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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 September 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
-------
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 November 8,
2002 was 2,998,936 shares of Common Stock, $.002 par value, and 100,000 shares
of Class A Common Stock, $.01 par value.
Form 10-Q
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
Item 4. Controls and Procedures 12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
Section 302 Certification of Principal Executive Officer 15
Section 302 Certification of Principal Financial Officer 16
-2-
EVERLAST WORLDWIDE INC.
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2 0 0 2 2 0 0 1
------- -------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 2,063,951 $ 3,100,026
Marketable equity securities 307,320 457,308
Accounts receivable - net 6,589,618 6,447,168
Due from factor 2,272,120 2,669,848
Inventories 14,058,923 12,661,534
Prepaid expenses and other current assets 1,123,242 730,882
------------ ------------
Total current assets 26,415,174 26,066,766
Property and equipment, net 6,221,504 6,318,284
Goodwill 6,718,492 6,718,492
Intangible assets 25,629,861 26,314,365
Other assets 1,408,599 1,204,715
------------ ------------
$ 66,393,630 $ 66,622,622
============ ============
LIABILITIES, REDEEMABLE PARTICIPATING PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,585,519 $ 4,728,613
Current maturities of long term debt 132,321 79,719
Note payable 1,000,000 3,350,000
Accrued expenses and other current liabilities 1,776,578 1,652,267
Preferred stock dividend payable 1,449,062 1,702,164
------------ ------------
Total current liabilities 7,943,480 11,512,763
License deposits payable 794,875 688,723
Long term debt, net of current maturities 2,528,394 140,508
------------ ------------
Total liabilities 11,266,749 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 4,203,976 3,207,736
Accumulated other comprehensive income 673 150,660
------------ ------------
15,854,100 15,007,847
Less treasury stock, at cost (174,000 common shares) (727,219) (727,219)
------------ ------------
15,126,881 14,280,628
------------ ------------
$ 66,393,630 $ 66,622,622
============ ============
- 3 -
See accompanying notes to financial statements
EVERLAST WORLDWIDE INC.
CONSOLIDATED STATEMENTS OF INCOME
Three months ended Nine months ended
September 30, September 30,
------------- -------------
2 0 0 2 2 0 0 1 2 0 0 2 2 0 0 1
------- ------- ------- -------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net sales $ 16,905,001 $ 14,264,997 $ 47,365,508 $ 38,825,212
Cost of goods sold 11,580,971 9,398,676 32,185,853 25,347,968
------------ ------------ ------------ ------------
Gross profit 5,324,030 4,866,321 15,179,655 13,477,244
Net license revenues 1,387,712 1,366,881 4,191,329 3,770,064
------------ ------------ ------------ ------------
6,711,742 6,233,202 19,370,984 17,247,308
------------ ------------ ------------ ------------
Operating expenses:
Selling and shipping 3,373,159 2,518,537 9,255,200 7,818,224
General and administrative 1,378,543 1,354,726 4,448,388 4,010,617
Interest expense 203,542 153,263 523,122 384,748
------------ ------------ ------------ ------------
4,955,244 4,026,526 14,226,710 12,213,589
------------ ------------ ------------ ------------
Income from operations 1,756,498 2,206,676 5,144,274 5,033,719
------------ ------------ ------------ ------------
Other income (expense):
Amortization (233,878) (265,032) (701,634) (814,542)
Investment income 23,217 19,175 36,875 209,081
------------ ------------ ------------ ------------
(210,661) (245,857) (664,759) (605,461)
------------ ------------ ------------ ------------
Income before provision for income taxes 1,545,837 1,960,819 4,479,515 4,428,258
Provision for income taxes 633,780 832,677 2,034,213 2,181,453
------------ ------------ ------------ ------------
Net income $ 912,057 $ 1,128,142 $ 2,445,302 $ 2,246,805
============ ============ ============ ============
Redeemable preferred stock dividend 540,477 776,693 1,449,062 1,584,548
------------ ------------ ------------ ------------
Net income available to common shareholders $ 371,580 $ 351,449 $ 996,240 $ 662,257
============ ============ ============ ============
Basic earnings per common share $ .12 $ .11 $ .32 $ .21
============ ============ ============ ============
Diluted earnings per common share $ .06 $ .06 $ .17 $ .12
============ ============ ============ ============
- 4 -
See accompanying notes to financial statements.
EVERLAST WORLDWIDE INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 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 - Nine months
ended September 30, 2001 $2,246,805 -------- ------ ------- ------ ------------ 2,246,805
Unrealized holding gain 20,564
----------
Comprehensive Income $2,267,369
----------
Redeemable preferred stock
dividend (1,584,549)
Balance, September 30, 2001 2,998,936 $6,346 100,000 $1,000 $11,642,105 $3,205,936
========= ====== ======= ====== ============ ==========
Balance, December 31, 2001 2,998,936 $6,346 100,000 $1,000 $11,642,105 $3,207,736
Comprehensive income:
Net income - Nine months
ended September 30, 2002 $2,445,302 2,445,302
Unrealized holding loss (149,987)
Comprehensive income $2,295,314
==========
Redeemable preferred stock
dividend (1,449,062)
--------- ------ ------- ------ ----------- ----------
Balance, September 30, 2002 2,998,936 $6,346 100,000 $1,000 $11,642,105 $4,203,976
========= ====== ======= ====== =========== ============
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 - Nine months
ended September 30, 2001 2,246,805
Unrealized holding gain -------- ------- --------- 20,564
Comprehensive Income 20,564
Redeemable preferred stock
dividend (1,584,549)
Balance, September 30, 2001 $135,060 174,000 $(727,219) $14,263,228
======== ======= ========== ===========
Balance, December 31, 2001 $150,660 174,000 $(727,219) $ 14,280,628
Comprehensive income:
Net income - Nine months
ended September 30, 2002 2,445,302
Unrealized holding loss (149,987) (149,987)
Comprehensive income
Redeemable preferred stock
dividend (1,449,062)
-------- ------- --------- -----------
Balance, September 30, 2002 $673 174,000 $(727,219) $15,126,881
======== ======= ========== ===========
-5-
See accompanying notes to financial statements.
EVERLAST WORLDWIDE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended
September 30,
2 0 0 2 2 0 0 1
------- -------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net income $ 2,445,301 $ 2,246,805
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 391,630 376,509
Amortization 701,633 875,533
Increase in cash surrender value - life insurance (1,317)
Changes in assets (increase) decrease:
Accounts receivable (142,450) (2,594)
Due from factor 397,728 354,162
Inventory (1,397,389) (3,679,310)
Prepaid expenses and other current assets (392,360) (639,439)
Other assets (219,692) (216,020)
Changes in liabilities increase (decrease):
Accounts payable, accrued expenses
and other current liabilities (1,018,785) (361)
License deposits payable 106,152 84,761
----------- -----------
Net cash provided (used) by operating activities 870,452 (599,954)
----------- -----------
Cash flows from investing activities:
Restricted cash -- 950,000
Acquisition of property and equipment (128,802) (203,681)
----------- -----------
Net cash provided (used) by investing activities: (128,802) 746,319
----------- -----------
Cash flows from financing activities:
Payment of preferred stock dividend (1,702,164) --
Repayment of long term debt (75,561) (3,000)
Increase in loan payable factor 3,350,000
Repayment of industrial bonds -- (3,425,000)
----------- -----------
Net cash used by financing activities: (1,777,725) (78,000)
----------- -----------
Net increase (decrease) in cash and cash equivalents (1,036,075) 68,365
Cash and cash equivalents, beginning of period 3,100,026 5,452,301
----------- -----------
Cash and cash equivalents, end of period $ 2,063,951 $ 5,520,666
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 483,384 $ 384,748
Income taxes 1,400,176 1,974,589
Supplemental disclosure of non-cash investing and financing activities:
Acquisition of property and equipment financed by capital lease $ 166,048 $ 121,898
- 6 -
See accompanying notes to financial statements.
EVERLAST WORLDWIDE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 AND 2001
1. The Company and basis of presentation:
The consolidated financial statements presented herein as of September
30, 2002 and for the nine months ended September 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 nine month period ended September
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
September 30, 2002 and 2001.
The number of shares used in the computation of basic earnings per
common share was 3,098,936 at September 30, 2002 and 2001. The number of
shares used in the computation of diluted earnings per common share was
5,766,867 and 5,762,435 at September 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.
September 30, 2002 December 31, 2001
------------------ -----------------
Raw materials $ 3,877,690 $ 3,154,346
Work-in-process 1,337,718 1,394,288
Finished goods 8,843,515 8,112,900
----------- -----------
$14,058,923 $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
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,
-7-
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 Corp., 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 SEPTEMBER 30, 2002 COMPARED TO QUARTER ENDED SEPTEMBER 30, 2001
Net sales increased to $16,905,001 for the three months ended September
30, 2002 from $14,264,997 for the three months ended September 30, 2001, an
increase of $2,640,004 or 18.5%. This increase in sales was principally
attributable to the additional sales of Apparel Products and Sports Products due
to increased market penetration.
Gross profit increased to $5,324,030 for the three months ended
September 30, 2002 from $4,866,321 for the three months ended September 30,
2001, an increase of $457,709 or 9.4%. Gross profit decreased as a percentage of
net sales to 31.5% from 34.1%. 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 September 30, 2001.
Net license revenues were $1,387,712 for the three months ended
September 30, 2002 from $1,366,881 for the three months ended September 30,
2001, an increase of $20,831 or 1.5%. The increase in license revenues was
primarily due to new license agreements and increased revenues on existing
licenses.
Selling and shipping expenses increased to $3,373,159 for the three
months ended September 30, 2002 from $2,518,537 for the three months ended
September 30, 2001, an increase of $854,622 or 33.9%. Selling and shipping
expenses as a percentage of net sales increased to 20.0% from 17.7%. This
increase as a percentage of net sales was primarily attributable to the increase
in selling commissions, advertising and promotional expenses to increase brand
awareness, for the three months ended September 30, 2002.
General and administrative expenses increased to $1,378,543 for the
three months ended September 30, 2002 from $1,354,726 for the three months ended
September 30, 2001, an increase of $23,817, or 1.8%. General and administrative
-9-
expenses as a percentage of net sales decreased to 8.2% from 9.5%. 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 $203,542 for the three months ended
September 30, 2002 from $153,263 for the three months ended September 30, 2001,
an increase of $50,279 or 32.8%. The increase is attributable to the increase in
the Company's net borrowings from its factor to finance growth.
Operating income decreased to $1,756,498 for the three months ended
September 30, 2002 from $2,206,676 for the three months ended September 30,
2001, a decrease of $450,178, or 20.4% for the reasons stated in the preceding
paragraphs. Operating income as a percentage of net sales was 10.4% for the
three months ended September 30, 2002 as compared to 15.5% for the three months
ended September 30, 2001. This decrease was primarily due to lower gross margins
received for the Company's products and an increase in selling and shipping
expense.
Amortization expense decreased to $233,878 for the three months ended
September 30, 2002 from $265,032 for the three months ended September 30, 2001,
a decrease of $31,154, or 11.8%. This decrease is attributable to new standards
established by the Financial Accounting Standards Board which eliminates the
amortization of goodwill. Goodwill amortization was $43,347 for the three months
ended September 30, 2001.
The Company earned $23,217 of investment income for the three months
ended September 30, 2002 as compared to $19,175 for the three months ended
September 30, 2001, an increase of $4,042, or 21.1%.
The Company incurred a tax provision of $633,780 for the three months
ended September 30, 2002 as compared to $832,677 for the three months ended
September 30, 2001, a decrease of $198,897.
The Company had net income of $912,057 for the three months ended
September 30, 2002 as compared to $1,128,142 for the three months ended
September 30, 2001, a decrease of $216,085, or 19.2% 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 September 30, 2002 is $540,477 as compared to $776,693 for
the three months ended September 30, 2001, a decrease of $236,216, or 30.4%. The
2002 dividend will be equal to 59.3% of net after tax profits plus goodwill
amortization, if applicable.
NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2001
Net sales increased to $47,365,508 for the nine months ended
September 30, 2002 from $38,825,212 for the nine months ended September 30,
2001, an increase of $8,540,296 or 22.0%. 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 $15,179,655 for the nine months ended
September 30, 2002 from $13,477,244 for the nine months ended September 30,
2001, an increase of $1,702,411 or 12.6%. Gross profit decreased as a percentage
of net sales to 32.0% from 34.7%. This decrease as a percentage of net sales was
primarily due to a change in the Company's sales mix compared to the nine months
ended September 30, 2001.
Net license revenues were $4,191,329 for the nine months ended September
30, 2002 from $3,770,064 for the nine months ended September 30, 2001, an
increase of $421,265 or 11.2%. 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 $9,255,200 for the nine
months ended September 30, 2002 from $7,818,224 for the nine months ended
September 30, 2001, an increase of $1,436,976 or 18.4%. Selling and shipping
expenses as a percentage of net sales decreased to 19.5% from 20.1%. 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 $4,448,388 for the nine
months ended September 30, 2002 from $4,010,617 for the nine months ended
September 30, 2001, an increase of $437,771, or 10.9%. General and
administrative expenses as a percentage of net sales decreased to 9.4% from
10.3%. 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 $523,122 for the nine months ended
September 30, 2002 from $384,748 for the nine months ended September 30, 2001,
an increase of $138,374 or 36.0%. The increase is attributable to the increase
in the Company's net borrowings from its factor to finance growth.
Operating income increased to $5,144,274 for the nine months ended
September 30, 2002 from $5,033,719 for the nine months ended September 30, 2001,
an increase of $110,555, or 2.2% for the reasons stated in the preceding
paragraphs. Operating income as a percentage of net sales was 10.9% for the nine
months ended September 30, 2002 as compared to 13.0% for the nine months ended
September 30, 2001. This decrease was primarily due to lower gross margins
received for the Company's products.
Amortization expense decreased to $701,634 for the nine months ended
September 30, 2002 from $814,542 for the nine months ended September 30, 2001, a
decrease of $112,908, or 13.9%. This decrease is attributable to new standards
established by the Financial Accounting Standards Board which eliminates the
amortization of goodwill. Goodwill amortization was $130,042 for the nine months
ended September 30, 2001.
The Company earned $36,875 of investment income for the nine months
ended September 30, 2002 as compared to $209,081 for the nine months ended
September 30, 2001, a decrease of $172,206, or 82.4%. This decrease is
attributable to cash used to redeem the Preferred Stock and pay the
participating dividend.
The Company incurred a tax provision of $2,034,213 for the nine months
ended September 30, 2002 as compared to $2,181,453 for the nine months ended
September 30, 2001, a decrease of $147,240.
The Company had net income of $2,445,302 for the nine months ended
September 30, 2002 as compared to $2,246,805 for the nine months ended September
30, 2001, an increase of $198,497, or 8.8% 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 nine months ended September 30, 2002 is $1,449,062. The 2002
dividend is payable on March 15, 2003.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for the nine months ended
September 30, 2002 was $870,452 compared to $599,954 used for the nine months
ended September 30, 2001. This increase was primarily attributable to a smaller
increase in the level of inventory on hand compared to September 30, 2001 offset
-11-
in part by lower accounts payable. Net cash used for investing activities for
the nine months ended September 30, 2002 was $128,802 compared to $746,319
provided for the nine months ended September 30, 2001. This decrease was
primarily the result of $950,000 of cash released from restriction upon
repayment of the industrial revenue bond during the nine months ended September
30, 2001.
Net cash used for financing activities for the nine months ended
September 30, 2002 was $1,777,725 compared to $78,000 for the nine months ended
September 30, 2001, an increase of $1,699,725. This increase was primarily
attributable to the payment of the dividend on the Preferred Stock.
During the nine months ended September 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 September 30, 2002, cash
and cash equivalents were $2,063,951 compared to $5,520,666 at September 30,
2001, a decrease of $3,456,715; working capital was $18,471,696 compared to
$18,760,306 at September 30, 2001 a decrease of $288,610. 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 September 30, 2002, due from factor was $2,272,120
as compared to $3,298,191 at September 30, 2001. This decrease represents cash
used to pay the dividend, net of cash generated from operations. The Company's
inventory increased to $14,058,923 at September 30, 2002 as compared to
$12,395,244 at September 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. On October 4, 2002 the Company refinanced this
obligation with a finance company, secured by a mortgage on the Moberly
facility. The mortgage obligation is further collateralized by a standby letter
of credit issued by the factor in the amount of $1,000,000. The letter of credit
is secured by restricted cash deposited with the factor.
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.
Item 4. CONTROLS AND PROCEDURES
Based on their evaluation, as of a date within 90 days of the filing of this
Form 10-Q, the Company's Chief Executive Officer and Chief Financial Officer
have concluded the Company's disclosure controls and procedures (as defined in
Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934) are
effective. There have been no significant changes in internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
-12-
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
99.1 Statement under oath of Chief Executive
Officer dated November 12, 2002 filed herewith
99.2 Statement under oath of Chief Financial
Officer dated November 12, 2002 filed herewith
(b) Reports on Form 8-K
None
-13-
Pursuant to 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.
Date: November 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
-14-
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
Section 302 Certification
I, George Q Horowitz, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Everlast
Worldwide Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 12, 2002 By:/s/ George Q Horowitz
--------------------------
George Q Horowitz
Chief Executive Officer
-15-
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
Section 302 Certification
I, Matthew F. Mark, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Everlast
Worldwide Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 12, 2002 By: /s/ Matthew F. Mark
------------------------------------
Name: Matthew F. Mark
Chief Financial Officer
-16-