SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
Commission file number 33-72880
GLENGATE APPAREL, INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-3266971
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
207 Sheffield Street, Mountainside, New Jersey 07092
(Address of principal executive offices)
Registrant's telephone No. including area code: (908) 518-0006
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such report), and (2) has been subject to such filing
requirement for the past 90 days. Yes [ X ] No [ ]
As of June 30,1996 there were 6,844,600 shares of Common Stock, par value $.001
per share, outstanding.
Transitional Small Business Disclosure format Yes __ No X
<PAGE>
GlenGate Apparel, Inc.
Quarterly Report on Form 10-QSB
Table Of Contents
Page
----
Part I FINANCIAL INFORMATION
Item 1 Financial Statements
Balance Sheets as of June 30,1996 (Unaudited)
and September 30,1995 3
Statements of Operations for the three and nine
months ended June 30,1996 and June 30,1995 (Unaudited) 4
Statements of Cash Flows for the three and nine
months ended June 30,1996 and June 30,1995 (Unaudited) 5
Notes to Financial Statements (Unaudited) 6
Item 2 Management's Discussion and Analysis 8
Part II OTHER INFORMATION
Item 5 Exhibits and Reports 9
<PAGE>
GLENGATE APPAREL,INC.
BALANCE SHEETS
================
<TABLE>
<CAPTION>
June 30,1996 September 30,
(Unaudited) 1995
------------- ----
ASSETS ( Note 3)
----------------
<S> <C> <C>
Current:
Cash and cash equivalents $ 56,708 $ 10,038
Accounts receivable ( less allowance for
doubtful accounts of $25,000 and $28,765,
respectively) 2,090,987 805,337
Inventories
1,560,200 894,035
Prepaid expenses and other current
assets 338,450 191,280
-------------- ----------
TOTAL CURRENT ASSETS 4,046,345 1,900,690
Property and equipment, (net of accumulated
depreciation and amortization of $84,480 and $30,480
respectively) 247,195 218,510
Organizational costs, (net of accumulated amortization
of $5,429 and $3,889, respectively) 4,971 6,513
Security deposits and other assets 9,460 9,460
-------------- ----------
TOTAL ASSETS $4,307,971 $2,135,173
.............. ..........
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current:
Note payable-bank (Note 3) $1,947,648 $ 325,109
Current portion of equipment notes payable (Note 3) 13,527 13,527
Accounts payable and accrued expenses 919,480 268,465
Subordinated notes payable (Note 4) 190,233 300,496
-------------- ----------
TOTAL CURRENT LIABILITIES 3,070,888 907,597
Commitments and contingencies ( Note 5)
Equipment notes payable less current portion 21,304 32,543
--------------- ----------
3,092,192 940,140
STOCKHOLDERS EQUITY (Note 6)
Common stock at cost $.001 par value - 10,000,000
shares authorized; 6,844,600 and 6,284,600 issued
and outstanding 6,845 6,285
Additional paid-in capital 3,500,763 3,012,448
Accumulated deficit (2,291,829) (1,823,700)
-------------- ----------
TOTAL STOCKHOLDERS' EQUITY 1,215,779 1,195,033
.............. ..........
TOTAL STOCKHOLDERS' EQUITY AND LIABILITIES $4,307,971 $2,135,173
.............. ..........
</TABLE>
See accompanying notes to financial statements (Unaudited)
<PAGE>
GLENGATE APPAREL, INC.
STATEMENT OF OPERATIONS (Unaudited)
=======================================
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30,1996 June 30,1995 June 30,1995 June 30,1996
------------------------------ ---------------------------------
<S> <C> <C> <C> <C>
Sales $2,213,544 $1,503,511 $4,877,713 $2,243,921
Cost of sales 1,329,535 905,507 2,862,690 1,411,017
----------- ---------- ----------- -----------
Gross Profit 884,009 598,004 2,015,023 832,904
----------- ---------- ----------- -----------
Operating Expenses
Warehousing 84,881 79,981 244,140 131,700
Design and Production 111,670 43,115 317,633 97,154
Selling 378,226 272,713 935,278 718,180
General and administrative 304,745 244,374 861,384 714,420
----------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES 879,522 640,183 2,358,435 1,661,454
----------- ----------- ----------- -----------
Operating Income ( Loss) 4,487 (42,179) (343,412) (828,550)
Interest Income 3,446 37,022
Interest ( Expense) (53,056) (28,286) (124,717) (39,260)
----------- ----------- ----------- -----------
Net (Loss) $ (48,569) $ (67,019) $ (468,129) $(830,788)
........... ........... ........... ...........
(Loss per share) $ (0.01) $ (0.01) $ (0.07) $ (0.15)
........... ........... ........... ...........
Weighted number of common
shares outstanding 6,813,831 5,575,030 6,509,034 5,537,479
........... ........... ........... ...........
</TABLE>
See accompanying notes to financial statements (Unaudited)
<PAGE>
GLENGATE APPAREL, INC.
STATEMENTS OF CASH FLOWS ( Unaudited)
========================================
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30,1996 June 30,1995 June 30,1996 June 30,1995
----------------------------- ------------------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities: $ (48,569) $ (67,019) $ (468,129) $ (830,788)
Net loss
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 18,514 7,254 55,542 18,782
Provision for doubtful accounts 5,381 7,475 4,536 11,200
Changes in assets and liabilities:
Inventories (281,975) (175,150) (641,165) (1,178,300)
Accounts receivable (439,777) (349,524) (1,281,885) (1,063,362)
Prepaid and other current assets (12,627) (26,433) (147,170) (64,526)
Accounts payable and accruals 202,588 (152,479) 642,454 628,922
----------- ----------- ----------- -----------
Net cash used in operating
activities (556,465) (755,876) (1,835,817) (2,478,072)
----------- ----------- ----------- -----------
Cash flow from investing activities:
Purchases of property and (21,511) (12,183) (82,685) (100,313)
Maturity of bank certificate of deposit - 200,000
Security deposits and other assets - (19,510)
----------- ----------- ----------- -----------
Net cash provided by (used in) investing
activities (21,511) (12,183) (82,685) 80,177
----------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from options 25,000 137,500 85,000 137,500
Payment of offering and other costs (52,938) (55,008) (71,125) (91,008)
Equipment notes (4,478) (11,242)
Notes payable - bank 566,800 87,874 1,622,539 402,322
Borrowing from (repayments to)
stockholders 90,000 208,000 340,000 137,752
----------- ----------- ----------- -----------
Net Cash provided by financing activities 624,384 378,366 1,965,172 586,566
----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents 46,408 (389,693) 46,670 (1,811,329)
Cash and cash equivalents beginning of
period 10,300 391,044 10,038 1,812,680
----------- ----------- ----------- -----------
Cash and cash equivalents end of period $ 56,708 $ 1,351 $ 56,708 $ 1,351
=========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 53,056 $ 28,286 $ 124,717 $ 39,260
========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements (Unaudited)
<PAGE>
GLENGATE APPAREL, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1-ORGANIZATION
- -------------------
GlenGate Apparel, Inc. (the "Company") was incorporated in the State of New
Jersey on November 8, 1993. On or about March 15,1995, the Company commenced
operations as a result of having completed the first sales of its products and
was no longer considered to be in the development stage. The Company designs,
contracts to have made and markets men's golf apparel. The Company's primary
products consist of men's knit cotton shirts, sweaters and woven cotton slacks,
shorts and headwear. Customers of the Company are primarily public and private
golf course pro shops and resorts.
On August 19,1994, the Company completed an offering of its common stock and
redeemable common stock purchase warrants for total gross proceeds of
$2,468,700. The offering consisted of 493,740 units sold to the public at $5.00
per unit with each unit consisting of five shares of common stock, $.001 par
value , and one redeemable common stock purchase warrant.
On July 15,1996 the Company signed a letter of intent for the private placement
of 1,250,000 unregistered shares of common stock at $1.00 per share with the
Koffman Group, a diversified investment firm. Simultaneously with the execution
of the letter of intent, the Koffman Group arranged a temporary bridge loan of
$750,000, with interest at 91/4%, to remain in place until the private placement
closing which is expected to occur in August, 1996
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES
- ---------------------------------------
Inventories
Inventories are valued at the lower of cost or market with cost determined by
the first-in, first-out (FIFO) method. Inventories as of June 30,1996 consisted
substantially of finished goods.
Interim Financial statements
The interim financial statements as of and for the three and nine months ended
June 30,1996 and for the three and nine months ended June 30,1995 are unaudited
. The interim financial statements reflect all adjustments which are, in the
opinion of management, necessary for a fair presentation of the results for such
periods. The results of operations for the three and nine months ended June
30,1996 are not necessarily indicative of the results to be expected for the
year ending September 30,1996.
NOTE 3 - NOTES PAYABLE - BANK
- -----------------------------
In March 1995 , the Company entered into a revolving loan and security agreement
(the "Agreement") with a bank. Availability under the Agreement, prior to the
May 31,1996 amendment below was limited by a collateral formula to $1,500,000.
Availability is reduced by outstanding borrowings and letters of credit.
Interest accrues at a variable rate equal to 11/2% in excess of the bank's prime
lending rate (81/4% as of June 30,1996). Outstanding borrowings are
collateralized by substantially all the assets of the Company and the President
of the Company has provided a personal guarantee of borrowings up to $750,000.
Under the terms of the Agreement, the Company is also required to meet various
financial covenants.
On May 31, 1996 the Company entered into a modification of its banking facility
pursuant to which the amount available was increased to a maximum of $2,000,000.
In connection with obtaining this enhancement, the Company negotiated with the
Koffman Group, a diversified investment firm, for the provision of a $500,000
letter of credit in favor of the bank as additional security.
<PAGE>
Additionally, the Company has outstanding borrowings under two equipment notes
payable aggregating $ 34,831 as of June 30,1996. Annual maturities of the
equipment notes are $13,527 per year through September 30,1998 and $7,427 in the
fiscal year ending September 30,1999.
NOTE 4 - SUBORDINATED NOTE PAYABLE - OFFICERS
- ---------------------------------------------
The notes are subordinate to all creditors and mature on April 15,1997, bearing
interest at a rate per anum of 11/2% over prime (81/4% as of June 30,1996) or
10% per anum.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
- --------------------------------------
Through June 30,1996, the Company had purchase commitments for merchandise of
approximately $1,400,000
NOTE 6 - STOCKHOLDERS' EQUITY
- ------------------------------
Common Stock Options
In December 1994, the Company's Board of Directors approved the adoption of the
1994 Stock Option Plan (the "Plan") to provide incentives for selected persons
to promote the financial success and progress of the Company. The Plan provides
for the Compensation Committee or such other committee that the Board may
appoint to administer the Plan. The Plan provides for the reservation of
2,500,000 shares of Common Stock for issuance upon the exercise of granted
options.
The following is a summary of the common stock options granted, canceled or
exercised for the period November 8, 1993 ( inception ) through June 30,1996.
Shares Exercise price
per Share
---------- ----------------
Granted 2,222,500 $ 1.00 to $ 3.00
Canceled (140,000) $ 1.00
Exercised (148,500) $ 1.00
---------- ----------------
Outstanding -September 30,1995 1,934,000 $ 1.00 to $ 3.00
Granted 10/1/95-6/30/96 458,000 $ 1.25 to $ 1.625
Canceled 10/1/95-6/30/96 (114,667) $ 1.00 to $ 2.50
Exercised 10/1/95-6/30/96 (535,000) $ 1.00 to $ 1.25
---------- ----------------
Outstanding June 30,1996 1,742,333 $ 1.00 to $ 2.50
========== ================
As of June 30,1996, 1,742,333 stock options were outstanding, of which 1,401,017
are exercisable in fiscal 1996, 281,984 become exercisable in fiscal 1997 and
59,332 become exercisable in fiscal 1998. The options expire at various dates
through fiscal 2005. All were granted with exercise prices at quoted market
value.
<PAGE>
ITEM - 2 Management's Discussion and Analysis
- ---------------------------------------------
Management's Discussion and Analysis
- ------------------------------------
Results of Operations
During the three months ended June 30,1996, the Company had sales of
approximately $2,213,500 to an account base that exceeded 1,200 active accounts.
Sales for the three months ended June 30,1995 were approximately $1,503,500 to
an account base of almost 700 active accounts. The resulting increase in sales
was 47% to an expanded account base that grew by over 70%.
Sales for the nine months ended June 30,1996 were over $4,877,700. Sales for the
nine months ended June 30,1995 were approximately $2,243,900, but are not
comparable since the Company was still in the developmental stage until March
1995.
Cost of goods sold as a percentage of sales for the three and nine months ended
June 30,1996 were 60% and 59% respectively. Cost of goods sold for the three
months ended June 30,1995 was 60%. Costs for the nine months ended June 30,1995
are not comparable since the Company was still in the developmental stage until
March 1995. The industry norm and management's target, is approximately 55-60%.
During the fiscal year ended September 30,1995 the Company averaged 70% cost of
goods sold resulting from certain non-recurring unusual costs of embroidery,
irregulars and overruns of product. Management believes that the Company has
effectively taken steps to reduce exposure to these costs.
Warehousing, production and design, selling and administrative expenses as a
percentage of sales for the three months ended June 30,1996 were approximately
40% and for the nine months were approximately 48%. Comparable costs for the
three months ended June 30,1995 were approximately 43%. Costs for the nine
months ended June 30,1995 are not comparable since the Company was still in the
developmental stage until March 1995. During the fiscal year ended September
30,1995 the Company averaged 72% cost to sales percentage in these cost
categories. The Company infrastructure has been created for a full year shipping
cycle. Therefore, overhead as a percent of sales will effectively be reduced as
volume increases for the balance of the year.
The Company had operating income for the three months ended June 30,1996 of
$4,487 and an operating loss of $42,179 for the same period last year. The
Company had a net loss of $ 48,569 ($.01 per share) for the three months ended
June 30,1996 and $468,129 ($.07 per share) for the nine months ended June
30,1996. The nine months ended June 30,1995 are not comparable since the Company
was still in the developmental stage until March 1995.
The Company had cash used in operating activities during the quarter of
$556,465. The cash was used primarily to support increases in accounts
receivable and inventory resulting from an expanding sales volume during the
quarter and was funded primarily by borrowings under the Company's enhanced
credit facilities.
On May 31, 1996 the Company entered into a modification of its banking facility
pursuant to which the maximum amount available was increased to a maximum of
$2,000,000. In connection with obtaining this enhancement, the Company
negotiated with the Koffman Group, a diversified investment firm, for the
provision of a $500,000 letter of credit in favor of the bank as additional
security. In addition, the Company granted the Koffman Group a sixty day
exclusive right to negotiate an equity investment in the Company.
On July 15,1996 the Company signed a letter of intent to permit a $1,250,000
equity investment to be made by private placement to the Koffman Group.
Simultaneously with the execution of the letter of intent, the Koffman Group
arranged a temporary bridge loan of $750,000 to remain in place during the final
negotiations of the equity investment.
<PAGE>
Future events, including the problems, expenses, difficulties and delays
encountered in connection with a new business and the competitive environment in
which the Company operates, may lead to cost overruns that could make the
Company's sources of working capital insufficient to fund the Company's planned
operations. No assurance can be given that the Company will be able to obtain
such funds or that the terms thereof will be acceptable to the Company.
PART II
- -------
ITEM 5 - Exhibits and Reports on Form 8 -K
- ------------------------------------------
Reports on form 8-K
- -------------------
The Company filed a Form 8-K dated May 31,1996 reporting, under Item 5 thereto,
a $500,000 increase in the Company's credit facility and the granting of an
exclusive right for sixty days to the Koffman Group of Binghampton New York to
negotiate a $1,500,000 equity investment in the Company.
Exhibits
None
SIGNATURE
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
GLENGATE APPAREL, INC.
BY:_____________________________
Dated: August 14, 1996 George J.Gatesy, President
(principal executive officer)
BY:_____________________________
Dated: August 14,1996 Norman Britman, Treasurer
(principal financial and
accounting officer)
