-----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, V7w310VnNSNoHFhzwbypJxB4J2ms1q2WPt3rlQZORCjX7L1WY/WyX6TIki7SW3dd MyEHGHDHHvyDXSAjhn7uog== 0000898430-95-002393.txt : 19951119 0000898430-95-002393.hdr.sgml : 19951119 ACCESSION NUMBER: 0000898430-95-002393 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: YES CLOTHING CO CENTRAL INDEX KEY: 0000856979 STANDARD INDUSTRIAL CLASSIFICATION: WOMEN'S, MISSES', AND JUNIORS OUTERWEAR [2330] IRS NUMBER: 953768671 STATE OF INCORPORATION: CA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-18064 FILM NUMBER: 95592679 BUSINESS ADDRESS: STREET 1: 1380 WEST WASHINGTON BLVD CITY: LOS ANGELES STATE: CA ZIP: 90007 BUSINESS PHONE: 2137657800 MAIL ADDRESS: STREET 1: 1380 WEST WAHINGTON BLVD CITY: LOS ANGELES STATE: CA ZIP: 90007 10-Q 1 FORM 10-Q DATED 09/30/95 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995 [_] 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 0 - 18064 YES CLOTHING CO. (Exact name of registrant as specified in its charter) CALIFORNIA 95-3768671 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1380 WEST WASHINGTON BLVD., LOS ANGELES, CALIFORNIA 90007 (Address of principal executive offices and zip code) Registrant's telephone number, including area code: (213) 765-7800 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 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 ----- ----- Number of shares of Common Stock outstanding as of November 10, 1995: 7,036,492 1 YES Clothing Co. INDEX
PAGE NO. PART I. FINANCIAL INFORMATION Balance Sheets 3 Statements of Operations 4 Statements of Cash Flows 5 Notes to Financial Statements 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 7 PART II. OTHER INFORMATION Item 4: Submission of Matters to a Vote of Security Holders 10 Item 6: Exhibits and Reports on Form 8-K 10 Signatures 11
2 PART I. FINANCIAL INFORMATION YES Clothing Co. BALANCE SHEETS
September 30 March 31 1995 1995 (unaudited) ASSETS - ------ Current Assets: Cash $ 68,000 $ 232,000 Due from factor, net 678,000 Accounts receivable, non-factored-net 39,000 209,000 Other receivables and deposits 44,000 152,000 Inventories 4,086,000 2,158,000 Prepaid expenses 219,000 83,000 ----------- ----------- Total current assets 4,456,000 3,512,000 Equipment, net 1,219,000 1,034,000 Other assets 96,000 84,000 Trademarks 147,000 ----------- ----------- TOTAL ASSETS $ 5,918,000 $ 4,630,000 =========== =========== LIABILITIES AND SHAREHOLDER'S EQUITY - ------------------------------------ Current Liabilities: Accounts payable $ 1,126,000 $ 2,145,000 Accrued expenses and other current liabilities 276,000 243,000 Due to factor 1,074,000 Advances from affiliate 176,000 Contract payables 53,000 50,000 ----------- ----------- Total current liabilities 2,705,000 2,438,000 ----------- ----------- Long-term liabilities: Contract payables 91,000 119,000 Due to related party 130,000 538,000 ----------- ----------- Total long-term liabilities 221,000 657,000 ----------- ----------- Shareholder's Equity: Preferred stock, no par; 2,000,000 shares authorized; no share issued and outstanding Common stock, no par; 20,000,000 shares authorized; 7,036,492 and 3,821,470 issued and outstanding 8,610,000 4,513,000 Retained deficit (5,618,000) (2,978,000) ----------- ----------- Total shareholder's equity 2,992,000 1,535,000 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 5,918,000 $ 4,630,000 =========== ===========
See Notes to Financial Statements 3 YES Clothing Co. STATEMENT OF OPERATIONS (Unaudited)
SIX MONTHS ENDED THREE MONTHS ENDED September 30 September 30 ---------------------------- ----------------------------- 1995 1994 1995 1994 ----------- ----------- ----------- ---------- Net Sales $ 4,681,000 $16,300,000 $ 1,996,000 $9,441,000 Cost of Sales 3,794,000 13,651,000 1,954,000 8,079,000 ----------- ----------- ----------- ---------- Gross Profit 887,000 2,649,000 42,000 1,362,000 Commission Income 31,000 197,000 42,000 Royalty Income - 42,000 - 18,000 ----------- ----------- ----------- ---------- Gross Operating Income 918,000 2,888,000 42,000 1,422,000 Operating expenses: Selling, general & administrative 3,394,000 3,936,000 1,572,000 2,068,000 ----------- ----------- ----------- ---------- Loss from operations (2,476,000) (1,048,000) (1,530,000) (646,000) Trademark acquisition (25,000) Insurance recovery -- net 63,000 63,000 Interest income(expense) -- net (138,000) (104,000) (62,000) (75,000) ----------- ----------- ----------- ---------- Loss before income tax (2,639,000) (1,089,000) (1,592,000) (658,000) Provision for income taxes - - - - ----------- ----------- ----------- ---------- Net loss (2,639,000) (1,089,000) (1,592,000) (658,000) =========== =========== =========== ========== Loss per share $ (0.50) $ (0.29) $ (0.24) $ (0.17) =========== =========== =========== ========== Average number of shares outstanding 5,279,000 3,821,000 6,686,000 3,821,000 =========== =========== =========== ==========
See notes to financial statements. 4 YES Clothing Co. STATEMENTS OF CASH FLOWS Six Months Ended September 30, 1995 and 1994 (Unaudited) Increase (Decrease) in Cash
1995 1994 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $(2,639,000) $(1,089,000) Reconciliation of net loss to net cash flows from operating activities: Depreciation and amortization 232,000 165,000 Provision for bad debts (189,000) Changes in assets and liabilities: Due to/from factor 1,752,000 855,000 Accounts receivable, nonfactored 170,000 149,000 Other receivables and deposits 108,000 228,000 Inventories (1,928,000) (238,000) Prepaid expenses (135,000) (92,000) Other assets (12,000) 10,000 Trademarks (147,000) Accounts payable (1,019,000) 145,000 Accrued expenses and other current liabilities 34,000 (89,000) ----------- ----------- Net cash used in operating activities (3,584,000) (145,000) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (416,000) (62,000) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments on contracts payable (21,000) (22,000) Repayment of note payable (681,000) Advances from affiliate 130,000 Borrowing from related party 175,000 Issuance of common stock 4,097,000 - ----------- ----------- Net cash provided (used) by financing activities 3,700,000 (22,000) ----------- ----------- NET INCREASE (DECREASE) IN CASH (300,000) (229,000) CASH AND CASH EQUIVALENTS, Beginning of period 232,000 444,000 ----------- ----------- CASH AND CASH EQUIVALENTS, End of period $ 68,000 $ 215,000 =========== =========== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period: For interest $ 139,000 $ 105,000 =========== ===========
See Notes to Financial Statements 5 YES Clothing Co. NOTES TO FINANCIAL STATEMENTS NOTE 1 ---- BASIS OF PRESENTATION: The accompanying financial statements are unaudited but, in the opinion of management of the Company, they contain all adjustments, consisting of only normal recurring accruals, necessary to present fairly the financial position at September 30, 1995, and the results of operations and changes in cash flows for the six months ended September 30, 1995 and 1994. Certain information and footnote disclosures normally included in financial statements that have been prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission, although management of the Company believes that the disclosures contained in these financial statements are adequate to make the information presented therein not misleading. For further information, refer to the financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1995 as filed with the Securities and Exchange Commission. The results of operations for the six months ended September 30, 1995 are not necessarily indicative of the results of operations to be expected for the fiscal year ending March 31, 1996. NOTE 2 ---- DUE TO/FROM FACTOR The amount due to/from factor is net of estimated customer returns, allowances and discounts as follows:
September 30, 1995 March 31, 1995 Unmatured receivables $ 1,276,000 $4,408,000 Advances (1,731,000) 3,115,000 Open credits (619,000) (615,000) ----------- ---------- $(1,074,000) $ 678,000 =========== ==========
NOTE 3 ---- INVENTORIES Inventories consisted of the following:
September 30, 1995 March 31, 1995 Raw materials $1,325,000 $ 560,000 Work-in-process 426,000 339,000 Finished goods 2,335,000 1,259,000 ---------- ---------- $4,086,000 $2,158,000 ========== ==========
NOTE 4 ---- INTEREST INCOME (EXPENSE) - NET: Net interest income consisted of the following:
Income Expense Net ------ -------- --------- Six months ended September 30, 1995 $1,000 $139,000 $(138,000) Six months ended September 30, 1994 $1,000 $105,000 $(104,000) Three months ended September 30, 1995 $1,000 $ 63,000 $ (62,000) Three months ended September 30, 1994 $ 0 $ 75,000 $ (75,000)
6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS YES Clothing Co. (the "Company") designs, contracts for the manufacture of and markets diversified lines of apparel for young women, young men and kids. The Company sells its apparel to retail department stores and specialty chain stores. The Company's garments are made in the United States and, to a lesser extent, in the Far East. Results of Operations - --------------------- The following table sets forth, for the periods indicated, the percentage of net sales represented by certain items in the Company's Statements of Operations.
PERCENTAGE OF NET SALES ------------------------------------------------- Six Months Ended Three Months Ended September 30 September 30 1995 1994 1995 1994 ----- ----- ----- ----- Net Sales 100.0 100.0 100.0 100.0 Cost of Sales 81.1 83.8 97.9 85.6 ------ ------ ------ ------ Gross profit from sales 18.9 16.2 2.1 14.4 Commission and royalty income 0.7 1.5 - 0.6 ------ ------ ------ ------ Gross operating income 19.6 17.7 2.1 15.0 Operating expenses 72.5 24.1 78.8 21.9 ------ ------ ------ ------ Loss from operations (52.9) (6.4) (76.7) (6.9) Insurance recovery 0.4 0.7 Trademark acquisition (0.5) Interest expense -- net (3.0) (0.7) (3.1) (0.8) ------ ------ ------ ------ Loss before income taxes (56.4) (6.7) (79.8) (7.0) Tax provision - - - - ------ ------ ------ ------ Net loss (56.4) (6.7) (79.8) (7.0) ====== ====== ====== ======
Six Months Ended September 30, 1995 Compared to Six Months Ended September 30, - ------------------------------------------------------------------------------ 1994 - ---- Net sales for the six months ended September 30, 1995 were $4,681,000 as compared to $16,300,000 for the same period in 1994. This represented a decrease of 71.3% in net sales for the period. The decrease was mainly due to a major restructuring of the Company's product line, including a phase out of the company's tradional product lines, and cautious consumer spending on softgoods at retail. Gross profit as a percentage of net sales increased to 18.9% for the six months ended September 30, 1995 from 16.2% for the six months ended September 30, 1994. The increase was mainly due to the shift to higher-margined products and the introduction of the GM Surf men's and junior lines. Commission income from customers on direct shipment of goods manufactured overseas was $31,000 for the six months ended September 30, 1995. There was no royalty income. For the six months ended September 30, 1994, commission income and royalty income were $197,000 and $42,000, 7 respectively. The Company discontinued all commission income transactions and terminated its licensing agreements in Canada and the U.S. Operating expenses consisting of selling, general and administrative expenses decreased by $542,000 or 13.8% to $3,394,000 for the six months ended September 30, 1995 from $3,936,000 in the same period in 1994. The decrease in S, G & A was primarily due to a reduction in advertising, payroll and sales- related expenditures. The decrease was somewhat offset by an increase in legal and professional fees. S, G & A increased as a percentage of sales due to lower sales volume. Interest expense increased from $105,000 for the six months ended September 30, 1994 to $139,000 for the comparable period in 1995 due to borrowings from the factor (see Liquidity and Capital Resources). Three Months Ended September 30, 1995 Compared to Three Months Ended September - ------------------------------------------------------------------------------ 30, 1994 - -------- Net sales for the three months ended September 30, 1995 were $1,996,000 as compared to $9,441,000 for the same period in 1994. This represented a decrease of $7,445,000 or 78.9% in net sales for the period primarily due to the reasons stated in the discussion of the six-month period. Gross profit as a percentage of net sales decreased to 2.1% for the three months ended September 30, 1995 from 14.4% for the three months ended September 30, 1994. The decrease was primarily due to higher overhead and production costs per unit associated with the reduction in unit sales and reserves for markdowns on inventory. There was no commission or royalty income for the three months ended September 30, 1995. Commission and royalty income was $60,000 for the three months ended September 30, 1994. Operating expenses comprised of selling, general and administrative expenses ("S, G & A") decreased by $496,000 to $1,572,000 for the three months ended September 30, 1995 from $2,068,000 in the same period in 1994 principally due to the reasons stated above in the discussion of the six-month period. Interest expenses decreased by $12,000 from $75,000 to $63,000 for the three-month period ended September 30, 1995 due to decreased working capital requirements and borrowing from the Company's factor as a direct result of the additional capital provided to the Company by Mr. Marciano (See Liquidity and Capital Resources). Capital Resources and Liquidity - ------------------------------- On January 31, 1995, control of the Company changed when approximately 80% of the Company's outstanding stock was acquired by affiliates of Georges Marciano. 8 Prior to Mr. Marciano's acquisition of 80% of the Company, the Company operated under an agreement with a factor and through June 1994 with a bank, whereby the factor purchased accounts receivable from the Company on a non- recourse basis and remitted the funds on a maturity basis. The bank provided the Company with an unsecured $3,000,000 facility for commercial letters of credit and, at March 31, 1994, the Company had $1,618,000 of letters of credit outstanding. Under the credit facility, the Company was prohibited from declaring or paying any dividends on any class of its stock. The Company entered into a new factoring agreement with Republic Factors and a letter of credit facility with Republic National Bank of New York (the financing bank) effective through March 1996. Both the old and the new agreements are non-recourse (i.e., the factor purchases the Company's accounts receivable that it has pre-approved, without recourse, except in cases where there are merchandise disputes in the normal course of business). Under the new factoring agreement, the Company sells substantially all of its trade accounts receivable, without recourse, and may request advances, up to 80% on the net sales factored at any time before their maturity date. The factor is responsible for the accounting and collection of all accounts receivable sold to it by the Company and receives a commission of 0.6% of purchased net receivables on a guaranteed minimum volume for the contract year of $30,000,000. The commission rate will increase to 0.75% of total invoices factored and be applied retroactively for the contract year if the guaranteed minimum is not attained. Under the letter of credit facility, the financing bank provides a credit line for letters of credit, ledger debt and factor guaranties up to the 80% advance rate provided under the factoring agreement with an additional over advance facility of $1,050,000. Commitments outstanding under the letter of credit as of September 30, 1995 amounted to $44,000. The agreements are collateralized by accounts receivable and inventory imported under letters of credit. In addition, Mr. Marciano has provided letters of credit to the Company's factor and as of November 10, 1995 had outstanding two letters of credit for $1,000,000 each, expiring on December 31, 1995 and June 30, 1996, respectively. The Company or the factor may terminate the credit agreement on the anniversary date of the agreement with at least 60 days prior written notice. As of September 30, 1995, the Company had net working capital of $1,752,000 as compared to $4,248,000 as of September 30, 1994. The Company's current ratio was 1.7 as of September 30, 1995 was 2.6 as of September 30, 1994. The decreases in working capital and current ratio were primarily due to continued net losses. Inventories at September 30, 1995 were $4,086,000 as compared to $3,451,000 at September 30, 1994, an increase of $635,000. The increase in inventory level was primarily due to a high volume of customer returns and lower-than- anticipated sales for the period. On June 17, 1995, Georges Marciano agreed to provide $3,300,000 in additional capital to the Company in exchange for 2,640,000 shares of common stock and to convert additional shares of common stock at $1.25 per share in exchange of $681,000 owed by the Company to Mr. Marciano for advances and expenses incurred by him on the Company's behalf. The additional capital was received by the Company on July 12, 1995 and Mr. Marciano was issued 3,184,693 shares shortly thereafter. Without the infusion of these funds and due to continuing losses, the Company would have completely depleted its working capital by July of 1995. Prior to July 12, 1995 the Company was operating on overdrafts from its factor guaranteed by letters of credit supplied by Mr. Marciano, and cash flow generated from operations and advances from its factor. As noted, through July 12, 1995 Georges Marciano had advanced the Company $681,000 which was converted on that date to equity. 9 Thereafter, Georges Marciano or his affiliates made further advances to the Company totalling $230,000, which are due thirteen month's from notice of demand. In addition, Georges Marciano has also made unsecured non-interest bearing advances to the Company through an entity affiliated by common ownership which is due on demand, and which amount to $176,000 as of September 30, 1995. This amount is still outstanding. The Company believes that the working capital infusion provided by Georges Marciano and the availability of credit under current lending agreements and other financial sources available to it will provide sufficient resources to finance the Company's currently anticipated working capital needs and capital expenditures through the end of calendar 1995. Continued financial difficulties by the Company would require additional borrowings and infusions of capital to avoid a negative impact on the Company's ability to continue operations. The Company has continued to cut its payroll. It has also reduced other operating costs such as advertising and insurance costs. Notwithstanding the foregoing measures, the Company anticipates that it will not be profitable for the fiscal year ending March 31, 1996. Part II. OTHER INFORMATION On June 14, 1995, the NASD notified the Company that the Company's net worth was below the NASD's minimum standards for continued listing and suggested that the Company would be delisted from the NASD/NMS. The Company subsequently applied for listing on the NASDAQ SmallCap Market on August 23, 1995 and its securities were transferred to that market effective August 28, 1995. Item 4 ---- Submission of Matters to a Vote of Security Holders (a) The Annual Meeting of Shareholders of the Company was held on September 20, 1995. (b) Not applicable (c) The following items were voted upon at Annual Meeting of Shareholders (i). Elections of Directors FOR WITHHELD Georges Marciano 6,953,107 4,600 Guy Anthome 6,953,007 4,700 Jeffrey Busse 6,953,007 4,700 Irving Kroll 6,953,107 4,600 Maurice Schoenholz 6,953,107 4,600 (ii). Ratification of Selection of Independent Auditors 6,953,407 votes cast FOR Moss-Adams as Independent Auditors 1,800 votes cast AGAINST Moss-Adams as Independent Auditors 2,500 votes cast to ABSTAIN. (iii). Grant of Warrant and Executive Stock Option to Georges Marciano 6,469,319 votes cast FOR the Grant of Warrant and Options 33,480 votes cast AGAINST the Grant of Warrant and Options 11,625 votes cast to ABSTAIN. Item 6 ---- Exhibits and Reports on Form 8-K. (a) The following document is filed as part of this report: Exhibit 27 Financial Data Schedule as of and for the six months ended September 30, 1995. (b) Reports on Form 8-K filed during the quarter ended September 30, 1995: None. 10 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. BY: /s/ Georges Marciano --------------------------- GEORGES MARCIANO Chairman of the Board and Chief Executive Officer BY: /s/ Jeffrey P. Busse --------------------------- JEFFREY P. BUSSE Chief Financial Officer and Secretary Dated: November 10, 1995 11 EX-27 2 FDS ART 5 DATED 09/30/95
5 1 6-MOS MAR-31-1996 APR-01-1995 SEP-30-1995 68,000 0 431,000 287,000 4,086,000 4,456,000 2,752,000 1,533,000 5,918,000 2,705,000 0 8,610,000 0 0 (5,618,000) 5,918,000 4,681,000 4,681,000 3,794,000 3,794,000 0 0 138,000 (2,639,000) 0 (2,639,000) 0 0 0 (2,639,000) (0.50) (0.50)
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