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SECURITIES AND EXCHANGE COMMISSION
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Washington, D.C. 20549
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Form SB - 2
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REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
SEW CAL LOGO, INC.
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(Exact name of registrant as specified in its charter)
Nevada 5651 46-0495298
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(State or other jurisdiction (Primary Standard Industrial (IRS Employer
of incorporation or Classification Code Number) identification No.)
organization)
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
(310) 352-3300
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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. [X]
1
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. [ ]
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. [ ]
2
<table>
<caption>
CALCULATION OF REGISTRATION FEE
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Title of each Proposed Proposed
Class of Maximum Maximum Amount of
Securities to Amount to be Offering Price Aggregate Registration
be Registered Registered per Share (1) Offering Price Fee
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520,000 $0.25 $130,000 $161.71
Common Stock
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</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) Fixed offering price was set by the selling shareholders until securities
are quoted on the OTC Bulletin Board or other national exchange, and
thereafter at prevailing market prices or privately negotiated prices.
3
PROSPECTUS
520,000 shares of common stock
SEW CAL LOGO, INC.
207 W. 138th Street
Los Angeles, California 90061
(310) 352-3300
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.
The sales price to the public was set by the selling shareholders at $0.25 per
share for a total of $130,000. The price of $0.25 per share is a fixed price
until the shares are listed on the OTC Bulletin Board or other national
exchange, and thereafter at prevailing market prices or privately negotiated
prices.
INVESTORS IN THE COMMON STOCK SHOULD HAVE THE ABILITY TO LOSE THEIR ENTIRE
INVESTMENT SINCE AN INVESTMENT IN THE COMMON STOCK IS SPECULATIVE AND SUBJECT TO
MANY RISKS. See "Risk Factors," which begins on page 7.
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 offense.
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 April 19, 2004.
4
TABLE OF CONTENTS
PART I - Summary Information and Risk Factors................................. 7
Prospectus Summary............................................................ 7
The Offering.................................................................. 8
Summary of Financial Information ............................................. 8
Risk Factors.................................................................. 8
Forward-Looking Statements....................................................11
Use of Proceeds...............................................................11
Determination of Offering Price...............................................12
Dilution......................................................................12
Selling Security Holders......................................................12
Plan of Distribution..........................................................15
Legal Proceedings.............................................................16
Directors, Executive Officers, Promoters and Control Persons..................16
Security Ownership of Certain Beneficial Owners and Management................18
Description of Securities.....................................................19
Interests of Named Experts and Counsel........................................21
Description of Business.......................................................21
Management's Discussion and Analysis or Plan of Operation.....................25
Description of Property.......................................................29
Certain Relationships and Related Transactions................................29
Market for Common Equity and Related Shareholder Matters......................30
Dividend Policy...............................................................30
Executive Compensation........................................................30
Shares Eligible for Future Sale...............................................31
Legal Matters.................................................................31
Securities Act Indemnification Disclosure.....................................31
Experts.......................................................................31
Transfer Agent................................................................31
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosures ..................................................................31
5
PART II - Financial Statements................................................32
PART III - Information Not Required in Prospectus.............................43
Indemnification of Officers and Directors.....................................43
Other Expenses of Issuance and Distribution ..................................43
Recent Sales of Unregistered Securities.......................................43
Exhibits......................................................................45
Undertakings..................................................................45
Signatures....................................................................46
6
PART I - SUMMARY INFORMATION AND RISK FACTORS
PROSPECTUS SUMMARY
Unless the context indicates otherwise, all references in this prospectus to
"we," or "Sew Cal," 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 and Disney, as well
as numerous independent production companies.
We are also a manufacturer of surf and skate related apparel. 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 the major brands for both domestic sales and export of "Made in the USA"
products.
Our executive offices are located at 207 W. 138th Street Los Angeles, California
90061. Our telephone number is (310) 352-3300.
THE OFFERING
Securities Offered: Up to 520,000 shares of common stock. The securities
being offered are those of the existing shareholders
only.
Price per share: $0.25 as determined by the selling shareholders. The
price of $0.25 per share is a fixed price until the
securities are listed on the OTC Bulletin Board or
other national exchange, and thereafter at prevailing
market prices or privately negotiated prices.
Securities Issued
And Outstanding: 5,020,000 shares of common stock and 234,88 shares of
our Series A Preferred Stock were issued and
outstanding as of the date of this prospectus.
Use of Proceeds: We will not receive any proceeds from the sale of the
common stock by the selling shareholders.
Plan of Distribution: We are unaware of the nature and timing of any future
sales of our common stock by existing security
shareholders.
Registration Costs: We estimate our total offering registration costs to be
$46,211.71.
7
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 Feb. 29, 2004
- ---------------- (unaudited) 2003 2002
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Revenues $1,447,097.00 $2,328,471.00 $1,426,507.00
Net Income (Loss) $ 50,553.00 $ 14,619.00 $ (319,424.00)
Net Income (Loss) per Share $ 0.02 $ a* $ (0.11)
Balance Sheet Feb. 29, 2004 As of As of
- ------------ (unaudited) Aug. 31, 2003 Aug. 31, 2002
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Total Assets $ 642,046.00 $ 651,874.00 $ 558,563.00
Total Liabilities $1,144,214.00 $1,206,140.00 $ 1,127,448.00
Shareholders' Equity (Deficit) $ (502,713.00) $ (554,456.00) $ (569,075.00)
* a: Less than $0.01
RISK FACTORS
Investors in Sew Cal Logo, Inc. should carefully consider the following risk
factors associated with our plans and product:
We may need to raise additional funds to the extent that current cash flows are
insufficient to fund future on-going operations.
We anticipate that our cash flows from operations will be adequate to satisfy
our capital requirements for current operations for the next twelve (12) months.
To the extent that the funds generated by our on-going operations are
insufficient to fund our 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 us.
If adequate capital is not available, we may be unable to fully execute our
business plan as set forth herein.
Our business is subject to continuous change.
The market for the products we provide is characterized by rapid changes in the
competitive landscape, changing consumer requirements and preferences, new
product introductions and evolving industry standards that could render our
products obsolete. Our success will depend, in large part, on our ability to
improve such products, develop new products that address the increasingly varied
needs of our customers, and respond to competitive product offerings. We may not
be successful in responding quickly, cost-effectively and sufficiently to these
developments. If we were unable, for technical, financial or other reasons, to
adapt in a timely manner in response to changing market conditions or
requirements, our business, results of operations and financial condition would
be materially adversely affected.
Our success may be based on our ability to accurately forecast our sales and
schedule delivery of our products.
8
RISK FACTORS - continued
We must forecast sales of each of our products and establish production
schedules based on our forecasts in order to build sufficient inventory in a
timely fashion to avoid significant delays in delivery of finished goods to our
customers. If we misjudge the market for a particular line, we could be faced
with either excessive or insufficient inventory. Furthermore, a casualty or
other business interruption could disrupt our production and delivery schedules.
Any such misjudgment or business interruption could have a material adverse
effect on our business.
Our sales are subject to seasonal demand.
Our 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 our sales volume may adversely
affect the operating results if we are unable to proportionately reduce our
expenses in a timely manner.
Delays in the availability of raw materials could affect our ability to timely
deliver our products.
We rely 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.
We need to anticipate and respond to fashion trends within our industry.
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, outdoors 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.
Distributors may not accept our products.
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.
9
RISK FACTORS - continued
We are dependent on our management team.
Our success depends largely on the skills of certain key management, in
particular our President, Richard Songer. We do not have employment agreements
with our executive officers, key management or other employees and, therefore,
they could terminate their employment at any time without penalty. We do not
maintain key person life insurance policies on any of our employees. The loss of
one or more of our key employees, particularly Mr. Songer, could seriously harm
our business. We 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 and 90.42% of our Series A Preferred 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 our company. Our officers and directors do not
intend to purchase any of the shares in this offering.
We operate in a highly competitive market.
o The motion picture wardrobe and youth, active and sports apparel industries
are highly competitive, with many of our competitors having greater name
recognition and resources than we do, particularly in the youth, active and
sports apparel industry. 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 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 we intend to offer. If we fail 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.
Shareholders could experience substantial dilution.
Over the next twelve (12) months, we intend to issue additional shares of our
equity securities to raise additional cash to expand our operations. If we issue
additional shares of our capital stock, shareholders will experience dilution in
their respective percentage ownership in our company.
There can be no assurance that our common stock will ever be publicly traded or
appreciate significantly in value.
We, in conjunction with certain broker-dealers, intend to apply to the National
Association of Securities Dealers ("NASD") to have our 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 our common stock becomes
publicly traded, no assurance can be given that our common stock will ever be
traded on an established national securities exchange or that our business
strategy will be well received by the investment community.
10
RISK FACTORS - continued
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.
We have no present intention to pay dividends.
We have never paid dividends or made other cash distributions on the common
stock, and do not expect to declare or pay any dividends in the foreseeable
future. We intend to retain future earnings, if any, for working capital and to
finance current operations and expansion of its business.
We may be subject to 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.
11
DETERMINATION OF OFFERING PRICE
The shareholders set the offering price of the common stock at $0.25 per share.
The shareholders arbitrarily set the offering price based upon their collective
judgment as to a price per share they were willing to accept. The price of $0.25
per share is a fixed price until the securities are listed on the OTC Bulletin
Board or other national exchange, and thereafter at prevailing market prices or
privately negotiated prices.
DILUTION
Since this offering is being made solely by the selling stockholders and none of
the proceeds will be paid to our us, 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 April 15, 2004, and the number of shares being registered. The selling
shareholders have furnished all information with respect to share ownership. 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.
The following table provides as of April 15, 2004, information regarding the
beneficial ownership of our common stock held by each of the selling
shareholders, including:
1. The number of shares owned by each prior to this offering;
2. The total number of shares that are to be offered for each;
3. The total number of shares that will be owned by each upon completion of the
offering;
4. The percentage owned by each; and
5. The identity of the beneficial holder of any entity that owns the shares.
To the best of our knowledge, the named parties in the table that follows are
the beneficial owners and have the sole voting and investment power over all
shares or rights to the shares reported. In addition, the table assumes that the
selling shareholders do not sell shares of common stock not being offered
through this prospectus and do not purchase additional shares of common stock.
The column reporting the percentage owned upon completion assumes that all
shares offered are sold, and is calculated based on 5,020,000 shares outstanding
on April 15, 2004.
12
<table>
<caption>
Selling Shareholders Shares Shares Shares Percentage Percentage
of of of of of
Common Common Common Common Common
Stock Stock Stock Stock Stock
Owned to be Owned Owned Owned
Prior Offered After Before After
to for the the the
Offering Sale Offering Offering Offering
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William O'Neal 150,000 150,000 0 2.99% 0
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Stephen Burg 150,000 150,000 0 2.99% 0
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Dwain Mendenhall 5,000 5,000 0 .001% 0
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Greg Fletcher 5,000 5,000 0 .001% 0
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Mitchell L. Costa 5,000 5,000 0 .001% 0
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John Briggs 5,000 5,000 0 .001% 0
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Howard Eaves 5,000 5,000 0 .001% 0
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Kim Eaves 5,000 5,000 0 .001% 0
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Nora Schumacher 5,000 5,000 0 .001% 0
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Joseph Elias 5,000 5,000 0 .001% 0
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Paul R. Perdue 5,000 5,000 0 .001% 0
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Keith L. Martin 5,000 5,000 0 .001% 0
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Joshua A. Honaker 5,000 5,000 0 .001% 0
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Abigail D. Honaker 5,000 5,000 0 .001% 0
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Erica R. Honaker 5,000 5,000 0 .001% 0
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Dana Anderson 5,000 5,000 0 .001% 0
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Jason Thomas Kicinski 5,000 5,000 0 .001% 0
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William Beaver 5,000 5,000 0 .001% 0
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Ralph Kinkade 5,000 5,000 0 .001% 0
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Wess Fischer 5,000 5,000 0 .001% 0
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Jeannine Herold 5,000 5,000 0 .001% 0
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Buddy S. Lound 5,000 5,000 0 .001% 0
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Brooks Stark 5,000 5,000 0 .001% 0
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13
SELLING SECURITY HOLDERS - continued
Veronica Loux 5,000 5,000 0 .001% 0
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Rocco Pelletiere 5,000 5,000 0 .001% 0
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Sam Buonauro 5,000 5,000 0 .001% 0
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Fawn Heckman 5,000 5,000 0 .001% 0
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Chris Coble 5,000 5,000 0 .001% 0
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Robin Mellas 5,000 5,000 0 .001% 0
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Salvatore Portuesi 5,000 5,000 0 .001% 0
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Craig Woods Schiemann 5,000 5,000 0 .001% 0
- ----------------------------------------------------------------------------------------------------
Ralph Marx 5,000 5,000 0 .001% 0
- ----------------------------------------------------------------------------------------------------
Mark Perlmutter 5,000 5,000 0 .001% 0
- ----------------------------------------------------------------------------------------------------
Harry Billups 5,000 5,000 0 .001% 0
- ----------------------------------------------------------------------------------------------------
Leveatt Biles 5,000 5,000 0 .001% 0
- ----------------------------------------------------------------------------------------------------
Christina Deegan 5,000 5,000 0 .001% 0
- ----------------------------------------------------------------------------------------------------
William M. Deegan 5,000 5,000 0 .001% 0
- ----------------------------------------------------------------------------------------------------
Palmyre L. Zele 5,000 5,000 0 .001% 0
- ----------------------------------------------------------------------------------------------------
Peter de Krey 5,000 5,000 0 .001% 0
- ----------------------------------------------------------------------------------------------------
Christopher Lyden, D.C. 5,000 5,000 0 .001% 0
- ----------------------------------------------------------------------------------------------------
Donald Chad Schaffer 5,000 5,000 0 .001% 0
- ----------------------------------------------------------------------------------------------------
Anthony Pelletiere 5,000 5,000 0 .001% 0
- ----------------------------------------------------------------------------------------------------
Dianah H. Terry 5,000 5,000 0 .001% 0
- ----------------------------------------------------------------------------------------------------
Dann C. Terry 5,000 5,000 0 .001% 0
- ----------------------------------------------------------------------------------------------------
Robert Beaver 5,000 5,000 0 .001% 0
- ----------------------------------------------------------------------------------------------------
Rhonda Beaver 5,000 5,000 0 .001% 0
- ----------------------------------------------------------------------------------------------------
Total 520,000 520,000 0 10.4% 0
- ----------------------------------------------------------------------------------------------------
</table>
To our knowledge, none of the selling shareholders:
1. Has had a material relationship with Sew Cal other than as a shareholder as
noted above at any time within the past three (3) years;
2. Has ever been an officer or director of Sew Cal; or
3. Are broker-dealers or affiliated with broker-dealers.
14
PLAN OF DISTRIBUTION
The selling shareholders have not informed us of how they plan to sell their
shares. However, they may sell some or all of their common stock in one or more
transactions:
1. on such public markets or exchanges as the common stock may from time to
time be trading;
2. in privately negotiated transactions; or
3. in any combination of these methods of distribution.
The sales price to the public has been determined by the shareholders to be
$0.25. The price of $0.25 per share is a fixed price until the securities are
listed on the OTC Bulletin Board or other national exchange, and thereafter at
prevailing market prices or privately negotiated prices.
The shares may also be sold in compliance with the Securities and Exchange
Commission's Rule 144. Under Rule 144, several provisions must be met with
respect to the sales of control securities at any time and sales of restricted
securities held between one and two years. The following is a summary of the
provisions of Rule 144: (a) Rule 144 is available only if the issuer is current
in its filings under the Securities Exchange Act of 1934. Such filings include,
but are not limited to, the issuer's quarterly reports and annual reports; (b)
Rule 144 allows resale of restricted and control securities after a one year
hold period, subjected to certain volume limitations, and resale's by
non-affiliates holders without limitations after two years; (c) The sales of
securities made under Rule 144 during any three-month period are limited to the
greater of: (i) 1% of the outstanding common stock of the issuer; or (ii) the
average weekly reported trading volume in the outstanding common stock reported
on all securities exchanges during the four calendar weeks preceding the filing
of the required notice of the sale under Rule 144 with the SEC.
The selling shareholders may also sell their shares directly through market
makers acting in their capacity as broker-dealers. We will apply to haveours
shares of common stock registered on the OTC Bulletin Board immediately after
the date of this prospectus. We anticipate once the shares are trading on the
OTC Bulletin Board the selling shareholders will sell their shares directly into
any market created. Selling shareholders will offer their shares at a fixed
price of $0.25 per share until the common stock is trading on the OTC Bulletin
Board at which time the prices the selling shareholders will receive will be
determined by the market conditions. Selling shareholders may also sell in
private transactions. We cannot predict the price at which shares may be sold or
whether the common stock will ever trade on any market. The selling shareholders
may sell the shares, as the case may be, from time to time, in one or more
transactions. We do not intend to enter into any arrangements with any
securities dealers concerning solicitation of offers to purchase the shares.
Commissions and discounts paid in connection with the sale of the shares by the
selling shareholders will be determined through negotiations between them and
the broker-dealers through or to which the securities are to be sold and may
vary, depending on the broker-dealers fee schedule, the size of the transaction
and other factors. The separate costs of the selling shareholders will be borne
by them. The selling shareholders will, and any broker-broker dealer or agent
that participates with the selling shareholders in the sale of the shares by
them may be deemed an "underwriter" within the meaning of the Securities Act,
and any commissions or discounts received by them and any profits on the resale
of shares purchased by them may be deemed to be underwriting commissions under
the Securities Act. In the event any selling shareholder engages a broker-dealer
to distribute its shares, and the broker-dealer is acting as underwriter, we
will be required to file a post-effective amendment containing the name of the
underwriter.
15
PLAN OF DISTRIBUTION - continued
The selling shareholders must comply with the requirements of the Securities Act
of 1933 and the Securities Exchange Act of 1934 in the offer and sale of their
common stock. In particular, during times that the selling shareholders may be
deemed to be engaged in a distribution of the common stock, and therefore be
considered to be an underwriter, they must comply with applicable law.
Regulation M prohibits certain market activities by persons selling securities
in a distribution. To demonstrate their understanding of those restrictions and
others, selling shareholders will be required, prior to the release of
unlegended shares to themselves or any transferee, to represent as follows: that
they have delivered a copy of this prospectus, and if they are effecting sales
on the Electronic Bulletin Board or inter-dealer quotation system or any
electronic network, that neither they nor any affiliates or person acting on
their behalf, directly or indirectly, has engaged in any short sale of our
common stock; and for a period commencing at least five (5) business days before
his first sale and ending with the date of his last sale, bid for, purchase, or
attempt to induce any person to bid for or purchase our common stock.
We can provide no assurance that all or any of the common stock offered will be
sold by the selling shareholders.
We are bearing all costs relating to the registration of the common stock. Any
commissions or other fees payable to brokers or dealers in connection with any
sale of the common stock, however, will be borne by the selling shareholders or
other party selling the common stock. We will use our best efforts to update the
registration statement and maintain its effectiveness for one year.
LEGAL PROCEEDINGS
We are not currently involved in any legal proceedings and we are not aware of
any pending or potential legal actions.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The directors and executive officers currently serving the Company are as
follows:
Name Age Position Term Commenced Term Expires
- ----------------- ----- -------------------------------------------------------
Richard L. Songer 56 President/Director Feb. 24, 2004 Feb. 23, 2005
Judy Songer 52 Chief Financial Feb. 24, 2004 Feb. 23, 2005
Officer/Secretary
Lori Heskett 48 Chief Operating Feb. 24, 2004 Feb. 23, 2005
Officer/Executive Vice
President
The foregoing persons may be deemed "promoters" of Sew Cal, as that term is
defined in the rules and regulations promulgated under the Securities and
Exchange Act of 1933.
Directors are elected to serve until the next annual meeting of stockholders and
until their successors have been elected and qualified. Officers are appointed
to serve until the meeting of the board of directors following the next annual
meeting of stockholders and until their successors have been elected and
qualified.
16
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS - continued
The directors and officers are full time employees of Sew Cal.
No executive officer or director of Sew Cal has been the subject of any order,
judgment, or decree of any court of competent jurisdiction, or any
regulatory agency permanently or temporarily enjoining, barring, suspending or
otherwise limiting him or her from acting as an investment advisor, underwriter,
broker or dealer in the securities industry, or as an affiliated person,
director or employee of an investment company, bank, savings and loan
association, or insurance company or from engaging in or continuing any conduct
or practice in connection with any such activity or in connection with the
purchase or sale of any securities.
No executive officer or director of Sew Cal has been convicted in any criminal
proceeding (excluding traffic violations) or is the subject of a criminal
proceeding, which is currently pending.
No executive officer or director of Sew Cal is the subject of any pending
legal proceedings.
Richard Songer, President, Director, Age 56. Mr. Songer and his wife Judy in
1985, founded Southern California Logo, Inc.. Through personal relationships and
quality manufacturing he has established our 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. Mr. Songer is a 1969 graduate
of Virginia Tech. He and his family have resided in Southern California since
1981. Mr. Songer does not, and has not, served as an officer or director of any
other public company.
Judy Songer, Chief Financial Officer, Secretary & Treasurer, Age 52. Ms. 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
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. Ms. Songer does not, and has not, served as
an officer or director of any other public company.
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.
17
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS - continued
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. Ms. Heskett does not, and has
not, served as an officer or director of any other public company.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth, as of April 15, 2004, certain information with
respect to the beneficial ownership of our common and preferred stock by (i)
each director and officer of Sew Cal, (ii) each person known to Sew Cal 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.
Name of Beneficial Owner Common 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 (2) 750,000 14.94%
COO/Executive V.P.
207 W. 138th Street
Los Angeles, California 90061
Kagel Family Trust (3) 750,000 14.94%
1801 Century Park East
25th Floor
Los Angeles, California 90067
- --------------------------------------------------------------------------------
Total Director/Officer/ 4,500,000 89.64%
5% Owners
18
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - continued
Name of Beneficial Owner Preferred Shares Beneficially
or Name of Officer or Director Owned Percent
- --------------------------------------------------------------------------------
Richard Songer 189,800 80.84%
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 (2) 22,500 9.58%
COO/Executive V.P.
207 W. 138th Street
Los Angeles, California 90061
Kagel Family Trust (3) 22,500 9.58%
1801 Century Park East
25th Floor
Los Angeles, California 90067
- --------------------------------------------------------------------------------
Total Director/Officer/ 234,800 100%
5% Owners
(1) Richard Songer and Judy Songer beneficially own an aggregate total of
3,000,000 shares of our common stock and 189,800 shares of our Series
A Preferred Stock as Joint Tenants with Rights of Survivorship, which
they received pursuant to the Articles of Merger in exchange for one
hundred percent (100%) of their common stock in SCL.
(2) 750,000 shares of our common stock and 22,500 shares of our Series A
Preferred Stock were issued to Lori Heskett pursuant to the Articles
of Merger in exchange for one hundred percent (100%) of her common
stock in Southern California Logo, Inc. previously issued for services
rendered.
(3) David L. Kagel and Ina P. Kagel are the trustees and sole
beneficiaries of The Kagel Family Trust. 750,000 shares of our common
stock and 22,500 shares of our Series A Preferred Stock were issued to
The Kagel Family Trust pursuant to the Articles of Merger in exchange
for one hundred percent (100%) of its common stock in Southern
California Logo, Inc. previously issued for legal services.
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 Sew Cal 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.
Common Stock
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
19
DESCRIPTION OF SECURITIES - continued
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 our company, holders are entitled to receive,
ratably, the net assets available to shareholders after payment of all
creditors.
Series A Preferred Stock
Shares of Series A Preferred Stock shall be issued to officers, directors,
employees and consultants to Sew Cal. Each share of Series A Preferred Stock (i)
may be converted into one hundred (100) shares of common stock when Sew Cal has
met sales of at least $10,000,000 in any fiscal year as reported in our audited
financial statements for such fiscal year.
Subject to the provisions for adjustment, 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, or
(iii) shares of common stock.
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, Sew Cal 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 Sew Cal
ranking, as to dividends or as to distributions in the event of a liquidation,
dissolution or winding-up of Sew Cal, 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, as to dividends or as to distributions in the event
of a liquidation, dissolution or winding-up of Sew Cal, 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 Sew Cal 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 Sew Cal, junior to the Series A Preferred Stock.
20
DESCRIPTION OF SECURITIES - continued
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.
The rights, privileges and preferences of the Series A Convertible Preferred
Stock are set forth in their entirety in the Certificate of Designation attached
to this Registration Statement as Exhibit 3.4.
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
Sew Cal Logo, Inc. 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, we
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 Sew Cal. SCL was the
"disappearing company" and Sew Cal 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 surviving company by (i) increasing
the authorized capital of the surviving 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 surviving company to "Sew
Cal Logo, Inc."
Immediately prior to the effective date of the merger, we had 20,000,000 shares
of our common stock issued and outstanding. Pursuant to the Articles of Merger,
we issued an additional 4,500,000 shares of common stock to the three (3)
shareholders of SCL. William D. O'Neal, our president, secretary, treasurer and
sole director resigned and returned 19,480.000 shares of our common stock to our
treasury for cancellation. Mr. O'Neal retained 150,000 shares of our common
stock previously issued to him. Thus, upon the effective date of the merger, we
had 5,020,000 shares of our common stock issued and outstanding out of
50,000,000 shares authorized. Upon the effective date of the merger, we also
issued a total of 234,800 shares of our Series A Convertible Preferred Stock to
the three (3) shareholders of SCL. Thus, upon the effective date of the merger,
we had 234,800 shares of our Series A Convertible Preferred Stock issued and
outstanding out of 300,000 shares authorized.
We have not been involved in any bankruptcy, receivership or similar
proceedings.
21
DESCRIPTION OF BUSINESS - continued
The Business
Film Wardrobe & Related Entertainment Business
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 we have 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 we 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 us a leading supplier of our kind today. From the gift shop
items featured in Jurassic Park to patches and clothing worn in Terminator 2 and
3, we have 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 our production for both domestic sales and export of "Made
in the USA" products. We are 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 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 (12) months. During 2003, the Company has expanded its management
team to include Lori Heskett, who has more than twenty-five (25) years of
experience in this and related fields. Ms. Heskett brought to us 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.
22
DESCRIPTION OF BUSINESS - continued
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.
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
23
DESCRIPTION OF BUSINESS - continued
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 we do. 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.
Dependence on One or a Few Major Customers
We do not depend on any one or a few major customers.
Patents, Trademarks, Franchises, Concessions, Royalty Agreements, or Labor
Contracts
We have no current plans for any registrations such as patents, trademarks,
copyrights, franchises, concessions, royalty agreements or labor contracts. We
will assess the need for any copyright, trademark or patent applications on an
ongoing basis.
Need For Government Approval for its Products or Services
We are not required to apply for or have any government approval for our
products or services.
Effect of Governmental Regulations on our Business
We will be subject to federal laws and regulations that relate directly or
indirectly to our operations. We will be subject to common business and tax
rules and regulations pertaining to the operation of our business in the State
of California.
24
DESCRIPTION OF BUSINESS - continued
Research and Development Costs for the Past Two Years
We have not expended funds for research and development costs in the past two
years.
Costs and Effects of Compliance with Environmental Laws and Regulations
Environmental regulations have had no materially adverse effect on our
operations to date, but no assurance can be given that environmental regulations
will not, in the future, result in a curtailment of service or otherwise have a
materially adverse effect on our business, financial condition or results of
operation. Public interest in the protection of the environment has increased
dramatically in recent years. The trend of more expansive and stricter
environmental legislation and regulations could continue. To the extent that
laws are enacted or other governmental action is taken that imposes
environmental protection requirements that result in increased costs, our
business and prospects could be adversely affected.
Equity Incentive Plan
We currently have no equity incentive or option plan in place.
Number of Employees
We currently employ approximately 110 full-time employees and no part-time
employees.
Reports to Securities Holders
We intend to provide an annual report that includes audited financial
information to our shareholders. We will make our financial information equally
available to any interested parties or investors through compliance with the
disclosure rules of Regulation S-B for a small business issuer under the
Securities Exchange Act of 1934. We will become subject to disclosure filing
requirements once our SB-2 registration statement becomes effective, including
filing Form 10-KSB annually and Form 10-QSB quarterly. In addition, we will file
Form 8-K and other proxy and information statements from time to time as
required. We do not intend to voluntarily file the above reports in the event
that our obligation to file such reports is suspended under the Exchange Act.
The public may read and copy any materials that we file with the Securities and
Exchange Commission, ("SEC"), at the SEC's Public Reference Room at 450 Fifth
Street NW, Washington D. C. 20549. The public may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The
SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy
and information statements, and other information regarding issuers that file
electronically with the SEC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion is intended to provide an analysis of our financial
condition and Plan of Operation and should be read in conjunction with our
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. Our 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.
25
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 (12) 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 our 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 (2) to
three (3) sales and customer service representatives (in-house and outside) to
assist us in meeting our current forecasts for the next twelve (12) 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 (2) 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, its
current trends, a look at our competition, and a review of potential business
26
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION - continued
opportunities. As a result, we acquired the accounts of a competitor, El Segundo
Hat Company, which was generating approximately $3,000,000 in annual sales. We
hired its 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 entertainment wardrobe 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. As the country has
gone 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.
Over the next twelve (12) months, we intend to seek additional equity capital of
$1,000,000 to $3,000,000 that 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.
27
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION - continued
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.
We earned revenues of $2,328,471 for the year ended August 31, 2003 compared to
revenues of $1,426,507 for the year ended August 31, 2002. For the six-month
period ending February 29, 2004, we earned revenues $1,447,097. 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.
We had total assets of $651,874 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.
For the six-month period ending February 29, 2004, we had total assets of
$642,046.
We had total current liabilities of $350,618 at August 31, 2003 compared to
total current liabilities of $61,283 at August 31, 2002, reflecting an increase
in accounts payable for raw materials and supplies for manufacturing of our
product line. For the six-month period ending February 29, 2004, we had total
current liabilities of $309,726.
At August 31, 2003, we had $44,714 in cash and cash equivalents, compared to
$4,336 in cash and cash equivalents at the year ended August 31, 2002,
reflecting increased business and cash on hand. For the six-month period ending
February 29, 2004, we had cash and cash equivalents of $230,770.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $249,375 for the year ended
August 31, 2003, compared to $315,955 for the year ended August 31, 2002. The
increase is attributable to our overall expansion and growth. For the six-month
period ending February 29, 2004, we had selling, general and administrative
expenses of $237,150.We expect such expenses to increase as our operations
continue to grow.
Liquidity and Capital Resources
At August 31, 2003, our total assets of $651,874 exceeded current liabilities of
$350,618. At August 31, 2002, our total assets of $558,563 exceeded current
liabilities of $61,283. For the six-month period ending February 29, 2004, our
total assets of $642,046 exceeded current liabilities of $309,726. At August 31,
2003, we had cash and cash equivalents of $44,714, compared to August 31, 2002,
where we had cash and cash equivalents of $4,336. For the six-month period
ending February 29, 2004, we had cash and cash equivalents of $18,406. 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
28
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION - continued
operations for the next twelve (12) months. We can continue current operations
with reasonable annual growth from existing sales, cash flows and profits.
Long-Term Debt
On March 25, 2002 we 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. The outstanding balance of the loan for the six-month period ending
February 29, 2004 was $445,142.
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. The
outstanding balance for the six-month period ending February 29, 2004 was
$33,962.
Off Balance Sheet Arrangements
We have no off balance sheet arrangements.
DESCRIPTION OF PROPERTY
Office Facilities
We currently lease our 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 us 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, we issued 19,850,000 shares of our common stock to our sole
officer and director, William D. O'Neal, for services rendered in the formation
and organization of our company. The value of such services to our company was
$1,985.
On June 19, 2002, we issued 150,000 shares of our common stock to Stephen F.
Burg for services rendered in the formation and organization of our company. The
value of such services to our company was $150.
On March 1, 2003, for purposes of working capital, Richard and Judy Songer made
a $355,384 subordinated loan to our company. We are 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 we may prepay the loan in whole or in
part at any time without premium or penalty. The Subordinated Loan, which was
consented to by United Commercial Bank, is collateralized by the our assets,
including but not limited to any and all equipment owned by Sew Cal, 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.
29
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - continued
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 our common
stock previously issued to him to the treasury for cancellation pursuant to the
Articles of Merger.
On February 24, 2004, we issued 3,000,000 shares of ours common stock and
189,800 shares of our 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, we issued 750,000 shares of our common stock and 22,500
shares of our Series A Convertible Preferred Stock to Lori Heskett pursuant to
the terms of the Articles of Merger.
On February 24, 2004, we issued 750,000 shares of our common stock and 22,500
shares of our Series A Convertible Preferred Stock to The Kagel Family Trust
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.
Approximate Number of Common Stock Holders
As of April 15, 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 Sew Cal for services rendered in all capacities to Sew Cal 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
30
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 Sew Cal, 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,
Sew Cal, 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 Sew Cal. The volume limitations generally permit an affiliate to sell,
within any three month period, a number of shares that does not exceed the
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 O'Neal Law Firm, P.C., 668 North 44th Street, Suite 233, Phoenix, Arizona
85008 will pass upon the validity of the shares offered hereby for Sew Cal.
SECURITIES ACT INDEMNIFICATION DISCLOSURE
Sew Cal's By-Laws allow for the indemnification of company officers and
directors in regard to their carrying out the duties of their offices. We have
been advised that in the opinion of the Securities and Exchange Commission
indemnification for liabilities arising under the Securities Act is against
public policy as expressed in the Securities Act, and is, therefore
unenforceable. In the event that a claim for indemnification against such
liabilities is asserted by one of our directors, officers, or other controlling
persons in connection with the securities registered, we will, unless in the
opinion of our legal counsel the matter has been settled by controlling
precedent, submit the question of whether such indemnification is against public
policy to a court of appropriate jurisdiction. We will then be governed by the
court's decision.
EXPERTS
The financial statements of Sew Cal as of August 31, 2003 and 2002, included in
this prospectus have been audited by Shelley International, 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 Shelley International,
C.P.A. on accounting and financial disclosure matters.
31
PART II - FINANCIAL STATEMENTS
FINANCIAL TABLE OF CONTENTS
REPORT OF INDEPENDENT AUDITOR ................................................33
BALANCE SHEETS ...............................................................34
STATEMENTS OF OPERATIONS .....................................................35
STATEMENTS OF STOCKHOLDERS' EQUITY ...........................................36
STATEMENTS OF CASH FLOWS .....................................................37
NOTES TO FINANCIAL STATEMENTS .......................................... 38 - 42
32
________________________________________________
REPORT OF INDEPENDENT AUDITOR
The Board of Directors and Audit Committee
Southern California Logo, Inc.
We have audited the accompanying balance sheets of Southern California Logo,
Inc. 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 of America. 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 of America.
SHELLEY INTERNATIONAL CPA
Mesa, Arizona
March 30, 2004
33
SEW CAL LOGO, INC.
BALANCE SHEETS
<table>
<caption>
2/29/2004 8/31/2003 8/31/2002
(unaudited)
-------------- -------------- --------------
ASSETS
Current Assets
Cash and cash equivalents $ 18,409 $ 44,714 $ 4,336
Accounts Receivable, net 230,770 200,873 76,272
Inventory 128,614 128,614 182,960
Prepaid Expenses 697 1,485 685
-------------- -------------- --------------
Total current assets 378,490 375,686 264,253
Equipment and machinery, net 257,556 270,188 288,310
Other assets 6,000 6,000 6,000
-------------- -------------- --------------
Total assets $ 642,046 $ 651,874 $ 558,563
============== ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 193,247 $ 281,075 $ 43,494
Other current liabilities 116,479 69,543 17,789
-------------- -------------- --------------
Total current liabilities 309,726 350,618 61,283
Long-term liabilities
Note payable-shareholder 355,384 355,384 533,280
SBA Loan 445,142 462,100 500,313
Other liabilities 33,962 38,038 32,572
-------------- -------------- --------------
Total liabilities 1,144,214 1,206,140 1,127,448
-------------- -------------- --------------
Stockholders' equity (deficit)
Preferred stock: 300,000 shares authorized,
par value $0.001, issued and outstanding 234,800
shares 235 190 190
Common stock: 50,000,000 shares authorized,
$0.001 par value, 5,020,000 shares issued
and outstanding 5,020 3,000 3,000
Paid in Capital 1,290 1,810 1,810
Retained (Deficit) (508,713) (559,266) (573,885)
-------------- -------------- --------------
Total stockholders' equity (deficit) (502,168) (554,456) (569,075)
-------------- -------------- --------------
Total liabilities and stockholders'
equity $ 642,046 $ 651,684 $ 558,373
============== ============== ==============
</table>
All assets are pledged as collateral for the SBA and shareholder loans.
The accompanying notes are an integral part of these financial statements.
34
SEW CAL LOGO, INC.
STATEMENTS OF OPERATIONS
<table>
<caption>
6 Months
Ended Year Ended Year Ended
2/29/2004 8/31/2003 8/31/2002
(unaudited)
-------------- -------------- --------------
Revenue:
Sales of Caps, Embroidery and Other $ 1,447,097 $ 2,328,471 $ 1,426,507
-------------- -------------- --------------
Total Revenue $ 1,447,097 $ 2,328,471 $ 1,426,507
Cost of Goods Sold 886,489 1,654,651 1,074,503
-------------- -------------- --------------
Gross profit 560,608 673,820 352,004
-------------- -------------- --------------
Expenses:
Selling, general and administrative 237,150 249,375 315,955
Consulting fees 23,837 15,750 33,339
Depreciation and amortization 26,456 45,679 28,329
Rent 37,315 88,263 69,729
Salaries and benefits 163,982 142,196 193,535
Interest Expense 21,315 106,371 29,741
Loss on sale of asset 10,767
-------------- -------------- --------------
Total expenses 510,055 658,401 670,628
-------------- -------------- --------------
Income (loss) before income taxes 50,553 15,419 (318,624)
-------------- -------------- --------------
Provision for income taxes 0 800 800
-------------- -------------- --------------
Net income (loss) $ 50,553 $ 14,619 $ (319,424)
============== ============== ==============
Basic and Diluted Earnings (Loss) per Share 0.02 a $ (0.11)
-------------- -------------- --------------
Weighted Average Number of Common Shares 3,055,495 3,000,000 3,000,000
-------------- -------------- --------------
</table>
a : less than $0.01
The accompanying notes are an integral part of these financial statements.
35
SEW CAL LOGO, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<table>
<caption>
Preferred Stock Common Stock Retained Total
Outstanding Outstanding Paid in Earnings Stockholders'
Shares Amount Shares Amount Capital (Deficit) Equity
----------- ----------- ----------- ----------- ----------- ----------- ------------
Balance , September 1, 2001 189,800 $ 190 3,000,000 $ 3,000 $ 1,810 $ (254,461) $ (249,651)
Net (loss) (319,424) $ (319,424)
----------- ----------- ----------- ----------- ----------- ----------- ------------
Balance, August 31, 2002 189,800 190 3,000,000 3,000 1,810 (573,885) (569,075)
Net Income 14,619 $ 14,619
----------- ----------- ----------- ----------- ----------- ----------- ------------
Balance, August 31, 2003 189,800 190 3,000,000 $ 3,000 1,810 (559,266) $ (554,456)
Merger with Calvert 2/24/04
Shares issued for services 45,000 45 1,500,000 1,500 1,545
at par value $0.001
Shares issued for Calvert 520,000 520 (520) -
at par value $0.001
Net (Loss) 50,553 50,553
----------- ----------- ----------- ----------- ----------- ----------- ------------
Balance, February 29, 2004 234,800 235 5,020,000 5,020 1,290 (508,713) (502,358)
=========== =========== =========== =========== =========== =========== ============
</table>
All above shares have been retroactively adjusted for the recapitalization of
100 shares of common stock on February 26, 2004
The accompanying notes are an integral part of these financial statements.
36
SEW CAL LOGO, INC.
STATEMENTS OF CASH FLOWS
<table>
<caption>
6 months
ended Year Ended Year Ended
2/29/2004 8/31/2003 8/31/2002
(unaudited)
-------------- -------------- --------------
Operating Activities:
Net income (loss) 50,553 $ 14,619 $ (319,424)
Adjustments to reconcile net income (loss)
(used in) operating activities:
Depreciation and amortization 26,456 45,679 32,674
Stock issued for services 1,545
(Increase) decrease in inventory 54,346 5,000
(Increase) decrease in accounts receivable (29,897) (124,601) 233,298
(Increase) decrease in prepaid franchise tax (800) 750
Increase (decrease) in accounts payable (40,892) 237,581 (84,882)
Increase (decrease) in other current liabilities 788 51,754 4,464
-------------- -------------- --------------
Net cash provided by (used in) operating activities 8,553 278,578 (128,120)
-------------- -------------- --------------
Investing Activities:
Purchases/disposals of equipment (13,824) (27,557) (296,490)
-------------- -------------- --------------
Cash used in investing activities (13,824) (27,557) (296,490)
-------------- -------------- --------------
Financing Activities:
Repayment of debt (21,034) (177,896) 163,096
Other long term liabilities (32,747) 256,635
-------------- -------------- --------------
Net cash provided by (used in) financing activities (21,034) (210,643) 419,731
-------------- -------------- --------------
Net increase (decrease) in cash and cash equivalents (26,305) 40,378 (4,879)
Cash and cash equivalents at beginning of the year 44,714 4,336 9,215
-------------- -------------- --------------
Cash and cash equivalents at end of the year $ 18,409 $ 44,714 $ 4,336
============== ============== ==============
</table>
Supplemental Information
2/29/2004
Interest $21,315 , Taxes $0
8/31/2003
Interest $106,371, Taxes $800
8/31/2002
Interest $29,741, Taxes $800
Non Cash Transactions (see equity note for more details)
Services rendered for stock, $1,545 value for 1,500,000 shares of common stock
and 45,000 shares of preferred stock
Merger with Calvert for 520,000 shares of common stock for no value
Recapitalization of equity, from 100 shares of common stock to 3,000,000 shares
of common stock and 189,800 shares of preferred stock
The accompanying notes are an integral part of these financial statements.
37
NOTES TO FINANCIAL STATEMENTS
NOTE 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. On February 24, 2004 the Company merger with
Calvert Corporation, a Nevada Corporation. This was a recapitalization accounted
for as a reverse merger. Calvert also changed its name to Sew Cal Logo, Inc. See
Note 8 for more details of this merger.
The Company is located in Los Angeles, California. The Company produces and
manufactures custom embroidered caps, 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.
Accounts Receivable
The Company's trade accounts receivable and reserves are shown below.
2/29/04 8/31/03 8/31/02
---------- ---------- ----------
Gross Trade Accounts Receivable 233,102 202,902 76,275
Reserve for Bad Debt 2,332 2,029 0
---------- ---------- ----------
Accounts Receivable, net 230,770 200,873 76,275
---------- ---------- ----------
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.
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.
38
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
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:
2/29/04 2003 2002
---------- ---------- ----------
Automobiles $40,754 $40,754 $37,827
Office equipment 67,023 67,023 59,691
Furniture and fixtures 75,338 75,338 75,338
Machinery 563,876 550,052 534,804
Equipment purchase fees 17,724 17,724 18,199
Accumulated depreciation and amortization 507,158 480,702 437,550
---------- ---------- ----------
257,556 $270,188 $288,310
---------- ---------- ----------
Fiscal Year
The Company operates on a fiscal year basis with a year ending August 31.
Earnings and Loss 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:
2/29/04 8/31/03 8/31/02
Caps, embroidery, and other $1,444,097 $2,328,471 $1,426,490
39
NOTE 2. Accounts Payable and Other Current Liabilities
As of the period ends shown, accounts payable and accrued liabilities consisted
of the following:
2/29/04 8/31/03 8/31/02
---------- ---------- ----------
Trade accounts payable $193,181 $186,814 $43,493
Sales tax payable 280 664 9,024
Payroll taxes payable 0 0 8,765
Revolving credit 106,058 94,262 0
Line of credit 10,207 68,878 0
---------- ---------- ----------
$309,726 $350,618 $61,282
---------- ---------- ----------
NOTE 3. Note Payable- Related Party
On March 1, 2003, for purposes of working capital, the sole shareholder and
spouse 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 was 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. This due date has been extended on a month to month basis. 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 shareholder and spouse was $533,280.
NOTE 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.
The outstanding balance for February 29, 2004 was $33,962.
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.
Assuming the Company were to remain in the warehouse they would be charged a
comparable $88,263 per year for the next five years.
40
NOTE 5. Stockholders' Equity
The Company (post merger) is authorized to issue fifty million (50,000,000)
shares of common stock at par value of $0.001 and three hundred thousand
(300,000) shares of series A preferred stock at a par value of $0.001. The
preferred stock is convertible to common stock at one share of preferred for
every 100 shares of common. The preferred shares are only vested when the
Company reaches $10,000,000 in sales for any fiscal year. As of February 29,
2004 there were 234,800 shares of preferred stock. The value was placed at par.
This would be 23,480,000 if all the shares were converted. Based upon the actual
growth for the last two years, the $10,000,000 in sales will not be reached
within five years. Therefore, these shares are not considered in calculating the
dilutive earnings per share. If they were to be considered the outstanding
shares would become 28,500,000 shares and the earnings (loss) per share would
become less than $0.01.
At the time of the merger 45,000 shares of preferred stock and 1,500,000 shares
of common stock were issued at par value of each for services rendered for a
total value of $1,545.
NOTE 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. for the six month ended February
29, 2004 interest expense was $21,315.
NOTE 7. Income Taxes
The Company provides for income taxes under Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes. SFAS No. 109 requires the use of
an asset and liability approach in accounting for income taxes. Deferred tax
assets and liabilities are recorded based on the differences between the
financial statement and tax bases of assets and liabilities and the tax rates in
effect when these differences are expected to reverse.
SFAS No. 109 requires the reduction of deferred tax assets by a valuation
allowance if, based on the weight of available evidence, it is more likely than
not that some or all of the deferred tax assets will not be realized. In the
Company's opinion, it is uncertain whether they will generate sufficient taxable
income in the future to fully utilize the net deferred tax asset. Accordingly, a
valuation allowance equal to the deferred tax asset has been recorded. The total
deferred tax asset is calculated by multiplying a 23.84% estimated tax rate by
the items making up the deferred tax account. For the Company only the Net
Operating Loss (NOL) was available for a tax asset in 2002. In 2003 the NOL and
Accounts Receivable reserve was available.
The provision for income taxes is comprised of the net changes in deferred taxes
less the valuation account plus the current taxes payable as shown in the chart
below.
41
The provision for income taxes for the periods shown are as follows.
2/29/04 8/31/03 8/31/02
---------- ---------- ----------
Change in deferred tax asset (12,052) $21,192 $76,151
Valuation account 12,052 (21,192) (76,151)
Current Income Taxes Payable
Federal 0 0 0
State 0 800 800
---------- ---------- ----------
Provision for Income Taxes 0 $800 $800
---------- ---------- ----------
The Company prepays all franchise taxes. At August 31, 2003, federal income tax
operating loss carryforwards ("NOL's") which were available to the Company were
the following and the year in which they expire.
Year (8/31) Amount Expires
1996 2,104 2011
1997 9,265 2012
1998 26,317 2013
1999 21,074 2019
2000 50,619 2020
2001 21,675 2020
2002 319,424 2022
2003 86,861 2023
----------
Total 537,339
----------
Were the NOL tax benefit to be recorded it would be an tax asset of $128,102.
NOTE 8. Merger with Calvert
On February 24, 2004 the Company merged with Calvert Corporation, an inactive
Nevada Corporation. This was a recapitalization accounted for as a reverse
acquisition with Calvert being the surviving legal entity and Southern
California becoming the surviving historical entity. Before the merger Southern
California had 100 shares of common stock issued and outstanding which were
owned by a single shareholder. As part of the merger Calvert issued to this
shareholder 189,800 shares of series A preferred stock and 3,000,000 shares of
common stock in exchange for all the shares (100) of Southern California.
As part of the merger 45,000 shares of preferred stock and 1,500,000 shares of
common stock were issued for services rendered. A value of $1,545 was placed
upon these shares.
Calvert had a zero book value prior to the merger and is shown as the acquired
company on the statement of stockholders' equity with 520,000 shares outstanding
prior to the merger.
After the completion of the merger the Company had 5,020,000 shares of common
stock and 234,800 shares of series A preferred stock.
42
PART III - INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Our Articles of Incorporation provide that we must indemnify our 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 Sew Cal. The effect of these provisions is
potentially to indemnify our 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 us. 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.
Our Bylaws, 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 Sew Cal, absent a finding of negligence or
misconduct in office.
Our 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 $ 161.71
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 $46,211.71
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 our
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.
43
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION - continued
On June 19, 2002, we issued 19,850,000 shares of our 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, we issued 150,000 shares of our common stock to Stephen F.
Burg for services rendered in the formation and organization of Sew Cal. The
value of such services to Sew Cal was $150.
On February 24, 2004, we issued 3,000,000 shares of our common stock and 189,800
shares of our Series A Convertible Preferred Stock to Richard Songer and Judy
Songer as Joint Tenants in exchange for one hundred percent (100%) of their
common stock in SCL pursuant to the terms of the Articles of Merger.
On February 24, 2004, we issued 750,000 shares of our common stock and 22,500
shares of our Series A Convertible Preferred Stock to Lori Heskett in exchange
for one hundred percent of her common stock of SCL pursuant to the terms of the
Articles of Merger.
On February 24, 2004, we issued 750,000 shares of our common stock and 22,500
shares of our Series A Convertible Preferred Stock to The Kagel Family Trust in
exchange for one hundred percent of its common stock of SCL pursuant to the
terms of the Articles of Merger.
We relied upon Section 4(2) of the Securities Act of 1933, as amended (the
"Act"). Our officer and director determined the sophistication of our investors,
as the investors were either business associates of, or personally known to, our
officer and director. Each investor completed a subscription agreement whereby
the investors certified that they were purchasing the shares for their own
accounts, with investment intent. This offering was not accompanied by general
advertisement or general solicitation and the shares were issued with a Rule 144
restrictive legend. Under the Securities Act of 1933, all sales of an issuers'
securities or by a shareholder, must either be made (i) pursuant to an effective
registration statement filed with the SEC, or (ii) pursuant to an exemption from
the registration requirements under the 1933 Act. Rule 144 under the 1933 Act
sets forth conditions which, if satisfied, permit persons holding control
securities (affiliated shareholders, i.e., officers, directors or holders of at
least ten percent of the outstanding shares) or restricted securities
(non-affiliated shareholders) to sell such securities publicly without
registration. Rule 144 sets forth a holding period for restricted securities to
establish that the holder did not purchase such securities with a view to
distribute. Under Rule 144, several provisions must be met with respect to the
sales of control securities at any time and sales of restricted securities held
between one and two years. The following is a summary of the provisions of Rule
144: (a) Rule 144 is available only if the issuer is current in its filings
under the Securities an Exchange Act of 1934. Such filings include, but are not
limited to, the issuer's quarterly reports and annual reports; (b) Rule 144
allows resale of restricted and control securities after a one year hold period,
subjected to certain volume limitations, and resales by non-affiliates holders
without limitations after two years; ( c ) The sales of securities made under
Rule 144 during any three-month period are limited to the greater of: (i) 1% of
the outstanding common stock of the issuer; or (ii) the average weekly reported
trading volume in the outstanding common stock reported on all securities
exchanges during the four calendar weeks preceding the filing of the required
notice of the sale under Rule 144 with the SEC.
44
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
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, we
have 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
45
UNDERTAKINGS - continued
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.
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 Los Angeles, California, United States of America.
Sew Cal Logo, Inc.
By: /s/ Richard L. Songer Date: April 19, 2004
---------------------
Richard L. Songer
President
By: /s/ Judy Songer Date: April 19, 2004
---------------
Judy Songer
Chief Financial Officer
By: /s/ Lori Heskett Date: April 19, 2004
----------------
Lori Heskett
Chief Operating Officer
In accordance with the requirements of the Securities Act of 1933, the following
persons in the capacities and on the date stated have signed this registration
statement.
By: /s/ Richard L. Songer Date: April 19, 2004
-----------------------
Richard L. Songer
Director
46