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, 1998
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 13, 1998 was
2,494,081 shares of Common Stock, $.002 par value, and 100,00 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 8 1 9 9 7
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 81,681 $ 59,441
Refundable income taxes 43,500 153,500
Accounts receivable 281,403 130,097
Due from factor 2,328,439 1,656,283
Inventory 2,921,597 3,847,556
Prepaid royalties 37,662 52,746
Prepaid expenses and other current assets 308,219 168,130
Deferred tax asset 70,612 88,053
----------- -----------
Total current assets 6,073,113 6,155,806
Note receivable, officer 120,000 120,000
Property and equipment, net 392,807 406,692
Security deposits and other assets 285,255 261,341
----------- -----------
Total Assets $ 6,871,175 $ 6,943,839
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 544,543 $ 768,960
Accrued expenses and other current liabilities 228,051 199,574
----------- -----------
Total current liabilities 772,594 968,534
----------- -----------
Stockholders' equity:
Common stock, par value $.002; 10,000,000 shares
authorized; 2,666,581 issued, 2,494,081 outstanding
(1998); 2,641,875 issued, 2,469,375 outstanding (1997) 5,332 5,283
Class A common stock, par value $.01; 100,000 shares
authorized; 100,000 shares issued and outstanding 1,000 1,000
Paid-in capital 6,136,342 6,124,891
Retained earnings 681,532 569,756
----------- -----------
6,824,206 6,700,930
Less treasury stock, at cost (172,500 common shares) (725,625) (725,625)
----------- -----------
Total Stockholders' Equity 6,098,581 5,975,305
----------- -----------
Total Liabilities and Stockholders' Equity $ 6,871,175 $ 6,943,839
=========== ===========
</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 8 1 9 9 7
---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C>
Net sales $4,260,860 $4,021,021
Cost of goods sold 2,639,856 2,397,301
---------- ----------
Gross profit 1,621,004 1,623,720
---------- ----------
Operating expenses:
Selling and shipping 847,389 779,626
General and administrative 487,618 498,251
Financial expenses, including interest
expense of $42,566; $15,712 -1997 101,286 86,734
---------- ----------
1,436,293 1,364,611
---------- ----------
Income before provision for income taxes 184,711 259,109
Provision for income taxes 72,935 109,919
---------- ----------
Net income $ 111,776 $ 149,190
========== ==========
Basic earnings per share $ .04 $ .06
========== ==========
Diluted earnings per share $ .04 $ .06
========== ==========
</TABLE>
- 4 -
See accompanying notes to financial statements.
<PAGE>
ACTIVE APPAREL GROUP, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
Class A
Common Stock Common Stock Treasury Stock
------------ ------------ Paid In Retained --------------
Shares Amount Shares Amount Capital Earnings Shares Amount Total
------ ------ ------ ------ ------- -------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 2,447,737 $5,240 100,000 $1,000 $6,054,035 $358,271 172,500 $(725,625) $5,692,921
Stock options exercised 4,550 9 -- -- 36,585 -- -- -- 36,594
Net income - three months
ended March 31, 1997 -- -- -- -- -- 149,190 -- -- 149,190
--------- ------ ------- ------ ---------- -------- ------- --------- ----------
Balance, March 31, 1997 2,452,287 $5,249 100,000 $1,000 $6,090,620 $507,461 172,500 $(725,625) $5,878,705
========= ====== ======= ====== ========== ======== ======= ========= ==========
Balance, December 31, 1997 2,469,375 $5,283 100,000 $1,000 $6,124,891 $569,756 172,500 $(725,625) $5,975,305
Stock options exercised 24,706 49 -- -- 11,451 -- -- -- 11,500
Net income - three months
ended March 31, 1998 -- -- -- -- -- 111,776 -- -- 111,776
--------- ------ ------- ------ ---------- -------- ------- --------- ----------
Balance, March 31, 1998 2,494,081 $5,332 100,000 $1,000 $6,136,342 $681,532 172,500 $(725,625) $6,098,581
========= ====== ======= ====== ========== ======== ======= ========= ==========
</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 8 1 9 9 7
--------- ---------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 111,776 $ 149,190
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 30,364 22,976
Amortization 1,627 1,627
Changes in assets (increase) decrease:
Refundable income taxes 110,000 --
Accounts receivable (151,306) 5,924
Due from factor (672,156) 278,763
Inventory 925,959 364,068
Prepaid expenses and other current assets (112,089) (51,483)
Prepaid royalties (12,916) (48,690)
Deferred tax asset 17,441 --
Security deposits and other assets (25,541) (123,695)
Changes in liabilities increase (decrease):
Accrued expenses and other current liabilities 28,477 (355,697)
Accounts payable (224,417) (187,475)
--------- ---------
Net cash provided by operating activities 27,219 55,508
--------- ---------
Cash flows used by investing activities:
Acquisition of property and equipment (16,479) (94,014)
--------- ---------
Cash flows from financing activities:
Proceeds from stock options exercised 11,500 36,594
--------- ---------
Net increase (decrease) in cash and cash equivalents 22,240 (1,912)
Cash and cash equivalents, beginning of period 59,441 163,241
--------- ---------
Cash and cash equivalents, end of period $ 81,681 $ 161,329
========= =========
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Interest $ 42,566 $ 15,712
Income taxes 1,804 402,252
</TABLE>
- 6 -
See accompanying notes to financial statements.
<PAGE>
ACTIVE APPAREL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
1. The Company and basis of presentation:
The financial statements presented herein as of March 31, 1998 and for the
three months ended March 31, 1998 and 1997 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, 1998 are not necessarily indicative of the results that may be expected
for any other interim period or the full year ending December 31, 1998.
2. Earnings per share:
Basic earnings per share amounts are computed based on the weighted average
number of shares actually outstanding during the period. Diluted earnings
per share amounts are based on an increased number of shares that would be
outstanding assuming conversion of convertible preferred stock and the
exercise of dilutive stock options. For purposes of the diluted
computation, the number of shares that would be issued from the exercise of
stock options has been reduced by the number of shares which could have
been purchased from the proceeds at the average market price of the
Company's stock on March 31, 1998 and 1997.
The number of shares used in the computation of basic earnings per share
was 2,586,944 and 2,551,781 at March 31, 1998 and 1997 respectively. The
number of shares used in the computation of diluted earnings per share was
2,618,924 and 2,712,106 at March 31, 1998 and 1997 respectively.
-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,
sportswear, swimwear 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.
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, 1998 COMPARED TO QUARTER ENDED MARCH 31, 1997
Net sales increased to $4,260,860 for the three months ended March 31, 1998
from $4,021,021 for the three months ended March 31, 1997, a increase of
$239,839 or 6.0%. This increase in sales was principally attributable to
increased sales volume of the Company's products through continued market
penetration.
Gross profit decreased to $1,621,004 for the three months ended March 31,
1998 from $1,623,720 for the three months ended March 31, 1997, a decrease of
$2,716 or .2%. Gross profit decreased as a percentage of net sales to 38.0% from
40.4%. This decrease as a percentage of net sales was primarily due to price
pressure from a more concentrated market.
Selling and shipping expenses increased to $847,389 for the three months
ended March 31, 1998 from $779,626 for the three months ended March 31, 1997, an
increase of $67,763 or 8.7%. Selling and shipping expenses as a percentage of
net sales increased to 19.9% from 19.4%. The increase as a percentage of net
sales was primarily attributable to an increase in sales, shipping, and design
salaries which was partially offset by a decrease in sales commissions and
advertising salaries.
General and administrative expenses decreased to $487,618 for the three
months ended March 31, 1998 from $498,251 for the three months ended March 31,
1997, a decrease of $10,633, or 2.1%. General and administrative expenses as a
percentage of net sales decreased to 11.4% from 12.4%. The decrease as a
percentage of net sales was primarily attributable to a decrease in consulting
services, insurance expenditures, and officer compensation for the three months
ended March 31, 1998 versus the comparable period in 1997.
Financial expenses increased to $101,286 for the three months ended March
31, 1998 from $86,734 for the three months ended March 31, 1997, an increase of
$14,552, or 16.8%. The increase was primarily attributable to an increase in
interest expense. Such increase was due to the increase in the Company's net
borrowings from the factor for the three months ended March 31, 1998 versus the
comparable period in 1997.
-8-
<PAGE>
Operating income decreased to $184,711 for the three months ended March 31,
1998 from $259,109 for the three months ended March 31, 1997, a decrease of
$74,398, or 28.7% for the reasons stated in the preceding paragraphs. Operating
income as a percentage of net sales was 4.3% for the three months ended March
31, 1998 as compared to 6.4% for the three months ended March 31, 1997.
The Company incurred a tax provision of $72,935 for the three months ended
March 31, 1998 as compared to $109,919 for the three months ended March 31,
1997, a decrease of $36,984.
The Company had net income of $111,776 for the three months ended March 31,
1998 as compared to $149,190 for the three months ended March 31, 1997, a
decrease of $37,414, or 25.1% for the reasons stated in the preceding
paragraphs.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for the three months ended March
31, 1998 was $27,219 compared to $55,508 for the three months ended March 31,
1997. This decrease was primarily attributable to a decrease in operating
income. Net cash used for investing activities for the three months ended March
31, 1998 was $16,479 compared to $94,014 for the three months ended March 31,
1997. The decrease was attributable to the significant investment in the
technological infrastructure of the Company in 1997. Net cash provided by
financing activities was $11,500 for the three months ended March 31, 1998
compared to $36,594 for the three months ended March 31, 1997. The decrease was
primarily attributable to a decrease in the proceeds from the exercise of stock
options.
During the three months ended March 31, 1998, 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, 1998, working capital was $5,300,518
compared to $4,932,854 at March 31, 1997 an increase of $367,664.
Due from factor represents the amount owed to the Company for factored
receivables less the amount of outstanding advances made by Century Business
Credit Corporation to the Company under a credit agreement (the "Century
Agreement"). At March 31, 1998 due from factor was $2,328,439 as compared to
$2,617,510 at March 31, 1997, this decrease is a result in the increase of
in-house receivables. The Company had in-house receivables of $281,403 at March
31, 1998 as compared to $25,000 at March 31, 1997. The increase is due to
certain receivables not assigned to Century. The Company's inventory increased
to $2,921,597 at March 31, 1998 as compared to $2,617,510 at March 31, 1997 due
to an increase in booked and anticipated orders.
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 1998.
-9-
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities
The following unregistered securities were issued by the Company during the
three months ended March 31, 1998
<TABLE>
<CAPTION>
Number of Shares
Date of Sale Description of Sold/Issued/Subject Exercise Purchaser
/Issuance Securities Issued to Options or Warrants Price Per Share or Class
-------------- ------------------ ---------------------- --------------- --------------
<S> <C> <C> <C> <C>
January 2, 1998 Common Stock 7,900 $3.59 Non-employee Directors
Options
January 27, 1998 Common Stock 20,000 $.375 Former Director
(stock option exercise)
January 27, 1998 Common Stock 4,706 $.85 Former Director
(stock option exercise)
</TABLE>
The issuance of these securities are claimed to be exempt from registration
pursuant to section 4(2) of the Securities Act of 1933, as amended, as
transactions by an issuer not involving a public offering. There were no
underwriting discounts or commissions paid in connection with the issuance of
any of these securities.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
-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 13, 1998 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
<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, 1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 81,681
<SECURITIES> 0
<RECEIVABLES> 2,609,842
<ALLOWANCES> 0
<INVENTORY> 2,921,597
<CURRENT-ASSETS> 6,073,113
<PP&E> 644,979
<DEPRECIATION> 252,172
<TOTAL-ASSETS> 6,871,175
<CURRENT-LIABILITIES> 772,594
<BONDS> 0
0
0
<COMMON> 5,332
<OTHER-SE> 1,000
<TOTAL-LIABILITY-AND-EQUITY> 6,871,175
<SALES> 4,260,860
<TOTAL-REVENUES> 4,260,860
<CGS> 2,639,856
<TOTAL-COSTS> 2,639,856
<OTHER-EXPENSES> 1,436,293
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,566
<INCOME-PRETAX> 184,711
<INCOME-TAX> 72,935
<INCOME-CONTINUING> 184,711
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 111,776
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
