SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1997
Commission file number 33-72880
GLENGATE APPAREL, INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-3266971
(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification No.)
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 January 31,1998 there were 10,613,932 shares of Common Stock, par value
$.001 per share, outstanding.
Transitional Small Business Disclosure format Yes __ No X
<PAGE>
GlenGate Apparel, Inc.
Quarterly Report on Form 10-QSB
Table Of Contents
Page
Part I FINANCIAL INFORMATION
Item 1 Financial Statements
Balance Sheets as of December 31, 1997 (Unaudited)
and September 30, 1997......................................... 3
Statements of Operations for the three months ended
December 31, 1997 and December 31, 1996 (Unaudited)............ 4
Statements of Cash Flows for the three months ended
December 31, 1997 and December 31, 1996 (Unaudited)............ 5
Notes to Financial Statements (Unaudited).......................... 6
Item 2 Management's Discussion and Analysis .......................... 7
Part II OTHER INFORMATION
Item 5 Other Information ............................................ 9
Item 6 Exhibits and Reports on Form 8-K ................................ 9
<PAGE>
Part I - Financial Information
Item 1 - Financial Statements
GLENGATE APPAREL, INC.
BALANCE SHEETS
=================
<TABLE>
<CAPTION>
December 31, 1997 September 30,
(Unaudited) 1997
ASSETS ( Note 3 )
<S> <C> <C>
Current:
Cash $ 60,675 $ 180,913
Accounts receivable (less allowance for doubtful accounts
of $94,812 and $112,226, respectively) 1,773,777 2,471,837
Inventories 1,710,973 1,732,419
Prepaid expenses and other current assets 512,713 623,362
-------------- ----------------
TOTAL CURRENT ASSETS 4,058,138 5,008,531
Property and equipment, (net of accumulated depreciation
and amortization of $247,661 and $199,849 respectively) 867,818 864,283
Other assets 59,224 59,740
-------------- ----------------
TOTAL ASSETS $ 4,985,180 $ 5,932,554
.............. ................
LIABILITIES AND STOCKHOLDERS' EQUITY
Current:
Note payable-bank (Note 3) $ 2,179,788 $ 2,687,566
Current portion of equipment notes payable (Note 3) 136,000 136,000
Subordinated notes payable to stockholders (Note 4) 350,000 350,000
Accounts payable and accrued expenses 950,278 872,883
-------------- ----------------
TOTAL CURRENT LIABILITIES 3,616,066 4,046,449
Equipment notes payable less current portion 348,805 383,065
-------------- ----------------
3,964,871 4,429,514
Commitments and contingencies ( Note 5)
STOCKHOLDERS' EQUITY (Note 6)
Common stock at cost $.001 par value - 17,000,000
shares authorized; 10,613,932 issued and outstanding 10,614 10,614
Additional paid-in capital 7,230,639 7,230,639
Accumulated deficit (6,220,944) (5,738,213)
-------------- ----------------
TOTAL STOCKHOLDERS' EQUITY 1,020,309 1,503,040
.............. ................
TOTAL STOCKHOLDERS' EQUITY AND LIABILITIES $ 4,985,180 $ 5,932,554
.............. ................
</TABLE>
See accompanying notes to financial statements (Unaudited)
<PAGE>
GLENGATE APPAREL, INC.
STATEMENT OF OPERATIONS ( Unaudited)
====================================
<TABLE>
<CAPTION>
Three Months Ended
December 31,1997 December 31, 1996
<S> <C> <C>
Sales $ 2,164,794 $ 1,185,602
Cost of sales 1,387,932 800,438
-------------- --------------
Gross Profit 776,862 385,164
-------------- --------------
Operating Expenses
Warehousing 157,865 83,027
Design 68,252 51,486
Selling 584,220 332,516
General and administrative 338,950 305,890
-------------- --------------
TOTAL OPERATING EXPENSES 1,149,287 772,919
-------------- --------------
Operating Loss (372,425) (387,755)
Interest Expense (110,306) (52,811)
-------------- --------------
Net Loss $ (482,731) $ (440,566)
.............. ..............
Loss per share $ (0.05) $ (0.05)
.............. ..............
Weighted number of common 10,613,932 8,113,932
shares outstanding .............. ..............
</TABLE>
See accompanying notes to financial statements (Unaudited)
<PAGE>
GLENGATE APPAREL, INC.
STATEMENTS OF CASH FLOWS ( Unaudited)
=====================================
<TABLE>
<CAPTION>
Three Months Ended
December 31,1997 December 31, 1996
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (482,731) $ (440,566)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 48,328 29,015
Provision for doubtful accounts (17,414) 5,580
Changes in assets and liabilities:
Decrease (increase) in inventories 21,446 (263,115)
Decrease in accounts receivable 698,060 547,511
Decrease (increase) in prepaid and other
current assets 110,650 (47,635)
Increase in accounts payable and accruals 94,293 327,288
-------------- --------------
Net cash provided by operating activities 472,632 158,078
-------------- --------------
Cash flow from investing activities:
Purchases of property and equipment (51,348) (22,924)
Security deposits and other assets 516 23,750
-------------- --------------
Net cash provided by (used in) investing
activities (50,832) 826
-------------- --------------
Cash flows from financing activities:
Equipment notes (34,260) (1,314)
Notes payable - bank (507,778) (192,207)
Net Cash used in financing activities (542,038) (193,521)
-------------- --------------
Net decrease in cash and cash equivalents (120,238) (34,617)
Cash and cash equivalents beginning of period 180,913 34,917
-------------- --------------
Cash and cash equivalents end of period $ 60,675 $ 300
============== ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ $110,306 $ 47,876
============== ==============
Income taxes paid
$ 175 -
============== ==============
</TABLE>
See accompanying notes to financial statements (Unaudited)
<PAGE>
GLENGATE APPAREL, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1-ORGANIZATION
GlenGate Apparel, Inc. (the "Company") was incorporated in the State of New
Jersey on November 8, 1993, and commenced operations with the first sales of its
products in March 1995. The Company designs, contracts to have made, and markets
men's golf apparel. The Company's primary products consist of men's knit cotton
shirts, sweaters, woven cotton slacks, shorts and headwear. Customers of the
Company are primarily public and private golf course pro shops and resorts.
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES
Inventories
- -----------
Inventories are valued at the lower of cost or market with cost determined by
the first-in, first-out (FIFO) method. Inventories as of December 31, 1997
consisted substantially of finished goods.
Interim Financial statements
- ----------------------------
The interim financial statements as of and for the three months ended December
31, 1997 and for the three months ended December 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 for such
periods. The results of operations for the three months ended December 31, 1997
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.
The adoption of this standard did not have a material effect on the Company's
earnings per share.
NOTE 3 - 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 December 31, 1997). 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 $484,805 as of December 31, 1997.
NOTE 4 - NOTES PAYABLE TO RELATED PARTIES
The Company has currently outstanding $100,000 in a note in favor of an officer
and director. The funds were advanced at varying times during the developmental
stages of the Company to satisfy working capital needs. The note has matured and
has been converted to a demand note with interest at a rate per annum of 1.5%
over prime due on January 15 and July 15 until the note is paid. In addition, in
January 1997, an officer, who is also a director, and a director advanced the
company a total of $250,000 to satisfy additional working capital needs. The
notes are payable on demand and bear interest at a rate of 12%, payable monthly.
Interest expense on these notes amounted to approximately $7,500 for the quarter
ended December 31, 1997.
<PAGE>
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Through December 31, 1997, the Company had purchase commitments for merchandise
of approximately $3,850,000.
NOTE 6 - STOCKHOLDERS' EQUITY
Common Stock Options
In December 1994, the Company's Board of Directors approved the adoption of the
1994 Stock Option Plan (the "Plan") to provide incentives for selected persons
to promote the financial success and progress of the Company. The Plan provides
for the Compensation Committee or such other committee that the Board may
appoint to administer the Plan. The Plan provides for the reservation of
2,500,000 shares of Common Stock for issuance upon the exercise of granted
options.
As of December 31, 1997, 1,591,000 stock options were outstanding. Of the
options outstanding, 1,136,000 are exercisable at prices between $.60 and $1.00,
243,000 at $1.25, and 212,000 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 July 1997, as part of a financing transaction, the Company granted to a
lending group warrants to acquire up to 270,000 shares of common stock. The
warrants have an exercise price equal to sixty percent of the average common
stock market value during the thirty-day period prior to exercise of the
warrants and expire in April 2000.
In July 1997, as part of a private placement, the company granted to American
Marketing Industries, Inc. (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.
ITEM 2 - Management's Discussion and Analysis
Management's Discussion and Analysis
- ------------------------------------
Results of Operations
During the three months ended December 31, 1997 the Company had sales of
approximately $2,165,000 to an account base of approximately 2,000 active
accounts. Comparatively, sales for the three months ended December 31, 1996 were
approximately $1,186,000 to an account base of 1,400 active accounts. The
resulting increase in sales of 83% to an expanded account base that grew by over
42% was due in part to growth in acceptance of GlenGate product in the
marketplace and sales of Sun Ice product which was first sold in calendar 1997.
This continues to demonstrate the growth in acceptance of the Company's products
in the marketplace.
Cost of goods sold as a percentage of sales for the three months ended December
31, 1997 was 64%, a decrease of 3% when compared to 67% for the three months
ended December 31, 1996. The decrease 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 approximately 53%
of net sales compared to approximately 65% for the three months ended December
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 three months ended December 31, 1997 was $110,306
compared to $52,811 for the same period ended December 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 operating loss for the quarter ended December 31, 1997 was $372,425 compared
to the operating loss of $387,755 for the same period ended December 31, 1996.
The net loss for the quarter ended December 31,1997 was $482,731 compared to the
net loss of $440,566 for the same period ended December 31,1996 as a result of
the factors discussed 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 1998.
<PAGE>
Liquidity and Capital Resources
The Company had cash provided by operating activities during the quarter ended
December 31, 1997 of $472,632 resulting from the a net loss of $482,731 offset
by decreases in accounts receivable of $698,060, prepaid expenses of $110,650,
inventory of $21,446 and the increase in accounts payable and accruals of
$94,293. Cash was used in financing activities primarily to pay down bank debt
by $507,778.
In order for the Company to sustain its current growth patterns and improve its
profitability, it recognizes the need to increase gross profit margins and
obtain better credit terms with its suppliers. The Company has located new
sources that will supply inventory at more favorable costs and terms. Management
anticipates the effects of the change in sources will begin to be realized
primarily in the fall of 1998 shipping season.
Future events and the competitive environment in which the Company operates, may
lead to cost overruns that could make the Company's sources of working capital
insufficient to fund the Company's planned operations. No assurance can be given
that the Company will be able to obtain such funds or that the terms thereof
will be acceptable to the Company.
Important Factors Related to Forward-Looking Statements
The statements contained in this quarterly report or incorporated by reference
herein that are not purely historical are forward-looking statements and are
based on current expectations that involve a number of risks and uncertainties.
These forward-looking statements were based on assumptions that the Company
would continue to develop and introduce new products on a timely basis, that the
competitive conditions within the golf apparel industry would not change
materially or adversely, that the demand for the Company's golf apparel would
remain strong, that the market would accept the Company's new apparel lines,
that inventory risks due to shifts in market demand would be minimized, that the
Company's forecasts would accurately anticipate market demand, and that there
would be no material adverse change in the Company's operations or business.
Assumptions relating to the foregoing involve judgments with respect to, among
other things, future economic, competitive and market conditions, and future
business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond the control of the Company. Although the
Company believes that the assumptions underlying the forward-looking statements
are reasonable, any of the assumptions could prove inaccurate and, therefore,
there can be no assurance that the forward-looking information will prove to be
accurate. In addition, the business and operations of the Company are subject to
substantial risks, which increase the uncertainty inherent in such
forward-looking statements. Budgeting and other management decisions are
subjective in many respects and thus susceptible to interpretations and periodic
revisions based on actual experience and business developments, the impact of
which may cause the Company to alter its marketing or other budgets, which may
in turn affect the Company's results of operations. In light of the significant
uncertainties inherent in the forward-looking information included herein, the
inclusion of such information should not be regarded as a representation by the
Company or any other person that the objectives planned for the Company will be
achieved.
PART II - Other Information
ITEM 5 - Other Information
- --------------------------
On February 10, 1998, the Company announced a realignment of its senior
management team. Reference is made to the Company's press release dated February
10, 1998, which is attached hereto as Exhibit 99.1 and incorporated herein by
reference.
ITEM 6 - Exhibits and Reports on Form 8 -K
- ------------------------------------------
Reports on form 8-K
- -------------------
The Company filed no reports on Form 8-K during the quarter ended December 31,
1997.
Exhibits
- --------
27 - Financial Data Schedule
99.1 - Press release of the Company dated February 10, 1998.
<PAGE>
SIGNATURE
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
GLENGATE APPAREL, INC.
/S/ Peter Culbertson
BY:_____________________________
Dated: February 13, 1998 Peter Culbertson, Chief
Operating Officer, Chief
Financial Officer, Secretary
and Treasurer
(acting principal executive
officer, principal financial
and accounting officer)
FOR IMMEDIATE RELEASE February 10, 1998 GlenGate Apparel, Inc.
Cranford, NJ 07016
GLENGATE APPAREL, INC. (OTC: GLNN) REPORTS CONTINUED RECORD GROWTH (80%
YEAR TO DATE SALES INCREASE) RESULTING IN SENIOR MANAGEMENT REALIGNMENT.
GlenGate Apparel, Inc. (OTC:GLNN) announced today that George Gatesy has been
appointed Vice-Chairman of the Board of Directors. James C. Willcox, currently a
member of the Board of Directors, will serve as Chairman. With sales off to
another great start, 83% greater than the first quarter of FY97, the company
announced a realignment of its senior management team.
Peter D. Culbertson, Chief Operating Officer and Chief Financial Officer, will
assume additional management responsibilities until a new Chief Executive
Officer is selected. The board has begun a process of evaluating candidates for
this position. In addition, Michael F. Albanese, CPA, a recent addition to the
GlenGate team, has been named Vice President of Finance, reporting to
Culbertson.
"In this new capacity, I can better benefit our company by focusing my attention
on marketing the company to the financial community, working closely with major
accounts nationwide, and securing PGA Tour Players to endorse GlenGate Apparel,"
said Gatesy. "The rapid increase in the size of GlenGate requires us to add
another experienced senior manager to help direct the operations of the
Company."
GlenGate recently reported FY97 sales of $9,347,000, an increase of 50% over
FY96 sales of $6,230,000. The company's `green grass' customer base has
increased approximately 50% in the last year to 2,000 accounts. Willcox added
that "the company is now in a position to effectively leverage our unique
designs and merchandising strategies as it becomes one of the emerging brands in
the lucrative and growing golf apparel industry."
GlenGate Apparel, Inc. designs and markets classic style golf apparel, including
mens knit cotton shirts, sweaters, slacks, outerwear and rainwear, for sale at
public and private golf course pro shops and resorts. For more information,
contact Peter D. Culbertson at (908) 653-9100, Extension 7327.
Contact: Peter D. Culbertson
COO/CFO
GlenGate Apparel, Inc.
Phone: (908) 653-9100 (x7327)
<TABLE> <S> <C>
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<CIK> 0000916394
<NAME> GlenGate Apparel, Inc.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 60,675
<SECURITIES> 0
<RECEIVABLES> 1,773,777
<ALLOWANCES> 94,812
<INVENTORY> 1,710,973
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<OTHER-EXPENSES> 1,149,287
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