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, 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
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 April 18, 2000 was
2,492,581 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,
2 0 0 0 1 9 9 9
------------- ------------
(Unaudited)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 249,935 $ 239,096
Due from factor 1,956,473 1,549,047
Inventory 5,260,371 5,240,152
Prepaid expenses and other current assets 539,505 379,840
Deferred tax asset 155,399 155,399
------------ ------------
Total current assets 8,161,683 7,563,534
Note receivable, officer 88,800 91,200
Property and equipment, net 440,471 419,954
Security deposits and other assets 302,111 199,510
------------ -----------
Total Assets $8,993,065 $8,274,198
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,546,941 1,479,081
Accrued expenses and other current liabilities 474,038 234,389
----------- ------------
Total liabilities, all current 2,020,979 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 1,556,631 1,145,273
------------- -----------
7,699,305 7,287,947
Less treasury stock, at cost (174,000 common shares) (727,219) (727,219)
----------- -----------
Total Stockholders' Equity 6,972,086 6,560,728
----------- ----------
Total Liabilities and Stockholders' Equity $8,993,065 $8,274,198
========== ==========
</TABLE>
- 3 -
See accompanying notes to financial statements.
<PAGE>
ACTIVE APPAREL GROUP, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three months ended
March 31,
2 0 0 0 1 9 9 9
---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C>
Net sales $8,000,003 $5,534,448
Cost of goods sold 4,872,883 3,279,086
---------- ---------
Gross profit 3,127,120 2,255,362
---------- ---------
Operating expenses:
Selling and shipping 1,694,435 1,289,987
General and administrative 533,671 458,691
Financial expenses, including interest
expense of $99,403 and $38,046 for the
three months ended March 31, 2000 and
1999 177,860 97,978
--------- ------
2,405,966 1,846,656
---------- ---------
Income before provision for income taxes 721,154 408,706
Provision for income taxes 309,796 176,000
---------- -------
Net income $ 411,358 $ 232,706
========== ==========
Basic earnings per share $.16 $.09
==== ====
</TABLE>
- 4 -
See accompanying notes to financial statements.
<PAGE>
ACTIVE APPAREL GROUP, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 2000 and 1999
<TABLE>
<CAPTION>
Class A
Common Stock Common Stock
Shares Amount Shares Amount Paid in Capital
------ ------ ------ ------ ---------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1998 2,492,581 $5,333 100,000 $1,000 $6,136,341
Net income - three months
ended March 31, 1999 - - - - -
--------- ------ ------- ------ ----------
Balance, March 31, 1999 2,492,581 $5,333 100,000 $1,000 $6,136,341
========= ====== ======= ====== ==========
Balance, December 31, 1999 2,492,581 $5,333 100,000 $1,000 $6,136,341
Net income - three months
ended March 31, 2000 - - - - -
--------- ------ ------- ------ ----------
Balance, March 31, 2000 2,492,581 $5,333 100,000 $1,000 $6,136,341
========= ====== ======= ====== ==========
</TABLE>
<TABLE>
<CAPTION>
Treasury Stock
Common Stock
Retained earnings Shares Amount Total
----------------- ------ ------ -----
<S> <C> <C> <C> <C>
Balance, December 31, 1998 $329,121 174,000 $(727,219) $5,744,576
Net income - three months
ended March 31, 1999 232,706 - - 232,706
-------- ------- ---------- ----------
Balance, March 31, 1999 $561,827 174,000 $(727,219) $5,977,282
======== ======= ========== ==========
Balance, December 31, 1999 $1,145,273 174,000 $(727,219) $6,560,728
Net income - three months
ended March 31, 2000 411,358 - - 411,358
-------- ------- ---------- ----------
Balance, March 31, 2000 $1,556,631 174,000 $(727,219) $6,972,086
========== ======= ========== ==========
</TABLE>
-5-
See accompanying notes to financial statements.
<PAGE>
ACTIVE APPAREL GROUP, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------------------
2 0 0 0 1 9 9 9
------- -------
(Unaudited) (Unaudited)
Cash flows from operating activities:
<S> <C> <C>
Net income $411,358 $232,706
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 40,344 32,244
Amortization - 1,429
Changes in assets (increase) decrease:
Refundable income taxes - 70,391
Due from factor (407,426) (248,508)
Inventory (20,219) (231,251)
Prepaid expenses and other current assets (159,665) (67,249)
Security deposits and other assets (102,601) (102,796)
Changes in liabilities increase (decrease):
Accrued expenses and other current liabilities 239,649 350,754
Accounts payable 67,860 (20,982)
------ --------
Net cash provided by operating activities 69,300 16,738
------ ------
Cash flows used by investing activities:
Notes receivable, officer 2,400 -
Acquisition of property and equipment (60,861) (20,953)
---------- --------
Net cash used in investing activities: (58,461) (20,953)
-------- --------
Net increase (decrease) in cash and cash equivalents 10,839 (4,215)
Cash and cash equivalents, beginning of period 239,096 192,870
------- -------
Cash and cash equivalents, end of period $249,935 $188,655
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 99,403 $ 38,046
Income taxes 110,500 -
</TABLE>
- 6 -
See accompanying notes to financial statements.
<PAGE>
ACTIVE APPAREL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
1. The Company and basis of presentation:
The financial statements presented herein as of March 31, 2000 and for
the three months ended March 31, 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 three
month period ended March 31, 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 not presented for March 31, 2000
and 1999 because they are not materially dilutive.
The number of shares used in the computation of basic earnings per
share was 2,592,581 at March 31, 2000 and 1999.
-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 March 31, 2000 compared to quarter ended March 31, 1999
Net sales increased to $8,000,003 for the three months ended March 31,
2000 from $5,534,448 for the three months ended March 31, 1999, an increase of
$2,465,555 or 44.5%. This increase in sales was principally attributable to
increased sales volume of the Company's men's and women's products through
continued market penetration.
Gross profit increased to $3,127,120 for the three months ended March
31, 2000 from $2,255,362 for the three months ended March 31, 1999, an increase
of $871,758 or 38.7%. Gross profit decreased as a percentage of net sales to
39.1% from 40.8%. This decrease as a percentage of net sales was primarily due
to lower prices received for the Company's products due to product mix.
Selling and shipping expenses increased to $1,694,435 for the three
months ended March 31, 2000 from $1,289,987 for the three months ended March 31,
1999, an increase of $404,448 or 31.4%. Selling and shipping expenses as a
percentage of net sales decreased to 21.2% from 23.3%. 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 $533,671 for the three
months ended March 31, 2000 from $458,691 for the three months ended March 31,
1999, an increase of $74,980, or 16.3%. General and administrative expenses as a
percentage of net sales decreased to 6.7% from 8.3%. The decrease as a
percentage of net sales was primarily attributable to the relative fixed nature
of general and administrative expenses.
Financial expenses increased to $177,860 for the three months ended
March 31, 2000 from $97,978 for the three months ended March 31, 1997, an
increase of $79,882, or 81.5%. Financial expenses as a percentage of net sales
increased to 2.2% from 1.8%. This increase was attributable to an increase in
the Company's net borrowings and fees paid to the Company's factor for the three
months ended March 31, 2000 versus the comparable period in 1999.
-8-
<PAGE>
Operating income increased to $721,154 for the three months ended March
31, 2000 from $408,706 for the three months ended March 31, 1999, an increase of
$312,448, or 76.4% for the reasons stated in the preceding paragraphs. Operating
income as a percentage of net sales was 9.0% for the three months ended March
31, 2000 as compared to 7.4% for the three months ended March 31, 1999. This
increase was primarily due to increased net sales as it relates to the fixed
nature of operating expenses.
The Company incurred a tax provision of $309,796 for the three months
ended March 31, 2000 as compared to $176,000 for the three months ended March
31, 1999, an increase of $133,796. This income tax increase is in proportion to
the increase in the Company's income.
The Company had net income of $411,358 for the three months ended March
31, 2000 as compared to $232,706 for the three months ended March 31, 1999, an
increase of $178,652, or 76.8% 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, 2000 was $69,300 compared to $16,738 for the three months ended March
31, 1999. This increase was primarily attributable to an increase in net income.
Net cash used for investing activities for the three months ended March 31, 2000
was $58,461 compared to $20,953 for the three months ended March 31, 1999. The
increase was attributable to the purchase of fixed assets.
During the three months ended March 31, 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 March 31, 2000, working capital was $6,140,704
compared to $5,136,630 at March 31, 1999 an increase of $1,004,074
Due from factor represents the amount owed to the Company for factored
receivables less the amount of outstanding advances made by the factor to the
Company. At March 31, 2000, due from factor was $1,956,473 as compared to
$2,135,753 at March 31, 1999. This decrease is the result of an increase in
borrowings for the acquisition of inventory. The Company's inventory increased
to $5,260,371 at March 31, 2000 as compared to $3,257,492 at March 31, 1999 due
to an increase in booked and anticipated orders.
The Company anticipates it will retain a net receivable position with
the 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 continued growth through 2000.
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.
-9-
<PAGE>
PART II. OTHER INFORMATION
Item 6.Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
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: April 18, 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
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Form 10-QSB for the quarter ended March 30, 2000 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-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 249,935
<SECURITIES> 0
<RECEIVABLES> 1,956,473
<ALLOWANCES> 0
<INVENTORY> 5,260,371
<CURRENT-ASSETS> 8,161,683
<PP&E> 974,116
<DEPRECIATION> 533,645
<TOTAL-ASSETS> 8,993,065
<CURRENT-LIABILITIES> 2,020,979
<BONDS> 0
0
0
<COMMON> 5,333
<OTHER-SE> 1,000
<TOTAL-LIABILITY-AND-EQUITY> 8,993,065
<SALES> 8,000,003
<TOTAL-REVENUES> 8,000,003
<CGS> 4,872,883
<TOTAL-COSTS> 4,872,883
<OTHER-EXPENSES> 2,405,966
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 99,403
<INCOME-PRETAX> 721,154
<INCOME-TAX> 309,796
<INCOME-CONTINUING> 411,358
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 411,358
<EPS-BASIC> .16
<EPS-DILUTED> .16
</TABLE>
