SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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, 1997
/ / 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 of (IRS Employer
incorporation or organization) Identification No.)
1350 BROADWAY
SUITE 2300
NEW YORK, NY 10018
(Address of Principal Executive Offices)
(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
Section 13 or 15 (d) of the Exchange Act during the past 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 May 9, 1997, was
2,469,375 shares of Common Stock, $.002 par value and 100,000 shares of Class A
Common Stock, $.01 par value.
Transitional Small Business Disclosure Format (check one):
Yes / / No /X
Form 10-QSB
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Balance Sheets 3
Statements of Income 4
Statements 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 8-9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURE 11
- 2 -
<PAGE>
ACTIVE APPAREL GROUP, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1 9 9 7 1 9 9 6
------- -------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 161,329 $ 163,241
Due from factor 2,617,510 2,896,273
Inventory 2,393,632 2,757,700
Prepaid royalties 101,203 52,513
Prepaid expenses and other current assets 168,366 122,807
----------- -----------
Total current assets 5,442,040 5,992,534
Note receivable, officer 120,000 120,000
Property and equipment, net 363,815 292,777
Security deposits and other assets 462,366 339,968
----------- -----------
Total Assets $ 6,387,891 $ 6,745,279
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 365,383 $ 552,858
Accrued expenses and other current liabilities 143,803 499,500
----------- -----------
Total current liabilities 509,186 1,052,358
----------- -----------
Stockholders' equity:
Common stock, par value $.002; 10,000,000 shares
authorized, 2,624,787 issued, 2,452,287 outstanding
(1997); 10,000,000 shares authorized, 2,620,237
issued, 2,447,737 outstanding (1996) 5,249 5,240
Class A common stock, par value $.01; 100,000 shares
authorized; 100,000 shares issued and outstanding 1,000 1,000
Paid-in capital 6,090,620 6,054,035
Retained earnings (accumulated deficit) 507,461 358,271
----------- -----------
6,604,330 6,418,546
Less treasury stock, at cost (172,500 common shares) (725,625) (725,625)
----------- -----------
Total Stockholders' Equity 5,878,705 5,692,921
----------- -----------
Total Liabilities and Stockholders' Equity $ 6,387,891 $ 6,745,279
=========== ===========
</TABLE>
- 3 -
See accompanying notes to financial statements.
<PAGE>
ACTIVE APPAREL GROUP, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three months ended
MARCH 31,
---------------------------------
1 9 9 7 1 9 9 6
---------- --------
(Unaudited) (Unaudited)
<S> <C> <C>
Net sales $4,021,021 $3,946,849
Cost of goods sold 2,397,301 2,428,676
---------- ----------
Gross profit 1,623,720 1,518,173
---------- ----------
Operating expenses:
Selling and shipping 779,626 748,055
General and administrative 498,251 388,050
Financial expenses, including
interest expense of $15,712;
$7,428 -1996 86,734 79,179
---------- ----------
1,364,611 1,215,284
---------- ----------
Income from operations 259,109 302,889
Other income -- 4,144
---------- ----------
Income before provision
for income taxes 259,109 307,033
Provision for income taxes 109,919 76,531
---------- ----------
Net income $ 149,190 $ 230,502
========== ==========
Primary earnings per share $ .06 $ .09
========== ==========
</TABLE>
- 4 -
See accompanying notes to financial statements.
<PAGE>
ACTIVE APPAREL GROUP, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
9% CUMULATIVE
CONVERTIBLE CLASS A
PREFERRED STOCK COMMON STOCK COMMON STOCK
----------------- ------------------ ------------------ PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
------- -------- --------- ------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 4,000 $ 1,000 2,439,437 $ 5,224 100,000 $ 1,000 $ 6,057,764
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 -- -- -- -- -- -- --
------- -------- ---------- -------- --------- ------- -----------
Balance, March 31, 1996 3,000 $ 750 2,444,737 $ 5,234 100,000 $ 1,000 $ 6,053,291
======= ======== ========== ======== ========= ======= ===========
Balance, December 31, 1996 -- $ -- 2,447,737 $ 5,240 100,000 $ 1,000 $ 6,054,035
Stock options exercised -- -- 4,550 9 -- -- 36,585
Net income, three months ended
March 31, 1997 -- -- -- -- -- -- --
------- -------- ---------- -------- --------- ------- -----------
Balance, March 31, 1997 -- $ -- 2,452,287 $ 5,249 100,000 $ 1,000 $ 6,090,620
======= ======== ========== ======== ========= ======= ===========
</TABLE>
<TABLE>
<CAPTION>
RETAINED
EARNINGS TREASURY STOCK
(ACCUMULATED -------------------
DEFICIT) SHARES AMOUNT TOTAL
----------- ------ --------- ---------
<S> <C> <C> <C> <C>
Balance, December 31, 1995 $(352,977) 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 - - 230,502
----------- ---------- ------------ -----------
Balance, March 31, 1996 $ (122,475) 172,500 $(725,625) $5,212,175
=========== ======= ========= ==========
Balance, December 31, 1996 $ (358,271) 172,500 $(725,625) $5,692,921
Stock options exercised - - - 36,594
Net income, three months ended
March 31, 1997 149,190 - - 149,190
----------- ---------- ------------- ----------
Balance, March 31, 1997 $ 507,461 172,500 $(725,625) $5,878,705
=========== ======= ========= ==========
\</TABLE>
- 5 -
See accompanying notes to financial statements.
<PAGE>
ACTIVE APPAREL GROUP, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------
1 9 9 7 1 9 9 6
---------- --------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 149,190 $ 230,502
Adjustments to reconcile net income to net
Cash provided by operating activities:
Depreciation 22,976 10,717
Amortization 1,627 1,628
Deferred tax provision -- 63,664
Loss on disposal of property and equipment -- 252
Changes in assets (increase) decrease:
Due from factor 278,763 (85,408)
Inventory 364,068 (102,743)
Prepaid expenses and other current assets (45,559) (22,117)
Prepaid royalties (48,690) 32,559
Security deposits and other assets (123,695) 4,420
Changes in liabilities increase (decrease):
Accrued expenses and other current liabilities (355,697) (140,730)
Accounts payable (187,475) (115,572)
--------- ---------
Net cash provided by operating activities 55,508 82,658
--------- ---------
Cash flows used by investing activities:
Acquisition of property and equipment (94,014) (56,110)
--------- ---------
Cash flows from financing activities:
Proceeds from stock options exercised 36,594 --
Initial public offering costs -- (4,200)
Redemption of preferred stock -- (2,500)
--------- ---------
Net cash provided (used) by financing activities 36,594 (6,700)
--------- ---------
Net increase (decrease) in cash and cash equivalents (1,912) 19,848
Cash and cash equivalents, beginning of period 163,241 134,344
--------- ---------
Cash and cash equivalents, end of period $ 161,329 $ 154,192
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 15,712 $ 7,428
Income taxes 402,252 24,425
Supplemental disclosures of noncash financing activity:
Proceeds receivable from stock options exercised $ -- $ 1,987
</TABLE>
- 6 -
See accompanying notes to financial statements.
<PAGE>
ACTIVE APPAREL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
1. The Company and basis of presentation:
The financial statements presented herein as of March 31, 1997 and for
the three months ended March 31, 1997 and 1996 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
months ended March 31, 1997 are not necessarily indicative of the
results that may be expected for any other interim period or the full
year ending December 31, 1997.
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 convertible preferred stock.
The number of shares used in the computations were 2,718,106 and
2,699,585 at March 31, 1997 and 1996, respectively.
Fully diluted earnings per share amounts are not presented for March 31,
1997 and 1996 because they are not materially dilutive.
-7-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THIS REPORT ON FORM 10-QSB CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS. FACTORS
THAT MAY CAUSE SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THE COMPANY'S
EXPANSION INTO NEW MARKETS, COMPETITION, TECHNOLOGICAL ADVANCES AND AVAILABILITY
OF MANAGERIAL PERSONNEL.
GENERAL
The Company is a designer, marketer and supplier of women's activewear
and sportswear, and unisex activewear and accessories. The Company sells its
principal product collections under the EVERLAST, CONVERSE and MTV brand names
through exclusive licensing arrangements. The Company's products are
manufactured by third party independent manufacturing contractors and are sold
to approximately 500 separate accounts, representing approximately 20,000 retail
locations throughout the United States and Canada, including a variety of
department stores, specialty stores, sporting goods stores, catalog operations
and better mass merchandisers.
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.
The financial statements of the Company and the notes thereto contain
detailed information that should be referred to in conjunction with this
discussion.
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 1997 COMPARED TO QUARTER ENDED MARCH 31, 1996
Net sales increased to $4,021,021 for the three months ended March 31,
1997 from $3,946,849 for the three months ended March 31, 1996, an increase of
$74,172 or 1.9%. This increase was principally attributable to increased sales
volume of the Company's products through continued market penetration,
acceptance of the Company's products and increased orders from established
accounts.
Gross profit increased to $1,623,720 for the three months ended March
31, 1997 from $1,518,173 for the three months ended March 31, 1996, an increase
of $105,547 or 7.0%. Gross profit increased as a percentage of net sales to
40.4% from 38.5%. 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 $779,626 for the three months
ended March 31, 1997 from $748,055 for the three months ended March 31, 1996, an
increase of $31,571, or 4.2%. Selling and shipping expenses as a percentage of
net sales increased to 19.4% from 19.0%. This increase as a percentage of net
sales was primarily attributable to an increase in volume of advertising and
promotions, to facilitate the Company's continued and anticipated growth.
General and administrative expenses increased to $498,251 for the three
months ended March 31, 1997 from $388,050 for the three months ended March 31,
1996, an increase of $110,201, or 28.4%. General and administrative expenses as
a percentage of net sales increased to 12.4% from 9.8%. The increase as a
percentage of net sales was primarily attributable to an increase in temporary
employment services and depreciation expenses for the three months ended March
31, 1997 versus the comparable period in 1996.
Financial expenses increased to $86,734 for the three months ended March
31, 1997 from $79,179 for the three months ended March 31, 1996, an increase of
$7,555 or 9.5%. Of the total financial expenses, interest expense increased to
$15,712 for the three months ended March 31, 1997 from $7,428 for the three
months ended March 31, 1996. Such increases were attributable to the increase in
the Company's net borrowings for the three months ended March 31, 1997 versus
the comparable period in 1996.
-8-
<PAGE>
Operating income decreased to $259,109 for the three months ended March
31, 1997 from $302,889 for the three months ended March 31, 1996, a decrease of
$43,780, or 14.5% for the reasons stated in the preceding paragraphs. Operating
income as a percentage of net sales was 6.4% for the three months ended March
31, 1997 as compared to 7.7% for the three months ended March 31, 1996.
The Company incurred a tax provision of $109,919 for the three months
ended March 31, 1997 as compared to $76,531 for the three months ended March 31,
1996, an increase of $33,388. At March 31, 1996 the Company was able to utilize
$338,000 of its net operating loss carryforward to offset taxable income,
compared to March 31, 1997 when the Company had no net operating loss
carryforward available.
The Company had net income of $149,190 for the three months ended March
31, 1997 as compared to $230,502 for the three months ended March 31, 1996, a
decrease of $81,312, or 35.3% for the reasons stated in the preceding
paragraphs.
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 $3,600,000 of the net proceeds
towards its loan balance under the credit agreement with Century Business Credit
Corporation (the "Century Agreement"); the balance was applied to general
working capital.
Operating activities provided positive cash flow for the three months
ended March 31, 1997 and 1996. This was primarily attributable to the favorable
operating results achieved in both periods. The net cash provided by operating
activities was $55,508 for the three months ended March 31, 1997 compared to
$82,658 for the three months ended March 31, 1996. The decrease was primarily
attributable to the decrease in net income for the three months ended March 31,
1997 compared to the three months ended March 31, 1996. Net cash used for
investing activities for the three months ended March 31, 1997 was $94,014
compared to $56,110 for the three months ended March 31, 1996. This was
attributable to the increase in acquisition of property and equipment. Net cash
provided by (used for) financing activities was $36,594 for the three months
ended March 31, 1997 compared to ($6,700) for the three months ended March 31,
1996. The increase was primarily attributable to proceeds from the exercise of
stock options.
During the three months ended March 31, 1997, 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 and advances drawn against factored receivables to finance its
operations and expansion. At March 31, 1997, working capital was $4,932,854
compared to $4,941,951 at March 31, 1996 a decrease of $9,097.
Due from factor represents the amount owed 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, 1997 due from factor was
$2,617,510 as compared to $3,372,907 at March 31, 1996. The Company's inventory
increased 43% to $2,393,632 at March 31, 1997 from $1,673,840 at March 31, 1996.
Management anticipates it will retain a net receivable position under
the Century Agreement, although no assurance to that effect can be given.
Positive cash flow, if it occurs, will provide for a further reduction in
advances, and excess working capital will be sufficient to fund the Company's
anticipated growth through 1997.
-9-
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
On January 17, 1997 the Company filed a Form 8-K.
-10-
<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: MAY 12, 1997 By: /S/ GEORGE Q HOROWITZ
------------ ----------------------
George Q Horowitz
Chief Executive Officer, President,
Treasurer, and Director
Signing on behalf of the
registrant and as Chief
Financial Officer
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Form 10-QSB for the quarter ended March 31, 1997 and is qualified
in its entirety by reference to such Financial Statements and Notes, thereto.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 161,329
<SECURITIES> 0
<RECEIVABLES> 2,617,510
<ALLOWANCES> 0
<INVENTORY> 2,393,632
<CURRENT-ASSETS> 5,442,040
<PP&E> 498,759
<DEPRECIATION> 134,944
<TOTAL-ASSETS> 6,387,891
<CURRENT-LIABILITIES> 509,186
<BONDS> 0
0
0
<COMMON> 5,249
<OTHER-SE> 1,000
<TOTAL-LIABILITY-AND-EQUITY> 6,387,891
<SALES> 4,021,021
<TOTAL-REVENUES> 4,021,021
<CGS> 2,397,301
<TOTAL-COSTS> 2,397,301
<OTHER-EXPENSES> 1,364,611
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,712
<INCOME-PRETAX> 259,109
<INCOME-TAX> 109,919
<INCOME-CONTINUING> 259,109
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 149,190
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
