-----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, FxEdwcXoorhmROHJivkstrYf/Oy2MAIxBfF6oB7kIGwlHk2VA2r6Vg4VUsmzX7F1 pf6Nq5Yy3CRevYiZdF4eHw== 0000898430-97-000627.txt : 19970222 0000898430-97-000627.hdr.sgml : 19970222 ACCESSION NUMBER: 0000898430-97-000627 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970214 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: 97533830 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 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1996 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, 1996 [ ] 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 incorporation or organization) Identification No.) 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, 1997: 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 10 Item 6: Exhibits and Reports on Form 8-K 10 Signatures 10
2 PART I. FINANCIAL INFORMATION YES Clothing Co. BALANCE SHEETS
December 31 March 31 1996 1996 (unaudited) ASSETS - ------ Current Assets: Cash $ 582,000 $ 103,000 Accounts receivable, non-factored-net 5,000 1,000 Other receivables and deposits 112,000 2,000 Inventories 377,000 1,398,000 Prepaid expenses 83,000 94,000 ------------ ------------ Total current assets $ 1,159,000 $ 1,598,000 Equipment, net 564,000 978,000 Other Assets 76,000 76,000 ------------ ------------ TOTAL ASSETS $ 1,799,000 $ 2,652,000 ============ ============ LIABILITIES AND SHAREHOLDERS' DEFICIT - ------------------------------------- Current Liabilities: Accounts payable $ 498,000 $ 881,000 Accrued expenses and other current liabilities 312,000 292,000 Due to factor 250,000 3,232,000 Advances from affiliate 250,000 369,000 Note payable to bank 1,174,000 0 Contract payables 91,000 57,000 ------------ ------------ Total current liabilities 2,575,000 4,831,000 ------------ ------------ Long-term Liabilities: Contract payables 35,000 61,000 ------------ ------------ Total long-term liabilities 35,000 61,000 ------------ ------------ Shareholders' Deficit: Preferred stock, no par; 2,000,000 shares authorized; no shares issued and outstanding Common stock, no par; 20,000,000 shares authorized; 7,036,492 issued and outstanding 11,308,000 8,573,000 Retained deficit (12,119,000) (10,813,000) ------------ ------------ Total shareholders' deficit (811,000) (2,240,000) ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 1,799,000 $ 2,652,000 ============ ============
See Notes to Financial Statements 3 YES Clothing Co. STATEMENTS OF OPERATIONS (Unaudited)
NINE MONTHS ENDED THREE MONTHS ENDED December 31 December 31 ---------------------------------- ----------------------------------- 1996 1995 1996 1995 --------------- ---------------- --------------- ---------------- Net Sales $ 2,101,000 $ 6,269,000 $ 490,000 $ 1,588,000 Cost of Sales 1,899,000 6,044,000 898,000 2,250,000 ------------ ------------ ------------ ------------ Gross Profit (Loss) 202,000 225,000 (408,000) (662,000) Commission Income 0 31,000 0 0 ------------ ------------ ------------ ------------ Gross Operating Income (Loss) 202,000 256,000 (408,000) (662,000) Operating Expenses: Selling, general & administrative 2,403,000 4,548,000 806,000 1,154,000 ------------ ------------ ------------ ------------ Loss from Operations (2,201,000) (4,292,000) (1,214,000) (1,816,000) Trademark acquisition 0 (25,000) 0 0 Gain on Sale of Assets 54,000 0 0 0 Interest Income(Expense) - net (130,000) (199,000) (28,000) (61,000) ------------ ------------ ------------ ------------ Loss Before Income Taxes (2,277,000) (4,516,000) (1,242,000) (1,877,000) Provision for Income Taxes (971,000) 0 (971,000) 0 ------------ ------------ ------------ ------------ Net Loss (1,306,000) (4,516,000) (271,000) (1,877,000) ============ ============ ============ ============ Net Loss per Share $ (0.19) $ (0.77) $ (0.04) $ (0.27) ============= ============ ============ ============ Average Number of Shares Outstanding 7,036,000 5,856,000 7,036,000 7,036,000 ============= ============ ============ ============
See notes to financial statements. 4 YES Clothing Co. STATEMENTS OF CASH FLOWS Nine Months Ended December 31, 1996 and 1995 (Unaudited) Increase (Decrease) in Cash
1996 1995 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(1,306,000) $(4,516,000) Reconciliation of net loss to net cash flows used in operating activities: Depreciation and amortization 212,000 359,000 Increase (decrease) in credits due customers and allowance for doubtful accounts (134,000) Increase (decrease) in cash due to changes in assets and liabilities: Due from factor 562,000 678,000 Accounts receivable, nonfactored (4,000) 195,000 Other receivables and deposits (110,000) 116,000 Inventories 1,021,000 (1,245,000) Prepaid expenses 11,000 (130,000) Other assets - (6,000) Accounts payable (383,000) (1,364,000) Accrued expenses 20,000 34,000 ----------- ----------- Net cash used in operating activities (111,000) (5,879,000) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment 257,000 (427,000) Trademarks - (148,000) ----------- ----------- Net cash provided by (used in) investing activities 257,000 (575,000) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments on contracts payable (60,000) (38,000) Borrowing (repayment) from(to) related party (119,000) 537,000 Borrowing from bank 1,174,000 - Advance from factor - net (3,397,000) 2,372,000 Contributions of capital 2,735,000 - Issuance of common stock - 3,416,000 ----------- ----------- Net cash provided by (used in) financing activities 333,000 6,287,000 ----------- ----------- NET INCREASE (DECREASE) IN CASH 479,000 (167,000) CASH, Beginning of period 103,000 232,000 ----------- ----------- CASH, End of period $ 582,000 $ 65,000 =========== =========== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period: For interest $ 138,000 $ 200,000 =========== =========== 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, 1996, and the results of operations and changes in cash flows for the nine months ended December 31, 1996 and 1995. 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, 1996 as filed with the Securities and Exchange Commission. The results of operations for the nine months ended December 31, 1996 are not necessarily indicative of the results of operations to be expected for the fiscal year ending March 31, 1997. 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, 1996 March 31, 1996 Unmatured receivables $ 98,000 $ 660,000 Advances (9,000) (3,406,000) Open credits (339,000) (486,000) --------- ----------- $(250,000) $(3,232,000) ========= ===========
NOTE 3 ---- INVENTORIES Inventories consisted of the following:
December 31, 1996 March 31, 1996 Raw materials $140,000 $ 401,000 Work-in-process 55,000 82,000 Finished goods 182,000 915,000 -------- ---------- $377,000 $1,398,000 ======== ==========
NOTE 4 ---- INTEREST INCOME (EXPENSE) - NET: Net interest expense consisted of the following:
Income Expense Net ------ ------- --------- Nine months ended December 31, 1996 $8,000 $138,000 $(130,000) Nine months ended December 31, 1995 $1,000 $200,000 $(199,000) Three months ended December 31, 1996 $8,000 $ 36,000 $ (28,000) Three months ended December 31, 1995 $ 0 $ 61,000 $ (61,000)
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 --------------------------------------------- Nine Months Ended Three Months Ended December 31 December 31 1996 1995 1996 1995 ------ ----- ----- ----- Net Sales 100.0 100.0 100.0 100.0 Cost of Sales 90.4 96.4 183.3 141.7 ------ ----- ------ ------ Gross profit (loss) 9.6 3.6 (83.3) (41.7) Commission income - 0.5 - - ------ ----- ------ ------ Gross operating income (loss) 9.6 4.1 (83.3) (41.7) Operating expenses 114.4 72.5 164.6 72.7 ------ ----- ------ ------ Loss from operations (104.8) (68.4) (247.9) (114.4) Gain on Sale of assets 2.6 - - - Trademark acquisition - (0.4) - - Interest expense - net (6.2) (3.2) (5.7) (3.8) ------ ----- ------ ------ Loss before income taxes (108.4) (72.0) (253.6) (118.2) Tax provision (46.2) - (198.2) - ------ ----- ------ ------ Net loss (62.2) (72.0) (55.4) (118.2) ====== ===== ====== ======
Nine Months Ended December 31, 1996 Compared to Nine Months Ended December 31, - ------------------------------------------------------------------------------ 1995 - ---- Net sales for the nine months ended December 31, 1996 were $2,101,000 as compared to $6,269,000 for the same period in 1995. This represented a decrease of 66.5% in net sales for the period. The decrease was mainly due to the termination of GM Surf(TM) and Misfits(R) license agreements and subsequent restructuring of the Company's product line. Gross profit as a percentage of net sales increased to 9.6% for the nine months ended December 31, 1996 from 3.6% for the nine months ended December 31, 1995. The increase was due to higher than anticipated selling prices on discontinued GM Surf(TM) and Misfits(R) product lines. There was no commission or royalty income for the nine months ended December 31, 1996. For the nine months ended December 31, 1995, commission income was $31,000. There was no royalty income. The Company discontinued all commission income transactions and terminated its licensing agreements in Canada and the U.S. 7 Operating expenses consisting of selling, general and administrative expenses decreased by $2,145,000 or 47.2% to $2,403,000 for the nine months ended December 31, 1996 from $4,548,000 in the same period in 1995. The decrease in S, G & A was primarily due to reductions in payroll, insurance, depreciation, legal and professional expenses and sales-related expenses. Interest expense decreased from $199,000 for the nine months ended December 31, 1995 to $130,000 for the comparable period in 1996 due to a reduction in borrowings from the factor (see Capital Resources and Liquidity). Three Months Ended December 31, 1996 Compared to Three Months Ended December 31, - -------------------------------------------------------------------------------- 1995 - ---- Net sales for the three months ended December 31, 1996 were $490,000 as compared to $1,588,000 for the same period in 1995. This represented a decrease of $1,098,000 or 69.1% 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 (83.3)% for the three months ended December 31, 1996 from (41.7)% for the three months ended December 31, 1995. The decrease was primarily due to higher overhead and production cost per unit associated with the development of the YES and Body Glove lines of apparel and lower-than-anticipated sales price per unit on existing inventory. There was no commission or royalty income for the three months ended December 31, 1995 or 1996. Operating expenses comprised of selling, general and administrative expenses ("S, G & A") decreased by $348,000 to $806,000 for the three months ended December 31, 1996 from $1,154,000 in the same period in 1995 principally due to the reasons stated above in the discussion of the six-month period. Interest expenses decreased by $33,000 from $61,000 to $28,000 for the three-month period ended December 31, 1996 due to decreased working capital requirements and borrowing from the Company's factor. (See Capital Resources and Liquidity). Capital Resources and Liquidity - ------------------------------- On June 4, 1996, control of the Company changed when approximately 50% of the Company's outstanding stock was acquired by Guy Anthome. The Company had an agreement with a factor whereby the factor purchased accounts receivable from the Company on a non-recourse basis and remitted the funds on a maturity basis. The Company entered into a new factoring agreement with Republic Factors and a letter of credit facility with Republic National Bank of New York on May 15, 1995 (the financing bank) effective through March 1997. Both the old and 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 70% on the net sales factored at any time 8 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 0.9% of purchased net receivables. 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 70% advance rate provided under the factoring agreement. There were no letters of credit outstanding as of December 31, 1996. Commitments outstanding under the letter of credit facility as of March 31, 1996 amounted to $37,000. The agreements are collateralized by accounts receivable and inventory imported under letters of credit. 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. 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 approximately $700,000 owed by the Company to Mr. Marciano and his affiliates for advances and expenses incurred by them on the Company's behalf. On June 4, 1996, as part of the Sale Transaction, Mr. Marciano, through an affiliated company, advanced to the Company $3,100,000 to pay off liabilities associated with three $1,000,000 letters of credit issued on behalf of the Company in favor of Republic Factors and purchased certain assets approximating $1,463,000 in value. Mr. Marciano also canceled debts owed to him and his affiliates by the Company totaling $2,767,000 in exchange for a payment of $250,000 on June 4, 1996 and a note payable of $250,000 due on January 31, 1997. As of December 31, 1996, the Company had a net working capital deficit of $1,416,000, as compared to a surplus of $87,000 as of December 31, 1995. The Company's current ratio as of December 31, 1996 was 0.45, as compared to 1.0 as of December 31, 1995. The decreases in working capital and current ratio are primarily due to continued operating losses. Inventories at December 31, 1996 were $377,000 as compared to $1,398,000 at December 31, 1995, a decrease of $1,021,000. The decrease was due to a reduction of inventories to levels consistent with reduced order backlog and repositioning of the Company's product lines. The Company had funded its activities principally from advances and letters of credit provided by Georges Marciano and his affiliates. In June 1996, the Company entered into an agreement with Imperial Bank which provides the Company with a $1,200,000 credit facility at an interest rate of 9.75% secured by a letter of credit provided by an unaffiliated third party. In November 1996, the Company received a tax refund of $971,000 for the tax year ended March 31, 1996. The Company believes that the credit lines 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 Spring 1997. Continued financial difficulties encountered by the Company would require additional borrowings and infusions of capital to avoid a negative impact on the Company's continued future operations after that time period. 9 The Company has continued to cut its payroll and reduce its operating costs. Notwithstanding the foregoing measures, the Company anticipates that it will not be profitable for the fiscal year ending March 31, 1997. 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: Form 8-K. The Company filed a report on Form 8K on December 24, 1996 with respect to change in certifying accountant. 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/ Guy Anthome ---------------------------------------- GUY ANTHOME Chairman of the Board and Chief Executive Officer BY: /s/ Jeffrey Busse --------------------------------------- JEFFREY P. BUSSE Chief Financial Officer and Secretary Dated: February 12, 1997 10 EX-27 2 FINANCIAL DATA SCHEDULE
5 9-MOS MAR-31-1997 APR-01-1996 DEC-31-1996 582,000 0 0 0 377,000 1,159,000 2,520,000 1,956,000 1,799,000 2,575,000 0 0 0 11,308,000 (12,119,000) 1,799,000 2,101,000 2,101,000 1,899,000 1,899,000 0 0 130,000 (2,277,000) (971,000) (1,306,000) 0 0 0 (1,306,000) (0.19) (0.19)
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