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 DECEMBER 31,1996
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 January 31,1997 there were 8,113,932 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 December 31,1996 (Unaudited) and
September 30,1996 3
Statements of Operations for the three months ended
December 31,1996 and December 31,1995 (Unaudited) 4
Statements of Cash Flows for the three months ended
December 31,1996 and December 31,1995 (Unaudited) 5
Notes to Financial Statements (Unaudited) 6
Item 2 Management's Discussion and Analysis 7
Part II OTHER INFORMATION
Item 5 Other Information 9
Item 6 Exhibits and Reports 9
<PAGE>
GLENGATE APPAREL, INC.
BALANCE SHEETS
=================
<TABLE>
<CAPTION>
December 31, 1996 September 30,
(Unaudited) 1996
<S> <C> <C>
ASSETS ( Note 3 )
Current:
Cash and cash equivalents $ 300 $ 34,917
Accounts receivable ( less allowance for doubtful accounts
of $21,792 and $173,515,respectively) 1,295,416 1,848,507
Inventories 1,469,115 1,206,000
Prepaid expenses and other current assets 362,603 314,968
------------- -------------
TOTAL CURRENT ASSETS 3,127,434 3,404,392
Property and equipment, ( net of accumulated depreciation
and amortization of $134,502 and $106,002 respectively) 251,954 257,530
Organizational costs, (net of accumulated amortization of
$6,460 and $5,945, respectively) 3,942 4,457
Security deposits and other assets 7,710 31,460
------------- -------------
TOTAL ASSETS $ 3,391,040 $ 3,697,839
............. .............
LIABILITIES AND STOCKHOLDERS' EQUITY
Current:
Note payable-bank (Note 3) $ 1,405,711 $ 1,597,918
Current portion of equipment notes payable (Note 3) 5,127 5,127
Accounts payable and accrued expenses 818,203 490,915
Notes payable to related parties (Note 4) 190,000 190,000
------------- -------------
TOTAL CURRENT LIABILITIES 2,419,041 2,283,960
Equipment notes payable less current portion 9,303 10,617
------------- -------------
2,428,344 2,294,577
Commitments and contingencies ( Note 5)
STOCKHOLDERS EQUITY (Note 6)
Common stock at cost $.001 par value - 10,000,000 shares authorized;
8,113,932 and 8,113,932 issued and outstanding 8,114 8,114
Additional paid-in capital 4,668,139 4,668,139
Accumulated deficit (3,713,557) (3,272,991)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 962,696 1,403,262
............. .............
TOTAL STOCKHOLDERS' EQUITY AND LIABILITIES $ 3,391,040 $ 3,697,839
............. .............
</TABLE>
See accompanying notes to financial statements ( Unaudited)
<PAGE>
GLENGATE APPAREL, INC.
STATEMENT OF OPERATIONS ( Unaudited)
====================================
<TABLE>
<CAPTION>
Three Months Ended
December 31,1996 December 31, 1995
<S> <C> <C>
Sales $ 1,185,602 $ 707,112
Cost of sales 800,438 452,184
------------- -------------
Gross Profit 385,164 254,928
------------- -------------
Operating Expenses
Warehousing 83,027 66,786
Design 51,486 44,909
Selling 332,516 257,545
General and administrative 305,890 269,608
------------- -------------
TOTAL OPERATING EXPENSES 772,919 638,848
------------- -------------
Operating Income ( Loss) (387,755) (383,920)
Interest ( Expense) (52,811) (26,842)
------------- -------------
Net (Loss) $ (440,566) $ (410,762)
............. .............
( Loss per share) $ (0.05) $ (0.07)
............. .............
Weighted number of common
shares outstanding 8,113,932 6,301,230
............. .............
</TABLE>
See accompanying notes to financial statements ( Unaudited)
<PAGE>
GLENGATE APPAREL, INC.
STATEMENTS OF CASH FLOWS ( Unaudited)
=====================================
<TABLE>
<CAPTION>
Three Months Ended
December 31,1996 December 31, 1995
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (440,566) $ (410,762)
Adjustments to reconcile net loss to net cash
provided by (used in)operating activities:
Depreciation and amortization 29,015 18,514
Provision for doubtful accounts 5,580 3,660
Changes in assets and liabilities:
Inventories (263,115) (318,840)
Accounts receivable 547,511 184,028
Prepaid and other current assets (47,635) (48,822)
Accounts payable and accruals 327,288 300,012
------------- -------------
Net cash provided by (used in) operating activities 158,078 (272,210)
------------- -------------
Cash flow from investing activities:
Purchases of property and equipment (22,924) (38,083)
Security deposits and other assets 23,750 -
------------- -------------
Net cash provided by (used in) investing
activities 826 (38,083)
------------- -------------
Cash flows from financing activities:
Proceeds from options exercised - 30,000
Equipment notes (1,314) (3,380)
Notes payable - bank (192,207) 23,935
Borrowing from (repayments to) stockholders - 250,000
------------- -------------
Net Cash provided by (used in) financing activities (193,521) 300,555
------------- -------------
Net increase (decrease) in cash and cash equivalents (34,617) (9,738)
Cash and cash equivalents beginning of period 34,917 10,038
------------- -------------
Cash and cash equivalents end of period $ 300 $ 300
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 47,876 $ 16,542
========= =========
</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, and commenced operations with the first sales of its
products in March 1995. 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, woven cotton slacks, shorts and headwear. Customers of the
Company are primarily public and private golf course pro shops and resorts.
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 December 31,1996
consisted substantially of finished goods.
Interim Financial Statements
- ----------------------------
The interim financial statements as of and for the three months ended December
31,1996 and for the three months ended December 31, 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 months ended December 31,1996
are not necessarily indicative of the results to be expected for the year ending
September 30,1997.
NOTE 3 - NOTES PAYABLE - BANK
- -----------------------------
In September 1996, the Company entered into a two year revolving loan and
security agreement ( the "Agreement" ) with a financial institution.
Availability under the Agreement is limited by a collateral formula calculated
as the lesser of $3,000,000 or 85% of qualified accounts receivable. The lender
also agreed to advance additional funds to the Company between October 1, 1996
and April 30, 1997 based on a collateral formula calculated as the lesser of
$750,000 or 50% of eligible Finished Goods Inventory. Interest accrues at a
variable rate equal to 11/2 % in excess of the bank's prime lending rate ( 81/4%
as of December 31, 1996 ). Outstanding borrowings are collateralized by
substantially all the assets of the Company. Under the terms of the Agreement,
the Company is also required to meet various financial covenants, as defined.
In order for the Company to sustain its current growth patterns, it will require
additional funding in 1997, including the replacement of its banking credit
facility to be more consistent with the capital needs during its initial period
of growth. Management has initiated discussions for additional growth capital to
coincide with its current needs. In the event that additional capital is not
acquired, revenues will be adversely affected.
Additionally, the Company has outstanding borrowings under an equipment note
payable aggregating $14,430 as of December 31,1996. Annual maturities of the
equipment notes are $5,127 - September 30, 1998 and $5,490 - September 30, 1999.
NOTE 4 - NOTES PAYABLE TO RELATED PARTIES
- -----------------------------------------
The Company has currently outstanding $190,000 in subordinated notes and $11,540
in related accrued interest in favor of an officer and director and a former
officer. The funds were advanced at varying times during the developmental
stages of the Company to satisfy working capital needs. The notes are
subordinate to all creditors of the Company. The notes mature with interest at a
rate per annum of 11/2% over Prime to be paid April 15, 1997.
In January 1997 two of the Company's directors who are also shareholders loaned
the Company a total of $250,000 to satisfy working capital needs.The notes are
not subordinated to the creditors of the Company and are due on demand with
interest at a rate of 12% per annum payable monthly. The Company may be unable
to rely on its directors, officers and principal stockholders for additional
loans in the future.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
- --------------------------------------
Through December 31,1996, the Company had purchase commitments for merchandise
of approximately $1,633,000.
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.
As of December 31,1996, 1,736,000 stock options were outstanding. Of the options
outstanding, 1,021,850 are exercisable at $1.00, 218,834 at $1.25, and 154,000
at prices between $1.125 and $2.50. In fiscal 1997 and 1998 281,984 and 59,332
options respectively, become exercisable at prices between $1.00 and 2.00. The
options expire at various dates through fiscal 2005. All were granted with
exercise prices at quoted market value.
ITEM - 2 Management's Discussion and Analysis
- ---------------------------------------------
Management's Discussion and Analysis
- ------------------------------------
Results of Operations
During the three months ended December 31,1996, the Company had sales of
approximately $1,185,000 to an account base that exceeded 1,400 active accounts.
Comparatively, sales for the three months ended December 31,1995 were
approximately $707,100 to an account base of almost 1,100 active accounts. The
resulting increase in sales of 68% to an expanded account base that grew by over
27% demonstrates the continuing growth in acceptance of the Company's product in
the marketplace.
Cost of goods sold as a percentage of sales for the three months ended December
31,1996 was 68% , an increase of 4% when compared to 64% for the three months
ended December 31, 1995. The increase primarily reflects the Company's decision
to sell certain prior seasons inventories at reduced prices.
Warehousing, design, selling and administrative expenses were approximately 65%
of net sales compared to approximately 90% for the three months ended December
31, 1995. Although the overhead expense as a percentage of net sales decreased
due to the increase in sales, the actual expenses increased due to continued
sales growth.
Interest expense for the three months ended December 31, 1996 was $52,811
compared to $26,842 for the same period ended December 31, 1995. This increase
resulted from higher borrowings required primarily to support the increased
levels of inventory and accounts receivable experienced as part of the Company's
growth.
The net loss for the quarter ended December 31, 1996 was $440,566 ( $.05 per
share ) compared to the net loss of $410,762 ( $.07 per share ) for the same
period ended December 31, 1995 as a result of the factors described above and
the disproportionately low level of sales traditionally realized in the first
quarter. As demonstrated by the growth in sales, the Company is moving towards
its plan with a continued focus on improving operating results for fiscal 1997,
although additional financing will be required in 1997 to reach that plan (see
discussion of liquidity and capital resources below). The recent PGA Show in
Orlando reconfirmed the Company's belief that the GlenGate product continues to
gain acceptance in the marketplace.
<PAGE>
Liquidity and Capital Resources
The Company had cash provided by operating activities during the quarter ended
December 31, 1996 of $158,078 resulting primarily from the reduction of accounts
receivable of $547,511 and the increase in accounts payable and accruals of
$327,288 more than offseting the net loss of $440,566 and the increase in
inventories of $263,115. Cash was used in financing activities primarily to pay
down the bank debt by $192,207.
In January 1997 two of the Company's directors who are also shareholders loaned
the Company a total of $250,000 to satisfy working capital needs.The notes are
not subordinated to the creditors of the Company and are due on demand with
interest at a rate of 12% per annum payable monthly. The Company may be unable
to rely on its directors, officers, and principal stockholders for additional
loans in the future.
In order for the Company to sustain its current growth patterns, it will require
additional funding in 1997, including the replacement of its banking credit
facility to be more consistent with the capital needs during its initial period
of growth. Management has initiated discussions for additional growth capital to
coincide with its current needs. In the event that additional capital is not
acquired, revenues will be adversely affected.
The Company has reached an agreement in principle for the distribution rights
within the United States for the Sun Ice and Aureus labels. The product under
these labels will initially be provided to the Company on a consignment basis.
As a result management expects the acquisition of these labels to have a
positive impact on the liquidity and operating results.
Future events 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.
Important Factors Related to Forward-Looking Statements
The statements contained in this quarterly report or incorporated by reference
herein that are not purely historical are forward-looking statements and are
based on current expectations that involve a number of risks and uncertainties.
These forward-looking statements were based on assumptions that the Company
would continue to develop and introduce new products on a timely basis, that the
competitive conditions within the golf apparel industry would not change
materially or adversely, that the demand for the Company's golf apparel would
remain strong, that the market would accept the Company's new apparel lines,
that inventory risks due to shifts in market demand would be minimized, that the
Company's forecasts would accurately anticipate market demand, and that there
would be no material adverse change in the Company's operations or business.
Assumptions relating to the foregoing involve judgments with respect to, among
other things, future economic, competitive and market conditions, and future
business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond the control of the Company. Although the
Company believes that the assumptions underlying the forward-looking statements
are reasonable, any of the assumptions could prove inaccurate and, therefore,
there can be no assurance that the forward-looking information will prove to be
accurate. In addition, the business and operations of the Company are subject to
substantial risks which increase the uncertainty inherent in such
forward-looking statements. Budgeting and other management decisions are
subjective in many respects and thus susceptible to interpretations and periodic
revisions based on actual experience and business developments, the impact of
which may cause the Company to alter its marketing or other budgets, which may
in turn affect the Company's results of operations. In light of the significant
uncertainties inherent in the forward-looking information included herein, the
inclusion of such information should not be regarded as a representation by the
Company or any other person that the objectives planned for the Company will be
achieved.
PART II
- -------
ITEM 5 - Other Information
- --------------------------
Richard Martinelli resigned as COO on December 31, 1996 and Norman Britman
resigned as Secretary-Treasurer on January 3, 1997. On January 6, 1997 Peter
Culbertson was appointed COO/CFO and Secretary-Treasurer of the Company.
<PAGE>
ITEM 6 - Exhibits and Reports on Form 8 -K
- ------------------------------------------
Reports on form 8-K
- -------------------
No reports on Form 8-K were filed by the Company during the quarter ended
December 31, 1996.
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.
/s/ George J. Gatesy
BY:_____________________________
Dated: February 14, 1997 George J. Gatesy, President
(principal executive officer)
/s/ Peter Culbertson
BY:_____________________________
Dated: February 14, 1997 Peter Culbertson, Chief Operating
Officer, Chief Financial Officer,
Secretary and Treasurer
(principal financial and accounting
officer)
