<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 SEPTEMBER 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 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 11, 1997:
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 9
Item 6: Exhibits and Reports on Form 8-K 10
Signatures 10
2
<PAGE>
PART I. FINANCIAL INFORMATION
YES Clothing Co.
BALANCE SHEETS
September 30 March 31
1997 1997
(unaudited)
ASSETS
Current Assets:
Cash $ 4,000 $ 80,000
Accounts receivable, non-factored-net 79,000 1,000
Other receivables and deposits 149,000 131,000
Due to Factor 49,000
Inventories 644,000
Prepaid expenses 26,000 34,000
------------- -------------
Total current assets 258,000 $ 939,000
Equipment, net 331,000 447,000
Other Assets 69,000 73,000
------------- -------------
TOTAL ASSETS $ 658,000 $ 1,459,000
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Accounts payable $ 1,124,000 $ 954,000
Accrued expenses and other current liabilities 365,000 345,000
Due to factor 359,000
Income Taxes payable 971,000
Advances from affiliate 65,000
Note payable 1,189,000 1,175,000
Contract payables 49,000 84,000
------------- -------------
Total current liabilities 4,057,000 2,623,000
------------- -------------
Long-term liabilities:
Contract payables 22,000 26,000
------------- -------------
Total long-term liabilities 22,000 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; 7,036,492 issued
and outstanding 11,308,000 11,308,000
Retained deficit (14,729,000) (12,498,000)
------------- -------------
Total shareholder's equity (3,421,000) (1,190,000)
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 658,000 $ 1,459,000
------------- -------------
------------- -------------
See Notes to Financial Statements
3
<PAGE>
YES Clothing Co.
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
September 30 September 30
---------------------------- ----------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net Sales $ 1,667,000 $ 1,611,000 $ 268,000 $ 581,000
Cost of Sales 1,921,000 1,001,000 130,000 520,000
------------- ------------- ------------- -------------
Gross Profit (254,000) 610,000 138,000 61,000
Operating expenses:
Selling, general &
administrative 1,023,000 1,597,000 311,000 927,000
------------- ------------- ------------- -------------
Loss from operations (1,277,000) (987,000) (173,000) (866,000)
Gain on Sale of Assets 77,000 54,000 78,000 0
Interest income
(expense) -- net (60,000) (102,000) (15,000) (28,000)
------------- ------------- ------------- -------------
Loss before income tax (1,260,000) (1,035,000) (110,000) (894,000)
Provision for income
taxes 971,000 0 971,000 0
------------- ------------- ------------- -------------
Net loss (2,231,000) (1,035,000) (1,081,000) (894,000)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Loss per share $ (0.32) $ (0.15) $ (0.15) $ (0.13)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Average number of
shares outstanding 7,036,000 7,036,000 7,036,000 7,036,000
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
See notes to financial statements.
4
<PAGE>
YES Clothing Co.
STATEMENTS OF CASH FLOWS
Six Months Ended September 30, 1997 and 1996
(Unaudited)
Increase (Decrease) in Cash
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,231,000) $ (1,035,000)
Reconciliation of net loss to net cash flows
from operating activities:
Depreciation and amortization 115,000 115,000
Increase (decrease) in credits due customers
and allowance for doubtful accounts (254,000) (109,000)
Increase (decrease) in cash due to
changes in assets and liabilities:
Due from factor 728,000 498,000
Accounts receivable, nonfactored (78,000) 320,000
Other receivables and deposits (18,000) 78,000
Inventories 644,000 (811,000)
Prepaid expenses 8,000 (158,000)
Other assets 4, 000 (9,000)
Trademarks 0 0
Accounts payable 170,000 (545,000)
Accrued expenses 20,000 51,000
------------- -------------
Net cash used in operating activities (892,000) (779,000)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment 0 (247,000)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on contracts payable (39,000) (24,000)
Borrowing (repayment) from(to) related party (65,000) (119,000)
IRS refund 971,000 0
Borrowing from bank 14,000 1,140,000
Contributions of capital 0 2,735,000
Advance from factor - net (65,000) (3,346,000)
------------- -------------
Net cash provided (used) by
financing activities 816,000 434,000
------------- -------------
NET INCREASE (DECREASE) IN CASH (76,000) (98,000)
CASH AND CASH EQUIVALENTS, Beginning of period 80,000 103,000
------------- -------------
CASH AND CASH EQUIVALENTS, End of period $ 4,000 $ 5,000
------------- -------------
------------- -------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period:
For interest $ 60,000 $ 102,000
------------- -------------
------------- -------------
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, they contain all adjustments, consisting of only
normal recurring accruals, necessary to present fairly the financial position at
September 30, 1997, and the results of operations and changes in cash flows for
the six months ended September 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 six
months ended September 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 TO/FROM FACTOR
The amount due to/from factor is net of estimated customer returns,
allowances and discounts as follows:
September 30, 1997 March 31, 1997
Unmatured receivables $ 82,000 $ 810,000
Advances (382,000) (448,000)
Open credits (59,000) (313,000)
------------- -------------
$ (359,000) $ 49,000
------------- -------------
------------- -------------
NOTE 3 ---- INVENTORIES
Inventories consisted of the following:
September 30, 1997 March 31, 1997
Raw materials $ 000 $ 176,000
Work-in-process 000 277,000
Finished goods 000 191,000
------------- -------------
$ 000 $ 644,000
------------- -------------
------------- -------------
NOTE 4 ---- INTEREST INCOME (EXPENSE) - NET:
Net interest income consisted of the following:
<TABLE>
<CAPTION>
Income Expense Net
------------- ------------- -------------
<S> <C> <C> <C>
Six months ended September 30, 1997 $ 0 $ 60,000 $ (60,000)
Six months ended September 30, 1996 $ 0 $ 102,000 $ (102,000)
Three months ended September 30, 1997 $ 0 $ 15,000 $ (15,000)
Three months ended September 30, 1996 $ 0 $ 28,000 $ (28,000)
</TABLE>
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. 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
RECENT DEVELOPMENTS. In July 1997, due to a lack of trade credit and
working capital, the Company temporarily suspended it's operations pending
receipt of additional capital or third party credit (see Capital Resources and
Liquidity).
The following tables sets forth, for the periods indicated, the percentage
of net sales represented by certain items in the Company's Statements of
Operations.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
----------------------------------------------------------
Six Months Ended Three Months Ended
September 30 September 30
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net Sales 100.0 100.0 100.0 100.0
Cost of Sales 115.2 62.1 48.5 89.5
------------- ------------- ------------- -------------
Gross profit from sales (15.2) 37.9 51.5 10.5
Commission income 0 0 - -
------------- ------------- ------------- -------------
Gross operating income (15.2) 37.9 51.5 10.5
Operating expenses 61.4 99.1 116.0 159.5
------------- ------------- ------------- -------------
Loss from operations (76.6) (61.2) (64.5) (149.0)
Gain on Sale of assets 4.6 3.3 29.0 -
Trademark acquisition - - - -
Interest expense -- net (3.5) (6.3) (5.6) (4.8)
------------- ------------- ------------- -------------
Loss before income taxes (75.5) (64.2) (41.1) (153.8)
Tax provision 58.2 - 362.3 -
------------- ------------- ------------- -------------
Net loss (133.7) (64.2) (403.4) (153.8)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
SIX MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30,
1996
Net sales for the six months ended September 30, 1997 were $1,667,000 as
compared to $1,611,000 for the same period in 1996. This represented an
increase of 3.4% in net sales for the period. The increase was mainly due to a
reduction in the Company's reserve for future chargebacks.
Gross profit as a percentage of net sales decreased to (15.0)% for the six
months ended September 30, 1997 from 37.9% for the six months ended September
30, 1996. The decrease was due to the suspension of the Company's operations
and the sale of inventory at below cost.
Operating expenses consisting of selling, general and administrative
expenses decreased by $574,000 or 35.9% to $1,023,000 for the six months ended
September 30, 1997 from $1,597,000 in
7
<PAGE>
the same period in 1996. 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 $102,000 for the six months ended September
30, 1996 to $60,000 for the comparable period in 1996 due to a reduction in
borrowings from the factor (SEE LIQUIDITY AND CAPITAL RESOURCES).
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1996
Net sales for the three months ended September 30, 1997 were $268,000 as
compared to $581,000 for the same period in 1996. This represented a decrease
of $313,000 or 53.8% 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 increased to 51.5% for the three
months ended September 30, 1997 from 10.5% for the three months ended September
30, 1996. The increase was primarily due to the reasons stated in the
discussion of the six-month period.
Operating expenses comprised of selling, general and administrative
expenses ("S, G & A") decreased by $616,000 to $311,000 for the three months
ended September 30, 1997 from $927,000 in the same period in 1996 principally
due to the reasons stated above in the discussion of the six-month period.
Interest expenses decreased by $13,000 from $28,000 to $15,000 for the
three-month period ended September 30, 1997 due to decreased working capital
requirements and borrowing from the Company's factor. (SEE LIQUIDITY AND
CAPITAL RESOURCES).
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 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 1998. 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.
The agreements are collateralized by accounts receivable and assets of the
Company. 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, 1997, the Company had a net working capital deficit of
$3,799,000, as compared to a deficit of $1,237,000 as of September 30, 1996.
The Company's current ratio as of September 30, 1997 was 0.06, as compared to
0.56 as of September 30, 1996. The decreases in working capital and current
ratio are primarily due to continued operating losses.
8
<PAGE>
Inventories at September 30, 1997 were nil as compared to $644,000 at
September 30, 1996, a decrease of $644,000. The decrease was due to the
suspension of the Company's operations.
In June 1996, the Company entered into an agreement with Imperial Bank
which provided 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.
This credit facility was paid in June 1997 and extinguished following the
negotiation of the referenced letter of credit. The Company and the unaffiliated
third party are currently negotiating the terms of a replacement obligation.
The Company filed for and received, on November 20, 1996, a federal income
tax refund of $971,000. The Company was recently notified by the Internal
Revenue Service that the Company's net operating loss carryback claim for fiscal
1996 has been denied. The Company will appeal the decision, and has, pending
the outcome of the appeal, fully reserved the refund amount.
In July 1997, the Company exhausted its available working capital, credit
lines with its Factor and trade credit. The Company temporarily suspended its
operations pending receipt of an infusion of equity capital or third party
credit. The Company continues it's efforts to secure financing.
The Company has suspended its operations, continued to cut its payroll and
reduce its operating costs. The Company anticipates that it will not be
profitable for the fiscal year ending March 31, 1998.
Part II. OTHER INFORMATION
Item 4 ---- Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders of the Company was held on
September, 1996.
(b) Not applicable
(c) The following items were voted upon at the Annual Meeting of
Shareholders
(i) Elections of Directors
AUTHORITY GIVEN WITHHELD
Guy Anthome 3,524,000 Nil
Jeffrey Busse 3,524,000 Nil
Kristin Altamirano 3,524,000 Nil
(ii) Ratification of Selection of Independent Auditors.
3,524,000 votes cast FOR Grobstein, Horwath & Co. as Independent
Auditors
Nil votes cast AGAINST Grobstein, Horwath & Co. as
Independent Auditors
Nil votes cast to ABSTAIN.
9
<PAGE>
Item 6 ---- Exhibits and Reports on Form 8-K: None
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: November 24, 1997
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000856979
<NAME> YES CLOTHING CO.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 4
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 258
<PP&E> 2,544
<DEPRECIATION> 2,213
<TOTAL-ASSETS> 658
<CURRENT-LIABILITIES> 4,057
<BONDS> 0
0
0
<COMMON> 11,308
<OTHER-SE> (14,729)
<TOTAL-LIABILITY-AND-EQUITY> (3,421)
<SALES> 1,667
<TOTAL-REVENUES> 1,667
<CGS> 1,921
<TOTAL-COSTS> 1,921
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 60
<INCOME-PRETAX> (1,260)
<INCOME-TAX> 971
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,231)
<EPS-PRIMARY> (0.32)
<EPS-DILUTED> (0.32)
</TABLE>
