-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PknCV4LYUgc5ccX0SKuZXDTRaNulsOeWjZ6FbfeEU0PlhA42nuGbBTeqOG/FdpBX C3Px9z0bLJkU7FGK/HHumg== 0001144204-06-017675.txt : 20060501 0001144204-06-017675.hdr.sgml : 20060501 20060501143241 ACCESSION NUMBER: 0001144204-06-017675 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20060228 FILED AS OF DATE: 20060501 DATE AS OF CHANGE: 20060501 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEW CAL LOGO INC CENTRAL INDEX KEY: 0001281984 STANDARD INDUSTRIAL CLASSIFICATION: WATER SUPPLY [4941] IRS NUMBER: 460495298 STATE OF INCORPORATION: NV FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10QSB/A SEC ACT: 1934 Act SEC FILE NUMBER: 333-113223 FILM NUMBER: 06794225 BUSINESS ADDRESS: STREET 1: 207 W 138TH ST CITY: LOS ANGELES STATE: CA ZIP: 90061 BUSINESS PHONE: 3103523300 MAIL ADDRESS: STREET 1: 207 W 138TH ST CITY: LOS ANGELES STATE: CA ZIP: 90061 10QSB/A 1 v041711_10qsba.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 AMENDMENT NO. 1 TO FORM 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended February 28, 2006 |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to ____________ Commission File Number: SEW CAL LOGO, INC. (Exact name of Registrant as specified in charter) Nevada 46-0495298 (State or other jurisdiction of (I.R.S. Employer I.D. No.) incorporation or organization) 207 W. 138th Street, Los Angeles, California 90061 (Address of principal executive offices) (Zip Code) Issuer's telephone number, including area code: (310) 352-3300 Check whether the Issuer (1) has filed all reports required to be filed by section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No |_| State the number of shares outstanding of each of the Issuer's classes of common equity as of the latest practicable date: At February 28, 2006, there were 5,937,368 shares of the registrant's Common Stock outstanding and 234,800 shares of Series A Preferred Stock outstanding. PART I ITEM 1. FINANCIAL STATEMENTS The financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted. However, in the opinion of management, all adjustments (which include only normal recurring accruals) necessary to present fairly the financial position and results of operations for the periods presented have been made. The results for interim periods are not necessarily indicative of trends or of results to be expected for the full year. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's most recent registration statement on Form SB-2 as amended. MOORE & ASSOCIATES, CHARTERED ACCOUNTANTS AND ADVISORS ------------------------ PCAOB REGISTERED Report of Independent Registered Public Accounting Firm ------------------------------------------------------- Sew Cal Logo, Inc. 207 W. 138th St Las Angeles, CA 90061-1003 We have reviewed the accompanying balance sheet of Sew Cal Logo Inc. as of February 28, 2006, and the related statements of income, retained earnings, and cash flows for the six months then ended, in accordance with the standards of the Public Company Accounting Oversight Board (United States). All information included in these financial statements is the representation of the management of Sew Cal Logo Inc. A review consists principally of inquiries of company personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the financial statements in order for them to be in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the company will continue as a going concern. The Company has had a net loss since inception this raises substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from this uncertainty. [GRAPHIC LOGO OMITTED] Moore & Digitally signed by Moore & Associates, Chartered DN: cn=Moore Associates, & Associates, Chartered, Chartered c=US, 0=Moore & Associates, Chartered, ou=Moore & Associates, Chartered, email=t1iam@cox.net Date: 2006.04.17 11:48:53 -07'00' Moore & Associates, Chartered Las Vegas, Nevada April 17, 2006 2675 S. JONES BLVD. SUITE 109, LAS VEGAS, NEVADA 89146 (702) 253-7511 Fax: (702)253-7501 SEW CAL LOGO, INC. BALANCE SHEETS
2/28/2006 (unaudited) 8/31/2005 ----------- ----------- ASSETS Current Assets Cash and cash equivalents $ 80,823 $ 56,865 Accounts Receivable, net 242,900 265,468 Inventory 150,363 188,434 Prepaid Expenses 20,671 2,297 ----------- ----------- Total current assets 494,757 513,064 ----------- ----------- Equipment and machinery, net 330,773 371,488 Other assets 56,000 6,000 ----------- ----------- Total assets $ 881,530 $ 890,552 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 28,450 $ 56,722 Note Payable-shareholder 347,884 355,384 Other current liabilities 100,318 413,289 Current Poriton of Long Term Debt 45,987 45,987 ----------- ----------- Total current liabilities 522,639 871,382 Long-term liabilities Note Payable-related party 86,553 95,570 SBA Loan 298,210 327,884 Convertible Debentures 700,000 Discount on Convertible Debentures (315,000) Equipment Loans 17,660 40,602 ----------- ----------- Total liabilities 1,310,062 1,335,438 ----------- ----------- Stockholders' Equity (Deficit) Preferred stock, authorized 300,000 shares, Par value $0.001, issued and outstanding at 2/28/06 and 8/31/05 is 234,800 shares respectively 235 235 Common stock, authorized 50,000,000 shares, $0.001 par value, issued and outstanding at 2/28/06 and 8/31/05 is 5,176,168 shares respectively. 5,226 5,176 Paid in Capital 509,967 187,517 Stock Subscribed 36,000 36,000 Retained Earnings(Deficit) (979,960) (673,814) ----------- ----------- Total stockholders' equity (deficit) (428,532) (444,886) ----------- ----------- Total liabilities and stockholders' equity $ 881,530 $ 890,552 =========== ===========
All assets are pledged as collateral for the SBA and shareholder loans The accompanying notes are an integral part of these financial statements. SEW CAL LOGO, INC. STATEMENTS OF OPERATIONS (Unaudited)
Six Months Ended Three Months Ended -------------------------- -------------------------- 2/28/2006 2/28/2005 2/28/2006 2/28/2005 ----------- ----------- ----------- ----------- Revenue: Sales of Caps, Embroidery and Other $ 1,136,555 $ 1,076,652 $ 481,898 $ 555,061 ----------- ----------- ----------- ----------- Total Revenue 1,136,555 1,076,652 481,898 555,061 Cost of Goods Sold 1,077,064 827,157 496,619 453,710 ----------- ----------- ----------- ----------- Gross profit 59,491 249,495 (14,721) 101,351 ----------- ----------- ----------- ----------- Expenses: General and Administrative 104,465 30,507 56,108 12,571 Officer and Administrative Compensation 78,485 144,502 22,500 83,880 Consulting, Legal and Accounting 57,213 7,747 44,500 247 Depreciation 23,954 4,759 3,597 2,379 Rent 24,000 21,000 9,000 7,500 Interest Expense 77,520 32,395 29,165 19,552 ----------- ----------- ----------- ----------- Total expenses 365,637 240,910 164,870 126,129 ----------- ----------- ----------- ----------- Income (loss) before income taxes (306,146) 8,585 (179,591) (24,778) =========== =========== =========== =========== Provision for income taxes -- 5,718 -- -- ----------- ----------- ----------- ----------- Net income (loss) $ (306,146) $ 2,867 $ (179,591) $ (24,778) Basic and Diluted Earnings (Loss) per Share $ (0.06) $ 0.00 $ (0.03) $ (0.00) ----------- ----------- ----------- ----------- Weighted Average Number of Common Shares 5,176,000 5,020,000 5,176,000 5,020,000 ----------- ----------- ----------- -----------
The accompanying notes are an integral part of these financial statements. SEW CAL LOGO, INC. STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)
Preferred Stock Common Stock ------------------------- -------------------------- Shares Amount Shares Amount ----------- ----------- ----------- ----------- Balance, August 31, 2002 189,800 $ 190 3,000,000 $ 3,000 Contributed Officer Services Net (Loss) for the year ----------- ----------- ----------- ----------- Balance, August 31, 2003 189,800 190 3,000,000 3,000 Recapitalization 2/24/04 Shares issued at par value 520,000 520 Shares issued for services at par 45,000 45 1,500,000 1,500 Net Income for the year ----------- ----------- ----------- ----------- Balance, August 31, 2004 234,800 235 5,020,000 5,020 Equipment Purchase 33,334 33 Shares issued for Services 122,834 123 at $0.10 per share Stock Subscribed Net Income(Loss) for year ----------- ----------- ----------- ----------- Balance, August 31, 2005 234,800 235 5,176,168 5,176 Discount on Convertible Debentures Shares issued for Services at $0.15 per share 50,000 50 Net Income (Loss) for quarter ----------- ----------- ----------- ----------- Balance, February 28, 2006 234,800 $ 235 $ 5,226,168 $ 5,226 =========== =========== =========== =========== Stock Retained Total Paid in Stock Earnings Stockholders' Capital Subscribed (Deficit) Equity ----------- ----------- ----------- ----------- Balance, August 31, 2002 $ 1,810 $ -- $ (573,885) $ (568,885) Contributed Officer Services 60,000 60,000 Net (Loss) for the year (45,381) (45,381) ----------- ----------- ----------- ----------- Balance, August 31, 2003 61,810 (619,266) (554,266) Recapitalization 2/24/04 Shares issued at par value (520) Shares issued for services at par 1,545 Net Income for the year 50,818 50,818 ----------- ----------- ----------- ----------- Balance, August 31, 2004 61,290 (568,448) (501,903) Equipment Purchase 114,067 114,100 Shares issued for Services 12,160 12,283 at $0.10 per share 36,000 36,000 Stock Subscribed Net Income(Loss) for year (105,366) (105,366) ----------- ----------- ----------- ----------- Balance, August 31, 2005 187,517 36,000 (673,814) (444,886) Discount on Convertible Debentures 315,000 315,000 Shares issued for Services at $0.15 per share 7,450 7,500 Net Income (Loss) for quarter (306,146) (306,146) ----------- ----------- ----------- ----------- Balance, February 28, 2006 $ 509,967 $36,000 $(979,960) $ (428,532) =========== =========== =========== ===========
All above shares have been retroactively adjusted for the recapitalization of 100 shares of common stock on February 26, 2004 The accompanying notes are an integral part of these financial statements. SEW CAL LOGO, INC. STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended ----------------------- 2/28/2006 2/28/2005 --------- --------- Operating Activities: Net income (loss) $(306,146) $ 2,867 Depreciation 23,954 4,759 Stock issued for services 7,500 -- Adjustments to reconcile net income (loss) (Increase) decrease in prepaid Expenses (18,374) -- (Increase) decrease in inventory 38,071 (49,919) (Increase) decrease in accounts receivable 22,568 89,655 Increase (decrease) in accounts payable (28,272) 12,415 Increase (decrease) in other current liabilities (312,971) -- --------- --------- Net cash provided by (used in) operating activities (573,670) 59,777 --------- --------- Investing Activities: Purchases/disposals of equipment (33,239) 10,713 --------- --------- Cash (used) in investing activities (33,239) 10,713 --------- --------- Financing Activities: Notes Payable (9,017) -- Debentures Payable 700,000 Stock Subscription -- -- Stock Sales -- -- Decrease in shareholder loan (7,500) (30,277) Decrease in SBA Loan (29,674) -- Repayment of equipment loan (22,942) -- Increase in equipment loan -- -- --------- --------- Net cash provided by (used in) financing activities 630,867 (30,277) --------- --------- Net increase (decrease) in cash and cash equivalents 23,958 40,213 Cash and cash equivalents at beginning of the year 56,865 20,490 --------- --------- Cash and cash equivalents at end of the year $ 80,823 $ 60,703 ========= ========= Supplemental Information Interest $ 29,165 $ 77,923 Taxes $ -- $ -- The accompanying notes are an integral part of these financial statements. SEW CAL LOGO, INC. NOTES TO UNAUDITED FINANCIAL STATEMENTS NOTE 1. Summary of Significant Accounting Policies The Company C J Industries was incorporated in the State of California on August 30, 1985 and changed its name to Southern California Logo, Inc (the Company). The Company transacts business as Sew Cal Logo. On February 24, 2004 the Company merged with Calvert Corporation, a Nevada Corporation. This was a recapitalization accounted for as a stock exchange transaction (reverse merger). Calvert also changed its name to Sew Cal Logo, Inc. See Note 8 for more details of this merger. The Company is located in Los Angeles, California. The Company produces and manufactures custom embroidered caps, sportswear and related corporate identification apparel. The Company provides an in-house, full-service custom design center where original artwork and logo reproduction for embroidery are available. The Company also offers contract embroidery and silk-screening to the manufacturing and promotional industry. The Company's products are sold, primarily in the United States, to Fortune 500 companies, major motion picture and television studios, retailers, and local schools and small businesses. Use of Estimates The financial statements have been prepared in conformity with accounting principles generally accepted in the United States, which require management to make estimates, and assumptions that affect the reported amounts of assets and liabilities (including disclosure of contingent assets and liabilities) at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Accounts Receivable The Company's trade accounts receivable and allowance for doubtful accounts are shown below. 2/28/05 8/31/05 Gross Trade Accounts Receivable $ 245,304 $ 268,149 Allowance for Doubtful Accounts (2,404) (2,681) --------- --------- Accounts Receivable, net $ 242,900 $ 265,468 --------- --------- Revenue Recognition The Company recognizes revenue from product sales upon shipment, which is the point in time when risk of loss is transferred to the customer, net of estimated returns and allowances. Cash and Cash equivalents SEW CAL LOGO, INC. NOTES TO UNAUDITED FINANCIAL STATEMENTS The Company maintains cash deposits in banks and in financial institutions located in southern California. Deposits in banks are insured up to $100,000 by the Federal Deposit Insurance Corporation ("FDIC"). The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash deposits. Inventory Inventory is stated at the lower of cost (first-in, first-out method) or market and consists of raw material, work-in-process and finished goods. Normally the Company ships out to the customer the finished goods as soon as they are produced and therefore usually does not maintain a finished goods inventory. Overhead items are applied on a standard cost basis to work in process and finished goods. 11/30/05 8/31/05 -------- -------- Raw Materials and WIP $150,363 $188,434 Finished Goods 0 0 -------- -------- Total Inventory $150,363 $188,434 -------- -------- Equipment and Machinery Equipment and machinery are stated at cost. Depreciation is computed using the straight-line method over their estimated useful lives ranging from five to seven years. Depreciation and amortization expense for the fiscal years August 31, 2005, and 2004 amounted to $56,847, and $78,330 respectively. Gains from losses on sales and disposals are included in the statements of operations. Maintenance and repairs are charged to expense as incurred. As of February 28, 2006 and August 31, 2005 equipment and machinery consisted of the following: 2/28/06 8/31/05 -------- -------- Equipment and Machinery $980,845 $968,644 Less: Accumulated depreciation 650,072 597,156 -------- -------- $330,773 $371,488 -------- -------- Fiscal Year The Company operates on a fiscal year basis with a year ending August 31. Earnings and Loss Per Share Information SEW CAL LOGO, INC. NOTES TO UNAUDITED FINANCIAL STATEMENTS Basic net earnings (loss) per common share is computed by dividing net earnings (loss) applicable to common shareholders by the weighted-average number of common shares outstanding during the period. Segment Reporting Pursuant to Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"), "Disclosure about Segments of an Enterprise and Related Information," the Company has determined it operated in only one segment. NOTE 2. Accounts Payable and Other Current Liabilities As of the period ends shown, accounts payable and accrued liabilities consisted of the following: 2/28/06 8/31/05 -------- -------- Trade accounts payable $ 28,450 $ 56,722 -------- -------- Sales tax payable 3,545 8,520 Short Term Loan - Related Party Payroll Liabilities 50,563 52,046 Credit Card Debt 29,874 55,223 Revolving bank line of credit (Prime + 3.8%, interest only) 16,336 52,000 Revolving bank line of credit (prime + 3.8750% Interest only, reviewed yearly) 245,500 -------- -------- $100,318 $413,289 -------- -------- NOTE 3. Note Payable- Related Party On March 1, 2003, for purposes of working capital, the sole shareholder and spouse made a $355,384 subordinated loan to the Company. The Company is obligated to pay monthly interest only on the subordinated loan during its term at the rate of 10% per annum (fixed-rate calculated as simple interest). The entire principal amount of the loan was originally due on March 1, 2004, and has continued from that time on a month to month basis. The subordinated loan, which consented to by United Commercial Bank and subsequent banks, is collateralized by the assets of the Company, including but not limited to any and all equipment owned by the Company, inventory, and outstanding receivables. Balance at February 28,2006 is $347,884. NOTE 4. Commitments and Contingencies Long-Term Debt SEW CAL LOGO, INC. NOTES TO UNAUDITED FINANCIAL STATEMENTS On March 25, 2002 the Company entered into an agreement with United Commercial Bank for a $515,000 SBA loan. For the years ending August 31, 2003 and 2002, the unpaid principal balance of the loan was $462,100 and $500,313 respectively. The monthly required payment varied with an annual interest rate of 6.75% and a maturity date of March 1, 2012. This loan related to the purchase of equipment. On August 11, 2004 the Company refinanced this SBA loan with Pacific Liberty Bank. As of February 28, 2006 the balance was $344,196. This loan matures and is due in 69 months. Monthly payments are made the 15th of each month with interest at prime plus 2.5. Currently the interest rate is 9.5%. This loan is collateralized by the assets of the corporation and is in first place before the shareholder loan. On April 16, 2003 the Company entered an installment sale contract with GMAC for the purchase of a vehicle. The total amount financed at signing was $40,754 that represents the total sale price The agreement requires 60 monthly payments of approximately $679 beginning on May 16, 2003 and ending on April 16, 2008. The outstanding balance at February 28, 2006 was $17,660. This vehicle note was obtained by GMAC under special financing and carries no interest. Lease Commitments The Company leases warehouse and office facilities under an operating lease requiring the Company to pay property taxes and utilities. In July 2004 this building was purchased by a related party (a corporation controlled by the officers) and the lease was re-written for 5 years. Lease expense is currently $12,500 per month. The lease obligation is shown below for the next five years. Year 1 Year 2 Year 3 Year 4 Year 5 Office /warehouse lease $150,000 $150,000 $150,000 $150,000 $150,000 Callable Convertible Debentures On February 16, 2006 the Company executed an equity financing agreement wherein it will issue an aggregate of $2,000,000 callable convertible debentures in three segments and received its first installment of $700,000. The debentures are convertible to common stock at 45% below the lowest three intra-day trading price during the 20 trading days immediately preceding conversion. The Debentures also carry five-year warrants exercisable at $0.50 per share. The aggregate number of warrants to be issued is 2,142,855. Because the current stock price is well below the exercisable price of the warrants, they are considered "out of the money" and no discount has been recorded. The Company has recorded a discount on the convertible debentures associated with the first $700,000 debt executed. Because the convertible feature is at a 45% discount the company has recorded $315,000 ($700,000 x 45%) discount and will amortize the discount over the life of the debentures. SEW CAL LOGO, INC. NOTES TO UNAUDITED FINANCIAL STATEMENTS NOTE 5. Stockholders' Equity Preferred Stock The Company (post merger) is authorized to issue three hundred thousand (300,000) shares of series A preferred stock at a par value of $0.001. The preferred stock is convertible to common stock at one share of preferred for every 100 shares of common. The preferred shares can only be converted when the Company reaches $10,000,000 in sales for any fiscal year. As of August 31, 2004 there were 234,800 shares of preferred stock. The value was placed at par. The conversion to common stock would be 23,480,000 shares. Based upon the actual growth for the last two years, the $10,000,000 in sales will not be reached within five years. Therefore, these shares are not considered in calculating the loss per share. Common Stock The Company (post merger) is authorized to issue fifty million (50,000,000) shares of common stock at par value of $0.001. At the time of the merger 45,000 shares of preferred stock and 1,500,000 shares of common stock were issued at par value of each for services rendered in connection with the merger for a total value of $1,545. In May 2005 the Company purchased for a $100,000 note payable and 33,334 shares of restricted common stock (valued at $12,283) various pieces of sewing equipment. As of 31 May 2005 the Company had received from investors $36,000 in investment funds for which restricted common shares will be issued. The exact number of shares has not yet been determined. On January 6, 2006 the Company issued 50,000 common shares for services valued at $7,500. On February 16, 2006 the Company issued callable convertible debentures in the amount of $700,000 that can be converted to common stock at 45% discount of the three lowest three intra-day trading price during the 20 trading days immediately preceding conversion. If the debt had been converted on February 28, 2006 the company would have issued 4,545,455 shares at $0.154 per share. Warrants With the $700,000 worth of convertible debentures described above 750,000 five-year warrants for commons stock exercisable at $0.50 per share were issued. The exercisable price is "out of the money" therefore no discount has been recorded. SEW CAL LOGO, INC. NOTES TO UNAUDITED FINANCIAL STATEMENTS NOTE 6. Interest Expense Interest expense for the period ended February 28, 2006 and the year ended August 31, 2005 is $29,165 and $77,923 respectively. NOTE 7. Income Taxes The Company provides for income taxes under Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. SFAS No. 109 requires the use of an asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse. SFAS No. 109 requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. In the Company's opinion, it is uncertain whether they will generate sufficient taxable income in the future to fully utilize the net deferred tax asset. Accordingly, a valuation allowance equal to the deferred tax asset has been recorded. The total deferred tax asset is calculated by multiplying a 15% estimated tax rate by the items making up the deferred tax account. For the Company only the Net Operating Loss (NOL) was available for a tax asset. The provision for income taxes is comprised of the net changes in deferred taxes less the valuation account plus the current taxes payable. At August 31, 2005, federal income tax net operating loss carry forwards ("NOL's") which were available to the Company were the following with the year in which they expire. Year (8/31) Amount Expires 1996 $ 2,104 2011 1997 9,265 2012 1998 26,317 2013 1999 21,074 2019 2000 50,619 2020 2001 21,675 2020 2002 319,424 2022 2003 86,861 2023 2005 102,685 2025 ---------- Total $ 640,024 ---------- Were the NOL tax asset to be recorded at 8/31/05 it would be a long-term asset of $96,004. Continued profitability by the Company will be a major factor in the valuation account being removed and the recording of this asset. NOTE 8. Merger with Calvert On February 24, 2004 the Company merged with Calvert Corporation, an inactive Nevada Corporation. This was a recapitalization accounted for as a stock exchange reverse acquisition with Calvert being the surviving legal entity and Southern California becoming the surviving historical entity. Before the merger Southern California had 100 shares of common stock issued and outstanding that were owned by a single shareholder. As part of the merger Calvert issued to this shareholder 189,800 shares of series A preferred stock and 3,000,000 shares of common stock in exchange for all the shares (100) of Southern California. These share totals have been retroactively applied to previous years. SEW CAL LOGO, INC. NOTES TO UNAUDITED FINANCIAL STATEMENTS As part of the merger 45,000 shares of preferred stock and 1,500,000 shares of common stock were issued for services rendered. A value of $1,545 was placed upon these shares. Calvert had a zero book value prior to the merger and is shown as the acquired company on the statement of stockholders' equity with 520,000 shares outstanding prior to the merger. After the completion of the merger the Company had 5,020,000 shares of common stock and 234,800 shares of series A preferred stock. NOTE 9. The Effect Of Recently Issued Accounting Standards Below is a listing of the most recent accounting standards SFAS 150-154 and their effect on the Company. Statement No. 150 Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (Issued 5/03) This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. Statement No. 151 Inventory Costs-an amendment of ARB No. 43, Chapter 4 (Issued 11/04) This statement amends the guidance in ARB No. 43, Chapter 4, Inventory Pricing, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that "...under some circumstances, items such as idle facility expense, excessive spoilage, double freight and rehandling costs may be so abnormal ass to require treatment as current period charges...." This Statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of "so abnormal." In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. Statement No. 152 Accounting for Real Estate Time-Sharing Transactions (an amendment of FASB Statements No. 66 and 67) This Statement amends FASB Statement No. 66, Accounting for Sales of Real Estate, to reference the financial accounting and reporting guidance for real estate time-sharing transactions that is provided in AICPA Statement of Position (SOP) 04-2, Accounting for Real Estate Time-Sharing Transactions. SEW CAL LOGO, INC. NOTES TO UNAUDITED FINANCIAL STATEMENTS This Statement also amends FASB Statement No. 67, Accounting for Costs and Initial Rental Operations of Real Estate Projects, states that the guidance for (a) incidental operations and (b) costs incurred to sell real estate projects does not apply to real estate time-sharing transactions. The accounting for those operations and costs is subject to the guidance in SOP 04-2. Statement No. 153 Exchanges of Non-monetary Assets (an amendment of APB Opinion No. 29) The guidance in APB Opinion No. 29, Accounting for Non-monetary Transactions, is based on the principle that exchanges of non-monetary assets should be measured based on the fair value of the assets exchanged. The guidance in that Opinion, however, includes certain exceptions to the principle. This Statement amends Opinion 29 to eliminate the exception for non-monetary exchanges of similar productive assts and replaces it with a general exception for exchanges of non-monetary assets that do not have commercial substance. A non-monetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. Statement No. 154 - Accounting Changes and Error Corrections (a replacement of APB Opinion No. 20 and FASB Statement No. 3) This Statement replaces APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements, and changes the requirements for the accounting for and reporting of a change in accounting principle. This Statement applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. When a pronouncement includes specific transition provisions, those provisions should be followed. The adoption of these new Statements is not expected to have a material effect on the Company's current financial position, results or operations, or cash flows. Note 10 Subsequent Events On February 16, 2006 the company entered into a securities purchase agreement for a total subscription amount of $2,000,000 that includes stock purchase warrants and callable convertible debentures. The total subscription includes an aggregate of 2,142,858 five-year warrants exercisable for the same number of common shares at $0.50 per share. And the debt conversion feature at a 45% discount of the lowest three intra-day trading price during the 20 trading days immediately preceding conversion. An aggregate of 25,974,026 common shares have been registered and are available for issue to potentially convert the full $2,000,000. The transaction will be completed in three segments the first was completed February 16, 2006 with receipt of $700,000, the second was completed on April 10, 2006 for $600,000 with the filing of the stock registration statement and the third segment of $700,000 will be completed when the registration statement is declared effective. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONTINUING AND FUTURE PLAN OF OPERATIONS. This analysis should be read in conjunction with the condensed consolidated financial statements, the notes thereto, and the financial statements and notes thereto included in the Company's Registration Statement on Form SB-2, as amended, initially filed on March 20, 2004. All non-historical information contained in this annual report is a forward-looking statement. The forward-looking statements contained herein are subject to certain risks and uncertainties that could cause the actual results to differ materially from those reflected in the forward-looking statements. PLAN OF OPERATION Expansion and growth of present operations continues as our primary objective during the first two quarters of the coming year. In addition, the Company has recently acquired rights to PIPELINE POSSE, a recognized brand in the world of surf and sports wear. We intend to begin manufacturing, selling and distributing our own line of surf wear under this new logo and to promote this line of goods in appropriate trade journals. PRIVATE LABELING We continue to expand our existing customer base through an aggressive sales and marketing approach to potential customers already located in our geographic area of Southern California. Our success in capturing this business will depend upon our ability to obtain quick and accurate sampling based on the customer's designs and the timely production of the required samples for the customer's sales force. We have captured more of our existing customers' production through the purchase of additional silk-screening equipment to complement what we already have and are using.. With the expansion now complete, we have the capability to provide our customers every aspect of product development and production in state-of-the-art and cutting edge form. We continue to further developing a sophisticated sales effort to build up our private label clientele. Customers in this area currently include, but are not limited to Quiksilver, Vans, Etnies, Lost, Von Dutch, Whiteboy and Rusty. FILM WARDROBE & ENTERTAINMENT RELATED BUSINESS To increase our film wardrobe and related entertainment business, we intend to add two (2) to three (3) sales and customer service representatives (in-house and outside) to assist us in meeting our current forecasts for the next six (6) months. We also intend to produce more wardrobe, patches etc. for the major costume houses (Western Costume Company, MPCC, Motion Picture Costume Co., Eastern Costume Co.). We will also continue our existing marketing strategy of marketing directly to the productions before they begin filming locally and send units out of town on location. We intend to accomplish this with visits to the studios daily, printed material, and a professionally developed e-mail campaign to the production offices when they first set-up for a newly green lighted feature film or television show. As the area of entertainment wardrobe is such a specialized and limited field, management is unaware of any other companies that do exactly what we do in this area. Small local companies do quick embroidery jobs from time to time when production companies are on location and need something immediately, and occasionally a costumer will use a local shop for some patches. Because of our longtime experience, personal relationships, skill, and success in mastering this specialized work, significant competition has not. Thus, there is no accurate data currently available to determine our approximate market share. CORPORATE SALES Corporate clients currently account for about ten percent (10%) of our business. We intend to focus on growing this area of our business over the next two (2) years by the addition of new in-house salespeople. Also, the addition of the new silk screening equipment will give us the capability to accept and produce large orders of promotional t-shirts and related items for corporate programs that we are currently unable to produce. The new salespeople will solicit this business to our existing client base via telephone and Internet as well as to potential new customers through the same means as well as some print advertising via mailing and placement in trade publications. Additional labor will be hired to operate the new equipment as needed with second and third manufacturing shifts added as growth requires. We intend to add a small number of in-house staff (2-3 clerical people) to service new inquiries and added accounts, as well as ordering finished goods for embellishment and shipping. Current production capacity is adequate to handle the added volume DEVELOPMENT OF THE CALIFORNIA DRIVEN PRODUCT LINE We have identified and developed an opportunity to export the California life style to the rest of America and to the worldwide markets in general. Started as an idea born in San Clemente, California, home of the premier surfing beaches in the world, we have created a number of California Driven brands of products. Under the California Driven umbrella, several lines are being developed with specific target markets in mind. Currently, no California Driven products are being produced or distributed and do not represent any of our current overall revenue. The California Driven brand lines are being developed in anticipation of expansion of Sew Cal into our own line of products to market and sell. The first identified brand line is Pipeline Posse. Seven years ago, world-renowned big wave surfer and Pipeline specialist BRADEN DIAS loosely organized the very best surfers and up-and coming "groms" into the Posse. Anyone who really knows surfing knows Braden, our most recent addition to the Sew Cal family. Southern California may represent the mind lifestyle of the surfing industry, but the heart and soul of the sport itself still lives and breathes in Hawaii, where it was born. Braden Dias is Hawaiian surfing. A long sponsored pro and championship competitor, Braden and his tight crew run the show at North Shore's Banzai Pipeline. Known as the standard to which all waves worldwide are compared, Pipeline is the home of "the danger men" and has claimed more lives than any other wave in the world. Along with just a handful of other Hawaiian surfers, Sew Cal Logo has acquired all rights and title to "Pipeline Posse" and is working under contract with Braden Dias. We have completed initial design of a line of surf wear under the Pipeline Posse logo and have manufactured a limited amount of goods to begin a sales and marketing campaign. Until such time as we acquire additional funds, we will continue to operate our current business and will not institute use of these product lines. Our projections for the need for an additional 1 million to 3 million dollars to open the new market is based on the following factors: a) that we have successfully raised such funds on terms acceptable to us, b) that we have been successful in protecting the new brand lines through trademark or other legal means, and c) that appropriate markets and advertising programs have been contracted and/or put in place. To develop this market, additional capital of approximately $3,000,000 will need to be raised. If no additional equity capital is raised, we plan to capture more of our existing customers' production through the purchase of additional silk screening equipment with funds generated from the current profit stream to fulfill existing demand in a more timely and cost-efficient manner. Results of Operations For the Quarter Ended February 28, 2006 and February 28, 2005 Total revenue was $481,898 for the quarter ended February 28, 2006 as compared to $555,061 for the quarter ended February 28, 2005, a net decrease of $73,163. The net decrease is primarily due to the loss of a significant private label customer. The customer elected to service their products overseas. Officer and Administrative Compensation was $22,500 for the quarter ended February 28, 2006 as compared to $83,880 for the quarter ended February 28, 2005, a net decrease of $61,380. The net decrease is due to officers deferring compensation for this period. Total Assets were $881,530 at February 28, 2006 as compared to $582,547 at February 28, 2005, a net increase of $298,983. The net increase was primarily due to the addition of equipment used in our continuing operation and an increase of inventory on hand. Liquidity and Capital Resources Our cash balance as of February 28, 2006 is $80,823. Our sources of liquidity are currently generated by current sales, and we do not require any additional capital to continue our current operations, including the ability to grow within the market. The 8% convertible debenture, $700,000 of which has been received; the second traunche of $600,000 will be paid upon filing of this registration statement and the final $700,000 will be paid when the registration statement is declared effective will provide us with additional liquidity for growth. Strong additional growth through the expansion into other markets is now with these funds and we are preparing to launch our Pipeline Posse brand. If these debentures are converted to equity, the percentage of ownership of existing stockholders will be diluted. Furthermore, these equity securities might have rights, preferences or privileges senior to our shares of common stock. Between the new funds and the continuing and growing portion of our existing business, our liquidity is sufficient, upon completion of this financing, to complete our business plan and generate additional revenues over the next 5 years. Our liquidity and operating results are not materially affected by seasonal fluctuations in our sales. We are operating our business on an accrual basis. Based upon management's belief that we can sustain our current level of sales and growth, we project that we will have sufficient cash flow to cover current operations for the next twelve (12) months without taking into account any expansion into other markets. We can continue current operations with reasonable annual growth from existing sales, cash flows and profits. We do not offer any customer special incentives in connection with the purchase or promotion of our products. FORWARD LOOKING STATEMENTS This Form 10-QSB includes forward looking statements concerning the future operations of the Company. This statement is for the express purpose of availing the Company of the protections of such safe harbor with respect to all forward looking statements contained in this Form 10-QSB. We have used forward looking statements to discuss future plans and strategies of the Company. Management's ability to predict results or the effect of future plans is inherently uncertain. Factors that could affect results include, without limitation, competitive factors, general economic conditions, customer relations, relationships with vendors, the interest rate environment, governmental regulation and supervision, seasonality, distribution networks, product introductions, acceptance, technological change, changes in industry practices and one-time events. These factors should be considered when evaluating the forward looking statements and undue reliance should not be placed on such statements. Should any one or more of these risks or uncertainties materialize, or should any underlying assumptions prove incorrect, actual results may vary materially from those described herein. Critical Accounting Policies SewCal's financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States ("GAAP"). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenue and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use if estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements. Our significant accounting policies are summarized in Note 1 of our financial statements. While all these significant accounting policies impact its financial condition and results of operations, SewCal's views certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on SewCal's consolidated financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause effect on our consolidated results of operations, financial position or liquidity for the periods presented in this report. During the next twelve months, we expect to take the following steps in connection with the further development of our business and the implementation of our plan of operations: Item 3. Controls and Procedures (a) Evaluation of disclosure controls and procedures. Our Chief Executive Officer and Chief Financial Officer (collectively the "Certifying Officers") maintain a system of disclosure controls and procedures that is designed to provide reasonable assurance that information, which is required to be disclosed, is accumulated and communicated to management timely. Under the supervision and with the participation of management, the Certifying Officers evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule [13a-14(c)/15d-14(c)] under the Exchange Act) within 90 days prior to the filing date of this report. Based upon that evaluation, the Certifying Officers concluded that our disclosure controls and procedures are effective in timely alerting them to material information relative to our company required to be disclosed in our periodic filings with the SEC. (b) Changes in internal controls. Our Certifying Officer has indicated that there were no significant changes in our internal controls or other factors that could significantly affect such controls subsequent to the date of his evaluation, and there were no such control actions with regard to significant deficiencies and material weaknesses. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None ITEM 2. CHANGES IN SECURITIES None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS 31.1 Certification of the Chief Executive Officer Pursuant toSection 302 of the Sarbanes-Oxley Act 31.2 Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act 32.1 Certification of the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act 32.2 Certification of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act (b) REPORTS ON FORM 8-K None SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: May 1, 2006 By: /s/ Richard Songer ----------------------------------- Richard Songer President, Director and Chie Executive Officer By: /s/ Judy Songer ----------------------------------- Judy Songer Director and Chief Financial Officer EX-31.1 2 v041711_ex31-1.txt CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Richard Songer, certify that: 1. I have reviewed this Form 10-QSB of Sew Cal Logo, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods present in this report; 4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13-a-15(f) and 15d-15(f)) for the small business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding there liability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principals; (c) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the small business issuer's internal control over financing reporting that occurred during the small business issuer's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect ,the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involved management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: May 1, 2006 By:/s/ Richard Songer Richard Songer Chief Executive Officer EX-31.2 3 v041711_ex31-2.txt CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Judy Songer, certify that: 1. I have reviewed this Form 10-QSB of Sew Cal Logo, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods present in this report; 4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13-a-15(f) and 15d-15(f)) for the small business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding there liability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principals; (c) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the small business issuer's internal control over financing reporting that occurred during the small business issuer's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect ,the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involved management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: May 1, 2006 By:/s/ Judy Songer Judy Songer Chief Financial Officer, EX-32.1 4 v041711_ex32-1.txt CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 In connection with this amended Quarterly Report of Sew Cal Logo, Inc. (the "Company") on Form 10-QSB for the period ending February 28, 2006, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Richard Songer, Chief Executive Officer and Chief Financial Officer of the Company, certifies to the best of his knowledge, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that: 1. Such amended Quarterly Report on Form 10-QSB for the period ending February 28, 2006, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in such amended Quarterly Report on Form 10-QSB for the period ending February 28, 2006, fairly presents, in all material respects, the financial condition and results of operations of Sew Cal Logo, Inc. Dated: May 1, 2006 SEW CAL LOGO, INC. By: /s/ Richard Songer Chief Executive Officer EX-32.2 5 v041711_ex32-2.txt CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 In connection with this amended Quarterly Report of Sew Cal Logo, Inc. (the "Company") on Form 10-QSB for the period ending February 28, 2006, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Judy Songer, Chief Financial Officer of the Company, certifies to the best of her knowledge, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that: 1. Such amended Quarterly Report on Form 10-QSB for the period ending February 28, 2006, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in such amended Quarterly Report on Form 10-QSB for the period ending February 28, 2006, fairly presents, in all material respects, the financial condition and results of operations of Sew Cal Logo, Inc. Dated: May 1, 2006 SEW CAL LOGO, INC. By: /s/ Judy Songer Chief Financial Officer, -----END PRIVACY-ENHANCED MESSAGE-----