10-Q 1 0001.txt QUARTERLY REPORT FOR SEPTEMBER 30, 1999 SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 FORM 10-Q Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the Quarter Ended September 30, 1999 Commission File Number 0 - 18064 YES CLOTHING CO. (Exact name of registrant as specified in its charter) California (State or other jurisdiction of incorporation or organization) 95-376867 (I.R.S. Employer I.D. No.) 4695 MacArthur Court, Suite 530, Newport Beach, California 92660 (Address of principal executive offices, including zip code) (949) 833-2094 (Registrant's telephone number, including area code) N/A (Former Address, if changed since last report) N/A (Former telephone number, if changed since last report) Indicate by check mark whether the Registrant [1] has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the Company was required to file such reports), and [2] has been subject to such filing requirements for the past 90 days. YES X NO___ APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of capital stock, as of the latest practicable date. Class Outstanding at September 30, 1999 Common Stock, $.01 par value 12,786,492 YES CLOTHING CO. INDEX Page PART I Item 1. Financial Information Balance Sheets................................................... 3 Statements of Operations......................................... 4 Statements of Cash Flows......................................... 5 Notes to Financial Statements.................................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................... 7 Item 3. Quantitative and Qualitative Disclosures about Market Risk............................................ 7 PART II. OTHER INFORMATION Item 1. Legal Proceedings................................................ 8 Item 2. Changes in Securities............................................ 8 Item 3. Defaults Upon Senior Securities.................................. 8 Item 4. Submission of Matters to a Vote of Security Holders ............. 8 Item 5. Other Information................................................ 8 Item 6. Exhibits and Reports on Form 8-K................................. 8 Signatures....................................................... 9 2 YES CLOTHING CO. Consolidated Condensed Balance Sheets As of September 30, 1999 (Unaudited)
September 30, 1999 March 31, 1999 (Unaudited) ASSETS Current Assets $ - $ - LIABILITIES AND SHAREHOLDERS' DEFICIT Accounts payable $ 1,180,000 $ 1,180,000 Accrued expenses 465,000 460,000 Income taxes payable 971,000 971,000 Due to affiliate 199,000 103,000 Total current liabilities 2,815,000 2,714,000 Shareholder's Deficit: Series A convertible preferred stock, no par; 2,000,000shares authorized; 1,277,005 shares issued and outstanding; convertible into 41,694,213 shares of common stock 1,409,000 1,409,000 Common stock, no par; 20,000,000 shares authorized; 12,786,492 issued and outstanding 11,949,000 11,409,000 Accumulated deficit (16,173,000) (16,072,000) Total shareholders' deficit (2,815,000) (2,714,000) $ - $ -
See accompanying notes to these condensed financial statements. 3 YES CLOTHING CO. CONDENSED STATEMENTS OF OPERATIONS For the Six Months and Three Months Ended September 30, 1999 and 1998 (Unaudited)
Six Months Ended Three Months Ended September 30, September 30, 1999 1998 1999 1998 Net Sales $ - $ - $ - $ - Cost of Sales - - - - Gross loss - - - - Operating expenses: Selling, general & administrative 101,000 110,000 53,000 90,000 Loss from operations (101,000) (110,000) (53,000) (90,000) Other income (expense) Interest expense - (126,000) - (10,000) Loss before income taxes and Extraordinary item (101,000) (236,000) (53,000) (100,000) Income tax expense - - - - Loss before extraordinary item (101,000) (236,000) (53,000) (100,000) Extraordinary item-gain on settlement of debt-net - 420,000 - 420,000 Net income (loss) $ (101,000) $ 184,000 $ (53,000) $ 320,000 Basic and diluted earnings (loss) per share: Loss before extraordinary gain $ (.01) $ (.02) $ (.01) $ (.01) Extraordinary gain $ .04 $ .04 Net income (loss) $ (.01) $ .02 $ (.01) $ .03 Basic and diluted weighted average Common shares outstanding 12,786,492 10,011,492 12,786,492 10,936,492
See accompanying notes to these condensed financial statements 4 YES CLOTHING CO. Condensed Statements of Cash Flows For the Six Months Ended September 30, 1999 and 1998
1999 1998 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (101,000) $ 184,000 Reconciliation of net loss to net cash used in operating activities: Issuance of common stock for services - 308,000 Gain on settlement of debt - (420,000) Increase in cash due to changes in operating assets and liabilities: Accrued expenses 5,000 10,000 Net cash used in operating activities (96,000) 82,000 CASH FLOWS FROM FINANCING ACTIVITIES: Increase (decrease) in Due to Affiliate 96,000 (128,000) Proceeds from exercise of stock options - 210,000 Net cash provided by financing activities 96,000 82,000 Net decrease in cash - - Cash, at beginning of year - - Cash, at end of year $ - $ - SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES - Issuance of preferred stock for note payable $ - $1,409,000
See accompanying notes to these condensed financial statements 5 NOTES TO CONDENSED FINANCIAL STATEMENTS September 30, 1999 Note 1. Organization Yes Clothing Co. (the "Company") was incorporated on July 1, 1982, in the State of California. Through July 1997, the Company designed, manufactured and marketed a diversified line of apparel primarily for women and young men. The Company sold its garments throughout the United States and Canada to retail department stores, specialty chains and specialty stores. In June 1996, the Company's principal shareholder sold approximately 50% of the Company's outstanding shares to an individual who assumed the position of Chairman and Chief Executive Officer of the Company. In July 1997, due to a lack of trade credit and working capital, the Company temporarily suspended its operations pending receipt of additional capital or third party credit. In December 1997, the Company filed for protection from its creditors pursuant to Chapter 11 of the United States Bankruptcy Code. In March 1998, the Bankruptcy Court dismissed the Company's bankruptcy proceedings. In April 1998, the Company relinquished its rights to the YES(R) trademarks in connection with a purchase and sale agreement whereby an affiliate of the Company satisfied certain senior secured debt on behalf of the Company. Note 2. Going Concern The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplates continuation of the Company as a going concern. The Company has experienced recurring losses since 1992. At September 30, 1999, the Company has liabilities in excess of assets totaling approximately $2.8 million. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management intends to execute its plan of reorganization, which contemplates that the Company will satisfy substantially all its obligations through the issuance of common stock, among other things. 6 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Six Months and Three Months Ended September 30, 1999 versus September 30 1998 In July 1997, due to a lack of trade credit and working capital, we temporarily suspended our operations pending receipt of additional capital or third party credit. We began liquidating our inventory and other assets at below cost. On December 17, 1997, we filed for protection from our creditors pursuant to Chapter 11 of the United States Bankruptcy Code. In March 1998, we were dismissed from our bankruptcy proceedings. There were no operations during first half of fiscal 2000, and 1999. As a result, there were no revenues or cost of revenues were incurred. Total selling, general and administrative ("SG&A") expenses were $101,000 in fiscal 2000 as compared to $110,000 in fiscal 1999. The accrued expenses were for services that began in the second quarter of fiscal 1999. There was no interest in fiscal 2000 as there were no borrowing from factor or credit facility in place. Interest expense in fiscal 1999 entirely represents interest on a letter of credit facility, which was settled in the fiscal 1999 second quarter. Capital Resources and Liquidity We have incurred net losses and negative cash flows from operating activities since inception. At September 30, 1999, through the date of this filing, our liabilities exceed our assets by approximately $2.8 million. We currently receive financial support from NuVen. Our future depends on our ability to execute a plan of reorganization which consists of the satisfaction of our obligations primarily through the issuance of shares of common stock. Upon the completion of our plan of reorganization, if successful, we intend to reacquire the Yes Clothing Co. trademarks. This will pave the way for us to raise capital through a private or public offering of securities; however, there are no assurances that we will be successful in raising such capital. Upon completing a raise of capital, we plan to secure licenses for rights to manufacture, distribute and sell clothing and accessories containing the Yes trademark. These contracts will, if successful, generate license acquisition fees to provide working capital. We do not intend to operate in the day-to-day operations of manufacturing, distributing and marketing products containing the Yes brand. These factors discussed above raise substantial doubt about our ability to continue as a going concern. As such, our independent auditors have modified their report to include an explanatory paragraph with respect to such uncertainty. There were no adjustments made to the financial statements as a result of such uncertainty Item 3. Quantitative and Qualitative Disclosures about Market Risk N/A 7 PART II. OTHER INFORMATION Item 1. Legal Proceedings No change from that which was reported in the Form 10K for the year ended March 31, 1999. 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 None. Item 6. Exhibits and Reports on Form 8-K None. 8 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. YES CLOTHING CO. Dated: June 27, 2000 By: /s/ Fred G. Luke Fred G. Luke President 9