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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10 - Q
(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, 2002
/ / 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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EVERLAST WORLDWIDE INC.
(Exact name of Registrant 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
(Registrant's telephone number, including area code)
Not Applicable (Former name, former address and former
fiscal year if changed since last report)
Indicate by check whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 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 August 6, 2002
was 2,998,936 shares of Common Stock, $.002 par value, and 100,000 shares of
Class A Common Stock, $.01 par value.
INDEX
PART I. FINANCIAL INFORMATION Page
----
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Changes in Stockholders' Equity 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 9-12
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
-2-
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
EVERLAST WORLDWIDE INC.
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2 0 0 2 2 0 0 1
------- -------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 2,197,582 $ 3,100,026
Marketable equity securities 389,794 457,308
Accounts receivable - net 4,250,624 6,447,168
Due from factor 3,743,386 2,669,848
Inventories 13,945,666 12,661,534
Prepaid expenses and other current assets 1,003,865 730,882
------------ ------------
Total current assets 25,530,917 26,066,766
Property and equipment, net 6,250,447 6,318,284
Cash surrender value - life insurance 168,463 167,146
Goodwill 6,718,492 6,718,492
Intangible assets 25,858,029 26,314,365
Other assets 1,391,714 1,037,569
------------ ------------
$ 65,918,062 $ 66,622,622
============ ============
LIABILITIES, REDEEMABLE PARTICIPATING PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,608,541 $ 4,728,613
Current maturities of long term debt 134,016 79,719
Note payable 3,350,000 3,350,000
Accrued expenses and other current liabilities 1,075,114 1,652,267
Preferred stock dividend payable 908,586 1,702,164
------------ ------------
Total current liabilities 10,076,257 11,512,763
License deposits payable 794,875 688,723
Long term debt, net of current maturities 209,156 140,508
------------ ------------
Total liabilities 11,080,288 12,341,994
------------ ------------
Series A redeemable participating preferred stock 40,000,000 40,000,000
------------ ------------
Stockholders' equity:
Common stock, par value $.002; 19,000,000 shares
authorized; 3,172,936 issued, 2,998,936 outstanding 6,346 6,346
Class A common stock, par value $.01; 100,000 shares
authorized; 100,000 shares issued and outstanding 1,000 1,000
Paid-in capital 11,642,105 11,642,105
Retained earnings 3,832,396 3,207,736
Accumulated other comprehensive income 83,146 150,660
------------ ------------
15,564,993 15,007,847
Less treasury stock, at cost (174,000 common shares) (727,219) (727,219)
------------ ------------
14,837,774 14,280,628
------------ ------------
$ 65,918,062 $ 66,622,622
============ ============
-3-
See accompanying notes to financial statements.
EVERLAST WORLDWIDE INC.
CONSOLIDATED STATEMENTS OF INCOME
Three months ended Six months ended
June 30, June 30,
---------------------------- -------------------------------
2 0 0 2 2 0 0 1 2 0 0 2 2 0 0 1
------- ------- ------- -------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net sales $ 14,725,911 $ 12,346,009 $ 30,460,507 $ 24,560,215
Cost of goods sold 10,144,052 7,911,361 20,604,882 15,949,292
------------ ------------ ------------ ------------
Gross profit 4,581,859 4,434,648 9,855,625 8,610,923
Net license revenues 1,418,950 1,214,455 2,803,617 2,403,183
------------ ------------ ------------ ------------
6,000,809 5,649,103 12,659,242 11,014,106
------------ ------------ ------------ ------------
Operating expenses:
Selling and shipping 3,079,581 2,795,171 5,882,041 5,299,687
General and administrative 1,348,413 1,255,219 3,069,845 2,655,891
Interest expense 168,478 138,825 319,580 231,485
------------ ------------ ------------ ------------
4,596,472 4,189,215 9,271,466 8,187,063
------------ ------------ ------------ ------------
Income from operations 1,404,337 1,459,888 3,387,776 2,827,043
------------ ------------ ------------ ------------
Other income (expense):
Amortization (233,878) (282,955) (467,756) (549,510)
Investment income 7,047 107,511 13,658 189,906
------------ ------------ ------------ ------------
(226,831) (175,444) (454,098) (359,604)
------------ ------------ ------------ ------------
Income before provision for income taxes 1,177,506 1,284,444 2,933,678 2,467,439
Provision for income taxes 588,242 679,701 1,400,432 1,348,776
------------ ------------ ------------ ------------
Net income $ 589,264 $ 604,743 $ 1,533,246 $ 1,118,663
============ ============ ============ ============
Redeemable preferred stock dividend 349,191 426,461 908,586 807,885
------------ ------------ ------------ ------------
Net income available to common shareholders $ 240,073 $ 178,282 $ 624,660 $ 310,778
============ ============ ============ ============
Basic earnings per common share $ .08 $ .06 $ .20 $ .10
============ ============ ============ ============
Diluted earnings per common share $ .06 $ .04 $ .16 $ .07
============ ============ ============ ============
-4-
See accompanying notes to financial statements.
EVERLAST WORLDWIDE INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 2002 and 2001
Class A
Common Stock Common Stock
Total
compre-
hensive Retained
income Shares Amount Shares Amount Paid in capital earnings
------ ------ ------ ------ ------ --------------- --------
Balance, December 31, 2000 2,998,936 $6,346 100,000 $1,000 $11,642,105 $2,543,680
Comprehensive income:
Net income - Six Months
ended June 30, 2001 $1,118,663 1,118,663
Unrealized holding gain 29,014
---------- --------- ------ -------- ------- -----------
Comprehensive Income $1,147,677
----------
Redeemable preferred stock
dividend (807,885)
Balance, June 30, 2001 2,998,936 $6,346 100,000 $1,000 $11,642,105 $2,854,458
========= ====== ======= ====== =========== ==========
Balance, December 31, 2001 2,998,936 $6,346 100,000 $1,000 $11,642,105 $3,207,736
Comprehensive income:
Net income - Six Months $1,533,246
ended June 30, 2002 (67,514) 1,533,246
----------
Unrealized holding loss
Comprehensive income $1,465,732
==========
Redeemable preferred stock
dividend (908,586)
--------- ------ ------- ------ ----------- ---------
Balance, June 30, 2002 2,998,936 $6,346 100,000 $1,000 $11,642,105 $3,832,396
========= ====== ======= ====== =========== =========
Treasury stock
Accumulated
other
Comprehensive
income Shares Amount Total
------ ------ ------ -----
Balance, December 31, 2000 $114,496 174,000 $(727,219) $13,580,408
Comprehensive income:
Net income - Six Months
ended June 30, 2001 1,118,663
Unrealized holding gain 29,014
------- ---------
Comprehensive Income 29,014
Redeemable preferred stock
dividend (807,885)
Balance, June 30, 2001 $143,510 174,000 $(727,219) $13,920,200
======== ======= ========== ===========
Balance, December 31, 2001 $150,660 174,000 $(727,219) $14,280,628
Comprehensive income:
Net income - Six Months
ended June 30, 2002 1,533,246
Unrealized holding loss (67,514) (67,514)
Comprehensive income
Redeemable preferred stock
dividend (908,586)
------- -------- --------- -----------
Balance, June 30, 2002 $83,146 174,000 $(727,219) $14,837,774
======= ======== ========= ===========
-5-
See accompanying notes to financial statements.
EVERLAST WORLDWIDE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months ended
June 30,
----------------------------
2 0 0 2 2 0 0 1
-------------- ----------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net income $ 1,533,246 $ 1,118,663
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 261,313 249,594
Amortization 467,756 561,691
Increase in cash surrender value - life insurance (1,317)
Changes in assets (increase) decrease:
Accounts receivable 2,196,544 1,697,715
Due from factor (1,073,538) 199,964
Inventory (1,284,132) (2,444,586)
Prepaid expenses and other current assets (272,983) (220,792)
Other assets (365,565) (174,537)
Changes in liabilities increase (decrease):
Accounts payable, accrued expenses
and other current liabilities (697,225) (911,580)
License deposits payable 106,152 86,379
----------- -----------
Net cash provided by operating activities 870,251 162,511
----------- -----------
Cash flows from investing activities:
Restricted cash -- 950,000
Acquisition of property and equipment (193,476) (218,994)
----------- -----------
Net cash provided (used) by investing activities: (193,476) 731,006
----------- -----------
Cash flows from financing activities:
Payment of preferred stock dividend (1,702,164) --
Increase (repayment) of long term debt 122,945 64,947
Increase in loan payable factor 3,350,000
Repayment of industrial bonds -- (3,425,000)
----------- -----------
Net cash used by financing activities: (1,579,219) (10,053)
----------- -----------
Net increase (decrease) in cash and cash equivalents (902,444) 883,464
Cash and cash equivalents, beginning of period 3,100,026 5,452,301
----------- -----------
Cash and cash equivalents, end of period $ 2,197,582 $ 6,335,765
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period
for:
Interest $ 289,580 $ 175,711
Income taxes 1,292,660 1,964,522
- 6 -
See accompanying notes to financial statements.
EVERLAST WORLDWIDE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
1. The Company and basis of presentation:
The consolidated financial statements presented herein as of June 30,
2002 and for the six months ended June 30, 2002 and 2001 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 consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q. The results
of operations for the three month and six month period ended June 30,
2002 are not necessarily indicative of the results that may be expected
for any other interim period or the full year ending December 31, 2002.
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 and contingent consideration pursuant to the merger agreement
dated October 24, 2000. 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, 2002 and 2001.
The number of shares used in the computation of basic earnings per
common share was 3,098,936 at June 30, 2002 and 2001. The number of
shares used in the computation of diluted earnings per common share was
4,027,215 and 4,621,139 at June 30, 2002 and 2001, respectively.
3. Inventories:
Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market.
June 30, 2002 December 31, 2001
------------- -----------------
Raw materials $ 3,431,163 $ 3,154,346
Work-in-process 1,227,266 1,394,288
Finished goods 9,287,237 8,112,900
------------- ------------
$ 13,945,666 $ 12,661,534
============= ============
4. Reclassification:
Certain items on the 2001 financial statements have been reclassified to
conform to 2002 presentations.
5. Redeemable participating preferred stock dividend:
In March 2002, the Company paid $1,702,164 to the holders of Series A
Redeemable Participating Preferred Stock (the "Preferred Stock"),
representing dividends accumulated through December 31, 2001. These
- 7 -
dividends were equal to two-thirds (2/3) of the net after tax profits
after adding back goodwill amortization. In 2002 and years subsequent,
the dividend is reduced in proportion to the redeemed Preferred Stock.
The percentage of net income, as defined in the Company's October 24,
2000 Merger Agreement, to be paid to holders of the Preferred Stock is
as follows:
Twelve months ending December 31, 2002 59.3%
2003 51.9%
2004 44.4%
2005 37.0%
2006 29.6%
2007 22.2%
2008 14.8%
2009 7.4%
The mandatory redemption requirements are as follows:
Twelve months ending December 31, 2002 $5,000,000
2003 5,000,000
2004 5,000,000
2005 5,000,000
2006 5,000,000
2007 5,000,000
2008 5,000,000
2009 5,000,000
6. Recent pronouncements:
In June 2001, the FASB issued SFAS No. 141, "Business Combinations," and
SFAS No. 142, "Goodwill and Other Intangible Assets." Under these new
standards, all acquisitions subsequent to June 30, 2001 must be
accounted for under the purchase method of accounting, and purchased
goodwill is no longer amortized over its useful life. Rather, goodwill
will be subject to a periodic impairment test based upon its fair value,
at least annually. The Company has completed its transitional intangible
asset impairment test and no impairment loss has been recognized. SFAS
No. 142 further clarifies the recognition of intangible assets
separately from goodwill. Identifiable intangible assets will be
amortized when their useful life is determined not to be infinite.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations" ("SFAS 143"). SFAS 143 establishes accounting
standards for recognition and measurement of a liability for the costs
of asset retirement obligations. Under SFAS 143, the costs of retiring
an asset will be recorded as a liability when the retirement obligation
arises, and will be amortized to expense over the life of the asset.
In October 2001, the FASB issued SFAS No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144
addresses financial accounting and reporting for the impairment or
disposal of long-lived assets and discontinued operations.
The Company has adopted these statements effective as of January 1,
2002, and does not expect them to have a material impact on its
consolidated financial position or results of operations.
-8-
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Report on Form 10-Q 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
Everlast Worldwide Inc. is a Delaware corporation organized on July
6, 1992. The Company is engaged in the design, manufacture, marketing and sale
of women's activewear, sportswear, swimwear and coverups; and the design,
manufacture, marketing and sale of men's activewear, sportswear and outerwear
(the "Apparel Products") each featuring the widely-recognized Everlast(R)
trademark. As a result of the merger (the "Merger") of Everlast Holding Corp.,
the parent company of Everlast World's Boxing Headquarters Corp., into Active
Apparel New Corp., a wholly-owned subsidiary of the Company, the Company became
a manufacturer of sporting goods related to the sport of boxing such as boxing
gloves, heavy bags, speed bags, boxing trunks, and miscellaneous gym equipment
that are sold through sporting goods stores, mass merchandisers, catalog
operations, gymnasiums, and martial arts studios. The Company's wholly-owned
subsidiary, Everlast World's Boxing Headquarters, Inc., licenses the Everlast(R)
trademark to numerous companies that source and manufacture products such as
men's, women's and children's apparel, footwear, cardiovascular equipment, back
to school stationery, eyewear, sports bags, hats and other accessories.
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, 2002 compared to quarter ended June 30, 2001
Net sales increased to $14,725,911 for the three months ended June 30,
2002 from $12,346,009 for the three months ended June 30, 2001, an increase of
$2,379,902 or 19.3%. This increase in sales was principally attributable to the
additional sales of Apparel Products due to increased market penetration.
Gross profit increased to $4,581,859 for the three months ended June 30,
2002 from $4,434,648 for the three months ended June 30, 2001, an increase of
$147,211 or 3.3%. Gross profit decreased as a percentage of net sales to 31.1%
from 35.9%. This decrease as a percentage of net sales was primarily due to a
change in the Company's sales mix compared to the three months ended June 30,
2001.
Net license revenues were $1,418,950 for the three months ended June 30,
2002 from $1,214,455 for the three months ended June 30, 2001, an increase of
$204,495 or 16.8%. The increase in license revenues was primarily due to new
license agreements and increased revenues on existing licenses.
Selling and shipping expenses increased to $3,079,581 for the three
months ended June 30, 2002 from $2,795,171 for the three months ended June 30,
2001, an increase of $284,410 or 10.2%. Selling and shipping expenses as a
percentage of net sales decreased to 20.9% from 22.6%. This 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 $1,348,413 for the
three months ended June 30, 2002 from $1,255,219 for the three months ended June
-9-
30, 2001, an increase of $93,194, or 7.4%. General and administrative expenses
as a percentage of net sales decreased to 9.2% from 10.2%. This decrease as a
percentage of net sales was primarily attributable to the increase in sales as
it relates to the fixed nature of general and administrative expenses.
Interest expense increased to $168,478 for the three months ended June
30, 2002 from $138,825 for the three months ended June 30, 2001, an increase of
$29,653 or 21.4%. The increase is attributable to the increase in the Company's
net borrowings from its factor to finance growth.
Operating income decreased to $1,404,337 for the three months ended June
30, 2002 from $1,459,888 for the three months ended June 30, 2001, a decrease of
$55,551, or 3.8% for the reasons stated in the preceding paragraphs. Operating
income as a percentage of net sales was 9.5% for the three months ended June 30,
2002 as compared to 11.8% for the three months ended June 30, 2001. This
decrease was primarily due to lower gross margins received for the Company's
products.
Amortization expense decreased to $233,878 for the three months ended
June 30, 2002 from $282,955 for the three months ended June 30, 2001, a decrease
of $49,077, or 17.3%. This decrease is attributable to new standards established
by the Financial Accounting Standards Board which eliminates the amortization of
goodwill. Goodwill amortization was $34,955 for the three months ended June 30,
2001.
The Company earned $7,047 of investment income for the three months
ended June 30, 2002 as compared to $107,511 for the three months ended June 30,
2001, a decrease of $100,464, or 93.5%. This decrease is attributable to cash
used to redeem the Preferred Stock and pay the participating dividend.
The Company incurred a tax provision of $588,242 for the three months
ended June 30, 2002 as compared to $679,701 for the three months ended June 30,
2001, a decrease of $91,459.
The Company had net income of $589,264 for the three months ended June
30, 2002 as compared to $604,743 for the three months ended June 30, 2001, a
decrease of $15,479, or 2.6% for the reasons stated in the preceding paragraphs.
As a result of the Merger, the Company was required to pay, in the first
year, a dividend equal to the product of 2/3 of the sum of the net after tax
profits plus goodwill amortization. In subsequent years, the dividend is reduced
in proportion to the redeemed Preferred Stock. The dividend payable for the
three months ended June 30, 2002 is $349,191 as compared to $426,461 for the
three months ended June 30, 2001, a decrease of $77,270, or 18.1%. The 2002
dividend will be equal to 59.3% of net after tax profits plus goodwill
amortization, if applicable.
Six months ended June 30, 2002 compared to six months ended June 30, 2001
Net sales increased to $30,460,507 for the six months ended June 30,
2002 from $24,560,215 for the six months ended June 30, 2001, an increase of
$5,900,292 or 24.0%. This increase in sales was principally attributable to the
additional sales of Sports Products and Apparel Products due to increased market
penetration.
Gross profit increased to $9,855,625 for the six months ended June 30,
2002 from $8,610,923 for the six months ended June 30, 2001, an increase of
$1,244,702 or 14.5%. Gross profit decreased as a percentage of net sales to
32.4% from 35.1%. This decrease as a percentage of net sales was primarily due
to a change in the Company's sales mix compared to the six months ended June 30,
2001.
Net license revenues were $2,803,617 for the six months ended June 30,
2002 from $2,403,183 for the six months ended June 30, 2001, an increase of
$400,434 or 16.7%. The increase in license revenues was primarily due to new
license agreements and increased revenues on existing licenses.
-10-
Selling and shipping expenses increased to $5,882,041 for the six months
ended June 30, 2002 from $5,299,687 for the six months ended June 30, 2001, an
increase of $582,354 or 11.0%. Selling and shipping expenses as a percentage of
net sales decreased to 19.3% from 21.6%. This 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 $3,069,845 for the six
months ended June 30, 2002 from $2,655,891 for the six months ended June 30,
2001, an increase of $413,954, or 15.6%. General and administrative expenses as
a percentage of net sales decreased to 10.1% from 10.8%. This decrease as a
percentage of net sales was primarily attributable to the increase in sales as
it relates to the fixed nature of general and administrative expenses.
Interest expense increased to $319,580 for the six months ended June 30,
2002 from $231,485 for the six months ended June 30, 2001, an increase of
$88,095 or 38.1%. The increase is attributable to the increase in the Company's
net borrowings from its factor to finance growth.
Operating income increased to $3,387,776 for the six months ended June
30, 2002 from $2,827,043 for the six months ended June 30, 2001, an increase of
$560,733, or 19.8% for the reasons stated in the preceding paragraphs. Operating
income as a percentage of net sales was 11.1% for the six months ended June 30,
2002 as compared to 11.5% for the six months ended June 30, 2001. This decrease
was primarily due to lower gross margins received for the Company's products.
Amortization expense decreased to $467,756 for the six months ended June
30, 2002 from $549,510 for the six months ended June 30, 2001, a decrease of
$81,754, or 14.9%. This decrease is attributable to new standards established by
the Financial Accounting Standards Board which eliminates the amortization of
goodwill. Goodwill amortization was $93,177 for the six months ended June 30,
2001.
The Company earned $13,658 of investment income for the six months ended
June 30, 2002 as compared to $189,906 for the six months ended June 30, 2001, a
decrease of $176,248, or 92.8%. This decrease is attributable to cash used to
redeem the Preferred Stock and pay the participating dividend.
The Company incurred a tax provision of $1,400,432 for the six months
ended June 30, 2002 as compared to $1,348,776 for the six months ended June 30,
2001, an increase of $51,656.
The Company had net income of $1,533,246 for the six months ended June
30, 2002 as compared to $1,118,663 for the six months ended June 30, 2001, an
increase of $414,583, or 37.1% for the reasons stated in the preceding
paragraphs.
As a result of the Merger, the Company was required to pay, in the first
year, a dividend equal to the product of 2/3 of the sum of the net after tax
profits plus goodwill amortization. In subsequent years, the dividend is reduced
by the percentage of the redeemed portion of the Preferred Stock. The dividend
payable for the six months ended June 30, 2002 is $908,586. The 2002 dividend is
payable on March 15, 2003.
Liquidity and Capital Resources
Net cash provided by operating activities for the six months ended June
30, 2002 was $870,251 compared to $162,511 for the six months ended June 30,
2001. This increase was primarily attributable to a decrease in receivables and
an increase in net income. Net cash used for investing activities for the six
months ended June 30, 2002 was $193,476 compared to $731,006 provided for the
six months ended June 30, 2001. This decrease was primarily the result of
-11-
$950,000 of cash released from restriction upon repayment of the industrial
revenue bond during the six months ended June 30, 2001.
Net cash used for financing activities for the six months ended June 30,
2002 was $1,579,219 compared to $10,053 for the six months ended June 30, 2001,
an increase of $1,569,166. This increase was primarily attributable to the
payment of the dividend on the Preferred Stock.
During the six months ended June 30, 2002, the Company's primary need
for funds was to finance working capital for the growth in net sales of the
Company's Apparel Products and Sports Products and the payment of the Preferred
Stock dividend. The Company has relied primarily upon cash and cash equivalents
on hand, cash flow from operations and advances drawn against factored
receivables to finance its operations and expansion. At June 30, 2002, cash and
cash equivalents were $2,197,582 compared to $6,335,765 at June 30, 2001, a
decrease of $4,138,183; working capital was $15,454,660 compared to $18,110,237
at June 30, 2001 a decrease of $2,655,577. These decreases were primarily
attributable to cash paid for the mandatory redemption of the Preferred Stock
and the payment of the dividend on the Preferred Stock.
The balance due from the 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 June 30, 2002, due from factor was $3,743,386 as
compared to $3,452,389 at June 30, 2001. This increase is the result of an
increase in sales assigned to the factor. The Company's inventory increased to
$13,945,666 at June 30, 2002 as compared to $11,160,520 at June 30, 2001 due to
an increase in booked and anticipated orders.
As a result of the Merger the Company assumed an obligation to make
mandatory principal and interest payments to holders of industrial revenue bonds
issued to finance the 1996 construction of the Company's manufacturing facility
in Moberly, Missouri. The industrial revenue bonds were secured by a letter of
credit that expired on April 30, 2001. On April 16, 2001 the Company redeemed
the industrial revenue bonds in the amount of $3,350,000. To redeem the bonds
the Company borrowed $3,350,000 from the factor, secured by the Company's
Apparel Products inventory. It is the Company's intention to refinance this
amount on a long term basis.
Management anticipates it will maintain sufficient cash, cash equivalent
balances, short term investments and a net surplus position with the factor,
although no assurance to that effect can be given. Positive cash flow, if it
occurs, will create working capital to fund the Company's continued growth over
the next 12 months, the mandatory redemption requirements of the Preferred Stock
due on December 31, 2002 and the Preferred Stock dividend due on March 15, 2003.
If a positive cash flow does not occur, there will be a decrease in cash, cash
equivalent balances and short term investments or borrowings with the factor
and/or other lenders will increase.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
On June 14, 2002, 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, 2002. The votes on such matters were as
follows:
1. Election of directors:
For Withheld
--- --------
George Horowitz 3,154,140 8,895
Rita Cinque Kriss 3,158,290 4,745
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James Anderson 3,158,390 4,645
Edward Epstein 3,158,290 4,745
Larry Kring 3,157,240 5,795
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, 2002.
For Against Abstain
------------ ------- --------
3,149,820 5,315 7,900
Messrs. Ben Nadorf and Wayne Nadorf are continuing directors and who
were separately elected by the holders of the Preferred Stock. Their terms as
directors expire concurrent with the terms of other directors elected at this
annual meeting.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
99.1 Statement under oath of Chief Executive
Officer dated August 13, 2002 filed herewith
99.2 Statement under oath of Chief Financial
Officer dated August 13, 2002 filed herewith
(b) Reports on Form 8-K
None
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In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
EVERLAST WORLDWIDE INC.
Date: August 13, 2002 By:/s/ George Q Horowitz
---------------- --------------------------
Name: George Q Horowitz
Title:Chief Executive Officer,
President, and Treasurer
By:/s/ Matthew F. Mark
------------------------------------
Name: Matthew F. Mark
Title: Chief Financial Officer,
Chief Accounting Officer,
And Vice President Finance
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