-----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, HKzyuYWtc09E3ejNqtOyRqWql2eNYrWPzf3BDP8PgPKg4OCTnwvueKotaRyZrJ/S 7XqePbvpfKzWCIlTlVRVQg== 0000898430-96-000538.txt : 19960216 0000898430-96-000538.hdr.sgml : 19960216 ACCESSION NUMBER: 0000898430-96-000538 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960214 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: 96519419 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 FOR QUARTER ENDED DECEMBER 31, 1995 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 DECEMBER 31, 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 February 12, 1996: 7,036,492 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 9 Item 6: Exhibits and Reports on Form 8-K 9 Signatures 10
2 PART I. FINANCIAL INFORMATION YES Clothing Co. BALANCE SHEETS
December 31 March 31 1995 1995 (unaudited) ASSETS - ------ Current Assets: Cash $ 65,000 $ 232,000 Due from factor, net 678,000 Accounts receivable, non-factored-net 14,000 209,000 Other receivables and deposits 36,000 152,000 Inventories 3,403,000 2,158,000 Prepaid expenses 213,000 83,000 ----------- ----------- Total current assets 3,731,000 3,512,000 Equipment, net 1,101,000 1,034,000 Other assets 90,000 84,000 Trademarks 148,000 ----------- ----------- TOTAL ASSETS $ 5,070,000 $ 4,630,000 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Current Liabilities: Accounts payable $ 781,000 $ 2,145,000 Accrued expenses and other current liabilities 277,000 243,000 Due to factor 2,372,000 Advances from affiliate 164,000 Contract payables 50,000 50,000 ----------- ----------- Total current liabilities 3,644,000 2,438,000 ----------- ----------- Long-term liabilities: Contract payables 81,000 119,000 Due to related party 230,000 538,000 ----------- ----------- Total long-term liabilities 311,000 657,000 ----------- ----------- Shareholders' 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 Accumulated deficit (7,495,000) (2,978,000) ----------- ----------- Total shareholder's equity 1,115,000 1,535,000 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 5,070,000 $ 4,630,000 =========== ===========
See Notes to Financial Statements 3 YES Clothing Co. STATEMENT OF OPERATIONS (Unaudited)
NINE MONTHS ENDED THREE MONTHS ENDED December 31 December 31 ----------------------------- ----------------------------- 1995 1994 1995 1994 ------------- ------------ ------------- ------------ Net Sales $ 6,269,000 $ 23,511,000 $ 1,588,000 $ 7,211,000 Cost of Sales 6,044,000 19,777,000 2,250,000 6,127,000 ------------ ------------ ------------ ------------ Gross Profit 225,000 3,734,000 ( 662,000) 1,084,000 Commission Income 31,000 295,000 99,000 Royalty Income 51,000 9,000 ------------ ------------ ------------ ------------ Gross Operating Income 256,000 4,080,000 ( 662,000) 1,192,000 Operating expenses: Selling, general & administrative 4,548,000 6,003,000 1,154,000 2,066,000 ------------ ------------ ------------ ------------ Loss from operations ( 4,292,000) (1,923,000) ( 1,816,000) ( 874,000) Trademark acquisition ( 25,000) Insurance recovery -- net 63,000 Interest expense -- net ( 199,000) ( 196,000) ( 61,000) ( 93,000) ------------ ------------ ------------ ------------ Loss before income tax ( 4,516,000) ( 2,056,000) ( 1,877,000) ( 967,000) Provision for income taxes ------------ ------------ ------------ ------------ Net loss ( 4,516,000) ( 2,056,000) ( 1,877,000) ( 967,000) ============ ========== ============ ============ Loss per share $ ( 0.77) $ (0.54) $ ( 0.27) $ (0.25) =========== ========== =========== =========== Average number of shares outstanding 5,856,000 3,821,000 7,036,000 3,821,000 ============ =========== ============ ============
See notes to financial statements. 4 YES Clothing Co. STATEMENTS OF CASH FLOWS Nine Months Ended December 31, 1995 and 1994 (Unaudited) Increase (Decrease) in Cash
1995 1994 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ ( 4,516,000) $ ( 2,056,000) Reconciliation of net loss to net cash flows from operating activities: Depreciation and amortization 359,000 250,000 Increase(decrease) in credits due customers and allowance for doubtful accounts ( 52,000) Changes in assets and liabilities: Due from factor 678,000 1,489,000 Accounts receivable, nonfactored 195,000 76,000 Other receivables and deposits 116,000 380,000 Inventories ( 1,245,000) 778,000 Prepaid expenses ( 130,000) Other assets ( 6,000) 10,000 Accounts payable ( 1,364,000) ( 1,067,000) Accrued expenses and other current liabilities 34,000 ( 32,000) ------------- ------------ Net cash used in operating activities ( 5,879,.000) ( 224,000) ------------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ( 427,000) ( 93,000) Trademarks ( 148 ,000) . ------------- ------------ Net cash provided (used) by investing activities ( 575,000) ( 93,000) ------------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Payments on contracts payable ( 38,000) ( 34,000) Advances from factor, net 2,372.000 Advances from affiliate 164,000 Borrowing from related party 373,000 Issuance of common stock 3,416,000 ------------- ------------ Net cash provided (used) by financing activities 6,287,000 ( 34,000) ------------- ------------ NET INCREASE (DECREASE) IN CASH ( 167,000) ( 351,000) CASH AND CASH EQUIVALENTS, Beginning of period 232,000 444,000 ------------- ------------ CASH AND CASH EQUIVALENTS, End of period $ 65,000 $ 93,000 ============ =========== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period: For interest $ 200,000 $ 198,000 ============ =========== Non-cash financing activity: Conversion of related party debt to common stock $ ( 681,000) ============
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 December 31, 1995, and the results of operations and changes in cash flows for the nine months ended December 31, 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 nine months ended December 31, 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:
December 31, 1995 March 31, 1995 Unmatured receivables $ 1, 177, 000 $ 4,408,000 Advances ( 2,904,000) ( 3,115,000) Open credits ( 645,000) ( 615,000) ------------- ------------ $ ( 2,372,000) $ 678,000 ============= ============
NOTE 3 ---- INVENTORIES Inventories consisted of the following:
December 31, 1995 March 31, 1995 Raw materials $ 955,000 $ 560,000 Work-in-process 306,000 339,000 Finished goods 2,142,000 1,259,000 ------------- ------------ $ 3,403,000 $ 2,158,000 ============= ============
NOTE 4 ---- INTEREST EXPENSE - NET: Net interest income consisted of the following:
Income . Expense . Net . ------------- ----------- ------------ Nine months ended December 31, 1995 $ 1,000 $ 200,000 $ ( 199,000) Nine months ended December 31, 1994 $ 2,000 $ 198,000 $ ( 196,000) Three months ended December 31, 1995 $ 0 $ 61,000 $ ( 61,000) Three months ended December 31, 1994 $ 1,000 $ 94,000 $ ( 93,000)
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. 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 -------------------------------------------- Nine Months Ended Three Months Ended December 31 December 31 1995 1994 1995 1994 --------- --------- ---------- --------- Net Sales 100.0 100.0 100.0. 100.0 Cost of Sales 96.4 84.1 ( 141.7) 85.0 ------- ------- --------- ------- Gross profit (loss) from sales 3.6 15.9 ( 41.7) 15.0 Commission & royalty income 0.5 1.4 1.5 ------- ------- --------- ------- Gross operating income (loss) 4.1 17.3 ( 41.7) 16.5 Operating expenses 72.5 25.5 72.7 28.6 ------- ------- --------- ------- Loss from operations ( 68.4) ( 8.2) ( 114.4) ( 12.1) Insurance recovery 0.3 Trademark acquisition ( 0.4) Interest expense -- net ( 3.2) ( 0.8) ( 3.8) ( 1.3) ------- ------- --------- ------- Loss before income taxes ( 72.0) ( 8.7) ( 118.2) ( 13.4) Tax provision ------- ------- --------- ------- Net loss ( 72.0) ( 8.7) ( 118.2) ( 13.4) ======= ======= ========= =======
Nine Months Ended December 31, 1995 Compared to Nine Months Ended December 31, - ------------------------------------------------------------------------------ 1994 - ---- Net sales for the nine months ended December 31, 1995 were $6,269,000 as compared to $23,511,000 for the same period in 1994. This represented a decrease of 73.3% 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 decreased to 3.6% for the nine months ended December 31, 1995 from 15.9% for the nine months ended December 31, 1994. The decrease was mainly due to increased overhead cost per unit associated with the reduction in sales and additional reserves for markdowns on inventory. Commission income from customers on direct shipment of goods manufactured overseas was $31, 000 for the nine months ended December 31, 1995. There was no royalty income. For the nine months ended December 31, 1994, commission income and royalty income were $295,000 and 7 $51,000, respectively. The Company discontinued all commission income transactions and terminated its licensing agreements in Canada and the U.S. in the first quarter of fiscal year 1996. Operating expenses consisting of selling, general and administrative expenses decreased by $1,455,000 or 24.2% to $4,548,000 for the nine months ended December 31, 1995 from $6,003,000 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. Three Months Ended December 31, 1995 Compared to Three Months Ended December 31, - -------------------------------------------------------------------------------- 1994 - ---- Net sales for the three months ended December 31, 1995 were $1,588,000 as compared to $7,211,000 for the same period in 1994. This represented a decrease of $5,623,000 or 78.0% in net sales for the period primarily due to the reasons stated in the discussion of the nine-month period. Gross profit as a percentage of net sales decreased to (41.7)% for the three months ended December 31, 1995 from 15.0% for the three months ended December 31, 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 December 31, 1995. Commission and royalty income were $108,000 for the three months ended December 31, 1994. Operating expenses comprised of selling, general and administrative expenses ("S, G & A") decreased by $912,000 to $1,154,000 for the three months ended December 31, 1995 from $2,066,000 in the same period in 1994 principally due to the reasons stated above in the discussion of the nine-month period. Interest expenses decreased by $32,000 from $94,000 to $61,000 for the three-month period ended December 31, 1995 due to decreased working capital requirements and borrowing from the Company's factor. 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. The Company has a 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 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 8 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 facility as of December 31, 1995 amounted to $73,000. The agreements are collateralized by accounts receivable and inventory imported under letters of credit. In addition, Mr. Marciano provided letters of credit to the company's factor and as of February 12, 1996 had outstanding three letters of credit -- two for $1,000,000 each and one for $200,000-- all of which are expiring on June 30, 1996. 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 December 31, 1995, the Company had net working capital of $87,000 as compared to $1,074,000 as of December 31, 1994. The Company's current ratio was 1.0 as of December 31, 1995 and was 1.4 as of December 31, 1994. The decreases in working capital and current ratio were primarily due to continued net losses. Inventories at December 31, 1995 were $3,403,000 as compared to $2,158,000 at December 31, 1994, an increase of $1,245,000. The increase in inventory level was primarily due to a high volume of customer returns and lower-than- anticipated sales for the period. As of February 12, 1996, the Company is indebted to Mr. Georges Marciano or his affiliates in the amount of $330,000. In addition, Georges Marciano has also made unsecured non-interest bearing advances to the Company, through an entity affiliated by common ownership, which are due on demand and which amount to $164,000 as of December 31, 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 the current fiscal year ending March 31, 1996. Continued poor operating performance by the Company would require additional borrowings and infusions of capital to avoid a negative impact on the Company's ability to continue operations. There is no assurance that Mr. Marciano will advance funds to the Company or guarantee borrowings on its behalf and, absent such continued funding or guarantee, there is no guarantee that the Company can maintain its business 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 Item 4 ---- Submission of Matters to a Vote of Security Holders: 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. 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: February 14, 1996 10 EX-27 2 ART. 5 FINANCIAL DATA SCHEDULE
5 9-MOS MAR-31-1996 APR-01-1995 DEC-31-1995 65,000 0 0 0 3,403,000 3,731,000 2,766,000 1,665,000 5,070,000 3,644,000 0 0 0 8,610,000 (7,495,000) 5,070,000 6,269,000 6,269,000 6,044,000 6,044,000 0 0 199,000 (4,516,000) 0 (4,516,000) 0 0 0 (4,516,000) (0.77) (0.77)
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