As filed with the Securities and Exchange Commission on July 30, 1997
Registration No. 333-23417
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
POST-EFFECTIVE
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
------------
GLENGATE APPAREL, INC.
(Name of small business issuer in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
New Jersey 2329 22-3266971
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
207 Sheffield Street
Mountainside, New Jersey 07092
(908) 518-0006
(Address and telephone number of principal executive
offices and principal place of business)
George J. Gatesy
President
GlenGate Apparel, Inc.
207 Sheffield Street
Mountainside, New Jersey 07092
(908) 518-0006
(Name, address and telephone number of agent for service)
-------------
With Copies To:
Kenneth W. Vest, Esq.
Graham, Curtin & Sheridan
A Professional Association
4 Headquarters Plaza
Morristown, New Jersey 07962
(201) 292-1700
-------------
Approximate date of commencement of proposed sale to the public:
From time to time after the effective date of this Registration Statement as
determined by market conditions.
-------------
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act Registration Statement number of the earlier effective
registration statement for the same offering.[ ]________
<PAGE>
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 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,
please check the following box.[ ]
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CALCULATION OF REGISTRATION FEE
<S> <C> <C> <C> <C>
Title of each class of securities to be Amount to be registered Proposed maximum Proposed maximum Amount of
registered offering price per aggregate offering registration fee
share(1) price
Common Stock, $.001 1,250,000 $0.9375 $1,171,875 $355.11(2)
par value
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee and based upon the average of the high and low sale prices reported on the
National Association of Securities Dealers Automated Quotation National Market
System on March 10, 1997.
(2) Previously paid.
---------------
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 Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
GLENGATE APPAREL, INC.
Cross-Reference Sheet Showing Location in Prospectus
of Information Required by Part I of Form SB-2
Form SB-2 Registration
Statement Item and Heading Location in Prospectus
1. Front of Registration Statement and Outside
Front Cover Page of Prospectus.....................Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus.........................................Inside Front Cover Page;
Outside Back Cover Page
3. Summary Information and Risk Factors.......Prospectus Summary; Risk Factors
4. Use of Proceeds.........................Prospectus Summary; Use of Proceeds
5. Determination of Offering Price....................Outside Front Cover Page
6. Dilution ..................................................*
7. Selling Security Holders................................Selling Shareholder
8. Plan of Distribution...................................Plan of Distribution
9. Legal Proceedings..............................Business - Legal Proceedings
10. Directors, Executive Officers, Promoters and
Control Persons.................................................Management
11. Security Ownership of Certain Beneficial Owners
and Management.........................Voting Security Ownership of Certain
Beneficial Owners and Management
12. Description of Securities ........................Description of Securities
13. Interests of Named Experts and Counsel................Legal Matters; Experts
14. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities..................................*
15. Organization Within Last Five Years.....................Certain Transactions
16. Description of Business.............................................Business
17. Management's Discussion and Analysis or
Plan of Operation ..........................Management's Discussion and
Analysis of Financial Condition
and Results of Operations
<PAGE>
18. Description of Property..................................Business - Property
19. Certain Relationships and Related Transactions..........Certain Transactions
20. Market for Common Equity and Related
Stockholder Matters.....................Market for the Company's Securities
21. Executive Compensation............................................Management
22. Financial Statements
23. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............................*
- -----------------------
*Not applicable
<PAGE>
PROSPECTUS
1,250,000 Shares
GLENGATE APPAREL, INC.
Common Stock
This Prospectus relates to the offer and sale by a certain
shareholder (the "Selling Shareholder") of GlenGate Apparel, Inc. (the
"Company") of up to 1,250,000 shares (the "Shares") of Common Stock, par value
$.001 per share (the "Common Stock"), of the Company. The shares of Common Stock
are being offered hereby for the account of the Selling Shareholder. No shares
of Common Stock are being offered by the Company hereunder. The Company will not
receive any proceeds from the sale of the Shares by the Selling Shareholder. See
"Selling Shareholder" and "Plan of Distribution."
The Common Stock may be offered by or for the account of the
Selling Shareholder from time to time on the NASDAQ Electronic OTC Bulletin
Board or in negotiated transactions, or a combination of such methods of sale,
at fixed prices that may be changed, at market prices prevailing at the time of
sale, at prices related to such prevailing market prices, or at negotiated
prices. See "Plan of Distribution."
The Company is traded in the over-the-counter market and is
quoted on the NASDAQ OTC Bulletin Board under the symbol "GLNN". On July 18,
1997 the last reported sale price for the Common Stock as quoted on the NASDAQ
OTC Bulletin Board was $1.06 per share.
--------------------
The Shares being offered hereunder previously were acquired by
the Selling Shareholder directly from the Company in private
transactions. Such Shares were issued to it without registration under
the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to the private offering exemption thereunder.
See "Risk Factors" for information that should be
considered by prospective investors.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------
<TABLE>
<CAPTION>
Price to Public Underwriting Proceeds to Proceeds to Selling
Discounts and Company Shareholder(1)
Commissions
<S> <C> <C> <C> <C>
Per Share 0.9375 - 0 - - 0 - 0.9375
Total $1,171,875 - 0 - - 0 - $1,171,875
</TABLE>
(1) Expenses of this offering, to be paid by the Selling
Shareholder, include the following: SEC registration fee of
$355.11, estimated legal fees and expenses of $50,000,
estimated accounting fees and expenses of $10,000, estimated
Blue Sky fees and expenses of $5,000 and other estimated
miscellaneous expenses associated with the issuance and
distribution of the Shares of $1,645.00.
--------------------------
The date of this Prospectus is July 25, 1997
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Each
prospective investor is urged to read this Prospectus in its entirety.
Risk Factors
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN
CONNECTION WITH AN INVESTMENT IN THE SECURITIES OFFERED HEREBY.
The Company
GlenGate Apparel, Inc., a New Jersey corporation, was incorporated in the
State of New Jersey on November 8, 1993. The Company is engaged in the design
and production of golf apparel marketed under the GlenGateTM label. The
Company's primary products consist of men's knit cotton shirts and sweaters and
woven cotton slacks and shorts. The Company's products are sold primarily to
public and private golf course pro shops and resorts domestically through
regional sales vice presidents and independent sales representatives and
internationally through licensed distributors.
The Company's executive offices are located at 207 Sheffield Street,
Mountainside, New Jersey 07092 and its telephone number is (908) 518-0006.
The Offering
Common Stock offered
By the Selling Shareholder..........................1,250,000 shares
Common Stock Outstanding...........................10,613,932 shares
Use of proceeds.....................................The Company will not receive
any of the proceeds from the
sale of the Shares by the
Selling Shareholder. See
"Use of Proceeds."
NASDAQ OTC Bulletin Board symbol....................GLNN"
RISK FACTORS
An investment in the Shares being offered by this Prospectus involves a
high degree of risk. In addition to the other information contained in this
Prospectus, prospective investors should carefully consider the following risk
factors before purchasing Shares offered by this Prospectus.
2
<PAGE>
History of Losses; Accumulated Deficit
The Company has incurred net losses of $927,449 and $1,449,291 and
$1,425,522 for the six months ended March 31, 1997 and the years ended
September 30, 1996 and September 30, 1995, respectively, and had an accumulated
deficit of $4,200,440 at March 31, 1997. See the Company's financial
statements included elsewhere in this Prospectus.
Limited Available Capital; Significant Capital Requirements; Need for
Additional Financing
The Company's capital requirements have been and will continue to be
significant. The Company has been substantially dependent upon private
placements of its equity securities, and from time to time, on short term loans
from its officers, directors and shareholders to fund requirements. See "Certain
Transactions". To sustain its current growth patterns and meet its interim
working capital requirements, the Company obtained additional funding in 1997
by entering into a financing arrangement with a lending group (the "lending
group") in April 1997 and by completing a private placement with American
Marketing Industries, Inc. ("AMI")for the sale of 2,500,000 shares of Common
Stock and certain options to acquire an additional 2,500,000 shares for an
aggregate purchase price of $2,500,000 in July 1997, aportion of the proceeds of
which the Company used to satisfy the debt owed to the lending group. In April
1997, the Company entered into the financing arrangement with the lending group
whereby the lending group loaned the Company $750,000 in return for notes
secured by a junior lien on the Company's inventory, receivables and trademarks.
The notes were subordinate to advances made by the credit facility lender and
were issued with the consent of the credit facility lender. In addition, the
lending group made available another $150,000 in connection with a letter of
credit. In June 1997, the Company obtained a bridge loan in the amount of
$600,000 from AMI to whom the Company sold 2,500,000 shares of Common Stock
together with options to acquire another 2,500,000 shares at prices ranging
from $1.00 to $2.00 per share for an aggregate purchase price of $2,500,000 in
July 1997. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity abd Capital Resources." The Company has used
a portion of the proceeds from the sale of stock to repay the $600,000 bridge
loan and the $750,000 notes held by the lending group. The Company also used
$150,000 of such proceeds in substitution of the collateral provided by the
lending group in connection with the letter of credit. The Company does not have
a commercial bank facility and depends significantly upon a credit arrangement
with a lender to fund its operations. Under this arrangement, the lender makes
advances to the Company of up to the lesser of $3,000,000 or 85% of qualifying
receivables and interim temporary financing available between October 1,
1996 and April 30, 1997 of 50% of eligible finished goods inventory to a
maximum of $750,000 of availability. The Company pays interest on such
advances. Advances are in the sole discretion of the lender, and the lender
may cease making advances for any reason, including if it deems itself insecure.
On February 24, 1997, the lender notified the Company that it intended to
terminate the credit arrangement effective April 30, 1997. In April 1997, the
lender extended the date of termination of the credit arrangement to May 30,
1997. The lender has subsequently confirmed its willingness to make further
advances beyond May 30, 1997 at its discretion at such rates as it deems
advisable, and has continued to make further advances, which arrangement the
lender may terminate at any time upon notice to the Company. Prior to February
24, 1997, the Company had initiated discussions to replace the existing lender.
Management continues such discussions as part of the pursuit of additional
growth capital to coincide with its current needs. No assurances can be made
that the Company will be able to obtain alternate financing or that such
financing will be available on terms acceptable to the Company.
Competition
The golf apparel business is highly competitive, both within the United
States and abroad. The Company competes not only with other distributors of golf
apparel sold at pro shops and resorts, but also with manufacturers and
distributors of apparel suitable for other sports, recreation, or general casual
wear sold in department and specialty stores. Competitive factors include
quality, price, style, design, creativity, consistency, availability of shelf
space, and service. Among the Company's competitors are companies with
substantially greater experience, financial resources, manufacturing
capabilities, and/or name recognition than the Company, the most significant
competitors including Ashworth, Polo/Ralph Lauren, Izod and Sport-Haley.
Increased competition in the golf apparel market from these manufacturers or
others could result in price reductions, reduced margins or loss of market
share, all of which could have a material adverse effect on the Company's
results of operations and financial condition. Accordingly, there can be no
assurance that the Company will be able to compete successfully with other
companies. See "Business".
3
<PAGE>
Forecasting and Scheduling
The Company must forecast sales of each of its products and establish
production schedules based on its forecasts in order to build sufficient
inventory in a timely fashion to avoid significant delays in delivery of
finished goods to its customers. The Company utilizes feedback received from the
two major golf industry trade shows held in January and September each year to
redefine the product lines and corresponding forecasts. If the Company misjudges
the market for a particular line, the Company could be faced with either
excessive or insufficient inventory. Furthermore, a casualty or other business
interruption could disrupt the Company's production and delivery schedules. Any
such misjudgment or business interruption could have a material adverse effect
on the Company and its business. In addition, quarterly results may be affected
by the seasonality of the Company's business. See "Business".
Seasonality
The Company's business is seasonal, with the highest sales volume expected
in the period from February through July and the lowest sales volume in the
period from November through January. The Company's operating results could vary
significantly from period to period. Significant variations in the Company's
sales volume may adversely affect operating results if the Company is unable to
proportionately reduce its expenses in a timely manner.
Availability of Raw Materials
The Company relies upon mills and suppliers to deliver fabric and trim on
time and according to specifications. Significant delivery delays or delivery of
a substantial amount of defective fabric or trim could have a material adverse
effect upon the scheduling of production and consequently the Company's ability
to make timely delivery of products to its customers. See "Business".
Dependence on Outside Contractors
The Company has entered into agreements with third party domestic
manufacturers for cutting and sewing. If for any reason these manufacturers
cannot deliver according to contract, this will create a short term adverse
effect and, potentially, a long term adverse effect if new manufacturers are not
sought out and obtained. For this reason, the Company has generally followed a
policy of diversifying production among its manufacturers while maintaining
sufficient production at each to remain a significant purchaser from each
manufacturer.
Limited High-End Market
The Company targets distribution of its golf apparel toward quality golf
professional shops, country clubs and resorts. Of the estimated 14,000 United
States golf professional shops, the Company has currently targeted approximately
3,500 of such shops as the Company's target customer base. Because the Company
currently distributes its apparel to approximately 1,400 high quality golf
professional shops, the domestic market for distribution of the existing apparel
lines may be limited. High quality sportswear and general leisure wear, being
similar to golf apparel, can be purchased from a variety of sources including
department stores, sporting goods stores, catalog retailers and other retail
outlets. Customers seeking to purchase high quality sportswear may elect to
purchase apparel from any of these sources, thus creating competition for
discretionary consumer spending. The Company has elected to restrict sales of
its apparel to high quality golf professional shops, thereby foregoing other
retail distribution channels which account for a high percentage of sales of
high quality sportswear. The reliance on a limited high-end market could inhibit
the Company's future growth or profitability.
Product Design and Changes in Fashion Trends
A major factor in the Company's future success is its ability to design
golf apparel that is accepted by the golfing consumer. The Company is therefore
dependent upon its design team and marketing staff to design apparel that is
favorably accepted by the ultimate consumer. The Company believes that its
success depends in substantial part on its ability to anticipate, gauge and
respond to changing consumer demands and fashion trends in a timely manner. For
this reason, members of the Company's design team attend the golf industry's
principal trade shows during each design cycle to discuss and consult with
4
<PAGE>
customers concerning current retail trends. The Company attempts to minimize the
risk of changing fashion trends and product acceptance by closely monitoring
retail sales products. If the Company misjudges the market for its product
lines, it may be faced with a significant amount of unsold finished goods
inventory or other conditions which could have a material adverse effect on
the Company. See "Business".
Liquidity and Capital Resources
The Company's working capital requirements continue to increase with the
growth of its sales. The proceeds from the Company's initial public offering in
1994 and warrant and private placement offerings in 1995, 1996 and 1997 have
been used for the development of the Company's business as set forth in the
Prospectus and private placement documents relating thereto. Interim
working capital requirements are expected to be funded utilizing availability
under the credit facility agreement signed in September 1996 and a replacement
facility which the Company is currently pursuing. In the event the Company
requires funds in addition to those available under the current credit facility,
and a replacement credit facility, management believes that such funds would be
available from offerings of Common Stock, from the exercise of
stock options, additional loans from shareholders and other loans or investments
in the Company by third parties in sufficient amounts to permit it to conduct
its operations. 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. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations".
Dependence on Key Personnel
The success of the Company is dependent upon the services of George J.
Gatesy and Peter J. Kostis. The loss of the services of George J. Gatesy or
Peter J. Kostis could have a material adverse effect on the Company and its
business. Moreover, the Company may require the services of additional executive
personnel. Although the Company is the beneficiary of a $5,000,000 Key Man Life
Insurance Policy on the life of Mr. Gatesy (of which $1,000,000 is designated to
replace the loss of Mr. Gatesy's services to the Company in the event of his
death), there can be no assurance that the Company will be able to replace the
loss of any of its key personnel or hire additional qualified personnel. See
"Management".
Trademark
The Company sells and markets its products under the GlenGateTM trademark.
The Company obtained registration of the GlenGateTM name with the United States
Patent and Trademark Office in 1994. Registration on the Principal Register
constitutes constructive nationwide notice of the Company's claim of ownership
of the trademark and creates a refutable presumption of the Company's exclusive
right to the trademark. Although the Company believes that it will have the
exclusive right to use the trademark for the United States and overseas markets
in which it is granted registration, there can be no assurance that the Company
will be able successfully to protect the trademark from conflicting uses or
claims of ownership. See "Business".
Shares Eligible for Future Sale
As of the date of this Prospectus, a total of approximately 4,550,000
shares of the Company's outstanding Common Stock (not including the Shares
offered hereby) are "restricted securities" and, in the future may be sold from
time to time in compliance with Rule 144 adopted under the Securities Act of
1933, as amended. Among other things, Rule 144 provides that persons holding
restricted securities for a period of one year or more may sell, in brokers'
transactions every three months, an amount equal to the greater of 1% of the
Company's outstanding Common Stock or the average weekly reported volume of
trading in such securities on all national securities exchanges during the
preceding four calendar weeks. Further, non-affiliates may sell restricted stock
after two years without regard to this volume limitation. The possibility of
such sales under Rule 144, and the sale of such shares in the future, could have
a depressive effect upon the market price of the Common Stock.
5
<PAGE>
Offering Price
The Shares may be offered for the account of the Selling Shareholder from
time to time on the NASDAQ OTC Bulletin Board, in negotiated transactions, at
fixed prices which may be changed, at market prices prevailing at the time of
sale, at prices related to such prevailing market prices, or at negotiated
prices. Accordingly, the offering price of the Shares may not be an accurate
indication of the value of the Common Stock. See "Plan of Distribution".
Risks Relating to Low-Priced Stocks
Trading in the Common Stock is subject to the requirements of certain rules
promulgated pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act") which require additional disclosure by broker-dealers in
connection with any trades involving a penny stock (defined generally as any
non-NASDAQ equity security that has a market price less than $5.00 per share,
subject to certain exemptions). Such rules require the delivery, prior to any
penny stock transaction, of a disclosure schedule explaining the penny stock
market and the risks associated therewith, and impose various sales practice
requirements on broker-dealers who sell penny stock to persons other than their
established customers and accredited investors (generally institutions). For
these types of transactions, the broker-dealer must make a special suitability
determination for the purchaser and have received the purchaser's written
consent to the transaction prior to sale. The additional burdens imposed upon
broker-dealers by such requirements may discourage broker-dealers from affecting
transactions in the Common Stock, which could severely limit the market
liquidity of the Common Stock and the ability of purchasers in this offering to
sell their Common Stock in the secondary market.
Significant Outstanding Options and Warrants.
As of the date of this Prospectus, there are outstanding (vested and
unvested) stock options and warrants to purchase an aggregate of approximately
4,652,000 shares of Common Stock at exercise prices ranging from $1.00 to $2.50
per share. To the extent that outstanding options or warrants are exercised,
dilution to the Company's shareholders will occur. Moreover, the terms upon
which the Company will be able to obtain additional equity capital may be
adversely affected since the holders of outstanding options and warrants can be
expected to exercise them at a time when the Company would, in all likelihood,
be able to obtain any needed capital on terms more favorable to the Company than
the exercise terms provided by such outstanding securities.
Dividend Policy
Since its inception, the Company has not paid any dividends on its Common
Stock. The Company intends to retain future earnings, if any, to provide funds
for working capital, operations and/or expansion of its business, and
accordingly, does not anticipate paying any cash dividends on its Common Stock
in the foreseeable future.
Certain Anti-Takeover Provisions
The Company's Amended and Restated Bylaws contain a provision
establishing a classified board of directors, which provision may delay or
discourage a change in control of the Company. This provision is expected to
encourage persons seeking to acquire control of the Company to consult first
with the Company's Board of Directors to negotiate the terms of any proposed
business combination or offer.
Important Factors Related to Forward-Looking Statements and Associated Risks
The statements contained in this Prospectus or incorporated by reference
herein that are not purely historical are forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act, including statements regarding the Company's expectations, hopes,
intentions or strategies regarding the future. All forward-looking statements
included in this document or incorporated by reference herein are based on
information available to the Company on the date hereof, and the Company assumes
no obligation to update any such forward-looking statements. It is important to
note that the Company's actual results could differ materially from those in
such forward-looking statements. Among the factors that could cause actual
results to differ materially are the risk factors set forth elsewhere within
6
<PAGE>
this Prospectus. You should also consult the risk factors listed from time to
time in the Company's reports on Form 10-QSB, 10-KSB and annual reports to
shareholders.
The forward-looking statements included and incorporated by reference
herein 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, the competitive conditions within the golf apparel industry would not
change materially or adversely, 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, as disclosed elsewhere under "Risk Factors," the business
and operations of the Company are subject to substantial risks which increase
the uncertainty inherent in such forward-looking statements. Any of the other
factors disclosed under "Risk Factors" could cause the Company's net sales or
net income, or growth rate of net sales and net income, to differ materially
from prior results. 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 are planned for the Company will
be achieved.
USE OF PROCEEDS
The Company is not offering any securities pursuant to this Prospectus and
will not receive any of the proceeds from the offer and sale of the Shares by
the Selling Shareholder.
DIVIDEND POLICY
The Company has never paid any cash dividends on its Common Stock. The
Company currently intends to retain all available funds and any future earnings
for use in the operation of its business, and does not anticipate paying any
cash dividends in the foreseeable future.
MARKET FOR THE COMPANY'S SECURITIES
The Company's Common Stock is quoted on the over-the-counter market under
the symbol "GLNN". The following table sets forth the high and low sale prices
for the Common Stock for the periods indicated. The quotations in the
over-the-counter market reflect inter-dealer prices without retail markup,
markdown or commissions and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
Period High Low
<S> <C> <C>
August 15, 1994 - September 30, 1994 $1.00 $1.00
Fiscal Year 1995
October 1, 1994 - December 31, 1994 $1.75 $1.25
January 1, 1995 - March 31, 1995 $3.00 $1.25
April 1, 1995 - June 30, 1995 $4.25 $2.25
July 1, 1995 - September 30, 1995 $3.87 $1.43
7
<PAGE>
Fiscal Year 1996
October 1, 1995 - December 31, 1995 $2.625 $1.625
January 1, 1996 - March 31, 1996 $2.125 $1.375
April 1, 1996 - June 30, 1996 $2.625 $1.25
July 1, 1996 - September 30, 1996 $2.125 $1.25
Fiscal Year 1997
October 1, 1996 - December 31, 1996 $1.75 $0.45
January 1, 1997 - March 31, 1997 $1.15 $0.65
April 1, 1997 - June 30, 1997 $1.45 $0.875
July 1, 1997 - July 18, 1997 $1.30 $0.865
</TABLE>
As of July 18, 1997, there were approximately 200 holders of record of the
Common Stock and the last reported sale price for the Common Stock was $1.06.
SELECTED FINANCIAL DATA
The following table sets forth certain financial information of the Company
for each of the years ended September 30, 1995 and 1996 and the six month
periods ended March 31, 1996 and 1997. The financial information of the
Company as of September 30, 1996 and for the years ended September 30, 1995 and
1996 as set forth below has been derived from the audited financial statements
of the Company included elsewhere in this Prospectus. The unaudited financial
information as of March 31, 1996 and 1997 and the six months then ended has
been derived from the unaudited financial statements of the Company included
elsewhere in this Prospectus. Results for the six months ended March 31, 1997
are not necessarily indicative of the results that can be expected for any
other interim period or for the year ended September 30, 1997. All financial
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and related notes thereto appearing elsewhere in this Prospectus.
<PAGE>
<TABLE>
<CAPTION>
Year Ended Six Months Ended
September 30, March 31,
1995 1996 1996 1997
---- ---- ---- ----
Statement of Operations Data:
<S> <C> <C> <C> <C>
Net Sales $3,293,295 $6,229,728 $2,664,170 $3,986,124
Cost of goods sold 2,303,850 4,150,138 1,642,841 2,843,501
--------- --------- --------- -------
Gross profit 989,445 2,079,590 1,021,329 1,142,623
Operating Expenses 2,383,114 3,326,060 1,369,126 1,953,469
--------- --------- --------- ---------
Loss from operations (1,393,669) (1,246,470) (347,797) (810,846)
Net interest expense (31,853) (202,821) (71,763) (116,603)
-------- --------- ---------- ----------
Net Loss $(1,425,522) $(1,449,291) $(419,560) $(927,449)
=========== =========== ========== ==========
Net Loss per share $ (.25) $ (.22) $ (.07) $ (.11)
===== ===== ===== =====
Weighted average number of 5,609,113 6,605,941 6,357,469 8,113,932
shares outstanding ========= ========== ========= =========
Balance Sheet Data (at end
of period)
Cash 10,038 34,917 10,300 70,518
Total current assets 1,900,690 3,404,392 3,265,558 4,423,237
Total Assets 2,135,173 3,697,839 3,524,186 4,881,429
Total current liabilities 907,597 2,283,960 2,127,122 4,246,521
Equipment Notes payable less 32,543 10,617 25,780 159,095
current portion
Total Stockholders' equity 1,195,033 1,403,262 1,267,284 475,813
</TABLE>
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Comparison of Six Month Periods ended March 31, 1997 and 1996
During the six months ended March 31, 1997, the Company had sales of
approximately $3,986,000 to an account base that exceeded 1,700 active accounts.
Comparatively, sales for the six months ended March 31, 1996 were
approximately $2,664,100 to an account base of almost 1,100 active accounts.
The resulting increase in sales of 49% to an expanded account base 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 six months ended
March 31, 1997 was 71%, an increase of 10% when compared to 61% for the six
months ended March 31, 1996. The increase primarily reflects the Company's
decision to sell certain prior season's inventories at reduced prices.
Warehousing, design, selling and administrative expenses were approximately
49% of net sales compared to approximately 51% for the six months ended
March 31, 1996. 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 six months ended March 31, 1997 was $116,603
compared to $71,763 for the same period ended March 31, 1996. 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 six months ended March 31, 1997 was $927,449 ($.11 per
share) compared to the net loss of $419,560 ($.07 per share) for the same period
ended March 31, 1996 as a result of the factors described above. 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
"Liquidity and Capital Resources". The January 1997 PGA Show in Orlando
reconfirmed the Company's belief that the GlenGate product continues to gain
acceptance in the marketplace.
Comparison of Fiscal Years Ended September 30, 1996 and 1995
The results for the fiscal years ended September 30, 1996 and September 30,
1995 are not comparable. Prior to March 1995, the Company was in the
developmental stage.
During fiscal 1996 the Company had sales of approximately $6,230,000, an
increase of almost 89% when compared to the fiscal 1995 period. This sales
increase was due in part to the fact that there were seven months of operation
in fiscal 1995. However, during 1996, the customer base increased by almost 55%
from about 900 accounts to almost 1,400. During the fourteen weeks from August
to December 5, 1996 this trend continued. During that period the Company
booked approximately $4,100,000 in orders, an increase of almost 32% when
compared to the $3,100,000 during the comparable period in 1995. This
continuing increase in sales, order position and customer base, demonstrates the
acceptance of the product at the pro shop level and supports management's belief
in a continuing market penetration and acceptance of GlenGate product.
9
<PAGE>
Cost of goods sold as a percentage of sales, was reduced to approximately
67%, an improvement of almost 3% when compared to 70% in fiscal 1995. During
this period, the Company reduced its exposure to unusual costs of embroidery,
irregulars and other manufacturing problems. In October 1996, the Company
completed installation and testing of an in-house pilot embroidery operation to
further reduce certain costs associated with independent contract embroidery.
Warehousing, design, selling and administrative expenses as a percentage of
sales were reduced to approximately 53%, a reduction of almost 19% when compared
to 72% in fiscal 1995. An increase in the amount spent for warehousing, design
selling and administrative expense was primarily attributable to increases in
personnel and facility charges to accommodate the increases in sales and order
processing volume during the year.
Interest expense increased by approximately $134,000 during the year ended
September 30, 1996. The increase resulted from the Company utilizing its credit
facility to support almost $3,000,000 in sales and order increases during the
fiscal year ending September 1996.
The Company had an operating loss of $1,246,470 for the year ended September
30, 1996 and a net loss of $1,449,291 ($.22 per share) for the same period. The
loss can be attributed to a lack of sufficient sales to support the
infrastructure required and in place for future planned growth of the Company.
Operations for the fiscal year ended September 30, 1995 are not comparable since
the Company remained in the developmental stage until March 1995 when it first
began shipping products to its customers.
Liquidity and Capital Resources
The Company continues to experience significant growth since emerging from a
developmental stage in March 1995. The proceeds from the Company's initial
public offering in 1994 and warrant and private placement offerings in 1995 and
1996 have been used for the development of the Company's business.
Growth in sales and the need to continue to fund continuing losses during
this initial growth period increased the Company's working capital requirements.
The Company had cash used in operating activities during the fiscal year ended
September 30, 1996 of $2,628,086 resulting primarily from a net loss of
$1,449,291 and increases in inventory and accounts receivable of $1,368,186.
Cash requirements for operating activities during the fiscal year ended
September 30, 1996 were funded primarily by financing activities that provided
additional net cash of $2,767,507 resulting from borrowings under the Company's
credit facilities of $1,272,809 and $1,807,915 in net proceeds from the sale of
common stock and the exercise of common stock options. The Company had cash
used in operating activities during the six months ended March 31, 1997, of
$816,868 resulting primarily from a net loss of $927,449 and an increase in
inventory and accounts receivable of $874,696 which was offset by an increase
in accounts payable and accrued expenses of $1,035,792. Cash requirements for
operating activities during the six months ended March 31, 1997 were funded
primarily by financing activities that provided additional net cash of
$1,075,247 resulting from borrowings under the Company's credit facilities of
$650,165, borrowings on equipment notes payable of $175,082 and $250,000
borrowed from shareholders.
Interim working capital requirements are expected to be funded utilizing
availability under the credit facility agreement signed in September 1996 and
a replacement facility which the Company is currently pursuing, as
described below. The credit facility currently provides availability limited by
a collateral formula calculated as the overall lesser of $3,000,000 or 85% of
qualified accounts receivable and interim temporary financing available between
October 1, 1996 and April 30, 1997 of 50% of eligible finished goods inventory
to a maximum of $750,000 of availability. Peak inventory positions are required
during the October - April period to support Spring sales. Interest accrues at a
variable rate equal to 1-1/2% in excess of the lender's prime lending rate
(8-1/4% as of September 30, 1996). On February 24, 1997, the lender notified
the Company that it intended to terminate the credit arrangement effective
April 30, 1997. In April 1997, the lender extended the date of termination of
the credit arrangement to May 30, 1997. The lender has subsequently confirmed
its willingness to make further advances beyond May 30, 1997, at its discretion
at such rates as it deems advisable, which arrangement the lender may terminate
at any time upon notice to the Company. Prior to such notification the
Company had initiated discussions to replace the existing lender. Management
continues such discussions as part of the pursuit of additional growth capital
to coincide with its current needs. No assurances can be made that the Company
will be able to obtain alternate financing or that it will be available on terms
acceptable to the Company.
10
<PAGE>
As of March 31, 1997, the Company had purchase commitments with its
suppliers in the amount of approximately $2,860,000.
As of May 15, 1997, the Company had outstanding $350,000 in notes in
favor of certain of its directors. The funds were advanced at varying times
during the developmental stages of the Company to satisfy working capital needs.
These loans are subordinate to indebtedness owing to other creditors of the
Company, bear interest at rates ranging from 12% per annum to 1-1/2% over prime
payable monthly and are due on demand. The Company may be unable to rely on its
directors, officers and principal stockholders for additional loans in the
future.
The Company has funded interim working capital requirements utilizing the
funds obtained under a financing agreement with a separate lending group (the
"lending group") entered into in April 1997 and the funds obtained by completing
a private placement with AMI of 2,500,000 shares of Common Stock and options to
acquire an additional 2,500,000 shares in July 1997, a portion of the proceeds
of which the Company used to satisfy the indebtedness owed to the lending group.
The financing agreement with the lending group provided for a loan to the
Company of $750,000, secured by a junior lien on the Company's inventory,
receivables and trademarks. The lending group also made available $150,000 to
the Company in the form of a letter of credit. The debt was subordinated to the
credit facility lender and any replacement facility lender. The notes were to
mature on December 31, 1997 and were to bear interest at the prime rate plus 2%
per annum, payable monthly. In conjunction with this financing arrangement, a
director of the Company sold certain shares and granted certain options to the
members of the lending group and the Company agreed to issue warrants to the
members of the lending group upon the happening of certain events. See "Related
Transactions". Additionally, the Company agreed to use its best efforts to make
certain amendments to its Certificate of Incorporation, discussed below.
In May 1997, the Company entered into a letter of intent with AMI whereby,
provided that the holders of Common Stock approved an increase in the number of
authorized shares of Common Stock to 17,000,000, and certain other conditions
were met, AMI would purchase 2,500,000 shares of Common Stock and acquire
certain options for an aggregate purchase price of $2,500,000. The options to
be acquired by AMI consisted of an option to acquire up to 1,000,000 shares of
Common Stock at a purchase price of $1.50 per share, such option to be
immediately exercisable and expiring three years after the date of the grant,
and an option to acquire up to 1,500,000 shares of Common Stock at a purchase
price of $1.00 per share for 240,000 shares of Common Stock and $2.00 per share
for the remaining 1,260,000 shares, such option to become exercisable one year
from the date of the grant and expiring three years after the date of the grant.
In June 1997, AMI advanced to the Company in the form of a bridge loan the
amount of $600,000 pursuant to a term note, such term note to bear interest at a
rate of 9% per annum, with interest to be payable quarterly. The note was to
mature on the earlier of June 23, 1998 or at AMI's option in the event the
Company defaulted on the note and could be prepaid by the Company without
penalty at any time prior to the maturity date. AMI could elect to apply the
outstanding balance due on the note in partial satisfaction of the purchase by
AMI of the 2,500,000 shares of Common Stock and options.
In July 1997, the holders of Common Stock approved the proposed increase in
the number of authorized shares of Common Stock to 17,000,000 shares and AMI
purchased 2,500,000 shares and was granted options for an aggregate purchase
price of $2,500,000, as discussed above. The Company has used the proceeds of
$2,500,000 as follows: (i) approximately $600,000 to repay the outstanding
bridge loan made by AMI, (ii) approximately $750,000 to repay outstanding loans
made by the lending group, and (iii) approximately $150,000 in substitution of
the collateral provided by the lending group in connection with a certain letter
of credit. Approximately $200,000 of the remainder of the proceeds is expected
to be used for capital expenditures and the balance will be used for working
capital and other general corporate purposes.
In the event the Company requires funds in addition to those available under
the current (and replacement) credit facility, management believes that such
funds will be available from offerings of Common Stock (if any), from the
exercise of stock options (if any) and additional loans from shareholders (as
necessary) and other loans or investments in the Company by third parties in
sufficient amounts to permit it to conduct its operations. In the event that
additional capital is not acquired, revenues and operating results could be
adversely affected.
In February 1997 the Company acquired the exclusive right to distribute
certain golf apparel under the Sun Ice and Aureus trademarks in the United
States for a period of five (5) years, renewable at the option of the Company
for three (3) successive five (5) year periods. The product under these labels
11
<PAGE>
will initially be provided to the Company on a consignment basis. Although there
can be no assurances, management expects the acquisition of these distribution
rights to have a positive impact on the liquidity and operating results of the
Company.
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.
Recent Accounting Standard
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share," which
establishes standards for computing and presenting earnings per share. The
standard is effective for periods ending after December 15, 1997. Management
anticipates that this pronouncement will not have a material effect on the net
loss for the six months ended March 31, 1997 and the fiscal year ended September
30, 1997.
BUSINESS
General
The Company was incorporated in New Jersey on November 8, 1993. The Company
is engaged in the design and production of golf apparel marketed under the
GlenGateTM label and sold primarily to public and private golf course pro shops
and resorts domestically through regional sales vice presidents and independent
sales representatives and internationally through licensed distributors.
Design and Manufacturing
The Company designs and contracts for the design of classic golf-style
garments with contemporary influences with a view toward developing and
maintaining consumer recognition and loyalty across product lines from season to
season. The Company contracts with third parties to manufacture its lines of
apparel. The Company exhibits at international industry shows and presents two
seasonal lines of clothing which include men's knit cotton shirts and sweaters
and woven cotton slacks and shorts. All items in each line are sold separately.
The Company staffs its design team with both Company and independent
designers who receive direction from the Company's sales, marketing and
production staffs. Product planning meetings occur on a regular basis to review
the status of each line and to discuss adjustments in line composition,
fabrication, selection, product mix and manufacturing. In addition, members of
the design team attend the industry's principal trade shows during each design
cycle to discuss and consult with customers concerning current retail trends.
The design process for each line is an approximate six-month process of styling,
coloring, fabrication of samples and selection of sewing techniques.
The Company's design and production team consists of six employees with
extensive experience in the apparel industry. The activities of these six
employees include management of the design and production process, sourcing,
merchandising and quality control. The merchandise manager is a graduate of the
Parson's School of Design in New York City with over seven years international
experience with men's clothing retailers and manufacturers. The production
assistants have been extensively involved with the athletic apparel field for
many years with emphasis on quality and production control.
The Company additionally utilizes the services of an independent design
studio located in New York City specializing in men's sportswear. The studio has
expertise in design, trends, color and patterns, style and product engineering
and packaging.
The Company has entered into purchase agreements with third party domestic
manufacturers to cut and sew the company's products according to the Company's
specifications. The Company has no plans to own any manufacturing facilities.
The Company currently uses ten or more independent facilities to manufacture its
products. One such facility currently accounts for approximately 40% of such
manufacturing on an annual basis and two other facilities each account for
12
<PAGE>
approximately 25%. No other facility accounts for more than 8% annually. The
Company has generally followed a policy of diversifying production among such
manufacturers while maintaining sufficient production at each to remain a
significant purchaser from each manufacturer. The Company believes that, while
the loss of any one manufacturer would prove detrimental, given the availability
of alternative sources of supply, such a loss and its impact on the Company's
business would likely be limited in scope and duration.
The Company has chosen to produce its primary product lines within the
United States where the Company believes that the availability of suppliers for
both raw and finished product is sufficient to cover its needs.
The Company's production staff coordinates product engineering (including
pattern and sample making), negotiates price and quantity with its cutting and
sewing contractors, establishes production scheduling and performs quality
control. The production staff also coordinates inspection of fabric as well as
sample testing of fabric for shrinkage, strength and color fastness. The
production staff additionally oversees production at the facilities of each of
the cutting and sewing contractors as well as the Company's contract embroidery
operations to monitor continuing compliance with the Company's specifications.
The Company has implemented its original plan to custom embroider logos of
country clubs and resorts primarily utilizing the services of independent
embroidery contractors. The Company has recently acquired embroidery equipment
for in-house embroidery operation at the warehouse and distribution center. The
implementation of the operation is initially on a limited basis with plans to
expand the operation over the next two years. Final inspection, packing and
shipping of the Company's products is performed by the Company's employees at
its warehouse and distribution center. The Company has implemented a
computerized software system to monitor inventory levels of finished goods.
Sales and Marketing
Management believes that the Company's ability to attain and maintain brand
name recognition of the GlenGate label will be a critical element in enabling
the Company to successfully continue to participate in the growing golf
industry.
The Company estimates that there are approximately 14,000 public and private
golf clubs and resorts with golf courses in the United States. The Company has
currently targeted approximately 3,500 of these clubs and resorts as customers.
The Company has either made sales to or received purchase orders from
approximately 1,700 clubs and resorts in the targeted group. No single customer
accounted for more than 3% of the Company's net sales.
The Company enlists the services of 28 independent sales representatives who
sell on a commission basis. These independent representatives are responsible
for certain targeted accounts in a given territory. Sales management, consisting
of three regional sales vice-presidents and a customer service network of five
others directs and implements the sales and marketing plans and programs adopted
by the Company.
The Company has begun test marketing studies for acceptance of GlenGateTM
Apparel in the international market. Test marketing has successfully begun in
Canada, where there are over 1,200 clubs and resorts and to the prime resort
facilities in Bermuda.
The Company introduces new product at the two major golf industry trade
shows held January and September each year in Orlando, Florida and Las Vegas,
Nevada. Feedback received from the shows in the form of orders, comments, and
booth attendance is used to redefine the product lines and corresponding
forecasts.
The Company has enlisted three PGA touring golf professionals (Tom Purtzer,
Jerry Kelly and Mike Hulbert) and other persons both inside and outside of the
golf industry (including Peter Kostis (a director of the Company) and Don
Criqui) to endorse and wear GlenGate apparel. In addition, the Company has
enlisted approximately twelve home club golf professionals to help promote the
Company's products. The Company has oral arrangements with such golf
professionals and other persons under which they have been compensated solely by
the granting of stock options. The Company may attempt to obtain additional
endorsement arrangements in the future with other touring golf professionals,
home club professionals and other notables.
13
<PAGE>
The Company assists its pro shop customers with sales incentives and
merchandise assistance programs, including the placement of advertisements in
golfing publications and by the use of touring golf professionals.
The Company's sales terms generally require payment from customers within 30
days after shipment. The Company does not accept returns of purchased
merchandise other than damaged goods or goods delivered beyond the specified
delivery date.
Competition
Golf apparel sold at the pro shop and resort level is not dominated by any
single company and is highly competitive, both within the United States and
abroad. The Company views Ashworth, Polo/Ralph Lauren, Izod and Sport-Haley as
its most significant competitors. Recent entries into the market by other
competitors offering comparable product may intensify competitive pressures.
Many of the existing competitors have longer operating histories, better name
recognition and greater financial, marketing and other resources than the
Company. The Company also competes with other high quality manufacturers of
men's leisure wear sold at the department and specialty store level. Tommy
Hilfiger, a well known sportswear manufacturer, recently entered the golf
apparel market at the pro shop and department store level.
There can be no assurances that the Company will be able to obtain new and
maintain existing market share in the face of competition.
Raw Materials
The Company's primary products are made of natural fibers. The selection of
raw materials is based on quality, consistency, availability, flexibility in
meeting changing production requirements and pricing. The Company's
manufacturers generally obtain the materials to manufacture the product lines in
accordance with the Company's design specifications.
Trademarks
The Company sells and markets its products under the GlenGate trademark. The
Company obtained registration of the GlenGate name with the United States Patent
and Trademark Office in 1994. Registration on the Principal Register constitutes
constructive nationwide notice of the registrant's claim of ownership of the
trademark and creates a refutable presumption of the registrant's exclusive
right to the trademark. Although the company believes that it will have the
exclusive right to use the trademark for the United States and overseas markets
in which it is granted registration, there can be no assurance that the Company
will be able successfully to protect the trademark from conflicting uses or
claims of ownership.
In February 1997, the Company acquired the exclusive right to distribute
certain golf apparel under the Sun Ice(TM) and Aureus(TM) trademarks in the
United States for a period of five (5) years, renewable at the option of the
Company for three (3) successive five (5) year periods. Although there can be
no assurances, management expects the acquisition of these distribution rights
to have a positive impact on the liquidity and operating results of the Company.
Seasonality
The Company's business is seasonal, with the highest sales volume expected
in the period from February through July and the lowest sales volume in the
period from November through January. In the golf apparel business, inventories
are at their highest from February through April, as finished goods are
accumulated for Spring and Summer sales. The Company's cash requirements are
highest during this period to enable the Company to support the accumulation.
Employees
As of July 15, 1997, the Company had approximately 40 full-time employees.
14
<PAGE>
Property
The Company leases approximately 14,000 square feet of space in
Mountainside, New Jersey for use as its principal office, production, warehouse
and distribution facility. The lease provides for an annual base rental of
$76,000 for the year ending December 31, 1997, and will terminate on November
1, 1997, pursuant to an agreement with the landlord dated June 23, 1997. The
Company has entered into a lease for 36,500 square feet of space in Cranford,
New Jersey, such lease to commence on October 1, 1997 and to provide for an
annual base rent of $209,875. The Company is also obligated to pay taxes,
insurance and maintenance expenses. Management believes that the new
facilities will be adequate for its needs through 1998.
Legal Proceedings
On April 11, 1997, Norman Britman, the Company's former treasurer and chief
financial officer, filed an action in the Superior Court of New Jersey, Law
Division, Union County (Docket UNN-L-2055-97) against the Company and George
Gatesy. The plaintiff claims that it was represented to him upon becoming
employed that he would remain employed by the Company until his retirement at
age 65. Plaintiff alleges that his termination from employment on or about
January 3, 1997, was discriminatory based upon his age, was in violation of
state anti-discrimination laws, and was wrongful without cause. The Company has
filed an Answer to the Complaint; however, pre-trial discovery has not yet
commenced. It is the Company's intention to defend this claim vigorously.
MANAGEMENT
Directors and Executive Officers
Certain information with respect to the directors and executive officers of
the company is set forth below:
Position With First Year
Name The Company Age Became Director
George J. Gatesy President, Chairman of 44 1993
The Board
Peter Culbertson Chief Operating Officer, 61 N/A
Chief Financial Officer,
Treasurer and Secretary
Peter J. Kostis Director 49 1993
Robert J. Munch Director 46 1996
Martin D. Koffman Director 36 1996
Jeffrey P. Koffman Director 32 1996
James C. Willcox Director 53 1997
Travis R. Metz Director 27 1997
George J. Gatesy, President and Chairman of the Board of the Company,
received a Bachelor of Arts Degree from Farleigh Dickinson University. Mr.
Gatesy served from 1975 to 1978 with the MacGregor Brunswick Golf Company as
sales agent and sales representative. From 1978 to 1984 Mr. Gatesy served as a
field representative for Etonic, Inc. While with Etonic, Mr. Gatesy received
Etonic's President's Award in years 1981 and 1982. This award was for surpassing
the $1,000,000 sales mark in each year. In 1984 Mr. Gatesy joined the EJ Manley
Company (Aureus Ltd.) as an independent golf sales representative. For
increasing his territory's sales volume from $450,000 to $2,400,000, Mr. Gatesy
was awarded the Aureus Salesman of the Year award during the selling season
1988/1989. In the Spring of 1990, Mr. Gatesy became Polo/Ralph Lauren's National
15
<PAGE>
Sales Manager. In 1991 he was promoted to Vice President of Sales with total
responsibility for all segments of the golf division.
Peter Culbertson commenced employment with the Company as its Chief
Operating and Financial Officer, Treasurer and Corporate Secretary on January 6,
1997. Mr. Culbertson was formerly Senior Vice President of Woolrich, Inc. and
President of Leslie Fay Sportswear.
Peter J. Kostis is a world renowned golf instructor having taught over 125
PGA Tour Players. He is a television analyst for CBS for CBS Sports and USA
Network. Mr. Kostis is a professional panel member for Golf Digest magazine and
currently is a director of The Kostis/McCord Golf School at Grayhawk Golf Club,
Scottsdale, Arizona. He has appeared seven times on the cover of Golf Digest
Magazine and is the author of Inside Path to Better Golf.
Robert J. Munch is a Senior Vice President of the Canadian Imperial Bank of
Commerce (CIBC) Managing Director, Global Energy, CIBC Wood Gundy, and a member
of CIBC Wood Gundy's Management Group. Mr. Munch is a member of the Canadian
Society of New York and has served on the Board of Governors and on the faculty
of the American Institute of Banking.
Martin D. Koffman is a Director and President of The Koffman Group, Inc.,
a diversified investment firm. Mr. Koffman worked as a tax specialist with
Coopers & Lybrand in 1984. In 1986 Mr. Koffman became associated with the law
firm of Squadron, Ellenoff, Plesent & Lehrer. Since 1990, Mr. Koffman has been a
principal of Jomar Management Corp., a diversified holding company. Mr. Koffman
is the cousin of Jeffrey P. Koffman.
Jeffrey P. Koffman is President of Apparel America, Inc., a manufacturer
of women's swimwear and apparel. He is also a Director and Treasurer of The
Koffman Group, Inc., a diversified investment company. Mr. Koffman served as a
financial analyst with Security Pacific from 1987 to 1989. In 1989, Mr. Koffman
became Vice President of Pilgrim Industries and in 1990, he became the President
of that company. From 1994 to the present, Mr. Koffman has served in an
executive capacity with Tech Aerofoam Products. Mr. Koffman is the cousin of
Martin D. Koffman.
James C. Willcox is President and Chief Executive Officer of American
Marketing Industries Inc which is a holding company for three apparel companies,
Swingster, Dunbrooke and Allison Manufacturing. Prior to becoming the President
of American Marketing Industries, Mr. Willcox served as President and Chief
Executive Officer of Hasco International in St. Charles, Missouri from 1993 to
1996. Mr. Willcox also served as President of House of Lloyd in Grandview,
Missouri and has over twenty-one years experience with Avon Products including
a position as Senior Vice President with responsibilities in manufacturing,
sales and distribution.
Travis R. Metz is an Associate of Jupiter Partners, Inc., the management
company of Jupiter Partners, L.P. Jupiter Partners, L.P. is a $350 million
private investment firm. Mr. Metz worked as a financial analyst at Lazard
Freres & Co from 1991 to 1993 and has been with Jupiter Partners since 1994.
Mr. Metz is a director of American Marketing Industries Inc. and American
Marketing Industries Holdings Inc., of which Jupiter Partners, L.P. is the
principal shareholder.
Compensation of Directors
During the fiscal year ended September 30, 1996, the Board of Directors held
two meetings at which all of the Directors were present and also took action by
unanimous written consent of the directors in lieu of meetings. There are no
standing committees of the Board of Directors of the Company.
Directors are reimbursed for all out-of-pocket expenses incurred in
attending board meetings and are eligible to receive options under the Company's
1994 Stock Option Plan, subject to the terms thereof.
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The Company borrowed $100,000 from one of its officers and directors in
April of 1996. The loan bears interest at a rate per annum of 1-1/2% over prime
and had a stated maturity of April 15, 1997, at which time it was converted into
a demand loan. The loan is subordinated to all other creditors of the
Company. The Company has borrowed a total of $350,000 from certain of its
directors who are also shareholders. The loans bear interest at a rate of 12%
per annum payable monthly over the life of the notes and are payable on
demand. The notes are subordinated to all creditors of the Company.
Executive Compensation
The Company's executive officers include Mr. George J. Gatesy and Mr. Peter
Culbertson. The Company does not have employment contracts with any of its
executives. Executive officers are elected and salaries are reviewed annually by
the Board of Directors at the discretion of the Board. The Company is the
beneficiary of a $5,000,000 Key Man Life Insurance Policy on the life of Mr.
Gatesy.
Information regarding compensation of the Company's officers is set forth
below:
Summary Compensation Table(s)
Other
Name and
Principal Position Year Salary Bonus Annual Compensation
George Gatesy 1996 $148,000 -0- -0-
President 1995 $165,000 -0- $5,550(1)
Richard Martinelli(2) 1996 $133,000 -0- -0-
Chief Operating 1995 $ 42,000 -0- -0-
Officer
Norman Britman(3) 1996 $103,000 -0- -0-
Secretary-Treasurer 1995 $110,000 -0- -0-
(1) Consists of medical insurance premium reimbursement.
(2) Mr.Martinelli's employment with the Company terminated on December 31, 1996.
(3) Mr.Britman's employment with the Company terminated on January 3, 1997.
Option Grants in Last Fiscal Year
Number of % of Total
Securities Options
Underlying Granted Exercise or
Options to Employees Base Price Expiration
Name Granted(#) in Fiscal Year ($/Sh.) Date
George Gatesy 12,500 4.0% 1.25 12/31/04
Norman Britman 7,500 2.3% 1.25 12/31/04
Richard Martinelli 80,000 25.6% 1.25 12/31/04
17
<PAGE>
FY-End Option Values
Number of Securities Value of Unexercised
Underlying Unexercised in-the-Money
Options at FY-End(#) Options at FY-End($)
Name Exercisable/Unexercisable Exercisable/Unexercisable
George Gatesy 12,500/0 None
Norman Britman 132,500/0 None
Richard Martinelli 80,000/0 None
VOTING SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of July 11, 1997,
based on information obtained from the persons named below, with respect to
the beneficial ownership of shares of Common Stock by (i) each person known
by the Company to be the beneficial owner of more than five percent of the
outstanding shares of Common Stock, (ii) the named executives, (iii) each of the
Company's directors and (iv) all executive officers and directors as a group:
% of
Number Outstanding
Name of shares shares
George J. Gatesy 2,001,200 18.85%
Peter Culbertson -0- -0-
Martin D. Koffman -0- -0-
Jeffrey P. Koffman 22,500(1) *
Peter J. Kostis 509,500 4.80%
Robert J. Munch 6,000 *
James C. Willcox -0- -0-
Travis R. Metz -0- -0-
The Koffman Group, Inc. 917,500(2) 8.50%
American Marketing Industries Inc. 3,500,000(3) 30.14%
All executive officers 2,539,200 23.92%
and directors
as a group (8 persons)
*Less than 1%
(1) These shares include 15,000 shares underlying a warrant which will become
exercisable on August 8, 1997.
(2) These shares include (a) 85,000 shares underlying a currently exercisable
warrant and (b) 75,000 shares underlying a warrant which will become exercisable
on August 8, 1997. See "Selling Shareholder". Jeffrey P. Koffman and
Martin D. Koffman are principals of The Koffman Group, Inc.
(3) These shares include 1,000,000 shares underlying a currently exercisable
option to purchase shares from the Company. James C. Willcox and Travis R. Metz
are principals of American Marketing Industries Inc.
18
<PAGE>
CERTAIN TRANSACTIONS
In April 1996, George Gatesy, a director and shareholder of the Company,
loaned the Company $100,000. The loan bears interest at a rate per annum of
1-1/2% over prime and matured on April 15, 1997. Mr. Gatesy has agreed to
convert such loan to a demand loan. The note is subordinated to all creditors
of the Company.
In May 1996, George Gatesy granted to Jack Satter, a director of the
Company at the time of the grant, an option to purchase 200,000 of Mr. Gatesy's
shares of Common Stock for $1.25, the estimated market value of the stock at the
time of the grant, until the earlier of the happening of certain events or
January 12, 2005 at which time the option expires.
In June 1996, the Company completed the private placement of 25,000
shares of Common Stock in exchange for the provision of a $500,000 letter of
credit in favor of the Company's lender, which letter of credit served as
additional collateral for the Company's then existing credit facility.
In September 1996, the Company completed a private placement with The
Koffman Group, Inc. of 1,250,000 shares of Common Stock. Total gross proceeds
from this private placement was $1,250,000. In connection with the private
placement, the Company granted warrants to The Koffman Group, Inc. to purchase
an additional 85,000 shares at $1.00 per share, such warrants to be exercisable
until September 1997. The 1,250,000 shares are the Shares to be sold by the
Selling Shareholder hereunder. Pursuant to a contract dated August 26, 1996
between the Company and The Koffman Group, Inc., the Company granted The
Koffman Group, Inc. certain rights in the nature of preemptive rights as to the
purchase of additional Common Stock should the Company seek to issue additional
Common Stock. Such rights shall exist until such time as The Koffman Group, Inc.
shall own less than 250,000 shares of Common Stock. The Koffman Group, Inc.
also received a fee of $30,000 in connection with their original investment.
Jeffrey P. Koffman and Martin D. Koffman are principals of The Koffman Group,
Inc. and directors of the Company.
In January 1997, George Gatesy and Peter Kostis, directors and
shareholders of the Company, loaned the Company $150,000 and $100,000,
respectively, to satisfy working capital needs. The notes are payable upon
demand and bear interest at a rate per annum of 12% payable monthly over the
life of the notes. The notes are not subordinated to the creditors of the
Company.
In April 1997, in conjunction with the financing arrangement with the
lending group, George Gatesy sold 135,000 shares of his Common Stock to the
lending group for a total purchase price of $27,000.
In April 1997, as an ancilary term to its financing arrangement with
the lending group, the Company agreed to use its best efforts to convene a
special meeting of shareholders for the purpose of approving an amendment to
its Certificate of Incorporation to increase the number of authorized shares
of Common Stock. Upon the approval of such amendment by the shareholders, the
Company further agreed to issue to the lending group warrants to acquire up to
450,000 shares of Common Stock at 60% of the then market price of the Common
Stock, such warrants to be exercisable from August 8, 1997 until April 8, 2000,
at which time such warrants shall expire.
In July 1997, the shareholders approved an amendment to the Company's
Certificate of Incorporation increasing the level of authorized shares of Common
Stock from 10,000,000 to 17,000,000. Following such amendment, the Company
issued the lending group warrants to acquire 270,000 shares, such warrants to be
exercisable from August 8, 1997 until April 8, 2000, at which time the warrants
shall expire.
In July 1997, the Company entered into a Trademark Licensing Agreement
with AMI, a shareholder of the Company, whereby the Company granted to AMI,
subject to certain limitations, conditions and restrictions, an exclusive
domestic license to use various trademarks of the Company in connection with
the sale of certain products to entities who acquire such products solely
19
<PAGE>
for distribution to their employees, directors and officers or to their
customers for promotional purposes only. The Company also granted to AMI the
exclusive right to market and distribute certain products which bear trademarks
licensed by the Company within the domestic market to entities who acquire the
products solely for distribution to their employees, directors and officers or
to their customers for promotional purposes only.
DESCRIPTION OF SECURITIES
The Company's authorized capital stock consists of 17,000,000 shares of
Common Stock, .001 par value. As of July 11, 1997, 10,613,932 shares of Common
Stock were issued and outstanding.
The shares of Common Stock covered by this Prospectus are fully paid and
nonassessable.
The Company's Certificate of Incorporation does not provide holders of
Common Stock with preemptive rights. By contractual provision, the Company has
granted The Koffman Group, Inc. certain rights in the nature of preemptive
rights as to the purchase of Common Stock should the Company seek to issue
additional Common Stock or securities convertible into Common Stock. Such
rights shall continue until such time as The Koffman Group, Inc. shall own less
than 250,000 shares of Common Stock.
Each shareholder is entitled to one vote for each share of Common Stock
held of record by such shareholder. There is no right to cumulative votes for
the election of directors. Upon liquidation of the Company, the assets then
legally available for distribution to holders of Common Stock are to be
distributed ratably among such shareholders in proportion to their holdings.
Holders of Common Stock are entitled to dividends when, as and if declared by
the Board of Directors out of funds legally available therefor.
Transfer Agent and Registrar
The Transfer Agent and Registrar for the Common Stock is Continental Stock
Transfer & Trust Company, 2 Broadway, New York, New York.
SELLING SHAREHOLDER
The following is the record name and holdings as of March 31, 1997, of the
shareholder who is registering and offering its shares of the Company hereby:
<TABLE>
<C> <C> <C>
Shareholder Shares Owned Shares To Be Registered
The Koffman Group, Inc. 1,287,500 1,250,000
</TABLE>
In September 1996, the Company completed a private placement with The
Koffman Group, Inc. of 1,250,000 shares of Common Stock. Total gross proceeds
from this private placement were $1,250,000. In connection with this private
placement, the Company granted warrants to The Koffman Group, Inc. to purchase
an additional 85,000 shares at $1.00 per share; which warrants are exercisable
until September 1997. In April 1997, The Koffman Group, Inc. acquired 37,500
shares of Common Stock from George Gatesy for an aggregate purchase price of
$7,500. As a result of the transaction with AMI, on July 17, 1997 the Company
notified The Koffman Group, Inc. that, pursuant to its contractual rights, it
has sixty (60) days to purchase for an aggregate cash purchase price of $334,400
(i) 334,400 shares of Common Stock and (ii) options to purchase up to an
additional 334,400 shares of Common Stock (133,760 shares at an exercise price
of $1.50 per share, exercisable immediately and expiring on July 11, 2000;
32,100 shares at an exercise price of $1.00 per share, becoming exercisable on
July 11, 1998 and expiring on July 11, 2000; and 168,540 shares at an exercise
price of $2.00 per share, becoming exercisable on July 11, 1998 and expiring on
July 11, 2000). The Koffman Group, Inc. intends to sell all 1,250,000 shares
which are the subject of this offering.
20
<PAGE>
PLAN OF DISTRIBUTION
The Common Stock may be offered for the account of the Selling
Shareholder from time to time on the NASDAQ OTC Bulletin Board, in negotiated
transactions, at fixed prices which may be changed, at market prices prevailing
at the time of sale, at prices related to such prevailing market prices, or at
negotiated prices. The Selling Shareholder may effect such transactions by
selling shares of Common Stock to or through broker-dealers, and all such
broker-dealers may receive compensation in the form of discounts, concessions,
or commissions from the Selling Shareholder and/or the purchasers of shares for
whom such broker-dealers may act as agent or to whom they sell as principal, or
both (which compensation as to a particular broker-dealer might be in excess of
customary commissions).
Any broker-dealer acquiring shares from the Selling Shareholder may sell
the shares either directly, in its normal market-making activities, through or
to other brokers on a principal or agency basis or to its customers. Any such
sales may be at prices then prevailing on the NASDAQ OTC Bulletin Board, at
prices related to such prevailing market prices or at negotiated prices to its
customers or a combination of such methods. The Selling Shareholder and any
broker-dealers that act in connection with the sale of the shares hereunder
might be deemed to be "underwriters" within the meaning of Section 2(11) of the
Securities Act; any commissions received by them and any profit on the resale of
shares as principal might by deemed to be underwriting discounts and commissions
under the Securities Act. Any such commissions, as well as other expenses of the
Selling Shareholder and applicable transfer taxes, are payable by the Selling
Shareholder.
LEGAL MATTERS
Certain matters in connection with the issuance of the shares of Common
Stock offered hereby will be passed upon for the Company by Graham, Curtin &
Sheridan, A Professional Association, 4 Headquarters Plaza, Morristown, New
Jersey 07962.
EXPERTS
The financial statements of the Company included in this Prospectus have
been audited by BDO Seidman, LLP, independent certified public accountants, to
the extent and for the periods set forth in their report appearing elsewhere
herein and are included herein in reliance on such report given upon the
authority of such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Exchange Act and in accordance therewith files reports, proxy statements and
other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
Commission's New York Regional Office, 7 World Trade Center, Suite 1300, New
York, New York 10048 and Chicago Regional Office, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a Web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission
at http://www.sec.gov.
The Company has filed with the Commission a Registration Statement under
the Securities Act on Form SB-2 (together with all amendments and exhibits, the
"Registration Statement") with respect to the Common Stock offered hereby of
which this Prospectus constitutes a part. As permitted by the rules and
regulations of the Commission this Prospectus does not contain all of the
information set forth in the Registration Statement. For further information
with respect to the Company and the Shares offered hereby, reference is hereby
made to such Registration Statement. A copy of the Registration Statement may be
inspected without charge at the offices of the Commission, 450 Fifth Street,
N.W., Washington, D.C., and copies of all or any part thereof may be obtained
from the Commission upon payment of certain fees prescribed by the Commission.
21
<PAGE>
No person is authorized to give any information or to make any
representations, other than those contained or incorporated by reference in this
Prospectus, in connection with the offering contemplated hereby, and, is given
or made, such information or representations less not be relied upon as having
been authorized by the Company. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any securities other than the
securities to which it relates and does not constitute an offer to sell or a
solicitation of an offer to buy and securities in any jurisdiction to any person
whom it is unlawful to make such offer or solicitation in such jurisdiction.
Neither the delivery of this Prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information or
incorporated by reference herein is correct as of any time subsequent to such
date.
22
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Certified Public Accountants...........................F-2
Balance Sheets as of September 30, 1996 and 1995.............................F-3
and March 31, 1997 (unaudited)
Statements of Operations for the years ended September 30, 1996 and 1995 and for
the six-month periods ended March 31, 1997
and 1996 (unaudited)......................................................F-4
Statements of Stockholders' Equity for the years ended
September 30, 1996 and 1995 and for the six-
month period ended March 31, 1997 (unaudited).............................F-5
Statements of Cash Flows for the years ended September 30, 1996 and 1995 and for
the six-month periods ended
March 31, 1997 and 1996 (unaudited).......................................F-6
Notes to Financial Statements................................................F-7
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
GlenGate Apparel Inc.
Mountainside, New Jersey
We have audited the accompanying balance sheets of GlenGate Apparel Inc. as of
September 30, 1996 and 1995, and the related statements of operations,
stockholders' equity, and cash flows for the years then ended. 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 generally accepted auditing
standards. 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 a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of GlenGate Apparel Inc. as of
September 30, 1996 and 1995, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
BDO Seidman, LLP
Woodbridge, New Jersey
November 25, 1996
F-2
<PAGE>
GLENGATE APPAREL INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 1995 September 30, 1996 March 31, 1997
(Unaudited)
<S> <C> <C> <C>
ASSETS (Note 5)
Current:
Cash $ 10,038 $34,917 $70,518
Accounts receivable, net of allowance for doubtful accounts 805,337 1,848,507 2,317,734
of $28,765, $173,515 and $34,468
Inventories (Note 3) 894,035 1,206,000 1,593,215
Prepaid expenses and other current 191,280 314,968 441,770
assets ------- ------- -------
TOTAL CURRENT ASSETS 1,900,690 3,404,392 4,423,237
Property and equipment, net of accumulated depreciation and 218,510 257,530 447,056
amortization (Note 4)
Organizational costs, net of accumulated amortization of 6,513 4,457 3,426
$3,889, $5,945 and $6,976, respectively
Security deposits and other assets 9,460 31,460 7,710
----- ------ -----
TOTAL ASSETS $2,135,173 $3,697,839 $4,881,429
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current:
Notes payable - bank (Note 5) $325,109 $1,597,918 $2,248,083
Current portion of equipment notes payable (Note 5) 13,527 5,127 31,731
Subordinated notes payable to 300,496 190,000 440,000
stockholders (Note 6)
Accounts payable and accrued expenses 268,465 490,915 1,526,707
------- ------- -------
TOTAL CURRENT LIABILITIES 907,597 2,283,960 2,419,041
Commitments and contingencies (Notes 7 and 9)
Equipment notes payable less current portion (Note 5) 32,543 10,617 159,095
------ ------ -----
940,140 2,294,577 4,405,616
------- --------- ---------
STOCKHOLDERS' EQUITY (Note 9):
Common stock at cost $.001 par value - 10,000,000 shares 6,285 8,114 8,114
authorized; 6,284,600, 8,113,932 and 8,113,932 issued
and outstanding
Additional paid-in capital 3,012,448 4,668,139 4,668,139
Accumulated deficit (1,823,700) (3,272,991) (4,200,440)
----------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY 1,195,033 1,403,262 475,813
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' $2,135,173 $3,697,839 $4,881,429
========== =========== ===========
EQUITY
</TABLE>
See accompanying notes to financial statements F-3
<PAGE>
GLENGATE APPAREL, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended Year Ended Six Months Six Months
September 30, 1995 September 30, 1996 Ended March 31 Ended March 31
------------------ ------------------ 1996 1997
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Sales $3,293,295 $6,229,728 $2,664,170 $3,986,124
Cost of sales 2,303,850 4,150,138 1,642,841 2,843,501
--------- ---------- ---------- ----------
GROSS PROFIT 989,445 2,079,590 1,021,329 1,142,623
--------- ---------- ---------- ----------
Operating expenses:
Warehousing 214,580 318,516 159,260 252,550
Design 137,140 431,590 96,277 120,515
Selling 1,036,709 1,378,456 557,052 837,836
General and
administrative 994,685 1,197,498 556,537 742,568
--------- ---------- ---------- ----------
TOTAL OPERATING
EXPENSES 2,383,114 3,326,060 1,369,126 1,953,469
--------- ---------- ---------- ----------
Operating loss (1,393,669) (1,246,470) (347,797) (810,846)
Net interest expense,
including interest
income of $37,023 in
1995 (31,853) (202,821) (71,763) (116,603)
---------- ----------- ----------- ----------
Net loss $(1,425,522) $(1,449,291) $(419,560) $(927,449)
============ ============ =========== ==========
Loss per share $ (0.25) $ (0.22) $ (0.07) $ (0.11)
============ ============ ========== ==========
Weighted average
number of common
shares outstanding 5,609,113 6,605,941 6,357,469 8,113,932
============ ============ ========== ==========
</TABLE>
See accompanying notes to financial statements F-4
<PAGE>
GLENGATE APPAREL INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Treasury Accumulated Total
Paid-In Capital Stock Deficit Stockholders'
Equity
-----------------------------
Shares Amount
-------------- ------------ ---------------- ----------- ---------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1994 6,218,700 $6,219 $2,146,040 (700) $(398,178) $1,753,381
Cancellation of treasury (700,000) (700) - 700 - -
stock
Options exercised 148,500 149 148,351 - - 148,500
Warrants exercised and 473,200 473 567,132 - - 567,605
redeemed
Private placements of 144,200 144 288,256 - - 288,400
common stock
Offerings and registration - - (137,331) - - (137,331)
costs
Net loss - - - - (1,425,522) (1,425,522)
-------------- ------------ ---------------- ----------- ---------------- -----------------
Balance, September 30, 1995 6,284,600 6,285 3,012,448 - (1,823,700) 1,195,033
Options exercised 554,332 554 557,361 - - 557,915
Private placements of 1,275,000 1,275 1,248,725 - - 1,250,000
common stock
Offering costs, net - - (150,395) - - (150,395)
Net loss - - - - (1,449,291) (1,449,291)
-------------- ------------ ---------------- ----------- ---------------- -----------------
Balance, September 30, 1996 8,113,932 8,114 4,668,139 - (3,272,991) 1,403,262
Net Loss (unaudited) - - - - (927,449) (927,449)
============== ============ ================ =========== ================ =================
Balance, March 31, 1997 8,113,932 $8,114 $4,668,139 - $(4,200,440) $475,813
(unaudited)
============== ============ ================ =========== ================ =================
</TABLE>
See accompanying notes to financial statements F-5
<PAGE>
GLENGATE APPAREL, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended Year Ended Six Months Six Months
September 30, September 30, Ended March 31 Ended March 31
1995 1996 1996 1997
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $(1,425,522) $(1,449,291) $ (419,560) $ (927,449)
Adjustments to reconcile net
loss to net cash provided by
(used in) in operating activities:
Depreciation and
amortization 31,811 77,578 37,028 58,031
Provision for doubtful
accounts 28,765 13,051 (845) 18,256
Changes in assets and
liabilities:
Inventories (894,035) (311,965) (359,190) (387,215)
Accounts receivable (834,102) (1,056,221) (842,108) (487,481)
Prepaid and other current
assets (105,806) (123,688) (134,543) (126,802)
Accounts payable and accrued
expenses 122,215 222,450 439,866 1,035,792
Net cash provided by (used
in) operating activities (3,076,674) (2,628,086) (1,279,352) (816,868)
------------ ------------ ---------- ---------
Cash flows from investing activities:
Purchases of property and
equipment (244,612) (114,542) (61,174) (246,528)
Maturity (purchase) of
certificate of deposit 200,000 - - -
Increase in security deposits
and other assets (9,460) - - 23,750
-------- ------- -------- ------
Net cash provided by (used
in) investing activities (54,072) (114,542) (61,174) (222,778)
-------- ----------- ---------- -----
Cash flows from financing activities:
Payment of financing cost - (22,000) (18,187) -
Proceeds from sale of common
stock 288,400 1,250,000 - -
Proceeds from options exercised 148,500 557,915 - -
Proceeds from warrants exercised 567,605 - - -
Payment of offering and
registration costs (137,331) (150,395) - -
Borrowings (payments) on equip-
ment notes payable 46,070 (30,326) (6,764) 175,082
Net borrowings (repayments) under
line of credit 325,109 1,272,809 1,056,156 650,165
Borrowings from (repayments to)
stockholders 89,751 (110,496) 309,583 250,000
------- ---------- ------- ------
Net cash provided by (used
in) financing activities 1,328,104 2,767,507 1,340,788 1,075,247
--------- ---------- -------- ------------
Net increase (decrease) in cash (1,802,642) 24,879 262 35,601
Cash, beginning of period 1,812,680 10,038 10,038 34,917
--------- ------- ---------- ---------
Cash, end of period $ 10,038 $ 34,917 $ 10,300 $ 70,518
============ ========== ============= =========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Interest paid $ 67,293 $ 196,216 $ 60,861 $106,357
============ ========== ============= =========
</TABLE>
F-6
See accompanying notes to financial statements
<PAGE>
GlenGate Apparel, Inc.
NOTES TO FINANCIAL STATEMENTS
(The information with respect
to March 31, 1997 and the six
months ended March 31, 1997
and 1996 is 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. 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 and sweaters and
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
CASH AND CASH EQUIVALENTS
For statement of cash flow purposes, the Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents. The Company did not have any cash equivalents at September 30, 1996
and 1995 and March 31, 1997.
REVENUE RECOGNITION
Revenue is recognized upon shipment of goods to customers.
INVENTORIES
Inventories are valued at the lower of cost or market with cost determined by
the first-in, first-out (FIFO) method.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation and amortization are
calculated on a straight line basis over the estimated useful lives of the
related assets.
ORGANIZATIONAL COSTS
Costs incurred to organize and incorporate the Company have been capitalized.
Amortization is calculated on a straight line basis over a sixty month period.
LOSS PER SHARE
Loss per share is computed on the basis of the weighted average number of common
shares outstanding during the period. The assumed conversion of common stock
equivalents has not been included because the effect would be anti-dilutive.
SIGNIFICANT RISKS AND UNCERTAINTIES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and 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.
F-7
<PAGE>
GLENGATE APPAREL, INC.
NOTES TO FINANCIAL STATEMENTS - (continued)
EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 121 "Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
The Company believes that this pronouncement will not have a material impact on
the Company's results of operations and financial condition. In October 1995,
the FASB issued SFAS No. 123 "Accounting for Stock-Based Compensation." The
Company is currently studying SFAS No. 123, but does not currently plan to adopt
the fair value based method of accounting for stock options or similar equity
instruments. Accordingly, the adoption of SFAS No. 123 is not expected to have a
material impact on the Company's results of operations or financial condition.
INTERIM FINANCIAL STATEMENTS
The interim financial statements as of and for the six months ended March 31,
1997 and for the six months ended March 31, 1996 are unaudited. The
interim financial statements reflect all adjustments which are, in the opinion
of management, necessary for a fair presentation of the results of such periods.
The results of operations for the six months ended March 31, 1997 are not
necessarily indicative of the results to be expected for the year ending
September 30, 1997.
NOTE 3 - INVENTORIES
Inventories as of September 30 and March 31 are summarized as follows:
<TABLE>
<CAPTION>
September 30, 1995 September 30, 1996 March 31, 1997
(Unaudited)
<S> <C> <C> <C>
Raw Materials $ 84,675 $ 36,345 $ -0-
Finished Goods 788,510 1,139,655 1,573,215
Supplies 20,850 30,000 20,000
---------- ---------- ----------
$ 894,035 $1,206,000 $1,593,215
========== ========== ==========
</TABLE>
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of September 30 and March
31:
September 30, September 30, March 31, Estimated
1995 1996 1997 useful
(unaudited) lives
Years
Leasehold
improvements $ 21,312 $ 37,718 $ 41,031 3
Machinery and
equipment 148,811 153,311 271,803 4-5
Furniture and
fixtures 48,867 90,020 91,931 3-5
Computer
equipment and
software 30,000 82,483 205,293 5
------ ------ -------
248,990 363,532 610,058
Less: Accumulated
depreciation
and amort-
ization 30,480 106,002 163,002
------ ------- -------
$218,510 $257,530 $447,056
======== ======== ========
F-8
<PAGE>
NOTES TO FINANCIAL STATEMENTS - (continued)
NOTE 5 - NOTES PAYABLE
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 1 1/2% in excess of the bank's prime lending rate (8 1/4% as of September 30,
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.
The average amount outstanding under the Agreement during the year ended
September 30, 1996 was approximately $1,212,000 at a weighted average interest
rate of 9 3/4%.
The fair value of the debt approximates the recorded value based on the
borrowing rates currently available for loans with similar terms and maturities.
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. On February 24, 1997, the lender notified the
Company that it intends to terminate the credit arrangement effective April 30,
1997. In April 1997, the lender extended the date of termination of the credit
arrangement to May 30, 1997. The lender has subsequently confirmed its
willingness to make further advances beyond May 30, 1997 at its discretion at
such rates it deems advisable, which arrangement the lender may terminate at any
time upon notice to the Company. Prior to February 24, 1997, the Company had
initiated discussions to replace the existing lender. Management continues
such discussions as part of the pursuit of additional growth capital to coincide
with its current needs. In the event that additional capital is not acquired,
revenues and operating results will be adversely affected.
Additionally, the Company has outstanding borrowings under several equipment
notes payable aggregating $190,826 as of March 31, 1997. Annual maturities of
the equipment notes are $53,511 per year through September 30, 1998 and $54,437
in the fiscal year ending September 30, 1999.
NOTE 6 - NOTES PAYABLE - STOCKHOLDERS
The Company has currently outstanding $190,000 in notes 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 1 1/2% over Prime to be paid April 15, 1997.
Principal and interest of $100,000 in subordinated notes was repaid to a former
officer in April 1997.
In addition, in January 1997 an officer and director and a director advanced the
Company a total of $250,000 to satisfy working capital needs during the
Company's continued growth. The notes are subordinate to all creditors of the
Company. The notes are payable on demand and bear interest at a rate of 12%,
payable monthly.
NOTE 7 - COMMITMENTS
As of September 30, 1996 and March 31, 1997, the Company had purchase
commitments for merchandise of approximately $2,425,000 and 2,860,000,
respectively.
In January 1995, the Company entered into a three year operating lease agreement
with a three year renewal option for office and warehouse facilities under which
the future minimum annual rentals as of September 30, 1996 are as follows:
1997 $76,000
1998 19,000
=======================
$95,000
=======================
F-9
<PAGE>
GLENGATE APPAREL, INC.
NOTES TO FINANCIAL STATEMENTS - (continued)
Rent expense was $70,408 and $54,969 for the years ended September 30, 1996 and
1995, respectively. In June 1997, the Company entered into an agreement with
its landlord to terminate the existing lease effective November 1, 1997, and
entered into a five year lease agreement with a five year renewal option for
office and waerhouse facilities commencing October 1, 1997, under which the
annual rentals will be $209,875.
On February 14, 1997, the Company entered into a Consignment Agrement with Sun
Ice Ltd. and Sun Ice USA, Inc. to sell certain apparel inventory of Sun Ice on a
consignment basis whereby the Company agreed to sell such inventory and pay Sun
Ice for the cost of the goods sold and return, dispose of or purchase any unsold
goods upon the termination of the agreement on November 14, 1997. In addition,
on February 14, 1997, the Company entered into a Trademark License Agreement
with Sun Ice Ltd. and Sun Ice USA under which the Company was granted a license
to use the Sun Ice and Aureus trademarks within the United States. The Company
has agreed to pay a royalty based on a percentage of licensed net sales with the
annual minimum royalty ranging up to approximately $200,000 during the five year
term commencing December 1, 1997. The Sun Ice label consists of mens and ladies
golf outerwear and the Aureus label consists of mens golf apparel.
NOTE 8 - INCOME TAXES
The Company adopted the Provisions of Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes" ("SFAS 109") effective November
8, 1993 (inception). SFAS 109 requires a company to recognize deferred tax
liabilities and assets for the expected future tax consequences of events that
have been recognized in a company's financial statements or tax returns. Under
this method, deferred tax liabilities and assets are determined based on the
difference between the financial statement carrying amounts and tax bases of
assets and liabilities using enacted tax rates in effect in the years in which
the differences are expected to reverse.
At September 30, 1996, the Company had net operating loss carryforwards of
approximately $3,089,000, which expire through 2011 and are restricted as to
annual utilization during the carry forward period, and temporary differences
related primarily to inventory costs capitalized for tax purposes totalling
approximately $235,000. The deferred tax asset related to the net operating loss
carryforwards and temporary differences amounted to approximately $1,330,000 and
is fully offset by a valuation allowance of the same amount.
NOTE 9 - STOCKHOLDERS' EQUITY
a) Redeemable Common Stock Warrants
As part of the Company's initial public offering completed on August 15,
1994, 493,740 redeemable common stock purchase warrants were issued. The
warrants were originally exercisable at $1.20 per share through August 17,
1995 and, thereafter, at $1.40 per share through August 17, 1996. In July
1995, the Company called for the redemption of all warrants outstanding as
of August 28, 1995 at $.05 each and extended the exercise price of $1.20
through that date. Through August 28, 1995, 473,200 warrants were exercised
and 4,700 warrants were redeemed. The remaining 15,840 warrants not
redeemed as of September 30, 1995 were canceled on August 17, 1996.
b) 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.
F-10
<PAGE>
GLENGATE APPAREL, INC.
NOTES TO FINANCIAL STATEMENTS - (continued)
The following is a summary of the common stock options granted, canceled or
exercised for the period October 1, 1994 through September 30, 1996. No
common stock options were granted, cancelled or exercised for the period
October 1, 1996 through March 31, 1997.
<TABLE>
<CAPTION>
Shares Exercise price
er share
<S> <C> <C>
------------------------- ----------------
Outstanding - September 30, 1994 -
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 476,000 $1.25 to $1.625
Canceled (119,668) $1.00 to $2.50
Exercised (554,332) $1.00 to $1.25
-------------------------
Outstanding - September 30, 1996 1,736,000 $1.00 to $2.50
and March 31, 1997
=========================
</TABLE>
As of September 30, 1996 and March 31, 1997, 1,021,850 outstanding
stock options were exercisable at $1.00, 218,834 at $1.25 and 154,000 at
prices between $1.125 and $2.50. In fiscal 1997, 211,650 outstanding
stock options become exercisable at $1.00 and 70,334 become exercisable
at prices between $1.25 and $2.00. In fiscal 1998, 59,332 outstanding
stock options become exercisable at prices between $1.25 and $1.50. The
options expire at various dates through fiscal 2005 and all were granted
at or above quoted market value.
c) Stockholders Agreement
In April 1995, the Company and the founding stockholders (the
"Stockholders") negotiated a stockholders' agreement which requires the
Company to purchase the shares held by a Stockholder upon the death of
that Stockholder, at estimated fair market value (as defined in the new
stockholders' agreement), but limited to the extent of any insurance
proceeds payable to the Company as a result of the Stockholder's death.
d) Private Placements of Common Stock
In June 1995, the Company commenced proceedings for the private placement
of up to 750,000 shares of common stock at $2.00 per share through August
10, 1995. In July 1995, the Company received $288,400 for 144,200 shares
pursuant to that private placement.
In June 1996, the Company completed the private placement of 25,000
shares of common stock in exchange for the provision of a $500,000 letter
of credit in favor of the Company's lender, which letter of credit served
as additional collateral for the Company's then existing credit facility.
In September 1996, the Company completed the private placement of
1,250,000 shares of common stock for gross proceeds of $1,250,000. In
connection with this private placement, the Company granted warrants to
purchase an additional 85,000 shares at $1.00 exercisable through
September 30, 1997.
As further discussed in Note 11, in May 1997, the Company initiated, and
in July 1997, the Company completed the private placement of 2,500,000
shares of common stock and options for gross proceeds of $2,500,000.
F-11
<PAGE>
GLENGATE APPAREL, INC.
NOTES TO FINANCIAL STATEMENTS - (continued)
NOTE 10 - CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of trade accounts receivable.
The Company performs ongoing credit evaluations of its customers' financial
condition to mitigate its credit risk.
NOTE 11 - SUBSEQUENT EVENTS (unaudited)
In April 1997, the Company obtained a financing arrangement of $750,000 with a
lending group (the "lending group") which includes an existing stockholder of
the Company. In addition, the lending group made available another $150,000 in
connection with a letter of credit. The debt bore interest at 2-1/2% above the
prime rate quoted in the Wall Street Journal (8-1/2% as of March 31, 1997) and
was collateralized by a second lien on the Company's inventory, accounts
receivable and trademarks. Principal and any outstanding interest was due and
payable on December 31, 1997. As described below, on July 11, 1997, the Company
repaid in full the lending group loan, substituted approximately $150,000 for
the collateral securing the letter of credit and the lending group released the
second lien on the Company's inventory, accounts receivable and trademarks.
As part of the initial loan transaction, an officer of the Company sold 135,000
shares of his common stock to the lending group for $0.20 per share and the
Company agreed to grant to the lending group, upon the occurrence of certain
conditions, warrants to acquire up to 270,000 shares of common stock with an
exercise price equal to sixty (60%) percent of the common stock market value (as
defined) during the thirty day period prior to exercise of the warrants. Such
warrants will become exercisable on August 8, 1997 for a period of three years.
In addition, if the debt was not repaid by August 8, 1997, the officer agreed to
grant to the lending group options to acquire an additional 90,000 shares of his
common stock exercisable from August 8, 1997 to August 18, 1997 at $0.20 per
share, and the Company agreed to grant the lending group warrants to acquire an
additional 180,000 shares of common stock on the same terms as the warrants
described above. The debt was repaid in July 1997, as described below and
accordingly the additional options and warrants will not be granted.
The estimated market value of the shares sold to the lending group by the
officer, less the proceeds received, along with the estimated market value of
the warrants to acquire 270,000 shares of common stock amounted to approximately
$140,000. This amount will be amortized as interest expense over the period
ended July 11, 1997, the date on which repayment of the loans was received.
As part of the debt agreement described above, the Company agreed to use its
best efforts to convene a special meeting of shareholders to approve an
amendment to the Company's Certificate of Incorporation to increase the
authorized level of common stock.
In May 1997, the Company entered into a letter of intent with AMI whereby,
provided that the holders of common stock approve an increase in the number
of authorized shares of common stock to 17,000,000 and other conditions were
met, AMI would purchase 2,500,000 shares of Common Stock and acquire certain
options for an aggregate purchase price of $2,500,000. The options to be
acquired by AMI consisted of an option to acquire up to 1,000,000 shares of
Common Stock at a purchase price of $1.50 per share, such option to be
immediately exercisable and expiring three years after the date of the grant,
and an option to acquire up to 1,500,000 shares at a purchase price of $1.00
per share for 240,000 shares and $2.00 per share for 1,260,000 shares, such
option to become exercisable one year from the date of the grant and expiring
three years after the date of the grant.
F-12
<PAGE>
In June 1997, AMI advanced to the Company a bridge loan in the amount of
$600,000 pursuant to a term note, such term note to bear interest at a rate of
9% per annum, with interest to be payable quarterly beginning September 1, 1997.
The note was to mature on the earlier of June 23, 1998 or at AMI's option in the
event the Company defaulted on the note and could beprepaid by the Company at
any time prior to the maturity date.
In July 1997, the holders of Common Stock approved an amendment to the
Company's Certificate of Incorporation increasing the number of authorized
shares of Common Stock from 10,000,000 to 17,000,000, and AMI purchased
2,500,000 shares and was granted options as discussed above for an aggregate
purchase price of $2,500,000.
The Company has used the proceeds of $2,500,000 as follows:
(i) approximately $600,000 to repay the AMI bridge loan, (ii) approximately
$750,000 to repay outstanding loans made by the lending group, and (iii)
approximately $150,000 in substitution of the collateral provided by the
lending group in connection with a certain letter of credit. Approximately
$200,000 of the remainder of the proceeds is expected to be used for capital
expenditures and the balance will be used for working capital and other
general corporate purposes.
F-13
<PAGE>
No person has been authorized in connection with the offering made hereby
to give any information or to make any representation not contained in this
Prospectus and, if given or made, such information or representation must not be
relied upon as having been authorized by the Company or the Selling Shareholder.
This Prospectus does not constitute an offer to sell or a solicitation of any
offer to buy any of the securities offered hereby to any person or by anyone in
any jurisdiction in which it is unlawful to make such offer or solicitation.
Neither the delivery of this Prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that the information contained herein
is correct as of any date subsequent to the date hereof.
------------
TABLE OF CONTENTS
Page
Prospectus Summary................2
Risk factors......................2
Use of Proceeds...................7
Dividend Policy...................7
Market for the Company's
Securities......................7
Selected Financial Data...........8
Management's Discussion and
Analysis of Financial Condition
and Results of Operations.......9
Business.........................12
Management.......................15
Voting Security Ownership of
Certain Beneficial Owners and
Management....................18
Certain Transactions.............18
Description of Securities........19
Selling Shareholder..............20
Plan of Distribution.............20
Legal Matters....................21
Experts..........................21
Available Information............21
Index to Financial Statements
and Schedules................F-1
-----------
Until August 19, 1997 (25 days after the date of this Prospectus), all
dealers effecting transactions in the Common Stock offered hereby, whether or
not participating in this distribution, may be required to deliver a Prospectus.
1,250,000 Shares
GLENGATE APPAREL, INC.
Common Stock
$.001 Par Value
PROSPECTUS
July 25, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Except as hereafter set forth, there are no statutes, charter provisions,
by-laws, contracts, or other arrangements under which any controlling person,
director, or officer of the Company is insured or indemnified in any manner
against liability which he may incur in his capacity as such.
A. The following are pertinent sections of the New Jersey Corporation Law
dealing with indemnification of officers and directors:
ss.14A:3-5. Indemnification of directors, officers and employees. (1) As
used in this section, (a) "corporate agent" means any person who is or was a
director, officer, employee or agent of the indemnifying corporation or of any
constituent corporation absorbed by the indemnifying corporation in a
consolidation or merger and any person who is or was a director, officer,
trustee, employee or agent of any other enterprise, serving as such at the
request of the indemnifying corporation, or of any such constituent corporation,
or the legal representative of any such director, officer, trustee, employee or
agent;
(b) "other enterprise" means any domestic or foreign corporation,
other than the indemnifying corporation, and any partnership, joint
venture, sole proprietorship, trust or other enterprise, whether or not
for profit, served by a corporate agent;
(c) "expenses" means reasonable costs, disbursements and counsel fees;
(d) "liabilities" means amounts paid or incurred in
satisfaction of settlements, judgments, fines and penalties;
(e) "proceeding" means any pending, threatened or completed civil,
criminal, administrative or arbitrative action, suit or proceeding, and
any appeal therein and any inquiry or investigation which could lead to
such action, suit or proceeding; and
(f) References to "other enterprises" include employee benefit plans;
references to "fines" include any excise taxes assessed on a person with
respect to an employee benefit plan; and references to "serving at the
request of the indemnifying corporation" include any service as a
corporate agent which imposes duties on, or involves services by, the
corporate agent with respect to an employee benefit plan, its
participants, or beneficiaries; and a person who acted in good faith and
in a manner the person reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of
the corporation" as referred to in this section.
(2) Any corporation organized for any purpose under any general or
special law of this State shall have the power to indemnify a corporate
agent against his expenses and liabilities in connection with any
proceeding involving the corporate agent by reason of his being or having
been such a corporate agent, other than a proceeding by or in the right
of the corporation, if
(a) such corporate agent acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of
the corporation; and
(b) with respect to any criminal proceeding, such corporate agent had
no reasonable cause to believe his conduct was unlawful.
II-1
<PAGE>
The termination of any proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent, shall not
of itself create a presumption that such corporate agent did not meet the
applicable standards of conduct set forth in paragraphs 14A:3-5(2)(a) and
14A:3-5(2)(b).
(3) Any corporation organized for any purpose under any general or
special law of this State shall have the power to indemnify a corporate
agent against his expenses in connection with any proceeding by or in the
right of the corporation to procure a judgment in its favor which
involves the corporate agent by reason of his being or having been such
corporate agent, if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the
corporation. However, in such proceeding no indemnification shall be
provided in respect of any claim, issue or matter as to which such
corporate agent shall have been adjudged to be liable to the corporation,
unless and only to the extent that the Superior Court or the court in
which such proceeding was brought shall determine upon application that
despite the adjudication of liability, but in view of all circumstances
of the case, such corporate agent is fairly and reasonably entitled to
indemnity for such expenses as the Superior Court or such other court
shall deem proper.
(4) Any corporation organized for any purpose under any general or
special law of this State shall indemnify a corporate agent against
expenses to the extent that such corporate agent has been successful on
the merits or otherwise in any proceeding referred to in subsections
14A:3-5(2) or subsection 14A:3-5(3) or in defense of any claim, issue or
matter therein.
(5) Any indemnification under subsection 14A:3-5(2) and, unless ordered
by a court, under subsection 14A:3-5(3), may be made by the corporation
only as authorized in a specific case upon a determination that
indemnification is proper in the circumstances because the corporate
agent met the applicable standard of conduct set forth in subsection
14A:3-5(2) or subsection 14A:3-5(3). Unless otherwise provided in the
certificate of incorporation or by-laws, such determination shall be made
(a) by the board of directors or a committee thereof, acting by a
majority vote of a quorum consisting of directors who were not parties to
or otherwise involved in the proceeding; or
(b) if such a quorum is not obtainable, or, even if obtainable and
such quorum of the board of directors or committee by a majority vote of
the disinterested directors so directs, by independent legal counsel, in
a written opinion, such counsel to be designated by the board of
directors; or
(c) by the shareholders if the certificate of incorporation or by-laws
or a resolution of the board of directors or of the shareholders so
directs.
(6) Expenses incurred by a corporate agent in connection with a
proceeding may be paid by the corporation in advance of the final
disposition of the proceeding as authorized by the board of directors
upon receipt of an undertaking by or on behalf of the corporate agent to
repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified as provided in this section.
(7) (a) If a corporation upon application of a corporate agent has failed
or refused to provide indemnification as required under subsection
14A:3-5(4) or permitted under subsections 14A:3-5(2), 14A:3-5(3) and
14A:3-5(6); a corporate agent may apply to a court for an award of
indemnification by the corporation, and such court
(i) may award indemnification to the extent authorized under
subsections 14A:3-5(2) and 14A:3-5(3) and shall award indemnification to
the extent required under subsection 14A:3-5(4), notwithstanding any
contrary determination which may have been made under subsection
14A:3-5(5); and
(ii) may allow reasonable expenses to the extent authorized by, and
subject to the provisions of, subsection 14A:3-5(6), if the court shall
find that the corporate agent has by his pleadings or during the course
of the proceeding raised genuine issues of fact or law.
II-2
<PAGE>
(b) Application for such indemnification may be made
(i)in the civil action in which the expenses were or are to be
incurred or other amounts were or are to be paid; or
(ii) to the Superior Court in a separate proceeding. If the
application is for indemnification arising out of a
civil action, it shall set forth reasonable cause for the
failure to make application for such relief in the action or
proceeding in which the expenses were or are to be incurred or
other amounts were or are to be paid.
The application shall set forth the disposition of any previous
application for indemnification and shall be made in such manner and form
as may be required by the applicable rules of court or, in the absence
thereof, by direction of the court to which it is made. Such application
shall be upon notice to the corporation. The court may also direct that
notice shall be given at the expense of the corporation to the
shareholders and such other persons as it may designate in such manner as
it may require.
(8) The indemnification and advancement of expenses provided by or
granted pursuant to the other subsections of this section shall not
exclude any other rights, including the right to be indemnified against
liabilities and expenses incurred in proceedings by or in the right of
the corporation, to which a corporate agent may be entitled under a
certificate of incorporation, by-law, agreement, vote of shareholders, or
otherwise; provided that no indemnification shall be made to or on behalf
of a corporate agent if a judgement or other final adjudication adverse
to the corporate agent establishes that his acts or omissions (a) were in
breach of his duty of loyalty to the corporation or its shareholders, as
defined in subsection (3) of N.J.S. 14A:2-7, (b) were not in good faith
or involved a knowing violation of law or (c) resulted in receipt by the
corporate agent of an improper personal benefit.
(9) Any corporation organized for any purpose under any general or
special law of this State shall have the power to purchase and maintain
insurance on behalf of any corporate agent against any expenses incurred
in any proceeding and any liabilities asserted against him by reason of
his being or having been a corporate agent, whether or not the
corporation would have the power to indemnify him against such expenses
and liabilities under the provisions of this section. The corporation may
purchase such insurance from, or such insurance may be reinsured in whole
or in part by, an insurer owned by or otherwise affiliated with the
corporation, whether or not such insurer does business with other
insureds.
(10) The powers granted by this section may be exercised by the
corporation notwithstanding the absence of any provision in its
certificate of incorporation or by-laws authorizing the exercise of such
powers.
(11) Except as required by subsection 14A:3-5(4), no indemnification
shall be made or expenses advanced by a corporation under this section,
and none shall be ordered by a court, if such action would be
inconsistent with a provision of the certificate of incorporation, a
by-law, a resolution of the board of directors or of the shareholders, an
agreement or other proper corporate action, in effect at the time of the
accrual of the alleged cause of action asserted in the proceeding, which
prohibits, limits or otherwise conditions the exercise of indemnification
powers by the corporation or the rights of indemnification to which a
corporate agent may be entitled.
(12) This section does not limit a corporation's power to pay or
reimburse expenses incurred by a corporate agent in connection with the
corporate agent's appearance as a witness in a proceeding at a time when
the corporate agent has not been made a party to the proceeding.
B. Paragraph 13 of the Company's Certificate of Incorporation states: "A
director or an officer of the corporation shall not be personally liable to the
corporation or to its shareholders for damages for breach of any duty owed to
the corporation or to its shareholders, except that this provision shall not
relieve a director or an officer from liability for any breach of duty based
upon an act or omission (a) in breach of such person's duty of loyalty to the
corporation or its shareholders, (b) not in good faith or involving a knowing
violation of law, or (c) resulting in receipt by such person of an improper
personal benefit."
II-3
<PAGE>
Item 25. Other Expenses of Issuance and Distribution
SEC registration fee................................................... $ 355
Legal fees and expenses................................................ $50,000*
Accounting fees and expenses........................................... $10,000*
Blue sky fees and expenses.............................................$ 5,000*
Miscellaneous ..........................................................$ 1,645*
Total.....................................................$77,000*
- ------------
*Estimated
The Selling Shareholder will pay all expenses of issuance and distribution.
Item 26. Recent Sales of Unregistered Securities
In June 1995, the Company commenced proceedings for the private
placement pursuant to Section 4(2) of the Securities Act of up to 750,000 shares
of common stock at $2.00 per share through August 10, 1995. In July 1995, the
Company received $288,400 for 144,200 shares pursuant to that private placement.
In June 1996, the Company completed the private placement of
25,000 shares of Common Stock in exchange for the provision of a $500,000 letter
of credit in favor of the Company's lender, which letter of credit served as
additional collateral for the Company's then-existing credit facility.
In September 1996, the Company completed a private placement with
The Koffman Group, Inc. of 1,250,000 shares of Common Stock. Total gross
proceeds from this private placement was $1,250,000. In connection with the
private placement, the Company granted warrants to The Koffman Group, Inc. to
purchase an additional 85,000 shares at $1.00 per share, such warrants to be
exercisable until September 1997. The 1,250,000 shares are the shares to be sold
by the Selling Shareholder hereunder. Pursuant to a contract dated August 26,
1996 between the Company and The Koffman Group, Inc., the Company granted The
Koffman Group, Inc. certain rights in the nature of preemptive rights as to the
purchase of additional Common Stock should the Company seek to issue additional
Common Stock or securities convertible into Common Stock. Such rights shall
exist until such time when The Koffman Group, Inc. shall own less than 250,000
shares of Common Stock. The Koffman Group, Inc. also received a fee of $30,000
in connection with their investment of $1,250,000. Jeffrey P. Koffman and
Martin D. Koffman are principals of The Koffman Group, Inc. and directors of
the Company.
In July 1997, the Company completed a private placement with American
Marketing Industries Inc. of 2,500,000 shares of Common Stock and options to
acquire up to 2,500,000 shares of Common Stock. Total gross proceeds from this
private placement was $2,500,000. The options acquired by AMI consist of (i) an
option to acquire up to 1,000,000 shares of Common Stock at a purchase price of
$1.50 per share, such option to be immediately exercisable and expiring three
years after the date of the grant, and (ii) an option to acquire up to 1,500,000
shares at a purchase price of $1.00 per share for 240,000 shares and $2.00 per
share for 1,260,000 shares, such option to become exercisable one year from the
date of the grant and expiring three years after the date of the grant.
II-4
<PAGE>
================================================================================
Item 27. Exhibits and Financial Statement Schedules
================================================================================
3.1(1) Certificate of Incorporation of the Company
3.2(1) Certificate of Amendment to the Certificate of
Incorporation dated December 1, 1993
3.2.1(3) Certificate of Amendment to the Certificate of
Incorporation dated July 11, 1997
3.3(2) Amended By-Laws of the Company
4.1(1) Specimen certificate for common stock, $.001 par value
4.2(2) Form of warrant to purchase common stock issuable to The
Koffman Group, Inc.
4.3(1) Form of Subordinated Note in favor of George Gatesy
4.4(1) Form of Subordinated Note in favor of Richard Martinelli
5* Opinion of Graham, Curtin & Sheridan, A Professional
Association
10.1(2) Restricted stockholders agreement
10.2(2) Financing and Security Agreement
10.3(2) Lease dated October 4, 1996
10.4* Trademark License Agreement dated February 14, 1997
10.11(1) GlenGate Apparel, Inc. 1994 Stock Option Plan
23.1 Consent of BDO Seidman, LLP
23.2* Consent of Graham, Curtin & Sheridan, A Professional
Association
(included on Exhibit 5)
24* Power of Attorney
24.1 Power of Attorney
- ----------------------------
* Previously filed.
(1) Incorporated herein by reference to the identically numbered
Exhibit in the Company's Registration Statement on
Form SB-2, Registration No. 33-7280-NY
(2) Incorporated herein by reference to the identically numbered
Exhibit in the Company's Annual Report for the
Fiscal Year Ended September 30, 1996 on Form 10-KSB
(3) Incorporated herein by reference to Exhibit No. 3.1 in the
Company's Current Report on Form 8-K filed on July 11, 1997
II-5
<PAGE>
Item 28. 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:
(i) To include any prospectus required by Section 10(a)
(3) of the Securities Act of 1933;
(ii) 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 together,
represent a fundamental change in the information set
forth in this registration statement; and
(iii) To include any additional or changed material
information with respect to the plan of distribution.
(2) That for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering
of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which
remain unsold at the termination of the offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Company pursuant to the foregoing provisions of the Certificate of
Incorporation or, or otherwise, the Company has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act, and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by a director, officer, or
controlling person of the Company in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered hereunder, the Company will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-6
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Company certifies that it has reasonable grounds to believe that it meets all of
the requirements of filing on Form SB-2 and authorized this Post-Effective
Amendment No. 1 to Registration Statement to be signed on its behalf by the
undersigned, in Mountainside, New Jersey on this 25th day of July, 1997.
GLENGATE APPAREL, INC.
By: /s/ George J. Gatesy
--------------------
George J. Gatesy, President
In accordance with the requirements of the Securities Act of 1933, this Post
Effective Amendment No. 1 to Regristration Statement has been signed by the
following persons in the capacities and on the dates indicated:
Signature Title Date
/s/ George J. Gatesy President and Chairman of the Board July 25, 1997
- ---------------------- (Principal Executive Officer)
George J. Gatesy
/s/ Peter Culbertson Chief Operating Officer, Chief Financial July 25, 1997
- ---------------------- Officer, Treasurer and Secretary
Peter Culbertson
* Director July 25, 1997
- ----------------------
Peter J. Kostis
* Director July 25, 1997
- ----------------------
Robert J. Munch
* Director July 25, 1997
- ----------------------
Martin D. Koffman
* Director July 25, 1997
- -----------------------
Jeffrey P. Koffman
/s/ James C. Willcox Director July 25, 1997
- -----------------------
James C. Willcox
/s/ Travis R. Metz Director July 25, 1997
- -----------------------
Travis R. Metz
By: /s/ George J. Gatesy
---------------------
George J. Gatesy
Attorney-in-Fact
II-7
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
GlenGate Apparel, Inc.
Mountainside, New Jersey
We hereby consent to the use in the Prospectus constituting a
part of this Registration Statement of our report dated November 25, 1996,
relating to the financial statements of GlenGate Apparel, Inc., which is
contained in that Prospectus.
We also consent to the reference to us under the caption
"Experts" in the Prospectus.
BDO SEIDMAN, LLP
Woodbridge, New Jersey
July 23, 1997
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each officer and
director of GlenGate Apparel, Inc. (the "Company") whose signature
appears below constitutes and appoints George J. Gatesy and Peter
Culbertson, and each of them, his true and lawful attorneys-in-fact
and agents, with full and several power of substitution and
resubstitution, to act, without the other, for him and in his name,
place, and stead, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to this Post-
Effective Amendment No. 1 to the Registration Statement and to file
the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite
and necessary to be done in and about the premises, as full to all
intents and purposes as they or he might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitute or substitutes may lawfully do or
cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act
of 1933, this Power of Attorney has been signed by the following
persons in the capacities and on the dates indicated:
Signature Title Date
/s/ George Gatesy President and Chairman July 25, 1997
- --------------------- (Principal Executive Officer)
George J. Gatesy
/s/ Peter Culbertson Chief Operating Officer, July 25, 1997
- --------------------- Chief Financial Officer,
Peter Culbertson Treasurer and Secretary
/s/ James C. Willcox Director July 25, 1997
- ---------------------
James C. Willcox
/s/ Travis R. Metz Director July 25, 1997
- ---------------------
Travis R. Metz
