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 June 30, 2000
/ / 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
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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 July 21, 2000 was
2,492,581 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
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURE 12
2 -
<PAGE>
PART 1
FINANCIAL INFORMATION
Item 1: Financial statements
ACTIVE APPAREL GROUP, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
2 0 0 0 1 9 9 9
----------- -------------
(Unaudited)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 339,170 $ 239,096
Due from factor 3,504,618 1,549,047
Inventory 5,115,244 5,240,152
Prepaid expenses and other current assets 475,351 379,840
Deferred tax asset 155,399 155,399
------------ -----------
Total current assets 9,589,782 7,563,534
Note receivable, officer 86,400 91,200
Property and equipment, net 460,656 419,954
Security deposits and other assets 309,679 199,510
------------ -----------
Total Assets $10,446,517 $8,274,198
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $2,295,231 $ 1,479,081
Accrued expenses and other current liabilities 728,299 234,389
--------- -----------
Total liabilities, all current 3,023,530 1,713,470
--------- -----------
Stockholders' equity:
Common stock, par value $.002; 10,000,000 shares
authorized; 2,666,581 issued, 2,492,581 outstanding 5,333 5,333
Class A common stock, par value $.01; 100,000 shares
authorized; 100,000 shares issued and outstanding 1,000 1,000
Paid-in capital 6,136,341 6,136,341
Retained earnings 2,007,532 1,145,273
------------ -----------
8,150,206 7,287,947
Less treasury stock, at cost (174,000 common shares) (727,219) (727,219)
----------- -----------
Total Stockholders' Equity 7,422,987 6,560,728
----------- ----------
Total Liabilities and Stockholders' Equity $10,446,517 $8,274,198
=========== ==========
</TABLE>
- 3 -
See accompanying notes to financial statements.
<PAGE>
ACTIVE APPAREL GROUP, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Six months ended Three months ended
June 30, June 30,
---------------------------------- --------------------
2 0 0 0 1 9 9 9 2 0 0 0 1 9 9 9
------- ------- --------- -------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $16,184,470 $11,148,223 $8,184,467 $5,613,775
Cost of goods sold 9,838,387 6,493,991 4,965,504 3,214,905
--------- --------- --------- ---------
Gross profit 6,346,083 4,654,232 3,218,963 2,398,870
--------- --------- --------- ---------
Operating expenses:
Selling and shipping 3,400,307 2,639,989 1,705,871 1,350,002
General and administrative 1,061,199 988,711 527,528 530,020
Financial expenses, including interest
expense of $214,715 and $100,349 for
the six months ended June 30, 2000 and 1999 371,845 212,718 193,985 114,740
--------- --------- --------- ----------
4,833,351 3,814,418 2,427,384 1,994,762
--------- --------- --------- ---------
Income before provision for income taxes 1,512,732 812,814 791,579 404,108
Provision for income taxes 650,473 349,648 340,677 173,648
----------- ---------- ----------- -----------
Net income $ 862,259 $ 463,166 $ 450,902 $ 230,460
=========== =========== =========== ==========
Basic earnings per share $.33 $.18 $.17 $.09
==== ==== ==== ====
Diluted earnings per share $.32 $.18 $.16 $.09
==== ==== ==== ====
</TABLE>
- 4 -
See accompanying notes to financial statements.
<PAGE>
ACTIVE APPAREL GROUP, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 2000 and 1999
<TABLE>
<CAPTION>
Class A
Common Stock Common Stock
Shares Amount Shares Amount Paid in Capital Retained Earnings
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 2,492,581 $5,333 100,000 $1,000 $6,136,341 $329,121
Net income - six months
ended June 30, 1999 - - - - - 463,166
--------- ------ ------- ------ ---------- ----------
Balance, June 30, 1999 2,492,581 $5,333 100,000 $1,000 $6,136,341 $792,287
========= ====== ======= ====== ========== ========
Balance, December 31, 1999 2,492,581 $5,333 100,000 $1,000 $6,136,341 $1,145,273
Net income - six months
ended June 30, 2000 - - - - - 862,259
--------- ------ ------- ------ ---------- ----------
Balance, June 30, 2000 2,492,581 $5,333 100,000 $1,000 $6,136,341 $2,007,532
========= ====== ======= ====== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Treasury Stock
Shares Amount Total
------ ------ -----
<S> <C> <C> <C>
Balance, December 31, 1998 174,000 $(727,219) $5,744,576
Net income - six months
ended June 30, 1999 - - 463,166
------- --------- ----------
Balance, June 30, 1999 174,000 $(727,219) $6,207,742
======= ========== ==========
Balance, December 31, 1999 174,000 $(727,219) $6,560,728
Net income - six months
ended June 30, 2000 - - 862,259
------- --------- ----------
Balance, June 30, 2000 174,000 $(727,219) $7,422,987
======= ========== ==========
</TABLE>
-5-
See accompanying notes to financial statements.financial statements.
<PAGE>
ACTIVE APPAREL GROUP, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six months ended
June 30,
2 0 0 0 1 9 9 9
------- -------
(Unaudited) (Unaudited)
Cash flows from operating activities:
<S> <C> <C>
Net income $ 862,259 $ 463,166
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 80,688 64,488
Amortization - 2,857
Changes in assets (increase) decrease:
Refundable income taxes - 284,478
Due from factor (1,955,571) 71,410
Inventory 124,908 (1,164,882)
Prepaid expenses and other current assets (95,511) (185,694)
Deferred tax asset - (130,870)
Security deposits and other assets (110,169) (34,108)
Changes in liabilities increase (decrease):
Accrued expenses and other current liabilities 493,910 420,464
Accounts payable 816,150 284,758
------- -------
Net cash provided by operating activities $ 216,664 $ 76,067
------- ------------
Cash flows from investing activities:
Notes receivable, officer 4,800 -
Acquisition of property and equipment (121,390) (81,360)
----------- --------
Net cash used by investing activities: (116,590) (81,360)
Net increase (decrease) in cash and cash equivalents 100,074 (5,293)
Cash and cash equivalents, beginning of period 239,096 192,870
------- -------
Cash and cash equivalents, end of period $339,170 $ 187,577
======== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 214,715 $ 100,349
Income taxes 310,420 -
</TABLE>
- 6 -
See accompanying notes to financial statements.
<PAGE>
ACTIVE APPAREL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
1. Active Apparel Group, Inc. (the "Company") and basis of presentation:
The financial statements presented herein as of June 30, 2000 and for
the six months and the three months ended June 30, 2000 and 1999 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 six and three month periods ended June 30, 2000 are
not necessarily indicative of the results that may be expected for any
other interim period or the full year ending December 31, 2000.
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 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 June
30, 2000 and 1999.
The number of shares used in the computation of basic earnings per
share was 2,592,581 at June 30, 2000 and 1999. The number of shares
used in the computation of diluted earnings per share was 2,657,738 and
2,605,942 at June 30, 2000 and 1999 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 and
men's activewear, sportswear, swimwear and accessories. The Company sells its
principal product collections under the Everlast brand name through exclusive
licensing arrangements. The Company's products are manufactured by third party
independent manufacturing contractors and are sold to over 20,000 retail
locations, most of which are located 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 June 30, 2000 compared to quarter ended June 30, 1999
Net sales increased to $8,184,467 for the three months ended June 30,
2000 from $5,613,775 for the three months ended June 30, 1999, an increase of
$2,570,692, or 45.8%. The increase in net sales is primarily attributed to
increased sales volume of the Company's men's and women's products through
continued market penetration with new accounts and increased orders from
established accounts.
Gross profit increased to $3,218,963 for the three months ended June
30, 2000 from $2,398,870 for the three months ended June 30, 1999, an increase
of $820,093, or 34.2%. Gross profit decreased as a percentage of net sales to
39.3% from 42.7%. The decrease as a percentage of net sales is primarily
attributed to a change in the Company's product mix.
Selling and shipping expenses increased to $1,705,871 for the three
months ended June 30, 2000 from $1,350,002 for the three months ended June 30,
1999, an increase of $355,869 or 26.4%. Selling and shipping expenses as a
percentage of net sales decreased to 20.8% from 24.0%. The decrease as a
percentage of net sales was primarily attributable to the increase in sales as
it relates to the fixed portion of selling and shipping expenses.
General and administrative expenses decreased to $527,528 for the
three months ended June 30, 2000 from $530,020 for the three months ended June
30, 1999, a decrease of $2,492, or .5%. General and administrative expenses as a
percentage of net sales decreased to 6.4% from 9.4%. The decrease as a
percentage of net sales was primarily attributed to the relative fixed nature of
general and administrative expenses.
Financial expenses increased to $193,985 for the three months ended
June 30, 2000 from $114,740 for the three months ended June 30, 1999, an
increase of $79,245, or 69.1%. The increase is primarily attributed to an
increase in interest expense as a result of higher net borrowings from the
factor, for the three months ended June 30, 2000 versus the comparable period in
1999, to finance growth.
-8-
<PAGE>
Operating income increased to $791,579 for the three months ended
June 30, 2000 from $404,108 for the three months ended June 30, 1999, an
increase of $387,471, or 95.9%, because of the reasons stated in the preceding
paragraphs. Operating income as a percentage of net sales was 9.7% for the three
months ended June 30, 2000 as compared to 7.2% for the three months ended June
30, 1999.
The Company incurred a tax provision of $340,677 for the three months
ended June 30, 2000 as compared to $173,648 for the three months ended June 30,
1999, an increase of $167,029.
The Company had net income of $450,902 for the three months ended
June 30, 2000 as compared to $230,460 for the three months ended June 30, 1999,
an increase of $220,442, or 95.7%, because of the reasons stated in the
preceding paragraphs.
Six months ended June 30, 2000 compared to six months ended June 30, 1999
Net sales increased to $16,184,470 for the six months ended June 30,
2000 from $11,148,223 for the six months ended June 30, 1999, an increase of
$5,036,247, or 45.2%. The increase in net sales is primarily attributed to
increased sales volume of the Company's men's and women's products through
continued market penetration with new accounts and increased orders from
established accounts.
Gross profit increased to $6,346,083 for the six months ended June
30, 2000 from $4,654,232 for the six months ended June 30, 1999, an increase of
$1,691,851, or 36.4%. Gross profit decreased as a percentage of net sales to
39.2% from 41.7%. The decrease as a percentage of net sales is primarily
attributed a change in the Company's product mix.
Selling and shipping expenses increased to $3,400,307 for the six
months ended June 30, 2000 from $2,639,989 for the six months ended June 30,
1999, an increase of $760,318, or 28.8%. Selling and shipping expenses as a
percentage of net sales decreased to 21.0% from 23.7%. The decrease as a
percentage of net sales was primarily attributable to the increase in sales as
it relates to the fixed portion of selling and shipping expenses.
General and administrative expenses increased to $1,061,199 for the
six months ended June 30, 2000 from $988,711 for the six months ended June 30,
1999, an increase of $72,488, or 7.3%. General and administrative expenses as a
percentage of net sales decreased to 6.6% from 8.9%. The decrease as a
percentage of net sales is primarily attributed to the relative fixed nature of
general and administrative expenses.
Financial expenses increased to $371,845 for the six months ended
June 30, 2000 from $212,718 for the six months ended June 30, 1999, an increase
of $159,127, or 74.8%. The increase is attributed to the increase in the
Company's net borrowings from the factor, for the six months ended June 30, 2000
versus the comparable period in 1999, to finance growth.
Operating income increased to $1,512,732 for the six months ended
June 30, 2000 from $812,814 for the six months ended June 30, 1999, an increase
of $699,918, or 86.1%, because of the reasons stated in the preceding
paragraphs. Operating income as a percentage of net sales was 9.3% for the six
months ended June 30, 2000 as compared to 7.3% for the six months ended June 30,
1999.
The Company incurred a tax provision of $650,473 for the six months
ended June 30, 2000 as compared to $349,648 for the six months ended June 30,
1999, an increase of $300,825, or 86.0%.
The Company had net income of $862,259 for the six months ended June
30, 2000 as compared to
-9-
<PAGE>
$463,166 for the six months ended June 30, 1999, an increase of $399,093, or
86.2%, because of the reasons stated in the preceding paragraphs.
Liquidity and Capital Resources
Net cash provided by operating activities for the six months ended
June 30, 2000 was $216,664 compared to $76,067 for the six months ended June 30,
1999. This increase was primarily attributable to an increase in net income. Net
cash used for investing activities for the six months ended June 30, 2000 was
$116,590 compared to $81,360 for the six months ended June 30, 1999. The
increase was attributable to the purchase of fixed assets.
During the six months ended June 30, 2000, the Company's primary need
for funds was to finance working capital for the 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 June 30, 2000, working capital was $6,566,252
compared to $5,409,043 at June 30, 1999 an increase of $1,157,209.
Due from factor represents the amount owed to the Company for
factored receivables less the amount of outstanding advances made by the factor.
At June 30, 2000 due from factor was $3,504,618 as compared to $1,815,835 at
June 30, 1999, an increase of $1,688,783. This increase is primarily the result
of increased volume for the six months ended June 30, 2000. The Company's
inventory increased to $5,115,244 at June 30, 2000 as compared to $4,191,123 at
June 30, 1999 due to an increase in booked and anticipated orders. Accounts
payable increased to $2,295,231 at June 30, 2000 as compared to $1,106,877 at
June 30, 1999 an increase of $1,188,354. The increase was due to more favorable
terms received from the Company's vendors.
Management anticipates it will retain a net receivable position with
its factor, although no assurance to that effect can be given. Positive cash
flow, if it occurs, will provide for a further reduction in advances, creating
sufficient working capital to fund the Company's anticipated growth for the next
twelve months. If a positive cash flow does not occur, borrowings with the
factor will increase.
Year 2000 Compliance
The Company experienced no disruptions to its normal operations
related to Year 2000 failures. The Company believes that its computer systems
are Year 2000 compliant. If Year 2000 related failures do occur, The Company
believes that they will not have a material impact on the Company's results of
operations, liquidity or financial condition.
-10-
<PAGE>
PART II.
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
On June 9, 2000, the Company held its annual meeting of stockholders,
whereby the stockholders elected directors and approved a proposal to ratify the
appointment of Berenson & Company, LLP as the Company's independent auditors for
the fiscal year ending December 31, 2000. The votes on such matters were as
follows:
1. Election of directors:
For Against
--- -------
George Horowitz 2,738,234 10,236
Rita Cinque 2,738,234 10,236
James Anderson 2,738,234 10,236
Edward Epstein 2,738,234 10,236
Angelo Giusti 2,738,234 10,236
Larry Kring 2,738,234 10,236
2. Ratification of appointment of auditors: To ratify the appointment of
Berenson & Company, LLP as the Company's auditors for the fiscal year ending
December 31,2000.
For Against Abstain
--------- ------- -------
2,739,169 7,916 1,385
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
-11-
<PAGE>
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
ACTIVE APPAREL GROUP, INC.
Date: July 26, 2000 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
-12-
