SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
COMMISSION FILE NUMBER 33-72880-NY
--------------
GLENGATE APPAREL, INC.
- ----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-3266971
- --------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification No.)
75 Rod Smith Place, Cranford, New Jersey 07016
--------------------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone No. Including area code: (908) 653-9100
-------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such report), and (2) has been subject
to such filing requirement for the past 90 days.
Yes X No
---- ----
As of August 12, 1998 there were 10,613,932 shares of Common Stock, par
value $.001 per share, outstanding.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT Yes No X
---- ----
<PAGE>
<PAGE> 2
GlenGate Apparel, Inc.
Quarterly Report on Form 10-QSB
Table Of Contents
Page
------
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Balance Sheets as of June 30, 1998 (Unaudited) and
September 30, 1997 3
Statements of Operations for the three months & nine months
ended June 30, 1998 and June 30, 1997 (Unaudited) 4
Statements of Cash Flows for the three & nine months ended
June 30, 1998 and June 30, 1997 (Unaudited) 5
Notes to Financial Statements (Unaudited) 6
Item 2 Management's Discussion and Analysis of Financial
conditions and Results of Operations. 7
PART II OTHER INFORMATION
Item 5 Other Information 9
Item 6 Exhibits and Reports on Form 8-K 9
<PAGE>
<PAGE> 3
PART I FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
GLENGATE APPAREL INC.
BALANCE SHEETS
=================================
June 30,1998 September 30,
(Unaudited) 1997
-------------- --------------
<S> <C> <C>
ASSETS
-----------
Current:
Cash and cash equivalents $102,208 $180,913
Accounts receivable ( less allowance for doubtful accounts
of $115,931 and $112,226, respectively) 2,468,121 2,471,837
Inventories 2,594,946 1,732,419
Prepaid expenses and other current assets 340,923 623,362
----------- -----------
TOTAL CURRENT ASSETS 5,506,198 5,008,531
Property and equipment, ( net of accumulated depreciation
and amortization of $360,128 and $199,849 respectively) 797,085 864,283
Other assets 58,193 59,740
----------- -----------
TOTAL ASSETS $6,361,476 $5,932,554
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current:
Note payable-bank $2,582,328 $2,687,566
Current portion of equipment notes payable 136,000 136,000
Accounts payable and accrued expenses 1,490,945 872,883
Subordinated notes payable 1,653,152 350,000
----------- -----------
TOTAL CURRENT LIABILITIES 5,862,425 4,046,449
Equipment notes payable less current portion 280,249 383,065
----------- -----------
6,142,674 4,429,514
Commitments and contingencies
STOCKHOLDERS EQUITY
Common stock at cost $.001 par value - 17,000,000 shares authorized;
10,613,932 and 10,613,932 issued and outstanding 10,614 10,614
Additional paid-in capital 7,230,638 7,230,639
Accumulated deficit (7,022,450) (5,738,213)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 218,802 1,503,040
----------- -----------
TOTAL STOCKHOLDERS' EQUITY AND LIABILITIES $6,361,476 $5,932,554
----------- -----------
See accompanying notes to financial statements (Unaudited).
/TABLE
<PAGE>
<PAGE> 4
<TABLE>
GLENGATE APPAREL, INC.
STATEMENT OF OPERATIONS ( Unaudited)
=======================================================================
Three Months Ended Nine Months Ended
June 30,1998 June 30,1997 June 30,1998 June 30,1997
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Sales $2,584,803 $2,604,887 $8,370,241 $6,591,011
Cost of sales 1,856,418 1,750,289 5,540,005 4,593,789
------------ ------------ ------------ ------------
Gross Profit 728,385 854,598 2,830,236 1,997,222
Operating Expenses
Warehousing 89,554 123,016 446,185 375,566
Design 54,617 61,472 221,896 181,987
Selling 546,981 579,039 1,799,835 1,416,875
General and administrative 475,699 474,405 1,233,836 1,217,040
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 1,166,851 1,237,932 3,701,752 3,191,468
Operating Income ( Loss) (438,466) (383,334) (871,516) (1,194,246)
Interest Expense (152,425) (158,327) (412,721) (274,930)
------------ ------------ ------------ ------------
Net Loss ($590,891) ($541,661) ($1,284,237) ($1,469,176)
------------ ------------ ------------ ------------
Loss per share ($0.06) ($0.07) ($0.12) ($0.18)
------------ ------------ ------------ ------------
Weighted average number of common
shares outstanding 10,613,932 8,113,932 10,613,932 8,113,932
------------ ------------ ------------ ------------
See accompanying notes to financial statements (Unaudited).
/TABLE
<PAGE>
<PAGE> 5
<TABLE>
GLENGATE APPAREL, INC.
STATEMENTS OF CASH FLOWS (Unaudited)
===================================================================
Three Months Ended Nine Months Ended
June 30,1998 June 30,1997 June 30,1998 June 30,1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss ($590,891) ($541,661) ($1,284,237) ($1,469,176)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 56,315 75,683 112,467 133,714
Provision for doubtful accounts 18,600 13,896 37,200 32,152
Changes in assets and liabilities:
Inventories (89,708) (9,748) (862,527) (396,963)
Accounts receivable 921,336 224,351 (33,484) (263,130)
Prepaid and other current assets 176,122 69,033 282,439 (57,769)
Accounts payable and accrued expenses 148,731 (680,250) 2,021,214 355,542
--------- --------- ----------- -----------
Net cash used in operating activities 640,505 (848,696) 273,072 (1,665,630)
--------- --------- ----------- -----------
Cash flow from investing activities:
Purchases of property and equipment (26,968) (55,968) (45,269) (302,496)
Security deposits and other assets 0 0 1,547 23,750
--------- --------- ----------- -----------
Net cash used in investing
activities (26,968) (55,968) (43,722) (278,746)
--------- --------- ----------- -----------
Cash flows from financing activities:
Equipment notes (38,143) 10,802 (102,816) 185,884
Notes payable - bank (749,606) (271,934) (105,239) 378,231
Borrowing from (repayments to) stockholders 1,410,000 (100,000) 1,660,000
--------- --------- ----------- -----------
Net cash provided by (used in) financing activities (787,749) 1,148,868 (308,055) 2,224,115
--------- --------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (174,212) 244,204 (78,705) 279,739
Cash and cash equivalents beginning of period 276,420 70,518 180,913 34,917
--------- --------- ----------- -----------
Cash and cash equivalents end of period $102,208 $314,722 $102,208 $314,656
========= ========= =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $152,425 $158,327 $412,721 $274,930
========= ========= =========== ===========
NON CASH INVESTING AND FINANCING ACTIVITY - During the quarter ended June 30, 1998, the company
converted $1,403,152 in accounts payable into subordinated notes payable.
See accompanying notes to financial statements (Unaudited).
/TABLE
<PAGE>
<PAGE> 6
GLENGATE APPAREL, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
-----------------------------------------
INTERIM FINANCIAL STATEMENTS
- ----------------------------
The interim financial statements as of and for the three and nine months
ended June 30, 1998 and for the three and nine months ended June 30, 1997
are unaudited. The interim financial statements reflect all adjustments
which are, in the opinion of management, necessary for a fair presentation
of the results for such periods. The results of operations for the three
months and nine months ended June 30, 1998 are not necessarily indicative of
the results to be expected for the year ending September 30, 1998.
EARNINGS PER SHARE
- ------------------
In the quarter ended December 31, 1997, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share," which
establishes standards for computing and presenting earnings per share. SFAS
No. 128 replaces the presentation of primary and fully diluted earnings per
share with basic and diluted earnings per share, respectively. Basic
earnings per share are computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding for
the period. Diluted earnings per share are computed similarly to fully
diluted earnings per share. Earnings per share amounts for all periods have
been presented to conform to SFAS No. 128 requirements. For all periods
presented, due to losses generated in each period, the computation of basic
and diluted earnings per share are the same.
NOTES PAYABLE
- -------------
On July 25, 1997, the Company and its lender amended the revolving loan and
security agreement (the "Agreement") originally entered into in September
1996. Availability under the Agreement is limited by a collateral formula
calculated as the lesser of $4,000,000 or 85% of qualified accounts
receivable plus 50% of eligible finished goods inventory, with borrowings
based on inventory limited to $1,200,000. Interest accrues at a variable
rate equal to 2.25% in excess of the lender's prime lending rate (8.5% as of
June 30, 1998). Outstanding borrowings are collateralized by substantially
all the assets of the Company. The Agreement expires in September 1998.
Additionally, the Company has outstanding borrowings under several equipment
leases accounted for as capital leases aggregating $416,249 as of June 30,
1998.
SUBORDINATED NOTES PAYABLE
- --------------------------
In April 1996, an officer of the company loaned the company a total of
$100,000 to satisfy working capital needs. In addition, in January 1997 that
same officer and a director loaned the company $100,000 and $150,000,
respectively to satisfy additional working capital needs. All three notes
are payable on demand. One note bears interest at a rate of 10.0%, payable
semi-annually in July and January. The other two notes bear interest at a
rate of 12% payable monthly. Interest expense on these notes amounted to
approximately $6,300 for the three months ended June 30, 1998 and $26,300
for the nine months ended June 30, 1998. In March 1998, the Company repaid
the 10%, $100,000 demand note.
In May 1998, GlenGate converted $1,400,000 of accounts payable created
through inventory purchases to a note payable with American Marketing
Industries, Inc. (AMI). The note is due quarterly beginning August
15th, 1998, matures May 15th, 1999 and bears interest at the rate of 10% per
annum. Subsequently, AMI has further deferred payments on the note until
March 15th, 1999 in order to assist GlenGate in obtaining spring 1999
financing and product.
<PAGE>
<PAGE> 7
COMMITMENTS AND CONTINGENCIES
- -----------------------------
Through June 30, 1998 the Company had purchase commitments for merchandise
of approximately $3,900,000.
STOCKHOLDERS' EQUITY
- --------------------
As of June 30,1998 1,768,500 stock options were outstanding under the
Company's 1994 stock option plan. Of the options outstanding, 1,503,750 are
exercisable at prices between $.60 and $1.00 and 264,750 are exercisable at
prices between $1.06 and $2.50. The options expire at various dates through
fiscal 2005. All were granted with exercise prices at quoted market value.
In May 1998 the Company notified those option holders whose relationship
with the Company had terminated that, pursuant to the terms of the 1994
stock option plan, their options would expire unless exercised within 90
days from the date of such notice. Such option holders held, in the
aggregate, options to purchase approximately 270,000 shares of the Company's
Common Stock.
In July 1997, as part of a private placement, the Company granted to
American Marketing Industries, Inc., ("AMI") (i) an option to acquire
1,000,000 shares of common stock at a purchase price of $1.50 per share,
which option expires in July 2000, (ii) an option to acquire 240,000 shares
of common stock at a purchase price of $1.00 per share, which option becomes
exercisable in July 1998 and expires in July 2000, and (iii) an option to
acquire 1,260,000 shares of common stock at a purchase price of $2.00 per
share, which option becomes exercisable in July 1998 and expires in July
2000. As a result of a prepayment of a licensing royalty of $220,000 made
by AMI and an immediate payment of another $221,566 with respect to products
sold to AMI in the second quarter of fiscal l998 the Company agreed to
reduce the exercise price on 1,000,000 options held by AMI from $1.50 to
$1.00 and to extend the exercise period on such 1,000,000 options from July
2000 to July 2001.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
- ---------------------------------------------
RESULTS OF OPERATIONS
During the three months ended June 30, 1998 the Company had sales of
approximately $2,584,000 to an account base of approximately 1,800 active
accounts. Comparatively, sales for the three months ended June 30, 1997 were
approximately $2,604,000 to an account base of 1,500 active accounts.
Sales for the nine months ended June 30, 1998 were approximately $8,370,000.
Sales for the nine months ended June 30, 1997 were approximately $6,591,000.
The resulting increase in sales was 27%.
Cost of goods sold as a percentage of sales for the three and nine months
ended June 30, 1998 was 72% and 66% respectively. Cost of goods sold, as a
percentage of sales for the three and six months ended June 30, 1997 was
approximately 67% and 70%, respectively, representing an improvement in
gross profit margins for the nine months of 4%. The improvement primarily
reflects the Company's ability to sell its inventories at higher or full
margins compared to last year.
Warehousing, design, selling and administrative expenses were 45% of net
sales for the three months ended June 30, 1998 compared to 48% of net sales
for the three months ended June 30, 1997. Such expenses for the nine months
ended June 30, 1998 were 44% of net sales, compared to 48% of net sales for
the nine months ended June 30, 1997. 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.
<PAGE>
<PAGE> 8
Interest expense for the three and nine months ended June 30, 1998 was
$152,425 and $412,721 respectively, compared to $158,327 and $274,930
respectively, for the same periods ended June 30, 1997. This increase
resulted from higher borrowings required primarily to support the increased
levels of inventory experienced as part of the Company's growth.
The operating loss for the three and nine months ended June 30, 1998 was
$438,466 and $871,341 respectively, compared to the operating loss of
$383,334 and $1,194,246 respectively for the same periods ended June 30,
1997. The net loss for the three and nine months ended June 30, 1998 was
$590,891 and $1,284,062 respectively, compared to the net loss of $541,661
and $1,469,176 respectively, for the same periods ended June 30, 1997 as a
result of the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company used cash for operating activities during the quarter ended June
30, 1998 of $762,647 resulting primarily from a reduction in receivables of
$921,336 and a reduction in accounts payable of $1,254,421 (the AMI Note
conversion accounted for $1,400,000 of this) and a net loss of $590,891.
Cash of $615,403 was provided by financing activities primarily consisting
of the AMI note and a decrease in bank debt of $749,606.
In order for the Company to sustain its current growth patterns and improve
its profitability, it recognizes the need to (i) improve gross profit
margins, (ii) obtain better credit terms with its suppliers, (iii) reduce
operating expense margins, and (iv) obtain additional capital through either
equity or debt financing. In response to these needs, the Company located
another new source of supply that will provide the Company with improved
quality, lower costs and credit terms similar with what it had previously
located in 1997. These sources of supply will be used for merchandise
shipped for the spring 1999 season. In addition, the Company has recently
implemented additional operating expense reductions in the warehousing and
embroidery departments. The Company is still seeking additional equity and
debt investments in the Company.
Future events and the competitive environment in which the Company operates,
may lead to financial results 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.
The Company has assessed the Year 2000 issue and has begun implementing a
plan to resolve the issue, which is expected to be completed by the end of
1998. Based upon management's assessment, it is anticipated that costs
associated with the completion of the plan will not be material.
IMPORTANT FACTORS RELATED TO FORWARD-LOOKING STATEMENTS
The statements contained in this quarterly report or incorporated by
reference herein that are not purely historical are forward-looking
statements and are based on current expectations that involve a number of
risks and uncertainties. These forward-looking statements were based on
assumptions that the Company would continue to develop and introduce new
products on a timely basis, that the competitive conditions within the golf
apparel industry would not change materially or adversely, that the demand
for the Company's golf apparel would remain strong, that the market would
accept the Company's new apparel lines, that inventory risks due to shifts
in market demand would be minimized, that the Company's forecasts would
accurately anticipate market demand, and that there would be no material
adverse change in the Company's operations or business. Assumptions relating
to the foregoing involve judgments with respect to, among other things,
future economic, competitive and market conditions, and future business
decisions, all of which are difficult or impossible to predict accurately
and many of which are beyond the control of the Company. Although the
Company believes that the assumptions underlying the forward-looking
statements are reasonable, any of the assumptions could prove inaccurate
and, therefore, there can be no assurance that the forward-looking
information will prove to be accurate. In addition, the business and
operations of the Company are subject to substantial risks, which increase
the uncertainty inherent in such forward-looking statements. Budgeting and
other management decisions are subjective in many respects and thus
<PAGE>
<PAGE> 9
susceptible to interpretations and periodic revisions based on actual
experience and business developments, the impact of which may cause the
Company to alter its marketing or other budgets, which may in turn affect
the Company's results of operations. In light of the significant
uncertainties inherent in the forward-looking information included herein,
the inclusion of such information should not be regarded as a representation
by the Company or any other person that the objectives planned for the
Company will be achieved.
PART II OTHER INFORMATION
- ---------------------------
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8 -K
- ------------------------------------------
REPORTS ON FORM 8-K
- -------------------
On May 1, 1998 the Company filed a current report on Form 8-K reporting
under Item 4 that the Company dismissed BDO Seidman as its independent
auditors and engaged Withum, Smith and Brown as the Company's principal
accountant to audit its financial statements.
EXHIBITS
- --------
27 - Financial Data Schedule
SIGNATURE
In accordance with the requirements of the Securities Exchange Act of 1934,
the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GLENGATE APPAREL, INC.
BY: /s/Michael F. Albanese, CPA
Dated: August 12, 1998 ------------------------------
Michael F. Albanese, CPA
Chief Financial Officer,
Secretary and Treasurer
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 102,208
<SECURITIES> 0
<RECEIVABLES> 2,468,121
<ALLOWANCES> 115,931
<INVENTORY> 2,594,946
<CURRENT-ASSETS> 5,506,198
<PP&E> 797,085
<DEPRECIATION> 360,128
<TOTAL-ASSETS> 6,361,476
<CURRENT-LIABILITIES> 5,862,425
<BONDS> 0
0
0
<COMMON> 10,614
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,361,476
<SALES> 2,584,803
<TOTAL-REVENUES> 2,584,803
<CGS> 1,856,418
<TOTAL-COSTS> 1,166,851
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 152,425
<INCOME-PRETAX> (590,891)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (590,891)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
