of Catalina Swimwear and Sportswear. From 1998 to 1990 McDermott
served as a consultant with the public accounting firm Stonefield Josephson,
where he developed an apparel software accounting package. From 1984 to 1987,
Mr. McDermott served as president of Fashion Portfolio, a former subsidiary of
Levi Strauss & Co., which designed, manufactured and marketed men's sportswear.
From 1963 to 1984, Mr. McDermott served in various management positions with
Levi Strauss & Co., including Sr. Vice president of marketing, president Levi
Strauss USA Group II, and president of Levi Strauss & Co. Womenswear Division.
Mr. Alan Annex a director since November 1996 resigned as a director in
November 1999.
ITEM 10. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid by the Company to
the chief executive officer for services rendered during the fiscal years
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ended September 1998, 1997 and 1996.
<TABLE>
<CAPTION>
NAME AND
PRINCIPAL POSITION FISCAL YEAR SALARY
------------------ ----------- ------
<S> <C> <C>
Terrence L. McGovern 1999 $ 81,348
Chairman of the Board 1998 $ 88,688
Chief Executive Officer 1997 $108,000
</TABLE>
EMPLOYMENT AGREEMENTS
The Company has no employment agreements currently in place.
STOCK OPTION PLAN AND OTHER STOCK OPTIONS
The Company adopted a Stock Option Plan on November 15, 1996. The Plan
authorizes the grant of options to officers and other employees, non-employees,
directors and consultants for a maximum of 300,000 shares of the Company's
common stock. The maximum number of shares which options may be granted under
the Plan to any one person in any calendar year is 50,000 shares. The Plan was
adopted by the Board of Directors and is not subject to shareholder approval,
and may be amended by the Board of Directors without shareholder approval.
Options granted under the plan to officers and directors are intended to be
exempt from Section 16 (b) of the Securities and Exchange Act of 1934 pursuant
to Rule 16b-3 thereunder.
The Board has granted the following options which remain outstanding.
There were no grants in fiscal 1998 to the Named Executive Officers.
a. Five-year options granted under the Plan on November 15, 1996 to
Messrs. Annex and Hurwitz; a former Director for 5,000 shares at
$4.50 per share, fully vested. The Company also has a policy of
granting non-employee directors an option for 2,500 shares
annually as part of their compensation for serving as a
director, pursuant to which on March 1997, Messrs. Annex and
Hurwitz each received five-year options under the Plan for an
additional 2,500 shares at $4.50 per share.
b. In August 1997, two principals of the Company's investor
relations firm received non-Plan five-year options totaling
75,000 shares at $1.00 per share.
c. On August 22, 1997, Stuart Bryer received a non-Plan option to
purchase 100,000 shares at $1.00 per share, which option was
granted to him in connection with the Company's acquisition of
the assets of Cotton Stuff, Inc., which company was principally
owned by Mr. Bryer.
d. On December 18, 1997, Micheal Mote, an employee, received a
ten-year option under the plan for 50,000 shares at $.75 per
share and another employee received a ten-year option under the
Plan for 25,000 shares at $.75 per share.
e. On January 12, 1998, Dorian Bolick, an employee, received a
ten-year option under the plan for 25,000 shares at prices from
$1.50 per share to $3.50 per share.
f. On November 12, 1998, Alan Annex, a director, received a
ten-year option under the plan for 25,000 shares at $.68 per
share.
g. On December 15, 1998, Micheal Mote, an employee, received a
ten-year option under the plan for 25,000 shares at $1.00 per
share. Five other employees received three-year options under
the Plan for 1,000 shares each at $1.00 per share.
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h. On July 1, 1999 the Company awarded a three-year stock option
under the plan to six current employees for 5,000 shares each
(total of 30,000 shares) at $1.00 per share.
On September 30, 1999, the closing sale price for the Company's common
stock on the OTC Bulletin Board was $.625 per share.
COMPENSATION OF DIRECTORS
The Company pays $300 per Board meeting attended to each director who is
not an officer or employee of the Company. All directors are entitled to
reimbursement of expenses incurred in traveling to and from the Board meetings.
Directors also receive a five-year stock option for 5,000 on becoming a director
and annually receive an additional option for 2,500 shares.
INDEMNIFICATION OF DIRECTORS OFFICERS AND LIMITATION OF DIRECTORS LIABILITY
The Company has adopted provisions in it's Articles of Incorporation
that eliminate, to the fullest extent permissible under California Law, the
liability of its directors to the Company for monetary damages. Such limitation
of liability does not affect the availability of equitable remedies such as
injunctive relief, recession or damages. The Company's Bylaws provide that the
Company shall indemnify its directors and officers to the fullest extent
permitted by California law, including in circumstances in which indemnification
is otherwise discretionary under California law.
Insofar as indemnification for liability arising under the Securities
Act may be permitted to directors and officers of the Company pursuant to the
foregoing provisions, or otherwise, the Company has been advised that in the
opinion of the Security and Exchange Commission, such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. At the present time there is no pending litigation involving a
director, officer, employee or other agent of the Company in which
indemnification would be required or permitted. The Company is not aware of any
threatened litigation or proceeding that may result in a claim for such
indemnification.
ITEM 11. SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information with respect to
beneficial ownership of the Company's common stock as of December 16, 1999 by
(I) each executive officer of the Company, (ii) each director of the Company,
(iii) all directors and executive officers of the Company as a group, and (iv)
each person known by the Company to be a beneficial owner of more than five
percent of the common stock.
NAMES AND ADDRESSES OF BENEFICIAL OWNERS
<TABLE>
<CAPTION>
NO. OF SHARES
PERCENT OF CLASS NO. OF SHARES PERCENT OF CLASS
-------------------------------------------------------------------------------
<S> <C> <C>
Terrence L. McGovern
50 Ridgecrest Road
Kentfield, CA 94904 990,000 32.2%
James A. McDermott 335,500 10.9%
22522 Malden Street
West Hills, CA 91304
All Directors and Executive
Officers as group
(two persons) 1,325,500 43.2%
</TABLE>
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ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In May 1995, the Company entered into the License Agreement with Action
Down Under, Ltd., an entity that owns the exclusive right to source and use the
"Aca Joe" name in the United States. The License Agreement gives the Company an
exclusive United States license to source, under the name and style "Aca Joe".
Mr. McGovern, the chairman of the board and chief executive officer of the
Company holds a 17% interest in the licensor. Mr. McGovern's ownership interest
in Action Down Under, Ltd. represent a conflict of interest vis-a-vis his
fiduciary obligations to the Company.
In May 1998, the Company notified Action Down Under, Ltd., that it had
no plans to renew its license for the rights to "Aca Joe" in the United States
because of its inability to generate a profit from its efforts. The Company has
no further obligations to Action Down Under, Ltd.
In August 1997, Mr. Lawrence Hurwitz; a member of the Board of Directors
at the time, received a finder's fee of $7,500 from Capital Factors in
connection with the acquisition financing of the Cotton Stuff asset purchase
transaction.
In March 1998, The Company announced the signing of a Letter of Intent
to purchase CMG, Inc., a Los Angeles based manufacturer of women's and men's
apparel. In August 1998, the Company announced that it had ceased discussions
with CMG, Inc. having decided it was not an appropriate acquisition candidate.
In August 1998, Mr. Terrence McGovern, the chairman of the board and
chief executive officer and , an affiliate of the Company put on deposit, as a
loan to the Company, $216,000 with the Company's factor to induce the factor to
overadvance the Company the same amount against receivables, so that the Company
could meet its financial obligations. As compensation both Messrs. McGovern and
the affiliate each received a warrant to purchase 54,000 shares of the Company's
common stock for $.01 per share. Subsequent to the issue, both Mr. McGovern and
the affiliate exercised their warrants.
All future transactions, including loan, between the Company and its
officers, directors, principal shareholders and affiliates will be approved by a
majority of the Board of Directors, including a majority of the independent and
disinterested outside directors on the Board of Directors, and will be on terms
no less favorable to the Company than could be obtained from unaffiliated third
parties.
11
<PAGE> 12
PACIFIC COAST APPAREL COMPANY, INC. DBA COTTON STUFF
FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
I N D E X
<TABLE>
<CAPTION>
Page No.
<S> <C>
INDEPENDENT AUDITOR'S REPORT ............................... F-2
FINANCIAL STATEMENTS
Balance Sheet as of September 30, 1999 ................... F-3
Statement of Operations for the Years Ended
September 30, 1999 and 1998 ........................... F-4
Statement of Cash Flows for the Years Ended
September 30, 1999 and 1998 ........................... F5-6
Statement of Cash Flows - Supplemental Information
for the Years Ended September 30, 1999 and 1998 ....... F-7
Statement of Stockholders' Deficiency for the Years
Ended September 30, 1999 and 1998 ..................... F-8
Notes to Financial Statements ............................ F-9-13
</TABLE>
F-1
<PAGE> 13
[SMITH MANDEL & ASSOCIATES, LLP LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Pacific Coast Apparel Company, Inc.
dba Cotton Stuff
We have audited the accompanying balance sheet of Pacific Coast Apparel Company,
Inc. dba Cotton Stuff as of September 30, 1998 and the related statements of
operations, cash flows and stockholders' deficiency for the years ended
September 30, 1998 and 1997. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pacific Coast Apparel Company,
Inc. dba Cotton Stuff as of September 30, 1999 and the results of
its operations and its cash flows for the years ended September 30, 1999 and
1998, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 10 to the
financial statements, the Company has incurred significant losses from
operations and has a net deficit in accumulated earnings and a stockholders'
deficiency. These factors raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 10. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
SMITH MANDEL & ASSOCIATES, LLP
April 7, 1999
Encino, California
F-2
<PAGE> 14
PACIFIC COAST APPAREL COMPANY, INC. DBA COTTON STUFF
BALANCE SHEET
SEPTEMBER 30, 1999
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash $ 44,128
Accounts receivable (Notes 1, 3 and 6) $ 4,982
Loan receivable, stockholder 14,384
-----------
Total Current Assets 63,494
-----------
TOTAL ASSETS
$ 63,494
===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Due to factor (Note 3) 178,200
Accounts payable 285,701
Accrued expenses (Note 7) 503,039
Income taxes payable 1,205
-----------
Total Current Liabilities 968,245
COMMITMENTS AND CONTINGENCIES (Note 11)
STOCKHOLDERS' DEFICIENCY (Notes 1, 9, 11, 12 and 15)
Preferred stock
Authorized, 600,000 shares
No shares outstanding --
Common stock, no par value
Authorized, 10,000,000 shares
Issued and outstanding 3,064,000 shares 5,453,798
Additional paid-in capital 480,460
Deficit (6,839,009)
-----------
Total Stockholders' Deficiency (904,751)
-----------
$ 63,494
===========
</TABLE>
See accompanying independent auditors' report
and notes to financial statements
F-3
<PAGE> 15
PACIFIC COAST APPAREL COMPANY, INC. DBA COTTON STUFF
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------
1999 1998
----------- -----------
<S> <C> <C>
NET SALES (Note 1) $ 4,062,468 $ 4,474,339
COST OF GOODS SOLD 2,612,216 2,655,402
----------- -----------
GROSS PROFIT (LOSS) 1,450,252 1,818,937
OPERATING EXPENSES (Note 11)
Design and production 331,530 226,016
Selling 553,459 825,538
Shipping 268,785 51,140
General and administrative 1,071,596 1,632,772
Interest expense (income) 82,845 70,094
----------- -----------
Total Operating Expenses 2,225,370 2,805,560
----------- -----------
LOSS BEFORE INCOME TAXES (775,118) (986,623)
PROVISION FOR INCOME TAXES
(Notes 1 and 6) (1,490) (1,700)
----------- -----------
NET LOSS $ (759,049) $ (988,323)
=========== ===========
BASIC NET LOSS PER SHARE (Note 7) (.25) (.33)
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING (Note 7) 3,064,000 2,965,000
</TABLE>
See accompanying independent auditors' report
and notes to financial statements
F-4
<PAGE> 16
PACIFIC COAST APPAREL COMPANY, INC. DBA COTTON STUFF
STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(759,539) $(998,323)
--------- ---------
Adjustments to reconcile net loss to cash used by operating activities:
Depreciation 0 37,010
Loss on abandonment of leasehold improvements 0 14,402
Amortization of negative goodwill 0 (11,504)
Gain on liquidation (99,914) --
Inventory 564,006 301,320
(Increase) decrease in assets:
Trade accounts receivable 17,836 29,847
Prepaid expenses and other current assets 82,068 (64,431)
Other assets 36,730 (16,991)
Increase (decrease) in liabilities:
Outstanding checks payable (17,324) (17,324)
Due to factor 82,182 269,595
Accounts payable 114,227 (69,830)
Income taxes payable 1,305 --
Accrued expenses 223,990 98,057
--------- ---------
Net Cash Used by Operating
Activities 245,567 (383,524)
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of equipment 40,000 --
Purchase of property and equipment (8,942) (5,606)
Decrease in short-term investments -- 81,084
Payments of note receivable, stockholder (14,384) --
Collection of note receivable,stockholder -- 10,000
--------- ---------
Net Cash Provided by
Investing Activities 16,674 85,478
FINANCING ACTIVITIES
Repayment of long-term debt (218,713) (109,642)
Proceeds from issuance of common stock -- 1,080
Additional paid-in capital 600 --
Net Cash (Used) Provided by
Financing Activities (218,113) (109,642)
--------- ---------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS 44,128 (406,608)
CASH AND CASH EQUIVALENTS, beginning -- 406,608
--------- ---------
CASH AND CASH EQUIVALENTS, ending $ 44,128 --
--------- ---------
</TABLE>
F-5
<PAGE> 17
PACIFIC COAST APPAREL COMPANY, INC. DBA COTTON STUFF
STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------
1999 1998
------- -------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $82,845 $78,598
Income taxes 1,305 2,635
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES
During the year ended September 30, 1997, the Company reacquired and retired
121,000 shares of common stock for $154,540. The difference between the
original issuance price and the reacquisition price of $306,610 has been
reflected on the accompanying financial statements as an increase in
additional paid-in capital.
On August 22, 1997, the Company acquired certain assets and assumed certain
liabilities of Cotton Stuff, Inc. as follows:
<TABLE>
<S> <C>
Fair value of assets acquired (all current) $793,193
Liabilities assumed (all current) 145,627
--------
Less: negative goodwill resulting from the 647,566
net asset acquisition 172,566
--------
Purchase price 475,000
Less: cash acquired 73,095
--------
Net cash paid for acquisition of net assets $401,905
--------
</TABLE>
See accompanying independent auditors' report
and notes to financial statements
F-6
<PAGE> 18
PACIFIC COAST APPAREL COMPANY, INC. DBA COTTON STUFF
STATEMENT OF STOCKHOLDERS' DEFICIENCY
YEAR ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
Total
Common Stock Additional Stockholders'
------------------------------- Paid-in Equity
Shares Amount Capital Deficit (Deficiency)
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, September 30, 1997 2,958,000 5,452,718 479,860 (5,091,147) 841,431
Issuance of stock 108,000 1,080 -- -- 1,080
Cancellation of stock (2,000) -- -- -- --
Net loss for the year ended
September 30, 1998 -- -- -- (988,323) (988,323)
----------- ----------- ----------- ----------- -----------
Balance, September 30, 1998 3,064,000 $ 5,453,798 $ 479,860 $(6,079,470) $ (145,812)
Contributions -- -- -- -- 600
September 30, 1999
Net Loss for the year ended -- -- -- (759,539) (759,539)
=========== =========== =========== =========== ===========
</TABLE>
Note: No preferred stock was issued or outstanding as of September 30, 1999
and 1997 and for the years then ended.
See accompanying independent auditors' report
and notes to financial statements
F-7
<PAGE> 19
PACIFIC COAST APPAREL COMPANY, INC. DBA COTTON STUFF
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
The Company manufacturers primarily women's apparel for sale to
retailers throughout The United States under the "Cotton Stuff" label
and uses the services of outside contractors for its manufacturing. In
prior years, the Company manufactured under the name "Aca Joe" and
"Cotton Stuff". The Company has only one reportable industry segment,
apparel manufacturing. The Company was incorporated in the state of
California in he development stage through September 30, 1995. The
Company was forced to sell all operating assets on September 30, 1999.
The Company currently is settling unsecured creditors claims.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include money market accounts with original
maturities of three months or less.
REVENUE RECOGNITION
Revenues are recognized when products are shipped to customers.
Discounts and returns are allowed only upon agreed authorization.
Allowances for such discounts and returns are estimated and provided for
when significant.
ACCOUNTS RECEIVABLE
For non-factored sales, the Company assumes the credit risk and grants
credit to customers generally without collateral.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method)
or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided
using the straight-line method over the estimated useful lives of the
related assets.
NEGATIVE GOODWILL
On August 22, 1997, the Company acquired substantially all of the assets
and liabilities of Cotton Stuff, Inc. for the purchase price of
$475,000. Net cash paid was $402,905. Cotton Stuff, Inc. manufactured
casual sportswear and sold to specialty stores throughout the United
States. The transaction was accounted for using the purchase method of
accounting and all the prior years financial statements included the
results of operations from August 22, 1997 to September 30, 1997.
Negative goodwill representing the fair market value of net business
assets purchased in excess of the acquisition costs, was amortized by
straight-line method over 15 years. As of September 30, 1999, the
Company had liquidated all its business assets and liabilities,
including the net business assets acquired from Cotton Stuff, Inc. As a
result, negative goodwill of $161,062, which was carried forward from
fiscal year ended September 30, 1998, was accounted as a portion of gain
on liquidation for the fiscal year ended September 30, 1999.
F-8
<PAGE> 20
STOCK OPTION PLAN
The Company adopted a stock option plan on November 15, 1996. The plan
authorizes the grant of options to officers and other employees,
non-employees, directors and consultants for a maximum of 300,000 shares
of the Company's common stock. The maximum number of options that may be
granted under the plan to any one person in any calendar year is 50,000
shares. The plan was adopted by the Board of Directors, is not subject
to shareholder approval and may be amended by the Board of Directors
without shareholder approval. Options granted under the plan to officers
and directors are intended to be exempt from Section 16(b) of the
Exchange Act of 1934 pursuant to Rule 16b-3 thereunder.
USE OF ESTIMATES
Management uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting principles.
Those estimates and assumptions affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities and
the reported revenues and expenses. Actual results could vary from the
estimates that were used.
INCOME TAXES
Income taxes are provided for the tax effect of transactions included in
the financial statements and consist of state income taxes currently
payable.
Deferred income taxes are recognized for the tax effect of temporary
differences between the bases of assets and liabilities for financial
statement and income tax purposes. Deferred income taxes are also
recognized for the income tax benefit of net operating losses that are
available to offset future taxable income, if any. Valuation allowances
are established when necessary to reduce deferred income tax benefits to
estimated realizable amounts.
NOTE 2 TRADE ACCOUNTS RECEIVABLE
Accounts receivable are principally from trade creditors. The factor, to
the extent Of any financing provided holds a security interest in all
trade accounts receivable to the Company. As of the balance sheet date,
no allowance for doubtful accounts was provided or required against
these receivables. All accounts receivable were deemed collectible.
NOTE 3 DUE TO FACTOR
The Company sells substantially all of its accounts receivable to a
factor under a continuing contract cancelable upon written notice. In
cases where the factor approves the credit, the account is sold without
recourse: i.e., the factor takes the credit risk. In cases where the
factor does not approve the credit, the Company bears the credit risk.
The factor to the extent any financing provided holds a security
interest in all accounts receivable and inventory of the Company. At the
balance sheet date, an officer and an affiliate of the Company had
pledged $216,000 only $42,000 was received from the factor.
NOTE 4 ACCRUED EXPENSES
<TABLE>
<S> <C>
Commissions $ 28,235
Delivery 25,592
Payroll taxes 18,380
Professional fees 196,094
Public relations 107,274
Stock transfer fees 11,274
Other 116,190
</TABLE>
F-9
<PAGE> 21
<TABLE>
<S> <C>
$ 503,039
------------
</TABLE>
NOTE 5 PREFERRED STOCK
The preferred stock is non-cumulative and is convertible into one share
of common stock for each share of preferred stock.
Other characteristics of the preferred stock are as follows:
Voting rights - The preferred stock shall have the same voting rights
per share as the common stock, one vote per share.
Dividends - The preferred stock shall participate in dividends on the
same basis as common stock.
In the event of a liquidation, a portion of the preferred stock will
have a first claim over and above the common stock on the net assets of
the Company in the amount of $2.50 per share. The Board of Directors
from time to time may designate other preference rights.
NOTE 6 INCOME TAXES
Income tax is disproportionate to income due to federal and state
operating losses of approximately $6,000,000 and $5,000,000 respectively
available for carryforward through September 2004. As of the balance
sheet date, none of the net operating losses have been applied for the
year ended September 30, 1999.
NOTE 7 BASIC LOSS PER SHARE
Basic loss per share computation for the years ended September 30, 1999
and 1998 is based upon the weighted average number of shares outstanding
in each period and does not include the exercise of stock purchase
warrants and stock options because the effect of such inclusion would be
to decrease the net loss per share.
NOTE 8 SUPPLEMENTAL CASH FLOW DICLOSURES
<TABLE>
<CAPTION>
Year Ended September 30,
1999 1998
------- -------
<S> <C> <C>
Cash paid during the periods were as follows:
Interest $82,845 $78,598
------- -------
Income taxes $ 120 $ 2,635
------- -------
</TABLE>
NOTE 9 STOCK OPTION PLAN
The Company has a stock option plan which provides for the granting of
up to 300,000 shares of common stock. The option price per share will be
fixed on the date the option is granted and the maximum term of an
option may not exceed ten years. The option price will be not less than
the fair value of the stock at the date of grant.
F-10
<PAGE> 22
As permissible under Statement of Financial Accounting Standards No.
123, the Company accounts for stock options granted as per the
methodology prescribed under Accounting Principles Board Opinion No 25,
which recognizes compensation cost based upon intrinsic value of the
equity award. Accordingly, no compensation expense was recognized in the
statement of operations.
Stock option activity during the years ended September 30, 1999 and 1998
is as follows:
<TABLE>
<CAPTION>
Option
Shares Price
------ -----
<S> <C> <C>
Outstanding as of September 30, 1997 115,000 1.00 to 4.50
Granted during the year ended
September 30, 1998 105,000 .75 to 3.50
Canceled during the year ended
September 30, 1998 (16,667) 1.50 to 3.50
-------
Outstanding as of September 30, 1998 203,333 .75 to 4.50
-------
Granted during the year ended
September 30, 1999 85,000 .68 to 1.00
Outstanding as of September 30, 1999 288,333 .68 to 4.50
-------
</TABLE>
NOTE 10 STOCK PURCHASE WARRANTS
The Company has outstanding warrants to purchase up to 1,350,000 shares
of the Company's common stock at $6.00 per share through 2001 and also
has outstanding warrants to purchase up to 270,000 shares of common
stock through 2001 at an approximate average price of $6.00 per share.
During the year ended September 30, 1997, the Company issued additional
warrants to purchase up to 75,000 shares of common stock at $1.00 per
share through July 31, 2002. During the year ended September 30, 1998,
the Company issued two warrants to purchase 54,000 shares of common
stock each, at $.01 per share, to an officer of the Company and an
affiliate of the Company in exchange for the pledging of certain
personal assets with the Company's factor. The warrants were exercised
immediately and 108,000 shares of common stock were issued. During the
year ended September 30, 1999, the Company issued an additional 238,000
shares of common stock at $.01 per share, through May 17, 2003.
NOTE 11 COMMITMENTS AND CONTINGENCIES
The Company leases its office and warehouse facilities through March
2000. Additionally, the Company leases two showrooms under
non-cancelable leases through October 2000. Rent expense for the years
ended September 30, 1999 and 1998 approximates $154,000 and $154,000,
respectively. The Company abandoned its offices and showrooms during
October 1999. No additional rent or consideration was paid by the
company to its landlords. The Company has potential outstanding
liabilities under these leases of approximately $172,000.
The Company is involved in a legal dispute with a potential total
liability to the Company of approximately $440,000. Outside counsel for
the Company has advised that at this stage in the proceedings, an
opinion as to the probable outcome cannot be made.
On September 30, 1999, the Company signed an agreement with Capital
Factors, Inc. Allowing representatives of Capital Factors, Inc. to take
possession of the majority of its operating assets. As of the date, the
Company was in breach and default of its
F-11
<PAGE> 23
obligations under the Factoring Agreement dated September 7, 1997 and
was not able to cure its default. Under the Factoring Agreement the
Company gave Capital Factors a first lien on accounts receivable, cash
and various other assets. The Company received written notice of the
Default from Capital Factors, Inc. pursuant to Section 9504(3) of the
California Uniform Code. Under the Code, Capital Factors had the right
to liquidate the pledged Company assets in order to cure the default.
On September 30, 1999, The Company entered into an agreement with Robert
P. Mulder dab Evans Unlimited, Inc. to sell all of the Company's
remaining assets, which included all trademarks and tradenames and the
associated good will, orders inventory, piece goods and equipment. The
agreement called for Mr. Mulder to pay Capital Factors, Inc. $110,000
which was the balance of the secured debt owed by the Company. In
addition Mr. Mulder agreed to pay an additional $40,000 which was
deposited in the trust account of the Ezra & Brutzkus and Gubner, who
the Company had retained to handle distribution of remaining capital to
the Company's unsecured creditors. In addition, Mr. Mulder deposited an
additional $10,000 with the law firm of Ezra Brutzkus and Gubner to
defer legal fees in the distribution of Company assets. Subsequent to
the balance sheet date, total claims identified from unsecured creditors
were approximately $774,000 and only approximately $573,000 in claims
have been settled leaving an open balance of approximately $201,000 due
to unsecured creditors who have not accepted settlement. The largest
unsettled creditor has filed a levy upon the property of the Company in
an attempt to collect its claim.
NOTE 11 -GOING CONCERN
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplate the
continuation of the Company as a going concern. However, the Company
sustained a loss of approximately $756,000 for the year ended September
30, 1999 and as of September 30, 1999, the Company's accumulated deficit
is approximately $6,835,000 and the stockholders' deficiency is
approximately $901,000.
As of the balance sheet date, the effects of the above noted conditions
have Included an operations shutdown, default of the factor agreement
and substantial Decrease in the fair market value of the Company's
stock.
In order to generate profitable operations, the Company needs to create
a revenue source. In addition, to continue as a going concern, the
Company will need an infusion capital or financing. The Company is in
the process of seeking a merger candidate, but no commitment currently
exists.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
3.1 Registrant hereby incorporate by reference the Capital Factors,
Inc., Factor Agreement dated September 8, 1997
3.2 Letter terminating Fineman West, LLP as the Company's auditor
3.3 Asset sale agreement to Robert P. Mulder, Inc.
3.4 Letter to Capital Factors, Inc. authorizing the sale of
collateral to satisfy obligations
3.5 Letter of Engagement with Ezra, Brutzkus and Gubner
3.6 Letter of Engagement with Smith Mandel & Associates, LLP.
27.1 Financial Data Schedule
F-12
<PAGE> 24
SIGNATURES
In accordance with Section 13 or 15 (d) of the Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DATE: June 14, 2000 PACIFIC COAST APPAREL COMPANY, INC.
By: s/ TERRENCE L. McGOVERN
---------------------------------
Terrence L. McGovern
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ TERRENCE L. McGOVERN CHAIRMAN OF THE BOARD, CHIEF JUNE 21, 2000
--------------------------- EXECUTIVE OFFICER, CHIEF
TERRENCE L. MCGOVERN FINANCIAL OFFICER(PRINCIPAL
EXECUTIVE OFFICER AND
PRINCIPAL FINANCIAL OFFICER)
/s/ JAMES A. McDERMOTT DIRECTOR JUNE 21, 2000
---------------------------
JAMES A. MCDERMOTT
</TABLE>
<PAGE> 25
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
-------------- -----------------------
<S> <C>
3.1 Registrant hereby incorporate by reference the Capital Factors,
Inc., Factor Agreement dated September 8, 1997
3.2 Letter terminating Fineman West, LLP as the Company's auditor
3.3 Asset sale agreement to Robert P. Mulder, Inc.
3.4 Letter to Capital Factors, Inc. authorizing the sale of
collateral to satisfy obligations
3.5 Letter of Engagement with Ezra, Brutzkus and Gubner
3.6 Letter of Engagement with Smith Mandel & Associates, LLP.
27.1 Financial Data Schedule
</TABLE>
