SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2003
OR
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to __________
Commission File Number 0-24829
FTS APPAREL, INC.
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(Exact name of registrant as specified in its charter)
Colorado 84-1416864
- ------------------------------- ----------------------------
(State or other jurisdiction of (I.R.S. Employer identification No.)
incorporation or organization)
301 Oxford Valley Road, Suite 1202, Yardley, PA
19067
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(Address of principal executive office)
(Zip Code)
(215) 369-9979
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(Registrant's telephone number, including area code)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
The number of shares outstanding of each of Issuer's classes of common equity as
of June 30, 2003 is set forth below:
Common Stock, par value $.001 17,430,422
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Title of Class Number of Shares
Transitional Small Business Disclosure Format yes no X
--- ---
FTS Apparel, Inc.
Part I Financial Information
Item 1. Financial Statements
FTS APPAREL, INC.
BALANCE SHEET
JUNE 30, 2003
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,341
Accounts receivable, net. . . . . . . . . . . . . . . . . 938
Inventory . . . . . . . . . . . . . . . . . . . . . . . . 12,480
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Total current assets 15,759
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PROPERTY AND EQUIPMENT, NET . . . . . . . . . . . . . . . . 46,397
------------
OTHER ASSETS
Investment in private entity. . . . . . . . . . . . . . . 15,000
Deposits. . . . . . . . . . . . . . . . . . . . . . . . . 3,800
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 8,490
------------
27,290
------------
$ 89,446
============
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued expenses . . . . . . . . . . $ 16,510
Accounts payable and accrued expenses - related parties . 104,815
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Total current liabilities . . . . . . . . . . . . . . . 121,325
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CONVERTIBLE DEBENTURES. . . . . . . . . . . . . . . . . . . 247,500
------------
STOCKHOLDERS' (DEFICIT)
10% Convertible preferred stock, Series A, $0.01 par
value, 150,000 shares authorized, 50,000 shares issued
and outstanding . . . . . . . . . . . . . . . . . . . . 50,000
Preferred stock, $0.01 par value, 4,850,000 undesignated
shares authorized . . . . . . . . . . . . . . . . . . . -
Common stock, $0.001 par value, 25,000,000 shares
authorized, 17,430,240 shares issued and outstanding. . 17,430
Additional paid in capital. . . . . . . . . . . . . . . . 5,161,542
Deferred compensation . . . . . . . . . . . . . . . . . . (30,000)
Accumulated (deficit) . . . . . . . . . . . . . . . . . . (5,478,351)
------------
(279,379)
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$ 89,446
============
see notes to financial statements
FTS APPAREL, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2003 JUNE 30, 2002 JUNE 30, 2003 JUNE 30, 2002
-------------------- ------------------ --------------- ---------------
REVENUES
Sales. . . . . . . . . . . . . . . . . . . . . $ 13,864 $ - $ 16,313 $ -
-------------------- ------------------ --------------- ---------------
COST OF GOODS SOLD . . . . . . . . . . . . . . . 9,068 - 10,167 -
-------------------- ------------------ --------------- ---------------
GROSS PROFIT . . . . . . . . . . . . . . . . . . 4,796 - 6,146 -
-------------------- ------------------ --------------- ---------------
GENERAL AND ADMINISTRATIVE EXPENSES
Settlement of lease obligation. . . . . . . . - - - 135,234
Non-cash stock compensation . . . . . . . . . - - 209,000 52,000
Purchased development costs . . . . . . . . . - - 23,500 -
Selling, general and administrative expenses. 79,946 68,909 179,242 121,135
-------------------- ------------------ --------------- ---------------
79,946 68,909 411,742 308,369
-------------------- ------------------ --------------- ---------------
(LOSS) FROM OPERATIONS . . . . . . . . . . . . . (75,150) (68,909) (405,596) (308,369)
-------------------- ------------------ --------------- ---------------
OTHER INCOME (EXPENSE)
Interest expense . . . . . . . . . . . . . . . (1,600) - (3,200) -
-------------------- ------------------ --------------- ---------------
(1,600) - (3,200) -
-------------------- ------------------ --------------- ---------------
NET (LOSS). . . . . . . . . . . . . . . . . . . . $ (76,750) $ (68,909) $ (408,796) $ (308,369)
==================== ================== =============== ===============
PER SHARE INFORMATION:
WEIGHTED AVERAGE SHARES OUTSTANDING
(BASIC AND DILUTED) . . . . . . . . . . . . . . 17,430,240 11,149,284 17,104,826 10,643,188
==================== ================== =============== ===============
NET (LOSS) PER COMMON SHARE (BASIC AND DILUTED) . $ (0.00) $ (0.01) $ (0.02) $ (0.03)
==================== ================== =============== ===============
see notes to financial statements
FTS APPAREL, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30, 2003 JUNE 30, 2002
------------------ ---------------
OPERATING ACTIVITIES
Net cash (used in) operating activities . $ (142,424) $ (50,140)
------------------ ---------------
INVESTING ACTIVITIES
Investment in private entity. . . . . . . . (15,000) -
Acquisition of fixed assets . . . . . . . . (454) -
------------------ ---------------
Net cash (used in) investing activities . (15,454) -
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FINANCING ACTIVITIES
Operating advance from officer. . . . . . . - 6,284
Stock subscription. . . . . . . . . . . . . 10,000 -
Proceeds from convertible debenture . . . . 150,000 -
------------------ ---------------
Net cash provided by financing activities 160,000 6,284
------------------ ---------------
Net increase (decrease) in cash. . . . . 2,122 (43,856)
CASH AT BEGINNING OF PERIOD . . . . . . . . . 219 44,236
------------------ ---------------
CASH AT END OF PERIOD . . . . . . . . . . . . $ 2,341 $ 380
================== ===============
see notes to financial statements
FTS APPAREL, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2003
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
("GAAP") for interim financial information and Item 310(b) of Regulation S-B.
They do not include all of the information and footnotes required by GAAP for
complete financial statements. In the opinion of management, all adjustments
(consisting only of normal recurring adjustments) considered necessary for a
fair presentation have been included.
The results of operations for the periods presented are not necessarily
indicative of the results to be expected for the full year. These financial
statements should be read in conjunction with the audited financial statements
of the Company as of December 31, 2002 and for the two years then ended,
including notes thereto, included in the Company's Form 10-KSB.
(2) EARNINGS PER SHARE
The Company calculates net earnings (loss) per share as required by SFAS 128,
"Earnings per Share." Basic earnings (loss) per share is calculated by dividing
net income (loss) by the weighted average number of common shares outstanding
for the period. Diluted earnings (loss) per share is calculated by dividing net
income (loss) by the weighted average number of common shares and dilutive
common stock equivalents outstanding. During the periods presented, common stock
equivalents were not considered, as their effect would be anti-dilutive.
(3) INVENTORY
Inventory is valued at the lower of cost or market on a first in, first out
basis and consists principally of cellular telephone equipment.
(4) GOING CONCERN
The Company's financial statements are presented on a going concern basis, which
contemplates the realization of assets and satisfaction of liabilities in the
normal course of business. For the six months ended June 30, 2003 the Company
incurred a net loss of $408,796 and has working capital and stockholders'
deficits of $105,566 and $279,379, respectively, at June 30, 2003. In addition,
the Company currently has no significant revenue generating operations.
The Company's ability to continue as a going concern is contingent upon its
ability to expand its operations and secure additional financing. The Company is
pursuing financing for its operations and seeking to expand its operations.
Failure to secure such financing or expand its operations may result in the
Company not being able to continue as a going concern.
The financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the possible inability of
the Company to continue as a going concern.
(5) CONVERTIBLE DEBENTURES
During February 2003 the Company completed a debenture offering. Pursuant to a
subscription agreement with Dutchess Private Equities Fund, LP ("Dutchess") the
Company received $212,500 from the sale of 6% secured convertible debentures.
The terms of the debentures provide for payment by February 14, 2007 with the
debentures being convertible into the Company's common stock at any time at the
lesser of (i) 80% of the average of the five lowest closing bid prices during
the 15 days prior to conversion or (ii) 100% of the average of the closing bid
prices for the 20 trading days immediately preceding the closing date. The
Company has agreed to register the shares underlying the debentures on a Form
SB-2 Registration Statement. In addition, in exchange for $12,500 in cash
Dutchess agreed to return 250,000 shares of the Company's common stock to the
Company, which were purchased by Dutchess in August 2002. As of June 30, 2003
the amount of the debenture issued was increased to $247,500.
(6) STOCKHOLDERS' (DEFICIT)
During February 2003 the Company issued 1,900,000 shares of common stock for
services pursuant to a Form S-8 registration statement. The shares were valued
at their fair market value on the date it was agreed that the shares would be
issued. The non-cash stock compensation expense of $209,000 has been charged to
operations during the period.
During April 2003 the Company received $10,000 in cash as payment for a
subscription for 200,000 shares of its common stock, which have not yet been
issued.
(7) ACQUISITION OF ASSETS
During February 2003 the Company entered into an asset purchase agreement with
Simply Cellular, Inc. whereby it acquired substantially all of the assets of a
cellular service and accessories store for $70,000 in cash. The Company recorded
the fair value of the assets of $46,500 and charged the balance of $23,500 to
operations as purchased development expenses for which feasibility has not been
established and which has no alternative future uses.
In addition, during March 2003 the Company acquired 30,000 shares of preferred
stock in VidYah, Inc., a private entity, for $15,000 in cash.
(8) SUBSEQUENT EVENT
During July 2003 the Company received an additional $35,000 from Dutchess under
the terms of the debenture offering.
During July 2003 the Company issued 320,000 shares of its common stock pursuant
to a Form S-8 Registration Statement as follows:
- - For consulting services related to EDGAR filings to be rendered for a
period of 24 months - 250,000 shares;
- - For design of website and hosting of website for a period of 12 months -
50,000 shares; and
- - For marketing services of satellite phones and wireless products - 20,000
shares.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis covers material changes in our
financial condition since the year end December 31, 2002 and a comparison of
the results of operations for the three and six months ended June 30, 2003 to
the same period in 2002. This discussion and analysis should be read in
conjunction with "Management's Discussion and Analysis or Plan of Operation"
included in our Form 10-KSB for the year ended December 31, 2002.
This report contains forward-looking statements that involve risks and
uncertainties. We generally use words such as "believe," "may," "could,"
"will," "intend," "expect," "anticipate," "plan," and similar expressions to
identify forward-looking statements. You should not place undue reliance on
these forward-looking statements. Our actual results could differ materially
from those anticipated in the forward-looking statements for many reasons,
including the risks described below and elsewhere in this report. Although we
believe the expectations reflected in the forward-looking statements are
reasonable, they relate only to events as of the date on which the statements
are made, and our future results, levels of activity, performance or
achievements may not meet these expectations. We do not intend to update
any of the forward-looking statements after the date of this document to
conform these statements to actual results or to changes in our expectations,
except as required by law.
Results of Operations
For the three months ended June 30, 2003, we realized a net loss of $76,750
or ($.00) per share, on revenue of $13,864. This compares to a net loss of
$68,909 or ($.01) per share, on no revenues for the three months ended June 30,
2002. Accordingly, our net loss increased by $7,841.
For the three months ended June 30, 2003 we reported $79,946 of general and
administrative expenses, compared to $68,909 for the three months ended June 30,
2002, an increase of $11,037. Our general and administrative expenses have
increased from the same period in 2002 due to increased overhead and staffing
levels of our new wireless business.
During the second quarter we realized revenue primarily from our Anderson
Rd, Tampa, Florida wireless location opened in February. We did not realize any
revenue for activations completed in June, our best month to date in that
location, because we do not receive commissions until at least 45 days after the
end of the month. Additionally, we opened a second wireless location in the
Hillsborough Rd. section of Tampa, Fl. at the end of the second quarter. We
expect to begin to receive activation revenue from this location in the third
quarter. After the end of the second quarter we secured our third wireless
location in Philadelphia area which we believe will be fully operational by the
end of the third quarter. We continue to develop our wireless business on
schedule and anticipate an increase in activation revenue during the third
and fourth quarters. We intend to continue to control our expenses carefully
as we go forward.
Liquidity and Capital Resources
At June 30, 2003 we had cash available of $2,341, inventory valued at
$12,480, property and equipment valued at $46,397, investments valued at
$15,000, deposits of $3,800 and other current assets valued at $8,490 for a
total of $89,446 .
Our current liabilities as of June 30, 2003 of $121,325 consist mainly
Of accounts payable and accrued expenses payable to our Chairman and Chief
Executive Officer and another related party for legal services.
We believe that our continued existence is dependent upon our ability to
make our wireless operations profitable and our ability to raise additional
capital. Accordingly, the notes to our unaudited, interim financial statements
express substantial doubt about our ability to continue as a going
concern.
We are not aware of any material trend, event or capital commitment, which
would potentially adversely affect liquidity. In the event such a trend
develops, we believe that we will have sufficient funds available to satisfy
working capital needs through lines of credit and the funds expected from equity
sales.
ITEM 3. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Within the 90 days prior to the filing date of this report, we carried out
an evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures pursuant to Exchange Act Rule 13a-14. This evaluation
was done under the supervision and with the participation of our President and
Principal Financial Officer. Based upon that evaluation, they concluded that our
disclosure controls and procedures are effective in gathering, analyzing and
disclosing information needed to satisfy our disclosure obligations under the
Exchange Act.
Changes in Internal Controls
There were no significant changes in our internal controls or in other
factors that could significantly affect those controls since the most recent
evaluation of such controls.
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
We are not aware of any legal matters that could have a material impact on
our business.
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
In April and May, 2003, we sold convertible debentures to Dutchess worth
$35,000. The terms of the debentures provide for payment by February 14, 2007
with the debentures being convertible into the Company's common stock at any
time at the lesser of (i) 80% of the average of the five lowest closing bid
prices during the 15 days prior to conversion or (ii) 100% of the average of the
closing bid prices for the 20 trading days immediately preceding the closing
date.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the second quarter of our 2003 fiscal year, our Board of Directors
and the holders of a majority of our outstanding common stock executed a written
consent in favor of the following corporate actions: (1) To amend our Articles
of Incorporation to increase our authorized shares of common stock, par value
$.001, from 25,000,000 shares to 100,000,000 shares of common stock, par value,
$.001. (2) To amend our Articles of Incorporation to change our name to "THE FTS
GROUP, INC."
Subsequently, we delayed our name change and increase in
authorized shares due to uncertainty surrounding compliance with Colorado state
statutes. We determined to delay our name change and increase in
authorized shares until we put these matters to a full vote of the stockholders.
ITEM 5. OTHER INFORMATION
On February 14, 2003, pursuant to an Asset Purchase Agreement dated
as of February 14, 2003 (the "Purchase Agreement") between us and Simply
Cellular, Inc., a Florida corporation (the "Seller"), we acquired
substantially all of the assets of the Seller's cellular service and
accessories store. We have continued to use the acquired assets for the same
use. The purchase price consisted of $70,000 of cash. We obtained funds for the
acquisition via the sale of 6% convertible debentures. At the time of the
acquisition there were no material relationships between the us or any of our
affiliates, directors or officers, or any associate of such director or
officer, on the one hand, and the Seller, on the other hand.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
Number Description
3.1 Articles of Incorporation of the Company as filed June 30, 1997 with the
Secretary of State of the State of Colorado and included as exhibit 2.1 to the
Company's Form 10-SB dated August 24, 1998, and incorporated herein by
reference.
3.2 Articles of Amendment of the Articles of Incorporation of the Company as
filed April, 15, 1998 with the Secretary of State of the State of Colorado and
included as exhibit 2.2 to the Company's Form 10-SB dated August 24,1998, and
incorporated herein by reference.
3.3 Articles of Amendment of the Articles of Incorporation of the Company as
filed August 23, 2000 with the Secretary of State of the State of Colorado
included as exhibit 3.3 to our Annual Report on Form 10-KSB for the fiscal year
ended December 31, 2000, and incorporated herein by this reference.
3.4 Bylaws of the Company included as exhibit 2.3 to the Company's Form 10-SB
dated August 24, 1998, and incorporated herein by reference.
4.1 Form of Certificate for Common Shares, included as exhibit 4.1 to our
Annual Report on Form 10-KSB for the fiscal year ended December 31, 1998, and
incorporated herein by this reference.
10.1 Lease between the Company and DRP Company of Alabama, Inc dated May 25,
2003.
99.1 Certification of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
99.2 Certification of Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
B. REPORTS ON FORM 8-K
We did not file any 8-Ks in the quarter ended June 30, 2003.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
FTS APPAREL, INC.
Date: August 14, 2003 By: /s/ Scott Gallagher
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Scott Gallagher, President
(Chief Executive and
Principal Executive Officer)
By: /s/ Linda Ehlen
-------------------------------
Linda Ehlen
Chief Financial Officer
CERTIFICATION PURSUANT TO
-------------------------
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
---------------------------------------------
I, Scott Gallagher, certify that:
1. I have reviewed this Quarterly Report on Form 10-QSB of
FTS Apparel, Inc.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, is made known to us, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: August 14, 2003
/s/ Scott Gallagher
______________________________________
By: Scott Gallagher
Chief Executive Officer
CERTIFICATION PURSUANT TO
-------------------------
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
---------------------------------------------
I, Linda Ehlen, certify that:
1. I have reviewed this Quarterly Report on Form 10-QSB of
FTS Apparel, Inc.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, is made known to us, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: August 14, 2003
/s/ Linda Ehlen
______________________________________
By: Linda Ehlen
Chief Financial Officer