10-Q 1 0001.txt QUARTERLY REPORT FOR 9/30/00 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, 2000 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 1450, Newport Beach, California 92660 (Address of principal executive offices, including zip code) (949) 833-2094 (Registrant's telephone number, including area code) 4695 MacArthur Court, Suite 530, Newport Beach, California 92660 (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. NO___ YES X 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 October 31, 2000 Common Stock, $.01 par value 127,865 YES CLOTHING CO. INDEX Page PART I Item 1. Financial Information Balance Sheet..................................................... 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 SHEET As of September 30, 2000 (Unaudited) ASSETS Prepaid Taxes $ 1,600 Current Assets $ 1,600 LIABILITIES AND SHAREHOLDERS' DEFICIT Accounts payable $ 1,215,877 Accrued expenses 482,785 Due to affiliate 282,120 Total current liabilities 1,980,782 Shareholder's Deficit: Series A convertible preferred stock, no par; 2,000,000 shares authorized; 1,277,005 shares issued and outstanding; convertible into 416,942 shares of common stock 1,409,000 Common stock, no par; 20,000,000 shares authorized; 127,865 issued and outstanding 11,949,000 Accumulated deficit (15,337,182) Total shareholders' deficit (1,979,182) $ 1,600
See accompanying notes to these condensed financial statements. 3 YES CLOTHING CO. CONDENSED STATEMENTS OF OPERATIONS
For the Six Months Ended For the Three Months Ended September 30, September 30, 2000 1999 2000 1999 (Unaudited) (Unaudited) Net sales $ - $ - $ - $ - Expenses: Selling, general and administrative 57,327 101,000 37,327 53,000 Loss from operations (57,327) (101,000) (37,327) (53,000) Other income (expense): Loss before income taxes (57,327) (101,000) (37,327) (53,000) Income tax expense 855 - 855 - Loss before extraordinary items (58,182) (101,000) (38,182) (53,000) Extraordinary gain from forgiveness of debt, net of income taxes of $0 971,000 - 971,000 - Net income (loss) $ 912,818 $ (101,000) $ 932,818 $ (53,000) Basic and diluted income (loss) per share: Loss from continuing operations $ (0.46) $ (0.79) $ (0.30) $ (0.41) Extraordinary gain 7.59 - 7.59 - Net income (loss) $ 7.14 $ (0.79) $ 7.30 $ (0.41) Weighted average number of shares outstanding 127,865 127,865 127,865 127,865
See accompanying notes to these condensed financial statements. 4 YES CLOTHING CO. CONDENSED STATEMENTS OF CASH FLOWS
Six Months Ended September 30, 2000 1999 (Unaudited) (Unaudited) Cash Flows from Operating Activities: Net Income (loss) $ 912,818 $ (101,000) Reconciliation of net income (loss) to net cash used by operating activities: Gain on extinguishment of debt (971,000) - Increase (decrease) in cash due to changes in operating assets and liabilities: Prepaid expenses (1,600) - Accounts payable 35,887 - Accrued expenses (2,225) 5,000 Net cash used by operating activities (26,120) (96,000) Cash Flows from Financing Activities: Increase in due to affiliate 26,120 96,000 Net cash provided by financing activities 26,120 96,000 Net change in cash - - Cash, at beginning of period - - Cash, at end of period $ - $ -
See accompanying notes to these condensed financial statements 5 YES CLOTHING CO. NOTES TO CONDENSED FINANCIAL STATEMENTS June 30, 2000 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 (see Note 7). On October 9, 2000, the Company was merged into Yes Clothing Company, Inc., a Nevada corporation formed by it on July 31, 2000, and changed its name from Yes, Clothing Co. At that time, the newly formed Nevada corporation exchanged one (1) share for every one hundred (100) shares of YES Clothing Co. The merger was recorded at historical costs since the companies were under common control, and all amounts, including share information, have been retroactively restated for the years presented. Note 2. Summary of Significant Accounting Policies 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, 2000, the Company has liabilities in excess of assets totaling approximately $2.0 million. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management intends to execute a plan of reorganization, which contemplates that the Company will satisfy substantially all its obligations through the issuance of common stock, among other things. Once the liabilities can be satisfied, the Company can seek capital through a private or public of equity securities. There are no assurances that a plan of reorganization can be completed or that funds will be available to the Company to effect its business plan. 6 YES CLOTHING CO. NOTES TO CONDENSED FINANCIAL STATEMENTS June 30, 2000 Unaudited Interim Financial Statements In the opinion of management, the unaudited financial statements include all adjustments (consisting of normal recurring accruals) necessary to present fairly the Company's results of operation for the three and six months ended September 30, 2000 and 1999 and cash flows for the six months ended September 30, 1999 and 2000. These results are not necessarily indicative of the results expected for the year ending March 31, 2001. Restatement of Shares Outstanding All historical share and per share amounts have been restated to reflect the one for one hundred exchange of shares resulting from the Company reincorporating in Nevada and effecting the merger on October 9, 2000 (Note 1). Note 3. Extraordinary Item In fiscal 1997, the Company filed a carryback claim for a refund of certain taxes paid in prior periods totaling approximately $971,000. The Company was notified in fiscal 1998 that the carryback claim was invalid and that the Company is obligated to repay such monies. Accordingly, the Company recorded a liability for the $971,000. The Company appealed the audit assessment and in the second quarter of fiscal 2001, entered into a settlement agreement with the IRS, whereby the assessment was reversed. As a result of the agreement, the Company recognized extraordinary income of $971,000 in the second quarter of fiscal 2001. Note 4. Subsequent Event In September 2000, the Company was notified by Newbridge Capital, Inc. ("NBRG") of its intention to convert 177,005 shares of the Company's Series A Preferred into common stock. Upon issuance of the common shares, NBRG will own approximately 49% of the outstanding common shares of the Company. 7 Item 2: Management's Discussion and Analysis of Financial Condition And Results of Operations Results of Operations Quarter Ended September 30, 2000 versus September 30 1999 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 second quarter of fiscal 2001, and 2000. As a result, there were no revenues or cost of revenues were incurred. Total selling, general and administrative ("SG&A") expenses for the second quarter were $37,000 in fiscal 2001 as compared to $53,000 in fiscal 2000. The expenses were primarily attributed to accrued expenses for services that began in the second quarter of fiscal 1999 and the fluctuation is not considered significant. Extraordinary Item As noted in Note 3, as a result of settlement agreement with the IRS, the Company recognized extraordinary income of $971,000 in the second quarter of fiscal 2001. Capital Resources and Liquidity We have incurred net losses and negative cash flows from operating activities since inception. At September 30, 2000, through the date of this filing, our liabilities exceed our assets by approximately $2.0 million. These factors discussed above raise substantial doubt about our ability to continue as a going concern. 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. Item 3. Quantitative and Qualitative Disclosures about Market Risk N/A 8 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, 2000. 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. 9 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: November 20, 2000 By: /s/ Jon L. Lawver Jon L. Lawver Treasurer, Secretary and Director