<PAGE>
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, 1997
[ ] 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 BOULEVARD, 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 11, 1996: 7,036,492
<PAGE>
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 8
Item 6: Exhibits and Reports on Form 8-K 8
Signatures 9
2
<PAGE>
PART I. FINANCIAL INFORMATION
YES CLOTHING CO.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30 March 31
1997 1997
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash $7,000 $80,000
Due from factor -- 49,000
Accounts receivable, non-factored-net 73,000 1,000
Due from officers 4,000 4,000
Other receivables and deposits 8,000 7,000
Inventories 122,000 644,000
Prepaid expenses 31,000 34,000
------------ ------------
Total current assets 245,000 819,000
Property and equipment, at cost, net of
accumulated depreciation and amortization 418,000 447,000
Due from officers, net of current portion 126,000 120,000
Other assets 74,000 73,000
------------ ------------
TOTAL ASSETS $863,000 $1,459,000
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT)
Current Liabilities:
Accounts payable $1,112,000 $954,000
Accrued expenses and other current liabilities 369,000 345,000
Due to factor 283,000 --
Note payable 1,189,000 1,175,000
Due to related party -- 65,000
Contracts payable 62,000 84,000
------------ ------------
Total current liabilities 3,015,000 2,623,000
------------ ------------
Long-term liabilities:
Contracts payable, net of current portion 27,000 26,000
------------ ------------
Total long-term liabilities 27,000 26,000
------------ ------------
Shareholder's Equity:
Preferred stock, no par; 2,000,000 shares authorized;
no shares issued and outstanding -- --
Common stock, no par; 20,000,000 shares authorized;
7,036,000 issued and outstanding 11,308,000 11,308,000
Accumulated deficit (13,487,000) (12,498,000)
------------ ------------
Total shareholder's equity/(deficit) (2,179,000) (1,190,000)
------------ ------------
TOTAL LIABILITIES/SHAREHOLDER'S EQUITY/(DEFICIT) $863,000 $1,459,000
------------ ------------
------------ ------------
</TABLE>
See Notes to Financial Statements
3
<PAGE>
YES CLOTHING CO.
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
June 30
-----------------------
1997 1996
---- ----
<S> <C> <C>
Net Sales $1,401,000 $1,030,000
Cost of Sales 1,636,000 481,000
---------- ----------
Gross Profit / (Loss) (235,000) 549,000
Operating expenses:
Selling, general &
administrative 709,000 669,000
---------- ----------
Loss from operations (944,000) (120,000)
Gain on sale of assets -- 54,000
Interest income(expense) -- net (45,000) (75,000)
---------- ----------
Loss before income tax (989,000) (141,000)
Provision for income taxes -- --
Net loss (989,000) (141,000)
---------- ----------
---------- ----------
Loss per share $(0.14) $(0.02)
---------- ----------
---------- ----------
Average number of shares outstanding 7,036,000 7,036,000
---------- ----------
---------- ----------
</TABLE>
See Notes to Financial Statements
4
<PAGE>
YES CLOTHING CO.
STATEMENTS OF CASH FLOWS
Three Months Ended June 30, 1997 and 1996
(Unaudited)
Increase/(Decrease) in Cash
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(989,000) $(141,000)
Reconciliation of net loss to net cash flows from operating
activities:
Depreciation and amortization 28,000 (52,000)
Increase (decrease) in credits due customers
and allowance for doubtful accounts 15,000 (36,000)
Increase (decrease) in cash due to changes in assets
and liabilities:
Due from factor 117,000 538,000
Accounts receivable, nonfactored (43,000) (247,000)
Other receivables and deposits (7,000) (65,000)
Inventories 522,000 530,000
Prepaid expenses 3,000 (11,000)
Other assets 1,000 (5,000)
Accounts payable 158,000 (741,000)
Accrued expenses 24,000 (12,000)
--------- ---------
Net cash used in operating activities (171,000) (242,000)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment -- 320,000
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on contracts payable (21,000) (15,000)
Borrowing (repayment) from/to related party (65,000) (119,000)
Advances from factor -- net 170,000 (3,240,000)
Borrowing from bank 14,000 475,000
Contributions of capital -- 2,735,000
--------- ---------
Net cash provided (used) by financing activities 98,000 (164,000)
--------- ---------
NET INCREASE (DECREASE) IN CASH 73,000 (86,000)
CASH AND CASH EQUIVALENTS, Beginning of period 80,000 103,000
--------- ---------
CASH AND CASH EQUIVALENTS, End of period $7,000 $17,000
--------- ---------
--------- ---------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period:
For interest $45,000 $75,000
--------- ---------
</TABLE>
See Notes to Financial Statements
5
<PAGE>
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, 1997, and the results of operations and changes in cash flows for
the three (3) months ended June 30, 1997 and 1996. 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, 1997 as filed with the Securities and Exchange Commission.
The results of operations for the three (3) months ended June 30, 1997 are
not necessarily indicative of the results of operations to be expected for
the fiscal year ending March 31, 1998.
NOTE 2 -- DUE FROM/TO FACTOR
The amount due to factor is net of estimated customer returns, allowances
and discounts as follows:
June 30, 1997 March 31, 1997
Unmatured receivables (with and without
recourse) $693,000 $810,000
Advances (618,000) (448,000)
Open credits (358,000) (313,000)
---------- --------
$ (283,000) $49,000
---------- --------
---------- --------
NOTE 3 -- INVENTORIES
Inventories consisted of the following:
June 30, 1997 March 31, 1997
Raw materials $50,000 $176,000
Work-in-process 24,000 277,000
Finished goods 48,000 191,000
------ -------
$122,000 $644,000
-------- --------
-------- --------
NOTE 4 -- INTEREST INCOME (EXPENSE) - NET:
Net interest income consisted of the following:
Income Expense Net
------ ------- ---
Three months ended June 30, 1997 $ 0 $(45,000) $(45,000)
Three months ended June 30, 1996 $ 0 $(75,000) $(75,000)
6
<PAGE>
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 women in junior sizes, and
for young men. The Company's garments are manufactured predominantly in the
United States, and are sold to retail department stores and specialty chains
and stores throughout North America.
RESULTS OF OPERATIONS
The Company terminated its license agreements with AUDIENCE and CS
SPORTSWEAR, INC., on April 14, 1997, and July 31, 1997, respectively. The
Company continued to sell existing AUDIENCE inventory through May 1997.
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
-----------------------
Three Months Ended
June 30
1997 1996
---- ----
Net sales 100.0 100.0
Cost of sales 116.8 46.7
----- -----
Gross profit/(loss) from sales (16.8) 53.3
Operating expenses 50.6 64.9
----- -----
Loss from operations (67.4) (11.6)
Gain on sale of asset 0 5.2
Interest expense -- net (3.2) (7.3)
----- -----
Loss before income taxes (70.6) (13.7)
Tax provision 0 0
----- -----
Net loss (70.6) (13.7)
----- -----
THREE (3) MONTHS ENDED JUNE 30, 1997, COMPARED TO THREE (3) MONTHS ENDED JUNE
30, 1996
NET SALES for the three (3) months ended June 30, 1997 were $1,401,000
as compared to $1,030,000 for the same period in 1996. This represents an
increase of $371,000 or 36% in net sales for the period primarily due to the
introduction of the AUDIENCE and CS SPORTSWEAR apparel lines.
GROSS PROFIT AS A PERCENTAGE OF NET SALES decreased to (16.8)% for the
three (3) months ended June 30, 1997 from 53.3% for the three months ended
June 30, 1996. The decrease in gross profit as a percentage of gross sales
was primarily due to higher development costs and lower than anticipated
sales price per unit of the AUDIENCE and CS SPORTSWEAR apparel lines.
OPERATING EXPENSES comprised of selling, general and administrative
expenses ("S, G & A") increased by $40,000 to $709,000 for the three (3)
months ended June 30, 1997, from $669,000 in the same period in 1996. The
increase in S, G & A was primarily due to increases in payroll and
sales-related expenses.
7
<PAGE>
INTEREST EXPENSES decreased by $30,000, from $75,000 to $45,000, for the
three (3) month period ended June 30, 1997 due a reduction in the average
outstanding loan balance from the Company's factor.
CAPITAL RESOURCES AND LIQUIDITY
As of June 30, 1997, the Company had a net working capital deficit of
$2,771,000, as compared to a deficit of $390,000 as of June 30, 1996. The
Company's current ratio as of June 30, 1997 was 0.08, as compared to 0.77 as
of June 30, 1996. The decreases in working capital and current ratio are
primarily due to continued operating losses.
Inventories at June 30, 1997 were $122,000 as compared to $868,000 at
June 30, 1996, a decrease of $746,000. The decrease in inventory levels was
primarily due to the Company's difficulty in securing trade credit. The
Company's open-order backlog as of June 30, 1997 was approximately $400,000,
compared to a nil open-order backlog as of June 30, 1996.
In June 1996, the Company entered into an agreement with Imperial Bank
which supplied the Company with a $1,200,000 credit facility secured by a
standby letter of credit provided by an unaffiliated third party. The credit
facility has now been paid off and extinguished following the negotiation of
the referenced standby letter of credit. The Company and the unaffiliated
third party are currently negotiating the terms of a replacement obligation.
The Company has funded its business activities principally from factor
advances, a federal income tax refund of $971,000 received by the Company on
November 20, 1996, and the referenced credit facility from Imperial Bank. The
Company believes that the financial sources available to it will not provide
sufficient resources to finance the Company's currently anticipated working
capital needs and capital expenditures. The Company requires additional
borrowings and/or infusions of capital to avoid a negative impact on the
Company's continued future operations.
The Company has continued to cut its payroll and reduce its operating
costs, and is continuing to actively seek additional sources of investment
capital. Notwithstanding the foregoing, the Company anticipates that it may
not be profitable for the fiscal year ending March 31, 1998. Moreover, absent
additional capital or third party credit, the Company may need to consider
such measures as temporarily suspending its business operations pending the
receipt of additional funding.
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
8
<PAGE>
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/ Jeffery P. Busse
----------------------------
JEFFREY P. BUSSE
Chief Financial Officer and
Secretary
Dated: August 11, 1997
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 7
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 122
<CURRENT-ASSETS> 245
<PP&E> 2520
<DEPRECIATION> 2102
<TOTAL-ASSETS> 863
<CURRENT-LIABILITIES> 3015
<BONDS> 0
0
0
<COMMON> 11,308
<OTHER-SE> (13,487)
<TOTAL-LIABILITY-AND-EQUITY> (2,179)
<SALES> 1,401
<TOTAL-REVENUES> 1,401
<CGS> 1,636
<TOTAL-COSTS> 1,636
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 45
<INCOME-PRETAX> (989)
<INCOME-TAX> 0
<INCOME-CONTINUING> (989)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (989)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
