Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURUSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2002
OR
[ ] 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 Identification No.)
incorporation or organization)
1350 Broadway, Suite 2300, New York, New York 10018
- ---------------------------------------------- ------------
(Address of principal executive offices) Zip Code
Registrant's Telephone Number (212) 239-0990
--------------
Securities registered under Section 12(b) of the Exchange Act:
Name of Each Exchange
Title Of Each Class On Which Registered
------------------- -------------------
None None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.002 par value
------------------------------
(TITLE OF CLASS)
Indicate by check mark 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
----- ----
Indicate by check mark if disclosure of delinquent filers in
response to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated
filer (as defined in the Exchange Act Rule 12b-2). YES NO X
--- ---
On March 25, 2003, the aggregate market value of the voting stock
held by non-affiliates of the registrant was approximately $5,245,668 based upon
the average of the highest and lowest bid quotations for such Common Stock as
obtained from the Nasdaq Stock Market on that date. Solely for the purpose of
this calculation, shares held by directors and officers of the registrant have
been excluded. Such exclusion should not be deemed a determination or an
admission by registrant that such individuals are, in fact, affiliates of the
registrant.
The number of shares outstanding on March 25, 2003 was 3,008,236
shares of Common Stock, $.002 par value, and 100,000 shares of Class A Common
Stock, $.01 par value.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Items 10 through 13 of this Annual
Report on Form 10-K is incorporated by reference from the issuer's definitive
proxy materials for its 2003 Annual Meeting of Stockholders, which proxy
materials are to be filed with the Securities and Exchange Commission not later
than April 30, 2003.
TABLE OF CONTENTS
Page
----
PART I
Item 1 Business...............................................................1
Item 2 Properties............................................................11
Item 3 Legal Proceedings.....................................................12
Item 4 Submission of Matters to a Vote of Security Holders...................12
PART II
Item 5 Market for Common Equity and Related
Stockholder Matters...................................................12
Item 6 Selected Financial Data...............................................14
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................15
Item 7A Quantitative and Qualitative Disclosures About Market Risk............20
Item 8 Financial Statements and Supplementary Data...........................20
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure..............................................20
PART III
Item 10 Directors and Executive Officers of the Registrant....................21
Item 11 Executive Compensation................................................21
Item 12 Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters .......................21
Item 13 Certain Relationships and Related Transactions........................21
PART IV
Item 14 Controls and Procedures...............................................21
Item 15 Exhibits, Financial Statement Schedules and Reports on Form 8-K.......21
Signatures......................................................................24
PLEASE NOTE THAT THE COMPANY HAS USED SOME TERMS IN THIS ANNUAL REPORT WHICH MAY
BE REGISTERED TRADEMARKS WHICH IT DOES NOT OWN. THE COMPANY HAS MARKED THESE
TERMS WITH AN ASTERISK ('*') AND HAS USED THEM WITHOUT THE PERMISSION OF THE
HOLDERS OF SUCH REGISTERED TRADEMARKS.
PART I
ITEM 1. BUSINESS
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 and sportswear, 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. The Company has
retained the exclusive right to use and distribute these Apparel Products in the
United States, its territories and possessions (collectively, the "United
States") and to distribute its women's activewear and sportswear in Canada, its
provinces, territories and possessions (collectively, "Canada"). As a result of
the merger described below, Everlast World's Boxing Headquarters Corp., the
owner of the Everlast(R) trademark and 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, which are sold through sporting goods
stores, mass merchandisers, catalog operations, gymnasiums, and martial arts
studios, became a wholly-owned subsidiary of the Company. The Company licenses
the Everlast(R) trademark to numerous companies that design source and
manufacture products such as men's, women's and children's apparel, sleepwear,
underwear, hosiery, footwear, leatherwear, cardiovascular equipment, eyewear,
sports bags, hats and other accessories. The Company is a member of the U.S.
Sporting Goods Manufacturers Association, the U.S. National Sporting Goods
Association, and the Canadian Sporting Goods Association.
The Merger
----------
On October 24, 2000 the Company completed a merger whereby Everlast
Holding Corp., the parent company of Everlast World's Boxing Headquarters Corp.
("Everlast"), was merged with and into Active Apparel New Corp., a wholly-owned
subsidiary of the Company (the "Merger"). As a result of the Merger, Everlast
became a wholly-owned subsidiary of the Company. The Merger involved (i) payment
of $10 million in cash; (ii) the issuance of an aggregate of 505,000 shares of
common stock, $.002 par value of the Company (the "Common Stock") and an
aggregate of 45,000 shares of redeemable participating preferred stock, stated
value $1,000 per share (the "Preferred Stock"), to the former stockholders of
Everlast Holding Corp.; and (iii) payment of approximately $1.4 million in
transaction costs, for an aggregate purchase price of $61.9 million. If market
price levels of the Common Stock have not been achieved by October 24, 2005, the
Company will be required to issue additional shares of Common Stock or, at its
option, pay such amount in cash.
As a result of the Merger: (i) the board of directors of the Company
was expanded to seven members, two of whom are to be elected by the holders of
the Preferred Stock; (ii) employment contracts were entered into with a former
stockholder and sales employee of Everlast; (iii) a consulting contract was
entered into with a former consultant of Everlast; and (iv) George Horowitz,
President and Chief Executive Officer of the Company, was granted stock options
to purchase 125,000 shares of Common Stock at an exercise price of $4.00 per
share and options to purchase 380,000 shares of Common Stock at an exercise
price of $13.00 per share. The shares of Preferred Stock are entitled to a
dividend equal to two-thirds (2/3) of the net after tax profits after adding
back goodwill amortization and stock based compensation. In 2002 and years
thereafter, the dividend is reduced in proportion to the redeemed Preferred
Stock. The percentage of net income (as defined) to be paid to holders of
Preferred Stock is as follows:
1
Twelve months ended December 31 Percentage
2002 59.3
2003 51.9
2004 44.4
2005 37.0
2006 29.6
2007 22.2
2008 14.8
2009 7.4
For accounting purposes, the Merger was treated using the purchase
method of accounting. Under the purchase method, the aggregate purchase price is
allocated to the assets and liabilities acquired based upon the estimated fair
values of such assets and liabilities as of the date of acquisition. Any excess
of the consideration given over the fair market value of the identifiable net
assets acquired is treated as goodwill.
Everlast World's Boxing Headquarters Corp.
------------------------------------------
Everlast was founded in 1910 as a manufacturer of men's swimwear
under the name "Everlast." Soon thereafter, Everlast began to manufacture boxing
gloves, protective headgear, and related items. As the owner of the registered
trademark Everlast(R), Everlast also licensed its brand name world wide.
Everlast(R) is a leading brand name in boxing and a
widely-recognized brand name in boxing related sporting goods. Everlast is the
market leader in several of its product categories, including boxing gloves,
heavy bags, protective headgear and speed bags (the "Sports Products"). Sports
Products have been used or endorsed by boxers such as Jack Dempsey, Joe Louis,
"Sugar" Ray Robinson, Jake LaMotta, Muhammad Ali, Joe Frazier, George Foreman,
Larry Holmes, "Sugar" Ray Leonard, Evander Holyfield, Mike Tyson and "Sugar"
Shane Mosley.
PRODUCTS
The Company sells a diverse collection of consumer products which
encompasses apparel and sports products, and licenses the Everlast(R) trademark
to numerous companies which source or manufacture ancillary products such as
eyewear, sports bags, hats and other products. All business activities and
decisions as it relates to these products are made by the Company's executive
management.
Apparel Products
----------------
The Company sells a diverse collection of Apparel Products
consisting of women's and men's activewear, and sportswear, all under the
Everlast trademark and logo. The Apparel Products consist of approximately 200
separate products with varying styles and functions. These include fitness
apparel and sportswear made of nylon, fleece, cotton, Lycra spandex, and other
technical polyester fabrics with moisture management properties. The Apparel
Products are designed to feature the Everlast trademark and logo and to focus on
the use of appropriate fabric blends to maximize comfort and performance. The
retail prices for the Apparel Products generally range from $15 to $100.
2
Sports Products
---------------
The Company manufactures and markets a line of boxing related
sporting goods which consist primarily of the following:
(1) Boxing Gloves: These are Everlast's most recognizable product and
are made for professional, amateur, and home gym use. Everlast's
professional gloves are certified throughout the United States
and by the World Boxing Council*, World Boxing Association*,
International Boxing Organization* and World Boxing Organization*
for all of their professional fights;
(2) Heavy Bags: Everlast's heavy bags are punching bags weighing
between 25 and 150 lbs.;
(3) Speed Bags: Speed bags are small, air-filled bags which are
mounted on swivels and platforms (at eye level);
(4) Platforms: Platforms are the wall mountings used in suspending
speed or heavy bags;
(5) Boxing Trunks; and
(6) Miscellaneous Gym Equipment: In addition to the aforementioned
core offerings, Everlast also manufactures and markets the
following products to complement its product line: protective
headgear, protection cups, mouthpieces, hand wraps, boxing rings;
martial arts equipment, gym mats (assorted), and medicine balls.
Licensed Products
-----------------
The Company owns and utilizes the Everlast(R) trademark worldwide
and is registered with the United States Patent and Trademark Office and in many
foreign jurisdictions as well. The Company regards its Everlast(R) trademark as
its most valuable asset based on the evaluation of an independent consulting
firm. The Company believes the Everlast(R) trademark has significant value in
the marketing of the Company's products. The Company actively protects its
trademarks against infringement.
The Company licenses the Everlast(R) trademark to numerous companies
which source or manufacture ancillary products such as children's wear,
footwear, cardiovascular equipment, back to school stationery, eyewear, sports
bags, hats and other accessories. Licensing the Everlast(R) trademark has
enabled the Company to expand product offerings into arenas outside of its core
manufacturing arenas, to strengthen its brand image, and to increase
profitability, while at the same time minimizing inventory risk.
The Company utilizes a network of licensees for worldwide brand
distribution in the U.S. and over 78 foreign countries. It also sells directly
to distributors and retailers. In return for exclusive rights to market Sports
Products and accessories in certain regions, the licensees pay Everlast a fixed
royalty rate upon the net revenues, among other criteria, of the licensees.
3
MARKETING, ADVERTISING, AND PROMOTIONS
Apparel Products
----------------
The Company's advertising and promotional efforts are directed
towards the demographic customer profile for the Company's Apparel Products
which aim to heighten its visibility. The Company maintains its own marketing
and advertising staff which conceives and oversees implementation of most
aspects of the Company's advertising and sales promotions. In addition, the
Company has a graphic arts department that works with the marketing and
advertising staff to develop catalogs for all of the Company's product lines.
The Company advertises and promotes its Apparel Products to
different consumer segments through a variety of trade and consumer print
advertising campaigns, generally in selected magazines and other publications.
The Company also takes part in various cooperative advertising programs such as
national advertising, in-store signage, point-of-purchase promotional giveaways
and cooperative advertising arrangements with several of its retail customers,
which the Company believes assists in raising consumer awareness and increasing
retail floor space for its products. The Company has received continued exposure
in both the print and television media from famous celebrities and athletes
wearing the Apparel Products.
The Company also believes that grass roots promotional programs,
such as the limited distribution of samples of its Apparel Products to local
gyms, athletic clubs, and fitness professionals, help to advance the recognition
and reputation of its products. In addition, the Company has focused many of its
promotional programs on charitable and community events, such as the American
Heart Association's "Black Tie/Blue Jeans*" event, and the "A Funny Thing
Happened on the Way to Cure Parkinson's*," a New York fundraiser to raise funds
for Parkinson's Disease research. The Company also sponsors high school and
college women's basketball teams, and NBA* and NCAA* dance teams.
The Company attends and participates in the Sporting Goods
Manufacturers Association Supershow*, and MAGIC International* annual national
trade shows, and other appropriate trade shows.
Sports Products
---------------
The Company's Sports Products have received continued exposure
through coverage in movies, print media and television because of its
association with the history of boxing and its distribution of the Sports
Products to amateur and professional boxers for use in nationally televised
events. The Company has focused on bringing the brand back into the boxing ring
with multiple sponsored events, such as ESPN 2 Friday Night Fights*, a boxing
match benefiting the WTC Fund*, Everlast Heavyweight Explosion*, a monthly
boxing series televised on MSG* network and SRL Boxing Series* with Sugar Ray
Leonard.
The Company has promotional and consulting contracts with noted
boxing champions, trainers, and spokespersons, such as Sugar Shane Mosley, Fres
Oquendo, Chris Byrd, Steve Forbes, Sugar Ray Leonard, Larry Holmes, Sean
O'Grady, Cedric Kushner and Teddy Atlas. The Company uses the boxing industry
expertise and the relationships of these individuals to assist it in various
promotional activities designed to generate interest of the consumers in the
Sports Products.
The Company employs three full-time sales persons to promote the Sports
Products to professional and amateur boxers. Additionally, the Company has also
redesigned its professional line of boxing equipment and the product packaging
of its retail Sports Products. Finally, the Company's graphic arts department
has produced two new catalogs, one focusing on wholesalers for the consumer
retail market, and the other directed at the professional and amateur boxer.
4
Licensed Products
-----------------
The Company employs an executive responsible for developing a marketing
plan for expansion of the Licensed Products. The executive attends sporting
goods trade shows to promote the Everlast(R) brand name. Part of his duties are
to generate leads and to meet with potential licensees. The executive is also
responsible for renegotiating terms and possibly expanding the scope of existing
licensing agreements.
The licensing staff has been expanded with the hiring of a Director of
Global Licensing and a Manager of Licensing Marketing during the year ended
December 31, 2002. These additional employees will also assist the Company's
licensees to grow their Everlast businesses.
MANUFACTURING AND SUPPLIERS
Apparel Products
----------------
The Company does not manufacture any of its Apparel Products,
relying instead on independent contractors. Manufacturers in the United States
supply approximately 69% of the Apparel Products while the remaining 31% are
imported from manufacturers abroad, principally in Asia. Currently, the Company
uses over ten separate manufacturers. While the Company has no long-term
agreements with any of its contractors, the Company believes that it has good
relationships with each of them. The Company does not believe that the loss of
any particular contractor would have a material adverse effect on its business,
financial condition, or operations. The Company believes that alternative
sources of products would be readily available.
The supply of the Company's foreign made Apparel Products is subject
to constraints imposed by bilateral textile agreements between the United States
and foreign nations. Quotas are used to determine the amount and types of goods
which can be imported into the United States. Some of the Company's
manufacturers may be adversely affected by political instability in their
respective countries resulting in the disruption of trade, and the imposition of
additional regulations relating to imports or duties and taxes and other charges
on imports. In order to ensure quality control and timely delivery, the Company
(or its agents), conducts on-site inspections at manufacturers' facilities. See
"Quality Control." The Company's strategy is to find manufacturers with specific
product category expertise, such as with fitness apparel, tee shirts, or
outerwear, with extensive experience in the major athletic brand name apparel
industry. The Company has no long-term agreements with any of its manufacturers
and competes with other apparel companies for production capacity.
Sports Products
---------------
The Company runs two manufacturing facilities which produce most of
its Sports Products. The Company has a 235,000 square foot "cut and sew"
manufacturing facility in the Bronx, New York, where boxing gloves, speed bags,
boxing trunks, and other related items are produced. Additionally, the Company
has a 304,000 square foot manufacturing facility in Moberly, Missouri that is
used to produce heavier and more complicated products such as heavy bag and
speed bag platforms, heavy bags, and boxing rings.
Raw materials used to manufacture Sports Products are top-grain
leather, synthetic fabrics, canvas, assorted wood and steel tubing, as well as
various other materials used in stuffing gloves and heavy bags. These raw
materials are basic commodities, which the Company buys from several independent
suppliers. No one supplier accounts for more than ten percent (10%) of the
5
Company's purchases of raw materials. The majority of raw materials are obtained
domestically, with the exception of Nevatear(R), the material used in moderately
priced gloves, bags, and gym mats. Nevatear(R) is a vinyl coated fabric with
tire-cord nylon content designed to withstand years of usage. The primary
supplier for Nevatear(R) is Erez, an Israeli company. Alternate sources for
Nevatear(R) are widely available.
The Company also imports sub-assemblies and parts used in the
production of its finished Sports Products such as shells for heavy bags,
hardware, components for speed bags and finished products. The Company imports
approximately 40% of its purchased raw material, sub assemblies, and finished
goods.
INVENTORY MANAGEMENT
As of the year ended December 31, 2002, the Company's inventory for
both Apparel Products and Sports Products was $11,460,160 with net sales of
$65,613,012.
As of December 31, 2002, the Company's backlog of unfilled orders
for its Apparel Products and Sports Products was $8,473,476, which includes
$383,450 for Sports Products. The Company expects that substantially all of its
current orders will be shipped within 120 days of the receipt of such orders.
The Company's backlog can be affected by a variety of factors, including
scheduling of manufacturing, shipment of products, and customer preferences.
Apparel Products
----------------
The Company has installed an Electronic Data Interchange (EDI) Quick
Response Replenishment System for its Apparel Products to facilitate its effort
to fill customer orders in seven working days. The EDI Quick Response
Replenishment System requires a higher level of inventory than usual to
facilitate shipment. The Company also practices a "just in time" manufacturing
and purchasing program for its customers who don't have access to the EDI Quick
Response Replenishment System. The Company makes arrangements with its
manufacturers for delivery approximately 30 days before the scheduled shipment
of products to the Company's customers. The objectives of the "just-in-time"
system are twofold. One is to decrease the Company's inventory risk. The other
is to allow the Company flexibility in reaction to consumer responses to its
products as well as changing consumer preferences. The Company also schedules
shipments from its manufacturers in a manner that accounts for possible
manufacturing lateness and transport time from manufacturers to the Company's
warehouse facilities. At present, manufacturing delays have not been a material
factor in the Company's inventory management. However, the inability or
unwillingness of a manufacturer to ship orders of Apparel Products in a timely
manner could adversely affect the Company's ability to deliver Apparel Products
to its customers on time. Delays in delivery could result in missing certain
retailing seasons with respect to all or some of the Apparel Products and could
adversely affect the Company's relationship with its customers, which could have
a material adverse effect on the Company's business.
Sports Products
---------------
The Company uses a fully integrated inventory management system for
finished goods and the manufacturing of products by its factories. The Company
has an automated perpetual inventory for finished goods, raw materials and work
in progress merchandise. The Company has also incorporated its Sports Products
into an EDI Quick Response Replenishment System to fill sales orders for its
major retailers if they require it. Inventory levels of the Sports Products have
increased to accommodate the EDI Quick Response Replenishment System.
6
SALES AND DISTRIBUTION
For the fiscal years ended 2002, 2001 and 2000, The Sports Authority
Inc. ("Sports Authority") accounted for approximately 11%, 13% and 15% of net
sales of the Company, respectively. Sports Authority has been a customer of the
Company since its inception in 1992. There is no long-term contract between the
Company and Sports Authority. On February 20, 2003, Sports Authority and Gart's
Sports announced their intention to merge their operations. Gart's Sports
accounted for approximately 8% and 9% of the Company's net sales in fiscal years
ended 2002 and 2001, respectively. The Company believes that its business
relationships with both Sports Authority and Gart's Sports are excellent. The
Company also believes that if the surviving company in the merger of Sports
Authority and Gart's Sports ceases to do business with the Company, there may be
a material adverse effect on the Company's operation.
The Company's strategy is to expand its network of retailers carrying
the Company's products. The Company plans to focus on department stores,
specialty stores, sporting goods stores, catalog operations, and better mass
merchandisers for its Apparel Products and sporting goods stores, mass
merchandisers, gymnasiums and martial arts studios for its Sports Products. In
addition to a wholesale catalog for the retailers, the Company published a
Professional and Amateur Boxing Equipment catalog. Recent developments in
technology led the Company to re-engineer some of its professional and amateur
boxing equipment. Fighters, promoters and trainers can order product via the
catalog with a fax order form, a toll-free number or by visiting the Company's
web site @ www.everlastboxing.com.
Reference is made to page 30f of the Consolidated Financial Statements
of the Company for a breakdown of domestic and foreign sales for the fiscal
years ended December 31, 2002, 2001 and 2000.
Apparel Products
----------------
Apparel Products are distributed through department stores,
specialty stores, sporting goods stores, catalog operations and better mass
merchandisers, encompassing over 20,000 retail locations throughout the United
States and Canada. The retailers selling Apparel Products include Federated
Department Stores*, Champs Sports*, Modell's*, Gart's Sports*, Acadamy*, The
Sports Authority* Sports Chalet* and the Army Air Force Exchange*. Apparel
Products are also sold through the Internet at the Company's web site, and other
third party web sites such as MCSports.com*, TSA.com* and Garts.com*.
The Company currently has ten in-house sales representatives and
thirteen non-employee sales representatives for its Apparel Products. Mr. George
Horowitz, the Company's President and Chief Executive Officer, and the Company's
senior executive, coordinates sales and manages the representatives to ensure
that the sales representatives project a consistent and unified image of the
Company to customers.
The Company cooperates with major retailers to gauge promptly which
of the styles of its Apparel Products are the most popular, and tracks consumer
preferences regarding its Apparel Products. Based upon its market data, as well
as information gained from trade shows, the Company attempts to shift its
production orders toward styles that are most popular. This shift may take up to
a maximum of eight weeks. Many of the retail stores offering the Company's
products rely upon the Company's market information and solicit the Company's
advice regarding the products and quantities to order. Since most of the
Company's products are manufactured in the United States, the amount of time
between orders placed with its manufacturers and orders shipped by them is
generally reduced. The Company believes that the information it gathers from the
market, together with its efforts in shifting to production towards more popular
styles, will help reduce inventory risk.
7
Consistent with industry practice, the Company accepts returns of
Apparel Products and Sports Products within 30 days. Returns are allowed due to
poor quality, defects in materials or workmanship. The Company believes that its
return levels are better than industry norms. In addition to returns, customers
deduct charge-backs from the purchase price for sales allowances. Charge-backs
have an adverse effect on the Company's business and results of operations since
they reduce overall gross profit margins on sales. The Company experienced rates
of charge-backs and returns of approximately 4.3%, 4.5% and 3.3 % during fiscal
years 2002, 2001 and 2000, respectively, which are consistent with the industry
norms of 3% to 6% for both Apparel Products and Sports Products. The Company
believes that sales of the Apparel Products are not seasonal.
Canadian Branch
---------------
The Company has a Canadian branch that markets Apparel Products in
Canada. The Company also has two exclusive distributors who warehouse and sell
its Sports Products in Canada. During fiscal years 2002, 2001 and 2000, net
sales, in U.S. Dollars, from operations in Canada were $5,227,786, $4,184,216,
and $2,948,302, respectively. With the exception of exchange rate fluctuations,
the Company does not believe that the Canadian operations are subject to risks
that are significantly different from domestic operations. The Company
experienced some negative exchange rate fluctuation this year in its Canadian
operations. However, although there can be no assurances, the Company does not
believe that exchange rate fluctuations will have a material adverse effect on
the Company's results of operations in the future. During fiscal years 2002,
2001 and 2000, the Company's foreign sales accounted for 8.4%, 8.9% and 8.3%,
respectively, of the Company's net sales, the majority of which were in Canada.
Sports Products
---------------
The Company's Sports Products are distributed through sporting goods
stores, mass merchandisers, catalog operations, gymnasiums, and martial arts
studios. The Company distributes its Sports Products to over 7,000 retail
locations throughout the United States and Canada. The Sports Products are sold
by retailers such as Modell's*, The Sports Authority*, Big 5*, Academy*, and
Gart Sports*.
The Company has a national sales manager who oversees sales and
marketing for Sports Products. The Company also has nine sales representatives
who are assigned different territories in the United States. The Company has
focused its marketing efforts for its Sports Products in the following areas:
o TRADE SHOWS: The Company participates in more than ten trade
shows annually, which are attended by most major sporting goods
retailers and manufacturers;
o PRODUCT CATALOGS: The Company publishes a retail and a
professional catalog which features all products manufactured by
the Company. Catalogs for selected licensed items are also
produced; and
o MAIL-ORDER: The Company uses an independent distributor who
operates as a mail-order distributor to the general public.
The sales of Sports Products are not seasonal.
8
Licensed Products
-----------------
The Company employs an executive who is responsible for worldwide
licensing of the Everlast brand name. The Company also had a non-exclusive
agreement with a license consultant, that was terminated on February 10, 2003,
whose remuneration was determined by license revenues received from certain
licensees. Pursuant to the termination provisions of that agreement, commissions
will continue to be paid for two years after said termination.
Worldwide there are 54 licenses held by 39 licensees. The Company's
licensed products, such as men's, women's, and children's apparel, sleepwear,
underwear, hosiery, footwear, eyewear, hats, sports bags, and cardiovascular
equipment, are sold in over 78 other countries where licenses have been issued.
The Company believes it can expand its licensing base to new geographic
locations and in new product categories such as sports drinks, bottled water,
nutrition bars, infant apparel, and cosmetics.
The sales of Licensed Products are not seasonal. Reference is made
to page 4f of the Consolidated Financial Statements of the Company for the net
revenues from License Products for the fiscal years ended December 31 2002, 2001
and 2000.
QUALITY CONTROL
Apparel Products
----------------
Because the Company emphasizes fit, performance and quality of its
Apparel Products, the Company places a high priority on quality control. The
Company has established stringent procedures both domestically and
internationally. Inspections of independent manufacturers are made regularly to
ensure compliance with the Company's quality control specifications, delivery
requirements, and shipping needs. Prior to manufacturing in large quantities,
the Company receives samples of its Apparel Products for inspection and
comments. The Company performs various tests, including fit tests on live
models. This ensures that the product meets specifications prior to shipping. In
addition, senior employees of the Company periodically inspect the manufacturing
process and quality of Apparel Products.
The Company believes that its relationships with its warehouses,
customs brokers and international consolidators are an important part of its
quality control program. The Company views these service organizations as
important resources in maintaining high standards for its Apparel Products and
assisting in the reliable and timely delivery of its Apparel Products to its
retail customers.
Sports Products
---------------
The Company has quality control procedures in effect at its
manufacturing facilities in the Bronx, New York and Moberly, Missouri.
Manufacturing supervisors inspect Sports Products for defects throughout both
the manufacturing process and the finishing stages, including imported products.
Licensed Products
-----------------
The Company requires its licensees to submit samples of products that
are to be sold under exclusive license agreements. These sample products are
inspected by the Company's management for quality and proper placement of the
Company's Everlast(R) trademark. Licensees that do not comply with the Company's
quality or trademark standards are notified that they are in breach of their
license agreement.
9
COMPETITION
Apparel Products
----------------
The apparel industry is highly competitive. The Company's competitors
for its Apparel Products include apparel manufacturers of all sizes, many of
which have greater financial and manufacturing resources than the Company. The
Company believes that it has been able to compete in the brand name men's and
women's activewear and sportswear market because of high brand name recognition,
as well as the high quality and affordability of its Apparel Products. The
Company's products also compete with lower-priced men's, women's, and girls'
activewear and sportswear products, which may or may not be brand name products.
The Company believes that its principal competitors in the brand name men's and
women's activewear and sportswear industry are Nike*, Reebok*, Adidas* and
Fila*. In addition, the Company believes that its principal competitors in the
brand name women's activewear and sportswear industry are The Weekend Exercise
Company* and Danskin*. Competition in the activewear and sportswear segment of
the apparel industry is based on price, design, quality, name recognition, and
the ability to respond quickly to changing consumer preferences.
Sports Products
---------------
The sporting goods industry is also highly competitive. However, the
Company believes that it is the preeminent name in boxing equipment and as such
is able to compete in that segment of the sporting goods industry. The Company's
competitors for its Sports Products at the retail level are Technical
Knockout/TKO* and Century Sporting Goods*. At the professional and amateur
boxing level the Company's competitors are Ringside*, Grant*, and Reyes*.
Licensed Products
-----------------
Aggressive competition is also found in the licensing of sporting
goods brands and trademarks. The Company believes that the Everlast(R)
trademark, however, is the most recognized brand associated with the sport of
boxing. The Company believes that none of its competitors in the boxing segment
of the sporting goods industry have significant licensing programs.
EMPLOYEES
As of March 15, 2003, the Company had 269 employees who are employed
on a full-time basis. These include 52 administrative and sales employees at its
New York City main office, and 117 and 100 employees at its manufacturing
facilities in the Bronx, New York, and Moberley, Missouri, respectively. 88 of
the Company's employees in the Bronx, New York manufacturing facility are
covered by a collective bargaining agreement that expires on December 31, 2003.
89 employees of the Company at its manufacturing facility in Moberly, Missouri
are covered under a collective bargaining agreement that expires on June 5,
2005. The Company believes it will successfully negotiate new collective
bargaining agreements at its manufacturing facilities. However, there can be no
assurance that the agreements will be successfully negotiated. If new agreements
are not negotiated, manufacturing and shipping operations may be disrupted.
The Company also employs additional full-time and part-time employees
in connection with the design, marketing, and sale of its products on an as
needed basis. The Company hires temporary employees from time to time. The
Company considers its relations with its employees to be satisfactory.
10
ENVIRONMENTAL CONSIDERATIONS
The Company's manufacturing facilities are subject to various federal,
state and local environmental laws and regulations limiting the discharge,
storage, handling and disposal of a variety of substances set by the
Environmental Protection Agency, particularly the federal Water Pollution
Control Act, the Clean Air Act of 1970 (as amended in 1990), the Resource
Conservation and Recovery Act (including amendments relating to underground
tanks) and the federal "Superfund" program. The Company cannot, with certainty,
assess at this time the impact upon its operations or capital expenditure
requirements of future emission standards and enforcement practices under the
1990 amendments to the Clean Air Act.
The Company also is subject to federal, state and local laws and
regulations relating to workplace safety and worker health, including those
promulgated under the Occupational Safety and Health Act ("OSHA"). As part of
its OSHA compliance efforts, the Company requires all personnel working in high
noise areas and those working in certain areas with high concentrations of dust
to wear protective equipment.
To the best of the Company's knowledge, its manufacturing facilities
are currently in compliance in all-material respects with existing OSHA
standards and environmental laws and regulations. The Company does not believe
that there is a substantial likelihood that further OSHA or environmental
compliance will require substantial expenditures or materially affect its
operations or competitive position. The Company currently has no capital
expenditures relating to satisfying environmental standards.
ITEM 2. PROPERTIES
PRINCIPAL PLACE OF BUSINESS
The Company renewed its real property leases at its principal office
at 1350 Broadway, New York, New York effective February 1, 2000. The lease is
for 6,863 square feet with an annual base rent of $185,301 through April 30,
2005. The Company also leased two additional office spaces: (i) a 2,150 square
feet office space adjacent to the principal office for an annual base rent of
$58,050 through April 30, 2005; and (ii) a 1,630 square feet office space on
another floor for an annual base rent of $57,050 from September 1, 2002 through
April 30, 2005.
Additionally, the Company leases approximately 1,200 square feet of
office and showroom space in Montreal, Canada, at an annual base rent of
CAD$18,000. The Company plans to renew this lease once it expires on April 2003.
MANUFACTURING FACILITIES
The Company leases a 235,000 square foot manufacturing facility in
the Bronx, New York for a total annual base rent of $401,043 through April 30,
2004. The lease does not provide for any renewal option.
The Company owns a manufacturing facility in Moberly, Missouri of
approximately 304,000 square feet. The Company believes that its existing
facilities will be adequate to meet its needs for the foreseeable future. The
Company further believes that additional manufacturing space will be available
at its Moberly, Missouri manufacturing plant in the event the Company requires
additional capacity.
11
ITEM 3. LEGAL PROCEEDINGS
Joan Hansen & Co.
-----------------
On December 20, 2000, Joan Hansen & Co., a non-exclusive licensing
agent of the Company (the "Agent"), filed a lawsuit in the Supreme Court of the
State of New York against the Company, Everlast, George Horowitz, President and
Chief Executive Officer of the Company, and Ben Nadorf, a former stockholder of
Everlast and a Director of the Company, individually. The Agent alleged a breach
of contract upon the basis that after the Merger the Company stopped paying
royalties to Everlast, which had become its wholly-owned subsidiary, and
accordingly the Company discontinued the payment of remuneration to the Agent.
The Agent further alleged that the Merger was a sham transaction; that
the Company intended to default on its obligations to the former Everlast
stockholders and that the Everlast(R) trademark and licenses would then revert
to those stockholders. There were three other causes of action allegedly
predicated on the theories of tortious interference with contractual relations
and tortious interference with prospective business relations. Damages were
alleged in varying amounts, up to an aggregate of $55,500,000.
On November 30, 2001, the Supreme Court of the State of New York
dismissed the causes of action alleging tortious interference with contractual
relations and tortious interference with prospective business relations, made
against George Horowitz and Ben Nadorf. The court also denied a cross-motion,
made by the Agent, seeking partial summary judgment for breach of contract
against the Company. The decisions were appealed by the Agent. The Appellate
Court affirmed the dismissal and the denial of the Agent's cross-motion.
The Company filed a motion for summary judgment against the Agent
seeking dismissal of the balance of the Agent's claims. That motion was decided
in the Company's favor on December 23, 2002.
The Agent has filed a notice of appeal of that portion of the decision
claiming a breach of contract.
The Company believes that there is no merit to the Agent's appeal.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the last
quarter of fiscal year 2002.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's shares of common stock, par value $.002 per share (the
"Common Stock") are quoted on the Nasdaq SmallCap Market under the symbol
"EVST." The following table sets forth, for the period indicated, the highest
and lowest bid quotations for the Common Stock, as reported by the Nasdaq
system. Quotations reflect prices between dealers, do not reflect retail
markups, markdowns or commissions, and may not necessarily represent actual
transactions.
12
2001
High Low
---- ---
1st Quarter 3.44 1.78
2nd Quarter 3.15 2.28
3rd Quarter 2.83 1.44
4th Quarter 2.49 1.44
2002
High Low
---- ---
1st Quarter 3.15 2.10
2nd Quarter 4.89 2.81
3rd Quarter 4.00 1.65
4th Quarter 4.25 1.51
HOLDERS
The closing bid price of each share of Common Stock as of March 25,
2003 was $2.90. There were 440 record holders of the shares of Common Stock and
one record holder of the Company's Class A Common Stock, $.01 par value (the
"Class A Common Stock"). Based upon information received from some of these
record holders, the Company believes there are approximately 2,400 beneficial
holders of the shares of Common Stock.
DIVIDENDS
The Company has never paid dividends on its Common Stock or its Class A
Common Stock. The Company anticipates that, for the foreseeable future, earnings
will be retained for use in its business and does not anticipate the payment of
dividends on its Common Stock or its Class A Common Stock.
The Company continues to pay dividends to the holders of its shares
of Preferred Stock. The shares of Preferred Stock are entitled to a dividend
equal to two-thirds (2/3) of the net after tax profits after adding back
goodwill amortization and stock based compensation. In 2002 and years
thereafter, the dividend is reduced in proportion to the redeemed Preferred
Stock. The percentage of net income (as defined) to be paid to holders of
Preferred Stock is as follows:
Twelve months ended Percentage
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
13
DISCLOSURE OF EQUITY COMPENSATION PLAN INFORMATION (AS OF DECEMBER 31, 2002)
-------------------------------------- -------------------------------- -----------------------------
Plan Category Number of securities to be Weighted-average exercise
issued upon exercise of price of outstanding
outstanding options, warrants options, warrants and rights
and rights (a)
-------------------------------------- -------------------------------- -----------------------------
Equity compensation plans approved 555,500 10.03
by security holders
-------------------------------------- -------------------------------- -----------------------------
Equity compensation plans not 336,279 3.26
approved by security holders
-------------------------------------- -------------------------------- -----------------------------
Total 891,779 7.63
-------------------------------------- -------------------------------- -----------------------------
-------------------------------------- --------------------------------------------
Plan Category Number of securities remaining available
for future issuance under equity
compensation plans (excluding securities
reflected in column (a))
-------------------------------------- --------------------------------------------
Equity compensation plans approved 444,500
by security holders
-------------------------------------- --------------------------------------------
Equity compensation plans not 207,621
approved by security holders
-------------------------------------- --------------------------------------------
Total 652,121
-------------------------------------- --------------------------------------------
ITEM 6. SELECTED FINANCIAL DATA.
The following selected consolidated financial information has been taken
or derived from the Company's audited consolidated financial statements. The
information set forth below is not necessarily indicative of the Company's
results of future operations and should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's consolidated financial statements and related
notes included elsewhere in this Form 10-K. See "Item 8. Consolidated Financial
Statements and Supplementary Data."
----------------------------------------------------------------
For the year ended
================================================================
December 31 December 31 December 31
2002 2001 2000
====================== ==================== ====================
Net Sales $65,613,012 $52,951,510 $36,897,562
Net License Revenues 5,501,388 5,141,024 537,330
Net Income (Loss) 2,448,251 2,338,896 1,425,731
Preferred Stock Dividend 1,450,808 1,674,840 27,324
Basic Earnings (Loss) per Common Share 0.32 0.21 0.52
Diluted Earnings (Loss) per Common Share 0.24 0.14 0.44
Total Assets 63,846,752 63,952,774 66,877,884
Long Term Debt 3,227,324 140,508 3,125,000
Redeemable Preferred Stock 35,000,000 40,000,000 45,000,000
-------------------------------------------
For the year ended
===========================================
December 31 December 31
1999 1998
====================== ====================
Net Sales $24,464,139 $15,011,926
Net License Revenues 0 0
Net Income (Loss) 816,152 (240,635)
Preferred Stock Dividend 0 0
Basic Earnings (Loss) per Common Share 0.31 (0.09)
Diluted Earnings (Loss) per Common Share 0.31 (0.09)
Total Assets 8,274,198 6,602,362
Long Term Debt 0 0
Redeemable Preferred Stock 0 0
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
THIS REPORT ON FORM 10-K 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 and sportswear; 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.
CRITICAL ACCOUNTING POLICIES, ESTIMATES AND JUDGEMENTS
The Company's management applies the following critical accounting
policies in the preparation of the Company's consolidated financial statements:
o REVENUE RECOGNITION POLICY. Revenues from royalty and finders
agreements are recognized when earned by applying contractual
royalty rates to quarterly point of sale data, among other
criteria, received from the Company's licensees. The Company's
royalty recognition policy provides for recognition of royalties
in the quarter earned, although a large portion of such royalty
payments are actually received during the month following the end
of a quarter. Revenues are not recognized unless collectibility
is reasonably assured.
o DEFERRED TAXES. Deferred taxes are determined based on the
differences between the financial statement and tax bases of
assets and liabilities, using enacted tax rates in effect for the
year in which the differences are expected to reverse. Valuation
allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized. In assessing the
need for a valuation allowance management considers estimates of
future taxable income and ongoing prudent and feasible tax
planning strategies. In accordance with APB Opinion 23, the
Company does not accrue income taxes on the undistributed
earnings of a subsidiary which is a "DISC" since the repayment of
the earnings of the DISC is not expected in the foreseeable
future. If circumstances change and it becomes apparent that some
or all of the undistributed earnings of the DISC will be remitted
in the foreseeable future, then taxes will be accrued.
15
o VALUATION OF GOODWILL, LONG-LIVED ASSETS AND INTANGIBLE ASSETS.
The Company periodically evaluates goodwill, long-lived assets
and intangible assets for potential impairment indicators.
Judgements regarding the existence of impairment indicators are
based on estimated future cash flows, market conditions, and
legal factors. Future events could cause the Company to conclude
that impairment indicators exist and that the net book value of
goodwill, long-lived assets and intangible assets is impaired.
Any resulting impairment loss could have a material adverse
impact on the Company's financial condition and results of
operations.
o CONTINGENCIES AND LITIGATION. Management evaluates contingent
liabilities including threatened or pending litigation in
accordance with SFAS No. 5, "Accounting for Contingencies" and
records accruals when the outcome of these matters is deemed
probable and the liability could be reasonably estimated.
Management makes these assessments based on the facts and
circumstances and in some instances based in part on the advice
of outside legal counsel.
RESULTS OF OPERATIONS
On October 24, 2000, the Company completed a merger whereby Everlast was
merged with and into Active Apparel New Corp., a wholly owned subsidiary of the
Company. The results of operations for the year ended December 31, 2000, include
the results of Everlast for the period October 25, 2000 to December 31, 2000.
YEAR END 2002 COMPARED TO YEAR END 2001
---------------------------------------
Net sales increased to $65,613,012 for the year ended December 31, 2002
from $52,951,510 for the year ended December 31, 2001, an increase of
$12,661,502 or 23.9%. 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 $18,883,724 for the year ended December 31,
2002 from $18,022,436 for the year ended December 31, 2001, an increase of
$861,288 or 4.8%. Gross profit decreased as a percentage of net sales to 28.8%
from 34.0%. The decrease as a percentage of net sales is primarily attributed to
product mix.
Net license revenues increased to $5,501,388 for the year ended
December 31, 2002 from $5,141,024 for the year ended December 31, 2001, an
increase of $360,364 or 7.0%. The increase in license revenues was primarily due
to new license agreements and increased revenues on existing licenses.
Selling and shipping expenses increased to $12,446,838 for the year
ended December 31, 2002 from $11,547,922 for the year ended December 31, 2001,
an increase of $898,916 or 7.8%. Selling and shipping expenses as a percentage
of net sales decreased to 19.0% from 21.8%. This decrease as a percentage of net
sales was primarily attributable to the increase in sales as it relates to the
fixed nature of certain selling and shipping expenses.
General and administrative expenses increased to $5,891,549 for the
year ended December 31, 2002 from $5,834,813 for the year ended December 31,
2001, an increase of $56,736 or 1.0%. General and administrative expenses as a
percentage of net sales decreased to 9.0% from 11.0%. 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.
16
Amortization expense decreased to $912,672 for the year ended December
31, 2002 from $1,193,485 for the year ended December 31, 2001, a decrease of
$280,813. This decrease is primarily attributable to new standards established
by the Financial Accounting Standards Board which eliminates the amortization of
goodwill. Goodwill amortization was $173,389 for the year ending December 31,
2001.
Operating income increased to $5,134,053 for the year ended December
31, 2002 from $4,587,240 for the year ended December 31, 2001, an increase of
$546,813 for the reasons stated above. Operating income as a percentage of net
sales was 7.8% for the year ended December 31, 2002 as compared to 8.7% for the
year ended December 31, 2001.
Interest expense increased to $777,159 for the year ended December 31,
2002 from $531,256 for the year ended December 31, 2001, an increase of $245,903
or 46.3%. The increase is attributable to the increase in the Company's net
borrowings from its factor to finance growth and the redemption of the Preferred
Stock.
Investment income decreased to $96,129 for the year ended December 31,
2002 from $242,026 for the year ended December 31, 2001, a decrease of $145,897
or 60.3%. Investment income as a percentage of net sales was 0.2% for the year
ended December 31, 2002 as compared to 0.5% for the year ended December 31,
2001, as a result of less cash on hand and a lower rate of return.
The Company incurred a non-recurring charge related to the settlement
of a litigation claim in the amount of $112,500 for the year ended December 31,
2001.
The Company incurred a tax provision of $2,004,772 (45%) for the year
ended December 31, 2002 as compared to $1,846,614 (44.1%) for the year ended
December 31, 2001.
The Company had net income of $2,448,251 for the year ended December
31, 2002 as compared to $2,338,896 for the year ended December 31, 2001, an
increase of $109,355.
Preferred Stock dividends payable for the year ended December 31, 2002
was $1,450,808 and is payable by March 31, 2003. The dividends paid for fiscal
year ended December 31, 2001 and 2000 were $1,674,840 and $27,324, respectively,
and were paid on March 19, 2002.
YEAR END 2001 COMPARED TO YEAR END 2000
---------------------------------------
Net sales increased to $52,951,510 for the year ended December 31, 2001
from $36,897,562 for the year ended December 31, 2000, an increase of
$16,053,948 or 43.5%. The increase in net sales is primarily attributed to the
additional sales of the Sports Products since the date of the Merger.
Gross profit increased to $18,022,436 for the year ended December 31,
2001 from $13,442,185 for the year ended December 31, 2000, an increase of
$4,580,251 or 34.1%. Gross profit decreased as a percentage of net sales to
34.0% from 36.4%. The decrease as a percentage of net sales is primarily
attributed to lower gross margins received for the Sports Products compared to
the Apparel Products.
Net license revenues increased to $5,141,024 for the year ended
December 31, 2001 from $537,330 for the year ended December 31, 2000, an
increase of $4,603,694 or 856.8%. The increase in net license revenue is
primarily attributed to the additional license revenues received since the date
of the Merger and for new licenses acquired during 2001. On a pro-forma basis,
license revenues increased 39.8% for the year.
17
Selling and shipping expenses increased to $11,547,922 for the year
ended December 31, 2001 from $7,476,392 for the year ended December 31, 2000, an
increase of $4,071,530 or 54.5%. Selling and shipping expenses as a percentage
of net sales increased to 21.8% from 20.3%. The increase as a percentage of net
sales is primarily attributed to additional overhead advertising and promotional
expenses incurred.
General and administrative expenses increased to $5,834,813 for the
year ended December 31, 2001 from $3,133,268 for the year ended December 31,
2000, an increase of $2,701,545 or 86.2%. General and administrative expenses as
a percentage of net sales increased to 11.0% from 8.5%. The increase as a
percentage of net sales is primarily attributed to the additional expenses
incurred since the Merger.
Amortization expense increased to $1,193,485 for the year ended
December 31, 2001 from $196,635 for the year ended December 31, 2000, an
increase of $996,850. Amortization expense is incurred due to the acquisition of
intangible assets as a result of the Merger. Goodwill amortization was $173,389
and amortization of trademarks was $912,667, and other intangible amortization
was $107,429 for the year ending December 31, 2001.
Operating income increased to $4,587,240 for the year ended December
31, 2001 from $3,173,220 for the year ended December 31, 2000, an increase of
$1,414,020 for the reasons stated above. Operating income as a percentage of net
sales was 8.7% for the year ended December 31, 2001 as compared to 8.6% for the
year ended December 31, 2000.
Interest expense increased to $531,256 for the year ended December 31,
2001 from $432,512 for the year ended December 31, 2000, an increase of $98,744
or 22.8%. The increase is attributed to the payment of interest on the short
term loan used to redeem the industrial revenue bonds assumed by the Company
pursuant to the terms of the Merger.
Investment income increased to $242,026 for the year ended December 31,
2001 from $101,336 for the year ended December 31, 2000, an increase of $140,690
or 138.8%. Investment income as a percentage of net sales was 0.5% for the year
ended December 31, 2001 as compared to 0.3% for the year ended December 31,
2000. This increase reflects the additional liquidity available to the Company
for the year ended December 31, 2001.
The Company incurred a non-recurring charge related to the settlement
of a litigation claim in the amount of $112,500 for the year ended December 31,
2001.
The Company incurred a tax provision of $1,846,614 for the year ended
December 31, 2001 as compared to $1,416,313 for the year ended December 31,
2000. The effective income tax rate is lower in 2001 than 2000 as the result of
lower state, local and foreign taxes.
The Company had net income of $2,338,896 for the year ended December
31, 2001 as compared to $1,425,731 for the year ended December 31, 2000, an
increase of $913,165.
18
2003 MARKET OUTLOOK
-------------------
While the retail environment remains difficult, the Company's management
believes it will continue to maintain sales growth in its product lines and
further expand its license categories. The continued market penetration of the
Apparel Products and Sports Products are expected to continue to add to the
Company's distribution base. The Company will continue to focus on its core
Everlast brand name and to explore other opportunities for growth. The Company
expects that its intensified marketing of Sports Products and licensing of the
Everlast(R) trademark will continue to increase its market share and develop new
items bearing the Everlast(R) trademark.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for the year ended December
31, 2002 was $1,798,538 compared to $385,770 for the year ended December 31,
2001. This increase was primarily attributable to a decrease in inventories
partially offset by a decrease in accounts payable and accrued expenses.
Net cash used by investing activities for the year ended December 31,
2002 was $728,656 compared to $280,084 for the year ended December 31, 2001.
This increase was due to additional acquisitions of manufacturing equipment.
Net cash used by financing activities for the year ended December 31,
2002 was $1,639,456 compared to $2,457,961 for the year ended December 31, 2001.
The decrease was primarily attributable to the receipt of proceeds from a
mortgage on the Moberly facility and a decrease in the amount of advances from
the factor, offset by the payment of dividends to the holder of the Preferred
Stock and the deposit of restricted cash to secure the mortgage.
During the year ended December 31, 2002, the Company's primary need for
funds was to finance working capital due to growth in net sales of the Apparel
Products and the Sports Products and the annual mandatory redemption of the
Preferred Stock. The Company has relied primarily upon its cash flow from
operations and its asset based borrowings from the factor to finance its
operations and expansion. Cash and cash equivalents and short term investments
were $2,530,452 at December 31, 2002 compared to $3,100,026 at December 31,
2001, a decrease of $569,574 and working capital was $12,910,793 compared to
$14,709,402 at December 31, 2001, a decrease of $1,798,609. These decreases were
primarily attributable to the annual redemption of the shares of Preferred Stock
and related dividend.
The balance of the amount due to factor represents accounts receivable
assigned to the factor by the Company net of outstanding advances made by the
factor to the Company under the factoring agreement. At December 31, 2002 the
amount due to factor was $3,351,997 as compared to $680,152 at December 31,
2001, an increase $2,671,845 due to additional borrowing from the factor. The
Company's inventory decreased by 9.5% to $11,460,160 at December 31, 2002 from
$12,661,534 at December 31, 2001 as a result of the implementation of the
integrated inventory management system.
19
2003 LIQUIDITY OUTLOOK
----------------------
On April 16, 2002, the Company redeemed its industrial revenue bonds in
the amount of $3,350,000. To redeem the industrial revenue bonds the Company
borrowed $3,350,000 from the factor, secured by the Apparel Products inventory.
On October 7, 2002, the Company obtained a loan from GMAC Business Credit , LLC
in the amount of $3,350,000 secured by a first mortgage lien on the Moberly
facility and a standby letter of credit in the amount of $1,000,000. The
interest rate on the loan is a variable rate of LIBOR plus 4% (currently at
5.4%). To secure the letter of credit the Company deposited $1,000,000 of
restricted cash with the factor.
Management anticipates it will maintain sufficient cash, cash equivalent
balances, short-term investments and availability 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, 2003 and the dividend payment due on March 31, 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Market risk generally represents the risk that losses may occur in the
values of financial instruments as a result of movements in interest rates,
foreign currency exchange rates and commodity prices. The Company does not enter
into derivatives or other financial instruments for trading or speculative
purposes.
Interest: From time to time the Company invests its excess cash in
interest-bearing temporary investments of high-quality issuers. Due to the short
time the investments are outstanding and their general liquidity, these
instruments are classified as cash equivalents in the Company's consolidated
balance sheet and do not represent a material interest rate risk to it. The
Company's long-term debt obligations are the Mortgage loan on its Moberly
facility and its equipment finance obligations. These long-term debt obligations
do not represent a material interest rate risk to the Company.
Foreign Currency: The Company conducts business in Canada and the
Licensed Products are sold in various parts of the world. Revenues from the
Company's licensees are denominated in US Dollars and do not expose the Company
to risks due to currency exchange rate fluctuations. The Company's revenues from
its Canadian operations are exposed to fluctuations in foreign exchange rate
between the Canadian Dollar versus the US Dollar. Revenues from the Company's
Canadian operations represented 8.0% of the Company's consolidated revenues for
the fiscal year ended 2002 and the Company believes that the foreign exchange
rate risk due to its Canadian operations is not material.
ITEM 8. FINANCIAL STATEMENTS.
CONSOLIDATED FINANCIAL STATEMENTS
PLEASE SEE PAGE 27.
ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
20
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The information required to be set forth in this Item 10 will be
incorporated by reference from the Company's 2003 proxy statement to be filed no
later than April 30, 2003 pursuant to Regulation 14A of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended.
ITEM 11. EXECUTIVE COMPENSATION
The information required to be set forth in this Item 11 will be
incorporated by reference from the Company's 2003 proxy statement to be filed no
later than April 30, 2003 pursuant to Regulation 14A of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required to be set forth in this Item 12 will be
incorporated by reference from the Company's 2003 proxy statement to be filed no
later than April 30, 2003 pursuant to Regulation 14A of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required to be set forth in this Item 13 will be
incorporated by reference from the Company's 2003 proxy statement to be filed no
later than April 30, 2003 pursuant to Regulation 14A of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended.
PART IV
ITEM 14. CONTROLS AND PROCEDURES.
Based on their evaluation, as of a date within 90 days of the filing
of this Form 10-K, 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.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT FILED INCORPORATED BY
INDEX DESCRIPTION OF DOCUMENT HEREWITH REFERENCE TO:
- ----- ----------------------- -------- -------------
3.1(a) Certificate of Incorporation of the Exhibit 3.(i) of Registration
Company, as amended ("Certificate of Statement File No.33-87954
Incorporation"). (the "1995 Registration Statement")
21
EXHIBIT FILED INCORPORATED BY
INDEX DESCRIPTION OF DOCUMENT HEREWITH REFERENCE TO:
- ----- ----------------------- -------- -------------
3.1(b) Certificate of Amendment of the Exhibit 3.1(b) of the 2000 Form 10-
Certificate of Incorporation. KSB for the year ended December
31, 2000
3.1(c) Certificate of Designations, Powers, Exhibit 4.1 of the Current Report on
Preferences and Rights of the Series A Form 8-K filed on October 24,
Redeemable Participating Preferred 2002.
Stock.
3.2 Bylaws of the Company. Exhibit 3.(ii) of the 1995
Registration Statement.
10.1 1993 Stock Option Plan of the Company. Exhibit 10.28 of the 1995
Registration Statement.
10.2 1995 Non-Employee Director Stock Exhibit 10.29 of the 1996 Form 10-
Option Plan of the Company, adopted on KSB for the year ended December 31,
October 6, 1995. 1995
10.3 Lease, dated as of February 1, 2000, Exhibit 10.48 of the 1999 Form 10-
between the Company and 1350 KSB for the year ended December
Broadway Associates. 31, 1999.
10.4 Agreement and Plan of Merger dated Exhibit 99.1 of the Current Report on Form 8-K
August 21, 2000 by and among Everlast filed November 7,
Worldwide Inc. (f/k/a Active Apparel 2000.
Group, Inc.), Active Apparel NewCorp., a
Delaware corporation and a wholly-owned
subsidiary of the Company, Everlast World's
Boxing Headquarters Corp., a New York
corporation, Everlast Holding Corp., a
Delaware corporation, and the stockholders of
Everlast Holding.
10.5 2000 Stock Option Plan of the Company. Appendix B of Schedule 14A filed
on October 3, 2000.
22
Exhibit Filed Incorporated By
Index Description of Document Herewith Reference to:
- ----- ----------------------- -------- -------------
10.6 Form of Registration Rights Agreement. Appendix D of Schedule 14A filed on October 3,
2000.
10.7 Lease dated January 28, 1974 by and between 780 East Exhibit 10.52 of the 2000 Form 10-KSB for the
132 Street Company and Everlast World's Boxing year ended December 31, 2000.
Headquarters Corporation.
10.8 Lease Renewal and Modification dated April 30, 1994 by Exhibit 10.53 of the 2000 Form 10-KSB for the
and between 780 East 132 Street Company and Everlast year ended December 31, 2000.
World's Boxing Headquarters Corporation.
10.9 Loan Agreement dated March 1, 1996 by and between Exhibit 10.54 of the 2000 Form 10-KSB for the
Industrial Development Authority of the City of year ended December 31, 2000.
Moberly, Missouri and Everlast Fitness Mfg. Corp.
21 List of Subsidiaries X
23.1 Consent of Independent Auditors X
99.1 Statement under oath of Chief Executive Officer X
99.2 Statement under oath of Chief Financial Officer X
(b) Financial Statement Schedule:
1. Valuation and Qualifying Accounts.
(c) The Company did not file any Current Reports on Form 8-K during the fourth
quarter of fiscal year 2002.
23
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Everlast Worldwide Inc.
By: /s/ George Horowitz
--------------------------
George Horowitz
Chairman and Chief
Executive Officer
Dated: March 28, 2003
In accordance with the Exchange Act this report has been signed below
by the following persons on behalf of the Registrant and in the capacities and
on the dates indicated.
March 28, 2003 /s/ George Horowitz
--------------------------------
George Horowitz (Chairman; Chief
Executive Officer; and Principal
Executive Officer)
March 28, 2003 /s/ Matthew F. Mark
--------------------------------
Matthew F Mark (Chief Financial
Officer; and Chief Accounting
Officer)
--------------------------------
James Anderson (Director)
March 28, 2003 /s/ Rita Cinque Kriss
--------------------------------
Rita Cinque Kriss (Director)
March 28, 2003 /s/ Larry Kring
--------------------------------
Larry Kring (Director)
March 28, 2003 /s/ Edward Epstein
--------------------------------
Edward Epstein (Director)
--------------------------------
Ben Nadorf (Director)
--------------------------------
Wayne Nadorf (Director)
24
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
Section 302 Certification
I, George Q Horowitz, certify that:
1. I have reviewed this annual report on Form 10-K of Everlast
Worldwide Inc.;
2. Based on my knowledge, this annual 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 annual
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual 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 annual 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 annual 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 annual report (the "Evaluation
Date"); and
c) presented in this annual 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 annual 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: March 27, 2003 /s/ George Q Horowitz
--------------------------------
George Q Horowitz
Chief Executive Officer
25
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
Section 302 Certification
I, Matthew F. Mark, certify that:
1. I have reviewed this annual report on Form 10-K of Everlast
Worldwide Inc.;
2. Based on my knowledge, this annual 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 annual
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual 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 annual 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 annual 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 annual report (the "Evaluation
Date"); and
c) presented in this annual 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 annual 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: March 27, 2003 /s/ Matthew F. Mark
-------------------------
Matthew F. Mark
Chief Financial Officer
26
ITEM 8: FINANCIAL STATEMENTS
EVERLAST WORLDWIDE INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page
----
Independent Auditors' Report 1-2f
Consolidated Balance Sheets 3f
Consolidated Statements of Income 4f
Consolidated Statements of Changes in Stockholders' Equity 5f
Consolidated Statements of Cash Flows 6f
Notes to Consolidated Financial Statements 7f-33f
27
Page 1f
INDEPENDENT AUDITORS' REPORT
Board of Directors
Everlast Worldwide Inc. and Subsidiaries
New York, NY
We have audited the accompanying consolidated balance sheets of Everlast
Worldwide Inc. and subsidiaries as of December 31, 2002 and 2001, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 2002.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Everlast Worldwide
Inc. and subsidiaries as of December 31, 2002 and 2001, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2002 in conformity with accounting principles generally accepted in
the United States of America.
Page 2f
As discussed in note 4, the Company adopted Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets. Accordingly, the
Company ceased amortizing goodwill as of January 1, 2002.
Our audits of the consolidated financial statements referred to above also
included an audit of the financial statement schedule listed in the index
appearing under Item 15(b)(1). In our opinion, this financial statement schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
/s/ Berenson & Company LLP
- ------------------------------
Berenson & Company LLP
New York, NY
February 21, 2003
Page 3f
EVERLAST WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
---------------------------
ASSETS 2002 2001
---------- ----------
Current assets:
Cash and cash equivalents $ 2,530,452 $ 3,100,026
Marketable equity securities 308,841 457,308
Accounts receivable, net 7,697,847 6,447,168
Inventories 11,460,160 12,661,534
Prepaid expenses and other current assets 819,053 886,281
----------- -----------
Total current assets 22,816,353 23,552,317
Property and equipment, net 6,487,830 6,318,284
Goodwill 6,718,492 6,718,492
Trademarks, net 25,401,693 26,314,365
Restricted cash 1,003,701 --
Other assets 1,418,683 1,049,316
----------- -----------
$63,846,752 $63,952,774
=========== ===========
LIABILITIES, REDEEMABLE PARTICIPATING
PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Due to factor $ 3,351,997 $ 680,152
Current maturities of long-term debt 363,028 79,719
Accounts payable 3,391,334 4,728,613
Income taxes payable 553,850 719,177
Accrued expenses and other current liabilities 794,543 933,090
Redeemable preferred stock dividends payable 1,450,808 1,702,164
----------- -----------
Total current liabilities 9,905,560 8,842,915
License deposits payable 563,526 688,723
Long-term debt, net of current maturities 3,227,324 140,508
----------- -----------
13,696,410 9,672,146
----------- -----------
Series A redeemable participating preferred stock 35,000,000 40,000,000
----------- -----------
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.002; 19,000,000 shares authorized;
3,182,236 issued, 3,172,936-2001; 3,008,236 outstanding, 6,364 6,346
2,998,936-2001
Class A common stock, par value $.01; 100,000 shares
authorized, issued and outstanding 1,000 1,000
Paid-in capital 11,662,825 11,642,105
Retained earnings 4,205,179 3,207,736
Accumulated other comprehensive income 2,193 150,660
----------- -----------
15,877,561 15,007,847
Less: treasury stock, at cost (174,000 common shares) 727,219 727,219
----------- -----------
15,150,342 14,280,628
----------- -----------
$63,846,752 $63,952,774
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
Page 4f
EVERLAST WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31,
-----------------------------------------------
2002 2001 2000
--------- ------------ ------------
Net sales $ 65,613,012 $ 52,951,510 $ 36,897,562
Cost of goods sold 46,729,288 34,929,074 23,455,377
------------ ------------ ------------
Gross profit 18,883,724 18,022,436 13,442,185
Net license revenues 5,501,388 5,141,024 537,330
------------ ------------ ------------
24,385,112 23,163,460 13,979,515
------------ ------------ ------------
Operating expenses:
Selling and shipping 12,446,838 11,547,922 7,476,392
General and administrative 5,891,549 5,834,813 3,133,268
Amortization expense 912,672 1,193,485 196,635
------------ ------------ ------------
19,251,059 18,576,220 10,806,295
------------ ------------ ------------
Income from operations 5,134,053 4,587,240 3,173,220
------------ ------------ ------------
Other expense (income):
Interest expense 777,159 531,256 432,512
Investment income (96,129) (242,026) (101,336)
Miscellaneous -- 112,500 --
------------ ------------ ------------
681,030 401,730 331,176
------------ ------------ ------------
Income before provision for income taxes 4,453,023 4,185,510 2,842,044
Provision for income taxes 2,004,772 1,846,614 1,416,313
------------ ------------ ------------
Net income 2,448,251 2,338,896 1,425,731
Redeemable preferred stock dividends 1,450,808 1,674,840 27,324
------------ ------------ ------------
Net income available to common stockholders $ 997,443 $ 664,056 $ 1,398,407
============ ============ ============
Basic earnings per common share $ .32 $ .21 $ .52
============ ============ ============
Diluted earnings per common share $ .24 $ .14 $ .44
============ ============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
Page 5f
EVERLAST WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
Class A
Total Common stock common stock
comprehensive --------------------------- --------------------------
income Shares Amount Shares Amount
------ ------ ------ ------ ------
Balance, January 1, 2000 2,492,581 $ 5,333 100,000 $ 1,000
Comprehensive income:
Net income $ 1,425,731
Unrealized holding gain 114,496
-----------
Comprehensive income $ 1,540,227
===========
Issuance of stock pursuant to stock based
compensation 1,355 3 -- --
Redeemable preferred stock dividends -- -- -- --
Issuance of stock pursuant to merger agreement 505,000 1,010 -- --
---------- ------------ -------- ------------
Balance, December 31, 2000 2,998,936 6,346 100,000 1,000
Comprehensive income:
Net income $ 2,338,896
Unrealized holding gain 36,164
-----------
Comprehensive income $ 2,375,060
===========
Redeemable preferred dividends -- -- -- --
--------- ----------- ------- -----------
Balance, December 31, 2001 2,998,936 6,346 100,000 1,000
Comprehensive income:
Net income $ 2,448,251
Unrealized holding loss (148,467)
-----------
Comprehensive income $ 2,299,784
===========
Exercise of stock options 9,300 18 -- --
Redeemable preferred stock dividends -- -- -- --
--------- ----------- ------- -----------
Balance, December 31, 2002 3,008,236 $ 6,364 100,000 $ 1,000
========= =========== ======= ===========
(continued)
The accompanying notes are an integral part of the consolidated financial
statements.
Accumulated
other Treasury stock
Paid-in Retained comprehensive ------------------
capital earnings income Shares Amount Total
------- -------- ------ ------ ------ -----
Balance, January 1, 2000 $ 6,136,341 $ 1,145,273 $ -- 174,000 $ (727,219) $ 6,560,728
Comprehensive income:
Net income 1,425,731 -- 1,425,731
Unrealized holding gain -- 114,496 114,496
Comprehensive income
Issuance of stock pursuant to stock based
compensation 4,274 -- -- -- -- 4,277
Redeemable preferred stock dividends -- (27,324) -- -- -- (27,324)
Issuance of stock pursuant to merger
agreement 5,501,490 -- -- -- -- 5,502,500
------------- --------- ------------ -------- ------------ -----------
Balance, December 31, 2000 11,642,105 2,543,680 114,496 174,000 (727,219) 13,580,408
Comprehensive income:
Net income -- 2,338,896 -- -- -- 2,338,896
Unrealized holding gain -- -- 36,164 -- -- 36,164
Comprehensive income
Redeemable preferred dividends -- (1,674,840) -- -- -- (1,674,840)
------------- --------- ------------ -------- ------------ -----------
Balance, December 31, 2001 11,642,105 3,207,736 150,660 174,000 (727,219) 14,280,628
Comprehensive income:
Net income -- 2,448,251 -- -- -- 2,448,251
Unrealized holding loss -- -- (148,467) -- -- (148,467)
Comprehensive income
Exercise of stock options 20,720 -- -- -- -- 20,738
Redeemable preferred stock dividends -- (1,450,808) -- -- -- (1,450,808)
------------- ------------ ------------ -------- ------------- ------------
Balance, December 31, 2002 $ 11,662,825 $ 4,205,179 $ 2,193 174,000 $ (727,219) $ 15,150,342
============= ============ ============ ======== ============= ============
Page 6f
EVERLAST WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
----------------------------------------------
2002 2001 2000
------- ------------ -------------
Cash flows from operating activities:
Net income $ 2,448,251 $ 2,338,896 $ 1,425,731
Adjustments to reconcile net income to
net cash provided by operating activities:
Bad debts 52,496 191,434 --
Depreciation 559,110 529,655 243,757
Amortization 912,672 1,193,485 196,635
(Increase) decrease in cash surrender value of (92,600) 80,000 2,120
life insurance policies
Interest income on restricted cash (3,701) -- --
Deferred income taxes (84,070) -- --
Stock based compensation -- -- 4,277
Loss on disposal of fixed assets -- 16,003 --
Changes in assets (increase) decrease:
Accounts receivable (1,303,175) (1,786,588) (601,475)
Inventories 1,201,374 (3,945,600) 1,591,819
Prepaid expenses and other current assets 151,298 51,251 (21,351)
Other assets (276,767) (507,217) 149,250
Changes in liabilities increase (decrease):
Accounts payable, income taxes payable and
accrued expenses and other liabilities (1,641,153) 2,208,690 675,192
License deposits payable (125,197) 15,761 --
----------- ------------- ---------
Net cash provided by operating activities 1,798,538 385,770 3,665,955
----------- ------------- ---------
Cash flows from investing activities:
Cash obtained pursuant to merger -- -- 16,163,567
Transaction costs directly attributable to merger -- -- (1,396,012)
Cash paid pursuant to merger -- -- (10,000,000)
Acquisition of property and equipment (728,656) (280,084) (208,935)
Repayment of note receivable, officer -- -- 91,200
----------- ------------- ---------
Net cash provided (used) by investing activities (728,656) (280,084) 4,649,820
----------- ------------- ---------
Cash flows from financing activities:
Proceeds from long-term debt 3,516,049 -- --
Repayment of long-term debt (145,924) (3,488,632) (49,264)
Increase (decrease) in due to factor 2,671,845 4,332,505 (2,103,306)
Redemption of participating preferred stock (5,000,000) (5,000,000) --
Issuance of common stock 20,738 -- --
Proceeds from loans from cash surrender value
of life insurance policies -- 748,166 --
Payment of preferred stock dividend (1,702,164) -- --
Restricted cash (1,000,000) 950,000 (950,000)
----------- ------------- ---------
Net cash used by financing activities (1,639,456) (2,457,961) (3,102,570)
----------- ------------- ---------
Net increase (decrease) in cash and cash equivalents (569,574) (2,352,275) 5,213,205
Cash and cash equivalents, beginning of year 3,100,026 5,452,301 239,096
------------ ------------- ------------
Cash and cash equivalents, end of year $ 2,530,452 $ 3,100,026 $ 5,452,301
============ ============= ============
The accompanying notes are an integral part of the consolidated financial
statements.
Page 7f
EVERLAST WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
1. Merger:
On October 24, 2000, the Company completed a merger whereby Everlast
Holding Corp. ("Everlast"), the parent company of Everlast World's Boxing
Headquarters Corp. and subsidiaries, was merged with and into Active
Apparel New Corp., a wholly-owned subsidiary of the Company. The merger
involved an aggregate purchase price of $61.9 million comprised of the
following: (i) the issuance of 505,000 shares of $.002 par value common
stock of the Company; (ii) $45 million of redeemable participating
preferred stock; (iii) $10 million in cash; and (iv) approximately $1.4
million in transaction costs. Contingent consideration of additional
shares of common stock may be issued, or, at the Company's option, pay
such consideration in cash, on October 24, 2005 if certain conditions have
not been achieved.
The merger was recorded using the purchase method of accounting. Pursuant
to 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. The excess of the purchase
price over the fair market value of the identifiable net assets acquired
was treated as goodwill. The following summarizes the calculation and
allocation of the purchase price:
Calculation of purchase price:
Issuance of Series A redeemable participating preferred stock
(note 11), 45,000 shares at $1,000 per share, at fair value $45,000,000
Issuance of common stock:
505,000 shares at $4.50 per share 2,272,500
380,000 shares at an additional $8.50 per share,
based upon the guaranteed share price of $13 3,230,000
Cash payment 10,000,000
Transaction costs 1,396,012
-----------
61,898,512
-----------
Allocation of purchase price:
Net book value of Everlast 26,014,388
Adjustments to reflect fair value of tangible and intangible assets:
Land and building 1,050,000
Inventories 518,576
Trademarks 27,380,000
-----------
54,962,964
-----------
Excess of purchase price over the fair value of
net assets acquired (Goodwill) $ 6,935,548
===========
Page 8f
EVERLAST WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
2. Basis of presentation:
The accompanying consolidated statements of income and cash flows for the
year ended December 31, 2000 include Everlast for the period October 25,
2000 to December 31, 2000. Unaudited proforma combined net revenues and
net income assuming the merger occurred January 1, 2000 were as follows:
Year ended
December 31,
2000
----------------------
(in thousands, except
for earnings per share)
Net revenues:
Everlast Worldwide Inc. $32,634
Everlast World's Boxing Headquarters Corp. and subsidiaries 21,173
-------
$53,807
=======
Net income:
Everlast Worldwide Inc. $ 1,563
Everlast World's Boxing Headquarters Corp. and subsidiaries 1,746
-------
$ 3,309
=======
Redeemable participating preferred stock dividends $ 2,365
=======
Earnings per common share:
Basic $ .30
=======
Diluted $ .18
=======
3. Nature of business:
The Company amended its certificate of incorporation to change its name to
Everlast Worldwide Inc. effective with the merger agreement dated October
24, 2000 (note 1). The Company is a Delaware corporation, which was
organized on July 6, 1992. The Company is a distributor of men's and
woman's activewear, sportswear, swimwear and cover-ups, which are sold
under the Everlast trademark and logo throughout the world.
Effective with its merger agreement, the Company's business expanded to
include manufacturing and distribution of sporting and gym equipment. The
Company also obtained exclusive rights to a trademark and a logo, which is
licensed to domestic and international licensees. The licensees pay
royalties to the Company in exchange for the use of the Company's
trademark and logo in their geographic region.
Page 9f
EVERLAST WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
4. Significant accounting policies:
a. Principles of consolidation:
The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries:
o Active Apparel New Corp.
o Everlast World's Boxing Headquarters Corp. (EWBH)
o Everlast Sports Mfg. Corp. (wholly-owned subsidiary of EWBH)
o Everlast Sports International, Inc. (wholly-owned subsidiary of
EWBH)
o Everlast Fitness Mfg. Corp. (wholly-owned subsidiary of EWBH)
o American Fitness Products, Inc. (wholly-owned subsidiary of
Everlast Fitness Mfg. Corp.)
All significant intercompany accounts and transactions have been
eliminated in consolidation.
b. Cash and cash equivalents:
The Company considers all short-term investments with an original
maturity of three months or less to be cash equivalents. Cash
equivalents includes commercial paper, money market funds and certain
certificates of deposit.
c. Cash concentration:
The Company maintains its cash and cash equivalents accounts at
various commercial banks. The cash balances are insured by the Federal
Deposit Insurance Corporation (FDIC) up to $100,000 at each bank. At
December 31, 2002, the amount of bank balances in excess of the FDIC
limit is approximately $1,711,000.
Page 10f
EVERLAST WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
4. Significant accounting policies: (Continued)
d. Inventories:
Inventories are stated at the lower of cost (first-in, first-out
basis) or market.
e. Accounts receivable:
The accounts receivable arise in the normal course of business. It is
the policy of management to review the outstanding accounts
receivable at year end, as well as the bad debt write-offs
experienced in the past, and establish an allowance for doubtful
accounts for uncollectible amounts. An allowance for doubtful
accounts of $276,000 and $257,000 has been established as of December
31, 2002 and 2001, respectively.
f. Property and equipment:
Property and equipment are stated at cost. Depreciation is computed
by the straight-line method over the estimated useful lives of the
assets. Leasehold improvements are amortized over the terms of the
respective leases or estimated life of the assets, whichever is
shorter. Expenditures for maintenance and repairs are charged to
operations as incurred.
g. Fair value of financial instruments:
i. Cash and cash equivalents:
The carrying amounts reflected in the balance sheets for cash
and cash equivalents, none of which are held for trading
purposes, approximates fair value due to the short maturity of
these instruments.
ii. Accounts receivable, due to factor and accounts payable:
The carrying amounts of accounts receivable, due to factor and
accounts payable approximate their fair values because of the
short maturities of these instruments.
>
Page 11f
EVERLAST WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
4. Significant accounting policies: (Continued)
g. Fair value of financial instruments: (Continued)
iii. Investments:
Securities that the Company has the positive intent and ability
to hold to maturity are classified as held-to-maturity
securities and recorded at amortized cost. Securities not
classified as held-to-maturity are classified as
available-for-sale securities. Available-for-sale securities are
recorded at fair value, with the change in fair value during the
period excluded from earnings and recorded as a component of
other comprehensive income.
h. Intangible assets:
i. Goodwill:
Effective January 1, 2002, the Company adopted Statement of
Financial Accounting Standards No. 142, Goodwill and Other
Intangibles. SFAS 142 addresses the financial accounting and
reporting for acquired goodwill and other intangible assets. As
a result of adopting SFAS 142, goodwill is no longer amortized.
Rather, goodwill is subject to a periodic impairment test based
upon its fair value. During the year ended December 31, 2002,
the Company completed its impairment review of goodwill, which
indicated that there was no impairment. The following table
provides a reconciliation of reported net income for the prior
years to adjusted net income had SFAS 142 been applied as of
January 1, 2000.
Years ending December 31,
-------------------------
2001 2000
---- ----
Reported net income $2,338,896 $1,425,731
Add back: goodwill amortization 173,389 43,667
---------- ----------
Adjusted net income $2,512,285 $1,469,398
========== ==========
>
Page 12f
EVERLAST WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
4. Significant accounting policies: (Continued)
h. Intangible assets: (Continued)
i. Goodwill: (Continued)
Years ending December 31,
-------------------------
2001 2000
-------- --------
Basic earnings per share:
Reported net income $0.21 $0.52
Goodwill amortization 0.06 0.02
----- -----
Adjusted net income $0.27 $0.54
===== =====
Diluted earnings per share:
Reported net income $0.14 $0.44
Goodwill amortization 0.03 0.02
----- -----
Adjusted net income $0.17 $0.46
===== =====
ii. Trademarks:
Pursuant to the merger agreement (note 1), the Company acquired
certain trademarks. These costs are amortized over 30 years. For
the years ended December 31, 2002, 2001 and 2000, trademark
amortization expense was $912,672, $912,667, and $152,968,
respectively.
Trademarks are as follows:
2002 2001
----------- -----------
Gross carrying amount of
Trademarks at cost $27,380,000 $27,380,000
Accumulated amortization 1,978,307 1,065,635
----------- -----------
Trademarks - net $25,401,693 $26,314,365
=========== ===========
The estimated aggregate amortization expense for each of the
five successive years is $913,000 per year.
>
Page 13f
EVERLAST WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
4. Significant accounting policies: (Continued)
i. Concentration of credit risk:
The Company routinely extends credit to companies for the sale of
its merchandise. This credit risk may be affected by changes in
economic or other conditions and may, accordingly, impact the
Company's overall credit risk. Management believes that the credit
risk is mitigated by the strict credit evaluation of those customers
to which it extends credit. Reserves for potential credit losses are
maintained and such losses have been immaterial to the Company's
financial position and within management's expectations.
j. Income taxes:
The Company and its wholly-owned subsidiaries, with the exception of
Everlast Sports International, Inc. ("ESI"), will file a
consolidated federal income tax return. ESI qualifies as a Domestic
International Sales Corporation (DISC), which results in a deferral
of tax on its income. No deferred tax liability has been recorded,
since the Company does not anticipate the repatriation of earnings
in the foreseeable future. ESI is authorized to operate in Canada
and files a separate Canadian income tax return reporting only the
income from that country. The provision for income tax is based upon
the consolidated taxable income including that portion of ESI's
Canadian income. Various state and local income tax returns are
filed pursuant to reporting requirements in those locales.
k. Advertising expense:
The Company expenses advertising costs as they are incurred. As of
December 31, 2002, 2001 and 2000, the Company had incurred
advertising and promotional expenses of approximately $3,210,000,
$3,640,000 and $1,326,000, respectively.
l. Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting year. Actual results
could differ from those estimates.
Page 14f
EVERLAST WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
4. Significant accounting policies: (Continued)
m. Shipping and handling costs:
Shipping and handling costs totaling approximately $1,635,000,
$1,505,000 and $989,000 for the years ended December 31, 2002, 2001
and 2000, respectively, are included in selling and shipping
expenses on the income statement.
n. Accounting for stock based compensation:
The Company applies APB Opinion 25 to account for employee stock
option plans (note 15). Accordingly, no compensation cost has been
recognized in 2002, 2001 and 2000. Had compensation cost been
determined on the basis of FASB Statement 123, net income and
earnings per share would have been reduced as follows:
2002 2001 2000
------------- ------------- -------------
Net income as reported $ 2,448,251 $ 2,338,896 $ 1,425,731
Deduct: total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax effects
33,387 51,896 50,749
------------- ------------- -------------
Pro forma net income $ 2,414,864 $ 2,287,000 $ 1,374,982
------------- ------------- -------------
Earnings per share:
Basic - as reported $.32 $.21 $.52
==== ==== ====
Basic - pro forma $.32 $.21 $.50
==== ==== ====
Diluted - as reported $.24 $.14 $.44
==== ==== ====
Diluted - pro forma $.24 $.13 $.43
==== ==== ====
The fair value of compensation was computed using an option-pricing model, which
took into account the following factors as of the grant date:
o the exercise price and expected life of the option
o the current price of the stock and its expected volatility
Page 15f
EVERLAST WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
4. Significant accounting policies: (Continued)
n. Accounting for stock based compensation: (Continued)
o expected dividends, if any
o the risk-free interest rate for the expected term of the
option using Treasury Note rates with a remaining term equal
to the expected life of the options
o. Foreign currency exchange rate gains and losses:
Foreign currency transactions are based on the functional
currency of the United States dollar. Translation gains and
losses of such transactions are included in the consolidated
statements of income.
p. Impairment of long-lived assets:
Long-lived assets such as property, plant and equipment and
trademarks, are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount may
not be recoverable. If the total of the expected future
undiscounted cash flows is less than the carrying amount of the
asset, a loss is recognized for the difference between the fair
value and carrying value of the asset.
q. Revenue recognition:
Product revenues are recognized upon shipment of inventory to the
customers. License revenues are recognized based upon the terms
of the underlying license agreements.
r. Reclassifications:
The 2001 and 2000 financial statements have been reclassified for
comparative purposes to conform to the 2002 presentation.
s. Recent pronouncements:
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statements Nos. 4, 44 and 64, Amendment of FASB Statement No. 13
and Technical Corrections. SFAS No. 145 requires gains and losses
on extinguishment of debt to be classified as a component of
income from continuing operations rather than as an extraordinary
item, and to reclassify such items for all periods presented.
Page 16f
EVERLAST WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
4. Significant accounting policies: (Continued)
s. Recent pronouncements: (Continued)
In June 2002, the FASB approved SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS No. 146 is
effective after December 31, 2002, and addresses financial
accounting and reporting for costs associated with exit or disposal
activities and nullifies EITF issue No. 94-3, Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an
Activity. The primary difference between SFAS No. 146 and EITF 94-3
concerns the timing of liability recognition.
As of December 2002, the Company adopted SFAS No. 148, Accounting
for Stock-Based Compensation-Transaction and Disclosure, an
Amendment of FASB No. 123. SFAS No. 148 revises the methods
permitted by SFAS No. 123 of measuring compensation expense for
stock-based employee compensation plans. The Company uses the
intrinsic value method prescribed in Accounting Principles Board
Option No. 25, as permitted under SFAS No. 123. Therefore, this
change did not have a material effect on the financial statements.
SFAS No. 148 requires the Company to disclose pro forma information
related to stock-based compensation, in accordance with SFAS No.
123, on a quarterly basis in addition to the current annual basis
disclosure. The Company will report the pro forma information on an
interim basis beginning with the March 31, 2003 Form 10Q.
In November 2002, the FASB issued FIN 45, which expands previously
issued accounting guidance and disclosure requirements for certain
guarantees. FIN 45 requires the Company to recognize an initial
liability for the fair value of an obligation assumed by issuing a
guarantee. The provision for initial recognition and measurement of
the liability will be applied on a prospective basis to guarantees
issued or modified after December 31, 2002.
The Company will adopt these statements as of respective effective
dates, and does not expect them to have a material impact on its
consolidated financial position or results of operations.
Page 17f
EVERLAST WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
5. Marketable equity securities:
The Company has marketable equity securities that are classified as
available-for-sale securities. These securities have been recorded at
their fair market value of $308,841 and $457,308 at December 31, 2002
and 2001. A net unrealized holding gain, amounting to $2,193 and
$150,660, has been included in stockholders' equity as of December 31,
2002 and 2001.
6. Due to factor:
Certain of the Company's accounts receivable are assigned without
recourse to a commercial factor. The amount due to the factor
represents advances received in excess of net sales assigned. The
amount due to the factor is net of a provision for future chargebacks
of approximately $150,000 and $212,000 at December 31, 2002 and 2001.
Interest is charged at 1% above prime on advances. This factoring
arrangement is collateralized by the Company's factored and
non-factored accounts receivable and certain finished goods.
7. Inventories:
Inventories consist of:
2002 2001
----------- -----------
Raw materials $ 2,067,637 $ 3,154,346
Work-in-process 2,181,506 1,394,288
Finished goods 7,211,017 8,112,900
----------- -----------
$11,460,160 $12,661,534
=========== ===========
8. Property and equipment:
2002 2001
----------- -----------
Land $ 309,100 $ 309,100
Buildings and building improvements 5,295,912 5,252,017
Furniture and fixtures 572,649 560,722
Machinery and equipment 3,816,490 3,193,821
Vehicles 265,249 279,402
----------- -----------
10,259,400 9,595,062
Less: accumulated depreciation 3,771,570 3,276,778
----------- -----------
$ 6,487,830 $ 6,318,284
=========== ===========
Page 18f
EVERLAST WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
9. Cash surrender value, life insurance:
The Company is the owner of cash surrender value life insurance
policies on the life of a current stockholder and director. The face
value of these policies approximates $1.6 million. At December 31,
2002, the cash value, net of outstanding loans of $956,885, is $261,060
and is included in other assets. At December 31, 2001, the cash value,
net of outstanding loans of $956,885, was $167,146 and is included in
other assets.
10. Long-term Debt:
Long-term debt consists of the following:
2002 2001
---------- --------
Term loan of $3,350,000 due in sixty monthly payments of principal and
interest, based on an amortization of 180 months, with a balloon
payment due on the sixtieth month. The interest rate is equal to the
thirty day LIBOR yield plus 4% (5.4% at December 31, 2002). The term
loan is secured by property and equipment having a net book value of
$3,360,736. The term loan requires maintenance of minimum cash flow
coverage, as defined. A letter of credit of $1,000,000 must be in place
during the entire term of this loan. The Company's factor has issued
this letter of credit on behalf of the Company. As collateral for the
letter of credit, the Company has cash restricted as to withdrawal of
$1,003,701 $3,312,778 $ -
Various equipment loans due in monthly installments of principal and
interest through 2005. The interest rates on these loans range from
7.50% to 8.77% 277,574 220,227
---------- --------
3,590,352 220,227
Less current maturities 363,028 79,719
---------- --------
$3,227,324 $140,508
========== ========
Page 19f
EVERLAST WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
10. Long-term Debt: (Continued)
Annual maturities of long-term debt are approximately as follows:
Twelve months ending December 31, 2003 $ 363,000
2004 335,000
2005 249,000
2006 223,000
2007 2,420,000
11. Series A Redeemable participating preferred stock:
On October 24, 2000, the Board of Directors designated the issuance of
45,000 shares (1,000,000 total preferred shares authorized) $.01 par
value of Series A Redeemable Preferred Stock (the "preferred shares").
These preferred shares were issued pursuant to the merger agreement
(note 1) and are recorded at their fair value. The preferred shares
have priority liquidation and dividend rights over other securities
issued.
The Company redeemed 5,000 shares ($5,000,000 redemption value) on
December 31, 2002 and 2001, and is required to redeem 5,000 shares
every December 31st, until all of the shares have been redeemed. The
Company has the option to redeem all of the preferred shares at the end
of any quarter or an additional amount greater than the mandatory
redemption at the end of any year (December 31st). The Company is
required to pay 105% of the redemption value for any optional
redemption that is made.
If the Company fails to make any mandatory redemption payment within
thirty days after it is due, all licenses and trademarks obtained
pursuant to the merger will be assigned back to the former stockholders
of Everlast, effective 60 days following the assignment, if not
remedied.
Commencing on the date of issue, the preferred shares accrue dividends
equal to two-thirds (2/3) of the "net after tax profits" multiplied by
the "outstanding redeemable percentage." Net after tax profits is
defined in the agreement as net income after taxes (pursuant to
generally accepted accounting principles) plus goodwill amortization as
it relates to the merger, plus compensation from the granting and the
exercise of the Company's employee stock options. Outstanding
redeemable percentage is defined in the agreement as the aggregate
redemption value of the preferred shares outstanding as of January 1st
divided by $45 million. The percentage of net income (as defined) to be
paid to holders of preferred stock is as follows:
Twelve months ended 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%
Page 20f
EVERLAST WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
11. Series A Redeemable participating preferred stock: (Continued)
Dividends are due March 31st of the succeeding fiscal year, except for
dividends accrued from the issue date to December 31, 2000, which were
due March 31, 2002. As of December 31, 2002, the Company has accrued
dividends of $1,450,808 on these preferred shares.
If a dividend payment is not made when scheduled, the Company will be
subject to the same terms and conditions as a default on a mandatory
redemption payment.
Minimum redemption amounts are as follows:
Twelve months ending December 31, 2003 $ 5,000,000
2004 5,000,000
2005 5,000,000
2006 5,000,000
2007 5,000,000
2008 and thereafter 10,000,000
12. Commitments and contingencies:
a. Lease commitments:
The Company has four leases for office, showroom, factory and
warehouse space, one of which will expire April 30, 2004 and the
other three will expire on April 30, 2005.
At December 31, 2002, future minimum rental payments required under
the noncancellable leases are approximately as follows:
Twelve months ending December 31, 2003 $ 701,000
2004 434,000
2005 100,000
----------
Total $1,235,000
==========
Rent expense for the years ended December 31, 2002, and 2001 was
$746,000 for each year and $359,000 for the year ended December 31,
2000.
>
Page 21f
EVERLAST WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
12. Commitments and contingencies: (Continued)
b. Employment agreements:
i. The Company has an employment agreement with its President and
Chief Executive Officer at an annual base salary of $320,000
through the term of the agreement. The initial term of the
agreement expires on December 31, 2005, but continues
thereafter for additional one-year periods unless either the
President and Chief Executive Officer of the Company or the
Board of Directors gives the other ninety days prior written
notice of nonrenewal. At the discretion of the Board of
Directors, the Company may pay the President and Chief
Executive Officer a bonus on or before December 31, of any
year during the term.
The agreement also includes a noncompete clause for a period
of one year following its expiration or termination.
ii. The Company has an employment agreement with a senior vice
president with an initial term of five years, expiring
September 24, 2005. The agreement will automatically renew for
successive one-year terms unless terminated by either party
upon 60 days prior written notice. The employee will receive a
base salary starting at $150,000, a guaranteed minimum bonus
starting at $100,000, and an additional bonus based on a
defined formula and be allowed to participate in the Company's
employee benefits package.
iii. The Company has an employment agreement with the President of
Active Apparel New Corp., expiring April 2003. The employee
will receive $200,000 annually in exchange for services. The
employee will also be entitled to a reimbursement of
reasonable out-of-pocket expenses incurred in performing his
duties.
iv. The Company has an employment agreement with the Assistant
Vice President of Sales of the Company, expiring October 2003.
The employee will receive $60,000 annually in exchange for
services. The employee will be allowed to participate in the
Company's benefits package and be reimbursed for reasonable
out-of-pocket expenses incurred in performing his duties.
>
Page 22f
EVERLAST WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
12. Commitments and contingencies: (Continued)
b. Employment agreements: (Continued)
The minimum payments for base salaries (including guaranteed
bonuses) pursuant to the employment agreements are approximately as
follows:
Twelve months ending December 31, 2003 $687,000
2004 570,000
2005 504,000
c. Consulting agreement:
The Company has a consulting agreement with an individual to provide
services with respect to the redeemable participating preferred
stock (note 11). The term of the agreement is effective until all
shares of the redeemable preferred stock have been redeemed by the
Company. The consultant will receive $60,000 annually throughout the
duration of the agreement.
d. Contingencies:
i. On December 20, 2000, a claim was brought against the Company,
its subsidiary (EWBH), and two officers of the Company. The
complaint was initiated by the EWBH's licensing representative
(the "plaintiff") in the Supreme Court of the State of New
York (the "Court"). The plaintiff alleges breach of contract,
tortuous interference with contractual relations, tortuous
interference with prospective business relations and unjust
enrichment stemming from the merger of the Company completed
on October 24, 2000 (note 1). The total alleged claims and
damages amount to $55.5 million.
On November 30, 2001, the claims against the officers were
dismissed by the Court. The plaintiff had indicated that it
will appeal this decision and order.
On December 23, 2002, the case against the Company on appeal
was dismissed. The plaintiff has filed a limited notice of
appeal.
After reviewing this case with the Company's legal counsel,
management believes that there is no merit to any of the
remaining causes of action alleged in the complaint and
intends to continue to contest the matter vigorously.
>
Page 23f
EVERLAST WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
12. Commitments and contingencies: (Continued)
d. Contingencies: (Continued)
ii. On October 17, 2000, a former heavyweight boxing champion and
a corporation claimed $2.0 million of damages against the
Company and one of its subsidiaries for alleged unauthorized
use of his name and image. The Company's insurance carrier
assumed the defense of the case.
This case was settled on February 4, 2002 for $300,000, of
which $50,000 was paid by the insurance carrier, $137,500 was
paid by the former stockholder of the Company's subsidiary and
$112,500 was paid by the Company.
iii. There are product liability claims that arise against the
Company from time to time. Such actions are usually for
amounts greatly in excess of the payments, if any, which may
be required to be made. It is the opinion of management, after
reviewing such actions with legal counsel to the Company, that
the ultimate liability, which might result from such actions,
would not have a material adverse effect on the Company's
financial position.
e. Pension plan:
The Company contributes to a union sponsored multi-employer
pension plan covering its union employees in the Bronx, New
York. The Company's contributions to the Plan, incurred in
these financial statements, for the years ended December 31,
2002, 2001 and 2000 were $102,258, $87,427 and $11,020,
respectively.
Information as to the Company's portion of accumulated plan
benefits and plan assets is not reported separately by the
pension plan. A contingent liability may exist because an
employer under the Employee Retirement Income Security Act,
upon withdrawal from a multi-employer benefit plan, is
required to continue to pay its proportionate share of the
plan's unfunded vested benefits, if any. The liability under
this provision has not been determined; however, the Company
has no intention of withdrawing from the Plan.
>
Page 24f
EVERLAST WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
12. Commitments and contingencies: (Continued)
f. Profit-sharing plans:
The Company maintains two 401(k) profit-sharing plans for all
qualified non-union, full-time employees. The plans contain a profit
sharing component with tax deferred contributions to each employee
based upon certain criteria and also permits employees to make
contributions up to the maximum limits allowed by Internal Revenue
Code Section 401(k). Pursuant to one of the plans, the Company
matches 40% of the first 5% of each employee's contribution. The
Company does not match the employee's contribution on the other
plan. The Company's contributions were $40,387, $41,282 and $41,282
for the years ended December 31, 2002, 2001 and 2000, respectively.
13. Licensing revenues:
i. The Company, as licensor, has numerous licensing and distribution
agreements with varying expiration dates, the majority of which
expire in December 2005. Pursuant to the terms of the licensing
agreements, the Company is scheduled to receive approximate minimum
royalty payments as follows:
Twelve months ending December 31, 2003 $6,352,000
2004 7,370,000
2005 5,848,000
2006 1,819,000
2007 1,869,000
2008 and thereafter 7,150,000
Net licensing revenue generated for the years ended December 31,
2002, 2001 and 2000 amounted to $5,501,388, $5,141,024 and $537,330,
respectively. These licensing revenues are reflected net of related
expenses of $711,000, $647,000 and $53,000, respectively. The year
2000 reflects license revenue from October 25, 2000 to December 31,
2000. On an unaudited proforma basis, net licensing revenue for the
year ended December 31, 2000 amounted to $3,677,401.
ii.In connection with the license agreements, certain licensees are
required to make a specified minimum cash deposit to the Company.
The deposit is refundable to the licensee upon expiration of the
license agreement. At December 31, 2002 and 2001, the amounts on
deposit totaled $563,526 and $688,723, respectively. These amounts
are reflected as liabilities to licensees on the December 31, 2002
balance sheet.
Page 25f
EVERLAST WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
14. Stockholders' equity:
a. Common stock:
On October 24, 2000, the Company's stockholders voted to increase
the number of authorized shares of par value $.002 common stock, by
9.0 million shares, to 19.0 million common shares.
b. Class A common stock:
The holder of the Class A common stock is entitled to five votes per
share on all matters upon which each holder of common stock is
entitled to vote.
15. Stock option plans:
i. 1993 Stock Option Plan:
A maximum of 443,900 options may be granted pursuant to this plan.
Options granted vest in three years and have a term of ten years.
Options granted pursuant to this plan are to be designated by the
Board of Directors as non-qualified or incentive.
The option price of shares designated as nonqualified shall be
determined by the Board of Directors each year for the following
year at 85% of fair market value and in the case of incentive stock
options will be no less than the fair market value of the shares on
the date of the grant.
ii.1995 Non-employee Director Stock Option Plan:
The 1995 non-employee director stock option plan provides for
automatic grants of options to purchase 3,000 shares and thereafter
yearly grants to purchase 3,000 shares of common stock to each
active director serving on the Board at the time of the grant who is
not an officer or employee of the Company. The Director Plan
provides additional grants of options to non-employee directors of
100 shares to the Chairman of a committee and 200 shares to the
Chairman and Secretary of the Board of Directors. Options granted
vest in three years and have a term of seven years.
>
Page 26f
EVERLAST WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
15. Stock option plans: (Continued)
iii.2000 Stock Option Plan:
The Board of Directors will designate options granted pursuant to
this plan as incentive or nonqualified. The number of the Company's
common stock, par value $.002 per share, subject to this plan is
1,000,000. The maximum allowable grant to any individual in any one
year is 600,000 shares. In the case of incentive options, the
exercise price shall be at minimum equal to the fair market value of
the Company's common stock on the day the option is granted. In the
case of non-qualified options, the exercise price shall be 80% or
more of the fair market value of the Company's common stock on the
day the option is granted. Options granted to a stockholder holding
more than 10% of the combined voting power, shall have exercise
prices equal to or greater than 100% and 110% of the fair market
value of the Company's common stock on the date the option is
granted for incentive and non-qualified options, respectively. The
Board of Directors can make an appropriate and equitable adjustment
in the number and kind of shares reserved for issuance under this
plan and in the number and option price of shares for outstanding
options in the event of a capital change in the Company. The options
granted vest immediately and have a ten-year term, unless granted to
a stockholder with a greater than 10% combined voting power, in
which case the term is five years.
Pursuant to the merger (note 1) on October 24, 2000 the Board of
Directors granted the President and CEO of the Company, 125,000
non-qualified stock options with an exercise price of $4.00 and an
additional 380,000 non-qualified stock options with an exercise
price of $13.00. These options vested immediately and expire five
years from the grant date.
>
Page 27f
EVERLAST WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
15. Stock option plans: (Continued)
SHARES
--------------------------------------------------------------------
1995 Weighted
2000 1993 Non-employee average
Stock Stock director stock exercise
2002 option plan option plan option plan Total price
---- ----------- ----------- ------------- ------- ---------
Outstanding at January 1 505,000 341,679 64,200 910,879 $7.52
Granted 50,500 -- 9,500 60,000 $2.61
Cancelled -- 63,500 6,300 69,800 $2.69
Exercised -- -- 9,300 9,300 $2.23
------- ------- ------ -------
Outstanding at December 31 555,500 278,179 58,100 891,779 $7.63
======= ======= ====== =======
Exercisable at December 31 555,500 244,512 42,267 842,279 $7.92
======= ======= ====== =======
SHARES
--------------------------------------------------------------------
1995 Weighted
2000 1993 Non-employee average
Stock Stock director stock exercise
2001 option plan option plan option plan Total price
---- ----------- ----------- ------------- ------- ---------
Outstanding at January 1 505,000 285,679 54,700 845,379 $7.88
Granted -- 60,000 9,500 69,500 $2.92
Cancelled -- 4,000 -- 4,000 $2.63
Exercised -- -- -- --
------- ------- ------ -------
Outstanding at December 31 505,000 341,679 64,200 910,879 $7.52
======= ======= ====== =======
Exercisable at December 31 505,000 244,684 48,368 798,052 $8.14
======= ======= ====== =======
Page 28f
EVERLAST WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
15. Stock option plans: (Continued)
SHARES
--------------------------------------------------------------------
1995 Weighted
2000 1993 Non-employee average
Stock Stock director stock exercise
2000 option plan option plan option plan Total price
---- ----------- ----------- -------------- ------- ---------
Outstanding at January 1 - 285,679 54,700 340,379 $2.98
Granted 505,000 - - 505,000 $10.77
Cancelled - - - -
Exercised - - - -
------- ------- ------ -------
Outstanding at December 31 505,000 285,679 54,700 845,379 $7.88
======= ======= ====== =======
Exercisable at December 31 505,000 188,325 56,914 750,239 $8.12
======= ======= ====== =======
Outstanding Exercisable
-------------------------------------------------- ------------------------------
Weighted- Weighted- Weighted-
average average average
contractual life exercise exercise
Exercise price range Shares remaining price Shares price
-------------------- ------ --------- ----- ------ -----
$.85 - $2.35 180,346 6.59 years $ 2.15 164,513 $2.14
$3.00 - $3.97 114,078 7.18 years 3.49 80,411 3.67
$4.00 - $6.25 207,855 7.80 years 4.78 207,855 4.78
$9.38 - $13.00 389,500 7.70 years 12.91 389,500 12.91
------- -------
Total 891,779 7.16 years 7.63 842,279 7.92
======= =======
The weighted-average grant-date fair value for options granted during the years
ended December 31, 2002, 2001 and 2000 was $2.80, $2.88 and $2.81, respectively.
>
Page 29f
EVERLAST WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
16. Income taxes:
For the years ended December 31, 2002, 2001 and 2000, the Company had a
provision for income taxes consisting of the following:
2002 2001 2000
---------- ---------- ----------
Current tax provision:
Federal $1,590,013 $1,249,789 $1,087,382
State and local 409,454 388,157 307,449
Foreign 89,375 208,668 21,482
---------- ---------- ----------
2,088,842 1,846,614 1,416,313
---------- ---------- ----------
Deferred tax benefit:
Federal $ (29,380) $ - $ -
State and local (14,690) - -
Foreign (40,000) - -
---------- ---------- ----------
(84,070) - -
---------- ---------- ----------
Total $2,004,772 $1,846,614 $1,416,313
========== ========== ==========
Included in prepaid expenses and other current assets is a deferred tax
asset of $239,469 and $155,399 as of December 31, 2002 and 2001,
respectively, which primarily consists of the temporary difference
between the book and tax basis of inventory, provision for bad debts
and a foreign net operating loss carryforward.
The following is a reconciliation of the reported amount of income tax
expense to the amount of income tax expense that would result from
applying domestic federal statutory rates to income before income
taxes:
YEARS ENDED DECEMBER 31,
--------------------------
2002 2001 2000
---- ---- ----
Federal income tax rate 34.0% 34.0% 34.0%
State taxes, net of federal income tax benefit 6.1 6.1 7.1
Nondeductible amortization of
intangible assets and other items 7.9 10.8 3.2
Foreign income taxes 2.0 5.0 .7
Work credit and other credits (4.4) (9.3) --
Other (.6) (2.5) 4.8
---- ---- ----
45.0% 44.1% 49.8%
==== ==== ====
>
Page 30f
EVERLAST WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
17. Economic dependency:
For the years ended December 31, 2002, 2001 and 2000, one customer
accounted for approximately 11%, 13% and 15% of sales, respectively.
18. Geographic data:
Geographic information for net sales is as follows:
2002 2001 2000
----------- ----------- -----------
U.S. $60,116,686 $48,263,348 $33,818,319
Canada 5,227,786 4,184,216 2,948,302
Other foreign countries 268,540 503,946 130,941
----------- ----------- -----------
$65,613,012 $52,951,510 $36,897,562
=========== =========== ===========
19. Earnings per share:
The computation of basic earnings per share is based on net income
available to common stockholders divided by the weighted average number
of shares actually outstanding during the year. Diluted earnings per
share are computed by giving effect to stock options and contingent
consideration pursuant to the merger agreement (note 1). The
computation of earnings per share are as follows:
2002 2001 2000
---------- ---------- -------
Net income available to common stockholders:
Net income $2,448,251 $2,338,896 $1,425,731
Redeemable participating
preferred stock dividends (1,450,808) (1,674,840) (27,324)
---------- ---------- -------
$ 997,443 $ 664,056 $1,398,407
========== ========== ==========
Page 31f
EVERLAST WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
19. Earnings per share: (Continued)
2002 2001 2000
--------- --------- ---------
Basic weighted average
common stock outstanding 3,101,261 3,098,936 2,685,505
Effect of dilutive securities:
Stock options 48,027 14,870 67,139
Contingent consideration 989,863 1,722,128 412,010
--------- --------- ---------
Diluted weighted average
common stock outstanding 4,139,151 4,835,934 3,164,654
========= ========= =========
Basic earnings per common share $.32 $.21 $.52
========= ========= =========
Diluted earnings per common share $.24 $.14 $.44
========= ========= =========
20. Cash flow information:
a. Supplemental disclosures of cash flow information:
2002 2001 2000
-------- -------- --------
Cash paid during the year for:
Interest $755,665 $530,799 $439,512
Income taxes 1,576,314 2,449,879 856,891
b. Supplementary non-cash operating, investing and financing activities
during the years ended December 31, 2002, 2001 and 2000:
i. Pursuant to the merger agreement (note 1), a portion of the
purchase price was satisfied by the following:
2002 2001 2000
---------- ------------ -------------
Issuance of redeemable participating
preferred stock $ - $ - $45,000,000
Issuance of 505,000 shares of $.002
par value common stock - - 5,502,500
---------- ------------ -------------
$ - $ - $50,502,500
========== ============ =============
>
Page 32f
EVERLAST WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
20. Cash flow information: (Continued)
b. (Continued)
2002 2001 2000
--------- --------- ----------
ii. Adjustments to reflect fair value of
tangible net assets acquired in the
merger
Land and building $ - $1,050,000
Inventory - 518,576
---------- ---------- ----------
$ $ - $1,568,576
========== ========== ==========
iii. Unrealized gains (losses) on available-for-sale
Securities
$ (148,467) $ 36,164 $ 114,496
========== ========== ==========
iv. Dividends declared on redeemable
participating preferred stock $1,450,808 $1,674,840 $ 27,324
========== ========== ==========
v. Acquisition of property and
equipment financed with capital
leases
$ $ 283,859 $ -
========== ========== ==========
>
Page 33f
EVERLAST WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
21. Quarterly financial data (unaudited):
2002
-------------------------------------------------------------
First Second Third Fourth
Quarter Quarter quarter quarter
---------- ------------ -------------- -----------
Net sales $15,734,596 $14,725,911 $16,905,001 $18,247,504
Gross profit 5,273,766 4,581,859 5,324,030 3,704,069
Net income 943,981 589,264 912,057 2,949
Earnings per share - basic $.12 $.08 $.12 $.00
Earnings per share - diluted $.09 $.06 $.06 $.00
2001
--------------------------------------------------------------------------
First Second Third Fourth
Quarter quarter quarter quarter
------------ --------------- ----------------- ------------
Net sales $12,214,206 $12,346,009 $14,264,997 $14,126,298
Gross profit 4,176,275 4,434,648 4,866,321 4,545,192
Net income 513,920 604,743 1,128,142 92,091
Earnings per share - basic $.04 $.06 $.11 $.00
Earnings per share - diluted $.03 $.04 $.06 $.00
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Balance at Charged to Balance at
Beginning of Costs and End of
Period Expenses Deductions Period
------------ ---------- ---------- ----------
Allowance for Doubtful Accounts:
Year ended December 31, 2002 $ 257,000 $ 52,496 $ 33,496 $276,000
Year ended December 31, 2001 117,000 191,434 51,434 257,000
Year ended December 31, 2000 117,000 - - 117,000