SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - QSB
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------ ------------
Commission File Number 0-25918
ACTIVE APPAREL GROUP, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 13-3672716
(State or other jurisdiction (IRS Employer
incorporation or organization) Identification No.)
1350 Broadway
Suite 2300
New York, NY 10018
(212) 239-0990
(Issuer's telephone number)
Not Applicable
(Former name, former address and former
fiscal year if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes _X_ No ___
The number of common equity shares outstanding as of April 26, 1996, was
2,444,737 shares of Common Stock, $.002 par value.
Transitional Small Business Disclosure Format (check one):
Yes ___ No _X_
Form 10-QSB
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Page
Balance Sheets 3
Statements of Income 4
Statement of Changes in Stockholders' Equity 5
Statements of Cash Flows 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 8-10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURE 12
- 2 -
<PAGE>
ACTIVE APPAREL GROUP, INC.
BALANCE SHEETS
March 31, December 31,
1996 1995
----------- -----------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 154,192 $ 134,344
Due from factor 3,372,907 3,287,499
Inventory 1,673,840 1,776,583
Prepaid royalties 65,116 97,675
Prepaid expenses and other current assets 158,123 134,019
Deferred tax asset -- 63,664
----------- -----------
Total current assets 5,424,178 5,493,784
Property and equipment, net 185,722 140,581
License and organization costs 22,464 24,092
Security deposits and other assets 62,038 66,458
----------- -----------
$ 5,694,402 $ 5,724,915
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 356,343 $ 471,915
Accrued expenses and other current
liabilities 125,884 266,614
----------- -----------
Total current liabilities 482,227 738,529
----------- -----------
Commitments and contingencies
Stockholders' equity:
9% cumulative redeemable convertible
preferred stock, par value $.25; 3,000
shares authorized, issued and outstanding
(1996); 4,000 shares authorized, issued
and outstanding (1995) 750 1,000
Common stock, par value $.002; 3,750,000
shares authorized, 2,617,237 issued;
2,444,737 outstanding (1996); 2,611,937
issued; 2,439,437 outstanding (1995) 5,234 5,224
Class A common stock, par value $.01;
100,000 shares authorized; 100,000 shares
issued and outstanding 1,000 1,000
Paid-in capital 6,053,291 6,057,764
Accumulated deficit (122,475) (352,977)
----------- -----------
5,937,800 5,712,011
Less treasury stock, at cost
(172,500 common shares) (725,625) (725,625)
----------- -----------
5,212,175 4,986,386
----------- -----------
$ 5,694,402 $ 5,724,915
=========== ===========
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See accompanying notes to financial statements.
<PAGE>
ACTIVE APPAREL GROUP, INC.
STATEMENTS OF INCOME
Three months ended
March 31,
---------------------------
1996 1995*
----------- -----------
(Unaudited) (Unaudited)
Net sales $ 3,946,849 $ 3,336,592
Cost of sales 2,428,676 2,210,157
----------- -----------
Gross profit 1,518,173 1,126,435
----------- -----------
Operating expenses:
Selling and shipping 748,055 476,904
General and administrative 388,050 313,895
Financial expenses, including interest
expense of $7,428; $131,747-1995 79,179 179,439
----------- -----------
1,215,284 970,238
Income from operations 302,889 156,197
Other income 4,144 --
----------- -----------
Income before provision for income taxes 307,033 156,197
Provision for income taxes 76,531 3,000
----------- -----------
Net income $ 230,502 $ 153,197
=========== ===========
Primary earnings per share $ .09 $ .09
=========== ===========
* Certain items have been reclassified for comparative purposes.
- 4 -
See accompanying notes to financial statements.
<PAGE>
ACTIVE APPAREL GROUP, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
9% cumulative
convertible Class A
preferred stock Common stock common stock
--------------------- ------------------ ---------------- Paid-in Accumulated
Shares Amount Shares Amount Shares Amount Capital deficit
-------- --------- --------- ------ ------- ------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 600,000 $ 150,000 1,296,875 $2,714 -- $ -- $ 1,374,129 $(1,198,056)
Net income, three months ended
March 31, 1995 -- -- -- -- -- -- -- 153,197
-------- --------- --------- ------ ------- ------ ----------- -----------
Balance, March 31, 1995 600,000 $ 150,000 1,296,875 $2,714 -- $ -- $ 1,374,129 $(1,044,859)
======== ========= ========= ====== ======= ====== =========== ===========
Balance, December 31, 1995 4,000 $ 1,000 2,439,437 $5,224 100,000 $1,000 $ 6,057,764 $ (352,977)
Stock options exercised -- -- 5,300 10 -- -- 1,977 --
Redemption of preferred stock (1,000) (250) -- -- -- -- (2,250) --
Public offering costs -- -- -- -- -- -- (4,200) --
Net income, three months ended
March 31, 1996 -- -- -- -- -- -- -- 230,502
-------- --------- --------- ------ ------- ------ ----------- -----------
Balance, March 31, 1996 3,000 $ 750 2,444,737 $5,234 100,000 $1,000 $ 6,053,291 $ (122,475)
======== ========= ========= ====== ======= ====== =========== ===========
<CAPTION>
Treasury stock
-------------------
Shares Amount Total
------- --------- -----------
<C> <C> <C>
Balance, December 31, 1994 60,000 $ (22,500) $ 306,287
Net income, three months ended
March 31, 1995 -- -- 153,197
------- --------- -----------
Balance, March 31, 1995 60,000 $ (22,500) $ 459,484
======= ========= ===========
Balance, December 31, 1995 172,500 $(725,625) $ 4,986,386
Stock options exercised -- -- 1,987
Redemption of preferred stock -- -- (2,500)
Public offering costs -- -- (4,200)
Net income, three months ended
March 31, 1996 -- -- 230,502
------- --------- -----------
Balance, March 31, 1996 172,500 $(725,625) $ 5,212,175
======= ========= ===========
</TABLE>
- 5 -
The accompanying notes are an integral part of the financial statements.
<PAGE>
ACTIVE APPAREL GROUP, INC.
STATEMENTS OF CASH FLOWS
Three months ended
March 31,
------------------------
1996 1995
---------- ----------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net income $ 230,502 $ 153,197
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation 10,717 6,727
Amortization 1,628 1,628
Deferred tax provision 63,664 --
Loss on disposal of property and equipment 252 --
Provision for bad debts -- 32,270
Changes in assets (increase) decrease:
Due from factor (85,408) --
Inventory 102,743 (1,140,284)
Prepaid expenses and other current assets (22,117) (33,860)
Prepaid royalties 32,559 1,486
Deposits 4,420 --
Changes in liabilities increase (decrease):
Accrued expenses and other current
liabilities (140,730) (30,924)
Accounts payable (115,572) 919,236
---------- ----------
Net cash provided (used) by
operating activities 82,658 (90,524)
---------- ----------
Cash flows used by investing activities:
Acquisition of property and equipment (56,110) (6,958)
---------- ----------
Cash flows from financing activities:
Due to factor -- 167,046
Initial public offering costs (4,200) (72,586)
Redemption of preferred stock (2,500) --
---------- ----------
Net cash provided (used) by
financing activities (6,700) 94,460
---------- ----------
Net increase (decrease) in cash and cash equivalents 19,848 (3,022)
Cash and cash equivalents, beginning of period 134,344 22,026
---------- ----------
Cash and cash equivalents, end of period $ 154,192 $ 19,004
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period
for:
Interest $ 7,428 $ 158,728
Income taxes 24,425 3,537
Supplemental disclosure of noncash financing activity:
Proceeds receivable from stock options exercised $ 1,987 $ 4,537
- 6 -
See accompanying notes to financial statements.
<PAGE>
ACTIVE APPAREL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995
1. The Company and basis of presentation:
The financial statements presented herein as of March 31, 1996 and for the
three month periods ended March 31, 1996 and 1995 are unaudited and, in the
opinion of management, include all adjustments (consisting only of normal
and recurring adjustments) necessary for a fair presentation of financial
position and results of operations. Such financial statements do not
include all of the information and footnote disclosures normally included
in audited financial statements prepared in accordance with generally
accepted accounting principles. The accompanying unaudited financial
statements have been prepared in accordance with the instructions to Form
10-QSB. The results of operations for the three month period ended March
31, 1996 are not necessarily indicative of the results that may be expected
for any other interim period or the full year ending December 31, 1996.
2. Initial public offering:
On May 4, 1995, the Company completed an initial public offering of 640,000
shares of common stock at $6.25 per share. Proceeds to the Company, after
deducting initial public offering costs of $319,180, were $3,680,820.
3. Primary earnings per share:
Primary earnings per share amounts are computed based on the weighted
average number of shares actually outstanding plus the shares that would be
outstanding assuming the exercise of dilutive stock options, all of which
are considered to be common stock equivalents. The number of shares that
would be issued from the exercise of stock options has been reduced by the
number of shares that could have been purchased from the proceeds at the
average market price of the Company's stock. Net income has been adjusted
for dividends on the convertible preferred stock. The number of shares used
in the computations were 2,699,585 and 1,318,646 at March 31, 1996 and
1995, respectively.
Fully diluted earnings per share amounts are not presented for March 31,
1996 and 1995 because they are not materially dilutive.
-7-
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
Active Apparel Group, Inc. (the "Company") is a designer, marketer and
supplier of women's activewear and sportswear. The Company sells its principal
product collections under the Everlast and Converse brand names through
exclusive licensing arrangements. The Company's products are manufactured by
third party independent manufacturing contractors and are sold to over 500
separate accounts, representing over 20,000 retail locations throughout the
United States and Canada, including a variety of department stores, specialty
stores, catalog operations and better mass merchandisers.
Results of Operations
Quarter ended March 31, 1996 compared to quarter ended March 31, 1995
Net sales increased to $3,946,849 for the three months ended March 31, 1996
from $3,336,592 for the three months ended March 31, 1995, an increase of
$610,257, or 18.3%. This increase was principally attributable to increased
sales volume of the Company's products, continued market penetration and
acceptance of the Company's products and increased orders from established
accounts.
Gross profit increased to $1,518,173 for the three months ended March 31,
1996 from $1,126,435 for the three months ended March 31, 1995, an increase of
$391,738 or 34.8%. Gross profit increased as a percentage of net sales to 38.5%
from 33.8%. This increase as a percentage of net sales was primarily due to the
Company's ability to achieve better than normal gross profit margins on sales of
its products.
Selling and shipping expenses increased to $748,055 for the three months
ended March 31, 1996 from $476,904 for the three months ended March 31, 1995, an
increase of $271,151, or 56.9%. Selling and shipping expenses as a percentage of
net sales increased to 19% from 14.3%. The increase as a percentage of net sales
is primarily attributable to an increase in advertising and promotional
expenditures.
General and administrative expenses increased to $388,050 for the three
months ended March 31, 1996 from $313,895 for the three months ended March 31,
1995, an increase of $74,155, or 23.6%. General and administrative expenses as a
percentage of net sales increased to 9.8% from 9.4%. The increase as a
percentage of net sales was primarily attributable to an increased number of
employees for the three months ended March 31, 1996.
Financial expenses decreased to $79,179 for the three months ended March
31, 1996 from $179,439 for the three months ended March 31, 1995, a decrease of
$100,260, or 55.9%. Of the total financial expenses, interest expense decreased
to $7,428 for the three months ended March 31, 1996 from $131,747 for the three
months ended March 31, 1995. Such decreases were attributable to the decrease in
the Company's net borrowings for the three months ended March 31, 1996 versus
the comparable period in 1995 and interest on the Convertible Notes (as
-8-
<PAGE>
described under "Liquidity and Capital Resources" below) in the three months
ended March 31, 1995.
Operating income increased to $302,889 for the three months ended March 31,
1996 from $156,197 for the three months ended March 31, 1995, an increase of
$146,692, or 93.9% for the reasons stated above. Operating income as a
percentage of net sales was 7.7% for the three months ended March 31, 1996 as
compared to 4.7% for the three months ended March 31, 1995.
The Company had net income of $230,502 for the three months ended March 31,
1996 as compared to $153,197 for the three months ended March 31, 1995, an
increase of $77,305, or 50.5% for the reasons stated above.
Liquidity and Capital Resources
On May 4, 1995, the Company completed an initial public offering of 640,000
shares of Common Stock at $6.25 per share. Proceeds to the Company, after
deducting initial public offering costs of $319,180, were $3,680,820. Upon
completion of the offering, the Company applied $3,500,000 of the net proceeds
towards its loan balance under the credit facility with Century Business Credit
Corporation (the "Century Facility") while the balance was applied to general
working capital.
Net cash provided by (used for) operating activities for the three months
ended March 31, 1996 was $82,658 compared to ($90,524) for the three months
ended March 31, 1995. This increase was primarily attributable to decreased
inventory levels, net income for the period and utilization of a deferred tax
asset available to the Company in the first quarter of 1996. Such increase was
partially offset by decreases in accounts payable and accrued expenses during
the three months ended March 31, 1996. Net cash used for investing activities
for the three months ended March 31, 1996 was $56,110 compared to $6,958 for the
three months ended March 31, 1995. Such increase was attributable to an increase
in capital expenditures. Net cash from (used for) financing activities was
($6,700) for the three months ended March 31, 1996 compared to $94,460 for the
three months ended March 31, 1995. This decrease was primarily attributable to
decreased borrowings under the Century Facility.
During the three months ended March 31, 1996, the Company's primary need
for funds was to finance working capital for the anticipated growth in net sales
of the Company's products. The Company has relied primarily upon cash flow from
operations to finance its operations and expansion. At March 31, 1996, working
capital was $4,941,951 compared to $87,652 at March 31, 1995, an increase of
$4,854,299. This increase was primarily attributable to proceeds from the
Company's 1995 initial public offering and the profitability of the Company.
Due from (to) factor represents the amount receivable (payable) to the
Company for factored receivables less the amount of outstanding advances made by
Century to the Company under the Century Agreement. At March 31, 1996 due from
(to) factor was $3,372,907 as compared to ($905,621) at March 31, 1995. Proceeds
from the initial public offering were applied to the loan balance of the Century
Facility, reduced net borrowings from Century and allowed the Company to post a
net receivable balance with the factor. The Company's inventory decreased 44.1%
to $1,673,840 at March, 31 1996 from $2,996,439 at March 31, 1995.
In June 1994, the Company issued Convertible Notes (the "Convertible
-9-
<PAGE>
Notes") in an aggregate principal amount of $200,000. Noteholders had until May
31, 1995 to elect conversion, subject to a 15 day grace period. As of December
31, 1995 $50,000 of principal and all accrued interest was repaid to the
noteholders. The remaining $150,000 was converted to Common Stock. The number of
shares of Common Stock issuable upon any conversion of the Convertible Notes was
based upon an average of the high and low sales prices of the Common Stock over
a specified period of ten trading days.
Management believes that funds from operations and its existing working
capital will provide it with sufficient working capital to support the
anticipated continued growth of the Company through 1996.
-10-
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
-11-
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACTIVE APPAREL GROUP, INC.
Date: April 26, 1996 By: /s/ George Q Horowitz
-------------- -------------------------
George Q Horowitz
Chief Executive Officer, President,
Treasurer, and Director
Signing on behalf of the
registrant and as chief
accounting officer
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 154,192
<SECURITIES> 0
<RECEIVABLES> 3,372,907
<ALLOWANCES> 0
<INVENTORY> 1,673,840
<CURRENT-ASSETS> 5,424,178
<PP&E> 254,216
<DEPRECIATION> 68,494
<TOTAL-ASSETS> 5,694,402
<CURRENT-LIABILITIES> 482,227
<BONDS> 0
0
750
<COMMON> 5,234
<OTHER-SE> 1,000
<TOTAL-LIABILITY-AND-EQUITY> 5,694,402
<SALES> 3,946,849
<TOTAL-REVENUES> 3,946,849
<CGS> 2,428,676
<TOTAL-COSTS> 2,428,676
<OTHER-EXPENSES> 1,215,284
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,428
<INCOME-PRETAX> 302,889
<INCOME-TAX> 76,531
<INCOME-CONTINUING> 302,889
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 230,502
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
</TABLE>
