`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.




>


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                    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.




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                    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
                                     =======      =======           ======          =======






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                    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.



>


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                    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%
                                                          ====     ====     ====




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                    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
                                                                        ==========    ============   =============




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                    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       $       -
                                                                    ==========           ==========       ==========




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                    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`