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 September 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
-------
EVERLAST WORLDWIDE 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)
Active Apparel Group, Inc.
(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 November 1,
2000 was 3,097,581 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
----- -----
<PAGE>
Form 10-QSB
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 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
-2 -
<PAGE>
PART 1
FINANCIAL INFORMATION
Item 1: Financial statements
EVERLAST WORLDWIDE INC.
(f/k/a Active Apparel Group, Inc.)
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
(Unaudited)
<S> <C> <C
ASSETS
Current assets:
Cash and cash equivalents $ 344,608 $ 239,096
Due from factor 2,899,640 1,549,047
Inventory 5,481,529 5,240,152
Prepaid expenses and other current assets 406,081 379,840
Note receivable, officer 84,000 --
Deferred tax asset 155,399 155,399
------------ ------------
Total current assets 9,371,257 7,563,534
Property and equipment, net 479,781 419,954
Note receivable, officer -- 91,200
Security deposits and other assets 444,064 199,510
------------ ------------
Total Assets $ 10,295,102 $ 8,274,198
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,409,426 $ 1,479,081
Accrued expenses and other current liabilities 890,771 234,389
------------ ------------
Total liabilities, all current $ 2,300,197 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 2,579,450 1,145,273
------------ ------------
8,722,124 7,287,947
Less treasury stock, at cost (174,000 common shares) (727,219) (727,219)
------------ ------------
Total Stockholders' Equity 7,994,905 6,560,728
------------ ------------
Total Liabilities and Stockholders' Equity $ 10,295,102 $ 8,274,198
============ ============
</TABLE>
- 3 -
See accompanying notes to financial statements.
<PAGE>
EVERLAST WORLDWIDE INC.
(f/k/a Active Apparel Group, Inc.)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Nine months ended Three months ended
September 30, September 30,
-------------------------- --------------------------
<S> <C> <C> <C> <C>
2000 1999 2000 1999
----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net sales $25,284,946 $17,407,797 $ 9,100,476 $ 6,259,574
Cost of goods sold 15,294,462 10,140,216 5,456,075 3,646,225
----------- ----------- ----------- -----------
Gross profit 9,990,484 7,267,581 3,644,401 2,613,349
----------- ----------- ----------- -----------
Operating expenses:
Selling and shipping 5,321,835 4,175,954 1,921,528 1,535,965
General and administrative 1,557,375 1,502,851 496,176 514,140
Financial expenses, including interest
expense of $320,943 and $184,421 for
the nine months ended September 30,
2000 and 1999 591,299 365,863 219,454 153,145
----------- ----------- ----------- -----------
7,470,509 6,044,668 2,637,158 2,203,250
----------- ----------- ----------- -----------
Income before provision for income taxes 2,519,975 1,222,913 1,007,243 410,099
Provision for income taxes 1,085,798 526,573 435,325 176,925
----------- ----------- ----------- -----------
Net income $ 1,434,177 $ 696,340 $ 571,918 $ 233,174
=========== =========== =========== ===========
Basic earnings per share $ .55 $ .27 $ .22 $ .09
=========== =========== =========== ===========
Diluted earnings per share $ .54 $ .27 $ .22 $ .09
=========== =========== =========== ===========
</TABLE>
- 4 -
See accompanying notes to financial statements.
<PAGE>
EVERLAST WORLDWIDE INC.
(f/k/a Active Apparel Group, Inc.)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2000 and 1999
<TABLE>
<CAPTION>
Class A
Common Stock Common Stock
------------- ------------
Paid in Retained
Shares Amount Shares Amount Capital 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 - nine months
ended September 30, 1999 -- -- -- -- -- 696,340
---------- ---------- ---------- --------- ---------- ----------
Balance, September 30, 1999 2,492,581 $ 5,333 100,000 $ 1,000 $6,136,341 $1,025,461
========== ========== ========== ========== ========== ==========
Balance, December 31, 1999 2,492,581 $ 5,333 100,000 $ 1,000 $6,136,341 $1,145,273
Net income - nine months
ended September 30, 2000 -- -- -- -- -- 1,434,177
---------- ---------- ---------- --------- ---------- ----------
Balance, September 30, 2000 2,492,581 $ 5,333 100,000 $ 1,000 $6,136,341 $2,579,450
========== ========== ========== ========== ========== ==========
</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 - nine months
ended September 30, 1999 -- -- 696,340
---------- ---------- ----------
Balance, September 30, 1999 174,000 $ (727,219) $6,440,916
========== ========== ==========
Balance, December 31, 1999 174,000 $ (727,219) $6,560,728
Net income - nine months
ended September 30, 2000 -- -- 1,434,177
---------- ---------- ----------
Balance, September 30, 2000 174,000 $ (727,219) $7,994,905
========== ========== ==========
</TABLE>
-5-
See accompanying notes to financial statements.
<PAGE>
EVERLAST WORLDWIDE INC.
(f/k/a Active Apparel Group, Inc.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months ended
September 30,
----------------------------
2000 1999
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,434,177 $ 696,340
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 121,032 104,832
Amortization -- 4,286
Changes in assets (increase) decrease:
Refundable income taxes -- 284,478
Due from factor (1,350,593) 806,262
Inventory (241,377) (2,103,685)
Prepaid expenses and other current assets (26,241) (224,686)
Deferred tax asset -- (130,870)
Security deposits and other assets (244,554) (16,791)
Changes in liabilities increase (decrease):
Accrued expenses and other current liabilities 656,382 323,227
Accounts payable (69,655) 370,545
----------- -----------
Net cash provided by operating activities 279,171 113,938
----------- -----------
Cash flows from investing activities:
Notes receivable, officer 7,200 --
Acquisition of property and equipment (180,859) (150,286)
----------- -----------
Net cash used by investing activities: (173,659) (150,286)
----------- -----------
Net increase (decrease) in cash and cash equivalents 105,512 (36,348)
Cash and cash equivalents, beginning of period 239,096 192,870
----------- -----------
Cash and cash equivalents, end of period $ 344,608 $ 156,522
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 320,943 $ 184,421
Income taxes 446,005 320,915
</TABLE>
- 6 -
See accompanying notes to financial statements.
<PAGE>
EVERLAST WORLDWIDE INC.
(f/k/a Active Apparel Group, Inc.)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
1. Everlast Worldwide Inc. (f/k/a Active Apparel Group, Inc., the
"Company") and basis of presentation:
The financial statements presented herein as of September 30, 2000 and
for the nine months and the three months ended September 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 nine and three month periods ended
September 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 September
30, 2000 and 1999.
The number of shares used in the computation of basic earnings per share
was 2,592,581 at September 30, 2000 and 1999. The number of shares used
in the computation of diluted earnings per share was 2,666,643 and
2,603,253 at September 30, 2000 and 1999 respectively.
3. Subsequent events
On October 24, 2000 the Company completed a merger whereby Everlast
Holding Corp., the parent company of Everlast World's Boxing
Headquarters Corp, was merged with and into Active Apparel New Corp., a
wholly-owned subsidiary of the Company. The merger involved (i) the
issuance of 505,000 shares of common stock, $.002 par value of the
Company (the "Common Stock"); (ii) $45 million of redeemable
participating preferred stock; (iii) $10 million in cash; and (iv)
approximately $1 million in transaction costs, for an aggregate
purchase price of $57.5 million. In addition, additional shares of
Common Stock may be issued on October 24, 2005 if certain conditions
have not been achieved. Everlast World's Boxing Headquarters Corp is a
manufacturer of sporting goods and a licensor of its brand name,
"Everlast."
For accounting purposes, the merger will be treated using the purchase
method of accounting. Under the purchase method, the purchase price is
allocated to the assets and liabilities acquired based upon the
estimated fair values of such assets and liabilities on the date of
acquisition. Any excess of the consideration given over the fair market
value of the identifiable net assets acquired will be treated as
goodwill.
Simultaneous with the merger, and following approval by the Company's
stockholders, the Company changed its name to Everlast Worldwide Inc.
-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 (TM) 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. As a result of
the merger of Everlast Holding Corp., the parent corporation of Everlast World's
Boxing Headquarter's Corp., into Active Apparel New Corp., a wholly-owned
subsidiary of the Company, on October 24, 2000, the Company is now a
manufacturer of sporting goods and a licensor of its brand name, "Everlast."
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 September 30, 2000 compared to quarter ended September 30, 1999
Net sales increased to $9,100,476 for the three months ended September
30, 2000 from $6,259,574 for the three months ended September 30, 1999, an
increase of $2,840,902, or 45.4%. 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 $3,644,401 for the three months ended
September 30, 2000 from $2,613,349 for the three months ended September 30,
1999, an increase of $1,031,052, or 39.5%. Gross profit decreased as a
percentage of net sales to 40.0% from 41.7%. 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 $1,921,528 for the three
months ended September 30, 2000 from $1,535,965 for the three months ended
September 30, 1999, an increase of $385,563 or 25.1%. Selling and shipping
expenses as a percentage of net sales decreased to 21.1% from 24.5%. 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 $496,176 for the three
months ended September 30, 2000 from $514,140 for the three months ended
September 30, 1999, a decrease of $17,964, or 3.5%. General and administrative
expenses as a percentage of net sales decreased to 5.5% from 8.2%. 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 $219,454 for the three months ended
September 30, 2000 from $153,145 for the three months ended September 30, 1999,
an increase of $66,309, or 43.3%. 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 September 30, 2000 versus the comparable
period in 1999, to finance growth.
-8-
<PAGE>
Operating income increased to $1,007,243 for the three months ended
September 30, 2000 from $410,099 for the three months ended September 30, 1999,
an increase of $597,144, or 145.6%, because of the reasons stated in the
preceding paragraphs. Operating income as a percentage of net sales was 11.1%
for the three months ended September 30, 2000 as compared to 6.6% for the three
months ended September 30, 1999.
The Company incurred a tax provision of $435,325 for the three months
ended September 30, 2000 as compared to $176,925 for the three months ended
September 30, 1999, an increase of $258,400.
The Company had net income of $571,918 for the three months ended
September 30, 2000 as compared to $233,174 for the three months ended September
30, 1999, an increase of $338,744, or 145.3%, because of the reasons stated in
the preceding paragraphs.
Nine months ended September 30, 2000 compared to
nine months ended September 30, 1999
Net sales increased to $25,284,946 for the nine months ended September
30, 2000 from $17,407,797 for the nine months ended September 30, 1999, an
increase of $7,877,149, or 45.3%. 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 $9,990,484 for the nine months ended September
30, 2000 from $7,267,581 for the nine months ended September 30, 1999, an
increase of $2,722,903, or 37.5%. Gross profit decreased as a percentage of net
sales to 39.5% 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 $5,321,835 for the nine
months ended September 30, 2000 from $4,175,954 for the nine months ended
September 30, 1999, an increase of $1,145,881, or 27.4%. Selling and shipping
expenses as a percentage of net sales decreased to 21.0% 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 increased to $1,557,375 for the nine
months ended September 30, 2000 from $1,502,851 for the nine months ended
September 30, 1999, an increase of $54,524, or 3.6%. General and administrative
expenses as a percentage of net sales decreased to 6.2% from 8.6%. 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 $591,299 for the nine months ended
September 30, 2000 from $365,863 for the nine months ended September 30, 1999,
an increase of $225,436, or 61.6%. The increase is attributed to the increase in
the Company's net borrowings from the factor, for the nine months ended
September 30, 2000 versus the comparable period in 1999, to finance growth.
Operating income increased to $2,519,975 for the nine months ended
September 30, 2000 from $1,222,913 for the nine months ended September 30, 1999,
an increase of $1,297,062, or 106.1%, because of the reasons stated in the
preceding paragraphs. Operating income as a percentage of net sales was 10.0%
for the nine months ended September 30, 2000 as compared to 7.0% for the nine
months ended September 30, 1999.
The Company incurred a tax provision of $1,085,798 for the nine months
ended September 30, 2000 as compared to $526,573 for the nine months ended
September 30, 1999, an increase of $559,225, or 106.2%.
The Company had net income of $1,434,177 for the nine months ended
September 30, 2000 as compared to $696,340 for the nine months ended September
30, 1999, an increase of $737,837, or 106.0%, because of the reasons stated in
the preceding paragraphs.
-9-
<PAGE>
Liquidity and Capital Resources
Net cash provided by operating activities for the nine months ended
September 30, 2000 was $279,171 compared to $113,938 for the nine months ended
September 30, 1999. This increase was primarily attributable to an increase in
net income. Net cash used for investing activities for the nine months ended
September 30, 2000 was $173,659 compared to $150,286 for the nine months ended
September 30, 1999. The increase was attributable to the purchase of fixed
assets.
During the nine months ended September 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 September 30, 2000, working capital was $6,987,060
compared to $5,632,381 at September 30, 1999 an increase of $1,354,679.
Due from factor represents the amount owed to the Company for factored
receivables less the amount of outstanding advances made by the factor. At
September 30, 2000 due from factor was $2,899,640 as compared to $1,080,983 at
September 30, 1999, an increase of $1,818,657. This increase is primarily the
result of increased volume for the nine months ended September 30, 2000. The
Company's inventory increased to $5,481,529 at September 30, 2000 as compared to
$5,129,926 at September 30, 1999 due to an increase in booked and anticipated
orders.
On October 24, 2000, the Company's wholly-owned subsidiary, Active
Apparel New Corp., merged with Everlast Holding Corp., the parent company of
Everlast World's Boxing Headquarters Corp. ("Everlast"). Based on the historical
financial performances of the Company and Everlast, the Company's management
believes that the Company shall generate sufficient working capital to fund its
anticipated growth for the next twelve months.
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 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.1 - Agreement and Plan of Merger Dated August 21, 2000 by
and among Everlast World's Boxing Headquarters Corp.,
Everlast Holding Corp., the stockholders of Everlast
Holding Corp., the Company and Active Apparel New Corp.
- incorporated by reference to Exhibit 99.1 of the
Current Report on Form 8-K filed by the Company with the
Securities and Exchange Commission on November 7, 2000.
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
The Company filed with the Securities and Exchange Commission a
Current Report of Form 8-K dated August 22, 2000 to report that it
issued a press release to announce the execution of an Agreement and
Plan of Merger Dated August 21, 2000 by and among Everlast World's
Boxing Headquarters Corp., Everlast Holding Corp., the stockholders
of Everlast Holding Corp., the Company and Active Apparel New Corp.
-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.
EVERLAST WORLDWIDE INC.
(f/k/a Active Apparel Group, Inc.)
Date: November 13, 2000 By:/s/ George Q Horowitz
------------------- -----------------------------------
Name: George Q Horowitz
Title: Chief Executive Officer,
President, and Treasurer
By:/s/ Matthew Mark
----------------------------------
Name: Matthew F. Mark
Title: Chief Financial Officer,
Vice President Finance
-12-
