Pacific Sunwear of California, Inc. responded to the press release and latest correspondence received from Adrenalina regarding a proposed merger. In a letter to Adrenalina's management, the surf-inspired retailer asserted that it planned to stick with its strategic plan to create long-term shareholder value. It also said “we strongly disagree with your claim that your proposed business combination would be supported by a vast majority of our shareholders.”
I am writing on behalf of the Board of Directors of Pacific Sunwear of California, Inc., to respond to your press release dated December 15, 2008 and your letter of November 20, 2008, and to confirm the Company's positions communicated to you during your recent telephone calls with our financial advisors.
1. Adrenalina currently operates three stores based in Florida and
generated sales of less than $3.5 million in 2007 and $4.0 million
in the first nine months of 2008.
2. Adrenalina reported a net loss of approximately $5.8 million in
2007 and approximately $6.2 million during the nine month period
ended September 30, 2008.
3. In Adrenalina's Report on Form 10-Q filed with the SEC on
November 10, 2008, the company stated:
“Currently we do not believe that the company will be able to
generate any significant cash flow during the coming year to
fund our planned expansion or to fund our current operations.
However, under our current model of funding operations through
capital contributions and debt we believe that we can sustain
ourselves for the next twelve months. Currently we are seeking
additional outside funding to keep the business operational beyond
2009; however there is no assurance additional debt or capital
will be available to us on acceptable terms.”
4. Adrenalina's auditors have indicated that there is substantial
doubt as to the company's ability to continue as a going concern.
Note 2 to the financial statements included in Adrenalina's Report
on Form 10-Q for the quarter ended September 30, 2008 also states:
“The Company continued to incur significant operating losses
through the nine months ended September 30, 2008 which raise
substantial doubt about the Company's ability to continue as a
5. Adrenalina's market capitalization as of the date of this letter
is approximately $14 million, based on the closing trading price
of Adrenalina's stock on December 12, 2008.
We encourage interested shareholders of Pacific Sunwear to review Adrenalina's complete public reports for additional details.
You also state in your November 20 letter and in your press release that Adrenalina is now a shareholder of Pacific Sunwear, and that you intend to significantly increase your position. We welcome you as a shareholder, and as with all of our shareholders, we are appreciative of ideas to strengthen our business and enhance our operating results. We do not believe, however, that the interests of other Pacific Sunwear shareholders would be served by a business combination with Adrenalina.
Sally Frame Kasaks
Chairman and Chief Executive Officer