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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 JUNE 30, 2000
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
---------- ----------
(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)
Registrant's telephone number,
including area code (415) 925-0386
--------------
Inapplicable
------------
(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 JUNE 30, 2000 4,382,000
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 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 agreement, the Company gave Capital
Factors a first lien on accounts receivable, cash and various other assets. The
Company received notice of default from Capital Factor 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 piece goods, certain inventory, all trademarks and trade
names and the associated goodwill, orders and equipment. The agreement called
for Robert P. Mulder, Inc., to pay Capital Factors Inc. $110,000 representing
the balance of the Company's secured obligations. 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 to be used to settle outstanding creditors claims. In addition,
Robert P. Mulder, Inc. was to deposit an additional $10,000 in the trust account
of the Company's counsel to defer legal fees associated with the distribution
and settlement of creditors claims.
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NINE MONTHS ENDED JUNE 30, 2000
The Company had no revenues during the nine month period ended June 30,
2000.
LIQUIDITY AND CAPITAL RESOURCES
The capital resources of the Company consist of approximately $16,294
which remain in the trust account of the Company's counsel and have been set
aside to settle creditors claims. The Company has no additional resources. The
Company may seek to fund future operations through private offerings of
securities with collaborative or other arrangements with corporate partners of
from other sources. Additional financing may not be available when needed or on
terms acceptable to the Company.
In June 2000 the Company issued 1,080,000 shares of the Company's common
stock to an officer and an affiliate of the Company as settlement for $216,000
of indebtedness owed to these individuals stemming from borrowings personally
guaranteed on the Company's behalf. The debt was incurred when the Company
defaulted on a loan from Capital Factors, Inc. the Company's factor and primary
lender. The officer and affiliate had placed on deposit with Capital Factors,
Inc. the amount necessary to satisfy these liabilities. Capital Factors, Inc.
foreclosed on this collateral when the company defaulted and failed to cure its
default under the terms and conditions of the Factoring Agreement, dated
September 8, 1997 ("the Factoring Agreement").
FEDERAL TAXES
Since its inception, the Company has been taxed as a "C" corporation.
Accordingly the Company has available as of March 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 judgment against the
Company in the amount of $105,057.43 for the nonpayment of a promissory note.
The Company attempted to settle this obligation but was unsuccessful.
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PACIFIC COAST APPAREL CO., INC.
BALANCE SHEET
<TABLE>
<CAPTION>
June 30, 2000 September 30, 1999
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<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $16,294 $44,128
Accounts receivable $0 $4,982
Loan receivable, stockholder $15,449 $14,384
Total current assets $31,743 $63,494
Total Assets $31,743 $63,494
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Due from factors $0 $178,200
Accounts payable $66,939 $285,701
Accrued expenses $223,350 $503,039
Income taxes payable $2,105 $1,305
Total current liabilities $292,394 $968,245
STOCKHOLDERS' EQUITY
Preferred stock
Authorized, 600,000 shares
No shares outstanding
Common stock - no par value $5,689,798 $5,453,798
Authorized, 1,000,000 shares
Issued and outstanding 4,382,000 shares
Additional paid-in capital $480,460 $480,460
Deficit ($6,430,909) ($6,839,009)
Total stockholders' equity ($260,651) ($904,751)
$31,743 $63,494
</TABLE>
See notes to condensed financial statements
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PACIFIC COAST APPAREL CO., INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended June 30
-------------------------
2000 1999
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<S> <C> <C>
NET SALES ($5,090) $3,385,399
COST OF GOOD SOLD 0 1,925,971
GROSS (LOSS) PROFIT (5,090) 1,459,428
OPERATING EXPENSES
Design and production 0 357,460
Selling 0 443,166
Shipping 0 197,822
General and administrative 18,366 587,396
Total Operating Expenses 18,366 1,585,844
LOSS FROM OPERATIONS (23,456) (126,416)
OTHER INCOME (EXPENSE)
Royalty Income 11,836
Gain on liquidation 473,755
Interest (income) expense (41,400) (64,726)
Total Other Income (Expense) 432,355 (52,890)
LOSS BEFORE INCOME TAXES $408,899 ($179,306)
PROVISION FOR INCOME TAXES ($800) (800)
NET INCOME (LOSS) $408,099 ($180,106)
NET LOSS PER SHARE 0.09 (0.06)
WEIGHTED AVERAGE NUMBER OF 4,382,000 3,064,000
COMMON SHARES OUTSTANDING
</TABLE>
See notes to condensed financial statements
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PACIFIC COAST APPAREL CO., INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended June 30
--------------------------
2000 1999
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<S> <C> <C>
NET SALES $0 $1,024,516
COST OF GOOD SOLD 0 596,228
GROSS (LOSS) PROFIT 0 428,288
OPERATING EXPENSES
Design and production 127,698
Selling 166,240
Shipping 64,843
General and administrative 193 150,200
Total Operating Expenses 193 508,981
LOSS FROM OPERATIONS (193) (80,693)
OTHER INCOME
Royalty Income $ 8,766
Interest (income) expense (41,400) (21,283)
Gain on liquidation 0
Total Other Income (Expense) (41,400) ($12,517)
LOSS BEFORE INCOME TAXES ($41,593) ($93,210)
PROVISION FOR INCOME TAXES 0 0
NET LOSS ($41,593) ($93,210)
NET LOSS PER SHARE (0.01) (0.03)
WEIGHTED AVERAGE NUMBER OF 4,382,000 3,064,000
COMMON SHARES OUTSTANDING
</TABLE>
See notes to condensed financial statements
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PACIFIC COAST APPAREL CO., INC.
CONDENSED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
Nine Months Ended June 30
-------------------------
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net gain (loss) $408,100 ($180,106)
Adjustments to reconcile net loss to
cash used by operating activities:
Depreciation $0 $27,000
Amortization of negative goodwill $0 ($8,652)
Changes in assets and liabilities, net
of effect of assets and liabilities
acquired:
Increase in due from factors ($178,200) ($46,049)
Decrease in accounts receivable $4,982 ($42,840)
Increase in inventories $0 $213,066
Increase in prepaid expenses and ($1,065) $57,317
other current assets
Increase in other assets $0 $64
Increase in accounts payable ($218,762) $49,982
Increase (decrease) in accrued expenses ($278,889) $22,693
Increase in other current liabilities $0
Total Adjustments ($671,934) $272,581
Net Cash Used By Operating Activities ($263,834) $92,475
</TABLE>
See notes to condensed financial statements
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PACIFIC COAST APPAREL CO., INC.
CONDENSED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
Nine Months Ended June 30
-------------------------
2000 1999
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<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment $0 ($8,942)
Decrease in short term investments $0
Net Cash (used) Provided by $0 ($8,942)
Investing Activities
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long term debt $0 ($80,322)
Sale/issuance of common stock $236,000
Net Cash Used by
Financing Activities $236,000 ($80,322)
NET DECREASE IN CASH AND
CASH EQUIVALENTS ($27,834) $3,211
CASH AND CASH EQUIVALENTS, beginning
as previously stated $44,128 ($17,324)
CASH AND CASH EQUIVALENTS, ending $16,294 ($14,113)
</TABLE>
See notes to condensed financial statements
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PACIFIC COAST APPAREL CO., INC.
CONDENSED STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
<TABLE>
<CAPTION>
Nine Months Ended June 30
-------------------------
2000 1999
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<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash paid during period for:
Interest $51,414 $21,283
Income Taxes
</TABLE>
See notes to condensed financial statements
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PACIFIC COAST APPAREL CO., INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 2000
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
PACIFIC COAST APPAREL CO., INC.
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
YEAR ENDED SEPTEMBER 30, 1999
AND THE NINE MONTHS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
Common stock Additional Total
--------------------- Paid-in Stockholders'
Shares Amount Capital Deficit Equity
<S> <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 (116,000) ($452,400) $306,610 ($145,790)
Other (5,000) ($19,500) $10,750 ($8,750)
Net loss for the year ended
September 30, 1997 ($2,954,339) ($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) $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)
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Balance, September 30, 1998, 3,064,000 $5,453,798 $479,860 ($6,079,470) ($145,812)
Contributions $600 $600
Net loss for the year ended
September 30, 1999 ($759,539) ($759,539)
--------------------------------------------------------------------
Balance, September 30, 1999 3,064,000 $5,453,798 $480,460 ($6,839,009) ($904,751)
Issuance of stock 1,318,000 $236,000 $236,000
Net income (loss) for the nine months ended
June 30, 2000 $408,100 $408,100
--------------------------------------------------------------------
Balance, June 30, 2000 4,382,000 5,689,798 480,460 (6,430,909) (260,651)
</TABLE>
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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
July 7, 2000
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