SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form SB - 2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
SEW CAL LOGO, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 5651 46-0495298
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(State or other jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code Number) identification No.)
207 W. 138th Street
Los Angeles, California 90061
(310) 352-3300
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(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Richard Songer
President
207 West 138th Street
Los Angeles, California 90061
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(Name, address, including zip code, and telephone number, including area code,
of agent for service)
With copies to:
The O'Neal Law Firm, P.C.
Attention: William D. O'Neal,Esq.
668 North 44th Street
Suite #233
Phoenix, Arizona 85008
Ph: (602) 267-3855
Fax: (602) 267-7400
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this registration statement.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act, check
the following box. [ ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act Registration Statement number of the earlier effective
Registration Statement for the same offering. [ ]
1
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective Registration Statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective Registration Statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [X]
CALCULATION OF REGISTRATION FEE
<table>
<caption>
- ----------------------- --------------------- ------------------------- ------------------------- --------------------
Title of each Proposed Proposed
Class of Maximum Maximum Amount of
Securities to Amount to be Offering Price Aggregate Registration
be registered Registered per unit (1) Offering price Fee
- ----------------------- --------------------- ------------------------- ------------------------- --------------------
Common Stock 520,000 $0.25 $130,000 $16.47
- ----------------------- --------------------- ------------------------- ------------------------- --------------------
</table>
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said section 8(a), may determine.
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
2
PROSPECTUS
520,000 shares of common stock
SEW CAL LOGO, INC.
520,000 shares of common stock of Sew Cal Logo, Inc. ($0.25 per share)
This is an offering of 520,000 shares of common stock by the selling
shareholders. The shares are being registered to permit public secondary trading
of the shares that are being offered by the selling shareholders named in this
prospectus. We will not receive any of the proceeds from the sale of the shares.
There is currently no public market for our shares and the selling shareholders
may, but are not obligated to, offer all or part of their shares for resale from
time to time through public or private transactions, at either prevailing market
prices or at privately negotiated prices.
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS," WHICH BEGINS
ON PAGE 5.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED
THESE SECURITIES, PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS, OR
MADE ANY RECOMMENDATION THAT YOU BUY OR NOT BUY THE SHARES. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENCE.
This prospectus is not an offer to sell or our solicitation of your offer to buy
these securities in any jurisdiction where such would not be legal.
The date of this prospectus is March 1, 2004.
We intend to furnish our stockholders with annual reports containing audited
financial statements.
This prospectus contains certain "forward-looking statements" which involve
substantial risks and uncertainties. When used in this prospectus the
forward-looking statements are often identified by the use of such terms and
phrases as "anticipates," "believes," "intends," "estimates," "plans,"
"expects," "seeks," "scheduled," "foreseeable future" and similar expressions.
Although we believe the understandings and assumptions on which the
forward-looking statements in this prospectus are based are reasonable, our
actual results, performances and achievements could differ materially from the
results in, or implied by, these forward-looking statements, including those
discussed under the caption "Risk Factors."
3
TABLE OF CONTENTS
PART I - Summary Information and Risk Factors................................ 5
Prospectus Summary........................................................... 5
The Offering................................................................. 5
Summary of Financial Information ............................................ 5
Risk Factors................................................................. 6
Forward-Looking Statements................................................... 9
Use of Proceeds.............................................................. 9
Determination of Offering Price.............................................. 10
Dilution..................................................................... 10
Selling Security Holders..................................................... 10
Plan of Distribution......................................................... 12
Legal Proceedings............................................................ 13
Directors, Executive Officers, Promoters and Control Persons................. 13
Security Ownership of Certain Beneficial Owners and Management............... 14
Description of Securities.................................................... 15
Interests of Named Experts and Counsel....................................... 27
Description of Business...................................................... 27
Management's Discussion and Analysis or Plan of Operation.................... 30
Description of Property...................................................... 34
Certain Relationships and Related Transactions............................... 34
Market for Common Equity and Related Shareholder Matters..................... 35
Dividend Policy.............................................................. 35
Executive Compensation....................................................... 35
Shares Eligible for Future Sale ............................................. 35
Legal Matters................................................................ 36
Experts...................................................................... 36
Transfer Agent............................................................... 36
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosures ................................................................. 36
PART II - Financial Statements............................................... 37
PART III - Information Not Required in Prospectus............................ 47
Recent Sales of Unregistered Securities...................................... 47
Exhibits..................................................................... 48
Undertakings................................................................. 49
Signatures................................................................... 50
4
PART I - SUMMARY INFORMATION AND RISK FACTORS
PROSPECTUS SUMMARY
Unless the context indicates otherwise, all references in this prospectus to
"we," or the "Company," refer to Sew Cal Logo, Inc., a corporation formed under
the laws of the State of Nevada on June 19, 2002.
Sew Cal Logo, Inc., a Nevada corporation, is a company engaged in the business
of supplying wardrobe and related items for feature films and television to
major motion picture and television studios, including Paramount, Warner
Brothers, Universal, MGM, Sony, DreamWorks, 20th Century Fox, Disney, as well as
numerous independent production companies.
In addition to its entertainment-related business, private labeling has become a
significant part of the Company's production for both domestic sales and export
of "Made in the USA" products. Sew Cal Logo, Inc. is a manufacturer of surf and
skate related apparel. An action sports oriented company, it currently designs
and manufactures the latest styles in caps and headwear, jackets, denim, cargo
shorts and pants and related apparel for many of the major brands.
Our executive offices are located at 207 W. 138th Street Los Angeles, California
90061. Our telephone number is (310) 352-3300.
THE OFFERING
Price per share offered $0.25*
Common stock offered by selling shareholders 520,000shares
Common stock outstanding prior to this offering 24,500,000 shares
Common stock to be outstanding after the offering 24,500,000 shares
* Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
SUMMARY OF FINANCIAL INFORMATION
The following summary financial information for the periods stated summarizes
certain information from our financial statements included elsewhere in this
prospectus. You should read this information in conjunction with Management's
Plan of Operations and the financial statements and the related notes thereto
included elsewhere in this prospectus.
Income Statement For the period from September 1, 2002 to
---------------- August 31, 2003
---------------
Revenues $2,328,471.00
Net Income (Loss) $ 16,647.00
Net Income (Loss) per Share $ 166.47
Balance Sheet As of August 31, 2003
---------------- ---------------------
Total Assets $ 653,903.00
Total Liabilities $1,206,141.00
Shareholders' Equity (Deficit) $ (552,238.00)
5
RISK FACTORS
Liquidity and Capital Requirements
The Company anticipates that its cash flows from operations will be adequate to
satisfy its capital requirements based on the plan presented herein for the next
twelve months. The Company's future capital requirements, however, will depend
on many factors, including its ability to successfully market and sell its
products. To the extent that the funds generated by the Company's on-going
operations are insufficient to fund the Company's future operating requirements,
it may be necessary to raise additional funds, through public or private
financings. Any equity or debt financings, if available at all, may be on terms
that are not favorable to the Company. If adequate capital is not available, the
Company may be required to curtail its operations significantly.
Failure to properly manage growth could adversely affect the Company's business.
The Company intends to grow its business internally. Any such growth will
increase the demands on the Company's management, operating systems and internal
controls. The Company's existing management resources and operational,
financial, human and management information systems and controls may be
inadequate to support existing or expanded operations. The Company may be unable
to manage growth successfully. If the Company grows but is unable to
successfully manage such growth, its business will suffer and its capacity for
future growth will be significantly impaired. Because of these factors, the
Company may be unable to predict with any degree of accuracy its future ability
to grow or rate of growth.
Failure to attract, train and retain skilled managers and other personnel could
increase costs or limit growth.
The Company believes that its future success will depend in large part upon its
ability to attract, train and retain additional highly skilled executive-level
management and creative, technical, financial and marketing personnel.
Competition for such personnel is intense, and no assurance can be given that
the Company will be successful in attracting, training and retaining such
personnel. The Company's need for executive-level management will increase if it
grows. Most of the Company's employees have joined the Company recently. If the
Company fails to attract, train and retain key personnel, its business,
operating results and financial condition will be materially and adversely
affected.
The Company's business is subject to continuous change.
The market for the products the Company provides is characterized by rapid
changes in the competitive landscape, changing consumer requirements and
preferences, new product introductions and evolving industry standards that
could render the Company's products obsolete. The Company's success will depend,
in large part, on its ability to improve such products, develop new products
that address the increasingly varied needs of the Company's customers, and
respond to competitive product offerings. The Company may not be successful in
responding quickly, cost-effectively and sufficiently to these developments. If
the Company is unable, for technical, financial or other reasons, to adapt in a
timely manner in response to changing market conditions or requirements, its
business, results of operations and financial condition would be materially
adversely affected.
Forecasting and Scheduling.
The Company must forecast sales of each of its products and establish production
6
RISK FACTORS - continued
schedules based on its forecasts in order to build sufficient inventory in a
timely fashion to avoid significant delays in delivery of finished goods to its
customers. If the Company misjudges the market for a particular line, the
Company could be faced with either excessive or insufficient inventory.
Furthermore, a casualty or other business interruption could disrupt the
Company's production and delivery schedules. Any such misjudgment or business
interruption could have a material adverse effect on the Company and its
business. In addition, quarterly results may be affected by the seasonality of
the Company's business.
Seasonality.
The Company's business is seasonal, with the highest sales volume expected in
the period from March through July and the lowest sales volume in the period
from August through November. The Company's operating results could vary
significantly from period to period. Significant variations in the Company's
sales volume may adversely affect the operating results if the Company is unable
to proportionately reduce its expenses in a timely manner.
Availability of Raw Materials.
The Company relies upon mills and suppliers to deliver fabric and trim on time
and according to specifications. Significant delivery delays or delivery of a
substantial amount of defective fabric or trim could have a material adverse
effect upon the scheduling of production and consequently the Company's ability
to make timely delivery of products to its customers.
Fashion Trends.
We believe that our success depends in part on our ability to anticipate, gauge
and respond to changing consumer demands and fashion trends in a timely manner.
We propose to target the youth, active, outdoor and extreme sports markets, and
in particular, surfing enthusiasts. We cannot guaranty that we will be
successful in anticipating consumer tastes and preferences. If we misjudge the
market for our proposed line of clothing and accessories, we may be faced with a
significant amount of unsold inventory, which could keep us from generating
profits.
Lack of acceptance of the Company's products by distributors.
In order to generate sales of our proposed apparel and accessory lines, we need
to develop relationships with clothing manufacturers and distributors, and
establish channels of distribution. We cannot guaranty that we can establish
distribution in key locations through retail distributors of surfing equipment
and beach attire shops and through chain stores. It is uncertain that our
fashions or any new products or collections that we may add in the future will
achieve success or profitability. Introducing new collections and products under
a private label generally entails relatively high start-up costs and
inefficiencies in producing, distributing, and marketing the initial limited
quantities of such products. However, due to inefficiencies associated with
operating a private label, we may not be able to obtain a sufficient inventory
in these products. We cannot guaranty that any collection or product which we
may introduce will achieve profitable sales levels. Expanding our operations or
lines of merchandise also could require capital greater than our cash flow or
available credit resources.
7
RISK FACTORS - continued
The Company is dependent on its management team.
The Company's success depends largely on the skills of certain key management,
in particular its President, Richard Songer. The Company does not have
employment agreements with its executive officers, key management or other
employees and, therefore, they could terminate their employment at any time
without penalty. The Company does not maintain key person life insurance
policies on any of its employees. The loss of one or more of its key employees,
particularly Mr. Songer, could seriously harm its business. The Company may not
be able to recruit personnel to replace these individuals in a timely manner, or
at all, on acceptable terms.
Our officers and directors control our operations and matters requiring
shareholder approval.
Our officers and directors own approximately 74.70% of our outstanding shares of
common stock. As a result, our officers and directors will have the ability to
significantly influence all matters requiring approval by our shareholders,
including the election and removal of directors. Such control will allow our
officers and directors to control the future course of the company. Our officers
and directors do not intend to purchase any of the shares in this offering.
The Company operates in a highly competitive market.
The motion picture wardrobe and youth, active and sports apparel industries are
highly competitive, with many of the Company's competitors having greater name
recognition and resources than the Company, particularly in the youth, active
and sports apparel industry. Many of the Company's competitors are well
established, have longer-standing relationships with customers and suppliers,
greater name recognition and greater financial, technical and marketing
resources.
As a result, these competitors may be able to respond more quickly and
effectively than the Company to new or changing opportunities or customer
requirements. Existing or future competitors may develop or offer products that
provide price, service, number or type of providers or other advantages over
those the Company intends to offer. If the Company fails to compete successfully
against current or future competitors with respect to these or other factors,
its business, financial condition, and results of operations may be materially
and adversely affected (See "Business Description - Competition").
Shareholders could experience substantial dilution.
Over the next twelve (12) months, the Company intends to issue additional shares
of its equity securities to raise additional cash for working capital. If the
Company issues additional shares of its capital stock, shareholders will
experience dilution in their respective percentage ownership in the Company.
There can be no assurance that the Company's common stock will ever be publicly
traded or appreciate significantly in value.
The Company, in conjunction with certain broker-dealers, intends to apply to the
National Association of Securities Dealers ("NASD") to have its stock publicly
traded on the Nasdaq Over-the-Counter Electronic Bulletin Board. No assurance
can be given that such regulatory approval will ever be received. If the
Company's common stock becomes publicly traded, no assurance can be given that
the Company's common stock will ever be traded on an established national
8
RISK FACTORS - continued
securities exchange or that the Company's business strategy will be well
received by the investment community.
There is no public market for our shares of common stock.
There is no public market for shares of our common stock. We cannot guarantee
that an active public market will develop or be sustained. Therefore, investors
may not be able to find purchasers for their shares of our common stock. Should
there develop a significant market for our shares, the market price for those
shares may be significantly affected by such factors as our financial results
and introduction of new products and services.
No present intention to pay dividends.
The Company has never paid dividends or made other cash distributions on the
common stock, and does not expect to declare or pay any dividends in the
foreseeable future. The Company intends to retain future earnings, if any, for
working capital and to finance current operations and expansion of its business.
Penny stock regulation.
The SEC has adopted rules that regulate broker-dealer practices in connection
with transactions in "penny stocks." Penny stocks generally are equity
securities with a price of less than $5.00 (other than securities registered on
certain national securities exchanges or quoted on the NASDAQ system, provided
that current price and volume information with respect to transactions in such
securities is provided by the exchange or system). Penny stock rules require a
broker-dealer, prior to a transaction in a penny stock not otherwise exempt from
those rules, to deliver a standardized risk disclosure document prepared by the
SEC, which specifies information about penny stocks and the nature and
significance of risks of the penny stock market. A broker-dealer must also
provide the customer with bid and offer quotations for the penny stock, the
compensation of the broker-dealer, and our sales person in the transaction, and
monthly account statements indicating the market value of each penny stock held
in the customer's account. In addition, the penny stock rules require that,
prior to a transaction in a penny stock not otherwise exempt from those rules,
the broker-dealer must make a special written determination that the penny stock
is a suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction. These disclosure requirements may have the effect
of reducing the trading activity in the secondary market for stock that becomes
subject to those penny stock rules. If a trading market for our common stock
develops, our common stock will probably become subject to the penny stock
rules, and shareholders may have difficulty in selling their shares.
FORWARD-LOOKING STATEMENTS
You should be aware that any forward-looking statements in this prospectus
involve risks and uncertainties as they are based on certain stated assumptions
which may apply only as of the date of this prospectus. We use words such as
"anticipates," "believes," "plans," "expects," "future," "intends" and similar
expressions to identify these forward-looking statements and the actual results
of our operations could differ materially from those anticipated in these
forward-looking statements.
USE OF PROCEEDS
We will not receive the proceeds from the sale of any of the 520,000 shares
offered by the selling shareholders. We are, however, paying the costs of
registering those shares.
9
DETERMINATION OF OFFERING PRICE
We arbitrarily determined the price of the shares in this offering solely for
the purpose of calculating the registration fee pursuant to Rule 457 and it is
not an indication of the actual value of the Company. Therefore, the offering
price bears no relationship to our book value, assets or earnings, or to any
other recognized measure of value and it should not be regarded as an indicator
of any future market price of the securities.
DILUTION
Since this offering is being made solely by the selling stockholders and none of
the proceeds will be paid to our Company, our net tangible book value will be
unaffected by this offering.
SELLING SECURITY HOLDERS
The following table sets forth the names of the selling shareholders and for
each selling shareholder the number of shares of common stock beneficially owned
as of March 1, 2004, and the number of shares being registered. All information
with respect to share ownership has been furnished by the selling shareholders.
The shares being offered are being registered to permit public secondary trading
of the shares and each selling shareholder may offer all or part of the shares
owned for resale from time to time. A selling shareholder is under no
obligation, however, to sell any shares immediately pursuant to this prospectus,
nor is a selling shareholder obligated to sell all or any portion of the shares
at any time. Therefore, no estimate can be given as to the number of shares of
common stock that will be sold pursuant to this prospectus or the number of
shares that will be owned by the selling shareholders upon termination of the
offering made hereby.
Selling Shareholders Shares of Common Shares of Common
Stock Owned Stock to be Sold
William O'Neal 150,000 150,000
Stephen Burg 150,000 150,000
Dwain Mendenhall 5,000 5,000
Greg Fletcher 5,000 5,000
Mitchell L. Costa 5,000 5,000
John Briggs 5,000 5,000
Howard Eaves 5,000 5,000
Kim Eaves 5,000 5,000
Nora Schumacher 5,000 5,000
Joseph Elias 5,000 5,000
Paul R. Perdue 5,000 5,000
Keith L. Martin 5,000 5,000
10
SELLING SECURITY HOLDERS - continued
Joshua A. Honaker 5,000 5,000
Abigail D. Honaker 5,000 5,000
Erica R. Honaker 5,000 5,000
Dana Anderson 5,000 5,000
Jason Thomas Kicinski 5,000 5,000
Western Financial Group, Inc. 5,000 5,000
G & E Enterprises, L.L.C. 5,000 5,000
Wess Fischer 5,000 5,000
Jeannine Herold 5,000 5,000
Buddy S. Lound 5,000 5,000
Brooks Stark 5,000 5,000
Veronica Loux 5,000 5,000
Rocco Pelletiere 5,000 5,000
Sam Buonauro 5,000 5,000
Fawn Heckman 5,000 5,000
Chris Coble 5,000 5,000
Robin Mellas 5,000 5,000
Salvatore Portuesi 5,000 5,000
Craig Woods Schiemann 5,000 5,000
Ralph Marx 5,000 5,000
Mark Perlmutter 5,000 5,000
Harry Billups 5,000 5,000
Leveatt Biles 5,000 5,000
Christina Deegan 5,000 5,000
William M. Deegan 5,000 5,000
Palmyre L. Zele 5,000 5,000
Peter de Krey 5,000 5,000
Christopher Lyden, D.C. 5,000 5,000
Donald Chad Schaffer 5,000 5,000
11
SELLING SECURITY HOLDERS - continued
Anthony Pelletiere 5,000 5,000
Dianah H. Terry 5,000 5,000
Dann C. Terry 5,000 5,000
Independent Computers, Inc. 5,000 5,000
Boca Limo, Inc. 5,000 5,000
Total 520,000 520,000
PLAN OF DISTRIBUTION
The 520,000 shares being offered by the selling shareholders may be sold or
distributed from time-to-time by the selling shareholders or their transferees
directly to one or more purchasers or through brokers, dealers, or underwriters
who may act solely as agents or may acquire shares as principals. Such sales or
distributions may be made at prevailing market prices, at prices related to such
prevailing market prices, or at variable prices negotiated between the sellers
and purchasers that may vary. The distribution of the shares may be effected in
one or more of the following methods:
--ordinary brokerage transactions, including long or short sales,
--transactions involving cross or block trades, or otherwise on the OTC
Bulletin Board,
--purchases by brokers, dealers, or underwriters as principals and
subsequent resales by the purchasers for their own accounts pursuant
to this prospectus,
--sales "at the market" to, or through, market makers or into an
existing market for the shares,
--sales not involving market makers or established trading markets,
including direct sales to purchasers or sales effected through agents,
--transactions involving options, swaps, or other derivatives, whether
exchange-listed or otherwise, or
--transactions involving any combination of the foregoing or any other
legally available means.
In addition, a selling shareholder may enter into hedging transactions with one
or more broker-dealers who may engage in short sales of shares in the course of
hedging the positions they assume with the selling shareholder. A selling
shareholder may also enter into option or other transactions with one or more
broker-dealers requiring the delivery of the shares by such broker-dealers with
the possibility that such shares may be resold thereafter pursuant to this
prospectus.
A broker, dealer, underwriter, or agent participating in the distribution of the
shares may receive compensation in the form of discounts, concessions, or
commissions from the selling shareholders and/or purchasers of the shares for
whom such person may act as an agent, to whom such person may sell as principal,
or both; and such compensation as to a particular person may be in excess of
12
PLAN OF DISTRIBUTION - continued
customary commissions. The selling shareholders and any broker-dealers acting in
connection with the sale of the shares being registered may be deemed to be
underwriters within the meaning of Section 2(11) of the Securities Act of 1933
(the "Securities Act"), and any profit realized by them on the resale of shares
as principals may be deemed underwriting compensation under the Securities Act.
We know of no existing arrangements between any of the selling shareholders and
any other shareholder, broker, dealer, underwriter, or agent relating to the
sale or distribution of the shares, nor can we presently estimate the amount, if
any, of such compensation.
Although we will receive no proceeds from the sale of shares pursuant to this
prospectus, we have agreed to bear the costs and expenses of the registration of
the shares, including legal and accounting fees, and such costs and expenses are
estimated to be approximately $46,176.70.
We have informed the selling shareholders that while they are engaged in a
distribution of the shares included in this prospectus they will be required to
comply with certain anti-manipulative rules contained in Regulation M under the
Exchange Act. With certain exceptions, Regulation M prohibits any selling
shareholder, any affiliated purchaser, and any broker-dealer or other person who
participates in such distribution from bidding for or purchasing, or attempting
to induce any person to bid for or purchase any security that is the subject of
the distribution until the entire distribution is complete. Regulation M also
prohibits any bids or purchases made in order to stabilize the price of a
security in connection with the distribution of that security.
LEGAL PROCEEDINGS
No legal proceedings have been or are currently being undertaken for or against
the Company, nor are we aware of any contemplated proceedings.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The directors and executive officers currently serving the Company are as
follows:
Name Age Positions Held and Tenure
- --------------------- -------- -------------------------------------------------
Richard L. Songer 56 President/Director
Judy Songer 52 Chief Financial Officer/Secretary
Lori Heskett 48 Chief Operating Officer/Executive Vice President
Richard Songer, President, Director, Age 56. Southern California Logo, Inc. was
founded by Mr.Songer and his wife, Judy in 1985. Through personal relationships
and quality manufacturing he has established the company as a major supplier of
wardrobe and related products to the motion picture industry. In recent years he
has expanded the customer base into promotional products for many fortune 500
companies as well as private labeling for numerous major brands at both the
wholesale and retail levels. His most recent ventures have provided company
growth in both the surf and skateboard industries. A former pharmaceutical
executive, Mr. Songer is a 1969 graduate of Virginia Tech. He and his family
have resided in Southern California since 1981.
Judy Songer, Chief Financial Officer, Secretary & Treasurer, Age 52. Mrs. Songer
has been CFO of Southern California Logo and the head of the accounting
department since the company was founded. She currently oversees all financial
and human resource aspects of the corporation. Previously employed by BDM, Inc.,
a Washington, DC based government contractor and think tank, she held a TOP
13
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS - continued
SECRET clearance. An avid outdoors enthusiast, she currently resides in Southern
California and actively participates in the lifestyle that drives the company in
its current direction. Ms. Songer received an AA Degree in Finance from Northern
Virginia Community College in 1973.
Lori Heskett, Chief Operating Officer and Executive Vice President, Age 48. Ms.
Heskett has brought her years of experience and industry contacts to Sew Cal
Logo and is expected to be instrumental in providing the basis for its growth
and expansion over the next several years. Ms. Heskett was President of El
Segundo Hat from April of 1999 until she joined the team at Sew Cal Logo. During
that time she was responsible for all aspects of running a 13,000 sq. ft.
manufacturing plant as a division of Kubic Marketing, a leading skateboard and
accessories manufacturer. Her division produced headwear, bags, wallets and
other related items. Ms. Heskett created yearly budgets and projections and
managed the company's 80 employees, increasing sales from $1.9 to $3 million in
24 months, by adding new products and expanding the company's customer base.
Immediately prior to taking on the presidency of El Segundo Hat, she was VP of
Sales/General Manager of Design Curve in Costa Mesa, California where she
created a souvenir retail product line, developed production procedures and
implemented new systems to streamline work flow to help facilitate rapid growth.
She also defined current personnel job descriptions and managed department
heads. Prior to joining Design Curve, Ms. Heskett was employed by Sportcap, Inc
of Los Angeles, California where, over a period of 18 years, she rose from a
customer service representative to Vice President and General Manager of the
retail sales division of the company. Her ultimate responsibilities included
oversight of several divisions of the company with annual revenues in excess of
$8 million. Her experience over these years include being customer service
manager, new product development manager, production manager, general manager
and finally Vice President/General Manager of Retail Sales. In 1984, Ms. Heskett
received an AA Degree from El Camino College in business administration. She has
participated in several Management Action Programs and regularly attends
professional seminars via company sponsorship.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 1, 2004, certain information with
respect to the beneficial ownership of our common stock by (i) each director and
officer of the Company, (ii) each person known to the Company to be the
beneficial owner of 5% or more of the outstanding shares of common stock, with
such person's address, and (iii) all of the directors and officers as a group.
Unless otherwise indicated, the person or entity listed in the table is the
beneficial owner of the shares and has sole voting and investment power with
respect to the shares indicated.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - continued
Name of Beneficial Owner Shares Beneficially
or Name of Officer or Director Owned Percent
- --------------------------------------------------------------------------------
Richard Songer 3,000,000 59.76%
President/Director
207 W. 138th Street
Los Angeles, California 90061
Judy Songer (1) (1)
CFO/Secretary/
Treasurer
207 W. 138th Street
Los Angeles, California 90061
Lori Heskett 750,000 14.94%
COO/Executive V.P.
207 W. 138th Street
Los Angeles, California 90061
Kagel Family Trust (2) 750,000 14.94%
1801 Century Park East
20th Floor
Los Angeles, California 90067
- --------------------------------------------------------------------------------
Total Director/Officer/ 4,500,000 89.64%
5% Owners
(1) Richard Songer and Judy Songer beneficially own an aggregate total of
3,000,000 shares of the Company's common stock as Joint Tenants with
Rights of Survivorship.
(2) David and Ion Kagel are the trustees and sole beneficiaries of The
Kagel Family Trust.
DESCRIPTION OF SECURITIES
The following description is a summary of the material terms of our capital
stock. This summary is subject to and qualified in its entirety by our Articles
of Incorporation, as amended, and Bylaws, as amended, and by the applicable
provisions of Nevada law.
The authorized capital stock of the Company consists of 50,000,000 shares of
common stock having a par value of $.001 per share, and 300,000 shares of Series
A Convertible Preferred Stock having a par value of $.001 per share.
Each outstanding share of common stock entitles the holder thereof to one vote
per share on all matters. The Articles of Incorporation do not permit cumulative
voting for the election of directors which means that the holders of more than
50% of such outstanding shares voting for the election of directors can elect
all of the directors to be elected, if they so choose; in such event, the
holders of the remaining shares will not be able to elect any of our directors.
Shareholders do not have preemptive rights to purchase shares in any future
issuance of our common stock.
The holders of shares of common stock are entitled to dividends out of funds
legally available when and as declared by the Board of Directors. The Board of
Directors has never declared a dividend and does not anticipate declaring a
dividend in the foreseeable future. In the event of liquidation, dissolution or
winding up of the affairs of the company, holders are entitled to receive,
ratably, the net assets available to shareholders after payment of all
creditors.
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DESCRIPTION OF SECURITIES - continued
All of the issued and outstanding shares of common stock are duly authorized,
validly issued, fully paid, and non-assessable. To the extent that additional
shares of our common stock are issued, the relative interests of existing
shareholders will be diluted.
The rights, privileges and preferences of the Series A Convertible Preferred
Stock set forth in the Certificate of Designation attached to this Report as
Exhibit 3.4 are as follows:
Section 1. Designation and Amount.
(A) The shares of such series shall be designated as "Series A Convertible
Preferred Stock" ("Series A Preferred Stock") and the number of shares
constituting such series shall be 300,000.
(B) Shares of Series A Preferred Stock shall be issued to officers,
directors, employees and consultants to the Corporation. Notwithstanding the
foregoing provisions of this paragraph (B) of Section 1, shares of Series A
Preferred Stock (i) may be converted into shares of Common Stock when the
Corporation has met sales of at least $10,000,000 in any fiscal year as reported
in the Corporation's audited financial statements for such fiscal year and as
provided by Section 5 hereof and the shares of Common Stock issued upon such
conversion may be transferred by the holder thereof as permitted by law and (ii)
shall be redeemable by the Corporation upon the terms and conditions provided by
Sections 6, 7 and 8 hereof.
Section 2. Dividends and Distributions.
(A) Subject to the provisions for adjustment hereinafter set forth, the
holders of shares of Series A Preferred Stock shall be entitled to receive
dividends, when, as and if declared by the Board of Directors out of funds
legally available therefor. Dividends may be paid in (i) cash, (ii) additional
shares of Series A Preferred Stock (valued at the then Liquidation Preference
(as hereinafter defined)), or (iii) shares of Common Stock (valued at the
Current Market Price (as hereinafter defined)).
(B) So long as any shares of Series A Preferred Stock shall be outstanding,
no cash dividends shall be declared or paid or set apart for payment on any
other series of stock ranking on a parity with the Series A Preferred Stock as
to dividends ("Parity Stock"), unless there shall also be or have been declared
and paid or set apart for payment on the Series A Preferred Stock, dividends for
all dividend payment periods of the Series A Preferred Stock ending on or before
the dividend payment date of such Parity Stock, ratably in proportion to the
respective amounts of dividends accumulated and unpaid through such dividend
period on the Series A Preferred Stock and accumulated and unpaid on such Parity
Stock through the dividend payment period on such Parity Stock next preceding
such dividend payment date. In the event that full cumulative dividends on the
Series A Preferred Stock have not been declared and paid or set apart for
payment when due, the Corporation shall not declare or pay or set apart for
payment any dividends or make any other distributions on, or make any payment on
account of the purchase, redemption or other retirement of any other class of
stock or series thereof of the Corporation ranking, as to dividends or as to
distributions in the event of a liquidation, dissolution or winding-up of the
Corporation, junior to the Series A Preferred Stock ("Junior Stock") until full
cumulative dividends on the Series A Preferred Stock shall have been paid or
declared and set apart for payment; provided, however, that the foregoing shall
not apply to (i) any dividend payable solely in any shares of any stock ranking,
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DESCRIPTION OF SECURITIES - continued
as to dividends or as to distributions in the event of a liquidation,
dissolution or winding-up of the Corporation, junior to the Series A Preferred
Stock either (A) pursuant to any employee or director incentive or benefit plan
or arrangement (including any employment, severance or consulting agreement) of
the Corporation or any subsidiary of the Corporation heretofore or hereinafter
adopted or (B) in exchange solely for shares of any other stock ranking, as to
dividends and as to distributions in the event of a liquidation, dissolution or
winding-up of the Corporation, junior to the Series A Preferred Stock.
Section 3. Voting Rights.
The shares of Series A Preferred Stock have voting powers equal to the
voting powers of the Common Stock. Each share of Series Preferred Stock shall
have one hundred (100) votes on all matters to be voted upon by shareholders.
Section 4. Liquidation, Dissolution or Winding-Up.
(A) Upon any voluntary or involuntary, dissolution or winding-up of the
Corporation, the holders of Series A Preferred Stock shall be entitled to
receive out of assets of the Corporation which remain after satisfaction in full
of all valid claims of creditors of the Corporation and which are available for
payment to stockholders and subject to the rights of the holders of any stock of
the Corporation ranking senior to or on a parity with the Series A Preferred
Stock in respect to distributions upon liquidation, dissolution or winding-up of
the Corporation before any amount shall be paid or distributed among the holders
of Common Stock or any other shares ranking junior to the Series A Preferred
Stock in respect of distributions upon liquidation, dissolution or winding-up of
the Corporation, liquidating distributions in the amount of $100 per share (the
"Series A Liquidation Preference"), plus an amount equal to all accrued and
unpaid dividends thereon to the date fixed for distribution and no more. If upon
any liquidation, dissolution or winding-up of the Corporation, the amounts
payable with respect to the Series A Preferred Stock and any other stock ranking
as to any such distribution on a parity with the Series A Preferred Stock are
not paid in full, the holders of the Series A Preferred Stock and such other
stock shall share ratably in any distribution of assets in proportion to the
full respective preferential amounts to which they are entitled. After payment
of the full amount to which they are entitled as provided by the foregoing
provisions of this paragraph 4(A), the holders of shares of Series A Preferred
Stock shall not be entitled to any further right or claim to any of the
remaining assets of the Corporation.
(B) Neither the merger nor consolidation of the Corporation with or into
any other corporation, nor the merger or consolidation of any other corporation
with or into the Corporation, nor the sale, lease, exchange or other transfer of
all or any portion of the assets of the Corporation, shall be deemed to be a
dissolution, liquidation or winding-up of the affairs of the Corporation for
purposes of this Section 4, but the holders of Series A Preferred Stock shall
nevertheless be entitled in the event of any such merger or consolidation to the
rights provided by Section 7 hereof.
(C) Written notice of any voluntary or involuntary liquidation, dissolution
or winding-up of the Corporation stating the payment date or dates when, and the
place or places where, the amounts distributable to holders of Series A
Preferred Stock in such circumstances shall be payable, shall be given by hand
delivery or by first-class mail, postage pre-paid, delivered or mailed not less
than twenty (20) days prior to any payment stated therein to the holders of
Series A Preferred Stock at the address shown on the books of the Corporation or
any transfer agent for the Series A Preferred Stock.
17
DESCRIPTION OF SECURITIES - continued
Section 5. Conversion into Common Stock.
(A) A holder of shares of Series A Preferred Stock shall be entitled at any
time to cause any or all of such shares to be converted into shares of Common
Stock at a rate ("Conversion Rate") initially equivalent to one hundred (100)
shares of Common Stock for each share of Series A Preferred Stock so converted,
which is subject to adjustment as the Conversion Rate is adjusted as hereinafter
provided in Section 8.
(B) A holder of shares of Series A Preferred Stock desiring to convert such
shares into shares of Common Stock shall surrender the certificate or
certificates representing the shares of Series A Preferred Stock being
converted, duly assigned or endorsed for transfer to the Corporation (or
accompanied by duly executed stock powers relating thereto), at the principal
executive office of the Corporation or the offices of the transfer agent for the
Series A Preferred Stock or such office or offices in the continental United
States of an agent for conversion as may from time to time be designated by
notice to the holders of the Series A Preferred Stock by the Corporation or the
transfer agent for the Series A Preferred Stock, accompanied by written notice
of conversion. Such notice of conversion shall specify (i) the number of shares
of Series A Preferred Stock to be converted in the name or names in which such
holder wishes the certificate or certificates for Common Stock and for any
shares of Series A Preferred Stock not to be so converted to be issued and (ii)
the address to which such holder wishes delivery to be made of such new
certificates to be issued upon such conversion.
(C) Upon surrender of a certificate representing a share or shares of Series A
Preferred Stock for conversion, the Corporation shall issue and send by hand
delivery (with receipt to be acknowledged), Federal Express or similar service,
or by first class mail, postage prepaid, to the holder thereof or to such
holder's designee, at the address designated by such holder, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled upon conversion. In the event that there shall have been surrendered
a certificate or certificates representing shares of Series A Preferred Stock,
only part of which are converted, the Corporation shall issue and deliver to
such holder or such holder's designee, in the manner set forth in the preceding
sentence, a new certificate or certificates representing the number of shares of
Series A Preferred Stock which shall not have been converted.
(D) The issuance by the Corporation of shares of Common Stock upon a conversion
of shares of Series A Preferred Stock into shares of Common Stock made at the
option of the holder thereof shall be effective as of the earlier of (i) the
delivery to such holder or such holder's designee of the certificates
representing the shares of Common Stock issued upon the conversion thereof or
(ii) the commencement of business on the second business day after the surrender
of the certificate or certificates for the shares of Series A Preferred Stock to
be converted, duly assigned or endorsed for transfer to the Corporation (or
accompanied by duly executed stock powers relating thereto) as provided by this
Certificate of Designations, Preferences and Rights (the "Certificate of
Designation"). On and after the effective day of conversion, the person or
persons entitled to receive the Common Stock issuable upon such conversion shall
be treated for all purposes as the record holder or holders of such shares of
Common Stock, but no allowance or adjustment shall be made in respect of
dividends payable to holders of Common Stock in respect of any period prior to
such effective date. The Corporation shall not be obligated to pay any dividends
which shall have been declared and shall be payable to holders of shares of
Series A Preferred Stock on a Dividend Payment Date if such Dividend Payment
18
DESCRIPTION OF SECURITIES - continued
Date for such dividend is subsequent to the effective date of conversion of such
shares.
(E) The Corporation shall not be obligated to deliver to holders of Series
A Preferred Stock any fractional share of Common Stock issuable upon any
conversion of such shares of Series A Preferred Stock, but in lieu thereof may
issue a whole share or make a cash payment in respect thereof in any manner
permitted by law.
(F) The Corporation shall at all times reserve and keep available out of its
authorized and unissued Common Stock, solely for issuance upon the conversion of
shares of Series A Preferred Stock as herein provided, free from any preemptive
rights, such number of shares of Common Stock as shall from time to time be
issuable upon the conversion of all the shares of Series A Preferred Stock then
outstanding. Nothing contained herein shall preclude the Corporation from
issuing shares of Common Stock held in its treasury upon the conversion of
shares of Series A Preferred Stock into Common Stock pursuant to the terms
hereof. The Corporation shall prepare and shall use its best efforts to obtain
and keep in force such governmental or regulatory permits or other
authorizations as may be required by law, and shall comply with all requirements
as to registration or qualification of the Common Stock, in order to enable the
Corporation lawfully to issue and deliver to each holder of record of Series A
Preferred Stock such number of shares of its Common Stock as shall from time to
time be sufficient to effect the conversion of all shares of Series A Preferred
Stock then outstanding and convertible into shares of Common Stock.
Section 6. Consolidation, Merger, etc.
(A) In the event that the Corporation shall consummate any consolidation or
merger or similar business combination, pursuant to which the outstanding shares
of Common Stock are by operation of law exchanged solely for or changed,
reclassified or converted solely into stock of any successor or resulting
corporation (including, and, if applicable, for a cash payment in lieu of
fractional shares, if any, the shares of Series A Preferred Stock of such holder
shall, in connection with such consolidation, merger or similar business
combination, be assumed by and shall become preferred stock of such successor or
resulting corporation, having in respect of such corporation, insofar as
possible, the same powers, preferences and relative, participating, optional or
other special rights and the qualifications, limitations or restrictions
thereon, that the Series A Preferred Stock had immediately prior to such
transaction, except that after such transaction each share of the Series A
Preferred Stock shall be convertible, otherwise than on the terms and conditions
provided by Section 5 hereof, into the number and kind of securities receivable
by a holder of the number of shares of Common Stock into which such shares of
Series A Preferred Stock could have been converted immediately prior to such
transaction; provided, however, that if by virtue of the structure of such
transaction, a holder of Common Stock is required to make an election with
respect to the nature and kind of consideration to be received in such
transaction, which election cannot practicably be made by the holders of the
Series A Preferred Stock, then the shares of Series A Preferred Stock shall, by
virtue of such transaction and on the same terms as apply to the holders of
Common Stock, be converted into or exchanged for the aggregate amount of stock,
securities, cash or other property (payable in like kind) receivable by a holder
of the number of shares of Common Stock into which such shares of Series A
Preferred Stock could have been converted immediately prior to such transaction
if such holder of Common Stock failed to exercise any rights of election to
receive any kind or amount of stock, securities, cash or other property (other
than such securities and a cash payment, if applicable, in lieu of fractional
19
DESCRIPTION OF SECURITIES - continued
shares) receivable upon such transaction (provided that, if the kind or amount
of securities receivable upon such transaction is not the same for each
non-electing share of Common Stock, then the kind and so amount so receivable
upon such transaction for each non-electing share of Common Stock shall be, for
purposes of this proviso, deemed to be the kind and amount so receivable per
share by the plurality of the non-electing shares of Common Stock); and provided
further that in the event the consideration such a holder of Common Stock into
which such shares of Series A Preferred Stock could have been converted
immediately prior to such transaction if such holder of Common Stock failed to
exercise any such rights of election consists solely of securities and a cash
payment, if applicable, in lieu of fractional shares, then the shares of Series
A Preferred Stock shall be assumed by and become preferred stock of the
successor resulting corporation and shall be convertible after such transaction,
all as provided in the provisions of this paragraph of this paragraph (A) prior
to the first proviso hereto. The rights of the Series A Preferred Stock as
preferred stock of such successor or resulting corporation shall successively be
subject to adjustments pursuant to Sections 3 and 7 hereof after any such
transaction as nearly equivalent as practicable to the adjustment provided for
by such section prior to such transaction. The Corporation shall not consummate
any such merger, consolidation or similar transaction unless all then
outstanding shares of Series A Preferred Stock shall be assumed and authorized
by the successor or resulting corporation as aforesaid.
(B) In the event that the Corporation shall consummate any consolidation or
merger or similar business combination pursuant to which the outstanding shares
of Common Stock are by operation of law exchanged for or changed, reclassified
or converted into other stock or securities or cash or any other property, or
any combination thereof, outstanding shares of Series A Preferred Stock shall,
without any action on the part of the Corporation or any holder thereof (but
subject to paragraph (C) of this Section 8) be automatically converted by virtue
of such merger, consolidation or similar transaction immediately prior to such
consummation into the number of shares of Common Stock into which such shares of
Series A Preferred Stock could have converted at such time so that each share of
Series A Preferred Stock shall by virtue of such transaction on the same terms
as apply to the holders of Common Stock, be converted into or exchanged for the
aggregate amount of stock, securities, cash or other property (payable in like
kind) receivable by a holder of the aggregate number of shares of Common Stock
into which such shares of Series A Preferred Stock could have been converted
immediately prior to such transaction; provided, however, that if by virtue of
the structure of such transaction, a holder of Common Stock is required to make
an election with respect to the nature and kind of consideration to be received
in such transaction, which election cannot practicably be made by the holders of
the Series A Preferred Stock, then the shares of Series A Preferred Stock shall,
by virtue of such transaction and on the same terms as apply to the holders of
Common Stock, be converted into or exchanged for the aggregate amount of stock,
securities, cash or other property (payable in like kind) receivable by a holder
of the number of shares of Common Stock into which such shares of Series A
Preferred Stock could have been converted immediately prior to such transaction
if such holder of Common Stock failed to exercise any rights of election as to
the kind or amount of stock, securities, cash or other property receivable upon
such transaction (provided, that, if the kind or amount of stock, securities,
cash or other property receivable upon such transaction is not the same for each
non-electing share of Common Stock, then the kind and amount of stock,
securities, cash or other property receivable upon such transaction for each
non-electing share of Common Stock shall be, for purposes of this proviso,
deemed to be the kind and amount so receivable per share by a plurality of the
non-electing shares of Common Stock).
20
DESCRIPTION OF SECURITIES - continued
(C) In the event the Corporation shall enter into any agreement providing
for any consolidation or merger or similar transaction described in paragraph
(B) of this Section 6, then the Corporation shall as soon as practicable
thereafter (and in any event at least ten (10) business days before consummation
of such transaction) give notice of such agreement and the material terms
thereof to each holder of Series A Preferred Stock and each such holder shall
have the right to elect by written notice to the Corporation to receive upon
consummation of such transaction (if and when such transaction is consummated)
from the Corporation or the successor of the Corporation, in redemption and
retirement of such Series A Preferred Stock, a cash payment equal to the amount
payable in respect of shares of Series A Preferred Stock upon liquidation of the
Corporation pursuant to Section 4 hereof. No such notice of redemption shall be
effective unless given to the Corporation prior to the close of business on the
fifth business day prior to consummation of such transaction, unless the
Corporation or the successor of the Corporation shall waive such prior notice,
with any notice of redemption so given prior to such time may be withdrawn by
notice of withdrawal given to the Corporation prior to the close of business on
the fifth business day prior to consummation of such transaction.
Section 7. Anti-dilution Adjustments.
(A) In the event the Corporation shall, at any time or from time to time
while any of the shares of the Series A Preferred Stock are outstanding (i) pay
a dividend or make a distribution in respect of the Common Stock in shares of
Common Stock, (ii) subdivide the outstanding shares of Common Stock, or (iii)
combine the outstanding shares of Common Stock into a smaller number of shares,
in each case whether by reclassification of shares, recapitalization of the
Corporation (including a recapitalization effected by a merger or consolidation
to which Section 6 hereof does not apply) or otherwise, subject to the
provisions of paragraphs (E) and (F) of this Section 7, the Conversion Rate in
effect immediately prior to such action shall be adjusted by multiplying such
Conversion Rate by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately before such event and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately after such event. An adjustment made pursuant to this paragraph
(7)(A) shall be given effect upon payment of such a dividend or distribution as
of the record date for the determination of stock holders entitled to receive
such dividend or distribution (on a retroactive basis) and in the case of a
subdivision or combination shall become effective immediately as of the
effective date hereof.
(B) In the event that the Corporation shall, at any time or from time to
time while any of the shares of Series A Preferred Stock are outstanding, issue
to all holders of shares of Common Stock as a dividend or distribution,
including by way of a recapitalization of shares or a recapitalization of the
Corporation, any right or warrant to purchase shares of Common Stock (but not
including as such a right or warrant any security convertible into or
exchangeable for shares of Common Stock) at a purchase per share less than the
Fair Market Value (as hereinafter defined) of a share of Common Stock on the
date of issuance of such right or warrant, then, subject to the provisions of
paragraphs (E) and (F) of this Section 7, the Conversion Rate shall be adjusted
by multiplying such Conversion Rate by a fraction, the numerator of which shall
be the number of shares of Common Stock outstanding immediately before such
issuance of rights or warrants plus the number of shares of Common Stock which
could be purchased at the Fair Market Value of a share of Common Stock at the
time of such issuance for the maximum aggregate consideration payable upon
exercise in full of all such rights and warrants, and the denominator of which
shall be the number of shares of Common Stock outstanding immediately before
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DESCRIPTION OF SECURITIES - continued
such issuance of rights or warrants plus the maximum number of shares of Common
Stock that could be acquired upon exercise in full of all such rights and
warrants.
(C) In the event the Corporation shall, at any time or from time to time
while any of the shares of Series A Preferred Stock are outstanding, make an
Extraordinary Distribution (as hereinafter defined) in respect of the Common
Stock, whether by dividend, distribution, reclassification of shares or
recapitalization of the Corporation (including a recapitalization or
reclassification effected by a merger or consolidation to which Section 6 hereof
does not apply) or effect a Pro Rata Repurchase (as hereinafter defined) of
Common Stock, the Conversion Rate in effect immediately prior to such
Extraordinary Distribution or Pro Rata Repurchase shall, subject to paragraphs
(D) and (E) of this Section 7, be adjusted by multiplying such Conversion Rate
by a fraction, the numerator of which shall be the remainder of (i) the product
of (x) the number of shares of Common Stock outstanding immediately before such
Extraordinary Distribution or Pro Rata Repurchase multiplied by (y) the Fair
Market Value of a share of Common Stock on the day before the ex-dividend date
for the Extraordinary Distribution (unless there is no such ex-dividend date, in
which case on the day before the distribution date for the Extraordinary
Distribution) or on the applicable expiration date (including all extensions
thereof) of any tender offer which is a Pro Rata Repurchase, or on the date of
purchase with respect to any Pro Rata Repurchase which is not a tender offer, as
the case may be, minus (ii) the Fair Market Value of the Extraordinary
Distribution or the aggregate purchase price of the Pro Rata Repurchase, as the
case may be, and the denominator of which shall be the product of (a) the number
of shares of Common Stock outstanding immediately before such Extraordinary
Dividend or Pro Rata Repurchase minus, in the case of a Pro Rata Repurchase, the
number of shares of Common Stock repurchased by the Corporation multiplied by
(b) the Fair Market Value of a share of Common Stock on the day before the
ex-dividend date for the Extraordinary Distribution (unless there is no such
ex-dividend date, in which case the day before the distribution date for the
Extraordinary Distribution) or on the applicable expiration date (including all
extensions thereof) of any tender offer which is a Pro Rata Repurchase or on the
date of purchase with respect to any Pro Rata Repurchase which is not a tender
offer, as the case may be. The Corporation shall send the holder of Series A
Preferred Stock (i) notice of the declaration of any dividend or distribution
and (ii) notice of any offer by the Corporation to make a Pro Rata Repurchase,
in each case at the same time as or as soon as practicable after, such dividend,
distribution or offer is first communicated (including by announcement of a
record date in accordance with the rules of any stock exchange on which the
Common Stock is listed or admitted to trading) to holders of Common Stock. Such
notice shall indicate the intended record date and the amount and nature of such
dividend or distribution, or the number of shares subject to such offer for a
Pro Rata Repurchase and the purchase price payable by the Corporation pursuant
to such offer, as well as the Conversion Rate and the number of shares of Common
Stock into which a share of Series A Preferred Stock may be converted at such
time.
(D) Notwithstanding any other provisions of this Section 7, the Corporation
shall not be required to make any adjustment to the Conversion Rate unless such
adjustment would require an increase or decrease of at least one percent (1%) in
the Conversion Rate. Any lesser adjustment shall be carried forward and shall be
made no later than the time of, and together with, the next subsequent
adjustment which, together with any adjustment or adjustments so carried
forward, shall amount to an increase or decrease of at least one percent (1%) in
the Conversion Rate.
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DESCRIPTION OF SECURITIES - continued
(E) If the Corporation shall make any dividend or distribution on the
Common Stock or issue any Common Stock, other capital stock or other security of
the Corporation or any rights or warrants to purchase or acquire any such
security which transaction does not result in any adjustment to the Conversion
Rate pursuant to the foregoing provisions of this Section 7, the Board shall
consider whether such action is of such a nature that an adjustment to the
Conversion Rate should equitably be made in respect of such transaction. If in
such case the Board determines that an adjustment to the Conversion Rate should
be made, an adjustment shall be made effective as of such date, as determined by
the Board. The determination of the Board as to whether an adjustment to the
Conversion Rate should be made pursuant to the foregoing provisions of this
paragraph 8(B), and, if so, as to what adjustment should be made and when, shall
be final and binding on the Corporation and all stockholders of the Corporation.
The Corporation shall be entitled to make such additional adjustments in the
Conversion Rate in addition to those required by the foregoing provisions of
this Section 8, as shall be necessary in order that any dividend or distribution
in shares of capital stock of the Corporation, subdivision, reclassification or
combination of shares of stock of Corporation or any recapitalization of the
Corporation shall be not be taxable to the holders of the Common Stock.
(F) For purposes of this Certificate, the following definitions shall
apply:
"Business Day" shall mean each day that is not a Saturday, Sunday or a day
on which state or federally chartered banking institutions in Los Angeles,
California are not required to be open.
"Board" shall mean the Board of Directors of the Corporation acting in
accordance with the By-laws of the Corporation.
"Current Market Price" of publicly traded shares of Common Stock or any
other class of capital stock or other security of the Corporation or any other
issuer for any day shall mean the last reported sales price, regular way, or in
the event that no sale takes place on such day, the average of the reported
closing bid and asked prices, regular way, in either cases reported on the New
York Stock Exchange Composite Tape or, if such security is not admitted or
listed or admitted to trading on the New York Stock Exchange on the principal
national securities exchange on which such security is listed or admitted to
trading or if not listed or admitted to trading on any national securities
exchange, on the NASDAQ National Market System or, if such security is not
quoted on such national market system, the average of the closing bid and asked
prices on each such day in the over-the-counter market as reported by NASDAQ or,
if bid and asked prices for such security on each such day shall not have been
reported through NASDAQ, the average of the bid and asked prices for such day as
furnished by any New York Stock Exchange member firm regularly making a market
in such security selected for such purpose by the Board or a committee thereof,
in each case, on each trading day during the. "Adjustment Period" shall mean the
period of five (5) consecutive trading days preceding the date as of which the
Fair Market Value of a security is to be determined. The "Fair Market Value" of
any security which is not publicly traded or any other property shall mean fair
value thereof as determined by an independent investment banking or appraisal
firm experienced in the valuation of such securities or property selected in
good faith by the Board or a committee thereof or if no such investment banking
or appraisal firm is in the good faith judgment of the Board or such committee
available to make such determination as determined in good faith by the Board or
such committee.
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DESCRIPTION OF SECURITIES - continued
"Extraordinary Distribution" shall mean any dividend or other distribution
to holders of Common Stock (effected while any of the shares of Series A
Preferred Stock are outstanding) (i) of cash (other than dividends not exceeding
the greater of (A) $.10 per annum or (B) 125% of the aggregate quarterly
dividends paid during the preceding 12 months, neither of which shall be deemed
to be an Extraordinary Distribution) where the aggregate amount of such cash
dividend or distribution together with the amount of all cash dividends and
distributions made during the preceding period of 12 months when combined with
the aggregate amount of all Pro Rata Repurchases during such time period (for
this purpose, including only that portion of the aggregate purchase price of
such Pro Rata Repurchase which is in excess of the Fair Market Value of the
Common Stock repurchased as determined on the applicable expiration date
(including all extensions thereof) of any tender offer or exchange offer which
is a Pro Rata Repurchase, or the date of purchase with respect to any other Pro
Rata Repurchase which is not a tender offer or exchange offer made during such
period) exceeds ten percent (10%) of the close of the aggregate Fair Market
Value of all shares of Common Stock outstanding on the day before the
ex-dividend date with respect to such Extraordinary Distribution which is paid
in cash and/or (ii) of any shares of capital stock of the Corporation (other
than shares of Common Stock), other securities of the Corporation (other than
securities of the type referred to in paragraph (B) or (C) of this Section 7,
evidences of indebtedness of the Corporation or any other person or any other
property (including shares of any subsidiary of the Corporation) or any
combination thereof. The Fair Market Value of an Extraordinary Distribution for
purposes of paragraph (D) of this Section 7 shall be equal to the sum of the
Fair Market Value of such Extraordinary Distribution plus the amount of any cash
dividends (other than dividends not exceeding the greater of (i) $.10 per annum
or (ii) 125% of the aggregate quarterly dividends paid during the preceding 12
months) which are not Extraordinary Distributions made during such 12 month
period and not previously included in the calculation of an adjustment pursuant
to paragraph (D) of this Section 7.
"Fair Market Value" shall mean as to shares of Common Stock or any other
class of capital stock or securities of the Corporation or any other issuer
which are publicly traded, the average of the Current Market Prices of such
shares or securities for each day of the Adjustment Period.
"Non-Dilutive Amount" in respect of an issuance, sale or exchange by the
Corporation of any right or warrant to purchase or acquire shares of Common
Stock (including any security convertible into or exchangeable for shares of
Common Stock) shall mean the remainder of (i) the product of the Fair Market
Value of a share of Common Stock on the day preceding the first public
announcement of such issuance, sale or exchange multiplied by the maximum number
of shares of Common Stock which could be acquired on such date upon the exercise
in full of such rights and warrants (including upon the conversion or exchange
of all such convertible or exchangeable securities) whether or not exercisable
(or convertible or exchangeable) at such date, minus (ii) the aggregate amount
payable pursuant to such right or warrant to purchase or require such maximum
number of shares of Common Stock; provided, however, that in no case shall the
non-dilutive amount be less than zero. For purposes of the foregoing sentence in
the case of a security convertible into or exchangeable for shares of Common
Stock, the amount payable pursuant to a right or warrant to purchase or require
shares of Common Stock shall be the Fair Market Value of such security on the
date of the issuance, sale or exchange of such security by the Corporation.
24
DESCRIPTION OF SECURITIES - continued
"Pro Rata Repurchase" shall mean any purchase of shares of Common Stock by
the Corporation or any subsidiary thereof, whether for cash, shares of capital
stock of the Corporation, other securities of the Corporation, evidences of
indebtedness of the Corporation of any other person or any other property
(including shares of a subsidiary of the Corporation) or any combination
thereof, effected while any of the shares of Series A Preferred Stock are
outstanding, pursuant to any tender offer or exchange offer subject to Section
13(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") or
any successor provision of law or pursuant to any other offer available to
substantially all holders of Common Stock; provided, however, that no purchase
of shares by the Corporation or any subsidiary thereof made in open market
transactions shall be deemed a Pro Rata Repurchase. For purposes of this
paragraph (F) of this Section 7, shares shall be deemed to have been purchased
by the Corporation or any subsidiary thereof "in open market transactions" if
they have purchased substantially in accordance with the requirements of Rule
10b-18 as in effect under the Exchange Act, on the date shares of Series A
Preferred Stock are initially issued by the Corporation or on such other terms
and conditions as the Board or a committee thereof shall have determined are
reasonably designed to prevent such purchases from having a material effect on
the trading market for the Common Stock.
(G) Whenever an adjustment to the Conversion Rate and the related voting
rights of the Series A Preferred Stock is required pursuant to this Resolution,
the Corporation shall forthwith place on file with the transfer agent for the
Common Stock and the Series A Preferred Stock and with the Secretary of the
Corporation, a statement signed by two officers of the Corporation stating the
adjusted Conversion Rate determined as provided herein and the resulting
conversion ratio and the voting rights (as appropriately adjusted) of the Series
A Preferred Stock. Such statement shall set forth in reasonable detail such
facts as shall be necessary to show the reason and the manner of computing such
adjustment, including any determination of Fair Market Value involved in such
computation. Promptly after each adjustment to the Conversion Rate and the
related voting rights of the Series A Preferred Stock, the Corporation shall
mail a notice thereof and of the then prevailing conversion ratio to each holder
of shares of the Series A Preferred Stock.
Section 8. Ranking; Retirement of Shares
(A) The Series A Preferred Stock shall rank senior to the Common Stock as
to the payment of dividends and the distribution of assets on liquidation,
dissolution and winding-up of the Corporation and, unless otherwise provided in
the Certificate of Incorporation of the Corporation as the same may be amended,
or a Certificate of Designations relating to a subsequent series of Preferred
Stock, the Series A Preferred Stock shall rank pari passu to all series of the
Corporation's Preferred Stock as to the dividends and the distribution of assets
on liquidation, dissolution or winding-up.
(B) Any shares of Series A Preferred Stock acquired by the Corporation by
reason of the conversion or redemption of such shares as provided herein or
otherwise so acquired, shall be retired as shares of Series A Preferred Stock
and restored to the status of authorized but unissued shares of Preferred Stock,
par value $.001 per share of the Corporation, undesignated as to series and may
thereafter be reissued as part of a new series of such Preferred Stock as
permitted by law.
25
DESCRIPTION OF SECURITIES - continued
Section 9. Miscellaneous
(A) All notices referred to herein shall be in writing and all notices
hereunder shall be deemed to have been given upon the earlier of receipt of
delivery thereof if by hand delivery, by courier or three (3) business days
after the mailing thereof if sent by registered mail (unless first-class mail
shall be specifically permitted for such notice under the terms hereof) with
postage pre-paid, addressed: (i) if to the Corporation, to its office at 207 W.
138th Street, Los Angeles, California 90061 (Attention: Secretary) or to the
transfer agent for the Series A Preferred Stock or other agent of the
Corporation designated as permitted hereby or (ii) if to any holder of the
Series A Preferred Stock or Common Stock as the case may be, to such holder of
the address of such holder as listed in the stock record books of the
Corporation (which may include the records of any transfer agent for the Series
A Preferred Stock or Common Stock as the case may be) or (iii) to such other
addresses the Corporation or any such holder as the case may be shall have
designated by notice similarly given.
(B) The term "Common Stock" as used in this Resolution means the
Corporation's Common Stock, par value $.001 per share, as the same exists at the
date of filing with the Secretary of State of Nevada of this Certificate of
Designation relating to Series A Preferred Stock or any other class of stock
resulting from successive changes or reclassifications of such Common Stock
consisting solely of changes in par value, or from par value to no par value or
from no par value to par value. In the event that at any time as a result of an
adjustment made pursuant to Section 8 of this Certificate of Designation, the
holder of any share of the Series A Preferred Stock upon thereafter surrendering
such shares for conversion, shall become entitled to receive any shares or other
securities of the Corporation other than shares of Common Stock, the Conversion
Rate in respect of such other shares or securities so receivable upon conversion
of shares of Series A Preferred Stock shall thereafter be adjusted and shall be
subject to further adjustment from time to time, in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to Common Stock
contained in Section 7 hereof, and the provisions of Sections 1 through 6, 8 and
9 of this Certificate of Designation with respect to the Common Stock shall
apply on like or similar terms to any such other shares or securities.
(C) The Corporation shall pay any and all stock transfer and documentary
stamp taxes that may be payable in respect of any issuance or delivery of shares
of Series A Preferred Stock or shares of Common Stock or other securities issued
on account of Series A Preferred Stock pursuant hereto or certificates
representing such shares or securities. The Corporation shall not, however, be
required to pay any such tax which may be payable in respect of any transfer
involved in the issuance or delivery of shares of Series A Preferred Stock or
Common Stock or other securities in a name other than that in which the shares
of Series A Preferred Stock with respect to which such shares or other
securities are issued or delivered were registered, or in respect of any payment
to any person with respect to any such shares or securities other than a payment
to the registered holder thereof, and shall not be required to make any such
issuance, delivery or payment unless and until the person otherwise entitled to
such issuance, delivery or payment is paid to the Corporation the amount of any
such tax or has established to the satisfaction of the Corporation, that such
tax has been paid or is not payable.
(D) In the event that a holder of shares of Series A Preferred Stock shall
not by written notice designate the name in which shares of Common Stock to be
issued upon conversion of such shares should be registered or to whom payment
upon redemption of shares of Series A Preferred Stock should be made or the
26
DESCRIPTION OF SECURITIES - continued
address to which the certificate or certificates representing such shares, or
such payment, should be sent, the Corporation shall be entitled to register such
shares and make such payment in the name of the holder of such Series A
Preferred Stock as shown on the records of the Corporation and to send the
certificate or certificates representing such shares or such payment, to the
address of such holder shown on the records of the Corporation.
(E) Unless otherwise provided in the Certificate of Incorporation, as the
same may be amended, of the Corporation, all payments in the form of dividends,
distributions on voluntary or involuntary dissolution, liquidation or winding-up
or otherwise made upon the shares of Series A Preferred Stock and any other
stock ranking on a parity with the Series A Preferred Stock with respect to such
dividend or distribution shall be pro rata so that amounts paid per share on the
Series A Preferred Stock and such other stock shall in all cases bear to each
other the same ratio that the required dividends, distributions or payments, as
the case may be, then payable per share on the shares of the Series A Preferred
Stock and such other stock bear to each other.
(F) The Corporation may appoint, and from time to time discharge and
change, a transfer agent for the Series A Preferred Stock. Upon any such
appointment or discharge of a transfer agent, the Corporation shall send notice
thereof by first-class mail, postage pre-paid to each holder of record of Series
A Preferred Stock.
INTERESTS OF NAMED EXPERTS AND COUNSEL
No "Expert" or "Counsel" as defined by Item 509 of Regulation S-B promulgated
pursuant to the Securities Act of 1933, whose services were used in the
preparation of this Form SB-2 was hired on a contingent basis or will receive a
direct or indirect interest in the Company.
DESCRIPTION OF BUSINESS
The Company
The Company was originally incorporated in the State of Nevada on June 19, 2002,
as "Calvert Corporation". Calvert Corporation was a dormant corporation since
its inception and had never engaged in any prior business or financing
activities prior to December 31, 2003. On December 31, 2003, the Company entered
into an Agreement and Plan of Merger with Southern California Logo, Inc. a
California corporation originally incorporated as CJ Industries, Inc. on August
30, 1985 ("SCL"), whereby SCL was merged into the Company. SCL was the
"disappearing company" and the Company was the "surviving company." The Articles
of Merger were filed with the Secretary of State of Nevada on February 24, 2004
and the merger became effective on that date. The Articles of Merger amended the
original Articles of Incorporation of the Company by (i) increasing the
authorized capital of the Company from 25,000,000 shares of common stock to
50,000,000 shares of common stock, (ii) authorizing 300,000 shares of preferred
stock, and (iii) changing the name of the Company to "Sew Cal Logo, Inc."
Immediately prior to the effective date of the merger, the Company had
20,000,000 shares of its common stock issued and outstanding. Pursuant to the
Articles of Merger, the Company issued an additional 4,500,000 shares of common
stock to the three (3) shareholders of SCL. William D. O'Neal, the Company's
president, secretary, treasurer and sole director resigned and returned
19,480.000 shares of the Company's common stock to the treasury of the Company
for cancellation. Mr. O'Neal retained 150,000 shares of the common stock of the
Company previously issued to him. Thus, upon the effective date of the merger,
27
DESCRIPTION OF BUSINESS - continued
the Company had 5,020,000 shares of its common stock issued and outstanding out
of 50,000,000 shares authorized. Upon the effective date of the merger, the
Company also issued a total of 234,800 shares of its Series A Convertible
Preferred Stock to the three (3) shareholders of SCL. Thus, upon the effective
date of the merger, the Company had 234,800 shares of its Series A Convertible
Preferred Stock issued and outstanding out of 300,000 shares authorized.
References to the "Company" include, except when the context indicates
otherwise, SCL prior to the merger and the "surviving company" thereafter.
The Business
Entertainment
Sew Cal Logo, Inc. started as a simple embroidery company twenty years ago with
logo designs and entered into business with the entertainment industry in 1988.
Since that time it has grown into an established supplier of wardrobe and
related items for feature films and television, engaging all of the major
studios including Paramount, Warner Brothers, Universal, MGM, Sony, DreamWorks,
20th Century Fox, Disney and nearly every independent production company in
California.
Anyone who has been to a movie (worldwide) has likely seen the work of Sew Cal
Logo, Inc. on the screen. Typical examples include: The "White Star Line"
uniforms worn in Titanic ( the largest grossing movie of all time), the "Bubba
Gump Shrimp Co" cap worn by Tom Hanks in Forrest Gump (opening scene and
throughout the movie) not to mention the cast and crew merchandise (jackets,
caps, bags, wearables) for Titanic and over 60,000 promotional Bubba Gump caps
related to the release of the film. Tom Cruise and Robert Duvall wore Sew Cal
racing attire in Days of Thunder and the Company produced all of the uniforms
worn by the pit crews and teams of the NASCAR circuit portrayed in the film.
Patches for everything from border patrols, police departments, museum guards,
military personnel, and just about anything related to uniforms (including the
authentic Naval rates of the many sailors portrayed in Pearl Harbor) have been
provided to help moviemakers establish location settings or characters with the
audience.
Nearly every major actor in films today has worn our wardrobe while performing
on screen, making it the number one supplier of its kind today. From the gift
shop items featured in Jurassic Park to patches and clothing worn in Terminator
2 and 3, the Company has participated in every major blockbuster (excluding some
animated Disney films) produced over the past 10 years. The Space Cowboys
including Clint Eastwood wore emblems and patches produced by us and the recent
Jerry Bruckheimer production of Bad Boys II features our products, as does the
currently filming National Treasure set in Washington, D.C. We also realize
considerable and growing revenues from crew gifts, including jackets, caps, and
related items from many of the films and promotions it works on as well as from
its regular work in both network and cable TV projects.
Private Label Apparel
In addition to our entertainment-related business, private labeling has become a
significant part of the Company's production for both domestic sales and export
of "Made in the USA" products. Sew Cal Logo, Inc. is an action sports oriented
company. We currently design and manufacture the latest styles in caps and
headwear, jackets, denim, cargo shorts and pants and related apparel for many of
28
DESCRIPTION OF BUSINESS - continued
the major brands, such as "Quick Silver", "Vans", "O'Neill", "Lost", "Von
Dutch", "Whiteboy" and "Rusty."
Expansion and growth of present operations is our primary objective over the
next twelve months. During 2003, the Company has expanded its management team to
include Lori Heskett, who has more than twenty-five years of experience in this
and related fields. Ms. Heskett brought to our Company design ideas and industry
contacts and is a highly effective salesperson. In her most recent position as
President of El Segundo Hat Company, a fashion hat and accessory manufacturer,
Ms. Heskett was directly responsible for all aspects of the company, including
both sales and production.
We have an extensive capacity to accept and complete orders of any size and of a
varied and diversified basis. Our current manufacturing capabilities include,
but are not limited to the following:
o silk screening, heat transfers, sublimation, and unique
embellishments
o private labeling for major brands (including shipping and
fulfillment)
o cap and hat design and manufacturing
o patches of all kinds and shapes
o film and television wardrobe (authentic military, period etc.)
o production crew wrap gifts and studio promotional items
o custom jacket and various apparel manufacturing
o accessory design and manufacturing (bags and wallets etc.)
o contract embroidery and specialty services
o advertising specialty merchandise (extensive variety of corporate
promotional items, bottled water etc.).
o military - contract manufacturing (extensively with retired and
veterans segment, ship reunions etc.
Competition
Film Wardrobe & Related Entertainment Business
The competition in our specialized section of the film industry is considerable
in the area of "crew merchandise" with nearly everybody wanting a piece of this
business. In reality though, only a handful of vendors are able to penetrate
this market in the production stage. Top quality, on time delivery no matter the
requirements, and extreme customer loyalty have been the benchmark we have set
and it has been very hard, but not impossible of course, for competitors to
erode our market share here. Still, we must remain vigilant, creative, and
aggressive to keep this business.
The same is true for wardrobe production. Several companies produce patches and
are extremely competitive and aggressive. Once again, we must remain in close
contact with designers, costumers, and wardrobe departments within the studios
as well as the major costume houses to be considered as "the first to call" when
a show begins preparation for filming. While confidence in us as a first choice
vendor is of utmost importance here, people are always willing to try somebody
new and our competition is always present. Customer loyalty is easy to retain
but once lost very hard to regain. Our marketing plan remains for us to be
aggressive and innovative in this area while guarding our carefully developed
long-term relationships with the people who control this segment of film and
television production.
29
DESCRIPTION OF BUSINESS - continued
Private Labeling
There are currently five (5) headwear suppliers in California. This number is
down from more than 11 just a few years ago. Suppliers remaining in this
business each have their own niche in the market place. Design Curve, located in
Costa Mesa, California caters to labels such as Billabong and Volcum, and is
very good with "bucket-type" hats. National Headwear, located in Orange County,
California deals with the skate and surf market, as we do. American, located in
San Diego, California caters to the ad specialty and theme park markets and we
seldom, if ever, compete with them. There are more US suppliers located in the
Midwest and on the East Coast. They seldom manufacture for our market and deal
mainly in the golf, major league baseball and ad specialty-type businesses.
Overseas suppliers are a different situation. They can produce a cap at one-half
the price we can and we are constantly in competition with them. They can copy
all that we create, but if they are asked to create on their own, they may fall
short, as our industry is constantly changing by way of fabrics, styles, and
method of decorating. Overseas suppliers are in the business of mass production
for export. Our current customers use overseas suppliers for some of their
"bread and butter" styles but tend to use U.S. suppliers for the more cutting
edge products. The other down side to their using overseas suppliers is meeting
large minimums and longer lead times to receive product are required.
At present, the youth oriented "action sports" lifestyle clothing market
(surf/skate/snow) is led by labels such as "Quicksilver" of Huntington Beach,
California, representing in excess of $700 million in annual sales. Also,
"O'Neill Sportswear", "Rip Curl", "Lost", "Billabong", "Volcom", and numerous
other Orange County, California-based clothing companies service this market and
can be considered competition for our new brands. No new major logo-driven brand
has been introduced and promoted to this market for several years, and teens and
young adults are looking for something new and trendy to identify with,
purchase, and wear.
Although we believe we now have the experience and, resources to take advantage
of and fulfill the needs, of this market and we have already made significant
steps towards doing so, the youth, active and sports apparel industry is highly
competitive, with many of our competitors having greater name recognition and
resources than the Company. Many of our competitors are well established, have
longer-standing relationships with customers and suppliers, greater name
recognition and greater financial, technical and marketing resources. As a
result, these competitors may be able to respond more quickly and effectively
than we can to new or changing opportunities or customer requirements. Existing
or future competitors may develop or offer products that provide price, service,
number or type of providers or other advantages over those we intend to offer.
If we fail to compete successfully against current or future competitors with
respect to these or other factors, our business, financial condition, and
results of operations may be materially and adversely affected.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion is intended to provide an analysis of the Company's
financial condition and Plan of Operation and should be read in conjunction with
the Company's financial statements and the notes thereto set forth herein. The
matters discussed in this section that are not historical or current facts deal
with potential future circumstances and developments. The Company's actual
results could differ materially from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed below.
30
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION - continued
Plan of Operation
Expansion and growth of present operations is our primary objective over the
next twelve months. Plans are now in place and being implemented for expansion
in all areas of our current manufacturing and we anticipate significant growth
over the next year.
Private Labeling
Initially, we intend to expand our existing customer base through an aggressive
sales and marketing approach to potential customers already located in our
geographic area of Southern California. Our success in capturing this business
will depend upon our ability to obtain quick and accurate sampling based on the
customer's designs and the timely production of the required samples for the
customer's sales force.
We also intend to capture more of our existing customers' production through the
purchase of additional equipment to complement what we already have and are
using. We have purchased and installed "state of the art" silk-screening and
related equipment to bring our silk screening department to its full potential.
Completion of this department is targeted for the first quarter of 2004, and
will enhance each area of the Company and enable us to provide every aspect of
product development and production in state-of-the-art and "cutting edge" form.
At this time, we are allocating additional funds for growth to help establish a
sufficient budget for advertising, marketing and further developing a
sophisticated sales effort to build up our private label clientele. Customers in
this area currently include, but are not limited to "Quick Silver", "Vans",
"O'Neill", "Lost", "Von Dutch", "Whiteboy" and "Rusty."
Film Wardrobe & Related Entertainment Business
As stated elsewhere herein, we are an established leader in the area of film
wardrobe. To increase this aspect of our business, we intend to add two to three
sales and customer service representatives (in-house and outside) to assist us
in meeting our current forecasts for the next twelve months.
We also intend to produce more wardrobe, patches etc. for the major costume
houses (Western Costume Company, MPCC, Motion Picture Costume Co., Eastern
Costume Co.). We also intend to market directly to the productions before they
begin filming locally and send units out of town on location. We intend to
accomplish this with visits to the studios daily, printed material, and a
professionally developed e-mail campaign to the production offices when they
first set-up for a newly "green lighted" feature film or television show.
Corporate Sales
Corporate clients currently account for about ten percent (10%) of our business.
We intend to grow this area of our business by two hundred percent (200%) over
the next two years. We intend to add a small number of in-house staff (2-3
clerical people) to service new inquiries and added accounts, as well as
ordering finished goods for embellishment and shipping. Current production
capacity is adequate to handle the added volume.
Results of Operation for Year Ended August 31, 2003
We began the fiscal year 2002 - 2003 with an assessment of our market, a look at
our competition, and a review of potential business opportunities. As a result,
31
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION - continued
we acquired the accounts of a competitor, El Segundo Hat Company, which was
generating approximately $3,000,000 in annual sales. We hired it's president,
Lori Heskett, as general manager to service these accounts and to assess and
hire new sales people to be responsible for increasing our private label
business. With the addition of these people to our team, we increased private
label business in the surf industry, cap and accessory production.
As we obtained and developed new large accounts, we also improved production
with some new equipment and worked on manufacturing modernization, procedures,
focus of personnel, and developing a clear program for market penetration. We
also brought screen printing in-house to improve profitability and cut
production times.
We also implemented a new purchasing system that allows improved buying and
shorter raw goods inventory turnover. In doing so, our accounts payable
stabilized, as it became based on orders in house vs. speculation of what trends
may be, allowing us to have far less inventory dollars sitting on the shelf.
Taking advantage of a weak economy, business erosion, and other failures that
affected our suppliers, we also aggressively added new vendors while negotiating
improved terms and minimums to help improve cash flow.
Accounts receivable has increased with the addition of new customers. The types
of customers we currently service have been stable and consistent in purchasing
(private label for large established companies with excellent credit). We have
no material commitments for capital expenditures until we raise additional
capital. If we are successful in bringing in additional capital, we plan to
expand our market to include direct sales to retailers, to become a brand
manufacturer and retailer, and to grow our manufacturing capacity to accommodate
this newly expanded segment of our business.
Our sources of liquidity are currently generated by current sales, and we do not
require any additional capital to continue our current operations, including the
ability to grow within the market. Strong additional growth through the
expansion into other markets is possible if we are successful in bringing in
additional equity capital. Our current business enjoys a significant part of the
market, and we do not currently foresee any existing competitors materially
infringing on our sales. Global Terrorism may have an adverse affect on our
business. If the country goes to war, we are an approved government contractor.
Although we do not currently pursue this business, as it usually involves "the
lowest bidder", it would potentially provide opportunity for increased business
through contractually manufacturing military uniforms and related items. It
would, however, divert energy from current operations and would be at a
significant reduction of profit.
Additional equity capital of 1,000,000 to $3,000,000 will enable us to open an
entirely new market segment for growth. We have identified and developed an
opportunity to export the "California life style" to the rest of America and to
the worldwide markets in general. Started as an idea born in San Clemente,
California, home of the premier surfing beaches in the world, we have created a
number of "California Driven" brands of products. Under the "California Driven"
umbrella, several lines have been developed with specific target markets in
mind.
If no additional equity capital is raised, we plan to capture more of our
existing customers' production through the purchase of additional equipment with
funds generated from the current profit stream. With the planned addition of
specified equipment, we will enhance every area of the Company and enable us to
provide every aspect of product development and production.
32
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION - continued
The Company earned revenues of $2,328,471 for the year ended August 31, 2003
compared to revenues of $1,426,490 for the year ended August 31, 2002. During
the period prior to the year ending August 31, 2002, movie wardrobe and some
crew merchandise as many film companies were shooting out of the country was
down from previous years. Cap production and corporate sales were off and profit
margins greatly reduced because of a general decline in the economy, especially
in California. The events of September 11, 2001, negatively impacted profitable
corporate sales as companies cut back on purchases of promotional items,
uniforms, and related items. We continued operations, but profit margins were
greatly eroded, adversely affecting the Company's bottom line and overall health
through the end of our fiscal year ending August 31, 2002. We began to recover
during the year ending August 31, 2003, as reflected in the increase in revenues
for that period as compared with the prior period.
The Company had total assets of $653,903 at August 31, 2003, compared to total
assets of $558,563 at August 31, 2002, reflecting an increase in cash on hand
and accounts receivable combined with a decrease in inventory and retirement of
machinery.
The Company had total current liabilities of $350,619 at August 31, 2003
compared to total current liabilities of $61,282 at August 31, 2002, reflecting
an increase in accounts payable for raw materials and supplies for manufacturing
of our product line.
At August 31, 2003, the Company had $44,714 in working capital, compared to
$4,336 in working capital at the year ended August 31, 2002, reflecting
increased business and cash on hand.
General and Administrative Expenses
General and administrative expenses were $353,717 for the year ended August 31,
2003, compared to $345,696 for the year ended August 31, 2002. The increase is
attributable to overall Company expansion and growth. We expect such expenses to
increase as the Company's operations continue to grow.
Liquidity and Capital Resources
At August 31, 2003, the Company's total assets of $653,903 exceeded current
liabilities of $350,619. At August 31, 2002, the Company's total assets of
$558,563 exceeded current liabilities of $61,282. At August 31, 2003, we had
working capital of $44,714, compared to August 31, 2002, where we had working
capital of $4,336. We are operating our business on a cash accrual basis and
have sufficient cash flow to cover all operations within the parameters and
guidelines we have set for our operations for the next twelve months. We can
continue current operations with reasonable annual growth from existing sales,
cash flows and profits.
Long-Term Debt
On March 25, 2002 the Company entered into an agreement with United Commercial
Bank for a $515,000 SBA loan. For the years ended August 31, 2003 and 2002, the
unpaid principal balance of the loan was $462,100 and $500,313 respectively. The
required monthly payment varies with an annual interest rate of 6.75% and a
maturity date of March 1, 2012. Loan fees related to the financing have been
capitalized into prepaid expenses and are being amortized over the term of the
loan.
33
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION - continued
On April 16, 2003 the Company entered an installment sale contract with GMAC for
the purchase of a vehicle. The total amount financed at signing was $40,754 that
represents the total sale price. The agreement requires 60 monthly payments of
approximately $679 beginning on May 16, 2003 and ending on April 16, 2008. The
outstanding balance for the year ending August 31, 2003 was $38,037.
Off Balance Sheet Arrangements
The Company has no off balance sheet arrangements
DESCRIPTION OF PROPERTY
Office Facilities
The Company currently leases its 27,000 square foot manufacturing and office
facilities located at 207 West 138th Street in Los Angeles, in close proximity
to Los Angeles International Airport. Our lease expires on October 4, 2004. The
lease requires the Company to pay property taxes and utilities. Monthly rental
is $10,400 and we have an option for an additional five (5) years at a monthly
rental rate of $10,400. Rent expenses for the years ending August 31, 2003 and
2002, were $88,263 and $69,729, respectively. (See Exhibit 3.5)
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On June 19, 2002, the Company issued 19,850,000 shares of its common stock to
its sole officer and director, William D. O'Neal, for services rendered in the
formation and organization of the Company. The value of such services to the
Company was $1,985.
On June 19, 2002, the Company issued 150,000 shares of its common stock to
Stephen F. Burg for services rendered in the formation and organization of the
Company. The value of such services to the Company was $150.
On March 1, 2003, for purposes of working capital, Richard and Judy Songer made
a $355,384 subordinated loan to the Company. The Company is obligated to pay
interest only on the Subordinated Loan during its term at the rate of 10% per
annum (fixed-rate calculated as simple interest). The entire principal amount of
the loan is due on March 1, 2004, although it may be prepaid in whole or in part
at any time by the Company without premium or penalty. The Subordinated Loan,
which was consented to by United Commercial Bank, is collateralized by the
assets of the Company, including but not limited to any and all equipment owned
by the Company, inventory, and outstanding receivables. Prior to the
subordinated loan, as of August 31, 2002 the balance of loans due to Richard and
Judy Songer were $533,280.
From June 30, 2003 through September 30, 2003, William D. O'Neal gifted a total
of 220,000 shares of common stock previously issued to him to 44 persons who
were either family members, personal friends or business associates with whom
Mr. O'Neal had a prior existing relationship.
On February 24, 2004, William D. O'Neal returned 19,480,000 shares of the
Company's common stock previously issued to him to the treasury of the Company
for cancellation pursuant to the Articles of Merger.
On February 24, 2004, the Company issued 3,000,000 shares of its common stock
and 189,800 shares of its Series A Convertible Preferred Stock to Richard Songer
and Judy Songer as Joint Tenants in exchange for 100% of the issued and
outstanding common stock of SCL pursuant to the terms of the Articles of Merger.
34
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - continued
On February 24, 2004, the Company issued 750,000 shares of its common stock and
22,500 shares of its Series A Convertible Preferred Stock to Lori Heskett as
compensation for services rendered to the Company as Chief Operating Officer and
pursuant to the terms of the Articles of Merger.
On February 24, 2004, the Company issued 750,000 shares of its common stock and
22,500 shares of its Series A Convertible Preferred Stock to The Kagel Family
Trust as compensation for prior legal services rendered to the Company by David
Kagel, Attorney at Law, and pursuant to the terms of the Articles of Merger.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Principal Market or Markets
Our common stock is not listed on any exchange and there is no public trading
market for the common stock, and there has been no market.
Approximate Number of Common Stock Holders
As of February 24, 2004 we had 5,020,000 shares of common stock issued and
outstanding, held by approximately 49 shareholders. We had 234,800 shares of
preferred stock issued and outstanding held by 3 shareholders.
DIVIDEND POLICY
We have never declared or paid cash dividends on our common stock and anticipate
that future earnings, if any, will be retained for development of our business.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the compensation
paid by the Company for services rendered in all capacities to the Company from
September 1, 2002 through the fiscal year ended August 31, 2003, of all officers
and directors of the Company.
Name and Principal
Underlying
Positions at 8/31/03 Salary Bonus Compensation Options
- --------------------------------------------------------------------------------
Richard L.Songer $2,500 0 0 0
President/Director
Judy Songer 0 0 0 0
CFO/Secretary
SHARES ELIGIBLE FOR FUTURE SALE.
Upon completion of the offering, we will have 5,020,000 shares of common stock
outstanding. A current shareholder who is an "affiliate" of the Company, defined
in Rule 144 as a person who directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the Company, will be required to comply with the resale limitations of Rule 144.
Purchasers of shares in the offering, other than affiliates, may resell their
shares immediately. Sales by affiliates will be subject to the volume and other
limitations of Rule 144, including certain restrictions regarding the manner of
sale, notice requirements, and the availability of current public information
about the Company. The volume limitations generally permit an affiliate to sell,
within any three month period, a number of shares that does not exceed the
35
SHARES ELIGIBLE FOR FUTURE SALE - continued
greater of one percent of the outstanding shares of common stock or the average
weekly trading volume during the four calendar weeks preceding his sale. A
person who ceases to be an affiliate at least three months before the sale of
restricted securities beneficially owned for at least two years may sell the
restricted securities under Rule 144 without regard to any of the Rule 144
limitations.
LEGAL MATTERS
The validity of the shares offered hereby will be passed upon for the Company by
The O'Neal Law Firm, P.C., 668 North 44th Street, Suite 233, Phoenix, Arizona
85008.
EXPERTS
The financial statements of the Company as of August 31, 2003, included in this
prospectus have been audited by Henry Schiffer, C.P.A., independent certified
public accountants, as stated in the opinion, which has been rendered upon the
authority of said firm as experts in accounting and auditing.
TRANSFER AGENT
Our transfer agent is First American Transfer Company, 706 East Bell Road, #202,
Phoenix, Arizona 85022.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
There have been no changes in and/or disagreements with Henry Schiffer, C.P.A.
on accounting and financial disclosure matters.
36
PART II - FINANCIAL STATEMENTS
TABLE OF CONTENTS PAGE
REPORT OF INDEPENDENT AUDITORS ............................................ 38
BALANCE SHEETS ............................................................ 39
STATEMENTS OF OPERATIONS .................................................. 40
STATEMENTS OF CASH FLOWS .................................................. 41
STATEMENTS OF STOCKHOLDERS' EQUITY ........................................ 42
NOTES TO FINANCIAL STATEMENTS ......................................... 43 - 46
37
________________________________________________
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Southern California Logo, Inc.
We have audited the accompanying balance sheets of Southern California Logo,
Inc. (the Company) as of August 31, 2003 and 2002, and the related statements of
operations, stockholders' equity and cash flows for the two years in the period
ended August 31, 2003. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Southern California Logo, Inc.
at August 31, 2003 and 2002, and the results of its operations and its cash
flows for the two years in the period ended August 31, 2003, in conformity with
accounting principles generally accepted in the United States.
___________________________
/s/ HENRY SCHIFFER, CPA AAC
- ---------------------------
HENRY SCHIFFER
Beverly Hills, California
November 7, 2003
38
SEW CAL LOGO, INC.
BALANCE SHEETS
AUGUST 31, 2003 AND 2002
2003 2002
-------------- --------------
ASSETS
Current assets:
Cash and cash equivalents $ 44,714 $ 4,336
Accounts Receivable 202,902 76,272
Inventory 128,614 182,960
Prepaid franchise tax 800 -
Prepaid and other current assets 685 685
-------------- --------------
Total current assets 377,715 264,253
Noncurrent assets:
Property, equipment and machinery, net 270,188 288,310
Other assets 6,000 6,000
-------------- --------------
Total noncurrent assets 276,188 294,310
Total assets $ 653,903 $ 558,563
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 281,076 $ 43,493
Other current liabilities 69,543 17,789
-------------- --------------
Total current liabilities 350,619 61,282
Long-term liabilities:
Note payable-shareholder 355,384 533,280
Other liabilities 500,138 532,885
-------------- --------------
Total liabilities 1,206,141 1,127,448
-------------- --------------
Stockholders' equity:
Common stock:100 shares authorized; 100 shares
issued and outstanding at August 31, 2003
and 2002 5,000 5,000
Retained Deficit (557,238) (573,885)
-------------- --------------
Total stockholders' equity (552,238) (568,885)
Total liabilities and stockholders' equity 653,903 558,563
============== ==============
The accompanying notes are an integral part of these financial statement.
39
SEW CAL LOGO, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED AUGUST 31, 2003 AND 2002
2003 2002
-------------- --------------
Revenue:
Sales $ 2,328,471 $ 1,426,490
Cost of goods 1,654,651 428,661
-------------- --------------
Gross profit 673,820 997,829
-------------- --------------
Expenses:
Consulting fees 15,750 33,339
Depreciation and amortization 45,679 28,329
Rent 88,263 69,729
Salaries and benefits 142,196 839,377
Selling, general and administrative 353,717 345,696
-------------- --------------
Total expenses 645,605 1,316,470
-------------- --------------
Total operating income (loss) 28,215 (318,641)
Other Income and expenses:
Interest income - 17
Loss on sale of asset 10,767 -
-------------- --------------
Income (loss) before income taxes 17,447 (318,624)
-------------- --------------
Provision for income taxes 800 800
Net income (loss) 16,647 (319,424)
============== ==============
Shares outstanding 100 100
EPS $ 166.474 $ (3,194.240)
The accompanying notes are an integral part of these financial statement.
40
SEW CAL LOGO, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED AUGUST 31, 2003 AND 2002
<table>
<caption>
Common Stock
------------------------ Additional Retained Total
Outstanding Paid-In- Earnings Net Stockholders'
Shares Amount Capital (Deficit) Income (Loss) Equity
------------------------ ---------- ----------- ------------- -------------
Balance as of
September 1, 2001 100 $ 5,000 $ - $ (254,461) $ (249,461)
Net loss (319,424) $ (319,424) $ (319,424)
------------------------ ---------- ----------- ------------- -------------
Balance as of
August 31, 2002 100 5,000 - (573,885) $ (568,885)
Net income 16,647 16,647 $ 16,647
------------------------ ---------- ----------- ------------- -------------
Balance as of
August 31, 2003 100 5,000 - (557,238) (552,238)
=========== ============ ========== =========== ============= =============
</table>
The accompanying notes are an integral part of these financial statement.
41
SEW CAL LOGO, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 31, 2003 AND 2002
2003 2002
----------- -----------
Cash Flows from Operating Activities:
Net income (loss) $ 16,647 $ (319,424)
Adjustments to reconcile net income (loss) to net cash
provided by(used in) operating activities:
Depreciation and amortization 45,679 32,674
(Increase) decrease in inventory 54,346 5,000
(Increase) decrease in accounts receivable (126,630) 233,298
(Increase) decrease in prepaid franchise tax (800) 750
Increase (decrease) in accounts payable 237,583 (84,882)
Increase (decrease) in other current liabilities 51,754 4,464
----------- -----------
Net cash provided by (used in) operating activities 278,579 (128,120)
----------- -----------
Cash Flows from Investing Activities:
Purchases/disposals of equipment (27,557) (296,490)
----------- -----------
Cash used in investing activities (27,557) (296,490)
----------- -----------
Cash Flows from Financing Activities:
Repayment of borrowings from shareholder (177,896) 163,096
Other long term liabilities (32,747) 256,635
----------- -----------
Net cash provided by (used in) financing activities (210,643) 419,731
----------- -----------
Net increase (decrease) in cash and cash equivalents 40,379 (4,879)
Cash and cash equivalents at beginning of the year 4,336 9,215
----------- -----------
Cash and cash equivalents at end of the year 44,715 4,336
=========== ===========
The accompanying notes are an integral part of these financial statement.
42
SEW CAL LOGO, INC.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
The Company
C J Industries was incorporated in the State of California on August 30, 1985
and changed its name to Southern California Logo, Inc (the Company). The Company
transacts business as Sew Cal Logo.
The Company is located in Los Angeles, California. The Company produces and
manufactures custom embroidered hats, sportswear and related corporate
identification apparel. The Company provides an in-house, full-service custom
design center where original artwork and logo reproduction for embroidery are
available. The Company also offers contract embroidery and silk-screening to the
manufacturing and promotional industry. The Company's products are sold,
primarily in the United States, to Fortune 500 companies, major motion picture
and television studios, retailers, and local schools and small businesses.
Use of Estimates
The financial statements have been prepared in conformity with accounting
principles generally accepted in the United States, which require management to
make estimates, and assumptions that affect the reported amounts of assets and
liabilities (including disclosure of contingent assets and liabilities) at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Revenue Recognition
The Company recognizes revenue from product sales upon shipment, which is the
point in time when risk of loss is transferred to the customer, net of estimated
returns and allowances.
Cost of Goods Sold
For the years ended August 31, 2003 and 2002 cost of goods sold consisted of
product costs, freight and handling charges, and costs related to labor.
Cash and Cash equivalents
The Company maintains cash deposits in banks and in financial institutions
located in Southern California. Deposits in banks are insured up to $100,000 by
the Federal Deposit Insurance Corporation ("FDIC"). The Company has not
experienced any losses in such accounts and believes it is not exposed to any
significant credit risk on cash deposits.
Inventory
Inventory is stated at the lower of cost (first-in, first-out method) or market
and consists of raw material and work-in-process.
Property, Equipment and Machinery
Property, equipment and machinery are stated at cost. Depreciation is computed
using the straight-line method over their estimated useful lives ranging from
five to seven years. Depreciation and amortization expense for the fiscal years
August 31, 2003 and 2002 amounted to $45,679 and $28,329 respectively. Gains
43
NOTES TO FINANCIAL STATEMENTS - continued
from losses on sales and disposals are included in the statements of operations.
Maintenance and repairs are charged to expense as incurred. As of August 31,
2003 and 2002, property, equipment and machinery consisted of the following:
2003 2002
----------- -----------
Automobiles $ 40,754 $ 37,827
Office equipment 67,023 59,691
Furniture and fixtures 75,338 75,338
Machinery 549,054 534,804
Loan fees and organization costs 17,724 18,199
----------- -----------
Less: accumulated depreciation and amortization 479,704 437,550
----------- -----------
$ 270,188 $ 288,310
Fiscal Year
The Company operates on a fiscal year basis with a year ending August 31.
Per Share Information
Basic net earnings (loss) per common share is computed by dividing net earnings
(loss) applicable to common shareholders by the weighted-average number of
common shares outstanding during the period.
Segment Reporting
Pursuant to Statement of Financial Accounting Standards No. 131 ("SFAS No.
131"), "Disclosure about Segments of an Enterprise and Related Information," the
Company has determined it operated in only one segment.
Gross sales of similar products for the single segment are as follows:
2003 2002
----------- -----------
Caps, embroidery, and other $2,328,471 $1,426,490
2. Accounts Payable and Other Current Liabilities
As of August 31, 2003 and 2002, accounts payable and accrued liabilities
consisted of the following:
2003 2002
----------- -----------
Trade accounts payable $ 186,814 $ 43,493
Sales tax payable 664 9,024
Payroll taxes payable 0 8,765
Revolving credit 94,262 0
Line of credit 68,878 0
----------- -----------
$ 350,618 $ 61,282
44
NOTES TO FINANCIAL STATEMENTS - continued
3. Note Payable- Related Party
On March 1, 2003, for purposes of working capital, Richard and Judy Songer made
a $355,384 subordinated loan to the Company. The Company is obligated to pay
interest only on the Subordinated Loan during its term at the rate of 10% per
annum (fixed-rate calculated as simple interest). The entire principal amount of
the loan is due on March 1, 2004, although it may be prepaid in whole or in part
at any time by the Company without premium or penalty. The Subordinated Loan,
which was consented to by United Commercial Bank, is collateralized by the
assets of the Company, including but not limited to any and all equipment owned
by the Company, inventory, and outstanding receivables. Prior to the
subordinated loan, as of August 31, 2002 the balance of loans due to Richard and
Judy Songer were $533,280.
4. Commitments and Contingencies
Long-Term Debt
On March 25, 2002 the Company entered into an agreement with United Commercial
Bank for a $515,000 SBA loan. For the years ending August 31, 2003 and 2002, the
unpaid principal balance of the loan was $462,100 and $500,313 respectively. The
monthly required payment varies with an annual interest rate of 6.75% and a
maturity date of March 1, 2012. Loan fees related to the financing have been
capitalized into prepaid expenses and are being amortized over the term of the
loan.
On April 16, 2003 the Company entered an installment sale contract with GMAC for
the purchase of a vehicle. The total amount financed at signing was $40,754
which represents the total sale price. The agreement requires 60 monthly
payments of approximately $679 beginning on May 16, 2003 and ending on April 16,
2008. The outstanding balance for the year ending August 31, 2003 was $38,037.
Lease Commitments
The Company leases warehouse and office facilities under an operating lease
requiring the Company to pay property taxes and utilities. Rent expense for the
years ending August 31, 2003 and 2002 were $88,263 and $69,729 respectively.
5. Common Stock
The Company is authorized to issue fifty million (50,000,000) shares of common
stock and three hundred thousand (300,000) shares of preferred stock. For the
years ending August 31, 2003 and 2002, there were one hundred shares issued and
outstanding to Richard Songer.
6. Interest Expense
Interest expense for the years ending August 31, 2003 and 2002 was $106,371 and
$29,741, respectively. Interest expense on shareholders' loans aggregated
$51,764 for the year ending August 31, 2003.
45
NOTES TO FINANCIAL STATEMENTS - continued
7. Income Taxes
The provision for income taxes for the fiscal years ending August 31, 2003 and
2002 consisted of the following:
2003 2003
Current ----------- -----------
Federal $ 0 $ 0
State $ 800 $ 800
The Company prepays all franchise taxes. At August 31, 2003, federal income tax
operating loss carryforwards ("NOL's") were available to the Company in the
amount of $537,339.
8. Subsequent Events
In December 2003 Southern California Logo, Inc. merged into Calvert Corporation,
a Nevada corporation, which then changed its name to Sew Cal Logo, Inc. The
Company refers to the California corporation prior to the merger and the Nevada
corporation subsequent to the merger. The number of shares the Corporation will
have the authority to issue is fifty million (50,000,000) shares of common stock
and three hundred thousand (300,000) shares of preferred stock, both with par
values of $0.001 per share. The Nevada corporation will elect the fiscal year
end of the California corporation. Each share of the California corporation's
issued and outstanding stock will automatically convert into an aggregate of
4,500,000 shares of common stock and 234,800 shares of convertible preferred
stock. The Nevada corporation intends to file Form SB-2 (registering securities
to be sold to the public), with the SEC.
46
PART III - INFORMATION NOT REQUIRED IN PROSPECTUS
Indemnification of Directors and Officers.
The Company's Articles of Incorporation provide that it must indemnify its
directors and officers to the fullest extent permitted under Nevada law against
all liabilities incurred by reason of the fact that the person is or was a
director or officer or a fiduciary of the Company. The effect of these
provisions is potentially to indemnify the Company's directors and officers from
all costs and expenses of liability incurred by them in connection with any
action, suit or proceeding in which they are involved by reason of their
affiliation with the Company. Pursuant to Nevada law, a corporation may
indemnify a director, provided that such indemnity shall not apply on account
of:
(a) acts or omissions of the director finally adjudged to be intentional
misconduct or a knowing violation of law;
(b) unlawful distributions; or
(c) any transaction with respect to which it was finally adjudged that
such director personally received a benefit in money, property, or
services to which the director was not legally entitled.
The Bylaws of the Company, filed as Exhibit 3.2, provide that we will indemnify
our officers and directors for costs and expenses incurred in connection with
the defense of actions, suits, or proceedings against them on account of their
being or having been directors or officers of the Company, absent a finding of
negligence or misconduct in office.
The Company's Bylaws also permit us to maintain insurance on behalf of our
officers, directors, employees and agents against any liability asserted against
and incurred by that person whether or not we have the power to indemnify such
person against liability for any of those acts.
Other Expenses of Issuance and Distribution.
Expenses incurred or (expected) relating to this Registration Statement and
distribution are as follows: The amounts set forth are estimates except for the
SEC registration fee:
Amount
--------------
SEC registration fee $ 126.70
Printing and engraving expenses $ 300.00
Registration Statement fees and expenses $ 20,000.00
Accountants' fees and expenses $ 25,000.00
Transfer agent's and registrar's fees $ 750.00
and expenses
Miscellaneous $ 0.00
--------------
Total $ 46,176.70
The Registrant will bear all of the expenses shown above.
RECENT SALES OF UNREGISTERED SECURITIES
Set forth below is information regarding the issuance and sales of the Company's
securities without registration for the past three (3) years from the date of
this Registration Statement. No such sales involved the use of an underwriter,
no advertising or public solicitation were involved, the securities bear a
restrictive legend and no commissions were paid in connection with the sale of
any securities.
47
RECENT SALES OF UNREGISTERED SECURITIES - continued
On June 19, 2002, the Company issued 19,850,000 shares of its common stock to
its sole officer and director, William D. O'Neal, for services rendered in the
formation and organization of the Company. The value of such services to the
Company was $1,985.
On June 19, 2002, the Company issued 150,000 shares of its common stock to
Stephen F. Burg for services rendered in the formation and organization of the
Company. The value of such services to the Company was $150.
On February 24, 2004, the Company issued 3,000,000 shares of its common stock
and 189,800 shares of its Series A Convertible Preferred Stock to Richard Songer
and Judy Songer as Joint Tenants in exchange for 100% of the issued and
outstanding common stock of SCL pursuant to the terms of the Articles of Merger.
On February 24, 2004, the Company issued 750,000 shares of its common stock and
22,500 shares of its Series A Convertible Preferred Stock to Lori Heskett as
compensation for services rendered to the Company as Chief Operating Officer and
pursuant to the terms of the Articles of Merger.
On February 24, 2004, the Company issued 750,000 shares of its common stock and
22,500 shares of its Series A Convertible Preferred Stock to The Kagel Family
Trust as compensation for prior legal services rendered to the Company by David
Kagel, Attorney at Law, and pursuant to the terms of the Articles of Merger.
The foregoing shares were issued in private transactions or private placements
intending to meet the requirements of one or more exemptions from registration.
In addition to any noted exemption below, we relied upon Section 4(2) of the
Securities Act of 1933, as amended ("Act"), given the transactions did not
involve public solicitation or advertising, and the securities issued bore a
restricted legend thereon as "restricted securities." As to the Section 4(2)
transactions, we relied upon Section 4(2) of the Securities Act of 1933, as
amended. The investors were not solicited through any form of general
solicitation or advertising, the transactions being non-public offerings, and
the sales were conducted in private transactions where the investor identified
an investment intent as to the transaction without a view to an immediate resale
of the securities; the shares were "restricted securities" in that they were
both legended with reference to Rule 144 as such and the investors identified
they were sophisticated as to the investment decision and in most cases we
reasonably believed the investors were "accredited investors" as such term is
defined under Regulation D based upon statements and information supplied to us
in writing and verbally in connection with the transactions. We never utilized
an underwriter for an offering of our securities. Other than the securities
mentioned above, we have not issued or sold any securities.
EXHIBITS
The following exhibits are filed as part of this Registration Statement:
Exhibit
Number Description
------ -----------------------------------
3.1 Articles of Incorporation
3.2 Articles and Plan of Merger
3.3 Amended and Restated Bylaws
3.4 Certificate of Designation
3.5 Building Lease
5.1 Legal Opinion and Consent of Counsel
23.1 Consent of Independent Auditors
48
UNDERTAKINGS
The undersigned registrant hereby undertakes:
1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(a) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(b) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which is
being registered) any deviation from the high or low end of the
estimated maximum range may be reflected in the form of prospectus
filed with the commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a
20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and
(c) To include any additional or changed material information on the plan
of distribution.
2) For determining liability under the Securities Act, treat each post-effective
amendment as a new registration statement of the securities offered and the
offering of the securities at that time to be the initial bona fide offering.
3) File a post-effective amendment to remove from registration any of the
securities being registered, which remain unsold at the end of the offering.
4) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
Company, Inc. pursuant to provisions of the State of Nevada or otherwise, the
Company has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in that
Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by us of expenses incurred or paid by a director, officer or
controlling person of us in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, we will, unless in the opinion
of our counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
us is against public policy as expressed in the Securities Act and we will be
governed by the final adjudication of such issue.
49
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Phoenix, Arizona, United States of America.
Sew Cal Logo, Inc.
By: /s/ Richard L. Songer Date: March 1, 2004
---------------------
Richard L. Songer
President
By: /s/ Judy Songer Date: March 1, 2004
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Judy Songer
Chief Financial Officer
By: /s/ Lori Heskett Date: March 1, 2004
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Lori Heskett
Chief Operating Officer
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the date stated.
By: /s/ Richard L. Songer Date: March 1, 2004
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Richard L. Songer
Director
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