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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 EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1999
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)
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California 95-4536683
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(State or other Jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
50 Ridgecrest Road
Kentfield, CA 94904
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(Address of principal office) (Zip Code)
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Registrant's telephone number,
including area code (415) 925-0386
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Inapplicable
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(Former name, former address and former fiscal year, if changed since last
report)
1620 South Los Angeles Street, Los Angeles, CA 90015
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 DECEMBER 31, 1999 3,302,000
Transactional Small Business Disclosure Format Yes / / No /X/
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FORWARD LOOKING STATEMENTS
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 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, and
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 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION
INTRODUCTION
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.
As previously stated the Company acquired the assets of Cotton Stuff,
Inc. in August 1997. 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 Siegel, 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 which
Capital Factors had taken as collateral for loans and 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 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
Mulder Inc. d/b/a/ Evans Unlimited to purchase the balance of the Company's
assets which included piece goods, certain inventory, all trademarks and trade
names, associated goodwill, orders 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 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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THREE MONTHS ENDED DECEMBER 31, 1999
The Company had no revenues during the period ended December 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The capital resources of the Company consist of $40,000 which was
deposited into the trust account of the Company's counsel. These monies are to
be used to pay unsecured creditors claims.
The Company has no other resources. The Company may seek to fund future
operations through private offerings of securities, with collaborative or other
arrangements with private corporate partners or from other sources. Additional
financing may not be available when needed or on terms acceptable to the
Company.
FEDERAL TAXES
Since its inception, the Company has been taxed as a "C" corporation.
Accordingly the Company has available as of December 31, 1999 approximately
$6,000,000 in net operating loss carryforwards to offset future federal taxable
income expiring through the year ending September 30, 2004.
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 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.
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 due the judgement creditors including fees is said to be approximately
$108,716.33. The Company attempted to settle this obligation but was
unsuccessful.
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PACIFIC COAST APPAREL CO., INC.
BALANCE SHEET
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<CAPTION>
December 31, 1999 September 30, 1999
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ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 40,284 $ 44,128
Accounts receivable $ 0 $ 4,982
Loan receivable, stockholder $ 15,449 $ 14,384
Total current assets $ 55,733 $ 63,494
Total Assets $ 55,733 $ 63,494
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Due from factors $ 185,128 $ 178,200
Accounts payable $ 284,710 $ 285,701
Accrued expenses $ 503,039 $ 503,039
Income taxes payable $ 2,105 $ 1,305
Total current liabilities $ 974,982 $ 968,245
STOCKHOLDERS' EQUITY
Preferred stock
Authorized, 600,000 shares
No shares outstanding
Common stock - no par value $ 5,453,798 $ 5,453,798
Authorized, 1,000,000 shares
Issued and outstanding 3,302,000
shares
Additional paid-in capital $ 480,460 $ 480,460
Deficit $(6,853,507) $(6,839,009)
Total stockholders' equity $ (919,249) $ (904,751)
$ 55,733 $ 63,494
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See notes to condensed financial statements
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PACIFIC COAST APPAREL CO., INC.
STATEMENT OF OPERATIONS
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Three Months Ended December 31
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1999 1998
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NET SALES 0 $ 1,229,287
COST OF GOOD SOLD 0 673,602
GROSS (LOSS) PROFIT 0 555,685
OPERATING EXPENSES
Design and production 118,638
Selling 125,798
Shipping 70,445
General and administrative 8,068 242,301
Total Operating Expenses 8,068 557,182
LOSS FROM OPERATIONS (8,068) 557,182
OTHER INCOME (EXPENSE)
Gain on liquidation
Interest expense (5,630) (20,193)
Total Other Income (Expense) (5,630) (20,193)
LOSS BEFORE INCOME TAXES $ (13,698) $ (21,690)
PROVISION FOR INCOME TAXES (800) (800)
NET LOSS (14,498) $ (22,490)
NET LOSS PER SHARE (0) (0.01)
WEIGHTED AVERAGE NUMBER OF 3,302,000 3,064,000
COMMON SHARES OUTSTANDING
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See notes to condensed financial statements
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PACIFIC COAST APPAREL CO., INC.
CONDENSED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH
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Three Months Ended December 31
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1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(14,498) $(22,490)
Adjustments to reconcile net loss to
cash used by operating activities:
Depreciation $ 0 $ 9,000
Amortization of negative goodwill $ 0 $ (2,884)
Changes in assets and liabilities, net
of effect of assets and liabilities
acquired:
Increase in due from factors $ 6,928 $(23,619)
Decrease in accounts receivable $ 4,982 $(55,222)
Increase in inventories $ 0 $ 76,992
Increase in prepaid expenses and $ (1,065) $ 47,921
other current assets
Increase in other assets $ 0 $ 1,064
Increase in accounts payable $ (991) $ 37,245
Increase (decrease) in accrued expenses $ 800 $(13,364)
Total Adjustments $ 10,654 $ 77,133
Net Cash Used By Operating Activities $ (3,844) $ 54,643
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PACIFIC COAST APPAREL CO., INC.
CONDENSED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH
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Three Months Ended December 31
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1999 1998
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment $ 0 $ (5,871)
Net Cash (used) Provided by $ 0 $ (5,871)
Investing Activities
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long term debt $ 0 $(27,463)
Net Cash Used by
Financing Activities $ 0 $(27,463)
NET DECREASE IN CASH AND
CASH EQUIVALENTS $ (3,844) $ 21,309
CASH AND CASH EQUIVALENTS, beginning
as previously stated $ 44,128 $(17,324)
CASH AND CASH EQUIVALENTS, ending $ 40,284 $ 3,985
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See notes to condensed financial statements
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PACIFIC COAST APPAREL CO., INC.
CONDENSED STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
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Three Months Ended December 31
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1999 1998
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SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash paid during period for:
Interest $5,630 $19,234
Income Taxes
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See notes to condensed financial statements
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PACIFIC COAST APPAREL CO., INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
December 31, 1999
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,
1999
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CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
YEAR ENDED SEPTEMBER 30, 1999
AND THE THREE MONTHS ENDED DECEMBER 31, 1999
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Common stock Additional
------------------------- Paid-in
Shares Amount Capital Deficit
<S> <C> <C> <C> <C>
Balance, October 1, 1996 3,070,000 $5,920,118 $162,500 $(2,136,808)
Issuance of stock for services 9,000 $4,500
Reacquistion of stock during the
year ended September 30, 1997 (116,000) $(452,400) $306,610
Other (5,000) $(19,500) $10,750
Net loss for the year ended
September 30, 1997 $(2,954,339)
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Balance, September 30, 1997,
as previously reported 2,958,000 $5,452,718 $479,860 $(5,091,147)
Issuance of stock 108,000 1,080
Cancellation of stock (2,000)
Net loss for the year ended
September 30, 1998 $(988,323)
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Balance, September 30, 1998, 3,064,000 $5,453,798 $479,860 $(6,079,470)
Contributions $600
Net loss for the year ended
September 30, 1999 $(759,539)
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Balance, September 30, 1999 3,064,000 $5,453,798 $480,460 $(6,839,009)
Issuance of stock 238,000
Net loss for the three months ended
December 31, 1999 $(14,498)
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Balance, December 31, 1999 3,302,000 5,453,798 480,460 (6,853,507)
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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
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Terrence L. McGovern
Chief Executive Officer and
Chief Financial Officer
August 16, 1999
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EXHIBIT INDEX
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EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
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27.1 Financial Data Schedule
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