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UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 for the Fiscal year ended December 31, 1999.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT the
transition period from __________ to ___________
Commission file number: 333-29295
RETROSPETTIVA, INC.
(Name of small business issuer 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)
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
NO PAR VALUE COMMON STOCK REDEEMABLE COMMON STOCK PURCHASE WARRANTS
Title of Class Title of Class
Check whether the issue (1) 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 [ ]
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B 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 ]
State issuer's revenues for its most recent fiscal year. $20,207,460.
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the
average bid and asked prices of such stock, as of a specified date within the
past 60 days. As of March 24, 2000, 3,177,916 shares of the Registrant's no
par value common stock were outstanding and the aggregate market value of the
shares held by non-affiliates based on that days market close of $1.62 was
approximately $5,148,224.
(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDING DURING THE PAST FIVE YEARS)
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 [ ]
Transitional Small Business Disclosure Format: Yes [ ] No [X]
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TABLE OF CONTENTS
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PART I PAGE
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Item 1 Description of Business 3
Item 2 Description of Property 7
Item 3 Legal Proceedings 7
Item 4 Submission of Matters to a Vote of Security Holders 8
PART II
Item 5 Market for Common Equity and Related Stockholder Matters 8
Item 6 Management's Discussion and Analysis or Plan of Operation 9
Item 7 Financial Statements 14
Item 8 Changes in and Disagreements with Accountants on Accounting and 15
Financial Disclosure
PART III
Item 9 Directors, Executive Officers, Promoters and Control Persons; 15
Compliance with section 16(a) of the exchange act
Item 10 Executive Compensation 17
Item 11 Security Ownership of Certain Beneficial Owners and Management 19
Item 12 Certain Relationships 20
PART IV
Item 13 Exhibits and Reports on Form 8-K 21
SIGNATURES 22
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ITEM 1. DESCRIPTION OF BUSINESS
INTRODUCTION
The Company was organized in November 1990 initially to manufacture and
import textile products from Italy including finished garments and fabrics.
By 1993, the Company was purchasing fabrics from firms and factories around
the world and contracting for the manufacture of finished garments in
Macedonia for importation into the United States.
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,
national retailers and buying organizations, and directly to women's chain
clothing stores, boutiques and catalogues.
Most 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.
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. The Company manufactures its finished
products only upon receipt of purchase orders from its wholesale and retail
customers, which the Company believes 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.
STRATEGY
The Company intends to continue to offer better quality, popular priced
women's apparel in a wide variety of styles, patterns, colors and fabrics.
The Company's business strategy is as follows:
MAINTAIN FOCUS ON THE COMPANY'S CORE BUSINESS. The Company plans to continue
to contract for the manufacture and market basic women's sportswear on a
package basis. This strategy emphasizes concentrating on `cut-to-order'
business where the customer provides the specifications and design of the
garments which have historically been less fashion oriented. The Company
believes that by avoiding the production of trendier fashion apparel ordered
by customers it will be able to reduce costs commonly associated in the
industry with discounts, returns and allowances. Consistent with this
strategy, the Company will focus on the sale of private label apparel using
the brand names ordered by its customers. The Company, however, will continue
to evaluate the marketplace in an effort to assess its current market
strategies and manage those strategies to remain responsive to market demand.
INCREASE PENETRATION OF CURRENT MARKETS. The Company seeks to further
penetrate its current markets by offering lower product prices while
maintaining a high degree of quality control.
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Lower transportation costs compared to other parts of the world (e.g.; the
Pacific Rim) offer a competitive advantage.
Many countries have quotas that can apply to different types of manufactured
fabrics, trim and finished goods. These quotas are imposed on goods and
components imported to and exported from those countries and contribute to
the overall cost of the apparel imported to and exported from those
countries. In comparison, Macedonia has a quota imposed on only one category
of finished goods which the Company is currently not subject to and
contributes to the Company's ability to offer competitive prices
In the event that Macedonia or the United States enacts quota restrictions
and charges to export or import apparel, then the costs associated with that
quota could increase the unit cost of the goods exported from Macedonia and
imported into the United States.
The Company constantly looks at other parts of the world to explore new
opportunities for quality affordable manufacturing.
EXPAND DISTRIBUTION CHANNELS AND PRODUCT LINES. The Company plans to continue
to expand to new geographic markets within the United States for its existing
products while expanding its existing product lines within the basic women's
sportswear market and exploring possibilities to enter new markets as women's
knitwear and men's suits and shirts.
PRODUCTS
The Company offers to its customers a variety of women's sportswear. Its
apparel includes many styles manufactured in rayon and linen mixes, linen and
cotton mixes, all cotton, wool and other materials. The Company's garments
are moderately priced ranging at retail from $12.99 to $49.99 and are
marketed by the Company's customers and the Company to working women.
During 1999 the Company formed a subsidiary, Hamilton Toys, LLC (Hamilton),
for the manufacture of toys related to motion pictures. The Company acquired
licenses from Universal pictures to manufacture certain toys related to "The
Adventures of Rocky and Bullwinkle" film.
The Company is developing both a Business to Business and a Business to
Consumer web site in order to offer its products for sale to whole sellers,
distributors and consumers.
MARKETING
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, directly and indirectly
to national retailers and buying organizations, directly to women's chain
clothing stores and catalogues and to retail stores.
Marketing is conducted through three in-house salespersons that call directly
upon customers, as well as outside sales associates, through customer
referrals and through the efforts of the Company's executive officers. The
Company also maintains a sales office in New York.
The Company's customers include United States retailers and wholesalers as
described above. The Company's customers for the year ended December 31, 1999
included three that accounted for more than 10% of sales (Customer A at 12%,
Customer B at 21% and Customer C 29% or a total of 62%). A loss of any of
these customers would have a material adverse effect on the Company's results
of operations.
MANUFACTURING AND SUPPLIERS
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The Company arranges for the manufacture of garments based on the fabric,
design, styling and quality specifications of individual customer orders. The
Company does not own or operate any manufacturing facilities. It obtains its
products from manufacturers in Macedonia who contract with the Company to
manufacture specific items of apparel in predetermined amounts and for agreed
upon unit prices. The Company contracts for the purchase of fabric and the
manufacture and sewing of its products with Yucan Trade International
("Yucan") a manufacturing agent.
The Company believes that outsourcing allows it to enhance production
flexibility and capacity while reducing capital expenditures and avoiding the
costs of managing a large production work force. In addition, the Company
believes that outsourcing allows the Company to utilize the expertise of its
suppliers and manufacturers in fabric selection and manufacturing processes.
The Company is currently assessing the viability of expanding and
geographically diversifying its manufacturing resources in regions other than
Macedonia.
The Company arranges for the production of its products based on orders
received. The Company obtains all of its customers' orders prior to placement
of its contract manufacturing orders. The Company's customer orders may
change with respect to colors, sizes, allotments or assortments prior to
commencement of production of the garments, and any costs associated with
such a change will be borne by the Company. Accordingly, there is some risk
associated with the Company's practice of allowing change orders after fabric
is purchased. However, costs associated with change orders have not been
material in the past and the Company does not believe that they will be
material in the future.
The Company purchases fabric and trim from the manufacturers of these garment
components. These manufacturers ship their products directly to the Company's
manufacturing agent or to fabric dyers (currently in Slovenia) who in turn
ship the fabric per the instructions of the agent. The Company does not have
written contracts with any of its fabric or trim suppliers or contractors,
however, the Company believes that its relationships with its suppliers and
contractors are good.
The Company has retained Yucan as its manufacturing agent in Macedonia. Yucan
is responsible for selecting the factories that will manufacture the
Company's finished goods, to oversee this production and to warehouse and
arrange for shipping the finished goods to the Company in the United States.
Yucan is paid a fee that ranges from $0.15 to $0.50 per garment manufactured.
Although Yucan is currently responsible for the manufacture, warehousing and
shipping of all of the Company's finished goods, the Company believes that
there are other manufacturing agents in Macedonia which the Company could
retain for the same purpose on substantially similar terms. The Company does
not have written contracts with Yucan or any of its suppliers or contractors.
Although the loss of certain suppliers or contractors (including Yucan) could
have a significant material adverse effect on the Company's operating
results, the Company believes it would be able to replace such suppliers and
contractors within a reasonable amount of time if required to do so.
The Company delivers finished goods directly from its manufacturing agent to
its customers at the port of entry in New York City or at the Company's
consolidating warehouse in Astoria, New York or ships from the warehouse to
the customers' warehouses. Since the Company assumes the risk of loss when
the finished goods leave its manufacturer, the goods are insured until
delivery is made to the customer.
For the year ended December 31, 1999, Newbel Inc. ("Newbel"), Yucan and W/P
Trading accounted for 26%, 31% and 12% respectively, of the Company's total
fabric and finished goods purchases.
QUALITY CONTROL
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The Company's quality control program is designed to provide that all of the
Company's products meet the Company's and its customer's standards. The
Company maintains a staff of three quality control employees in the United
States and four such employees in Macedonia. The Company develops and
inspects samples of each product prior to production, establishes fittings
based on the sample and inspects sample fabric prior to cutting and several
times during the production process. The Company, Yucan and (in the case of
private label products) representatives of the Company's customers inspect
final products prior to shipment.
COMPETITION
The apparel industry is highly competitive and consists of numerous
manufacturers, importers and distributors. Many of the Company's competitors
are significantly larger, more diversified and have significantly greater
financial, distribution, marketing, name recognition and other resources than
the Company. The Company believes it has certain competitive advantages
resulting from its contractual relationships with Macedonian manufacturers.
These advantages include the availability in Macedonian factories of highly
skilled workers at relatively lower costs than in more economically developed
regions. They also include a lack of quotas and lower tariffs in the
importation into the United States of finished goods from Macedonia. Finally
they also include lower shipping costs as a result of the closer geographical
proximity to the United States of the Company's Macedonian contract
manufacturers compared to manufacturers in the Pacific Rim nations.
TRADE NAMES
The Company has developed two apparel trade names, "Magellan" and
"Retrospettiva" in connection with the marketing of its apparel. The Company
regards its trade names as assets although no trade name registrations have
been filed in the United States or in foreign countries. While the use of a
trade name may provide certain common law rights of further usage, there can
be no assurance the Company could prohibit the use of its trade names by
others. The Company currently does not actively use either trade name since
its current business is private label utilizing the trade names ordered by
its customers.
CREDIT POLICY AND CREDIT CONTROL
Prior to accepting a purchase order and purchasing fabric and components, the
Company investigates the customer's credit history through traditional credit
reporting services, through asset-based lenders of the customer and through
other contract partners of the customer. The Company sometimes obtains a
deposit or advance payment before purchasing fabric or commencing garment
production for the customer.
The Company accepts commercial letters of credit for the purchase of raw
materials. This is similar to a progress payment from the customer whereby
they pay for the cost of the materials used in the manufacture of their
order. The Company also accepts arrangements whereby a customer will purchase
directly the raw materials and or trim used in the production of their order.
The Company also accepts commercial letters of credits from customers
covering existing orders. When the order is shipped and all of the
requirements of the letter of credit are met, the Company presents the letter
of credit for payment by the customer's authorized bank. The Company also
utilizes its own line of credit facility to request commercial documentary
letters of credit naming suppliers as beneficiaries in an effort to obtain
more favorable credit terms. The line of credit facility enables the Company
to receive extended credit terms while not drawing on its line of credit
until the supplier presents the letter of credit for payment to the Company's
bank.
In December 1997, the Company entered into a factoring agreement with a New
York based Factoring Company to factor its accounts receivable. The Company
will receive up to 80% of the receivables at the time of factoring. This is a
non-recourse factoring agreement and the
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Company assigns the responsibility of the factored receivables to the Factor,
except in cases of charge backs due to quality and shipping.
GOVERNMENT REGULATION
The Company's import operations are subject to constraints imposed by
bilateral textile agreements between the United States and a number of
foreign countries. These agreements, which have been negotiated bilaterally
either under the framework established by the Arrangement Regarding
International Trade in Textiles, known as the Multifiber Agreement, or other
applicable statutes, impose quotas on the amounts and types of merchandise
which may be imported into the United States from these countries. However,
apparel imported from Macedonia is not subject to such quotas. These
agreements also allow the signatories to adjust the quantity of imports for
categories of merchandise that, under the terms of the agreements, are not
currently subject to specific limits. The Company's imported products are
also subject to United States customs' duties that may comprise a material
portion of the cost of the merchandise.
Apparel products are subject to regulation by the Federal Trade Commission in
the United States. Regulations relate principally to the labeling of the
Company's products. The Company believes that it is in substantial compliance
with such regulations, as well as applicable federal, state, local and
foreign rules and regulations governing the discharge of materials hazardous
to the environment. There are no significant capital expenditures for
environmental control matters either estimated in the current year or
expected in the near future.
EMPLOYEES
As of December 31, 1999, the Company employed 17 individuals in Los Angeles,
California, New York, New York and Macedonia including but not limited to its
four executive officers, three inventory management and order control
personnel, three administrative personnel and four quality control workers.
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases approximately 2,200 square feet for its executive and
administrative offices at 8825 West Olympic Boulevard, Beverly Hills,
California 90211 at $2,378 per month pursuant to a lease expiring December
31, 2003. At the present time, the Company's current facility provides
adequate space to conduct its operations.
The Company subleases 2,000 square feet of office and showroom facilities at
1359 Broadway, Suite 2102, New York, New York 10018, on a month to month
basis at $2,575 per month. The Company subleases a New York apartment on a
month to month basis for use by its employees traveling from Los Angeles,
California and Macedonia to New York City.
The Company leases approximately 16,500 square feet for its New York
warehouse at 4-05 26th Avenue, Astoria, New York at $8,250 per month.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to litigation and claims that arise in the normal
course of business. In the opinion of management, the ultimate disposition of
these matters will not have a material adverse effect on the financial
position, capital resources, liquidity or results of operations of the
Company.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS AND USE OF
PROCEEDS
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the calendar year ended December 31, 1999.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKKHOLDER MATTERS
MARKET INFORMATION
The Company's common stock has been traded on the NASDAQ Small Cap ("NASDAQ
SC") under the symbol "RTRO" since September 24, 1997. On March 18, 1999, the
closing bid price for the Company's common stock was $3.09 per share. The
following table sets forth for the quarters indicated, the range of high and
low bid prices of the Company's common stock as reported by NASDAQ.
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BY QUARTER ENDED: COMMON STOCK
HIGH LOW
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Calendar 1997
September 30, 1997...................................... $7.25 $6.63
December 31, 1997....................................... $7.25 $5.75
Calendar 1998
March 31, 1998.......................................... $7.81 $5.50
June 30, 1998........................................... $6.88 $5.50
September 30, 1998...................................... $6.19 $1.63
December 31, 1998....................................... $4.19 $1.53
Calendar 1999
March 31, 1999.......................................... $4.88 $3.06
June 30, 1999 ......................................... $1.63 $1.38
September 30, 1999...................................... $1.94 $1.50
December 31, 1999....................................... $1.38 $1.13
Calendar 2000
March 31, 2000.......................................... $1.56 $1.50
</TABLE>
The above quotations were reported by NASDAQ and reflect inter-dealer prices,
without retail mark-up, markdown or commission and may not necessarily
represent actual transactions.
HOLDERS
The approximate number of the Company's record and beneficial stockholders as
of March 31, 2000 was 850.
DIVIDENDS
The Company has not paid any dividends on its common stock since inception
and does not plan to pay dividends in the foreseeable future. The Company
anticipates that any future earnings will be retained to finance growth.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Company desires to take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995 and is incorporating this
statement into this report in order to do so. This report includes
"forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended and Section 21E of the Securities Exchange
Act of 1934, as amended which represent the Company's expectations of beliefs
concerning future events that involve risks and uncertainties.
All statements (other than statements of historical facts) included in the
Company's SEC filings, including its Proxy Statements and this Report 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 Report could
include in particular statements concerning business back-logs, operating
efficiencies and capacities, capital spending, and other expenses. Other
factors that could also cause actual results to differ materially include
dependence upon unaffiliated manufacturers and fabric suppliers, dependence
on certain customers, foreign operations, competition, risks associated with
significant growth, uncertainties in the apparel industry, general economic
conditions, seasonality, political instability, inflation and monetary
fluctuations, import and other charges or taxes, changes in laws and
regulations, other activities of governments, agencies and similar
organizations, trade restrictions or prohibitions, concentration of accounts
receivable, possible fluctuations in operating results, effects of changes
within the Company's organization or in compensation and benefit plans, the
amount, type and cost of the Company's financing and any changes to that
financing, the amount, and rate of growth in, the Company's selling, general
and administrative expenses, changes in accounting policies and practices and
the application of such policies and practices and nationalizations and
unstable governments and legal systems and intergovernmental disputes.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to have been correct. Important factors that could
cause actual results to differ materially from the Company's expectations are
disclosed in this Report to the extent that the Company is currently aware of
them. There may be additional factors that could arise that are not listed
above that could also result in having a material adverse impact on the
Company's liquidity, capital resources and results of operations.
OVERVIEW
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The Company contracts for the manufacture of a variety of garments, primarily
basic women's sportswear which includes skirts, blouses, blazers, pants,
shorts, vests and dresses, using assorted fabrics including rayon, 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,
directly and indirectly to national retailers and buying organizations, and
directly to women's chain clothing stores and catalogues.
Most 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. 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 or the Company arranges for
direct shipping of goods to retailers.
The following is a discussion of the financial condition and results of
operations of the Company for the years ended December 31, 1999, 1998 and
1997. This discussion should be read in conjunction with the Company's
financial statements, the notes related thereto, and the other financial data
included elsewhere in this filing.
RESULTS OF OPERATIONS
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YEAR ENDED DECEMBER 31,
NOTE: ALL FIGURES IN PERCENTAGES
EXCEPT EARNINGS PER SHARE 1999 1998 1997
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Net sales 100% 100% 100.0%
Cost of goods sold 86.7 87.1 85.8
Gross profit 13.3 12.9 14.2
Selling, general and admin. Exp. 12.1 7.6 4.6
Interest expense 1.1 0.39 0.02
Net income 0.5 3.0 5.8
Earnings per share $ 0.03 0.28 $ 0.55
</TABLE>
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999, AND 1998 (THE
"1999 YEAR" AND "1998 YEAR", RESPECTIVELY.)
SALES
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Sales for the 1999 Year were $20,207,460 which represented a decrease of
$7,327,076 or 26.6% over the 1998 Year net sales of $27,534,536. The decrease
in sales was primarily attributable to the decrease in the volume of business
ordered by existing customers and new customers. This was in part attributed
to the out break of the conflict in the Balkans which had an adverse effect
on the Company's second quarter sales.
The Company intends to continue to evaluate its strategies to remain
competitively responsive to the market. The Company may in the future elect
to adopt different market strategies including but not limited to start
manufacturing under its own labels. It is one of the Company's strategies to
continue to simultaneously increase productive capacity to meet the growth in
orders and to create a more diverse and less concentrated portfolio of
business. This strategy is designed to reduce the extent of impact, which
could be material and adverse, that the loss of any one or more customers
might have on the Company's overall results of operations and capital
resources. The Company currently can not assess the extent to which this
strategy will be successful.
GROSS PROFIT
Gross profit was $2,685,363 for the 1999 Year, a decrease of $857,267 from
$3,542,630 for the 1998 Year. The gross profit percentage was 13.3% in the
1999 Year, an increase from 12.9% in the 1998 Year. The decrease in gross
profit was primarily attributable to decrease in gross sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative ("SG&A") expenses were $2,444,841 or
12.1% of sales for the 1999 Year, an increase of $344,957 from $2,099,884 or
7.6% of sales for the 1998 Year. The increase in expenses was attributable to
the increase in commission expenses, trade show expenses, printing, license
fees, office salaries, officer salaries, bank charges and factor charges.
INTEREST EXPENSE
Interest expense for the 1999 Year was $236,718 an increase of $131,278
compared to $105,440 for the 1998 Year. Interest expense was primarily
attributable to the Company's utilization of its line of credit and factoring
arrangement.
PROVISION FOR INCOME TAXES
The provision for income taxes was $46,000 and $629,363 for the 1999 and 1998
Years, respectively. The marginal tax rate experience of the Company has been
approximately 40%.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998, AND 1997 (THE
"1998 YEAR" AND "1997 YEAR", RESPECTIVELY.)
SALES
Sales for the 1998 Year were $27,534,536 which represented an increase of
$7,809,785 or 39.6% over the 1997 Year net sales of $19,724,751. The increase
in sales was primarily attributable to the increase in the volume of business
ordered by existing customers and new customers.
The Company intends to continue to evaluate its strategies to remain
competitively responsive to the market. The Company may in the future elect
to adopt different market strategies including but not limited to start
manufacturing under it's own labels.It is one of the Company's strategies to
continue to simultaneously increase productive capacity to meet the growth in
orders and to
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create a more diverse and less concentrated portfolio of business. This
strategy is designed to reduce the extent of impact, which could be material
and adverse, that the loss of any one or more customers might have on the
Company's overall results of operations and capital resources. The Company
currently can not assess the extent to which this strategy will be successful.
GROSS PROFIT
Gross profit was $3,542,630 for the 1998 Year, an increase of $742,444 from
$2,800,186 for the 1997 Year. The gross profit percentage was 12.9% in the
1998 Year, a decrease from 14.2% in the 1997 Year. The decrease in gross
profit was primarily attributable to increased cost of freight forwarding as
a result of air freight costs, an increase in costs related to technicians,
inspection, merchandise repairs, warehouse expenses and sample expenses
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative ("SG&A") expenses were $2,099,884 or 7.6%
of sales for the 1998 Year, an increase of $1,190,629 from $909,255 or 4.6%
of sales for the 1997 Year. The increase in expenses was attributable to the
increase in commission expenses, trade show expenses, printing, license fees,
office salaries, officer salaries, bank charges and factor charges.
INTEREST EXPENSE
Interest expense for the 1998 Year was $105,440 an increase of $60,154
compared to $45,286 for the 1997 Year. Interest expense was primarily
attributable to the Company's utilization of its line of credit. Also,
interest expenses increased due to utilization of its factoring arrangement.
PROVISION FOR INCOME TAXES
The provision for income taxes was $629,363 and $775,000 for the 1998 and
1997 Years, respectively. The marginal tax rate experience of the Company has
been approximately 40%.
LIQUIDITY AND CAPITAL RESOURCES
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 2000. 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.
The Company is utilizing a $3.5 million line of credit and its credit
facility arrangement with a New York factoring company.
CASH FLOWS USED BY OPERATING ACTIVITIES
12
<PAGE>
Operating activities used net cash of $884,450. Cash flows used by operating
activities were primarily attributable to purchases of raw materials, trim
and finished goods required to support the Company's corresponding increase
in customer orders, increases in accounts payable and utilization of customer
advances.
CASH FLOWS USED FOR INVESTING ACTIVITIES
The Company's cash flow used by investing activities totaled $65,104. Cash
flows used by investing activities were primarily attributable to the
purchase of equipment.
CASH FLOWS FROM FINANCING ACTIVITIES
Cash flows from financing activities totaled $919,521. Cash flows from
financing activities were primarily attributable to the Company's use of its
line of credit.
CAPITAL RESOURCES
Since its formation, the Company has financed its operations and met its
capital requirements primarily through its public offering, cash flows from
operations, customer advances, exercise of Stock Options and credit
facilities.
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 AND CURRENCY VOLATILITY
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. In 1999 the Company experienced its highest sales in the
first 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.
The Company, however, can not determine the extent to which its vendors and
customers may be affected by the year 2000 issue. The Company is in the
process of implementing a plan to obtain information from its external
service providers, significant suppliers and customers, and financial
institutions to confirm their plans and readiness to become Year 2000
compliant, in order to better understand and evaluate how their Year 2000
issues may affect the Company's
13
<PAGE>
operations. The Company currently is not in a position to assess this aspect
of 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.
While the Company believes that its own internal assessment and planning
efforts with respect to external service providers, suppliers, customers and
financial institutions are and will be adequate to address its year 2000
concerns there can be no assurance that these efforts will be successful or
will not have a material adverse affect on the Company's operations.
ITEM 7. FINANCIAL STATEMENTS
14
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, KEY EMPLOYEES AND CONTROL PERSONS
<TABLE>
<CAPTION>
OFFICER OR
NAME AGE POSITION DIRECTOR SINCE
---- --- -------- --------------
<S> <C> <C> <C>
Borivoje Vukadinovic 41 Chief Executive Officer, President, Chairman of the 1991
Board (1)
Hamid Vaghar 35 Chief Financial Officer, Director 1998
Ivan Zogovic 41 Chief Operations Officer, Director 1996
Mojgan Keywanfar 36 Controller, Director, Corporate Secretary 1996
S. William Yost 71 Director (1), (2) 1996
Donald E. Tormey 68 Director (1), (2) 1996
Sol Schalman 75 Director (1), (2) 1999
KEY EMPLOYEES
Jovica Kecman 39 General Manager-International Quality Control
</TABLE>
(1) Member of the compensation committee.
(2) Member of the audit committee.
DIRECTORS AND EXECUTIVE OFFICERS
BORIVOJE VUKADINOVIC has been a director and executive officer of the Company
since January 1991, and its Chief Executive Officer since January 1993. From
June 1990 to August 1993, he was Vice President and a principal stockholder
of Celtex ENT, a Los Angeles, California based company that established and
administered production of yarns and raw textiles in Yugoslavia, Turkey and
Macedonia. From May 1988 to June 1990, he was founder, owner and President of
DUTY OFF, Inc., a Los Angeles, California based company that produced young
men's apparel. He earned a Bachelor of Arts degree in Business from the
University of Banja Luka in Yugoslavia and a Bachelor of Arts degree in Art
from Bern University in Switzerland.
15
<PAGE>
HAMID VAGHAR has served as Controller of Retrospettiva since the Company's
inception and was promoted to Chief Financial Officer in October 1998. From
March 1990 to January 1993, he was an accountant with EB Accounting a
California based accounting firm which conducted various accounting services
for companies in the garment district of Los Angeles. In January 1993 he
became a partner in Mid-West Consultants and continued his accounting career
in that capacity until 1998. He earned a Bachelor degree in Natural Sciences
and an MBA from University of Poona, India.
IVAN B. ZOGOVIC has been employed by the Company as its Manager-Export/Import
since January 1994 and was appointed a director in May 1996. Mr. Zogovic is
responsible for the export and import of raw materials and finished goods
including customs clearing, scheduling and freight forwarding, between the
United States and the Company's contract manufacturers in Eastern Europe. He
earned a law degree from the University of Belgrade Law School and practiced
law in Yugoslavia from 1984 until 1992.
MOJGAN KEYWANFAR has been employed by the Company as its accounting manager
since February 1991 and was appointed a director in December 1996. Ms.
Keywanfar manages the Company's bookkeeping and management information
systems. She holds a B.A. degree in Economics from the California State
University, Northridge.
S. WILLIAM YOST became a director of the Company in May 1996. He has been an
adjunct professor of Operations and Technology Management at the Anderson
Graduate School of Management of the University of California, Los Angeles,
since 1986. During his tenure at Anderson, Dr. Yost has developed two new
graduate courses, Managing Service and Managing Entrepreneurial Operations.
In addition, he has over 20 years experience in industrial positions together
with four years as a presidential appointee in the executive branch of the
federal government, three years in Management Consulting and in the early
1980's as the Assistant Commissioner of the Trademark and Patent Office of
the United States Government in Washington, D.C.. Dr. Yost holds a doctorate
in Business Administration (DBA) from the Harvard Business School, and MBA
from the Anderson Graduate School of Management at the University of
California, Los Angeles, and a B.A. from the University of California,
Berkeley. He serves on the Board of Directors of a number of small privately
held companies and is a consultant to a variety of public and private clients.
DONALD TORMEY became a director of the Company in May 1996. From 1958 until
he retired in 1995, Chevron Corporation employed him in a number of positions
culminating as the Refinery General Manager in El Segundo, California from
1994 until his retirement. He holds a BSCE degree in engineering from the
University of Wisconsin School of Engineering.
SOL SCHALMAN became a director of the Company in September 1999. He received
a Bachelors degree in Business Administration with a major in accounting from
UCLA in 1940. He served in the US Army from 1941 to 1946 and was discharged
in 1964 with rank of Captain in the Finance Dept. He was licensed as a
Certified Public Accountant in California in June 1948 and practiced as a
sole practitioner ever since. He was involved in Real Estate development from
1955 to 1962, owned and operated the Beverly Comstock Hotel in LA from 1962
to 1976 and also is licensed as a Certified Public Accountant in Nevada.
KEY EMPLOYEES
JOVICA KECMAN has been employed by the Company as general manager of
international quality control since 1990. Mr. Kecman earned a degree in
economics from the University of Banja Luka. He is Mr. Vukadinovic's
brother-in-law.
16
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The following table discloses all compensation awarded to, received by, and
paid to the Chief Executive Officer of the Company for the year ended
December 31, 1999. No other executive officer's annual compensation exceeded
$100,000 in 1999.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-------------------------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (j)
OTHER RESTRICTED ALL
NAME AND PRINCIPAL ANNUAL STOCK LTIP OTHER
POSITION YEAR SALARY($) BONUS($) COMPENSATION($) AWARD(S)($) OPTIONS/SARS(#) PAYOUTS($) COMPENSATION($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Borivoje Vukadinovic 1999 150,000 12,500 -0- -0- -0- -0- -0-
1998 95,000 7,917 -0- -0- 100,000 -0- -0-
Chief Exe.Officer 1997 80,001 -0- -0- -0- -0- -0- -0-
1996 40,928 -0- -0- -0- 1,358,067(1) -0- -0-
1995 26,500 -0- 34,258(2) -0- -0- -0- -0-
1994 46,576 -0- 25,886(2) -0- -0- -0- -0-
</TABLE>
(1) See "1996 Stock Option Plan" for description of the options and certain
re-pricing information.
(2) Represents sales commission paid to Mr. Vukadinovic.
1996 STOCK OPTION PLAN
In May 1996, the Company adopted a stock option plan for officers, directors,
employees and consultants (the "Plan") which provides for the grant of
options intended to qualify as "incentive stock options" and "nonqualified
stock options" within the meaning of Section 422 of the United States
Internal Revenue Code of 1986 (the "Code"). Incentive stock options are
issuable only to eligible officers and key employees of the Company, and
nonqualified options may be granted to officers, employees, directors and
consultants.
The Plan is administered by at least three members of the Board, at least two
of whom are not executive officers or salaried employees of the Company. As
of May 1996, the Company had reserved 1,786,930 shares of Common Stock for
issuance under the Plan. Under the Plan, the Board of Directors determines
which individuals shall receive options, the time period during which the
options may be partially or fully exercised, the number of shares of Common
Stock that may be purchased under each option and the option price. Each
option granted under the Plan shall be evidenced by a stock option agreement.
The per share exercise price of options granted under the Plan may not be
less than the fair market value of the Common Stock on the date the options
are granted. No person who owns, directly or indirectly, at the time of the
granting of an incentive stock option, more than 10% of the total combined
voting power of all classes of stock of the Company is eligible to receive
incentive stock options under the Plan unless the option price is at least
100% of the fair market value of the Common Stock subject to the option on
the date of grant.
No options may be transferred by an optionee other than by will or the laws
of descent and distribution, and during the lifetime of an optionee, the
option may only be exercisable by the optionee. Options under the Plan must
be granted within 10 years from the effective date of the Plan and the
exercise date of an option cannot be later than 10 years from the date of
grant. Any
17
<PAGE>
options that expire unexercised or that terminate upon an optionee's ceasing
to be employed by the Company become available once again for issuance.
Shares issued upon exercise of an option will rank equally with other shares
then outstanding.
As of the date of this filing, 2,736,635 options have been granted under the
Plan to officers, directors, employees and consultants including 1,577,195
options granted to Messrs. Vukadinovic and Silberman, an aggregated 71,478
options granted to the Company's three non-employee directors and 1,087,962
options to other employees and consultants. The per share exercise prices
range from $0.63 to $6.25, which prices represent at least the fair market
value of Company's Common Stock on the respective dates the options were
granted, based on prior sales of the Company's Common Stock. The table below
sets forth the total number of options issued to each executive officer and
director of the Company and the exercise price. Messrs. Vukadinovic's and
Silberman's options are exercisable until April 2006. The remaining options
expire at various times in 2006 and 2008. There was an amendment filed to the
1996 Stock Option Plan which provided for an additional 1,000,000 options.
In May 1996, the Board granted to Mr. Silberman (I) a stock option to
purchase 238,440 shares of Common Stock at an exercise price of $3.04 per
share, (ii) a stock option to purchase 59,610 shares of Common Stock at an
exercise price of $2.91 per share, and (iii) a stock option to purchase
59,610 shares of Common Stock at an exercise price of $3.88 per share.
In November 1996, the Board amended Mr. Silberman's option grant to reduce
the number of stock options granted to Mr. Silberman from 357,657 to 119,128
options. 59,564 of these options were re-priced to the exercise price of
$3.15 per share. The remaining 59,564 options were re-priced to the exercise
price of $3.78 per share. In December 1996, the Company amended Mr.
Silberman' stock option grants to provide for an adjustment of the exercise
price of both of his stock option grants in the event of an initial public
offering of the Company's securities, a merger or acquisition. In June 1997,
the Board re-priced all 119,128 of Mr. Silberman's options to the current
exercise price of $6.25 per share.
In June 1997, the exercise prices of 1,191,290 of Mr. Vukadinovic's options
were re-priced from $2.83 per share to $6.75 per share.
In December 1998, the Board granted 600,000 options to Frank Trible. 85,000
options were vested immediately and the remaining 515,000 will vest in twelve
monthly installments of 42,916 options per month starting March 1999. The
Board also approved incentive option grants to various officers, employees
and consultants. The following table sets forth all stock options granted to
the Company's executive officers and directors through December 31, 1999.
18
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF
TOTAL OPTIONS
TOTAL NUMBER OF GRANTED TO EXERCISE EXPIRATION
NAME OF EXECUTIVE OFFICER OR DIRECTOR OPTIONS ISSUED EMPLOYEES PRICE DATE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Borivoje Vukadinovic 1,458,067 [1] 53.3 (1) (1)
Ivan Zogovic 81,712 3.0 [2] [3]
Mojgan Keywanfar 81,712 3.0 [2] [3]
Hamid Vaghar 50,000 1.8 $ 1.25 2008
S. William Yost 23,826 0.9 $ 2.94 2006
Donald E. Tormey 23,826 0.9 $ 2.94 2006
Sol Schalman 23,826 0.9 $ 2.25 2004
---------- -------
Totals 1,862,097 68.2
</TABLE>
(1) Consists of 166,777 options exercisable at $.63 per share, 1,191,290
options exercisable at $6.00 per share and 100,000 options exercisable at
$1.25 per share.
(2) Number of options and exercise prices; consists of 35,739 options
exercisable at $2.94 per share and 30,973 options exercisable at $1.68
per share and 15,000 options exercisable at $1.25 per share as to each
individual.
(3) Represents stock options to purchase up to 11,913 shares exercisable
until May 2006, 30,973 shares exercisable until April 2006, 23,826
shares exercisable until April 2006 and 15,000 shares exercisable until
December 16, 2008.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
ownership of the Company's common stock as of December 31, 1999, by (i) each
person who is known by the Company to own of record of beneficially more than
5% of the Company's common stock, (ii) the Company's Chief Executive Officer
and each of the Company's directors and (iii) all directors and officers of
the Company as a group. The persons listed in the table have sole voting and
investment powers with respect to the shares of common stock and the address
of each person is in care of the Company at 8825 West Olympic Boulevard,
Beverly Hills, California 90211.
<TABLE>
<CAPTION>
NAME AMOUNT OF PERCENT OF
OWNERSHIP CLASS
<S> <C> <C>
Borivoje Vukadinovic(1) 2,404,054 46.3%
Hamid Vaghar(2) 50,000 1.0%
Ivan Zogovic(3) 81,712 1.6%
Mojgan Keywanfar(3) 81,712 1.6%
S. William Yost(4) 23,826 0.4%
Donald E. Tormey(4) 23,826 0.4%
Sol Schalman(5) 23,826 0.4%
-----------
All officers and directors as a group (8 persons) 2,688,956
</TABLE>
(1) Includes stock options to purchase up to 1,191,290 shares of common stock
at $6.00 per share, 166,777 shares at $.63 per share exercisable until
April 2006 and 100,000 shares at $1.25 until December 2008.
(2) Includes stock options to purchase up to 50,000 shares of common stock at
$1.25 until December 2008
(3) Represents stock options to purchase up to 30,973 shares at $1.68 per share
exercisable until April 2006, 11,913 shares at $2.94 per share exercisable
until May 2006, 23,826 shares at $2.94 per share exercisable until April
2006 and 15,000 share at $1.25 exercisable until December 2008 .
(4) Represents stock options to purchase up to 23,826 shares of common stock at
$2.94 per share exercisable until May 2006.
(5) Represents stock options to purchase up to 23,826 shares of common stock at
$2.25 per share exercisable until September 2004.
19
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In April 1996, the Company executed a three-year employment agreement with
Mr. Vukadinovic, its Chief Executive Officer, and Mr. Silberman, its Chief
Financial Officer until October 1998, providing for annual salaries of
$95,000 and $60,000 respectively, upon an IPO or merger of the Company with a
publicly-traded company. In connection with their employment, Messrs.
Vukadinovic and Silberman received options under the plan to purchase
1,191,290 shares and 119,128 shares, respectively, of the Company's common
stock. Mr. Silberman also received 81,007 shares of common stock for services
rendered valued at $.0042 per share on the date of grant, or an aggregate
value on such date of $34,000.
At December 31, 1999, Mr. Vukadinovic was indebted to the Company in the
amount of $300,160 advanced by the Company under a credit facility granted to
Mr. Vukadinovic in the maximum amount of $300,000 and evidenced by a
promissory note. The promissory note is unsecured, bears no interest and is
due on demand. The sums advanced to Mr. Vukadinovic were primarily used by
him to pay certain medical and related expenses of a family member.
Until December 31, 1996, Mr. Vukadinovic was a 22.5% stockholder in Easy
Concepts, Inc. ("ECI"), an apparel customer of the Company. At December 31,
1996 and December 31, 1997, ECI was indebted to the Company for apparel
purchases on open account in the amounts of $1,182,202 and $218,457
respectively. On January 1, 1997 Mr. Vukadinovic returned all of his ECI
stock to ECI for no consideration. He elected to do so because he had
received his ECI stock for nominal consideration in the form of services
rendered and he wanted to eliminate any potential for conflict of interest
caused by his ECI stockholdings. He was never an officer or director of ECI
and ECI is no longer a customer of the Company.
The Company used a portion of a consolidating warehouse in Astoria, New York
for short term storage and for consolidating services in connection with
finished goods imported from Macedonia pending pick up by the Company's
customers. Positive Influence, Inc. ("PII"), the owner of the warehouse and
the provider of the consolidating services, is a non-affiliated former
customer of the Company which was indebted to the Company in the amount of
$86,851 at December 31, 1999 for goods previously purchased from the Company.
The Company was charged an average of approximately $10,000 per month for use
of the warehouse and for consolidating services provided by PII which amount
is deducted from the amount owed by PII to the Company. PII also provides
Easy Concepts, Inc. ("ECI"), a former affiliate of the Company, with
warehouse space and consolidating services. Charges due from ECI to PII were
also deducted from the amount owed by PII to the Company and ECI paid such
amounts directly to the Company. Consolidating services involved accepting
finished goods shipments, combining the goods into larger quantities for
pickup by, or delivery to, customers and storage of the goods prior to
customer acceptance.
In July 1997, Mr. Vukadinovic personally guaranteed the Company's line of
credit with Merrill Lynch Business Financial Services Inc. in the amount of
up to $500,000. In November 1997, the line of credit was increased to a
maximum of $1,500,000 based on a formula. In July 1998 this line of credit
was paid off and Mr. Vukadinovic guarenteed the Company's line of credit with
Imperial Bank in the maximum amount of $3,500,000 based on a formula.
At December 31, 1997, ECI's indebtedness to the Company was $218,457 The
amount related to apparel purchased through February 1997 and at that time
was more than 180 days past due. As the indebtedness was incurred on open
account for apparel purchases, the amount was not evidenced by a promissory
note, no interest had been charged and there was no maturity date for full
payment. However, the Company believed that ECI would pay off the remaining
amount due by December 1997 but if it failed to do so, the Company was
prepared to take such legal action as was necessary to enforce its claim
against ECI. At December 31, 1997, ECI had $106,000 worth of pants at cost in
the PII warehouse. The market value of the pants was estimated to be $150,000
and it was ECI's intention to sell those goods to pay the indebtedness to the
Company.
20
<PAGE>
The Company believed that the goods would be sold by June 30, 1998 and the
proceeds would be paid to the Company in its entirety. At December 31, 1999
the balance of this indebtness was $46,854.
In December 1998 the Company executed a one year employment agreement with
Mr. Trible as its Vice President of Investor Relations providing for an
annual salary of $54,000 and the issuance of 600,000 stock options. See "1996
Stock Option Plan". As of February 15, 2000, Mr. Trible is no longer an
employee of the Company and all 322,084 Stock Options not exercised by him
have been forfeited. In addition Mr. Trible is indebted to the Company in
amount of $164,790 which is past due and may require litigation to collect.
The Company believes that the transactions described above were fair,
reasonable and consistent with the terms of transactions that the Company
could have entered into with non-affiliated third parties. All future
transactions with affiliates will be approved by a majority of the Company's
disinterested directors.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the year ended
December 31, 1999.
(c) Exhibit Listing
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
<S> <C>
1.01 Form of Underwriting Agreement (1)
1.02 Form of Agreement Among Underwriters(1)
1.03 Form of Selected Dealer Agreement (1)
1.04 Form of Representatives' Warrant(1) 1.05 Form of Amended Underwriting Agreement (1)
3.01 Restated Articles of Incorporation of the Registrant (1)
3.02 Bylaws of the Registrant (1)
4.01 Form of Warrant (1)
4.02 Form of Common Stock Certificate (1)
5.01 Opinion of Gary A. Agron, regarding legality of the Units (includes Consent) (1)
10.01 1996 Employee Stock Option Plan (1)
10.02 Office Lease and Amendments thereto (Beverly Hills, California) (1)
10.03 Employment Agreement with Mr. Vukadinovic, as amended (1)
10.04 Employment Agreement with Mr. Silberman, as amended (1)
10.05 Promissory Note issued by Mr. Vukadinovic (1)
10.06 License Agreement with J.G. Hook, Inc(1)
10.07 Consulting Agreement with Kevin Dieball(1)
10.08 Factoring Agreement with Commodore Factors, Inc.(1)
10.09 Agreement with David N (1)
10.10 Agreement with Frank Trible
11.01 Computation of Earnings Per Share (1)
11.02 Computation of Earnings Per Share (1)
23.02 Consent of Gary A. Agron (See 5.01, above) (1)
23.03 Consent of AJ. Robbins, P.C. (1)
27 Financial Data Schedule
</TABLE>
21
<PAGE>
(1) Previously filed
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report be signed on behalf by the undersigned, thereunto duly
authorized on April 10, 2000.
RETROSPETTIVA, INC.
By: /s/ Borivoje Vukadinovic
--------------------------------
Borivoje Vukadinovic
President and 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 indicated
on April 7, 2000.
SIGNATURE CAPACITY
/s/ Borivoje Vukadinovic
- ---------------------------------- Chairman of the Board of Directors,
Borivoje Vukadinovic President, Chief Executive Officer
/s/ Hamid Vaghar
- ---------------------------------- Chief Financial Officer (Principal
Hamid Vaghar Financial Officer)
/s/ Ivan Zogovic
- ---------------------------------- Director
Ivan Zogovic
/s/ Mojgan Keywanfar
- ---------------------------------- Director
Mojgan Keywanfar
/s/ S. William Yost
- ---------------------------------- Director
S. William Yost
/s/ Donald Tormey
- ---------------------------------- Director
Donald Tormey
/s/ Sol Schalman
- ---------------------------------- Director
Sol Schalman
22
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report F-2
Consolidated Balance Sheet F-3
Statements of Income F-5
Statements of Changes in Stockholders' Equity F-6
Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-8
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS
RETROSPETTIVA, INC.
BEVERLY HILLS, CALIFORNIA
We have audited the accompanying consolidated balance sheet of
Retrospettiva, Inc. and subsidiary as of December 31, 1999 and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for the year then ended. We have also audited the statements of income,
changes in stockholders' equity and cash flows of Retrospettiva, Inc. for the
year ended December 31, 1998. 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 1999 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Retrospettiva, Inc. and subsidiary as of December 31, 1999 and the results of
its operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles. Also, in our opinion, the 1998
financial statements referred to above present fairly, in all material
respects, the results of operations and cash flows of Retrospettiva, Inc. for
the year ended December 31, 1998, in conformity with generally accepted
accounting principles.
AJ. ROBBINS, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
AND CONSULTANTS
DENVER, COLORADO
FEBRUARY 22, 2000
F-2
<PAGE>
RETROSPETTIVA, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
CURRENT ASSETS:
Cash $ 85,857
Accounts receivable, net, pledged 1,088,811
Due from factor 742,950
Note receivable, current portion, pledged 36,000
Note receivable, stockholder, pledged 300,160
Inventories, pledged 10,253,949
Income taxes receivable 72,949
Accrued interest receivable - stockholder 78,551
Due from vendors 580,882
Product development costs 179,721
Other current assets 87,812
-----------
Total Current Assets 13,507,642
PROPERTY AND EQUIPMENT, at cost, net, pledged 1,085,117
NOTES RECEIVABLE, net of current portion, pledged 50,851
DEFERRED TAX ASSETS, net of current portion 47,000
OTHER ASSETS 18,295
-----------
$14,708,905
===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-3
<PAGE>
RETROSPETTIVA, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C>
CURRENT LIABILITIES:
Accounts payable, trade $ 3,126,098
Line of credit 2,110,817
Accrued expenses 45,621
-----------
Total Current Liabilities 5,282,536
-----------
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 3,177,916 shares 6,765,480
Subscription receivable (164,790)
Additional paid-in capital 230,000
Retained earnings 2,595,679
-----------
Total Stockholders' Equity 9,426,369
-----------
$14,708,905
===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-4
<PAGE>
RETROSPETTIVA, INC. AND SUBSIDIARY
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999 (CONSOLIDATED)
AND 1998 (UNCONSOLIDATED)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
SALES $20,207,460 $27,534,536
COST OF SALES 17,522,097 23,991,906
----------- -----------
GROSS PROFIT 2,685,363 3,542,630
----------- -----------
OPERATING EXPENSES:
Selling expenses 729,189 638,893
General and administrative 1,715,652 1,460,991
----------- -----------
Total Operating Expenses 2,444,841 2,099,884
----------- -----------
INCOME FROM OPERATIONS 240,522 1,442,746
----------- -----------
OTHER INCOME (EXPENSE):
Interest income - related party 15,788 34,332
Interest expense (236,718) (105,440)
Other income 122,354 73,272
----------- -----------
Net Other Income (Expense) (98,576) 2,164
----------- -----------
INCOME BEFORE INCOME TAXES 141,946 1,444,910
INCOME TAX PROVISION 46,000 629,363
----------- -----------
NET INCOME $ 95,946 $ 815,547
=========== ===========
BASIC EARNINGS PER COMMON SHARE $ .03 $ .28
=========== ===========
AVERAGE NUMBER OF BASIC COMMON SHARES OUTSTANDING 3,103,198 2,900,000
=========== ===========
DILUTED EARNINGS PER COMMON SHARE $ .03 $ .22
=========== ===========
AVERAGE NUMBER OF DILUTED COMMON SHARES OUTSTANDING 3,648,157 3,682,828
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-5
<PAGE>
RETROSPETTIVA, INC. AND SUBSIDIARY
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 (CONSOLIDATED)
AND 1998 (UNCONSOLIDATED)
<TABLE>
<CAPTION>
Common Stock Additional
----------------------- Subscription Paid-In Retained
Shares Amount Receivable Capital Earnings Total
---------- ----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1997 2,900,000 $ 6,258,190 $ - $ 230,000 $ 1,684,186 $ 8,172,376
Net income for the year - - - - 815,547 815,547
---------- ----------- ----------- ----------- ----------- -----------
BALANCES, DECEMBER 31, 1998 2,900,000 6,258,190 - 230,000 2,499,733 8,987,923
Stock options exercised 277,916 507,290 (164,790) - - 342,500
Net income for the year - - - - 95,946 95,946
---------- ----------- ----------- ----------- ----------- -----------
BALANCES, DECEMBER 31, 1999 3,177,916 $ 6,765,480 $ (164,790) $ 230,000 $ 2,595,679 $ 9,426,369
========== =========== =========== =========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-6
<PAGE>
RETROSPETTIVA, INC. AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 (CONSOLIDATED)
AND 1998 (UNCONSOLIDATED)
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM (TO) OPERATING ACTIVITIES:
Net income $ 95,946 $ 815,547
Adjustments to reconcile net income to net cash provided (used) by operating
activities:
Bad debt expense 79,481 102,699
Depreciation and amortization 136,907 27,940
Deferred income taxes (6,000) (7,000)
Services and rent provided to reduce note receivable 13,482 102,824
Changes in:
Accounts receivable 548,405 1,139,374
Product development costs (179,721) -
Due from joint venturer (20,000) -
Due from factor (409,897) (333,053)
Inventories (1,783,247) (2,080,806)
Accrued interest - related party (23,181) (34,328)
Due from vendors (134,362) (322,811)
Other current assets 6,708 5,479
Prepaid income taxes 9,067 (82,016)
Accounts payable and accrued expenses 1,049,416 (825,457)
Accrued income taxes - (160,966)
Customer advances (267,454) 130,069
------------ ------------
Cash flows (used) by operating activities (884,450) (1,522,505)
------------ ------------
CASH FLOWS FROM (TO) INVESTING ACTIVITIES:
Purchase of property and equipment (57,497) (1,132,883)
Loans to stockholder (112,892) (91,189)
Collections on note receivable, stockholder 104,470 -
Other assets 815 (14,501)
------------ ------------
Cash flows (used) by investing activities (65,104) (1,238,573)
------------ ------------
CASH FLOWS FROM (TO) FINANCING ACTIVITIES:
Payments on note payable (26,580) (104,544)
Proceeds from line of credit 5,841,382 3,827,106
Payments on line of credit (5,237,781) (2,415,499)
Proceeds from issuance of common stock 342,500 -
------------ ------------
Cash flows provided by financing activities 919,521 1,307,063
------------ ------------
NET (DECREASE) IN CASH (30,033) (1,454,015)
CASH AND CASH EQUIVALENTS, beginning of period 115,890 1,569,905
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 85,857 $ 115,890
SEE NOTE 13 ============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-7
<PAGE>
RETROSPETTIVA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACTIVITY
Retrospettiva, Inc. (the Company) located in Beverly Hills, California was
organized in November 1990 to manufacture and import textile products from
Europe including finished garments and fabrics.
The Company designs, contracts for manufacture and markets a variety of
garments. Fabrics are purchased from suppliers worldwide including firms in
China, India, Russia, Romania, Italy and the United States. The fabrics are
shipped to contractor factories primarily in Macedonia to be manufactured
into finished garments for shipment to the Company's customers in the United
States.
During 1999 the Company formed a subsidiary, Hamilton Toys, LLC (Hamilton),
for the manufacture of toys related to "The Adventures of Rocky and
Bullwinkle" film.
CONSOLIDATION AND MINORITY INTEREST
The Company and its subsidiary Hamilton, in which it exercises control
through majority ownership are consolidated and all inter-company accounts
and transactions are eliminated. The Company's percentage of ownership for
the year ended December 31, 1999 was 60%.
The consolidated financial statements of the Company include 100% of the
assets, liabilities, equity and operations of the subsidiary. The remaining
ownership interests of the other venturer will be recorded as minority
interests when the venturer contributes equity.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and investments with original
maturities of three months or less.
ACCOUNTS RECEIVABLE
The Company provides an allowance for doubtful accounts, as needed, for
accounts deemed uncollectible. Allowance for uncollectible accounts was
$205,653 at December 31, 1999.
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out) or market.
F-8
<PAGE>
RETROSPETTIVA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation and amortization
expense is generally provided on a straight-line basis using estimated useful
lives of 5-10 years for equipment. Leasehold improvements are amortized over
the lesser of the estimated useful life of the asset or the term of the
lease. Depreciation and amortization expense of property and equipment was
$136,907 and $27,940 for the years ended December 31, 1999 and 1998,
respectively.
PRODUCT DEVELOPMENT COSTS
At December 31, 1999 the Company had $179,721 of unamortized product
development costs related to specific products of Hamilton. These costs are
capitalized until sales are generated. These costs will be amortized over one
year, the expected sale period.
REVENUE RECOGNITION
Revenue is recognized when sold merchandise has cleared customs in the United
States and is available to be shipped to customers from a port of entry or
when the goods are consolidated and shipped from the Company's warehouse in
New York.
INCOME TAXES
The Company accounts for income taxes under the asset and liability method.
Under this method, deferred income taxes are recorded to reflect the tax
consequences in future years of temporary differences between the tax basis
of assets and liabilities and their financial statement amounts at the end of
each reporting period. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized. Income tax
expense represents the tax payable for the current period and the change
during the period in deferred tax assets and liabilities. Deferred tax assets
and liabilities have been netted to reflect the tax impact of temporary
differences. (See Note 11)
EARNINGS PER COMMON SHARE
Statement of Financial Accounting Standards No. 128, Earnings Per Share (SFAS
No. 128) was issued in February 1997 (effective for financial statements
issued for periods ending after December 15, 1997). This Statement simplifies
the standards for computing earnings per share (EPS) previously found in
Accounting Principles Board Opinion No. 15, Earnings Per Share, and makes
them more comparable to international EPS standards. SFAS No. 128 replaces
the presentation of primary EPS with a presentation of basic EPS. In
addition, the Statement requires dual presentation of basic and diluted EPS
on the face of the income statement for all entities with complex capital
structures and requires a reconciliation of the numerator and denominator of
the basic EPS computation to the numerator and denominator of the diluted EPS
computation.
F-9
<PAGE>
RETROSPETTIVA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In 1999 the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities. The adoption by the Company of Statement
133 did not impact the Company's financial statements.
RECLASSIFICATION
Certain amounts reported in the Company's financial statements for the year
ended December 31, 1998 have been reclassified to conform to the current year
presentation.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting periods. Actual results could
differ from those estimates and assumptions.
IMPAIRMENT OF LONG LIVED ASSETS
The Company evaluates its long lived assets by measuring the carrying amount
of the assets against the estimated undiscounted future cash flows associated
with them. At the time such evaluations indicate the future undiscounted cash
flows of certain long lived assets are not sufficient to cover the carrying
value of such assets, the assets are adjusted to their fair values. No
adjustment to the carrying value of the assets have been made.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the Company's financial instruments, which principally
include cash, trade receivables, notes receivable, accounts payable and
accrued expenses, approximates fair value due to the relatively short
maturity of such instruments. The fair value of the Company's debt
instruments are based on the current borrowing rates available for financings
with similar interest rates. At December 31, 1999 the carrying value of all
financial instruments was not materially different from fair value.
YEAR 2000 ISSUES
Many computer systems and other equipment with embedded chips or
microprocessors may not be able to appropriately interpret dates after
December 31, 1999 because such systems use only two digits to indicate a year
in the date field rather than four digits. If not corrected, many computers
and computer applications could fail or create miscalculations, causing
disruptions to the Company's operations. In addition, the failure of customer
and supplier computer systems could result in interruption of sales and
deliveries of key supplies or utilities. Because of the complexity of the
issues and the number of parties involved, the Company cannot reasonably
predict with certainty the nature or likelihood of such impacts.
F-10
<PAGE>
RETROSPETTIVA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
While the Company believes that its own internal assessment and planning
efforts with respect to its external service providers, suppliers, customers
and financial institutions are and will be adequate to address its Year 2000
concerns, there can be no assurance that these efforts will be successful or
will not have a material adverse effect on the Companies' operations. Costs
in connection with compliance were not significant.
To date, the Company has not experienced any interruptions with respect to
the Year 2000 issue, but cannot reasonably predict with certainty that they
will not experience any interruptions.
CREDIT RISK
The Company sells its merchandise principally to customers throughout the
United States. Management performs regular evaluations concerning the ability
of its customers to satisfy their obligations and records a provision for
doubtful accounts based upon these evaluations. The Company's credit losses
for the periods presented have not exceeded management's estimates.
Three customers accounted for 93% of the non-factored accounts receivable
balance at December 31, 1999.
The Company maintains all cash in bank deposit accounts, which at times may
exceed federally insured limits. The Company has not experienced a loss in
such accounts.
SIGNIFICANT CUSTOMERS
Individual customers aggregating in excess of 10% of net sales are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
SALES
Customer A $ 2,333,366 $ -
Customer B $ 4,297,956 $ 9,414,735
Customer C $ 5,898,082 $ 8,126,760
Customer D $ - $ 4,486,144
</TABLE>
NOTE 2 - DUE FROM VENDORS
Due from vendors consist of funds advanced by the Company to vendors and
chargebacks to vendors for merchandise in prior years. The amounts will be
recouped within one year in the form of vendor credits.
F-11
<PAGE>
RETROSPETTIVA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1999
------------
<S> <C>
Finished goods $ 2,917,406
Work-in-process 4,053,545
Raw materials 3,282,998
------------
$ 10,253,949
============
</TABLE>
The Company's import operations are subject to constraints imposed by
bilateral textile agreements between the United States and a number of
foreign countries. These agreements impose quotas on the amount and type of
goods which can be imported into the United States from these countries and
can limit or prohibit importation of products on very short notice. The
Company's imported products are also subject to United States customs duties
which are a material portion of the Company's cost of imported goods. A
substantial increase in customs duties or a substantial reduction in quota
limits applicable to the Company's imports could have a material adverse
effect on the Company's financial condition and results of operations.
NOTE 4 - EARNINGS PER SHARE
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1999
----------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
BASIC EPS
Income available to common stockholders $ 95,946 3,103,198 $ .03
EFFECT OF DILUTIVE SECURITIES
Options and warrants - 544,959 *
--------- ---------- ---------
DILUTED EPS
Income available to common stockholders
including assumed conversions $ 95,946 3,648,157 $ .03
*Less than $.01 ========= ========== =========
</TABLE>
F-12
<PAGE>
RETROSPETTIVA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - EARNINGS PER SHARE (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
--------------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- -----------
<S> <C> <C> <C>
BASIC EPS
Income available to common stockholders $ 815,547 2,900,000 $ 0.28
EFFECT OF DILUTIVE SECURITIES
Options and warrants - 782,828 (.06)
----------- ----------- -----------
DILUTED EPS
Income available to common stockholders
including assumed conversions $ 815,547 3,682,828 $ .22
=========== =========== ===========
</TABLE>
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1999
------------
<S> <C>
Automobile $ 20,568
Furniture and fixtures 113,286
Factory equipment 1,125,271
Leasehold improvements 57,246
------------
Total 1,316,371
Less accumulated depreciation and amortization 231,254
------------
$ 1,085,117
============
</TABLE>
F-13
<PAGE>
RETROSPETTIVA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - NOTE RECEIVABLE
In 1996, a $196,000 account receivable was converted to a note receivable,
bearing interest at 10%, and requiring 24 monthly payments of $10,000 in
consolidation services. Services are valued at the market value of
comparative consolidation services in the area. The Company realized $25,519
and $-0- in services during 1998 and 1999, respectively.
A former related party customer also used the consolidation services during
1998 and reimbursed the Company for these services in the amount of $72,373
which were also applied to the balance of the note. The former related party
customer did not use the services during 1999.
The Company signed a 24 month lease agreement for its New York warehouse,
owned and operated by the payor of the note receivable, commencing on
September 1, 1998. The monthly lease payment was $6,875 and increased to
$8,250 in December 1999. The Company is realizing $3,000 a month in rent to
reduce the above note. The Company realized $13,482 in rent during 1999.
NOTE 7 - NOTE RECEIVABLE FROM STOCKHOLDER
The Company's note receivable ($350,000 maximum) due from an
officer/stockholder is unsecured, due on demand and bore interest at 10% per
annum. The balance at December 31, 1999 is $300,160. Interest was accrued
through September 1999 when the note was amended to be non-interest bearing.
NOTE 8 -LINE OF CREDIT
On July 16, 1998 the Company obtained a line of credit for $2,500,000 with
Imperial Bank. In May 1999 the line was increased to $3,500,000. The debt is
collateralized by accounts receivable, inventories, property and equipment,
notes receivable and the personal guarantee of an officer/stockholder.
Interest is payable at the banks announced prime rate which ranged from 7.75%
to 8.50% during 1999. The line of credit contains various restrictive
covenants among which include maintaining a certain level of tangible net
worth, current ratio and working capital.
F-14
<PAGE>
RETROSPETTIVA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - STOCK OPTION PLAN
STOCK OPTION PLAN
On May 1, 1996 the Company adopted the Stock Option Plan (the Plan) which
provides for the granting of options to officers, directors, employees and
consultants. The plan was amended in 1998 to increase the number of shares
reserved for options. 2,786,930 shares of common stock are reserved under the
plan for the granting of options. The Plan is in effect until April 30, 2006,
unless extended by the Company's stockholders. The options are exercisable to
purchase stock for a period of ten years from the date of grant.
Incentive Stock Options granted pursuant to this Plan may not have an option
price that is less than the fair market value of the stock on the date the
option is granted. Incentive stock options granted to significant
stockholders shall have an option price of not less than 110% of the fair
market value of the stock on the date of the grant.
On September 23, 1999 the Company granted options to purchase 23,826 shares
of the Company's common stock at a price of $2.25 per share expiring on
September 23, 2004 to a new director. In April and August 1999, certain
options were repriced to $1.25 to reflect the current market price of the
Company's common stock.
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
---------------------------
OPTIONS PRICE PER
AVAILABLE NUMBER SHARE
------------ ----------- ------------
<S> <C> <C> <C>
Balance, December 31, 1997 85,295 1,701,635 $ .63-6.75
Additional shares reserved 1,000,000 - -
Granted during 1998 (1,035,000) 1,035,000 2.50
------------ ----------- ------------
Balance, December 31, 1998 50,295 2,736,635 .63-6.75
Expired during 1999 142,954 (142,954) 2.94-6.75
Exercised - (277,916) 1.25-2.50
Granted during 1999 (23,826) 23,826 2.25
------------ ----------- ------------
Balance, December 31, 1999 169,423 2,339,591 $ .63 -6.00
============ =========== ============
</TABLE>
At December 31, 1999 and 1998, 2,339,591 and 2,301,635 options
granted under the plan were exercisable, respectively.
F-15
<PAGE>
RETROSPETTIVA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company signed a 61 month lease agreement for its offices expiring on
January 31, 2000. The lease has been extended to July 31, 2000. The monthly
lease payment is $2,378.
The Company rents office and showroom space from a major supplier in New York
on a month to month basis. The Company subleases an apartment in New York on
a month to month basis.
Rent expense for the years ended December 31, 1999 and 1998 was $188,629 and
$142,371, respectively.
EMPLOYMENT AGREEMENTS
The Company has an employment agreement with its President/Chief Executive
Officer providing for a minimum annual salary of $155,000, which renews
annually.
In December 1998, the Company entered into an employment agreement with a
Vice President of investor relations, providing for a minimum annual salary,
stock options to purchase shares of the Company's common stock exercisable
upon execution of the agreement and additional options to be granted during
the term of his employment. This employment agreement expired in December
1999.
LITIGATION
The Company is a party to various claims, complaints, and other legal actions
that have arisen in the ordinary course of business. The Company believes
that the outcome of all pending legal proceedings, in the aggregate, will not
have a material adverse effect on the Company's financial condition or the
results of its operation or cash flows.
PENDING ACQUISITIONS
In October 1999 the Company entered into an agreement to purchase AAA
Computer Solutions for 25,000 shares of common stock. The purchase has not
yet closed. The Company intends to issue the shares in 2000.
F-16
<PAGE>
RETROSPETTIVA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - INCOME TAXES
The components of deferred tax assets and (liabilities) are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999
------------
<S> <C>
Total deferred tax assets - bad debt allowance $ 76,000
Total deferred tax (liabilities) - other (29,000)
------------
Net deferred tax assets $ 47,000
============
</TABLE>
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------------
1999 1998
------------- ------------
<S> <C> <C>
Current $ 52,000 $ 636,363
Deferred (benefit) (6,000) (7,000)
------------- ------------
Provision $ 46,000 $ 629,363
============= ============
</TABLE>
Following is a reconciliation of the amount of income tax (benefit) expense
that would result from applying the statutory federal income tax rates to
pre-tax income and the reported amount of income tax expense for the periods:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Tax expense at federal statutory rates $ 38,000 $ 492,000
State tax, net of federal benefit 10,000 93,000
Other 4,000 51,363
------------ ------------
$ 52,000 $ 636,363
============ ============
</TABLE>
F-17
<PAGE>
NOTE 11 - INCOME TAXES (CONTINUED)
The components of deferred income tax (benefit) expense are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Bad debts $ (13,000) $ (16,000)
Depreciation - 2,000
Other 7,000 7,000
----------- -----------
$ (6,000) $ (7,000)
=========== ===========
</TABLE>
NOTE 12 - STOCK-BASED COMPENSATION
The Company accounts for stock based compensation under Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). The standard requires the Company to present the
"fair value" method with respect to stock-based compensation of consultants
and other non-employees.
The Company did not change its method of accounting with respect to stock
options; the Company continues to account for these under the "intrinsic
value" method.
On December 16, 1998 the Company granted options to purchase 600,000 shares
of the Company's common stock to an employee exercisable at $2.50 per share.
In 1999 472,084 options were repriced to $1.25 per share. Had the Company
adopted the fair value method with respect to options issued to employees an
additional charge to income of $10,500 would have been required in 1998 and
$63,000 in 1999; proforma net income would have been $805,047 and earnings
per share would have been $.28 on a basic basis and $.22 on the diluted
basis. In estimating the above expense, the Company used the Modified
Black-Scholes European pricing model. The average risk-free interest rate
used was 5.5%, volatility was estimated at 65%, the expected life was less
than two years.
On September 23, 1999 the Company granted options to purchase 23,826 shares
of the Company's common stock to a director exercisable at $2.25 per share.
Had the Company adopted the fair value method with respect to options issued
to employees/directors an additional charge to income of $72,000 would have
been required in 1999; proforma net income would have been $22,946 and
earnings per share would have been $.01 on a basic basis and $.01 on the
diluted basis. In estimating the above expense, the Company used the Modified
Black-Scholes European pricing model. The average risk-free interest rate
used was 5.8%, volatility was estimated at 41%; the expected life was two
years.
F-18
<PAGE>
RETROSPETTIVA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - SUPPLEMENTAL INFORMATION TO STATEMENT OF CASH FLOWS FOR NONCASH
INVESTING AND FINANCING ACTIVITIES
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash paid for interest $ 236,718 $ 105,440
============ ============
Cash paid for income taxes $ 42,933 $ 796,000
============ ============
</TABLE>
NOTE 14 - SUBSCRIPTION RECEIVABLE
During 1999 an employee exercised 277,916 stock options at prices ranging
from $1.25 to $2.50 per share. The unpaid balance of the exercise price was
$164,790 at December 31, 1999.
NOTE 15 - FACTORING AGREEMENT
The Company has a factoring agreement with Commodore Factors to factor its
accounts receivable up to $2,000,000. The Company will receive up to 80% of
the receivables at the time of factoring. Interest on the factored
receivables will be at the prime rate plus 2%, but never less than 10% per
annum.
The Company assigns a portion of its accounts receivable to the factor
without recourse. Under the terms of the agreement, the factor has a
continuing security in the Company's receivables and inventories. Personal
and cross-corporate guarantees have been given to the factor by certain
stockholders. The agreement provides for a letter of credit facility and
periodic overadvances based on negotiated lines of credit
NOTE 16 - RELATED PARTY TRANSACTIONS
An officer of the Company provided consulting services for $26,000 during
1999.
NOTE 17 - SEGMENT REPORTING
The Company organized its business into two reportable segments: garment
manufacturing and toy manufacturing during 1999. The Company only operated in
the garment manufacturing segment prior to 1999.
The segment's accounting policies are the same as those described in the
summary of significant accounting policies included in Note 1. No sales or
revenues were recognized for the toy manufacturing segment during 1999. All
revenues, expenses and assets relate to the garment manufacturing segment
with the exception of product development costs of $179,721.
F-19
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), is entered into as of the 16th
day of December, 1998, by and among RETROSPETTIVA, INC., a California
corporation (the "Company") and FRANK TRIBBLE ("Tribble").
WHEREAS, the Company desires to employ Tribble as provided herein; and,
WHEREAS, Tribble desires to accept such employment,
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereto agree as follows:
1. EMPLOYMENT. The Company hereby employs Tribble and Tribble hereby
accepts employment with the Company as its Vice President - Investor
Relations upon the terms and conditions hereinafter set forth.
2. DUTIES. Tribble will serve the Company as its Vice President -
Investor Relations and will faithfully and diligently perform the services
and functions relating to such office and position or otherwise reasonably
incident to such office and position, provided that all such services and
functions will be reasonable and within Tribble's area of expertise.
Tribble's specific duties shall include those related to (i) all phases of
investment banking and investor relations between the Company and the
brokerage community and market makers, (ii) enhance the name recognition of
the Company, (iii) increase investor/broker and industry awareness of the
Company, (iv) further the value of the Company and its securities and (v)
such other duties as the Company may reasonably direct. Tribble will, during
the term of this Agreement (or any extension thereof), devote his time,
attention and skills and best efforts as a full time employee to the
promotion of the business of the Company.
3. TERM. This Agreement and Tribble's employment shall commence on
December 16, 1998 (the "Effective Date") and shall continue for a term of one
(1) year ("Initial Term") unless terminated earlier in accordance with this
Agreement. The term of this Agreement may be extended by agreement of the
Company and Tribble.
4. COMPENSATION. As compensation for the services rendered to the
Company under this Agreement commencing on the Effective Date hereof, Tribble
will be paid a base salary of One Thousand dollars ($1,000) per month which
will increase to Four Thousand Five Hundred dollars ($4,500) per month
commencing March 1, 1999, with all base salary payable in accordance with the
then current payroll policies of the Company or as otherwise agreed to by the
parties (the "Salary"). At any time and from time to time, the Salary may be
increased if so determined by the board of directors of the Company after a
review of Tribble's performance of his duties hereunder.
5. TERMINATION. This Agreement will terminate upon the occurrence of any
of the following events:
<PAGE>
a. The death of Tribble;
b. The "Total Disability" (as hereinafter defined) of Tribble;
c. Written notice to Tribble from the Company of termination for "Cause"
(as hereinafter defined);
d. The voluntary termination of this Agreement by Tribble upon thirty
(30) days prior written notice;
e. The later of one (1) year from the Effective Date of this Agreement
or the date to which this Agreement is extended in accordance with
Section 3 above; or
f. Written notice to Tribble from the Company for any reason without
"Cause".
For purposes of Section 5(b), the term "Total Disability" means physical
or mental disability, or both, determined to be (or reasonably expected to
be, based upon then available medical information) of not less than twelve
(12) months duration or more. The determination shall rest upon the opinion of
the physician regularly attending Tribble. If the Company disagrees with said
physician's opinion, the Company may engage at their own expense a physician
to examine the Tribble, and Tribble hereby consents to such examination and
to waive, if applicable any privilege between the physician and Tribble that
may arise as a result of said examination. If after conferring, the two
physicians cannot concur on a final opinion, they shall choose a third
consulting physician whose opinion shall control. The expense of the third
consulting physician shall be borne equally by the Tribble and the Company.
For purposes of Section 5(c), "Cause" means (i) Tribble has failed to
substantially perform his duties as reasonably determined by the chief
executive officer of the Company or the Board of Directors of the Company,
(ii) Tribble engages in poor performance that is not cured within thirty (30)
days after counseling by the Company, (iii) Tribble has failed to comply with
the reasonable directives and policies of the Board of Directors of the
Company or of the chief executive officer of the Company, or (iv) Tribble
breaches his fiduciary duty to the Company or commits any dishonest,
unethical, fraudulent, or felonious act in respect to Tribble's duties to the
Company.
6. STOCK OPTIONS. Specifically subject to Section 6a and 6b below and
contingent upon Tribble being employed by the Company, Tribble shall be
granted options to purchase a total of 600,000 shares of the Company's common
stock exercisable at $2.50 per share (the "Stock Options") pursuant to and to
be vested and exercisable in accordance with the terms of the Company's 1996
Stock Option Plan, as amended, and in accordance with the following:
a. Upon execution of this Agreement, 85,000 Stock Options shall vest
and be exercisable immediately (the "Initial Stock Options").
2
<PAGE>
b. Tribble's Stock Options for an additional 515,000 shares of the
Company's Common Stock shall be granted, vest and shall be
exercisable upon the finalization and corporate approval of an
amendment to the Company's 1996 Stock Option Plan increasing the
number of shares of subject to the plan, except that the
additional 515,000 options shall vest at the rate of 42,916
shares for each month that Tribble is employed by the Company for
the twelve (12) month period from the March 1, 1999. If Tribble's
employment by the Company is terminated for any reason, then all
options granted to Tribble shall immediately terminate and not be
exercisable upon notice of the termination of Tribble's
employment.
It is acknowledged that the shares of the Company's Common Stock
underlying the Initial Stock Option are registered and the Company agrees to
register the remaining 515,000 Stock Options and the underlying shares on
Form S-8 as soon as reasonably practicable after their grant and upon
approval by the Board of Directors.
7. BENEFITS. Tribble shall not be entitled to receive any benefits
provided by the Company to other employees except for benefits specifically
agreed to in writing and attached hereto.
8. EXPENSES. Tribble is authorized to incur reasonable expenses for
promoting the business of the Company, including expenses for entertainment,
travel and similar items so long as such expenses are pre-approved in
writing. The Company shall reimburse Tribble for all such expenses on the
presentation by Tribble of itemized accounts of such expenditures in
accordance with guidelines set forth by the Internal Revenue Service.
9. NON-COMPETITION AND CONFIDENTIALITY.
a. The Company and Tribble acknowledge and agree that Tribble's
services are of a special and unusual character which have a
unique value to the Company, the loss of which cannot be
adequately compensated by damages in an action at law and if used
in completion with the Company, could cause serious harm to the
Company. Accordingly, Tribble agrees that during the term of this
Agreement and for a period of two (2) years after the termination
of his employment by the Company, irrespective of the reason for
such termination, Tribble will not (1) enter into any agreement
with or directly or indirectly solicit or attempt to solicit
Tribble or other representatives of the Company (the "Company")
for the purpose of causing them to leave the Company to take
employment with any other business entity, or (2) compete,
directly or indirectly, with the Company in any way and that
Tribble will not act as an officer, director, employee,
consultant, shareholder, lender or agent of any entity engaged in
any business of the same nature as, or in competition with, the
business in which the Company is now engaged except for the
ownership of less than five percent.
3
<PAGE>
(5%) of the outstanding capital stock of a publicly traded
clothing manufacturing and/or marketing company.
b. For purposes of Section 9, restrictions regarding competition by
Tribble shall only apply to competing businesses or entities that
operate in the continental United States.
c. In the event of the breach of the covenants contained in this
Section 9, it is understood that damages will be difficult to
ascertain and the Company may petition a court of law or entity
for injunctive relief in addition to any other relief which the
Company many have under the law, this Agreement or any other
agreement executed in connection herewith. In connection with the
bringing of any legal or equitable action for the enforcement of
this Agreement, the Company shall be entitled to recover, whether
the Company seeks equitable relief, and regardless of what relief
is afforded, such reasonable attorneys' fees and expenses as
the Company may incur in prosecution of the Company's claim for
breach hereof.
d. It is hereby agreed that the provisions of this Section 9 are
separate and independent from the other provisions of this
Agreement, that these provisions are specifically enforceable by
the Company notwithstanding any claim by Tribble that the
Company has violated or breached this Agreement or any claim that
Tribble is entitled to any offset or compensation.
e. To induce the Company to enter into this Agreement, Tribble
represents and warrants to the Company that Section 9 of this
Agreement is enforceable by the Company in accordance with its
terms.
10. WAIVER OF BREACH. The waiver by any party hereto of a breach of any
provision of this Agreement will not operate or be construed as a waiver of
any subsequent breach by any party.
11. NOTICES. Any notices, consents, demands, request, approvals and
other communications to be given under this Agreement by either party to the
other will be deemed to have been duly given if given in writing and
personally delivered, faxed or if sent by mail, registered or certified,
postage prepaid with return receipt requested, as follows:
If to the Company: Retrospettiva, Inc.
8825 West Olympic Blvd.
Beverly Hills, CA 90211
Attn: Hamid Vaghar
4
<PAGE>
If to Tribble: Frank Tribble
24828 Wooded Vista
West Hills, CA 91307
Notices delivered personally will be deemed communicated as of actual
receipt, notices by fax shall be deemed delivered when such notices are faxed
to recipient's fax number and notices by mail shall be deemed delivered when
mailed.
12. ENTIRE AGREEMENT. This Agreement and the agreements contemplated
hereby constitute the entire agreement of the parties regarding the subject
matter hereof, and supersede all prior agreements and understanding, both
written and oral, among the parties, or any of them, with respect to the
subject matter hereof.
13. SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under present or future laws effective
during this Agreement, such provision will be fully severable and this
Agreement will be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and the remaining
provisions hereof will remain in full force and effect and will not be
affected by the illegal, invalid or unenforceable provision or by its
severance herefrom. Furthermore, in lieu of such illegal, invalid or
unenforceable provision, there will be added automatically, as part of this
Agreement, a provision as similar in its terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid and
enforceable.
14. GOVERNING LAW. To the extent permitted by applicable law, this
Agreement and the rights and obligations of the parties will be governed by
and construed and enforced exclusively in accordance with the substantive
laws (but not the rules governing conflicts of laws) of the State of
California and the State of California shall have exclusive jurisdiction
regarding any legal actions relating to this Agreement.
15. CAPTIONS. The captions in this Agreement are for convenience of
reference only and will not limit or otherwise affect any of the terms or
provisions hereof.
16. GENDER AND NUMBER. When the context requires, the gender of all
words used herein will include the masculine, feminine and neuter, and the
number of all words will include the singular and plural.
17. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original and all of which will
constitute one and the same instrument.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
THE COMPANY:
RETROSPETTIVA, INC., a California corporation
By: /s/ Borivoje Vukadinovic
------------------------------------------
boro, Chief Executive Officer
TRIBBLE:
/s/ Frank Tribble
---------------------------------------------
Frank Tribble
6
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
RETROSPETTIVA, INC. 10-KSB YEAR ENDED 12/31/99 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 85,857
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 10,253,949
<CURRENT-ASSETS> 13,507,642
<PP&E> 1,085,117
<DEPRECIATION> 0
<TOTAL-ASSETS> 14,708,905
<CURRENT-LIABILITIES> 5,282,536
<BONDS> 0
0
0
<COMMON> 6,765,483
<OTHER-SE> 2,660,889
<TOTAL-LIABILITY-AND-EQUITY> 14,708,905
<SALES> 20,207,460
<TOTAL-REVENUES> 20,207,460
<CGS> 17,522,097
<TOTAL-COSTS> 19,966,938
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 252,506
<INCOME-PRETAX> 141,948
<INCOME-TAX> 46,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 95,946
<EPS-BASIC> .03
<EPS-DILUTED> .03
</TABLE>
