<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 March 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to ___________
For the quarterly period ended ________________________
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 of (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 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 May 11, 1998
Transitional Small Business Disclosure Format: Yes [ ] No [ X ]
<PAGE>
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 sportswear which includes suits, skirts, blouses, blazers, pants,
shorts, vests and dresses, using assorted fabrics including rayons, linens,
cotton and wool. The Company arranges for the manufacture of garments for
customers under private labels selected by its customers. It markets its
products exclusively in the United States directly to large wholesalers (e.g.;
V.S. Sports, David N., Synari, Koret of California, Inc., Arenzano Trading Co.
aka Oleg Cassini, Nash International Group aka Herman Geist and Prime Time
International aka Focus 2000), directly and indirectly to national retailers and
buying organizations (e.g.; J.C. Penney, Belk, Casual Corner, Steinmart,
Dillards, Seiferts, Parisian, Atkins et al, Mercantile, Loehmanns) and directly
to women's chain clothing stores and catalogues (e.g.; Chadwicks, Marshalls, TJ
Maxx, Dunlaps Co et al (MMCohn, Paul Steketee, Clarks, Heironimus, Porteous,
Schreiners, The White House), Hollidays, Syms, Winners).
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. In its marketing, the Company emphasizes these 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. See Item 1.
As a package provider, the Company sources and purchases fabrics and trims,
arranges for cutting and sewing, and coordinates any other services required to
provide a completed garment. Since the Company manufactures its finished
products only upon receipt of purchase orders from its wholesale and retail
customers, it therefore does not maintain an inventory of finished products. The
Company believes that in this way it minimizes the marketing and fashion risk
generally associated with the apparel industry. Fabrics and trims are purchased
from suppliers in China, India, Russia, Romania, Italy and the United States.
After dying the fabric, if necessary, the fabric and trim are shipped to
factories selected by the Company (primarily located in Macedonia) where they
are manufactured into completed garments under the Company's management and
quality control guidance. The finished products are then shipped directly to
New York City where the Company's customers claim the goods either at the port
in New York City or at a consolidating warehouse in Astoria, New York.
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;
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1998
-------------------------
<S> <C> <C>
Revenues 100.0% 100.0%
Cost of goods sold 85.3% 86.1%
Gross profit 14.7% 13.9%
Selling, General and Administrative 3.7% 6.9%
Operating income 11.0% 7.0%
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 ("1998") COMPARED TO THREE MONTHS ENDED
MARCH 31, 1997 ("1997")
SALES
Sales for 1998 were $8,186,856 which represented an increase of $3,092,999 or
60.7% over 1997 net sales of $5,093,857. Sales of the Company's own labeled
products and private label products were $0 and $8,186,856 respectively, in 1998
compared to $306,774 and $4,787,083, respectively, in 1997. The growth in sales
was primarily attributable to increased purchases by existing customers and from
new 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 1998 was $7,048,883 or 86.1% of sales, an increase of
$2,703,823 from $4,345,060 or 85.3% of sales in 1997. The increase in cost of
goods sold was primarily attributable to the increase in sales. The increase in
the percentage of cost of goods sold was primarily attributable to increases in
freight costs.
GROSS PROFIT
Gross profit was $1,137,973 for 1998, an increase of $389,176 from $748,797 for
1997. The gross profit percentage was 13.9% in 1998, a decrease from 14.7% in
1997. The decrease in the gross profit percentage was primarily attributable to
increased cost of materials and freight costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative ("SG&A") expenses were $563,969 or 6.9% of
sales for 1998, an increase of $375,917 from $188,052 or 3.7% of sales for
1997. The increase in SG&A expense levels was primarily attributable to
payments related to professional fees, officers salaries, travel expenses,
license fees and dues (consisting primarily of the Company's NASDAQ membership
fees).
INTEREST EXPENSE
Interest expense for 1998 was $10,161 compared to $13,264 for 1997. The
decrease in interest was primarily attributable to the reduction in the
utilization of existing financing vehicles.
PROVISION FOR INCOME TAXES
The provision for income taxes was $220,000 and $219,870 for 1998 and 1997,
respectively. The increase in the provision for income taxes for the 1998 was
primarily attributable to increased earnings.
<PAGE>
LIQUIDITY
The Company has 575,000 warrants outstanding with an exercise price of $7.50
per warrant expiring September 23, 2002. The Company has 50,000 underwriter
warrants outstanding with an exercise price of $14.40 per unit. Each unit
consists of two shares of the Company's common stock and one warrant as
described above. The Company does not know whether the warrants will be
exercised in 1998. Without exercise of those warrants, the Company may need
to limit its growth in order to more efficiently manage its available funds
and funds generated by operations.
It is the Company's intention, however, to utilize more fully and possibly
increase its existing line of credit with a major lending institution and its
credit facility arrangement with a New York factoring company. These measures
are required due to the significant cash requirements related to increases in
revenues.
The Company does not expect its historical rate of increase in sales growth to
continue and further expects its rate of growth to be lower in the future as
it begins to reach its full operating capacity constraints and utilization of
its existing capital resources. In the event the Company is able to obtain
additional equity capital through the exercise, if any, of its outstanding
warrants or other increases in potential working capital as mentioned above,
however, the Company believes that this new working capital may allow it to
grow more quickly.
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, bridge loans, a private
placement and its IPO.
The initial use of IPO funds was to repay certain debt and to purchase raw
materials, for working capital and the eventual purchase of wool manufacturing
equipment. The Company's primary need for cash is for working capital
purposes. The Company 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. There can be no
assurance that acceptable financing for future transactions can be obtained.
INFLATION
The Company does not anticipate a significant increase in inflation in the
United States over the short-term. All of the Company's transactions worldwide
are conducted on a dollar-denominated basis which is intended to mitigate the
possible impact of volatile currencies that may arise as a result of global
corporations crowding emerging markets in search of growth.
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.
YEAR 2000 ISSUES
Many computer systems in use today were designed and developed using two
digits, rather than four, to specify the year. As a result, such systems will
recognize the year 2000 as "00". This could cause many computer applications
to fail completely or to create erroneous results unless corrective measures
are taken. The Company currently uses software and related computer
technologies essential to its operations that the Company believes will not be
affected by the year 2000 issue.
<PAGE>
The Company, however, can not determine the extent to which its vendors and
customers may or may not be affected by the year 2000 issue. The Company
intends over the next 2 years to establish relationships with customers that
may require the use of EDI (electronic data interchange) whereby all invoicing
and payments will take place electronically over the internet through
computers. The Company believes that since these prospective customers
already utilize EDI, that they either have in place now, or will have
successfully taken whatever steps are necessary to solve the year 2000 issue.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
CHANGES IN SECURITIES
Not applicable
USE OF PROCEEDS
<TABLE>
<CAPTION>
USE OF PROCEEDS
% of
proceeds Sub-Totals Totals
-------- ---------- ------
<S> <C> <C> <C>
GROSS PROCEEDS $6,900,000
Less: Underwriters discounts, commissions 10.0% 690,000
Finders' fees -
Underwriters expenses 3.0% 207,000
Payments to directors and officers 0.7% 49,376
---------------------
Total expenses 13.7% 946,376
----------
Net proceeds 5,953,624
USE OF PROCEEDS
Construction of plan, building and facilities -
Purchase and installation of machinery and equipment 4.1% 280,000
Purchases of real estate -
Acquisition of other business(es) -
Repayment of indebtedness 8.4% 578,532
Working capital 7.0% 483,104
Temporary investments -
Purchases of raw materials 60.7% 4,191,988
---------------------
Total use of proceeds 80.2% 5,533,624
----------
REMAINING PROCEEDS $ 420,000
----------
----------
</TABLE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
<PAGE>
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Not applicable
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: May 13, 1998 RETROSPETTIVA, INC.
(Registrant)
______________________________
Michael D. Silberman
Chief Financial Officer
(Principal Accounting Officer)
<PAGE>
RETROSPETTIVA, INC.
BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------------------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 2,582,442 $ 1,569,905
Accounts receivable, net, pledged 1,936,537 2,958,770
Due from factor 533,670 -
Note receivable 94,622 115,210
Note receivable, stockholder 349,290 288,496
Inventories, pledged 7,325,585 6,389,896
Advances to vendor 121,204 -
Advances for sales commissions 55,000 -
Accrued interest receivable, stockholder 32,685 21,042
Other 56,292 79,999
----------------------------
Total Current Assets 13,087,327 11,423,318
PROPERTY AND EQUIPMENT, at cost, net 330,431 183,293
DEFERRED TAX ASSETS 34,000 34,000
OTHER ASSETS 4,850 4,610
----------------------------
$13,456,608 $11,645,221
----------------------------
----------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable, trade $ 3,408,684 $ 2,881,620
Line of credit 755,843 95,610
Note payable 131,124 131,124
Accrued expenses 52,645 66,140
Due to factor 354,529 -
Accrued income taxes 249,795 160,966
Customer advances - 137,385
----------------------------
Total Current Liabilities 4,952,620 3,472,845
----------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock - authorized 1,000,000
shares - none issued or outstanding
Common stock - authorized 15,000,000 shares,
no par value; issued and outstanding 2,900,000
and 2,900,000 shares, respectively 6,258,190 6,258,190
Additional paid-in capital 230,000 230,000
Retained earnings 2,015,798 1,684,186
----------------------------
Total Stockholders Equity 8,503,988 8,172,376
----------------------------
$13,456,608 $11,645,221
----------------------------
----------------------------
</TABLE>
<PAGE>
RETROSPETTIVA, INC.
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1998
-----------------------------
<S> <C> <C>
SALES $4,787,083 $8,186,856
SALES, related party 306,774 -
-----------------------------
Total Sales 5,093,857 8,186,856
COST OF SALES 4,345,060 7,048,883
-----------------------------
GROSS PROFIT 748,797 1,137,973
OPERATING EXPENSES
Selling expenses 47,788 98,918
General and administrative 140,264 465,051
-----------------------------
Total Operating Expenses 188,052 563,969
-----------------------------
INCOME FROM OPERATIONS 560,745 574,004
OTHER INCOME (EXPENSES)
Interest income 17,738
Interest income, related party 11,643
Interest expense (13,264) (10,161)
Penalities (41,612)
-----------------------------
Net Other Income (Expenses) (13,264) (22,392)
-----------------------------
INCOME BEFORE INCOME TAXES 547,481 551,612
PROVISION FOR INCOME TAXES 219,870 220,000
-----------------------------
NET INCOME $ 327,611 $ 331,612
-----------------------------
-----------------------------
NET INCOME PER SHARE, BASIC $ 0.19 $ 0.11
-----------------------------
-----------------------------
WEIGHTED AVERAGE NUMBERS OF SHARES
OUTSTANDING, BASIC 1,750,000 2,900,000
-----------------------------
-----------------------------
NET INCOME PER SHARE, DILUTED $ 0.19 $ 0.10
-----------------------------
-----------------------------
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING, DILUTED 1,750,000 3,242,528
-----------------------------
-----------------------------
</TABLE>
<PAGE>
RETROSPETTIVA, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1998
---------------------------
<S> <C> <C>
CASH FLOWS FROM (TO) OPERATING ACTIVITIES
Net income $ 327,611 $ 331,612
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 4,407 11,985
Services provided to reduce note receivable 10,286 -
Changes in:
Accounts receivable 291,083 1,022,233
Accounts receivable, related party 584,707 -
Due from factor - (533,670)
Accrued interest receivable, shareholder - (11,643)
Advances to vendor - (121,204)
Advances for sales commissiosn - (55,000)
Inventories 708,407 (935,689)
Other (16,738) 23,467
Accounts payable and accrued expenses (1,054,769) 513,569
Accrued income taxes 181,630 88,829
Customer advances (767,410) (137,385)
---------------------------
Cash flows provided (used) by operating
activities 269,214 197,104
---------------------------
CASH FLOWS FROM (TO) INVESTING ACTIVITIES:
Purchase of fixed assets - (159,123)
Payments on notes receivable 44,593 20,588
---------------------------
Cash flows provided (used) by investing
activities 44,593 (138,535)
---------------------------
CASH FLOWS FROM (TO) FINANCING ACTIVITIES:
Loans to stockholder (116,027) (81,841)
Payments from stockholder - 21,047
Collections on note receivable, stockholder 10,250 -
Proceeds from line of credit - 660,233
Due to factor - 354,529
Payments on note payable (32,580) -
Payments for deferred offering costs 72,399 -
Proceeds from issuance of common stock 382,630 -
---------------------------
Cash flows provided (used) by financing
activities 316,672 953,968
---------------------------
NET INCREASE (DECREASE) IN CASH 630,479 1,012,537
CASH IN BANK, beginning of period 110,777 1,569,905
---------------------------
CASH IN BANK, end of period $ 741,256 $2,582,442
---------------------------
---------------------------
</TABLE>
<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 months ended March 31, 1998 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
10-KSB filed with the Securities and Exchange Commission for the year ended
December 31, 1997.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
RETROSPETTIVA'S 10-QSB FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,582,442
<SECURITIES> 0
<RECEIVABLES> 2,616,104
<ALLOWANCES> 145,897
<INVENTORY> 7,325,585
<CURRENT-ASSETS> 13,087,327
<PP&E> 408,823
<DEPRECIATION> 78,392
<TOTAL-ASSETS> 13,456,608
<CURRENT-LIABILITIES> 4,952,620
<BONDS> 0
0
0
<COMMON> 6,258,190
<OTHER-SE> 2,245,798
<TOTAL-LIABILITY-AND-EQUITY> 13,456,609
<SALES> 8,186,856
<TOTAL-REVENUES> 8,186,856
<CGS> 7,048,883
<TOTAL-COSTS> 7,612,852
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,161
<INCOME-PRETAX> 551,612
<INCOME-TAX> 220,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 331,612
<EPS-PRIMARY> .11
<EPS-DILUTED> .10
</TABLE>
