SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
------------------------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
October 24, 2000
--------------------------------------------------------------------------------
Date of Report
(Date of Earliest Event Reported)
Everlast Worldwide Inc.
--------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 0-25918 13-3672716
------------------- ---------------------- ----------------------
(State or Other (Commission (IRS Employer
Jurisdiction of File Number) Identification No.)
Incorporation)
1350 Broadway, Suite 2300, New York, New York 10018
--------------------------------------------------------------------------------
(Address of Principal Executive Office)
(212) 239-0990
--------------------------------------------------------------------------------
(Registrant's telephone number,
including area code)
Active Apparel Group, Inc.
--------------------------------------------------------------------------------
(Former Name, if Changed Since Last Report)
<PAGE>
Item 2. Acquisition or Disposition of Assets.
Pursuant to the terms of the Agreement and Plan of Merger (the "Merger
Agreement") dated August 21, 2000 by and among Everlast Worldwide Inc. (f/k/a
Active Apparel Group, Inc., the "Company"), Active Apparel New Corp., a Delaware
corporation and a wholly-owned subsidiary of the Company ("NewCorp"), Everlast
World's Boxing Headquarters Corp. ("Everlast"), a New York corporation, Everlast
Holding Corp. ("Everlast Holding"), a Delaware corporation, and the stockholders
of Everlast Holding (the "Stockholders"), Everlast Holding merged with and into
NewCorp (the "Merger") on October 24, 2000 (the "Closing Date") with NewCorp
being the surviving corporation. As a result of the Merger, the Company acquired
all of the outstanding shares of common stock of Everlast Holding, and Everlast
Holding and its subsidiaries became subsidiaries of the Company. The
Stockholders are Ben Nadorf, Arlene Shechet and Arthur Shechet.
Consideration
At the closing of the Merger (the "Closing"), the Stockholders received
in exchange for all of the outstanding shares of common stock of Everlast
Holding the following consideration: (i) $10,000,000 cash; (ii) 505,000 shares
of common stock, $.002 par value, of the Company; and (iii) 45,000 shares of
Series A Redeemable Participating Preferred Stock, $.01 par value, of the
Company. The Company used its and its subsidiaries' available cash to pay the
$10,000,000 to the Stockholders. For additional information, reference is made
to the Merger Agreement and the Certificate of Designations, Powers, Preferences
and Rights of the Series A Redeemable Participating Preferred Stock of the
Company, which are incorporated herein by reference and attached hereto as
Exhibit 99.1 and 4.1, respectively.
Description of Everlast
Everlast, a wholly-owned subsidiary of New Corp, as successor by merger
with Everlast Holding, was founded in 1910 and is headquartered in the Bronx,
New York. Everlast began as a manufacturer of men's swimwear. Shortly
thereafter, Everlast began manufacturing and distributing boxing gloves and
protective headgear.
Everlast uses its Moberly, Missouri facility to manufacture the wooden
and metal parts for speed and heavy bags and boxing rings. Since the 1980's,
Everlast has utilized licensing arrangements in the United States and in over 20
international licensees which sell Everlast products in specific geographies
worldwide. These territories include Canada, Australia, Pacific Rim, Europe,
South America and Mexico.
Product Overview (Manufactured)
(1) Boxing Gloves: Everlast's most recognizable product, boxing
gloves, are made for professional, amateur and home gym use.
Everlast's professional gloves are certified by the World
Boxing Conference, World Boxing Association and International
Boxing Federation for all of their professional fights, and in
all 50 states.
(2) Heavy Bags: Everlast's heavy bags are punching bags weighing
between 25 and 150 lbs.
(3) Speed Bags: Speed bags are small, air-filled bags which are
mounted on swivels and platforms (at eye level).
-1-
<PAGE>
(4) Platforms: Platforms are the wall mountings used in suspending
speed or heavy bags.
(5) Boxing Trunks.
(6) Miscellaneous Gym Equipment: In addition to the aforementioned
core offerings, Everlast also manufactures the following
products to complement its product line: protective head gear;
protection cups; mouthpieces; hand wraps; boxing rings;
martial arts equipment; skip ropes/tug-o-war ropes;
ankle/wrist weights; push-up/pull-up bars; hand grips; weight
lifting gloves & belts; dumbbell/barbell racks; gym mats
(assorted); medicine balls; professional training head guard;
rubber medicine balls.
Product Overview (Licensed)
In addition to manufacturing sports equipment, Everlast licenses its
brand name to several companies which source or manufacture ancillary products.
This has enabled Everlast to expand product offerings into areas outside of its
core manufacturing competencies, strengthen the brand image and increase
profitability, while at the same time minimizing inventory risk.
Everlast utilizes a network of licensees for its international
distribution to over 20 foreign countries. It also sells directly to
distributors and retailers. In return for exclusive rights to market Everlast
products in certain regions, the licensees pay Everlast a fixed royalty rate of
net revenues.
Manufacturing
Everlast has two manufacturing facilities which produce most of its
non-licensed products. The Company's leased Bronx, New York facility is a
235,000 square foot cut and sew operation, where boxing gloves, speed bags,
boxing trunks and other related items are produced. Additionally, Everlast-owned
304,000 square foot Moberly, Missouri facility houses its heavier manufacturing
for such items as platforms, heavy bags and boxing rings.
The Company intends to continue to use the assets of Everlast in the
manner used prior to the Merger.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements for Everlast. Please see Index to Financial
Statements on page F-1.
(b) Pro-Forma Financial Statements. Please see Index to Financial
Statements on page F-1.
(c) Exhibits:
4.1 Certificate of Designations, Powers, Preferences and Rights of
the Series A Redeemable Participating Preferred Stock.
-2-
<PAGE>
99.1 Agreement and Plan of Merger dated August 21, 2000 by and
among Everlast World's Boxing Headquarters Corp., a New York
corporation, Everlast Holding Corp., a Delaware corporation,
Everlast Worldwide Inc. (f/k/a Active Apparel Group, Inc.),
Active Apparel New Corp., a Delaware corporation and a
wholly-owned subsidiary of the Company, and the stockholders
of Everlast Holding.
-3-
<PAGE>
SIGNATURES
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 hereunto duly authorized.
EVERLAST WORLDWIDE INC.
November 7, 2000 By: /s/ George Q Horowitz
-------------------------------
Name: George Q Horowitz
Title:Chairman of the Board,
Chief Executive Officer and
President
-4-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
EVERLAST WORLD'S BOXING HEADQUARTERS CORP.
Report of Independent Auditors........................................F-3
Consolidated Balance Sheets for Fiscal Year Ended
December 31, 1998 and December 31, 1997...................F-4
Consolidated Statements of Income and Retained Earnings for
Fiscal Years Ended December 31, 1998
and December 31, 1997.....................................F-6
Consolidated Statement of Cash Flows for Fiscal Years Ended
December 31, 1998 and December 31, 1997....................F-7
Notes to Consolidated Financial Statements for
Fiscal Year Ended December 31, 1998........................F-8
Report of Independent Auditors........................................F-14
Consolidated Balance Sheets for Fiscal Year Ended
December 31, 1999 and December 31, 1998....................F-15
Consolidated Statements of Income and Retained Earnings for
Fiscal Years Ended December 31, 1999 and
December 31, 1998.........................................F-17
Consolidated Statement of Cash Flows for Fiscal Years Ended
December 31, 1999 and December 31, 1998....................F-18
Notes to Consolidated Financial Statements for
Fiscal Year Ended December 31, 1999........................F-19
Report of Independent Auditors........................................F-25
Unaudited Consolidated Balance Sheets for Six Months Ended
June 30, 2000 and June 30, 1999............................F-26
Unaudited Consolidated Statements of Income and Retained Earnings
For Six Months Ended June 30, 2000 and
Three Months Ended June 30, 2000 and
June 30, 1999.............................................F-28
Pro Forma Consolidated Financial Statements...........................F-30
F-1
<PAGE>
EVERLAST WORLD'S BOXING HEADQUARTERS CORP.
AND SUBSIDIARIES
DECEMBER 31, 1998
I N D E X
Page No.
CONSOLIDATED FINANCIAL STATEMENTS:
Independent Accountants' Report........................................1
Balance Sheets as at December 31, 1998 and 1997.......................2-3
Statements of Income and Retained Earnings
For the Years Ended December 31, 1998 and 1997.........................4
Statements of Cash Flows
For the Years Ended December 31, 1998 and 1997.......................5
Notes of Consolidated Financial Statements............................6-10
F-2
<PAGE>
INDEPENDENTS ACCOUNTANTS' REPORT
To the Board of Directors
Everlast World's Boxing Headquarters Corp.
We have audited the accompanying consolidated balance sheets of Everlast World's
Boxing Headquarters Corp. and subsidiaries, as of December 31, 1998 and 1997 and
the related consolidated statements of income, retained earnings, and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and signficant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Everlast World's Boxing Headquarters, Corp. and subsidiaries as at December 31,
1998 and 1997 and their consolidated results of operations and their cash flows
for the years ended in conformity with generally accepted accounting principles.
/s/ WEINICK SANDERS LEVENTHAL & CO., LLP
----------------------------------------
WEINICK SANDERS LEVENTHAL & CO., LLP
New York, N.Y.
February 26, 1999
F-3
<PAGE>
EVERLAST WORLD'S BOXING HEADQUARTERS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
A S S E T S
December 31,
--------------------
1998 1997
---- ----
Current assets:
Cash and cash equivalents (Note 2) $10,702,452 $ 7,059,981
Accounts receivable, less allowance for
doubtful accounts (Notes 2, 3 and 7) 5,577,953 5,566,919
Notes receivable - current portion (Note 4) 8,586 --
Inventories (Notes 2 and 5) 3,084,362 3,671,479
Prepaid income taxes 353,621 1,283,212
Prepaid insurance 184,852 231,920
Other prepaid expenses 19,003 88,640
---------- ----------
Total current assets 19,930,829 17,902,151
---------- ----------
Property, plant and equipment:
Land, buildings, machinery and equipment
(Notes 2 and 7) 6,744,663 7,359,553
Less: Accumulated depreciation 1,548,113 1,221,823
---------- ----------
Net property, plant and equipment 5,196,550 6,137,730
---------- ----------
Other assets:
Deposits 18,052 18,040
Notes receivable (Note 4) 310,721 --
Deferred financing costs, less accumulated
amortization of $143,611 and $90,741,
respectively (Note 2) 144,271 197,141
Deferred trademark costs, less accumulated
amortization of $20,610 and $13,974,
respectively (Note 2) 80,975 83,514
Cash surrender value - officer's life
insurance, net of loans payable of
$208,556 in each year 670,117 590,759
Investment in U.S. treasury bonds, at cost
(held in trust) (Note 6) 125,012 104,816
---------- ----------
Total other assets 1,349,148 994,270
---------- ----------
$26,476,527 $25,034,151
=========== ===========
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
EVERLAST WORLD'S BOXING HEADQUARTERS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1998 1997
------------- -----------
Current liabilties:
<S> <C> <C>
Accounts payable $ 836,156 $ 725,171
Current maturities of long-term debt (Note 7):
Former stockholders 1,566,571 1,566,571
Industrial bond 100,000 100,000
Other 59,607 83,587
Accrued expenses 640,745 697,209
------------- ---------------
Total current liabilities 3,203,079 3,172,538
------------- ---------------
Long-term debt (Note 7):
Former Stockholders - 1,566,571
Industrial bond 3,839,266 3,933,057
Other - 16,387
------------- ---------------
Total long-term debt 3,839,266 5,516,015
------------- ---------------
Total liabilities 7,042,345 8,688,553
------------- ---------------
Commitments (Note 8) - -
Stockholder's equity:
Common Stock, no par value
Authorized - 100 shares
Issued - 62 shares 155,883 155,883
Retained earnings 28,186,705 25,098,121
Less: Treasury stock - 31 shares at cost (8,908,406) (8,908,406)
------------- ---------------
Total stockholders' equity 19,434,182 16,345,598
------------- ---------------
$26,476,527 $25,034,151
------------- ---------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
EVERLAST WORLD'S BOXING HEADQUARTERS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------------------------------------------
1998 1997
----------------------------------- -----------------------------------
<S> <C> <C> <C> <C>
Sales $20,126,454 $19,838,047
Less: Returns, allowances, and discounts 1,677,451 1,649,534
------------ ------------
Net Sales 18,449,003 100.0% 18,188,513 100.0%
Cost of goods sold 10,641,124 57.7 10,187,708 56.0
------------ ------- ------------ -------
Prime gross profit on sales 7,807,879 42.3 8,000,805 44.0
Factory overhead 2,937,718 15.9 2,975,001 16.4
------------ ------- ------------ -------
Gross profit on sales 4,870,161 26.4 5,025,804 27.6
------------ ------- ------------ -------
Operating expenses:
Selling 2,236,097 12.1 2,102,773 11.6
Shipping 892,391 4.8 1,065,253 5.8
General and administrative 1,814,236 9.8 1,703,565 9.4
------------ ------- ------------ -------
Total operating expenses 4,942,724 26.7 4,871,591 26.8
------------ ------- ------------ -------
Income (loss) from operations (72,563) (0.3) 154,213 0.8
Other income (net of other deductions) 4,741,147 25.7 4,964,571 27.3
------------ ------- ------------ -------
Income before provision for income taxes 4,668,584 25.4 5,118,784 28.1
Provision for income taxes 1,580,000 8.6 1,835,000 10.1
------------ ------- ------------ -------
Net income 3,088,584 16.8% 3,283,784 18.0%
======= =======
Retained earnings at beginning of year 25,098,121 21,814,337
------------ ------------
Retained earnings at end of year $28,186,705 $25,098,121
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
EVERLAST WORLD'S BOXING HEADQUARTERS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended
December 31,
------------------------------------
1998 1997
----------------- ---------------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 3,088,584 $ 3,283,784
----------------- ---------------
Adjustments to reconcile net income of net cash provided by
operating activities:
Depreciation and amortization 572,344 409,406
Loss (gain) on sale of plant 102,619 -
Increase (decrease) in cash flows as a result of changes in
asset and liability account balances:
Accounts receivable (11,034) 688,588
Inventories 587,117 (1,410,723)
Prepaid income taxes 929,591 (1,283,212)
Prepaid expenses and sundry receivables 116,693 7,940
Net cash surrender value of officers' life insurance (79,358) (76,589)
Other assets - (36,922)
Accounts payable 110,985 (55,014)
Accrued expenses (56,466) (130,386)
Income taxes payable - (840,166)
----------------- ---------------
Total adjustments 2,272,491 (3,227,078)
----------------- ---------------
Net cash provided by operating activities 5,361,075 56,706
----------------- ---------------
Cash flows from investing activities:
Sales (purchases) of property and equipment - net 1,628 (2,274,529)
Decrease in notes receivable 693 -
Trustee project fund - 1,349,608
----------------- ---------------
Net cash provided by (used in) investing activities 2,321 (924,921)
----------------- ---------------
Cash flows from financing activities
Treasury bonds (20,196) (19,277)
Decrease in long-term debt (1,700,729) (1,665,948)
----------------- ---------------
Net cash used in financing activities (1,720,925) (1,685,225)
----------------- ---------------
Net increase (decrease) in cash 3,642,471 (2,553,440)
Cash and cash equivalents at beginning of year 7,059,981 9,613,421
----------------- ---------------
Cash and cash equivalents at end of year 10,702,452 7,059,981
================= ===============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year:
Interest $ 340,194 $ 126,682
================= ===============
Income taxes $ 1,562,369 $ 4,009,387
================= ===============
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
EVERLAST WORLD'S BOXING HEADQUARTERS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 - BASIS OF FINANCIAL STATEMENTS.
The consolidated financial statements include the accounts of
Everlast World's Boxing Headquarters Corp. and its wholly owned
subsidiaries Everlast Sports Mfg. Corp., Everlast Sports International,
Inc. and Everlast Fitness Mfg. Corp., together with its wholly owned
subsidiary American Fitness Products, Inc. The Company, together with
its subsidiaries, manufactures and distributes sporting goods and gym
apparatus. The Company also licenses the use of its trademark to
unaffiliated companies for which it receives significant royalties. The
parent company acts as a labor contractors for its subsidiary, Everlast
Sports Mfg. Corp. Everlast Sports International, Inc. sells only to
customers outside the United States and its possessions. Everlast
Fitness Mfg. Corp. manufactures products for Everlast Sports Mfg. Corp.
for the latter's distribution. American Fitness Products, Inc. operates
as a mail-order distributor to the general public. All significant
inter-company transactions and accounts have been eliminated.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
(a) Use of Estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those
estimates.
(b) Concentration of Credit Risk:
The Company maintains cash balances at several banks. Amounts at
each institution at time may exceed the Federal Deposit Insurance
Corporation insurance limitation.
(c) Accounts Receivable:
For financial reporting purposes the companies have established
allowances for doubtful accounts at various percentages of the trade
accounts receivable outstanding at December 31, 1999 and 1998. For
income tax reporting purposes the companies charge bad debts to
operations as incurred.
F-8
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)
(d) Inventories:
Inventories are priced at the lower of cost or market on a
first-in, first-out basis.
(e) Property and Equipment:
Property and equipment are stated at cost. Depreciation is
computed utilizing either the straight-line or accelerated methods over
the estimated useful lives of the related assets.
(f) Deferred Financing and Trademark Costs:
The Company incurred $287,882 of financial costs in conjunction
with the borrowings to construct its new plant in Missouri. These costs
are being amortized over varying periods based upon the respective
underlying debt to which they apply. Amortization of $52,870 was
charged to operations for the years ended December 31, 1998 and 1997,
respectively.
The Company incurs expenses in connection with obtaining and
maintaining its trademark worldwide. These costs are amortized over 17
years. For the years ended December 31, 1998 and 1997, amortization of
$6,636 and $5,542, respectively, were charged to operations.
(g) Income Taxes:
The Company and its wholly owned subsidiaries, with the exception
of Everlast Sports International, Inc., ("ESI"), file a consolidated
Federal income tax return. ESI qualifies as a DISC which results in a
deferral of tax on a substantial amounts of its income. Various state
and local income tax returns are filed pursuant to reporting
requirements in those locales. ESI is authorized to operate in Canada
and files a separate Canadian income tax return reporting only the
income fro that country. The provision for income tax is based upon the
consolidated taxable income including that portion of ESI's income
previously noted.
F-9
<PAGE>
NOTE 3 - ACCOUNTS RECEIVABLE - NET.
The accounts receivable at December 31, 1998 and
1997 are as follows:
<TABLE>
<CAPTION>
Everlast Sports
American Mfg. Corp. and
Fitness Everlast Sports
Consolidated Products, Inc. International, Inc.
------------ ---------------- -------------------
December 31, 1998
<S> <C> <C> <C>
Accounts receivable $5,759,124 $11,377 $5,747,747
Less: Allowance for doubtful accounts 181,171 - 181,171
------------ ---------------- -------------------
Accounts receivable - net $5,577,953 $11,377 $5,566,576
============ ================ ===================
December 31, 1997
Accounts receivable $5,793,197 $ 4,325 $5,788,872
Less: Allowance for doubtful accounts 226,278 - 226,278
------------ ---------------- -------------------
Accounts receivable - net $5,566,919 $ 4,325 $5,562,594
============ ================ ===================
</TABLE>
NOTE 4 - NOTES RECEIVABLES.
Notes receivable of $319,307 resulted from the sale of one of the
Company's plants. The notes bear interest at 6% per annum, and are
payable in monthly installments of approximately $2,300, including
interest, with a final payment of approximately $208,000 due in
November 2008.
NOTE 5 - INVENTORIES.
Inventories consist of the following:
December 31,
------------
1998 1997
---------- ----------
Raw material $1,002,418 $2,242,558
Work-in process 968,489 357,231
Finished goods 1,113,455 1,071,690
---------- ----------
$3,084,362 $3,671,479
========== ==========
F-10
<PAGE>
NOTE 6 - INVESTMENT - TREASURY BONDS.
As s result of a product liability suit adjudicated in a prior
year the Company was obligated to create a trust which would pay an
injured party $60,000 annually for the lesser of 40 years or his life.
The Company is required to collateralize the trust with treasury bonds
sufficient to fund this obligation which has a remaining life of 21
years. The amount on the share in the investment to meet the
aforementioned liability.
NOTE 7 - LONG-TERM DEBT.
(a) During 1995, the Company exercised its option under a
shareholders' agreement to purchase all of the Company's shares held by
a deceased shareholder's estate and family. These shares, representing
50% of the Company's outstanding capital stock, were valued at
$8,908,406. After a downpayment of $2,672,122, the balance was to be
paid by a series of notes extending to July, 1999, bearing interest of
4%. At December 31, 1998 and 1997 the respective unpaid balance were as
follows:
December 31,
------------
1998 1997
------------ ----------
Due to former shareholder $1,566,571 $3,133,142
Less: Current maturities 1,566,571 1,566,571
------------ ----------
Long-term portion $ - $1,566,571
============ ==========
(b) To finance the construction of its new facility in Missouri and
the acquisition of related production equipment, the Company, udner the
aegis of the Industrial Development Authority of the City of Moberly,
Missouri ("Issuer"), issued $4,250,000 of Industrial Revenue Bonds. The
bonds mature April 1, 2016 with a "put" provision allowed weekly to the
holder as well as a weekly variable interest rate. The interest rate
cannot exceed 10% per annum. There is a letter of credit issued by
Chase Bank, expiring April, 1999, guaranteeing the bonds. The letter of
credit is collateralized by accounts receivable, property, plant and
equipment.
To keep the letter of credit in force the Company is obligated to
meet certain targeted consolidated financial goals each yar, which have
been met.
F-11
<PAGE>
The bonds are subject to an annual sinking fund for redemption
each April 1st with redemption as follows:
Years Annual Amount
----- -------------
1999 $100,000
2000 - 2005 300,000
2006 400,000
2007 - 2016 175,000
Interest expense on all of the foregoing debt amounted to
$272,910 and $262,721 for the years ended December 31, 1998 and 1997,
respectively.
NOTE 8 - COMMITMENT.
The lease for the New York facility extends through April 30,
2004. The agreement requires the following annual minimum base rents.
Periods Minimum Annual Base Rental
------- --------------------------
May 1, 1997 - April 30, 2000 $383,043
May 1, 2000 - April 30, 2004 401,043
Rent expense amounted to $456,358 and $465,326 for the years ended December
31, 1998 and 1997, respectively.
F-12
<PAGE>
EVERLAST WORLD'S BOXING HEADQUARTERS CORP. AND SUBSIDIARIES
DECEMBER 31, 1999
I N D E X
Page No.
CONSOLIDATED FINANCIAL STATEMENTS:
Independent Accountants' Report ................................ 1
Balance Sheets as at December 31, 1999 and 1998 ................ 2-3
Statements of Income and Retained Earnings
For the Years Ended December 31, 1999 and 1998 .............. 4
Statements of Cash Flows
For the Years Ended December 31, 1999 and 1998 .............. 5
Notes to Consolidated Financial Statements ..................... 6-10
F-13
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors
Everlast World's Boxing Headquarters Corp.
We have audited the accompanying consolidated balance sheets of Everlast World's
Boxing Headquarters Corp. and subsidiaries as at December 31, 1999 and 1998 and
the related consolidated statements of income, retained earnings, and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Everlast World's
Boxing Headquarters, Corp. and subsidiaries as at December 31, 1999 and 1998 and
their results of operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ WEINICK SANDERS LEVENTHAL & CO., LLP
----------------------------------------
WEINICK SANDERS LEVENTHAL & CO., LLP
New York, N. Y.
March 1, 2000
F-14
<PAGE>
-2-
EVERLAST WORLD'S BOXING HEADQUARTERS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
A S S E T S
<TABLE>
<CAPTION>
December 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,372,116 $10,702,452
Investment in commercial paper 8,025,207 --
Accounts receivables, less allowance for doubtful accounts 4,992,256 5,577,953
Notes receivable - current portion 9,116 8,586
Inventories 4,626,543 3,084,362
Prepaid income taxes -- 353,621
Prepaid insurance 181,803 184,852
Other prepaid expenses 46,809 19,003
----------- -----------
Total current assets 21,253,850 19,930,829
----------- -----------
Property, plant and equipment:
Land, buildings, machinery and equipment 7,051,153 6,744,663
Less: Accumulated depreciation 1,966,871 1,548,113
----------- -----------
Net property, plant and equipment 5,084,282 5,196,550
----------- -----------
Other assets:
Deposits 18,057 18,052
Notes receivable 301,605 310,721
Deferred financing costs, less accumulated amortization of
$172,700 and $143,611, respectively
115,182 144,271
Deferred trademark costs, less accumulated amortization of
$28,194 and $20,610, respectively
97,750 80,975
Cash surrender value - officer's life insurance, net of loans
payable of $208,556 in each year
736,823 670,117
Investment in U.S. treasury bonds, at cost (held in trust) 146,189 125,012
----------- -----------
Total other assets 1,415,606 1,349,148
----------- -----------
$27,753,738 $26,476,527
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-15
<PAGE>
-3-
EVERLAST WORLD'S BOXING HEADQUARTERS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
LIABILITIES AND STOCKHOLDER'S EQUITY
December 31,
--------------------------
1999 1998
----------- ----------
Current liabilties:
Accounts payable $ 997,204 $ 836,158
Current maturities of long-term debt:
Former stockholders -- 1,566,571
Industrial bond 300,000 100,000
Other -- 59,607
Corporate taxes payable 103,888 --
Accrued expenses 376,448 640,743
------------ ------------
Total current liabilities 1,777,540 3,203,079
------------ ------------
Long-term debt:
Industrial bond 3,385,716 3,839,266
------------ ------------
Total liabilities 5,163,256 7,042,345
------------ ------------
Commitments and contingencies -- --
Stockholder's equity:
Common Stock, no par value
Authorized - 100 shares 155,883 155,883
Issued - 62 shares 31,343,005 28,186,705
Retained earnings (8,908,406) (8,908,406)
------------ ------------
Treasury stock - 31 shares - at cost 22,590,482 19,434,182
------------ ------------
Total stockholders' equity $ 27,753,738 $ 26,476,527
============ ============
See accompanying notes to consolidated financial statements.
F-16
<PAGE>
-4-
EVERLAST WORLD'S BOXING HEADQUARTERS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------
1999 % 1998 %
------------ --------- ------------ ---------
<S> <C> <C> <C> <C>
Sales $ 19,333,007 $ 20,126,454
Less: Returns, allowances, and discounts 1,208,821 1,677,451
------------ ------------
Net Sales 18,124,186 100.00 18,449,003 100.00
Prime cost of good sold 10,303,218 56.90 10,641,124 57.70
------------ --------- ------------ ---------
Prime gross profit on sales 7,820,968 43.10 7,807,879 42.30
Factory overhead 2,973,202 16.40 2,937,718 15.90
------------ --------- ------------ ---------
Gross profit on sales 4,847,766 26.70 4,870,161 26.40
------------ --------- ------------ ---------
Operating expenses:
Selling 2,005,157 11.00 2,236,097 12.10
Shipping 863,659 4.80 892,391 4.80
General and administrative 1,856,640 10.20 1,814,236 9.80
------------ --------- ------------ ---------
Total operating expenses 4,725,456 26.00 4,942,724 26.70
------------ --------- ------------ ---------
Income (loss) from operations 122,310 0.70 (72,563) (0.30)
Other income (net of other deductions) 4,779,990 26.30 4,741,147 25.70
------------ --------- ------------ ---------
Income before provision for income taxes 4,902,300 27.00 4,668,584 25.40
Provision for income taxes 1,746,000 9.60 1,580,000 8.60
------------ --------- ------------ ---------
Net income 3,156,300 17.40 3,088,584 16.80
========= =========
Retained earnings at beginning of year 28,186,705 25,098,121
------------ ------------
Retained earnings at end of year $ 31,343,005 $ 28,186,705
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-17
<PAGE>
EVERLAST WORLD'S BOXING HEADQUARTERS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
-5-
For the Years Ended
December 31,
-----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,156,300 $ 3,088,584
------------ ------------
Adjustments to reconcile net income of net cash provided by
operating activities:
Depreciation and amortization 493,116 572,344
Loss (gain) on sale of plant (46,809) 102,619
Increase (decrease) in cash flows as a result of changes in
asset and liability account balances:
Accounts receivable 585,697 (11,034)
Inventories (1,542,181) 587,117
Prepaid income taxes 353,621 929,591
Prepaid expenses and sundry receivables (24,762) 116,693
Net cash surrender value of officers' life insurance (66,706) (79,358)
Accounts payable 161,046 110,985
Accrued expenses (264,295) (56,466)
Income taxes payable 103,888 --
------------ ------------
Total adjustments (247,385) (2,272,491)
------------ ------------
Net cash provided by operating activities 2,908,915 5,361,075
------------ ------------
Cash flows from investing activities:
Investment in commercial paper (8,025,207) --
Sales (purchases) of property and equipment - net (321,725) 1,628
Decrease in notes receivable 8,586 693
------------ ------------
Net cash provided by (used in) investing activities (8,338,346) 2,321
------------ ------------
Cash flows from financing activities
Treasury bonds (21,177) (20,196)
Decrease in long-term debt (1,879,728) (1,700,729)
------------ ------------
Net cash used in financing activities (1,900,905) (1,720,925)
------------ ------------
Net increase (decrease) in cash (7,330,336) 3,642,471
Cash and cash equivalents at end of year 10,702,452 7,059,981
------------ ------------
Supplemental Disclosures of Cash Flow Information: $ 3,372,116 $ 10,702,452
============ ============
Cash paid during the year:
Interest $ 519,262 $ 340,194
============ ============
Income taxes $ 1,274,730 $ 1,562,369
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-18
<PAGE>
-6-
EVERLAST WORLD'S BOXING HEADQUARTERS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 1 - BASIS OF FINANCIAL STATEMENTS.
The consolidated financial statements include the accounts
of Everlast World's Boxing Headquarters Corp. and its wholly owned
subsidiaries Everlast Sports Mfg. Corp., Everlast Sports
International, Inc. and Everlast Fitness Mfg. Corp., together with
its wholly owned subsidiary, American Fitness Products, Inc. The
Company, together with its subsidiaries, manufactures and
distributes sporting goods and gym apparatus. The Company also
licenses the use of its trademark to unaffiliated companies for
which it receives significant royalties. The parent company acts as
a labor contractor for its subsidiary, Everlast Sports Mfg. Corp.
Everlast Sports International, Inc. sells only to customers outside
the United States and its possessions. Everlast Fitness Mfg. Corp.
manufactures products for Everlast Sports Mfg. Corp. for the
latter's distribution. American Fitness Products, Inc. operates as a
mail-order distributor to the general public. All significant
inter-company transactions and accounts have been eliminated.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
(a) Use of Estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those
estimates.
(b) Concentration of Credit Risk:
The Company maintains cash balances at several banks.
Amounts at each institution at times may exceed the Federal Deposit
Insurance Corporation insurance limitation.
(c) Cash Equivalents:
The Company considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash
equivalents.
F-19
<PAGE>
-7-
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)
(d) Accounts Receivable:
For financial reporting purposes the companies have
estab-lished allowances for doubtful accounts at various percentages
of the trade accounts receivable outstanding at December 31, 1999
and 1998. For income tax reporting purposes the companies charge bad
debts to operations as incurred.
(e) Inventories:
Inventories are priced at the lower of cost or market on a
first-in, first-out basis.
(f) Property and Equipment:
Property and equipment are stated at cost. Depreciation is
computed utilizing either the straight-line or accelerated methods
over the estimated useful lives of the related assets.
(g) Deferred Financing and Trademark Costs:
The Company incurred $287,882 of financing cost ($103,321
were fully amortized in 1999) in conjunction with the borrowings to
construct its new plant in Missouri. These costs are being amortized
over varying periods based upon the respective underlying debt to
which they apply. Amortization of $29,089 and $52,870 were charged
to operations for the years ended December 31, 1999 and 1998,
respectively.
The Company incurs expenses in connection with obtaining
and maintaining its trademark worldwide. These costs are amortized
over 17 years. For the years ended December 31, 1999 and 1998,
amortization of $7,584 and $6,636, respectively, were charged to
operations.
(h) Income Taxes:
The Company and its wholly owned subsidiaries, with the
exception of Everlast Sports International, Inc., ("ESI"), file a
consolidated Federal income tax return. ESI qualifies as a DISC
which results in a deferral of tax on a substantial amount of its
income. Various state and local income tax returns are filed
pursuant to reporting requirements in those locales. ESI is
authorized to operate in Canada and files a separate Canadian income
tax return reporting only the income from that country. The
provision for income tax is based upon the consolidated taxable
income including that portion of ESI's income previously noted.
F-20
<PAGE>
-8-
NOTE 3 - ACCOUNTS RECEIVABLE - NET.
The accounts receivable at December 31, 1999 and 1998 are
as follows:
<TABLE>
<CAPTION>
Everlast Sports
American Mfg. Corp. and
Fitnes Everlast Sports
Consolidated Products, Inc. International, Inc.
------------ -------------- -------------------
December 31, 1999
-----------------
<S> <C> <C> <C>
Accounts receivable $5,176,386 $ 6,031 $5,170,355
Less: Allowance for doubtful accounts 184,130 -- 184,130
---------- ---------- ----------
Accounts receivable - net $4,992,256 $ 6,031 $4,986,225
========== ========== ==========
December 31, 1998
-----------------
Accounts receivable $5,759,124 $ 11,377 $5,747,747
Less: Allowance for doubtful accounts 181,171 -- 181,171
---------- ---------- ----------
Accounts receivable - net $5,577,953 $ 11,377 $5,566,576
========== ========== ==========
</TABLE>
NOTE 4 - NOTES RECEIVABLE.
Notes receivable resulted from the 1998 sale of a former
plant in Missouri. The notes bear interest at 6% per annum, and are
payable in monthly installments of approximately $2,300, including
interest, with a final payment of approximately $208,000 due in
November 2008.
NOTE 5 - INVENTORIES.
Inventories consist of the following:
December 31,
-----------------------------
1999 1998
--------- ---------
Raw material $1,198,924 $1,002,418
Work-in process 1,759,094 968,489
Finished goods 1,668,525 1,113,455
---------- ----------
$4,625,543 $3,084,362
========== ==========
F-21
<PAGE>
-9-
NOTE 6 - INVESTMENT IN U.S. TREASURY BONDS.
As a result of a product liability suit adjudicated in a
prior year the Company was obligated to create a trust which would
pay an injured party $60,000 annually for the lesser of 40 years or
his life. The Company is required to collateralize the trust with
treasury bonds sufficient to fund this obligation which has a
remaining life of 20 years. The amount on the Company's balance
sheet represents the present value of its share in the investment to
meet the aforementioned liability.
NOTE 7 - LONG-TERM DEBT.
(a) During 1995, the Company exercised its option under a
shareholders' agreement to purchase all of the Company's
shares held by a deceased shareholder's estate and family.
These shares, representing 50% of the Company's outstanding
capital stock, were valued at $8,908,406. After a
downpayment of $2,672,122, the balance was to be paid by a
series of notes extending to July, 1999, bearing interest
of 4%, and this note was fully paid in 1999. At December
31, 1998 the unpaid balance was $1,566,571.
(b) To finance the construction of its new facility in Missouri
and the acquisition of related production equipment, the
Company, under the aegis of the Industrial Development
Authority of the City of Moberly, Missouri ("Issuer"),
issued $4,250,000 of Industrial Revenue Bonds. The bonds
mature April 1, 2016 with a "put" provision allowed weekly
to the holder as well as a weekly variable interest rate.
The interest rate cannot exceed 10% per annum. There is a
letter of credit issued by Chase Bank, expiring April
30,2000, guaranteeing the bonds. The letter of credit is
collateralized by accounts receivable, property, plant and
equipment.
To keep the letter of credit in force the Company is
obligated to meet certain targeted consolidated financial
goals each year, which have been met.
F-22
<PAGE>
-10-
NOTE 7 - LONG-TERM DEBT. (Continued)
The Bonds are subject to an annual sinking fund for
redemption each April 1st with redemptions as follows:
Years
-----
2000 - 2005 $300,000
2006 400,000
2007 - 2016 175,000
Interest expense on all of the foregoing debt amounted to
$186,696 and $272,910 for the years ended December 31, 1999 and
1998, respectively.
NOTE 8 - COMMITMENT.
The lease for the New York facility extends through April
30, 2004 and requires an annual minimum base rent of $383,043. Rent
expense amounted to $455,693 and $456,358 for the years ended
December 31, 1999 and 1998, respectively.
NOTE 9 - 401(k) PROFIT-SHARING PLAN.
In October 1999, the Company adopted a 401(k)
Profit-Sharing Plan for all qualified non-union, full-time
employees. The plan contains a profit sharing component with tax
deferred contributions to each employee based upon certain criteria
and also permits employees to make contributions up to the maximum
limits allowed by Internal Revenue Code Section 401(k). Currently
the Company matches 40% of the first 5% of each employee's
contribution. The Company's contribution was $10,203 in 1999.
F-23
<PAGE>
EVERLAST WORLD'S BOXING HEADQUARTERS CORP. AND SUBSIDIARIES
JUNE 30, 2000
(Unaudited)
I N D E X
Page No.
FINANCIAL STATEMENTS:
Independent Accountants' Compilation Report ...................... 1
Consolidated Financial Statements:
Balance Sheets as at June 30, 2000 and 1999 ................... 2-3
Statements of Income and Retained Earnings
For the Six Months and Three Months
Ended June 30, 2000 and 1999 ............................. 4
F-24
<PAGE>
INDEPENDENT ACCOUNTANTS' COMPILATION REPORT
To the Board of Directors
Everlast World's Boxing Headquarters Corp.
We have compiled the accompanying consolidated balance sheets of Everlast
World's Boxing Headquarters Corp. and subsidiaries, as of June 30, 2000 and 1999
and the related consolidated statements of income and retained earnings for the
six months and three months then ended and the accompanying supplementary
schedules in accordance with Statements on Standards for Accounting and Review
Services issued by the American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements and
supplemental financial data information that is the representation of
management. We have not audited or reviewed the accompanying financial
statements and supplemental financial data and, accordingly, do not express an
opinion or any other form of assurance on them.
Management has elected to omit substantially all of the disclosures and the
consolidated statements of cash flows required by generally accepted accounting
principles. If the omitted disclosures and statements of cash flows were
included in the financial statements, they might influence the user's
conclusions about the Company's financial position and results of operations and
cash flows. Accordingly, these financial statements are not designed for those
who are not informed about such matters.
/s/ WEINICK SANDERS LEVENTHAL & CO., LLP
----------------------------------------
WEINICK SANDERS LEVENTHAL & CO., LLP
New York, N. Y.
August 17, 2000
F-25
<PAGE>
EVERLAST WORLD'S BOXING HEADQUARTERS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
A S S E T S
June 30,
--------------------------
2000 1999
----------- -----------
Current assets:
Cash and cash equivalents $ 3,723,891 $ 4,503,880
Investment in commercial paper 10,828,315 8,548,680
Accounts receivable, less allowance
for doubtful accounts 3,074,820 3,988,353
Notes receivable - current portion 9,116 8,847
Inventories 4,412,450 3,528,143
Prepaid income taxes 381,717 --
Prepaid insurance 208,851 --
Other prepaid expenses 159,463 186,197
----------- -----------
Total current assets 22,798,623 20,764,100
----------- -----------
Property, plant and equipment:
Land, building, machinery and equipment 7,068,454 6,927,291
Less: Accumulated depreciation 2,164,566 1,740,829
----------- -----------
Net property, plant and equipment 4,903,888 5,186,462
----------- -----------
Other assets:
Deposits 18,067 18,057
Notes receivable 297,116 306,232
Deferred financing costs - net 105,967 117,836
Deferred trademark costs - net 102,653 92,337
Cash surrender value - officer's life
insurance, net of loans payable 736,823 670,117
Investment in U.S. Treasury bonds,
at cost (held in trust) 215,066 135,474
----------- -----------
Total other assets 1,475,692 1,340,053
----------- -----------
$29,178,203 $27,290,615
=========== ===========
See accompanying independent accountants' compilation report.
F-26
<PAGE>
EVERLAST WORLD'S BOXING HEADQUARTERS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30,
----------------------------
2000 1999
------------ ------------
Liabilities:
Current liabilities:
Accounts payable $ 1,435,612 $ 963,501
Current maturities of long-term debt:
Former stockholders -- 875,539
Industrial bond 300,000 300,000
Other -- 48,274
Corporate taxes payable 38,940 171,930
Accrued expenses 218,979 417,918
------------ ------------
Total current liabilities 1,993,531 2,777,162
Long-term debt:
Industrial bond 3,231,783 3,539,623
------------ ------------
Total liabilities 5,225,314 6,316,785
------------ ------------
Commitments and contingencies -- --
Stockholders' equity:
Common stock, no par value
Authorized - 100 shares
Issued - 62 shares 155,883 155,883
Retained earnings 32,705,412 29,726,353
Less: Treasury stock, 31 shares - at cost (8,908,406) (8,908,406)
------------ ------------
Total stockholders' equity 23,952,889 20,973,830
------------ ------------
$29,178,203 $27,290,615
============ ============
See accompanying independent accountants' compilation report.
F-27
<PAGE>
EVERLAST WORLD'S BOXING HEADQUARTERS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
----------------------------------------------------
2000 % 1999 %
------------ --------- ------------ ---------
<S> <C> <C>
Sales $ 8,236,214 $ 9,786,697
Less: Returns, allowances
and discounts 704,225 543,483
------------ ------------
Net sales 7,531,989 100.00 9,243,214 100.00
Prime cost of goods sold 4,458,298 59.19 5,362,628 58.02
------------ --------- ------------ ---------
Prime gross profit on sales 3,073,691 40.81 3,880,586 41.98
Factory overhead 1,445,388 19.19 1,524,770 16.50
------------ --------- ------------ ---------
Gross profit on sales 1,628,303 21.62 2,355,816 25.48
------------ --------- ------------ ---------
Operating expenses:
Selling 979,659 13.01 940,049 10.17
Shipping 421,215 5.59 424,024 4.59
General and administrative 992,371 13.18 908,135 9.82
------------ --------- ------------ ---------
Total operating expenses 2,393,245 31.78 2,272,208 24.58
------------ --------- ------------ ---------
Income (loss) from operations (764,942) (10.16) 83,608 0.90
Other income (net of other deductions) 2,956,349 39.25 2,659,040 28.77
------------ --------- ------------ ---------
Income before provision
for income taxes 2,191,407 29.09 2,742,648 29.67
Provision for income taxes 829,000 11.01 1,203,000 13.01
------------ --------- ------------ ---------
Net income 1,362,407 18.08 1,539,648 16.66
===== =====
Retained earnings at beginning of period 31,343,005 28,186,705
------------ ------------
Retained earnings at end of period $ 32,705,412 $ 29,726,353
============ ============
</TABLE>
See accompanying independent accountants' compilation report.
F-28
<PAGE>
EVERLAST WORLD'S BOXING HEADQUARTERS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended June 30,
-----------------------------------------------------
2000 % 1999 %
------------ --------- ------------ ---------
<S> <C> <C>
Sales $ 3,674,337 $ 4,693,168
Less: Returns, allowances
and discounts 308,513 234,017
------------ ------------
Net sales 3,365,824 100.00 4,459,151 100.00
Prime cost of goods sold 2,089,943 62.09 2,534,384 56.84
------------ --------- ------------ ---------
Prime gross profit on sales 1,275,881 37.91 1,924,767 43.16
Factory overhead 723,691 21.50 754,463 16.92
------------ --------- ------------ ---------
Gross profit on sales 552,190 16.41 1,170,304 26.24
------------ --------- ------------ ---------
Operating expenses:
Selling 415,462 12.34 419,537 9.41
Shipping 187,118 5.56 167,255 3.75
General and administrative 548,885 16.31 478,438 10.73
------------ --------- ------------ ---------
Total operating expenses 1,151,465 34.21 1,065,230 23.89
------------ --------- ------------ ---------
Income (loss) from operations (599,275) (17.80) 105,074 2.35
Other income (net of other deductions) 1,396,076 41.48 1,228,142 27.54
------------ --------- ------------ ---------
Income before provision
for income taxes 796,801 23.68 1,333,216 29.89
Provision for income taxes 313,000 9.30 583,000 13.07
------------ --------- ------------ ---------
Net income 483,801 14.38 750,216 16.82
========= =========
Retained earnings at beginning of period 32,221,611 28,976,137
------------ ------------
Retained earnings at end of period $ 32,705,412 $ 29,726,353
============ ============
</TABLE>
See accompanying independent accountants' compilation report.
F-29
<PAGE>
PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
The pro forma consolidated condensed statements of operations
presented herein gives effect, for the year ended December 31, 1999 and 2000,
respectively, and the six months ended June 30, 2000 to the acquisition as if
such transaction took place on January 1, 1999. It is based on the historical
financial statements of Everlast Worldwide Inc. (f/k/a Active Apparel Group,
Inc., the "Company") for the year ended December 31, 1999, as adjusted to
reflect the combined results from recording the transaction. The pro forma
consolidated condensed balance sheet also presented herein is based upon the
Company's historical balance sheet as of June30, 2000, and includes pro forma
adjustments assuming the transaction had occurred on that date. These statements
should be read in conjunction with the historical financial statements, and
notes thereto, of Everlast included in this Proxy Statement and of the Company
included in the Company's report on Form 10-KSB, for the year ended December 31,
1999 and on Form 10-QSB for the period ended June 30, 2000. The pro forma
financial statements do not necessarily reflect results that would have occurred
had the transaction been consummated on the dates indicated, or future results,
and does not reflect benefits to be derived, if any, from the transactions. The
Company is accounting for the acquisition under the purchase method of
accounting. The assumptions and adjustments upon which the pro forma financial
statements are based are set forth in the accompanying notes.
F-30
<PAGE>
Everlast Worldwide Inc.
(f/k/a Active Apparel Group, Inc.)
Pro-forma Consolidated Condensed Balance Sheets
June 30, 2000
(Unaudited)
Assets
---------------------
<TABLE>
<CAPTION>
Historical Historical Pro-forma Pro-forma
Everlast Worldwide Everlast Adjustments Consolidated
------------------ -------------- -------------- -------------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 339,170 $ 3,723,891 $ 10,828,315 (B) $ 4,891,376
(10,000,000) (A)
Investment in commercial paper 10,828,315 (10,828,315) (B) -
Accounts receivable - net 3,074,820 3,074,820
Due from factor 3,504,618 3,504,618
Inventory 5,115,244 4,412,450 9,527,694
Other current assets 630,750 759,147 1,389,897
-------------- -------------- -------------- -------------
Total Current Assets 9,589,782 22,798,623 (10,000,000) 22,388,405
Property and equipment, net 460,656 4,903,888 500,000 (A) 5,864,544
Other assets 396,079 1,475,692 1,871,771
Intangible assets 20,547,111 (A) 33,926,924
10,000,000 (A)
1,000,000 (A)
2,379,813 (A)
-------------- -------------- -------------- -------------
Total Assets $ 10,446,517 $ 29,178,203 $ 24,426,924 $ 64,051,644
============== ============== ============== =============
</TABLE>
F-31
<PAGE>
Everlast Worldwide Inc.
(f/k/a Active Apparel Group, Inc.)
Pro-forma Consolidated Condensed Balance Sheets
June 30, 2000
(Unaudited)
Liabilities, Redeemable Preferred Stock & Stockholders Equity
<TABLE>
<CAPTION>
Historical Historical Pro-forma Pro-forma
Everlast Worldwide Everlast Adjustments Consolidated
------------------ ---------------- -------------- --------------
<S> <C> <C> <C> <C>
Current Liabilities:
Accounts Payable $ 2,295,231 $ 1,435,612 $ 3,730,843
Current maturities of long term
debt - industrial bond 300,000 300,000
Accrued Expenses & Other Liabilities 728,299 257,919 1,000,000 (C) 1,986,218
-------------- ---------------- -------------- --------------
Total Current Liabilities 3,023,530 1,993,531 1,000,000 6,017,061
Long term debt
Industrial Bond - 3,231,783 3,231,783
-------------- ---------------- -------------- --------------
Total liabilities 3,023,530 5,225,314 1,000,000 9,248,844
-------------- ---------------- -------------- --------------
Redeemable preferred stock 45,000,000 (A) 45,000,000
-------------- ---------------- -------------- --------------
Stockholders equity:
Common stock 6,333 155,883 1,010 (A) 7,343
(155,883) (A)
Paid in capital 6,136,341 2,378,803 (A) 8,515,144
Retained earnings 2,007,532 32,705,412 (32,705,412) (A) 2,007,532
-------------- ---------------- -------------- --------------
8,150,206 32,861,295 (30,481,482) 10,530,019
Less treasury Stock 727,219 8,908,406 (8,908,406) (A) 727,219
-------------- ---------------- -------------- --------------
Total stockholders' equity 7,422,987 23,952,889 (21,573,076) 9,802,800
-------------- ---------------- -------------- --------------
Total liabilities, redeemable
preferred stock and stock-
holders' equity $ 10,446,517 $ 29,178,203 $ 24,426,924 $ 64,051,644
============== ================ ============== ==============
Book value per common share $ 2.86 $ 3.16
============== ==============
Common shares outstanding 2,592,581 3,097,581
============== ==============
</TABLE>
F-32
<PAGE>
Everlast Worldwide Inc.
(f/k/a Active Apparel Group, Inc.)
Pro-forma Consolidated Condensed Statements of Income
For the Six Months Ended June 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Historical Historical Pro-forma Pro-forma
Everlast Worldwide Everlast Adjustments Consolidated
------------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 16,184,470 $ 7,531,989 $ 23,716,459
Cost of sales 9,838,387 5,844,642 60,000 (D) 15,743,029
------------ ------------ ------------ ------------
Gross profit 6,346,083 1,687,347 (60,000) 7,973,430
Net license revenues 2,682,418 (844,922) (E) 1,837,496
------------ ------------ ------------ ------------
6,346,083 4,369,765 (904,922) 9,810,926
Operating expenses
Selling and shipping 3,400,307 1,244,669 (844,922) (E) 3,830,054
20,000 (D)
10,000 (F)
General and administrative 1,061,199 1,235,369 (150,000) (G) 2,196,568
30,000 (I)
20,000 (D)
Financial expenses 371,845 118,789 490,634
------------ ------------ ------------ ------------
Total operating expenses 4,833,351 2,598,827 (914,922) 6,517,256
Income from operations 1,512,732 1,770,938 10,000 3,293,670
Amortization 424,086 (J) 424,086
Interest income 407,293 (275,000) (K) 132,293
Other income 13,176 13,176
------------ ------------ ------------ ------------
Income before taxes 1,512,732 2,191,407 (689,086) 3,015,053
Provision for taxes 650,473 829,000 (111,300) (L) 1,368,173
------------ ------------ ------------ ------------
Net income $ 862,259 $ 1,362,407 $ (577,786) $ 1,646,880
============ ============ ============ ============
Common shares outstanding 2,592,581 3,097,581
Basic earnings per share $ 0.33 505,000 (M) $ 0.09
Diluted earnings per share $ 0.32 $ 0.07
</TABLE>
F-33
<PAGE>
Everlast Worldwide Inc.
(f/k/a Active Apparel Group, Inc.)
Pro-forma Consolidated Condensed Statements of Income
For the Year Ended December 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Historical Historical Pro-forma Pro-forma
Everlast Worldwide Everlast Adjustments Consolidated
------------------ ---------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales $ 24,464,139 $ 18,124,186 $ 42,588,325
Cost of sales 14,578,376 13,152,908 60,000 (D) 27,791,284
---------------- ---------------- --------------- --------------
Gross profit 9,885,763 4,971,278 (60,000) 14,797,041
Net license revenues 4,613,942 (1,268,901) 3,345,041
---------------- ---------------- --------------- --------------
9,885,763 9,585,220 (1,328,901) 18,142,082
Operating expenses
Selling and shipping 5,871,571 2,519,130 (1,268,901) (E) 7,161,800
20,000 (D)
20,000 (F)
General and administrative 2,024,539 2,607,528 (300,000) (G) 4,562,067
150,000 (H)
20,000 (D)
60,000 (I)
Financial expenses 557,627 243,299 800,926
---------------- ---------------- --------------- --------------
Total operating expenses 8,453,737 5,369,957 (1,298,901) 12,524,793
Income from operations 1,432,026 4,215,263 (30,000) 5,617,289
Amortization 848,173 (J) 848,173
Interest income 618,933 (550,000) (K) 68,933
Other income 68,104 68,104
---------------- ---------------- --------------- --------------
Income before taxes 1,432,026 4,902,300 (1,428,173) 4,906,153
Provision for taxes 615,694 1,746,000 (243,600) (L) 2,118,094
---------------- ---------------- ---------------
--------------
Net income $ 816,332 $ 3,156,300 $ (1,184,573) $ 2,788,059
================ ================ =============== ==============
Common shares outstanding 2,592,581 505,000 3,097,581
Basic earnings per share $ 0.31 (M) $ 0.12
Diluted earnings per share $ 0.31 $ 0.10
</TABLE>
F-34
<PAGE>
EVERLAST WORLDWIDE INC.
(f/k/a Active Apparel Group, Inc.)
NOTES TO PRO FORMA CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
The acquisition of Everlast's common stock for AAGP common and preferred stock,
and cash, is being accounted for using purchase accounting for financial
reporting purposes. As such, the assets and liabilities of Everlast, have been
adjusted to their estimated fair values. The final allocation of the purchase
price will be determined after completion of the acquisition and will be based
on a final evaluation of the fair value of the assets acquired and liabilities
assumed at the time of the acquisition.
(A) Represents adjustments to record the acquisition based upon an assumed
purchase price of Everlast stock of $57,379,813, plus $1,000,000 in
transaction costs. The purchase price was calculated using the fair
value of AAGP's redeemable preferred stock and assuming a market value
of AAGP's common shares of $4.7125 per share. The share price was
determined based upon the closing stock prices for the 5 days ended
September 8, 2000.
Calculation of purchase price:
Redeemable preferred stock $45,000,000
Common stock (505,000 shares) 2,379,813
Cash 10,000,000
Transaction costs 1,000,000
-----------
Total 58,379,813
-----------
Allocation of purchase price:
Net book value of Everlast 23,952,889
Adjustment to reflect land
and building at fair value 500,000
-----------
24,452,889
Excess of acquisition cost over
value of tangible net assets $33,926,924
===========
Note: The historical costs of the assets and liabilities of Everlast are
estimated to be at their fair market value, except certain properties
and certain intangible assets.
F-35
<PAGE>
Everlast Worldwide Inc.
(f/k/a Active Apparel Group, Inc.)
Notes to Pro Forma Consolidated
Condensed Financial Statements
Page 2 - Continued
(B) To reflect the liquidation of commercial paper into cash and cash
equivalents.
(C) To reflect an increase in accrued expenses of $1,000,000 for
transaction costs.
(D) To reflect bonus totaling $100,000 paid to Everlast supervisors
provided they remain employed for at least six months after the
acquisition is completed.
(E) To record elimination of royalty fee in the amount of $1,268,801 paid
by AAGP to Everlast for the year ended December 31, 1999 ($844,922 for
six months ended June 30, 2000).
(F) To reflect the impact of Everlast's Assistant Vice President's contract
which increases his salary by $20,000, for the year ended December 31,
1999 ($10,000 for the six months ended June 30, 2000).
(G) To reflect reduction of Everlast President's compensation in the amount
of $300,000, in accordance with a new employment contract, for the year
ended December 31, 1999 ($150,000 for the six months ended June 30,
2000).
(H) To reflect bonus of $150,000 paid to AAGP's CEO, subsequent to the
closing date of this acquisition, the proceeds of which will be used to
pay down the note receivable due from the CEO.
(I) To reflect consulting fees of $60,000, as per contractual agreement,
for the year ended December 31, 1999 ($30,000 for the six months ended
June 30, 2000).
(J) To reflect amortization of intangible assets over 40 years of $848,173
for the year ended December 31, 1999 ($424,086 for the six months ended
June 30, 2000).
(K) To reflect loss of interest income in the amount of $550,000 for the
year ended December 31, 1999 ($275,000 for the six months ended June
30, 2000), as a result of the $10,000,000 cash payment payable at the
closing date.
(L) To reflect tax benefit of pro forma adjustments at an effective tax
rate of 42%.
(M) To increase the common shares outstanding to 3,097,581 shares, for the
issuance of 505,000 shares of AAGP at the closing date, used in the
computation of basic earnings per share. In addition, for dilutive
earnings per share purposes, common shares outstanding have been
increased to 3,792,891 shares. These shares have been accounted for on
a pro forma basis to be outstanding during the entire year.
F-36
