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, 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
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
95-3768671
(I.R.S. EMPLOYER IDENTIFICATION NO.)
4695 MACARTHUR COURT, SUITE 530, NEWPORT BEACH, CALIFORNIA 92660
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
Registrant's telephone number, including area code: (714) 833-5381
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 20, 1998: 7,036,492
[YES\10Q:123197.10Q]
<PAGE>
YES CLOTHING CO.
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets....................................................3
Statements of Operations..........................................4
Statements of Cash Flows..........................................5
Notes to Financial Statements.....................................6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .......................................7
Item 3. Quantitative and Qualitative Disclosures About Market Risk .......8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................8
Item 2. Changes in Securities.............................................8
Item 3. Defaults Upon Senior Securities...................................8
Item 4: Submission of Matters to a Vote of Security Holders...............9
Item 5. Other Information..................................................9
Item 6: Exhibits and Reports on Form 8-K..................................9
Signatures........................................................9
[YES\10Q:123197.10Q]
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
YES CLOTHING CO.
BALANCE SHEETS
December 31, 1998
(Unaudited) March 31, 1997
---------------------- ------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 2,584 $ 79,703
Due from factor, net 0 49,451
Accounts receivable, non-factored-net 62,687 1,585
Other receivables and deposits 69,096 130,675
Inventories 0 643,931
Prepaid expenses 0 34,021
----------------------- ------------------------
Total current assets $ 134,367 $ 939,366
Equipment, net 108,175 446,540
Other Assets 68,699 73,584
----------------------- ------------------------
TOTAL ASSETS $ 311,241 $ 1,459,490
======================= ========================
LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities:
Accounts payable $ 957,361 $ 954,478
Accrued expenses and other current liabilities 433,972 344,832
Due to factor 419,674 0
Income Taxes payable 971,000 65,000
Note payable 1,189,361 1,175,000
Contract payables 41,187 83,964
----------------------- ------------------------
Total current liabilities 4,012,555 2,623,274
Long-term liabilities:
Contract payables 2,960 25,724
----------------------- ------------------------
Total long-term liabilities 2,960 25,724
----------------------- ------------------------
Total liabilities 4,015,515 2,648,998
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 11,308,336 11,308,336
Retained deficit (15,012,610) (12,497,844)
----------------------- -------------------------
Total shareholder's equity (3,704,274) (1,189,508)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 311,241 $ 1,459,490
======================= =========================
</TABLE>
See Notes to Financial Statements
[YES\10Q:123197.10Q]
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<PAGE>
<TABLE>
<CAPTION>
YES CLOTHING CO.
STATEMENT OF OPERATIONS
(Unaudited)
NINE MONTHS ENDED THREE MONTHS ENDED
December 31 December 31
---------------------------------------- ---------------------------------
1997 1996 1997 1996
-------------------- ------------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Net Sales $ 1,777,673 $ 1,611,000 $ 108,964 $ 581,000
Cost of Sales 1,798,202 1,001,000 (9,785) 520,000
-------------------- ------------------- ----------------- ---------------
Gross Profit (20,529) 610,000 118,749 61,000
Operating expenses:
Selling, general & administrative 1,275,561 1,597,000 250,907 927,000
-------------------- ------------------- ----------------- ---------------
Loss from operations (1,411,090) (987,000) (132,158) (866,000)
Gain on Sale of Assets (66,553) 54,000 (144,038) 0
Interest income (expense) -- net (66,123) (102,000) (6,656) (28,000)
-------------------- ------------------- ----------------- ----------------
Loss before income tax (1,543,766) (1,035,000) (282,852) (894,000)
Provision for income taxes 971,000 0 0 0
-------------------- ------------------- ----------------- ----------------
Net loss (2,514,766) (1,035,000) (282,852) (894,000)
==================== =================== ================= ================
Loss per share $ (0.36) $ (0.15) $ (0.04) $ (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.
[YES\10Q:123197.10Q]
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<PAGE>
<TABLE>
<CAPTION>
YES CLOTHING CO.
STATEMENTS OF CASH FLOWS
Nine Months Ended December 31, 1997 and 1996
(Unaudited)
Increase (Decrease) in Cash
Nine Months Ended
December 31,
------------------------
1997 1996
(Unaudited) (Unaudited)
------------------------ --------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (2,514,766) $ (1,306,000)
Adjustments to reconcile net income (loss) to net cash provided (used) by
operating activities:
Depreciation and amortization 115,000 212,000
Doubtful accounts 323,766 (134,000)
Loss (gain) on sale of assets 66,553
Increases (decreases) in changes in assets and liabilities:
Accounts receivable, non-factored (384,868) (4,000)
Due from (to) factor 469,125 562,000
Inventory 643,931 1,021,000
Other receivables 61,579 (110,000)
Prepaid expenses and other assets 38,906 11,000
Accounts payable 2,883 (383,000)
Accrued expenses 89,140 20,000
Taxes payable 906,000
Contracts payable (65,541)
--------
Net cash (used) by operating activities (248,292) (111,000)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment - 257,000
Proceeds from sale of assets 156,812 -
-------- -
Net cash provided by investing activities 156,812 257,000
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing from bank - 1,174,000
Proceeds from notes payable 14,361 60,000
Borrowing (repayment) from (to) related party - (119,000)
Advance from factor - net - (3,397,000)
Contributions of capital - 2,735,000
-- ---------
Net cash provided by financing activities 14,361 333,000
------- -------
Net (decrease) increase in cash (77,119) 479,000
-------- -------
Cash and cash equivalents, beginning of period 79,703 103,000
------- -------
Cash and cash equivalents, end of period $ 2,584 $ 582,000
========================= =========================
</TABLE>
See Notes to Financial Statements
[YES\10Q:123197.10Q]
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
December 31, 1997, and the results of operations and changes in cash flows for
the nine months ended December 31, 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 nine
months ended December 31, 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:
December 31, 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:
December 31, 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:
Income Expense Net
------ -------- ----------
Nine months ended December 31, 1997 $0 $ 60,000 $ (60,000)
Nine months ended December 31, 1996 $0 $102,000 $(102,000)
Three months ended December 31, 1997 $0 $ 15,000 $ (15,000)
Three months ended December 31, 1996 $0 $ 28,000 $ (28,000)
[YES\10Q:123197.10Q]
6
<PAGE>
ITEM 2: 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).
On December 17, 1997, the Company filed for protection from its creditors
pursuant to Chapter 11 of the United States Bankruptcy Code. The Company expects
to be dismissed from its bankruptcy proceedings in the next 30 days.
NINE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO NINE MONTHS ENDED DECEMBER
31, 1996
Net sales for the nine months ended December 31, 1997 were $1,777,673 as
compared to $1,611,000 for the same period in 1996. This represented an increase
of 10.35% in net sales for the period. The increase was mainly due to a
reduction in the Company's reserve for future chargebacks and the sale of
assets.
Gross profit as a percentage of net sales decreased to (1)% for the nine months
ended December 31, 1997 from 37.9% for the nine months ended December 31, 1996.
The decrease was due to the suspension of the Company's operations and the sale
of inventory and assets at below cost.
Operating expenses consisting of selling, general and administrative expenses
decreased by $321,439 or 20.13% to $1,275,561 for the nine months ended December
31, 1997 from $1,597,000 in 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 nine months ended December 31,
1996 to $66,123 for the comparable period in 1996 due to a reduction in
borrowings from the factor (SEE LIQUIDITY AND CAPITAL RESOURCES).
THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THREE MONTHS ENDED DECEMBER
31, 1996
Net sales for the three months ended December 31, 1997 were $108,964 as compared
to $581,000 for the same period in 1996. This represented a decrease of $472,036
or 81.25% 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 increased to 102% for the three months
ended December 31, 1997 from 10.5% for the three months ended December 31, 1996.
The increase was primarily due to the reasons stated in the discussion of the
nine-month period.
Operating expenses comprised of selling, general and administrative expenses
("S, G & A") decreased by $676,093 to $250,907 for the three months ended
December 31, 1997 from $927,000 in the same period in 1996 principally due to
the reasons stated above in the discussion of the nine-month period.
Interest expenses decreased by $21,344 from $28,000 to $6,656 for the
three-month period ended December 31, 1997 due to decreased working capital
requirements and borrowing from the Company's factor. (SEE LIQUIDITY AND CAPITAL
RESOURCES).
[YES\10Q:123197.10Q]
7
<PAGE>
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 December 31, 1997, the Company had a net working capital deficit of
$3,878,188, as compared to a deficit of $1,237,000 as of December 31, 1996. The
Company's current ratio as of December 31, 1997 was 0.03, as compared to 0.56 as
of December 31, 1996. The decreases in working capital and current ratio are
primarily due to continued operating losses.
Inventories at December 31, 1997 were nil as compared to $644,000 at December
31, 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.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
N/A
[YES\10Q:123197.10Q]
8
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4: Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6: Exhibits and Reports on Form 8-K
None.
[YES\10Q:123197.10Q]
9
<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
Dated: March 3, 1998
[YES\10Q:123197.10Q]
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> DEC-31-1997
<CASH> 2,584
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 134,367
<PP&E> 176,874
<DEPRECIATION> 2,328,000
<TOTAL-ASSETS> 311,241
<CURRENT-LIABILITIES> 4,012,555
<BONDS> 0
0
0
<COMMON> 11,308,336
<OTHER-SE> (15,012,610)
<TOTAL-LIABILITY-AND-EQUITY> 311,241
<SALES> 1,777,673
<TOTAL-REVENUES> 1,777,673
<CGS> 1,798,202
<TOTAL-COSTS> 1,275,561
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 66,123
<INCOME-PRETAX> (1,543,766)
<INCOME-TAX> 971,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,514,766)
<EPS-PRIMARY> (0.36)
<EPS-DILUTED> (0.36)
</TABLE>
