<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ______________ to ___________________
For the quarterly period ended September 30, 1997
Commission file number: 333-29295
RETROSPETTIVA, INC.
(Exact name of small business issuer as specified in its charter)
California 95-4298051
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
8825 West Olympic Boulevard
Beverly Hills, CA 90211
(Address of principal executive offices)
(310) 657-1745
(Issuer's telephone number)
Check whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act 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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
Check whether the registrant has filed all documents and reports required to
be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: Common Stock, No Par Value,
2,900,000 shares as of November 5, 1997.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RETROSPETTIVA, INC
BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997
--------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 110,777 $4,335,895
Accounts receivable, net, pledged 760,495 862,397
Accounts receivable, related party, pledged 1,182,202 -
Note receivable, current portion 140,000 130,442
Note receivable, stockholder - 243,887
Inventories, pledged 3,112,678 3,723,969
Deferred tax assets, current portion 11,000 16,000
Deferred offering costs 101,354 -
Other 14,825 30,638
--------------------------------
Total Current Assets 5,433,331 9,343,228
PROPERTY AND EQUIPMENT, at cost, net 61,386 58,675
NOTE RECEIVABLE, net of current portion 47,583 -
DEFERRED TAX ASSETS, net of current portion 5,000
OTHER ASSETS 80,666 4,610
--------------------------------
$5,627,966 $9,406,513
--------------------------------
--------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable, trade $2,806,812 $1,502,452
Note payable 237,580 -
Note payable, bridge loans 250,000 -
Note payable, supplier - 131,124
Accrued expenses 51,070 31,194
Accrued income taxes 443,080 173,964
Customer advances 909,681 500,000
--------------------------------
Total Current Liabilities 4,698,223 2,338,734
--------------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock - authorized 1,000,000 shares -
none issued or outstanding 0
Common stock - authorized 15,000,000 shares,
no par value; issued and outstanding 1,750,000
and 2,750,000 shares, respectively 154,000 5,537,013
Additional paid-in capital 230,000 230,000
Retained earnings 545,743 1,300,766
--------------------------------
Total Stockholders Equity 929,743 7,067,779
--------------------------------
$5,627,966 $9,406,513
--------------------------------
--------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
2
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RETROSPETTIVA, INC
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
1996 1997 1996 1997
---------------------------------------------------------
<S> <C> <C> <C> <C>
SALES $7,295,368 $13,026,900 $3,166,390 $5,105,601
SALES, related party 1,776,927 - 225,209 -
---------------------------------------------------------
Total Sales 9,072,295 13,026,900 3,391,599 5,105,601
COST OF SALES 7,831,032 11,124,972 2,912,691 4,366,641
---------------------------------------------------------
GROSS PROFIT 1,241,263 1,901,928 478,908 738,960
OPERATING EXPENSES
Selling expenses 147,465 172,735 1,204 78,167
General and administrative 440,216 424,952 79,274 206,011
---------------------------------------------------------
Total Operating Expenses 587,681 597,687 80,478 284,178
---------------------------------------------------------
INCOME FROM OPERATIONS 653,582 1,304,241 398,430 454,782
OTHER INCOME (EXPENSES)
Interest income 8,154 3,677
Interest expense (41,379) (50,501) (23,355) (26,717)
---------------------------------------------------------
Net Other Income (Expenses) (41,379) (42,347) (23,355) (23,040)
---------------------------------------------------------
INCOME BEFORE INCOME TAXES 612,203 1,261,894 375,075 431,742
PROVISION FOR INCOME TAXES 217,565 506,871 121,339 174,001
---------------------------------------------------------
NET INCOME $ 394,638 $ 755,023 $ 253,736 $ 257,741
---------------------------------------------------------
NET INCOME PER COMMON SHARE $ 0.23 $ 0.43 $ 0.14 $ 0.14
---------------------------------------------------------
---------------------------------------------------------
Weighted Average Numbers of Shares
Outstanding 1,750,000 1,775,641 1,750,000 1,826,087
---------------------------------------------------------
---------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
3
<PAGE>
RETROSPETTIVA, INC
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1996 1997
-------------------------------
<S> <C> <C>
CASH FLOWS FROM (TO) OPERATING ACTIVITIES
Net income $ 394,638 $ 755,023
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 8,581 13,442
Stock issued for compensation 34,000 -
Deferred income taxes 23,000 -
Services provided to reduce note receivable - 57,141
Stock issued for loan 100,000 -
Utilization of deferred offering costs - (181,183)
Changes in:
Accounts receivable (197,507) (101,902)
Accounts receivable, related party - 1,182,202
Inventories 846,888 (611,291)
Other - 60,243
Accounts payable and accrued expenses (1,481,727) (1,324,236)
Accrued income taxes 216,982 (269,116)
Customer advances 200,000 (409,681)
-------------------------------
Cash flows provided (used) by
operating activities 144,855 (829,358)
-------------------------------
CASH FLOWS FROM (TO) INVESTING ACTIVITIES:
Purchase of property and equipment (4,836) (10,731)
-------------------------------
Cash flows provided (used) by
investing activities (4,836) (10,731)
-------------------------------
CASH FLOWS FROM (TO) FINANCING ACTIVITIES:
Loans to stockholder - (288,043)
Collections on note receivable, stockholder - 44,156
Proceeds from note payable, stockholder 149,319 -
Payments on note payable, stockholder (245,141) -
Proceeds from notes payable, bridge loans 250,000 -
Payments on notes payable, bridge loans (250,000)
Proceeds from note payable 131,124
Payments on note payable (9,725) (237,580)
Payments for deferred offering costs (101,186) -
Payments for offering costs (898,263)
Proceeds from issuance of common stock - 6,563,813
-------------------------------
Cash flows provided (used) by
financing activities 43,267 5,065,207
-------------------------------
NET INCREASE (DECREASE) IN CASH 183,286 4,225,118
CASH IN BANK, beginning of period 38,297 110,777
-------------------------------
CASH IN BANK, end of period $ 221,583 $ 4,335,895
-------------------------------
-------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
4
<PAGE>
RETROSPETTIVA, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and in accordance with the instructions for Form 10-QSB. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
In the opinion of management, the financial statements contain all material
adjustments, consisting only of normal recurring adjustments necessary to
present fairly the financial condition, results of operations, and cash flows of
the Company for the interim periods presented.
The results for the three and nine months ended September 30, 1997 and 1996 are
not necessarily indicative of the results of operations for the full year.
These financial statements and related footnotes should be read in conjunction
with the financial statements and footnotes thereto included in the Company's
form SB-2/A filed on September 10, 1997, the Prospectus dated September 23, 1997
and form 424B4 filed on September 24, 1997 with the Securities and Exchange
Commission for the year ended December 31, 1996 and the six months ended June
30, 1997.
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company contracts for the manufacture of a variety of garments, primarily
basic women's activewear, sportswear and businesswear which include skirts,
blouses, blazers, pants, shorts, vests and dresses, using assorted fabrics
including rayons, linens, cotton and wool. Substantially all of the Company's
garments are sold on a "package" basis pursuant to which the Company markets at
fixed prices finished garments to the customer's specifications and quantity
requirements, arranges for production of the garments and delivers the garments
directly to the customer at the port of entry. Since the Company manufactures
its finished products only upon receipt of purchase orders from its retail
customers, and therefore does not maintain an inventory of finished products,
the Company believes that it minimizes the market and fashion risk generally
associated with the apparel industry.
The Company purchases fabrics and trim (such as buttons, zippers, shoulder pads,
and the like) on behalf of its customers from suppliers in a number of
countries, including Australia, China, India, Russia, Romania, Italy and the
United States. After dying the fabric, if necessary, the fabric and trim are
shipped by the suppliers directly to factories under contract to the Company in
Macedonia where they are manufactured into finished garments for delivery to the
Company's customers in the United States.
In its marketing, the Company emphasizes its package arrangements and what it
believes to be the better quality and lower prices of garments produced by
skilled Macedonian workers as compared to lower paid workers in certain other
regions The Company offers garments for customers under its own labels, and
under private labels selected by its customers and markets its products
exclusively in the United States.
Except for historical information contained herein, the matters set forth may
include forward-looking statements that are subject to risks and uncertainty
that may cause actual results to differ materially. Such forward-looking
statements that may be contained in this document could include in particular
statements concerning business back-logs, operating efficiencies and capacities,
capital spending, and other expenses. Among other factors that could cause
actual results to differ materially are the following; dependence upon
unaffiliated manufacturers and fabric suppliers, dependence on certain
customers, foreign operations, competition, risks associated with significant
growth, uncertainties in apparel industry, general economic conditions,
seasonality, political instability, concentration of accounts receivable and
possible fluctuations in operating results
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship to net revenues of certain items in the Company's statements;
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1997 1996 1997
------------------------------------------
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 85.9% 85.5% 86.3% 85.4%
Gross profit 14.1% 14.5% 13.7% 14.6%
Selling, General and Administrative 2.4% 5.6% 6.5% 4.6%
Operating income 11.7% 8.9% 7.2% 10.0%
6
<PAGE>
THREE MONTHS ENDED SEPTEMBER 30, 1997 ("1997 PERIOD") COMPARED TO THREE MONTHS
ENDED SEPTEMBER 30, 1996 ("1996 PERIOD")
SALES
Sales for the 1997 Period were $5,105,601 which represented an increase of
$1,714,002 or 50.5% over the 1996 Period net sales of $3,391.599. The growth
in sales was primarily attributable to increased purchases by existing
customers. Generally, the Company receives relatively small initial orders from
new customers. As the relationship with the customer continues, the purchase
orders often increase substantially. Net sales increases during the period
reflected these increased customer orders.
COST OF GOODS SOLD
Cost of goods sold in the 1997 Period was $4,366,641 or 85.5% of sales, an
increase of $1,453,950 from $2,912,691 or 85.9% of sales in the 1996 Period.
The decrease in the percentage of cost of goods sold was a result of increased
sales and implementation of a system to more tightly control consumption of raw
materials used in production of finished goods.
GROSS PROFIT
Gross profit was $738,960 for the 1997 Period, an increase of $260,052 from
$478,908 for the 1996 Period. The gross profit percentage was 14.5% in the 1997
Period, an increase from 14.1% in the 1996 Period. Tighter control of
consumption of raw materials used in the production of finished goods enabled
the Company to produce more units using less raw materials.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative ("SG&A") expenses were $284,178 or 5.6% of
sales for the 1997 Period, an increase of $203,700 from $80,478 or 2.4% of sales
for the 1996 Period. The increase in SG&A expense levels was primarily the
result of increased costs of insurance (including a bad debt write-off of
$76,166 related to the destruction of finished goods in a fire at a
consolidating warehouse) to cover the exposure associated with increased
production and import volume, increase in travel expense to support the
additional business, rent, telephone and professional fees.
INTEREST EXPENSE
Interest expense for the 1997 Period was $26,717 compared to $23,355 for the
1996 Period. The increase in interest was primarily attributable to an increase
in the utilization of the Company's line of credit facilities.
PROVISION FOR INCOME TAXES
The provision for income taxes was $174,001 and $121,339 for the 1997 and 1996
Periods, respectively. The increase in the provision for income taxes for the
1997 Period was primarily attributable to increased earnings.
NINE MONTHS ENDED SEPTEMBER 30, 1997 ("1997 PERIOD") COMPARED TO NINE MONTHS
ENDED SEPTEMBER 30, 1996 ("1996 PERIOD")
SALES
Sales for the 1997 Period were $13,026,900 which represented an increase of
$3,954,605 or 43.6% over the 1996 Period net sales of $9,072,295. The growth in
sales was primarily attributable to increased purchases by existing customers.
Generally, the Company receives
7
<PAGE>
relatively small initial orders from new customers. As the relationship with
the customer continues, the purchase orders often increase substantially.
Net sales increases during the period reflected these increased customer
orders.
COST OF GOODS SOLD
Cost of goods sold in the 1997 Period was $11,124,972 or 85.4% of sales, an
increase of $3,293,940 from $7,831,032 or 86.3% of sales in the 1996 Period.
The decrease in the percentage of cost of goods sold was a result of increased
sales and implementation of a system to more tightly control consumption of raw
materials used in production of finished goods.
GROSS PROFIT
Gross profit was $1,901,928 for the 1997 Period, an increase of $660,665 from
$1,241,263 The gross profit percentage was 14.6% in the 1997 Period, an
increase from 13.7% in the 1996 Period. Tighter control of consumption of raw
materials used in the production of finished goods enabled the Company to
produce more units using less raw materials in addition to more economical
sourcing of raw materials and trim.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative ("SG&A") expenses were $597,687 or 4.6% of
sales for the 1997 Period, an increase of $10,006 from $587,681 or 6.5% of sales
for the 1996 Period. The increase in SG&A expense levels was negligible, but
significant relative to the percentage of SG&A expense levels to sales, 4.6% and
6.5% for the 1997 and 1996 Periods, respectively.
INTEREST EXPENSE
Interest expense for the 1997 Period was $50,501 compared to $41,379 for the
1996 Period. The increase in interest was primarily attributable to an increase
in the utilization of the Company's line of credit facilities.
PROVISION FOR INCOME TAXES
The provision for income taxes was $506,871 and $217,565 for the 1997 and 1996
Periods, respectively. The increase in the provision for income taxes for the
1997 Period was primarily attributable to increased earnings.
LIQUIDITY AND CAPITAL RESOURCES
Since its formation, the Company has financed its operations and met its capital
requirements primarily through cash flows from operations, customer advances,
from principals, credit facilities, a bridge loan and private placements. The
Company's capital requirements primarily consist of working capital needs.
NINE MONTHS ENDED SEPTEMBER 30, 1997 ("1997 PERIOD") COMPARED TO NINE MONTHS
ENDED SEPTEMBER 30, 1996 ("1996 PERIOD")
CASH FLOWS FROM (TO) OPERATING ACTIVITIES
Operating activities used net cash of $829,358 in the 1997 Period compared to
providing net cash of $144,855 in the 1996 Period. The principal use of
operating cash is to purchase fabric, manufacture the Company's products and
import finished goods. Cash decreased primarily as a result of increases in
inventories to support the increased production, payments made to decrease
accounts payable and accrued expenses and the utilization of customer advances
and deferred offering costs.
8
<PAGE>
CASH FLOWS PROVIDED (USED) FOR INVESTING ACTIVITIES
The Company's cash flow used by investing activities totaled $10,731 and $4,836
for the 1997 and 1996 Periods, respectively. The Company's capital expenditures
were comprised exclusively of purchases of fixed assets.
CASH FLOWS FROM (TO) FINANCING ACTIVITIES
Cash flows from financing activities totaled $5,065,207 for the 1997 Period and
cash flows to financing activities totaled $43,267 for the 1996 Period. The
majority of the cash from financing activities in the 1997 period was primarily
attributable to the issuance of common stock through a private placement and an
initial public offering totaling $6,563,813. Cash flows to financing activities
in the 1996 Period was primarily attributable to deferred offering costs
incurred in the preparation for the initial public offering and increases in the
note payable due from stockkholder.
SEASONALITY
The Company's revenues and operating results have exhibited some degree of
seasonality in past periods. Typically, the Company experiences its highest
sales in the first and fourth quarters and its lowest sales in the second and
third quarters. The Company, however, may raise capital through the issuance of
long-term or short-term debt, or the issuance of securities in private or public
transactions to fund future expansion of its business, either before or after
the end of the 12 month period. There can be no assurance that acceptable
financing for future transactions can be obtained.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
SETTLEMENT AGREEMENT AND RELEASE (THE "AGREEMENT") - In August, 1997, the
Company entered into an agreement with a supplier pursuant to which the company
settled a disputed amount payable based upon payments of $50,000 on September
15, 1997 (already disbursed), November 14, 1997 and January 15, 1998. The
fourth and final payment of $31,124 is due on February 27, 1998.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
COMMON STOCK AND WARRANTS - In October, 1997, the Company completed an initial
public offering issuing 1,000,000 shares of no par value Common Stock and
500,000 Warrants with an exercise price of $7.50 expiring in 5 years. Net
proceeds to the Company were $5,250,000. Also in October, 1997, the
underwriters of the Company's initial public offering exercised their
overallotment option and issued an additional 150,000 shares of no par value
Common Stock and 75,000 Warrants with terms as noted above. Net proceeds to the
Company were $783,000. Total proceeds to the Company for the initial public
offering and exercise of the overallotment option were $6,033,000.
9
<PAGE>
USE OF PROCEEDS:
Gross proceeds $6,000,000
Less: Underwriters discounts and commissions 600,000
Finders' fees -
Underwriters commission 180,000
Payments to directors and officers -
-------
Total expenses 780,000
----------
Net proceeds 5,220,000
Use of proceeds:
Construction of plant, building and facilities -
Purchase and installation of machinery and equipment -
Purchase of real estate -
Acquisition of other business(es) -
Repayment of indebtedness 487,236
Working capital 400,000
Purchase of raw materials and trim
-------
Total use of proceeds 887,236
----------
Remaining proceeds $4,332,764
----------
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. Other Information
MERRILL LYNCH LINE OF CREDIT - In July, 1997, the Company entered into a line of
credit arrangement with Merrill Lynch Business Financial Services Inc. for
$500,000 at 315 basis points over the 30 day commercial paper rate as published
in the Wall Street Journal. In October, the Company increased its line of
credit to $1,500,000 based on a formula and reducing the rate of interest to 295
basis points per the above parameters.
NOTE RECEIVABLE DUE FROM STOCKHOLDER - As of August 1997, Boro, the Company's
president, was indebted to the Company in the amount of $250,000 evidenced by a
promissory note bearing interest at 10% per annum payable on demand.
COMMITTEES - During September and October, 1997, the Company created an Audit
and a Compensation committee. Both committees consist of a majority of
independent directors.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None.
10
<PAGE>
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 thereto duly authorized.
Date: November 10, 1997 RETROSPETTIVA, INC.
-------------------
(Registrant)
/s/ Borivoje Vukadinovic
------------------------------
Borivoje Vukadinovic
Chief Executive Officer
/s/ Michael D. Silberman
------------------------------
Michael D. Silberman
Chief Financial Officer
(Principal Accounting Officer)
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
RETROSPETTIVA'S 10-QSB FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997, WHICH ARE
UNAUDITED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,335,895
<SECURITIES> 0
<RECEIVABLES> 879,593
<ALLOWANCES> 17,196
<INVENTORY> 3,723,969
<CURRENT-ASSETS> 9,343,228
<PP&E> 58,675
<DEPRECIATION> 13,442
<TOTAL-ASSETS> 9,406,513
<CURRENT-LIABILITIES> 2,338,734
<BONDS> 0
0
0
<COMMON> 5,537,013
<OTHER-SE> 230,000
<TOTAL-LIABILITY-AND-EQUITY> 9,406,513
<SALES> 13,026,900
<TOTAL-REVENUES> 13,026,900
<CGS> 11,124,972
<TOTAL-COSTS> 11,722,659
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 50,501
<INCOME-PRETAX> 1,304,241
<INCOME-TAX> 506,871
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 755,023
<EPS-PRIMARY> 43
<EPS-DILUTED> 43
</TABLE>
