<PAGE> 1
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 JUNE 30, 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)
<TABLE>
<CAPTION>
<S> <C>
CALIFORNIA 95-3768671
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
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 August 9, 1996: 7,036,492
<PAGE> 2
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 6: Exhibits and Reports on Form 8-K 10
Signatures 10
2
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PART I. FINANCIAL INFORMATION
YES Clothing Co.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30 March 31
1996 1996
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 17,000 $ 103,000
Accounts receivable, non-factored-net 259,000 1,000
Other receivables and deposits 67,000 2,000
Inventories 868,000 1,398,000
Prepaid expenses 105,000 94,000
------------ ------------
Total current assets 1,316,000 1,598,000
Equipment, net 709,000 978,000
Other assets 81,000 76,000
------------ ------------
TOTAL ASSETS $ 2,106,000 $ 2,652,000
============ ============
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Accounts payable $ 140,000 $ 881,000
Accrued expenses and other current liabilities 280,000 292,000
Due to factor 504,000 3,232,000
Advances from affiliate 250,000 369,000
Note Payable to Bank 475,000 --
Contract payables 57,000 57,000
------------ ------------
Total current liabilities 1,706,000 4,831,000
------------ ------------
Long-term liabilities:
Contract payables 46,000 61,000
------------ ------------
Total long-term liabilities 46,000 61,000
------------ ------------
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
issued and outstanding 11,308,000 8,573,000
Retained deficit (10,954,000) (10,813,000)
------------ ------------
Total shareholder's equity 354,000 (2,240,000)
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 2,106,000 $ 2,652,000
============ ============
</TABLE>
See Notes to Financial Statements
3
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YES Clothing Co.
STATEMENT OF OPERATIONS
(Unaudited)
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<CAPTION>
THREE MONTHS ENDED
June 30
-------------------------------
1996 1995
----------- -----------
<S> <C> <C>
Net Sales $ 1,030,000 $ 2,686,000
Cost of Sales 481,000 1,841,000
----------- -----------
Gross Profit 549,000 845,000
Commission Income 0 31,000
----------- -----------
Gross Operating Income 549,000 876,000
Operating expenses:
Selling, general &
administrative 669,000 1,822,000
----------- -----------
Loss from operations (120,000) (946,000)
Trademark acquisition 0 (25,000)
Gain on sale of assets 54,000 0
Interest income(expense)--net (75,000) (76,000)
----------- -----------
Loss before income tax (141,000) (1,047,000)
Provision for income taxes 0 _0
----------- -----------
Net loss (141,000) (1,047,000)
=========== ===========
Loss per share $ (0.02) $ (0.27)
=========== ===========
Average number of shares outstanding 7,036,000 3,852,000
=========== ===========
</TABLE>
See notes to financial statements.
4
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YES Clothing Co.
STATEMENTS OF CASH FLOWS
Three Months Ended June 30, 1996 and 1995
(Unaudited)
Increase (Decrease) in Cash
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<CAPTION>
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (141,000) $(1,047,000)
Reconciliation of net loss to net cash flows from operating activities:
Depreciation and amortization (52,000) 108,000
Increase (decrease) in credits due customers
and allowance for doubtful accounts (36,000) 553,000
Increase (decrease) in cash due to changes in assets
and liabilities:
Due from factor 538,000 1,877,000
Accounts receivable, nonfactored (247,000) (20,000)
Other receivables and deposits (65,000) 56,000
Inventories 530,000 (2,179,000)
Prepaid expenses (11,000) (101,000)
Other assets (5,000) (12,000)
Trademarks -- (143,000)
Accounts payable (741,000) (152,000)
Accrued expenses (12,000) 75,000
----------- -----------
Net cash used in operating activities (242,000) (95,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment 320,000 (16,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on contracts payable (15,000) (12,000)
Borrowing (repayment) from/to related party (119,000) 443,000
Advances from factor -- net (3,240,000) 457,000
Issuance of common stock -- 116,000
Borrowing from bank 475,000 --
Contributions of capital 2,735,000 --
----------- -----------
Net cash provided (used) by financing activities (164,000) 1,004,000
----------- -----------
NET INCREASE (DECREASE) IN CASH (86,000) (137,000)
CASH AND CASH EQUIVALENTS, Beginning of period 103,000 232,000
----------- -----------
CASH AND CASH EQUIVALENTS, End of period $ 17,000 $ 95,000
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period:
For interest $ 75,000 $ 76,000
=========== ===========
</TABLE>
See Notes to Financial Statements
5
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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, contain all adjustments, consisting of only normal
recurring accruals, necessary to present fairly the financial position at June
30, 1996, and the results of operations and changes in cash flows for the three
months ended June 30, 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 three
months ended June 30, 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 factor is net of estimated customer returns,
allowances and discounts as follows:
<TABLE>
<CAPTION>
June 30, 1996 March 31, 1996
<S> <C> <C>
Unmatured receivables $ 122,000 $ 660,000
Advances (166,000) (3,406,000)
Open credits (460,000) (486,000)
------------------ --------------
$ (504,000) $ (3,232,000)
================== ==============
</TABLE>
NOTE 3 ---- INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
June 30, 1996 March 31, 1996
<S> <C> <C>
Raw materials $ 163,000 $ 401,000
Work-in-process 84,000 82,000
Finished goods 621,000 915,000
------------------ --------------
$ 868,000 $ 1,398,000
================= ============
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NOTE 4 ---- INTEREST INCOME (EXPENSE) - NET:
Net interest income consisted of the following:
<TABLE>
<CAPTION>
Income Expense Net
--------------- ------------- ---------------
<S> <C> <C> <C>
Three months ended June 30, 1996 $ 0 $ (75,000) $ (75,000)
Three months ended June 30, 1995 $ 0 $ (76,000) $ (76,000)
</TABLE>
6
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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
RECENT DEVELOPMENTS. On June 4, 1996, Georges Marciano and affiliates
sold to Guy Anthome 3,515,000 shares of common stock at a purchase price of
$0.01 per share. Mr. Marciano resigned as a director and Chairman of the Board
and canceled the option and warrant issued in his favor. Mr. Anthome agreed to
become Chairman of the Board and Chief Executive Officer. This transaction is
known as the Sale Transaction.
Immediately before the Sale Transaction, Mr. Marciano, through an
affiliated company, advanced to the Company $3,100,00 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 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. The cancellation
of debt was treated as a contribution to capital and had no effect on the
Company's results of operations.
On June 25, 1996, the Company signed a five-year licensing agreement to
design, manufacture and market men's and boy's sportswear for Body Glove
International. The Company will pay a royalty on net sales of 6% on men's and 5%
on boy's apparel.
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.
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<CAPTION>
PERCENTAGE OF NET SALES
-----------------------
Three Months Ended
June 30
1996 1995
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<S> <C> <C>
Net Sales 100.0 100.0
Cost of Sales 46.7 68.6
----- -----
Gross profit from sales 53.3 31.4
Commission and royalty income 0 1.2
----- -----
Gross operating income 53.3 32.6
Operating expenses 64.9 67.8
----- -----
Loss from operations (11.6) (35.2)
Gain on Sale of Asset 5.2 0
Trademark acquisition 0 (0.9)
Interest expense -- net (7.3) (2.8)
----- -----
Loss before income taxes (13.7) (38.9)
Tax provision 0 0
----- -----
Net loss (13.7) (38.9)
===== =====
</TABLE>
7
<PAGE> 8
Three Months Ended June 30, 1996 Compared to Three Months Ended June 30, 1995
Net sales for the three months ended June 30, 1996 were $1,030,000 as
compared to $2,686,000 for the same period in 1995. This represents a decrease
of $1,656,000 or 61.6% in net sales for the period due to the termination of
GMSurf(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 53.3% for the
three months ended June 30, 1996 from 31.4% for the three months ended June 30,
1995. The increase was primarily due to higher than anticipated selling price
per unit on discontinued GMSurf(TM) and Misfits(R) lines and a reduction in
chargebacks.
Commission and royalty income was $31,000 for the three months ended
June 30, 1995. There was no commission or royalty income for the three months
ended June 30, 1996.
Operating expenses comprised of selling, general and administrative
expenses ("S, G & A") decreased by $1,153,000 to $669,000 for the three months
ended June 30, 1996 from $1,822,000 in the same period in 1995. The decrease in
S, G & A was primarily due to reductions in payroll, insurance, legal and
professional expenses and sales related expenses.
Interest expenses decreased by $1,000 (from $76,000 to $75,000) for the
three-month period ended June 30, 1996 due to continued declines in working
capital requirements and borrowing from the Company's factor.
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 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 facility agreement, 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
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 preapproved, 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 0.9% of
purchased net receivables.
8
<PAGE> 9
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. There were no letters
of credit outstanding as of June 30, 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.
Without the infusion of these funds and due to continuing losses, the Company
would have completely depleted its working capital by June of 1995.
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 June 30, 1996, the Company had a net working capital deficit of
$390,000, as compared to a surplus of $75,000 as of June 30, 1995. The Company's
current ratio as of June 30, 1996 was (0.77), as compared to 1.0 as of June 30,
1996. The decreases in working capital and current ratio are primarily due to
continued operating losses.
Inventories at June 30, 1996 were $868,000 as compared to $4,337,000 at
June 30, 1995, a decrease of $3,469,000. The decrease was due to a reduction of
inventories to levels consistent with reduced order backlog, the markdown of
slow-moving and obsolete merchandise and repositioning of the Company's product
lines.
The Company has 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 secured by a letter
of credit provided by an unaffiliated third party.
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 the end of fall of 1996. 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.
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
9
<PAGE> 10
March 31, 1997, and absent additional capital or additional third party credit,
the Company will exhaust its available capital by October 1996.
Part II. OTHER INFORMATION
On July 18, 1996, the NASD notified the Company that the Company's net
worth was below the NASD's minimum standards for continued listing in the
SmallCap market and suggested that the Company would be delisted from the NASD
SmallCap Market should it fail to maintain the minimum net worth standard.
The Company has filed with the NASD a plan which it believes will
enable it to meet the minimum net worth standards and has requested a waiver
from delisting. There is no assurance that the waiver will be granted or that
the Company will continue to be listed on the SmallCap market.
Item 6 ---- Exhibits and Reports on Form 8-K:
Form 8-K. The Company filed a report on Form 8-K on June 18,
1996 with respect to the June 4, 1996 transaction between
Marciano, the Company and Anthome.
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 P. BUSSE
-------------------------------
JEFFREY P. BUSSE
Chief Financial Officer and
Secretary
Dated: August 9, 1996
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 17,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 868,000
<CURRENT-ASSETS> 1,316,000
<PP&E> 2,455,000
<DEPRECIATION> 1,746,000
<TOTAL-ASSETS> 2,106,000
<CURRENT-LIABILITIES> 1,706,000
<BONDS> 0
0
0
<COMMON> 11,308,000
<OTHER-SE> (10,954,000)
<TOTAL-LIABILITY-AND-EQUITY> 2,106,000
<SALES> 1,030,000
<TOTAL-REVENUES> 1,030,000
<CGS> 481,000
<TOTAL-COSTS> 481,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 75,000
<INCOME-PRETAX> (141,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (141,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (141,000)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
