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 MARCH 31, 1998
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 April 30, 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 March 31, 1998
(Unaudited) and September 30, 1997 ............................ 3
Statements of Operations for the three months &
six months ended March 31, 1998 and
March 31, 1997 (Unaudited) .................................... 4
Statements of Cash Flows for the three & six months
ended March 31, 1998 and March 31, 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>
PART I FINANCIAL INFORMATION
ITEM 1 - Financial Statements
<TABLE>
<CAPTION>
GLENGATE APPAREL, INC.
BALANCE SHEETS
================
March 31,1998 September 30,
(Unaudited) 1997
<S> <C> <C>
ASSETS CURRENT ASSETS:
Cash $277,084 $180,913
Accounts receivable ( less allowance for
doubtful accounts of $113,412 and $112,226, respectively) 3,389,457 2,471,837
Inventories 2,505,238 1,732,419
Prepaid expenses and other current assets 517,045 623,362
---------------- ----------------
TOTAL CURRENT ASSETS 6,688,824 5,008,531
Property and equipment, ( net of accumulated depreciation
and amortization of $303,813 and $199,849 respectively) 826,432 864,283
Other Assets 58,709 59,740
---------------- ----------------
TOTAL ASSETS $7,573,965 $5,932,554
---------------- ----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable-bank $3,331,934 $2,687,566
Current portion of equipment notes payable 136,000 136,000
Accounts payable and accrued expenses 2,727,944 872,883
Subordinated notes payable 250,000 350,000
---------------- ----------------
TOTAL CURRENT LIABILITIES 6,445,878 4,046,449
Commitments and contingencies
Equipment notes payable less current portion 318,392 383,065
---------------- ----------------
6,764,270 4,429,514
STOCKHOLDERS EQUITY :
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 (6,431,558) (5,738,213)
---------------- ----------------
TOTAL STOCKHOLDERS' EQUITY 809,695 1,503,040
---------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $7,573,965 $5,932,554
---------------- ----------------
</TABLE>
See accompanying notes to financial statements (Unaudited)
<PAGE>
<TABLE>
<CAPTION>
GLENGATE APPAREL, INC.
STATEMENT OF OPERATIONS (Unaudited)
===================================
Three Months Ended Six Months Ended
March 31, 1998 March 31, 1997 March 31, 1998 March 31, 1997
<S> <C> <C> <C> <C>
Sales $3,620,644 $2,800,522 $5,785,438 $3,986,124
Cost of sales 2,295,654 2,043,063 3,683,586 2,843,501
---------------- ---------------- ---------------- ----------------
Gross Profit 1,324,990 757,459 2,101,852 1,142,623
---------------- ---------------- ---------------- ----------------
Operating Expenses:
Warehousing 198,769 169,523 356,631 252,550
Design 99,027 69,029 167,279 120,515
Selling 668,633 505,320 1,252,854 837,836
General and administrative 419,186 436,678 758,137 742,568
---------------- ---------------- ---------------- ----------------
TOTAL OPERATING EXPENSES 1,385,615 1,180,550 2,534,901 1,953,469
---------------- ---------------- ---------------- ----------------
Operating Loss (60,625) (423,091) (433,049) (810,846)
Interest Expense (149,990) (63,792) (260,296) (116,603)
---------------- ---------------- ---------------- ----------------
Net Loss $(210,615) $(486,883) $(693,345) $(927,449)
---------------- ---------------- ---------------- ----------------
Loss per Share $(0.02) $(0.06) $(0.07) $(0.11)
---------------- ---------------- ---------------- ----------------
Weighted Number of Common
Shares Outstanding 10,613,932 8,113,932 10,613,932 8,113,932
---------------- ---------------- ---------------- ----------------
</TABLE>
See accompanying notes to financial statements (Unaudited)
<PAGE>
<TABLE>
<CAPTION>
GLENGATE APPAREL,INC.
STATEMENTS OF CASH FLOWS (Unaudited)
=====================================
Three Months ended Six Months Ended
March 31,1998 March 31,1997 March 31,1998 March 31,1997
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $(210,615) $(486,883) $(693,345) $(927,449)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 56,667 29,016 104,994 58,031
Provision for doubtful accounts 18,599 12,676 1,185 18,256
Changes in assets and liabilities:
(Increase) in inventories (794,264) (124,100) (772,819) (387,215)
(Increase) in accounts receivable (1,634,280) (1,034,994) (918,805) (487,481)
Decrease (Increase) in prepaid and other (4,332) (79,167) 106,317 (126,802)
current assets
Increase in accounts payable and accrued expenses 1,777,666 708,504 1,855,061 1,035,792
------------- ---------------- ---------------- ----------------
Net cash used in operating activities (790,559) (974,948) (317,412) (816,868)
------------- ---------------- ---------------- ----------------
Cash flow from investing activities:
Purchases of property and equipment (14,765) (223,602) (66,111) (246,528)
Security deposits and other assets 0 (1) 23,750
------------- ---------------- ---------------- ----------------
Net cash used in investing activities (14,765) (223,602) (66,112) (222,778)
------------- ---------------- ---------------- ----------------
Cash flows from financing activities:
- - - -
Payment on equipment notes payable (30,413) 176,396 (64,673) 175,082
Change in notes payable - bank 1,152,146 842,372 644,368 650,165
Borrowing from (repayments to) subordinated (100,000) 250,000 (100,000) 250,000
notes payable
------------- ---------------- ---------------- ----------------
Net Cash provided by financing activities 1,021,733 1,268,768 479,695 1,075,247
------------- ---------------- ---------------- ----------------
Net increase in cash 216,409 70,218 96,171 35,601
Cash beginning of period 60,675 300 180,913 34,917
------------- ---------------- ---------------- ----------------
Cash end of period $277,084 $70,518 $277,084 $70,518
============= ================ ================ ================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $149,990 $58,481 $260,296 $106,357
============= ================ =============== ================
</TABLE>
See accompanying notes to financial statements (Unaudited)
<PAGE>
GLENGATE APPAREL, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
INTERIM FINANCIAL STATEMENTS
The interim financial statements as of and for the three and six months ended
March 31, 1998 and for the three and six months ended March 31, 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 six months
ended March 31, 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 March 31, 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
$454,392 as of March 31, 1998.
SUBORDINATED NOTES PAYABLE
In January 1997, 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 $10,000 for the quarter ended March 31, 1998 and $20,000 for the
six months ended March 31, 1998. In March 1998, the Company repaid the 10%,
$100,000 demand note. <PAGE>
COMMITMENTS AND CONTINGENCIES
Through March 31, 1998 the Company had purchase commitments for merchandise of
approximately $3,556,000.
STOCKHOLDERS' EQUITY
As of March 31,1998 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 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 March 31, 1998 the Company had sales of
approximately $3,620,000 to an account base of approximately 2,000 active
accounts. Comparatively, sales for the three months ended March 31, 1997 were
approximately $2,800,000 to an account base of 1,500 active accounts. The
resulting increase in sales of 29% to an expanded account base that grew by 33%
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 March 1997.
Sales for the six months ended March 31, 1998 were approximately $5,785,000.
Sales for the six months ended March 31, 1997 were approximately $3,986,000. The
resulting increase in sales was 45%.
Cost of goods sold as a percentage of sales for the three and six months ended
March 31, 1998 was 63% and 64% respectively. Cost of goods sold, as a percentage
of sales for the three and six months ended March 31, 1997 was approximately 73%
and 71%, respectively, representing an improvement in gross profit margins of
10% and 7% respectively. 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 38% of net sales
for the three months ended March 31, 1998 compared to 42% of net sales for the
three months ended March 31, 1997. Such expenses for the six months ended March
31, 1998 were 42% of net sales, compared to 49% of net sales for the six months
ended March 31, 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.
Interest expense for the three and six months ended March 31, 1998 was $149,990
and $260,296 respectively, compared to $63,792 and $116,603 respectively, for
the same periods ended March 31, 1997. 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.
<PAGE>
The operating loss for the three and six months ended March 31, 1998 was $60,825
and $432,873 respectively, compared to the operating loss of $423,091 and
$810,846 respectively for the same periods ended March 31, 1997. The net loss
for the three and six months ended March 31, 1998 was $210,615 and $693,169
respectively, compared to the net loss of $486,443 and $927,449 respectively,
for the same periods ended March 31, 1997 as a result of the factors discussed
above.
Liquidity and Capital Resources
The Company used cash for operating activities during the quarter ended March
31, 1998 of $790,577 resulting from an adjusted cash loss of $135,367, increases
in accounts receivable of $1,634,280, prepaid expenses of $4,332, inventory of
$794,264 offset by an increase in accounts payable and accruals of $1,777,666.
Cash of $1,021,733 was provided by financing activities consisting of an
increase in bank debt of $1,152,146 used to finance purchases of inventory for
the Company's spring 1998 shipping season, a repayment to an officer of $100,000
and $30,413 for the repayment of equipment notes.
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 has located new sources of
supply that will provide the Company with better gross margins and with better
credit terms than in the past. These sources of supply will be used for
merchandise shipped for the fall 1998 season. In addition, the Company has
recently implemented senior management changes and operating expense reductions.
The Company is also seeking additional equity and debt investments in the
Company. The Company believes that it has sufficient liquidity, without any
additional external capital, for its current operation.
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.
<PAGE>
PART II - Other Information
ITEM 5 - Other Information
On April 3, 1998, the Company announced a change in the composition of it's
Board of Director's and its senior management team. Reference is made to the
Company's press release dated April 3, 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 March 31,
1998.
Exhibits
27 - Financial Data Schedule
99.1 - Press release of the Company dated April 3, 1998.
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/ Michael F. Albanese
BY:_____________________________
Dated: May 11, 1998 Michael F. Albanese, CPA
Chief Financial Officer,
Secretary and Treasurer
FOR IMMEDIATE RELEASE
GLENGATE APPAREL, INC. (OTC: GLNN) REPORTS RECORD MARCH SALES AND CHANGES TO THE
BOARD AND MANAGEMENT.
GlenGate Apparel announced today that gross sales for March were $2.3 million, a
53% increase over the comparable period in 1997 and a new monthly record for the
Company. The Company expects net sales for the second quarter to exceed $3.5
million, a 28% increase over the comparable period in 1997.
GlenGate Apparel also announced today the appointment of Peter Culbertson to the
Board of Directors and his promotion to President and Chief Executive Officer of
the Company. Mr. Culbertson was formerly Chief Operating Officer and Chief
Financial Officer to GlenGate.
In addition, the Company announced today that George Gatesy, Peter Kostis and
Robert Munch have resigned from the Board of Directors of GlenGate. Mr. Gatesy,
who founded GlenGate, will continue to work with the Company and assist with the
marketing of the Company to the financial community.
In addition to Mr. Culbertson's appointment, the Board also announced that
Michael F. Albanese, CPA has been appointed Chief Financial Officer, Treasurer
and Secretary. Wayne Webster continues as Executive Vice President of Sales &
Marketing.
"The Board is pleased to announce these appointments and expects Peter, Michael
and Wayne to continue their drive to make GlenGate profitable. Furthermore, we
expect that the reduction in size of the Board of Directors will streamline
future decision-making," stated Jim Willcox, Chairman of the Board of Directors
of GlenGate.
GlenGate Apparel, Inc. designs and markets classic style golf apparel, including
men's knit cotton shirts, sweaters, slacks, shorts, outerwear and rainwear, for
sale at public and private golf course pro shops and resorts. For more
information, contact Peter Culbertson at (908) 653-9100, Extension 7327.
Contact:
Peter Culbertson
President & CEO
Phone: (908) 653-9100 (x7327)
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<CIK> 0000916394
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 277,084
<SECURITIES> 0
<RECEIVABLES> 3,389,457
<ALLOWANCES> 113,412
<INVENTORY> 2,505,238
<CURRENT-ASSETS> 6,688,824
<PP&E> 826,432
<DEPRECIATION> 303,813
<TOTAL-ASSETS> 7,573,965
<CURRENT-LIABILITIES> 6,445,878
<BONDS> 0
0
0
<COMMON> 10,614
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7,573,965
<SALES> 3,620,644
<TOTAL-REVENUES> 3,620,644
<CGS> 2,295,654
<TOTAL-COSTS> 1,385,615
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 149,990
<INCOME-PRETAX> (210,615)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (210,615)
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