`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, 2003

                                       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
 Incorporation or Organization)                              Identification No.)

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 pursuant to Section 12(g) of the 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 19, 2004, the aggregate market value of the voting stock held
by non-affiliates of the registrant was approximately  $5,435,000 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  19,  2004 was  3,028,904
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 14 of this Annual Report
on Form 10-K is  incorporated  by reference from the issuer's  definitive  proxy
materials for its 2004 Annual Meeting of Stockholders, which proxy materials are
to be filed with the Securities and Exchange Commission not later than April 29,
2004.





                                TABLE OF CONTENTS

                                                                               Page
                                                                               ----

PART I

Item 1     Business..............................................................1
Item 2     Properties...........................................................10
Item 3     Legal Proceedings....................................................10
Item 4     Submission of Matters to a Vote of Security Holders..................11

PART II

Item 5     Market for Registrant's Common Equity, Related Stockholder Matters
           and Issuer Purchases of Equity Securities............................11
Item 6     Selected Financial Data..............................................13
Item 7     Management's Discussion and Analysis of Financial Condition and
           Results of Operations................................................14
Item 7A    Quantitative and Qualitative Disclosures About Market Risk...........19
Item 8     Financial Statements and Supplementary Data..........................19
Item 9     Changes in and Disagreements with Accountants on Accounting
           and Financial Disclosure.............................................19
Item 9A    Controls and Procedures..............................................19

PART III

Item 10    Directors and Executive Officers of the Registrant...................20
Item 11    Executive Compensation...............................................20
Item 12    Security Ownership of Certain Beneficial Owners
           and Management and Related Stockholder Matters ......................20
Item 13    Certain Relationships and Related Transactions.......................20
Item 14    Principal Accountant Fees and Services...............................20

PART IV

Item 15    Exhibits, Financial Statement Schedules and Reports on Form 8-K......20

Signatures......................................................................22

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

NOTE REGARDING FORWARD LOOKING INFORMATION

          Certain   statements   contained  in  this  annual  report  constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and  Sections  21E of the  Exchange  Act.  Such  forward-looking  statements
involve known and unknown risks,  uncertainties and other factors that may cause
the actual  results,  levels of activity,  performance  or  achievements  of the
Company,  or  industry  results,  to be  materially  different  from any  future
results, levels of activity, performance or achievements expressed or implied by
such  forward-looking  statements.  Such  factors  include,  among  others,  the
following:  general economic and business conditions, the ability of the Company
to  implement  its  business  strategy;  the  ability  of the  Company to obtain
financing  for general  corporate  purposes;  competition;  availability  of key
personnel,  and  changes  in,  or  the  failure  to  comply  with,  government's
regulations. As a result of the foregoing and other factors, no assurance can be
given as to the future results,  levels of activity and achievements and neither
the  Company  nor  any  person  assumes  responsibility  for  the  accuracy  and
completeness of these statements.

GENERAL

          Everlast  Worldwide Inc., a Delaware  corporation and its subsidiaries
(collectively,  the Company and herein referred to as "we", "us" and "our"), was
organized on July 6, 1992. We are 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.  We also
manufacture 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.  In addition,  we license 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,  fragrances,  batteries,
nutritional products 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.  ("AANC"),  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.
Pursuant  to the  terms of that  certain  Agreement  and Plan of  Merger  by and
between Everlast Holding Corp.,  Everlast,  the Company and AANC, as amended, if
the fair market value of the Common Stock is not $13.00 by October 24, 2007, the
Company will be required to issue  additional  shares of Common Stock or, at its
option, pay such amount in cash.

                                       1




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 worldwide.

          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
women's and children's apparel,  footwear,  fitness exercise equipment,  back to
school supplies, eyewear, sports bags, hats, fragrances,  batteries, nutritional
products 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.

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;

                                       2




          (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  ( the  "Licensed  Products"). 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 80 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.

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

                                       3




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 HBO Latino Boxeo de Oro*, 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 Oscar De La Hoya, Sugar
Shane Mosley, Fres Oquendo, Chris Byrd, Steve Forbes, Sugar Ray Leonard, Larry
Holmes, Sean O'Grady and Cedric Kushner. 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 six 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 professional and amateur boxers.

Licensed Products
-----------------

          The  Company  employs  an  executive,  who  reporting  to  Mr.  George
Horowitz,  President and Chief Executive Officer (CEO), are jointly  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 the executive's other duties is to generate leads and to meet with
potential licensees.  The executive in concert with the CEO are also responsible
for renegotiating  terms and possibly  expanding the scope of existing licensing
agreements.

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  70% of the Apparel  Products while the remaining 30% 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

                                       4




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
---------------

          Effective  December 2003, we manufacture sole out of one company-owned
facility, which produces most of our Sports Products. This facility,  located in
Moberly  Missouri,  has 304,000 square feet and is used to produce products such
as heavy bag and speed bag platforms, heavy bags, and boxing rings, as well as a
"cut and sew"  production  department  where boxing gloves,  speed bags,  boxing
trunks,  and other related items are  produced.  Certain of these  products were
formerly  produced in our Bronx,  New York facility which was closed in December
2003.

          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
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  60% of its purchased raw material,  sub assemblies,  and finished
goods.

INVENTORY MANAGEMENT

          As of the year ended  December 31, 2003,  the Company's  inventory for
both Apparel  Products and Sports  Products was $11.0  million with net sales of
$58 million.

          As of December 31, 2003, the Company's  backlog of unfilled orders for
its Apparel  Products and Sports  Products was  approximately  $7 million and $1
million, respectively. 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"

                                       5




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.  If required by major retailers,  the Company has also
incorporated its Sports Products into an EDI Quick Response Replenishment System
to fill sales orders.

SALES AND DISTRIBUTION

          For the fiscal years ended 2003,  2002 and 2001, The Sports  Authority
Inc.  ("Sports  Authority")  , including  Gart's  Sports,  which was merged into
Sports Authority in October 2003,  accounted for approximately  17%, 19% and 22%
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. The Company believes that its business
relationship with Sports Authority is excellent.

          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.  Professional and amateur boxers,  promoters and trainers can
order products  through 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  24-f  of  the  Consolidated   Financial
Statements  of the Company for a breakdown of domestic and foreign sales for the
fiscal years ended December 31, 2003, 2002 and 2001.

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*,  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 other Company
senior executives coordinate sales and manage the representatives to ensure that

                                       6




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.

          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  chargebacks  from the  purchase  price for sales  allowances,  new store
opening discounts and other marketing development funds, which in the opinion of
management  promotes brand awareness.  Chargebacks 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  of
approximately  5.6%,  4.3% and 4.5% during  fiscal  years  2003,  2002 and 2001,
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 wharehouse and sell
its Sports  Products in Canada.  During  fiscal years 2003,  2002 and 2001,  net
sales, in U.S.  Dollars,  from operations in Canada were $3,934,000,  $5,228,000
and $4,184,000,  respectively. During 2003, certain customers from Canada became
licensees.  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 2003,  2002
and 2001,  the  Company's  foreign  sales  accounted  for  7.3%,  8.4% and 8.9%,
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* and Academy*.

          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

                                       7




               the Company.  The Company also produces merchandise to be sold in
               certain catalogs for selected licensed items; and

          o    Mail-Order:   The   Company   uses  an   independent   mail-order
               distributor.

          The  Company  believes  that the  sales  of  Sports  Products  are not
seasonal.

Licensed Products
-----------------

          The Company  employs an executive  who is  responsible  for  worldwide
licensing of the Everlast brand name.  Until February 10, 2003, the Company also
had a non-exclusive  agreement with a license  consultant whose remuneration was
determined by license revenues received from certain licensees. The nonexclusive
agreement was terminated on February 10, 2003 but,  pursuant to the  termination
provisions of such  agreement,  commissions  to be paid to the  consultant  will
continue for two years thereafter.

          There  are 60  licenses  worldwide  that  are  held  by 44  licensees.
Licensed Products,  such as men's,  women's, and children's apparel,  sleepwear,
underwear,   hosiery,  footwear,  eyewear,  hats,  sports  bags,  cardiovascular
equipment,  fragrances,  nutritional  products and batteries are sold in over 80
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, infant apparel, and cosmetics.

          The Company believes that sales of Licensed Products are not seasonal.
Reference is made to page 19-f of the Consolidated  Financial  Statements of the
Company for the net revenues  from  License  Products for the fiscal years ended
December 31 2003, 2002 and 2001.

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 facility in Moberly,  Missouri.  Manufacturing supervisors inspect
Sports Products for defects  throughout both the  manufacturing  process and the
finishing stages, including imported products.

                                       8




Licensed Products
-----------------

          The Company  requires its licensees to submit samples of products that
are to be  sold  under  exclusive  license  agreements.  These  sample  Licensed
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.

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  February  29,  2004,  the  Company  had 215  employees  who are
employed  on a  full-time  basis.  These  include  75  administrative  and sales
employees  at  its  New  York  City  main  office  and  140   employees  at  its
manufacturing facility in Moberly, Missouri. 107 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 has
satisfactory  relationships  with its employees under the collective  bargaining
agreement.

          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.

                                       9




ENVIRONMENTAL CONSIDERATIONS

          The Company's  manufacturing  facility is 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 facility is
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  December 2003. The lease is for
12,087 square feet with an annual base rent of $407,728 through November 2008.

          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 through April 2006.

MANUFACTURING FACILITY

          The Company  owns a  manufacturing  facility  in Moberly,  Missouri of
approximately  304,000  square  feet.  The Company  believes  that its  existing
facility  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.

          From  January 1, 2003 to December  31,  2003,  the Company  operated a
leased  manufacturing  facility in the Bronx, New York. On December 31, 2003 the
Company closed the Bronx facility and centralized its  manufacturing  operations
in its  Moberly,  Missouri  manufacturing  facility.  For details  concerning  the
closure and relocation of the Bronx facility, please see the Section "Results of
Operations -- 2003 Restructuring and Non-Recurring Charges."

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  principal
stockholder of Everlast and a Director of the Company,  individually.  The Agent
alleged a breach of  contract  on 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.

                                       10




          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.

          Thereafter 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's appeal of that
portion  of the  decision  dismissing  its claim for a breach of  contract,  was
unanimously  affirmed by the Appellate  Division on December 16, 2003. The Agent
has  subsequently  filed a motion  seeking  permission to further  appeal to the
Court of  Appeals as well as  reasserting  its  breach of  contract  claims in a
separate demand for arbitration.

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 2003.

                                     PART II

ITEM 5.            MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED
                   STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
                   SECURITIES

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.

                                   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


                                   2003

                         High                    Low
                         ----                    ---

1st Quarter             $4.20                   $2.79
2nd Quarter             $3.15                   $2.20
3rd Quarter             $3.30                   $2.54
4th Quarter             $3.45                   $2.46

                                       11




HOLDERS

          The  closing  bid price of each share of Common  Stock as of March 19,
2004 was $2.95.  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
its $.01 par value  preferred  stock  (the  "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
                 2003                            51.9
                 2004                            44.4
                 2005                            37.0
                 2006                            29.6
                 2007                            22.2
                 2008                            14.8
                 2009                             7.4


DISCLOSURE OF EQUITY COMPENSATION PLAN INFORMATION (AS OF DECEMBER 31, 2003)

      ------------------------------------------------------------ ----------------------------- ------------------------
      Plan Category                  Number of securities to       Weighted-average       Number of securities remaining
                                        be issued upon            exercise price of        available for future issuance
                                   exercise of outstanding       outstanding options,        under equity compensation
                                       options, warrants         warrants and rights        plans (excluding securities
                                          and rights (a)                                      reflected in column (a))
      -------------------------------------------------------------------------------------------------------------------
      Equity compensation                     555,500                   10.03                          431,900
      plans approved by
      security holders
      -------------------------------------------------------------------------------------------------------------------
      Equity compensation                     325,111                    3.80                             -
      plans not approved by
      security holders
      -------------------------------------------------------------------------------------------------------------------
      Total                                   880,611                    7.73                          431,900
      -------------------------------------------------------------------------------------------------------------------

                                       12




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    December 31    December 31
                                  2003 (a)        2002           2001           2000           1999
                              ====================== ===================== ==============================


Net Sales                     $ 58,035,886    $ 65,613,012   $ 52,951,510   $ 36,897,562   $ 24,464,139
Net License Revenues             6,669,640       5,501,388      5,141,024        537,330              0
Net Income (Loss) (a)             (954,839)      2,448,251      2,338,896      1,425,731        816,152
Preferred Stock Dividend                 0       1,450,808      1,674,840         27,324              0
Basic Earnings (Loss) per
   Common Share                      (0.31)           0.32           0.21           0.52           0.31
Diluted Earnings (Loss) per
   Common Share                      (0.31)           0.24           0.14           0.44           0.31
Total Assets                    64,256,713      63,846,752     63,952,774     66,877,884      8,274,198
Long Term Debt                   4,866,111       3,227,324        140,508      3,125,000              0
Redeemable Preferred Stock      30,000,000      35,000,000     40,000,000     45,000,000              0


(a) During fiscal 2003, the Company  incurred  restructuring  and  non-recurring
duplicative manufacturing costs aggregating $3.3 million, pretax, related to the
relocation and consolidation of its Bronx, New York manufacturing facility which
closed in December 2003.

                                       13




ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS.

CRITICAL ACCOUNTING POLICIES, ESTIMATES AND JUDGEMENTS

          Our financial  statements are prepared in accordance  with  accounting
principles  generally  accepted in the United States of America.  The accounting
principles we use require us to make estimates and  assumptions  that affect the
reported  amounts  of  assets  and  liabilities  at the  date  of the  financial
statements  and  amounts of income and  expenses  during the  reporting  periods
presented.  We  believe  in the  quality  and  reasonableness  of  our  critical
accounting  policies,  however it is likely that  materially  different  amounts
would be reported under different conditions or using different assumptions that
we have consistently applied. We believe our critical accounting policies are as
follows, including our methodology for estimates made and assumptions used.

          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    TRADE  RECEIVABLES.  We perform  ongoing  credit  evaluations  on
               existing  and  new  customers   daily.   We  apply  reserves  for
               delinquent or uncollectible  trade  receivables based on specific
               identification methodology and also apply a general reserve based
               on our trade receivable aging categories. Credit losses have been
               within our estimates over the last few years.

          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.

          o    INVENTORY.  Our  inventory  is  valued  at the  lower  of cost or
               market.  Cost has been derived  principally  on the standard cost
               methodology,  where we utilize a  first-in-first-out  method.  We
               provide for reserve allowances on finished goods and specifically
               identify  and reserve for slow moving or obsolete  raw  materials
               and packaging.

          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

                                       14




               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

2003 Restructuring and Non-Recurring Charges
--------------------------------------------

          During  the  fourth  quarter  of  fiscal  2003  we  recorded   charges
aggregating  $2.1  million,   before  taxes,   related  to  the  relocation  and
consolidation  of our Bronx, New York  manufacturing  facility into our Moberly,
Missouri  facility.  Approximately  $1.2 million of these  charges were non-cash
nature.

          Commencing July 2003, we decided to pursue and execute a plan to close
the Bronx,  New York  facility.  Our decision to close this facility was largely
the result of  significant  lease  escalation  costs  expected at the end of our
existing lease term in April 2004 and our inability to reach practical  capacity
at both the  Bronx,  New York and  Moberly,  Missouri  facilities.  Accordingly,
during the fourth  quarter of fiscal  2003,  we  completed  the  relocation  and
consolidation of the facilities.

          The  restructuring  charge  includes $2.1 million of costs  associated
with the discontinuance of certain products,  factory labor and related overhead
costs  resulting  from the  idle  capacity  in the  Bronx,  New  York  facility,
severance, lease exit and other disposal costs. Of this $2.1 million of charges,
our 2003 gross  profit was reduced by $1.1  million  charged to cost of sales as
required by accounting rules. At December 31, 2003,  approximately  $0.5 million
was accrued principally  related to lease exit costs. In addition,  we wrote off
and  disposed  of  approximately  $0.1  million  of  fixed  assets.   Additional
restructuring  charges  of $0.4  million  were  incurred  during  the year ended
December 31, 2003 related to severance  liabilities  and related  employee costs
and other disposal and lease exit costs.

Year End 2003 Compared to Year End 2002
---------------------------------------

          Net sales were $58.0  million for the year ended  December 31, 2003 as
compared to $65.6  million for the year ended  December  31, 2002, a decrease of
$7.6 million or 11.6%.  This decrease in sales was  principally  attributable to
lower sales order volumes from  retailers on both the apparel and sporting goods
products due to prevailing  general economic and weather  conditions  during the
first half of fiscal  2003 and  approximately  $3.5  million in sales to certain
customers in 2002 who became licensees in 2003.

          Gross profit in 2003 decreased to $14.5 million,  25% of net sales, as
compared to $18.9 million,  or 28.8% of net sales in 2002. Gross profit adjusted
for the restructuring and  non-recurring  costs,  included within cost of sales,
was $15.6 million or 26.9% of net sales. The decrease in both dollar amounts and
percentage  of net sales was  related to reduced  sales  volume and mix of sales
mentioned above and in addition, $1.2 million of duplicative manufacturing costs
incurred in the second half of fiscal 2003  related to the  facility  relocation
and consolidation.

          Net license revenues were $6.7 million for the year ended December 31,
2003 as  compared to $5.5  million  for the year ended  December  31,  2002,  an
increase of 21%.  The  increase in license  revenues  was  primarily  due to new
license agreements and increased revenues on existing licenses.

          Selling and shipping expenses  increased to $12.7 million for the year
ended December 31, 2003 from $12.5 million for the year ended December 31, 2002.
Selling and shipping  expenses as a percentage  of net sales  increased to 21.9%
from  18.9%.  This  increase,  as a  percentage  of  net  sales,  was  primarily
attributable to increased  marketing and  advertising  costs across all business
lines as well as the decrease in net sales as it relates to the fixed portion of
selling and shipping expenses.

                                       15




          General and administrative  expenses increased to $6.4 million for the
year ended December 31, 2003 as compared to $5.9 million in the 2002 period. The
increase  was  due to  higher  infrastructure  costs  required  to  support  our
diversified organization.

          As discussed  above,  during the fourth  quarter of 2003,  we recorded
approximately  $1.1 million of restructuring  and non-recurring  charges.  There
were no such  charges in 2002.  These  charges  are  related  to  certain  asset
write-offs, lease exit and disposed costs, and severance liabilities and related
employee costs.

          Amortization  expense  remained  $0.9  million  for  the  years  ended
December 31, 2003 and 2002.

          Operating  income decreased to $34,414 for the year ended December 31,
2003 from $5.1 million for the year ended  December  31, 2002.  The $5.1 million
decrease  was a result of the  aforementioned  restructuring  and  non-recurring
charges,  lower gross  margins and higher  selling,  general and  administrative
costs as described above.

          Interest  expense,  net of interest income,  increased to $1.0 million
for the year  ended  December  31,  2003 from $0.7  million  for the year  ended
December  31,  2002.  The  increase is  attributable  to the increase in our net
borrowings  from  our  factor  to fund  the  annual  mandatory  preferred  stock
redemption.

          Income (loss) before income taxes for the year ended December 31, 2003
was $(0.9) million as compared to $4.5 million in the 2002 period.  The decrease
of $5.4  million was a result of lower  operating  profits in the 2003 period as
well as the increase in interest expense.

          We incurred a tax provision of $35,000 for the year ended December 31,
2003 as  compared to $2.0  million for the year ended  December  31,  2002.  The
decrease in taxes is a result of lower pre-tax earnings as compared to the prior
year.

Year End 2002 Compared to Year End 2001
---------------------------------------

          Net sales  increased to $65.6 million for the year ended  December 31,
2002 from $53 million for the year ended December 31, 2001, an increase of $12.6
million 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 $18.9  million for the year ended  December
31, 2002 from $18 million for the year ended  December 31, 2001,  an increase of
$.9 million 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 $5.5  million for the year ended
December  31, 2002 from $5.1 million for the year ended  December  31, 2001,  an
increase of $.4 million 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 $12.4 million for the year
ended December 31, 2002 from $11.5 million for the year ended December 31, 2001,
an  increase  of $.9  million  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.

                                       16




          General and administrative  expenses increased to $5.9 million for the
year ended  December 31, 2002 from $5.8 million for the year ended  December 31,
2001, an increase of $.1 million 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.

          Amortization  expense  decreased  to $.9  million  for the year  ended
December  31, 2002 from $1.2  million for the year ended  December  31,  2001, a
decrease  of  $.3  million.  This  decrease  is  primarily  attributable  to new
standards   established  by  the  Financial  Accounting  Standards  Board  which
eliminated the amortization of goodwill.

          Operating income increased to $5.1 million for the year ended December
31, 2002 from $4.6 million for the year ended  December 31, 2001, an increase of
$.5 million 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 $.8 million for the year ended December
31, 2002 from $.5 million for the year ended  December 31, 2001,  an increase of
$.3  million 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.

          The Company incurred a non-recurring  charge related to the settlement
of a litigation  claim in the amount of $.1 million for the year ended  December
31, 2001.

          The Company  incurred a tax provision of $2 million (45%) for the year
ended  December 31, 2002 as compared to $1.8 million  (44.1%) for the year ended
December 31, 2001.

          The Company had net income of $2.5 million for the year ended December
31, 2002 as compared to $2.4 million for the year ended  December  31, 2001,  an
increase of $.1 million.

          Preferred Stock dividends payable for the year ended December 31, 2002
was $1.4 million and was paid in March 2003.  The dividends paid for fiscal year
ended December 31, 2001 were $1.6 million.

LIQUIDITY AND CAPITAL RESOURCES

          We finance our operations and growth  primarily with our cash flows we
generate from our operations and from borrowings with our Factor.

          Net cash provided by operating  activities for the year ended December
31, 2003 was $1.3 million  compared to $1.8 million for the year ended  December
31, 2002.  This  decrease was  primarily  due to the decrease in net income,  as
adjusted for the add back of non-cash  restructuring and non-recurring  charges,
offset by increases in working capital items,  principally  accounts  receivable
and accounts payable.

          Net cash provided by investing activities for the years ended December
31, 2003 was $40,000  compared  to $.7 million for the year ended  December  31,
2002.  This  decrease  was  due  to  reductions  in  capital   expenditures  for
manufacturing equipment and proceeds from the sale of marketable securities.

          Net cash used by financing  activities for the year ended December 31,
2003 was $2.0 million as compared to $1.6 million in 2002.

          During the year ended  December 31, 2003,  the Company's  primary need
for funds was to finance working capital, and the annual mandatory redemption of
its Preferred  Stock and the preferred  stock  dividend.  The Company has relied
primarily upon its cash flow from operations and its asset based borrowings from

                                       17




the factor to finance its operations and  expansion.  Cash and cash  equivalents
and short term  investments  were  approximately $2 million at December 31, 2003
compared  to $2.5  million at December  31,  2002,  a decrease  of $.5  million.
Working  capital was $6.2 million at December 31, 2003 compared to $12.9 million
at  December  31,  2002.  The  decrease  in working  capital  was due  increased
borrowings from our factor  aggregating $3.5 million to fund our preferred stock
payments made of $3.0 million and deferred financing costs of $0.7 million,  and
the adoption of SFAS No. 150, "Accounting for Certain Financial Instruments with
Characteristics  of both Liabilities and Equity." We adopted SFAS No. 150 during
the period ended September 30, 2003, which required us to classify our Preferred
Stock as a debt  instrument,  whereby $3 million is  currently  due December 31,
2004 (restatement of prior period amounts was prohibited.)

          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, 2003 the
amount due to factor was $6.9  million as compared  to $3.4  million at December
31, 2002.

2004 Liquidity Outlook
----------------------

          On  January  13,  2004,  we  announced  that we had  entered  into our
Agreement with our principal  preferred  stockholder  (the "Principal  Preferred
Stockholder"), modifying its annual minimum redemptions.

          Under the terms of the  Agreement,  in lieu of a cash  payment for the
redemption of a portion of their Series A Preferred  Stock,  $2,000,000 for each
of the four years commencing  December 14, 2003, through December 14, 2006, will
be converted  into four term loans  ("Loans").  The Loans are  evidenced by four
promissory  notes  from the  Company  which  shall  provide  for the  payment of
interest and deferred finance costs.  Interest and deferred finance costs are to
be paid at a combined  annual rate of 9.5% per annum on the aggregate $8 million
note during each of the years 2004  through  2007,  and 10% during 2008  payable
each December 14th until maturity on December 14, 2008.

          In addition,  with the  aforementioned  closing of our Bronx, New York
facility,  we are anticipating annual cost savings of approximately $2.8 million
commencing in the first quarter of fiscal 2004.

          Management  anticipates  that  as a  result  of  the  Preferred  Stock
refinancing  and the  costs  savings  mentioned  above,  existing  cash and cash
equivalent  balances,  and  expected  positive  cash  flows  generated  from our
operations,  will  create  sufficient  cash  flows to fund our  preferred  stock
redemptions,  debt instruments and other contractual  obligations due throughout
2004  although no assurance to that effect can be given.  If positive  cash flow
does not occur and the anticipated cost savings do not  materialize,  there will
be a decrease in cash and cash  equivalents  and  additional  borrowings  may be
required by our Factor and/or other lenders.

          Obligations for all preferred  stock  redemptions,  debt  instruments,
capital and operating leases and other contractual obligations are as follows:

                                                                      Payments Due by Period (In 000's)
                                              ---------------------------------------------------------------------------
                                                                         Less than
                                                         Total             1 Year           1-3 Years          Thereafter
                                              ---------------------------------------------------------------------------
    Preferred Stock redemptions
      and notes payable                                $ 32,000            $3,000            $ 11,000           $ 18,000
    Debt instruments and capital lease
      obligations                                         3,201               335               2,867                  -
    Operating leases                                      2,038               422               1,242                374
                                              ---------------------------------------------------------------------------
    Total contractual cash obligations                 $ 37,240           $ 3,757            $ 15,109           $ 18,374
                                              ===========================================================================

                                       18




OFF-BALANCE SHEET ARRANGEMENTS

          The Company has no  off-balance  sheet  arrangements  that have or are
reasonably likely to have a current or future effect on the Company's  financial
condition,  changes in financial  condition,  revenues or  expenses,  results of
operations,  liquidity,  capital  expenditures  or  capital  resources  that  is
material to investors.

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 the Company believes that these investments 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.
The Company  believes that these  long-term debt  obligations do not represent a
material  interest rate risk to the Company.  The Company's  note payable to its
Principal Preferred Stockholder has been set at a fixed rate of interest.

          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 6.8% of the Company's consolidated revenues for
the fiscal year ended 2003 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 2-F THROUGH 6-F.

ITEM 9.     CHANGES  IN  AND  DISAGREEMENT  WITH  ACCOUNTANTS  ON ACCOUNTING AND
            FINANCIAL DISCLOSURE

            None.

ITEM 9A.    CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures.

          Our Chief Executive  Officer and Chief Financial Officer have reviewed
our  disclosure  controls and  procedures as of the end of the period covered by
this report.  Based upon this review,  these officers  concluded that, as of the
end of the period covered by this report, our disclosure controls and procedures
are adequately  designed to ensure that information  required to be disclosed by
the  Company  in the  reports  it files or  submits  under the  Exchange  Act is

                                       19




recorded, processed,  summarized and reported, within the time periods specified
in applicable rules and forms.

(b) Changes in Internal Controls.

          There were no significant changes in our internal controls or in other
factors  that could  significantly  affect  these  controls  during the  quarter
covered by this  report or from the end of the  reporting  period to the date of
this Form 10-K.

                                    PART III

Item  10,  "Directors  and  Executive  Officers  of the  Registrant",  Item  11,
"Executive  Compensation",  Item 12, "Security  Ownership of Certain  Beneficial
Owners and  Management  and  Related  Stockholder  Matters",  Item 13,  "Certain
Relationships and Related Transactions", and Item 14, "Principal Accountant Fees
and  Services"  have been omitted from this report  inasmuch as the Company will
file with the  Securities  and Exchange  Commission  pursuant to Regulation  14A
within  120 days  after the end of the  fiscal  year  covered  by this  report a
definitive Proxy Statement for the Annual Meeting of Stockholders of the Company
to be held on June 4, 2004,  at which  meeting the  stockholders  will vote upon
selection  of the  directors.  This  information  in  such  Proxy  Statement  is
incorporated herein by reference.

                                     PART IV

ITEM 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K.

(a)   (1) List of Financial statements

      Report of Independent Auditors

      Consolidated Balance Sheets - December 31, 2003 and 2002

      Consolidated  Statements  of  Operations - Years ended  December 31, 2003,
      2002 and 2001

      Consolidated Statements of Stockholders' Equity - Years ended December 31,
      2003, 2002 and 2001

      Consolidated  Statements  of Cash Flows - Years ended  December  31, 2003,
      2002 and 2001

      Notes to Consolidated Financial Statements

      (2)  List of Financial Statement Schedule

           Valuation and Qualifying Accounts (Schedule II)

EVERLAST WORLDWIDE, INC.
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
DECEMBER 31, 2003



                                                                     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, 2003            $276,000            $136,000                                $412,000
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

(b) Reports on Form 8-K

      (1)  Form 8-K dated November 3, 2003.

          The  Company   announced  in  a  press  release  the   relocation  and
consolidation  of its Bronx, New York  manufacturing  facility into its Moberly,
Missouri facility.

      (2)  Form 8-K dated November 13, 2003.

          The Company announced in a press release its results of operations and
financial condition for its fiscal 2003 third quarter ended September 30, 2003.

                                       20




(C)       Exhibits

EXHIBIT                                                           FILED     INCORPORATED BY
INDEX     DESCRIPTION OF DOCUMENT                               HEREWITH    REFERENCE TO:

3.1(a)    Certificate of Incorporation of the Company,                      Exhibit 3.(i) of Registration Statement File No.33-
          as amended ("Certificate of Incorporation").                      87954 (the "1995 Registration Statement")

3.1(b)    Certificate of Amendment of the Certificate of                    Exhibit 3.1(b) of the 2000 Form 10-KSB for the year
          Incorporation.                                                    ended December 31, 2000

3.1(c)    Certificate of Designations, Powers,                              Exhibit 4.1 of the Current Report on Form 8-K filed
          Preferences and Rights of the Series A                            on October 24, 2002.
          Redeemable Participating Preferred Stock.

3.2       Bylaws of the Company.                                            Exhibit 3.(ii) of the 1995 Registration Statement.

10.1      1995 Non-Employee Director Stock Option Plan                      Exhibit 10.29 of the 1996 Form 10-KSB for the year
          of the Company, adopted on October 6,                             ended December 31, 1995.
          1995.

10.2      Lease, dated as of December 1, 2003,                     X
          between the Company and 1350 Broadway
          Associates.

10.3      Agreement and Plan of Merger dated August                         Exhibit 99.1 of the Current Report on Form 8-K filed
          21, 2000 by and among Everlast Worldwide                          November 7, 2000.
          Inc. (f/k/a Active Apparel Group, Inc.),
          Everlast Holding Corp., a Delaware
          corporation, and the stockholders of Everlast
          Holding.

10.4      2000 Stock Option Plan of the Company.                            Appendix B of Schedule 14A filed
                                                                            on October 3, 2000.

10.5      Form of Registration Rights Agreement.                            Appendix D of Schedule 14A filed on October 3, 2000.

10.6      Agreement made by and between Everlast                            Exhibit 99.2 of the Current Report on Form 8-K filed
          Worldwide  Inc.,  and Ben Nadorf ("Nadorf").                      January 15, 2004
          ("Nadorf"). dated December 16, 2003

10.7      Promissory Note issued by Everlast                                Exhibit 99.3 of the Current Report on Form 8-K filed
          Worldwide  Inc.,  on behalf of Ben Nadorf                         January 15, 2004
          ("Nadorf"). dated December 16, 2003

21        List of Subsidiaries                                     X

23.1      Consent of Independent Auditors                          X

31.1      Certification of Chief Executive Officer                 X
          pursuant to Rul 13a-14(a) and Rule 15d-14(a)
          of the Securities Exchange Act, as amended.

31.2      Certification of Chief Financial Officer                 X
          pursuant to Rule 13a-14(a) and Rule 15d-14(a)
          of the Securities Exchange Act, as amended.

32.1      Certification by CEO pursuant to 18 U.S.C.               X
          Section 1350, as adopted pursuant to Section
          906 of the Sarbanes-Oxley Act of 2002.

32.2      Certification by CFO pursuant to 18 U.S.C.               X
          Section 1350, as adopted pursuant to Section
          906 of the Sarbanes-Oxley Act of 2002.

                                       21




                                   SIGNATURES
                                   ----------

          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 29, 2004

          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 29, 2004           /s/ George Horowitz
                          -----------------------------
                          George Horowitz (Chairman; Chief Executive Officer;
                          and Principal Executive Officer)

 March 29, 2004           /s/ Matthew F. Mark
                          -----------------------------
                          Matthew F Mark (Chief Financial Officer; and
                          Chief Accounting Officer)

 March 29, 2004           /s/ James Anderson
                          -----------------------------
                          James Anderson (Director)

 March 29, 2004           /s/ Rita Cinque Kriss
                          -------------------------------
                          Rita Cinque Kriss (Director)

 March 29, 2004           /s/ Larry Kring
                          ------------------------------
                          Larry Kring (Director)

 March 29, 2004           /s/ Edward Epstein
                          ------------------------------
                          Edward Epstein (Director)


                          ------------------------------
                          Ben Nadorf (Director)

 March 29, 2004           /s/ Wayne Nadrof
                          ------------------------------
                          Wayne Nadorf (Director)

                                       22




                             EVERLAST WORLDWIDE INC.
                                AND SUBSIDIARIES

                                  CONSOLIDATED
                              FINANCIAL STATEMENTS

                                DECEMBER 31, 2003





ITEM 8:  FINANCIAL STATEMENTS




                    EVERLAST WORLDWIDE INC. AND SUBSIDIARIES


                                TABLE OF CONTENTS


                                                                            Page
                                                                            ----

Independent Auditors' Report                                                  1f

Consolidated Balance Sheets                                                   2f

Consolidated Statements of Operations                                         3f

Consolidated Statements of Changes in Stockholders' Equity                  4-5f

Consolidated Statements of Cash Flows                                        6f

Notes to Consolidated Financial Statements                                7f-26f





                          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,  2003 and 2002,  and the
related consolidated statements of operations,  changes in stockholders' equity,
and cash flows for each of the three  years in the  period  ended  December  31,
2003. 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, 2003 and 2002, and the results of its
operations  and its cash flows for each of the three  years in the period  ended
December 31, 2003 in conformity with accounting principles generally accepted in
the United States of America.

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.


New York, NY                                               /s/ Berenson LLP
February 13, 2004,
except for Note 13; as to
which the date is March 3, 2004

                                      1-f




                    EVERLAST WORLDWIDE INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS


                                                                                    December 31,
                                                                             -------------------------
ASSETS                                                                           2003          2002
Current assets:
   Cash and cash equivalents                                                 $ 1,937,334   $ 2,530,452
   Marketable equity securities                                                        -       308,841
   Accounts receivable, net                                                    8,405,404     7,697,847
   Inventories                                                                11,012,010    11,460,160
   Prepaid expenses and other current assets                                   1,107,043       819,053
                                                                             -----------   -----------
              Total current assets                                            22,461,791    22,816,353
Property and equipment, net                                                    6,188,388     6,487,830
Goodwill                                                                       6,718,492     6,718,492
Trademarks, net                                                               24,489,021    25,401,693
Restricted cash                                                                1,015,097     1,003,701
Other assets                                                                   3,383,924     1,418,683
                                                                             -----------   -----------
                                                                             $64,256,713   $63,846,752
                                                                             ===========   ===========


LIABILITIES, REDEEMABLE PARTICIPATING
PREFERRED STOCK AND STOCKHOLDERS' EQUITY

Current liabilities:
   Current maturities of Series A redeemable participating preferred stock   $ 3,000,000   $         -
   Due to factor                                                               6,898,081     3,351,997
   Current maturities of long-term debt                                          335,475       363,028
   Accounts payable                                                            5,175,558     3,391,334
   Income taxes payable                                                                -       553,850
   Accrued expenses and other current liabilities                              1,018,944       794,543
   Redeemable preferred stock dividends payable                                        -     1,450,808
                                                                             -----------   -----------
              Total current liabilities                                       16,428,058     9,905,560

License deposits payable                                                         568,833       563,526
Series A redeemable participating preferred stock                             27,000,000             -
Note payable                                                                   2,000,000             -
Other liabilities                                                              1,165,738             -
Long-term debt, net of current maturities                                      2,866,111     3,227,324
                                                                             -----------   -----------
                                                                              50,028,740    13,696,410
                                                                             -----------   -----------
Series A redeemable participating preferred stock                                      -    35,000,000
                                                                             -----------   -----------
Commitments and contingencies
Stockholders' equity:
   Common stock, par value $.002; 19,000,000 shares authorized;
     3,202,904 issued, 3,028,904 outstanding, 3,008,236-2002                       6,406         6,364
   Class A common stock, par value $.01; 100,000 shares authorized, issued
     and outstanding                                                               1,000         1,000
   Paid-in capital                                                            11,697,178    11,662,825
   Retained earnings                                                           3,250,340     4,205,179
   Accumulated other comprehensive income                                            268         2,193
                                                                             -----------   -----------
                                                                              14,955,192    15,877,561
   Less: treasury stock, at cost (174,000 common shares)                         727,219       727,219
                                                                             -----------   -----------
                                                                              14,227,973    15,150,342
                                                                             -----------   -----------
                                                                             $64,256,713   $63,846,752
                                                                             ===========   ===========

The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.

                                      2-f




                    EVERLAST WORLDWIDE INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                                             Years ended December 31,
                                                  --------------------------------------------
                                                       2003            2002            2001
                                                  ------------    ------------    ------------
Net sales                                         $ 58,035,886    $ 65,613,012    $ 52,951,510

Cost of goods sold                                  43,505,127      46,729,288      34,929,074
                                                  ------------    ------------    ------------
Gross profit                                        14,530,759      18,883,724      18,022,436

Net  license revenues                                6,669,640       5,501,388       5,141,024
                                                  ------------    ------------    ------------
                                                    21,200,399      24,385,112      23,163,460
                                                  ------------    ------------    ------------
Operating expenses:
   Selling and shipping                             12,722,039      12,446,838      11,547,922
   General and administrative                        6,436,274       5,891,549       5,834,813
   Restructuring and non-recurring costs             1,095,000               -               -
   Amortization expense                                912,672         912,672       1,193,485
                                                  ------------    ------------    ------------
                                                    21,165,985      19,251,059      18,576,220
                                                  ------------    ------------    ------------

Income from operations                                  34,414       5,134,053       4,587,240
                                                  ------------    ------------    ------------

Other expense (income):
   Interest expense                                  1,002,579         777,159         531,256
   Investment income                                   (48,326)        (96,129)       (242,026)
   Miscellaneous                                             -               -         112,500
                                                  ------------    ------------    ------------
                                                       954,253         681,030         401,730
                                                  ------------    ------------    ------------

Income (loss) before provision for income taxes       (919,839)      4,453,023       4,185,510
Provision for income taxes                              35,000       2,004,772       1,846,614
                                                  ------------    ------------    ------------

Net income (loss)                                     (954,839)      2,448,251       2,338,896
Redeemable preferred stock dividends                         -       1,450,808       1,674,840
                                                  ------------    ------------    ------------

Net income available to common stockholders       $   (954,839)   $    997,443    $    664,056
                                                  =============   ============    ============

Basic earnings (loss) per common share            $      (0.31)   $       0.32    $       0.21
                                                  =============   ============    ============
Diluted earnings (loss) per common share          $      (0.31)   $       0.24    $       0.14
                                                  =============   ============    ============


The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.

                                      3-f




                    EVERLAST WORLDWIDE INC. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

                  YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001



                                                    Total                                                     Class A
                                                comprehensive            Common Stock                       Common Stock
                                                    income         Shares             Amount             Shares           Amount

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
                                                                      ==========        ==========        ==========       ==========
Comprehensive income:
  Net loss                                      $ (954,839)
  Unrealized holding loss                           (1,925)
                                                ----------
Comprehensive loss                               $(956,764)
                                                ==========
Exercise of stock options                                                 20,668                42                 -                -

Redeemable preferred stock dividends                                                                               -                -
                                                                      ----------        ----------        ----------       ----------
Balance, December 31, 2003                                             3,028,904            $6,406           100,000           $1,000
                                                                      ==========        ==========        ==========       ==========


The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.

                                      4-f




                    EVERLAST WORLDWIDE INC. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

                  YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
                                   (Continued)



                                                                      Accumulated
                                                                          Other                Treasury stock
                                          Paid-in       Retained      comprehensive        --------------------
                                          capital       earnings         Income            Shares        Amount        Total
                                        ----------    ------------    ------------         ------        ------        -----

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

Comprehensive income:
  Net loss                                               (954,839)                                                      (954,839)
  Unrealized holding loss                                                  (1,925)                                        (1,925)

Comprehensive loss                         34,353                                                                         34,395

Exercise of stock options
                                                                -               -
Redeemable preferred stock dividends ------------    ------------    ------------         -------   ------------    ------------
                                     $ 11,697,178    $  3,250,340    $        268         174,000   $   (727,219)   $ 14,227,973
Balance, December 31, 2003           ============    ============    ============         =======   ============    ============


                                      5-f




                    EVERLAST WORLDWIDE INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                 Years ended December 31,
                                                                      -----------------------------------------
                                                                           2003          2002           2001
                                                                      ------------   -----------    -----------
Cash flows from operating activities:
   Net income (loss)                                                  $  (954,839)   $ 2,448,251    $ 2,338,896
   Adjustments to reconcile net income (loss) to
    net cash provided by operating activities:
        Bad debts                                                         136,120         52,496        191,434
        Depreciation                                                      534,321        559,110        529,655
        Amortization                                                    1,061,672        912,672      1,193,485
        (Increase) decrease in cash surrender value of                          -        (92,600)        80,000
          life insurance policies
        Interest income on restricted cash                                (11,396)        (3,701)             -
        Deferred income taxes                                                   -        (84,070)             -
        Loss on disposal of fixed assets                                        -              -         16,003
        Non-cash restructuring and non-recurring charges, including
            related inventory charge                                    1,156,922              -              -
        Changes in assets (increase) decrease:
         Accounts receivable                                             (843,678)    (1,303,175)    (1,786,588)
         Inventories                                                     (584,419)     1,201,374     (3,945,600)
         Prepaid expenses and other current assets                       (337,990)       151,298         51,251
         Other assets                                                     (74,241)      (276,767)      (507,217)
        Changes in liabilities increase (decrease):
         Accounts payable, income taxes payable and
            accrued expenses and other liabilities                      1,237,332     (1,641,153)     2,208,690
         License deposits payable                                           5,307       (125,197)        15,761
                                                                      ------------   -----------    -----------
                 Net cash provided by operating activities              1,325,111      1,798,538        385,770
                                                                      ------------   -----------    -----------

Cash flows from investing activities:
   Proceeds from redemptions of marketable securities                     308,841              -              -
   Acquisition of property and equipment                                 (267,975)      (728,656)      (280,084)
                                                                      ------------   -----------    -----------
                 Net cash provided (used) by investing activities          40,866       (728,656)      (280,084)
                                                                      ------------   -----------    -----------
Cash flows from financing activities:
   Proceeds from long-term debt                                                 -      3,516,049              -
   Repayment of long-term debt                                           (388,766)      (145,924)    (3,488,632)
   Increase in due to factor                                            3,546,084      2,671,845      4,332,505
   Redemption of participating preferred stock                         (3,000,000)    (5,000,000)    (5,000,000)
   Issuance of common stock in connection with exercises
      of options                                                           34,395         20,738              -
   Proceeds from loans from cash surrender value
     of life insurance policies                                                 -              -        748,166
   Financing costs in connection with preferred stock refinance          (700,000)             -              -
   Payment of preferred stock dividend                                 (1,450,808)    (1,702,164)             -
   Restricted cash                                                              -     (1,000,000)       950,000
                                                                      ------------   -----------    -----------
                 Net cash used by financing activities                 (1,959,095)    (1,639,456)    (2,457,961)
                                                                      ------------   -----------    -----------

Net decrease in cash and cash equivalents                                (593,118)      (569,574)    (2,352,275)
Cash and cash equivalents, beginning of year                            2,530,452      3,100,026      5,452,301
                                                                      ------------   -----------    -----------
Cash and cash equivalents, end of year                                $ 1,937,334    $ 2,530,452    $ 3,100,026
                                                                      ============   ===========    ===========

The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.

                                      6-f



                    EVERLAST WORLDWIDE INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2003, 2002 AND 2001


1.   Nature of business:

          Everlast  Worldwide Inc., a Delaware  corporation and its subsidiaries
     (collectively,  the Company and herein referred to as "we", "us" and "our")
     was organized on July 6, 1992.  We are 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.  We also manufacture  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. In addition,  we license 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,  fragrances,  batteries,
     nutritional products 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.

2.   Significant accounting policies:

     a. Principles of consolidation:

          Our  accompanying   consolidated   financial  statements  include  the
     accounts of the Company and its wholly-owned subsidiaries.  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, 2003,  the amount of bank balances in excess of the FDIC limit
     is approximately $1.5 million.

     d. Inventories:

          Our inventory is valued at the lower of cost or market.  Cost has been
     derived principally using standard costs utilizing the first-in,  first-out
     method.  We provide  write-downs  for  finished  goods  expected  to become
     non-saleable  and provide for slow moving or  obsolete  raw  materials  and
     packaging.

     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  $412,000  and  $276,000  has  been
     established as of December 31, 2003 and 2002, respectively.


                                      7-f




                    EVERLAST WORLDWIDE INC. AND SUBSIDIARIES

                  NOTETES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2003, 2002 AND 2001

     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.

     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, 2003,  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 year ended December 31, 2001 to adjusted net income
          had SFAS 142 been applied as of January 1, 2001.

                                                      Year ending
                                                   -----------------
                                                   December 31, 2001

               Reported net income                     $2,338,896
               Add back:  goodwill amortization           173,389
                                                   -----------------
               Adjusted net income                     $2,512,285
                                                   =================

                                      8-f




                    EVERLAST WORLDWIDE INC. AND SUBSIDIARIES

                  NOTETES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2003, 2002 AND 2001

                                                     Year ending
                                                  ------------------
                                                  December 31, 2001
Basic earnings per share:
   Reported net income                                $0.21
   Goodwill amortization                               0.06
                                                      --------------
   Adjusted net income                                $0.27
                                                      ==============
Diluted earnings per share:
   Reported net income                                $0.14
   Goodwill amortization                               0.03
                                                      --------------
   Adjusted net income                                $0.17
                                                      ==============

ii.  Trademarks:

     At December 31, 2003, the Company has trademarks  acquired from a merger in
2000 deemed to have a finite life.  These costs are amortized over 30 years. For
the years ended December 31, 2003, 2002 and 2001, trademark amortization expense
was $912,672 for each year, respectively.

     Trademarks are as follows:

                                    2003               2002
                                -----------        -----------
Gross carrying amount of
   trademarks, at cost          $27,380,000        $27,380,000

Accumulated amortization          2,890,979          1,978,307
                                -----------        -----------
Trademarks - net                $24,489,021        $25,401,693
                                ===========        ===========

     The  estimated  aggregate   amortization  expense  for  each  of  the  five
successive years is $913,000 per year.

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

                                      9-f



                    EVERLAST WORLDWIDE INC. AND SUBSIDIARIES

                  NOTETES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2003, 2002 AND 2001


(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, 2003, 2002 and 2001, the Company had incurred  advertising and
     promotional  expenses of approximately $2.4 million,  $3.2 million and $3.6
     million, respectively.

     l.   Estimates:

          The financial  statements are prepared in accordance  with  accounting
     principles  generally  accepted  in  the  United  States  of  America.  The
     accounting  principles we use require us to make estimates and  assumptions
     that affect the reported  amounts of assets and  liabilities at the date of
     the  financial  statements  and amounts of income and  expenses  during the
     reporting periods  presented.  We believe in the quality and reasonableness
     of our critical accounting policies;  however, it is likely that materially
     different  amounts would be reported  under  different  conditions or using
     assumptions different from those that we have consistently applied.

     m.   Shipping and handling costs:

          Shipping and handling costs totaling  approximately $1.6 million, $1.6
     million and $1.5 million for the years ended  December  31, 2003,  2002 and
     2001,  respectively,  are included in selling and shipping  expenses on the
     income statement.

     n.   Accounting for stock based compensation:

          We have  elected to follow APB Opinion No. 25,  "Accounting  for Stock
     Issued to Employees" ("APB 25") and related Interpretations,  in accounting
     for stock options  because,  as discussed below, the alternative fair value
     accounting provided for under Statement of Financial  Accounting  Standards
     No.  123,  "Accounting  for  Stock-Based  Compensation"  ("SFAS No.  123"),
     requires use of option  valuation models that were not developed for use in
     valuing  employee stock  options.  Under APB 25, when the exercise price of
     our  employee  stock  options  at  least  equals  the  market  price of the
     underlying  stock  on  the  date  of  grant,  no  compensation  expense  is
     recognized.

          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  us 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.

          Pro forma  information  regarding  earnings  and earnings per share is
     required by SFAS No. 123, and has been  determined as if we have  accounted
     for our stock  options under the fair value method of that  Statement.  The
     fair value for these

                                      10-f




                    EVERLAST WORLDWIDE INC. AND SUBSIDIARIES

                  NOTETES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2003, 2002 AND 2001

options was estimated at the date of grant using a Black-Scholes  option pricing
model with the following weighted-average  assumptions: risk free interest rates
ranging  from 1% to 2%; no dividend  yield;  volatility  factors of the expected
market  price of our common  stock of  approximately  6% for  fiscal  years 2003
through 2001; and a weighted-average expected life of the options of three years
in each year.

      The  Black-Scholes  option  valuation  model  was  developed  for  use  in
estimating the fair value of traded options,  which have no vesting restrictions
and are fully  transferable.  In addition,  option  valuation models require the
input of highly  subjective  assumptions  including  the  expected  stock  price
volatility.   Because  our  stock  options  have  characteristics  significantly
different from those of traded  options,  and because  changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion,  the  existing  models do not  necessarily  provide a  reliable  single
measure of the fair value of our employee stock options.

      For purposes of pro forma  disclosures,  the  estimated  fair value of the
options is amortized to expense over the options' vesting periods. Our pro forma
information is as follows:

                                                                               2003               2002                 2001
                                                                         -------------       -------------        -------------
Net income (loss) as reported                                            $    (954,839)      $   2,448,251        $   2,338,896


Deduct: total stock-based employee
compensation expense determined under fair value based method for
all awards, net of related tax effects                                          35,300              33,387               51,896
                                                                         -------------       -------------        -------------
Pro forma net income (loss)                                              $    (990,139)      $   2,414,864        $   2,287,000
                                                                         =============       =============        =============
Earnings (loss) per share:

   Basic - as reported                                                          $(0.31)             $.32               $.21
                                                                                ======              ====               ====
   Basic - pro forma                                                            $(0.32)             $.32               $.21
                                                                                ======              ====               ====

   Diluted - as reported                                                        $(0.31)             $.24               $.14
                                                                                ======              ====               ====
   Diluted - pro forma                                                          $(0.32)             $.24               $.13
                                                                                ======              ====               ====


     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 operations.

     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.

                                      11-f




                    EVERLAST WORLDWIDE INC. AND SUBSIDIARIES

                  NOTETES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2003, 2002 AND 2001


     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, when the amounts are reliably measurable and
     collectability reasonably assured.

     r.   Deferred financing costs:

          Eligible   costs   associated   with   obtaining  debt  financing  are
     capitalized  and  amortized  over the related term of the  applicable  debt
     instruments, which approximates the effective interest method.

     s.   Recent pronouncements:

          SFAS No. 146,  "Accounting for Costs  Associated with Exit or Disposal
     Activities",   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  (including  Certain  Costs  Incurred in a
     Restructuring)."  The principal  difference  between SFAS No. 146 and Issue
     94-3 relates to SFAS No. 146's  requirements for recognition of a liability
     for a cost  associated  with an exit or  disposal  activity.  SFAS No.  146
     requires  that a liability for a cost  associated  with an exit or disposal
     activity be recognized when the liability is incurred.  Under Issue 94-3, a
     liability  for an  exit  cost  as  generally  defined  in  Issue  94-3  was
     recognized  at  the  date  of  an  entity's  commitment  to an  exit  plan.
     Therefore,  SFAS No. 146 eliminates the  definition  and  requirements  for
     recognition of exit costs in Issue 94-3. SFAS No. 146 also establishes that
     fair value is the objective for initial  measurement of the liability.  The
     provisions of SFAS No. 146 are  effective  for exit or disposal  activities
     that  we  may  initiate  after   December  31,  2002.   Refer  to  Note  4,
     Restructuring  and   Non-recurring   Charges  for  our  disposal  and  exit
     activities related to our Bronx, New York facility.

3.   Adoption of SFAS No. 150,  "Accounting  for Certain  Financial  Instruments
     with Characteristics of both Liabilities and Equity"

          In May  2003,  FASB  issued  SFAS No.  150,  "Accounting  for  Certain
     Financial Instruments with Characteristics of both Liabilities and Equity."
     SFAS No. 150 is effective for all financial instruments, in existence prior
     to May 31, 2003,  meeting this  definition,  at the  beginning of the first
     interim period  beginning  after June 15, 2003. The Company has adopted the
     provisions  of SFAS No. 150,  effective  July 1, 2003 for the third quarter
     ending  September  30,  2003.  The  Statement   establishes  standards  for
     classifying and measuring as liabilities certain financial instruments that
     embody  obligations  of  the  issuer  and  have   characteristics  of  both
     liabilities  and equity.  The Company's  Series A Redeemable  Participating
     Preferred Stock  ("Preferred  Stock") meets this  definition,  and thus has
     been   reclassified   as  a  liability   (current  and  long-term)  on  our
     Consolidated Balance Sheet for the year ended December 31, 2003.

          Application of SFAS No. 150 requires our Preferred  Stock  instruments
     to be  reclassified  at its  current  carrying  amount  with no  cumulative
     adjustment recognized. In addition, dividends associated with our Preferred
     Stock instrument are to be classified as interest  expense  commencing from
     the three months  ended  September  30, 2003 onward.  During the year ended
     December 31, 2003, no dividends  have been  classified as interest  expense
     due to our net loss.  Dividends  and other amounts paid or accrued prior to
     reclassification  of the instrument to a liability are not  reclassified as
     interest cost upon transition in accordance with SFAS No. 150.

                                      12-f




                    EVERLAST WORLDWIDE INC. AND SUBSIDIARIES

                  NOTETES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2003, 2002 AND 2001




4.   Restructuring and non-recurring charges:

          During  the  fourth  quarter  of  fiscal  2003  we  recorded   charges
     aggregating  $2.1 million,  before  taxes,  related to the  relocation  and
     consolidation  of our  Bronx,  New  York  manufacturing  facility  into our
     Moberly,  Missouri  facility.  Approximately  $1.2 million of these charges
     were non-cash in nature.

          Commencing July 2003, we decided to pursue and execute a plan to close
     the Bronx,  New York  facility.  Our  decision to close this  facility  was
     largely the result of significant  lease  escalation  costs expected at the
     end of our  existing  lease term in April 2004 and our  inability  to reach
     practical  capacity  at both the  Bronx,  New York  and  Moberly,  Missouri
     facilities.  Accordingly,  during the fourth  quarter  of fiscal  2003,  we
     completed the relocation and consolidation of the facilities.

          The  restructuring  charge  includes $2.1 million of costs  associated
     with the  discontinuance  of certain  products,  factory  labor and related
     overhead  costs  resulting  from the idle  capacity in the Bronx,  New York
     facility,  severance,  lease exit and other  disposal  costs.  Of this $2.1
     million of  charges,  our 2003 gross  profit  was  reduced by $1.1  million
     charged to cost of sales as required by accounting  rules.  At December 31,
     2003,  approximately $.5 million was accrued  principally  related to lease
     exit costs.  In addition,  we wrote off and disposed of  approximately  $.1
     million of fixed assets.  Additional  restructuring  charges of $.4 million
     were incurred  during the year ended December 31, 2003 related to severance
     liabilities  and related  employee  costs and other disposal and lease exit
     costs.

5.   Marketable equity securities:

          The Company had marketable  equity  securities  that are classified as
     available-for-sale securities. These securities have been recorded at their
     fair  market  value of  $308,841 at December  31,  2002.  A net  unrealized
     holding gain, amounting to $2,193 has been included in stockholders' equity
     as of December 31, 2002. The securities were sold during 2003.

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
     $215,000 and $150,000 at December 31, 2003 and 2002. 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:

                                                2003             2002
                                           -----------     ------------
               Raw materials               $ 1,460,586     $  2,067,637
               Work-in-process               1,705,995        2,181,506
               Finished goods                7,845,429        7,211,017

                                           $11,012,010      $11,460,160
                                           ===========     ============

                                      13-f




                    EVERLAST WORLDWIDE INC. AND SUBSIDIARIES

                  NOTETES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2003, 2002 AND 2001



8.   Property and equipment:
                                                   2003               2002
                                              -----------        -----------

   Land                                       $   309,100        $   309,100
   Buildings and building improvements          5,348,581          5,295,912
   Furniture and fixtures                         558,117            572,649
   Machinery and equipment                      3,679,412          3,816,490
   Vehicles                                       265,248            265,249
                                              -----------        -----------
                                               10,160,458         10,259,400
   Less: accumulated depreciation               3,972,070          3,771,570
                                              -----------        -----------
                                              $ 6,188,388        $ 6,487,830
                                              ===========        ===========

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, 2003, the cash
     value, net of outstanding loans of $957,000, is $261,000 and is included in
     other  assets.  At December 31, 2002,  the cash value,  net of  outstanding
     loans of $956,885, was $261,000 and is included in other assets.

10.  Long-term debt:

          Long-term debt consists of the following:


                                                     2003                2002
                                                  ----------          ----------

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, 2003). The
term loan is  secured  by  property  and
equipment  having  a net  book  value of
$3,566,000.   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,  or until
no longer required. 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
$1,015,097.                                       $3,089,444          $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%                112,142             277,574
                                                  ----------          ----------
                                                   3,201,586           3,590,352
Less current maturities                              335,475             363,028
                                                  ----------          ----------
                                                  $2,866,111          $3,227,324
                                                  ==========          ==========

                                      14-f




                    EVERLAST WORLDWIDE INC. AND SUBSIDIARIES

                  NOTETES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2003, 2002 AND 2001

    Annual maturities of long-term debt are approximately as follows:

         Twelve months ending December 31,        2004        $ 335,000
                                                  2005          249,000
                                                  2006          223,000
                                                  2007        2,395,000

11.  Series A Redeemable Participating Preferred Stock and Note Payable:

          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  among the
     Company,   Everlast   Holding  Corp.   and  Active  Apparel  New  Corp.,  a
     wholly-owned  subsidiary  of the  Company,  and are  recorded at their fair
     value. The preferred  shares have priority  liquidation and dividend rights
     over other securities issued.

          As part of the merger agreement, the Company is to redeem 5,000 shares
     ($5,000,000  redemption value) on every December 31 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.

          On January 13, 2004 we announced that we had entered into an Agreement
     on December 14, 2003 with the Principal  Preferred  Stockholder,  modifying
     its annual minimum redemptions.

          Under the terms of the  Agreement,  in lieu of a cash  payment for the
     redemption of a portion of their Series A Preferred  Stock,  $2,000,000 for
     each of the four years commencing December 14, 2003, e through December 14,
     2006,  will be  converted  into four term  loans  ("Notes").  The Notes are
     evidenced by four promissory notes from the Company which shall provide for
     the payment of interest and deferred  finance costs.  Interest and deferred
     finance costs are to be paid at the combined  annual rate of 9.5% per annum
     on the  aggregate $8 million of notes during each of the years 2004 through
     2007,  and 10% during 2008 payable  each  December  14th until  maturity on
     December  14,  2008.  The  Company  shall  have the  right to  pre-pay  the
     promissory  notes in full, with no prepayment  fees,  prior to December 14,
     2008 together with all unpaid interest and deferred  financing costs due at
     the time of  pre-payment.  There are no changes to the  existing  preferred
     dividend  formula  currently  being  used  on  the  outstanding  redeemable
     percentage of the Series A Preferred  Stock,  mentioned below. As a further
     condition of this refinance,  the Company paid financing costs  aggregating
     $800,000 of which $700,000 was paid by December 2003.

          If the Company  fails to make a 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.

                                      15-f




                    EVERLAST WORLDWIDE INC. AND SUBSIDIARIES

                  NOTETES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2003, 2002 AND 2001



          The  percentage  of net income (as  defined)  to be paid to holders of
          preferred stock is as follows:

     Twelve months ending December 31,  2003         51.9%
                                        2004         44.4%
                                        2005         37.0%
                                        2006         29.6%
                                        2007         22.2%
                                        2008         14.8%
                                        2009          7.4%

     Dividends  are due on March  31st of each  succeeding  fiscal  year.  As of
December 31, 2003, the Company did not have accrued dividends on these preferred
shares due to its net loss.

     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,  as amended for the aforementioned  refinance,
including the repayment of the notes payable are as follows:

     Twelve months ending December 31, 2004          $  3,000,000
                                       2005             3,000,000
                                       2006             3,000,000
                                       2007             5,000,000
                                       2008            13,000,000
                                       2009             5,000,000

12.  Commitments and contingencies:

     a.   Lease commitments:

          The Company has two leases for office and showroom space, one of which
     will expire April 30, 2006 and the other expiring on November 30, 2008.

          At December 31, 2003,  future minimum rental  payments  required under
     the noncancellable leases are approximately as follows:

    Twelve months ending December 31, 2004        $  422,000
                                      2005           422,000
                                      2006           413,000
                                      2007           408,000
                                      2008           374,000

                                      Total       $2,039,000

Rent  expense for the three years ended  December  31,  2003,  2002 and 2001 was
$818,000, $746,000 and $746,000, respectively.

                                      16-f




                    EVERLAST WORLDWIDE INC. AND SUBSIDIARIES

                  NOTETES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2003, 2002 AND 2001


     b.   Employment agreements:

          i.   The Company has an  employment  agreement  with its President and
               Chief Executive  Officer  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 reward and pay the President and Chief
               Executive  Officer with salary increases and 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 minimum payments for base salaries (including  guaranteed bonuses)
     pursuant to the employment agreements are approximately as follows:

     Twelve months ending December 31, 2004      590,000
                                       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 alleged 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.

               On  November  30,  2001,  the claims  against the  officers  were
               dismissed by the Supreme  Court.  On June 27, 2002 the  Appellate
               Divisions   unanimously   affirmed  the  order   dismissing   the
               plaintiff's claims.

                                      17-f



                    EVERLAST WORLDWIDE INC. AND SUBSIDIARIES

                  NOTETES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2003, 2002 AND 2001

               On December 23, 2002, the case against the Company was dismissed.
               On December  23, 2003,  the  plaintiff's  appeal was  unanimously
               denied.

               Plaintiff has subsequently  filed a motion seeking  permission to
               further  appeal  its  claims to the Court of  Appeals  as well as
               reasserting  its breach of contract  claims in a separate  demand
               for arbitration.

               After  reviewing  this case  with the  Company's  legal  counsel,
               management  believes that there is no merit to plaintiff's motion
               seeking to further  appeal the dismissal of its lawsuit or to the
               breach of contract  claims asserted in its demand for arbitration
               and intends to continue to contest the matter vigorously.

          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  was  contributing  to a union  sponsored  multi-employer
     pension plan which was 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,  2003,  2002 and 2001 were
     $74,327, $102,258 and $87,427,  respectively. As part of the relocation and
     consolidation  of this  facility,  the  Company  is no longer  required  to
     sponsor this  multi-employer  pension plan due to the  termination of these
     employees.

          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 potential liability under this
     provision has not been determined; however, the Company believes that based
     on  available  financial  information  from the plan,  no  provision  for a
     contingent  liability exists nor has been recorded at December 31, 2003.

                                      18-f




                    EVERLAST WORLDWIDE INC. AND SUBSIDIARIES

                  NOTETES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2003, 2002 AND 2001

     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
     approximately $40,000 for each of the three years ended December 31, 2003.

13.  Licensing revenues:

          i.   The Company, as licensor, has numerous licensing and distribution
               agreements with varying  expiration dates.  Pursuant to the terms
               of the licensing agreements,  the Company is scheduled to receive
               approximate minimum royalty payments, exclusive of renewal option
               provisions  which  would  trigger   additional   minimum  royalty
               payments, as follows:

               Twelve months ending December 31,  2004                $7,758,000
                                                  2005                 6,900,000
                                                  2006                 3,435,000
                                                  2007                 2,521,000
                                                  2008                 1,891,000
                                   2009 and thereafter                 7,000,000

               Net licensing  revenue generated for the years ended December 31,
               2003,  2002 and  2001  amounted  to  $6,669,640,  $5,501,388  and
               $5,141,024,  respectively. These licensing revenues are reflected
               net of related expenses of $845,000, $711,000 and $647,000.

               In March, 2004, one of the Company's  licensees filed for Chapter
               11   bankruptcy    protection.    This   licensee   has   secured
               debtor-in-possession  financing  and has  indicated to us that it
               plans to  petition  the  courts  to allow it to  comply  with the
               provisions of its licensing contract with Everlast.  To date, all
               of this licensee's  minimum monthly  licensing  amounts have been
               paid.  The Company has the right to terminate  its contract  with
               this  licensee,  as  defined,  and  believes  if such  action  is
               required,  alternative  licenses  could be arranged with equal or
               better terms than its existing arrangement with this licensee.

          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, 2003 and 2002, the amounts on
               deposit  totaled  $568,833  and  $563,526,   respectively.  These
               amounts are reflected as  liabilities to licensees on the balance
               sheet.

                                      19-f




                    EVERLAST WORLDWIDE INC. AND SUBSIDIARIES

                  NOTETES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2003, 2002 AND 2001

14.  Stock option plans:

          i.   1993 Stock Option Plan:

               A  maximum  of  443,900  options  were  available  to be  granted
               pursuant  to  this  plan,  which  terminated  in  November  2003.
               Accordingly,  no further stock  options  grants can be made under
               this plan going  forward.  Options  previously  granted  prior to
               November  2003 vest in three  years and have a term of ten years.
               Options  granted  pursuant  to this plan were  designated  by the
               Board of Directors as either non-qualified or incentive.

               The  option  price of  shares  designated  as  nonqualified  were
               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  were 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 board
               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.

          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.

                                      20-f




                    EVERLAST WORLDWIDE INC. AND SUBSIDIARIES

                  NOTETES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2003, 2002 AND 2001

Pursuant to the merger of Everlast Worldwide, Inc. 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.



                                                                     SHARES
                                  -------------------------------------------------------------------------
                                                                       1995                        Weighted
                                    2000             1993           Non-employee                    average
                                    Stock           Stock         director stock                   exercise
        2003                      option plan    option plan        option plan      Total           price
        ----                      -----------    -----------        -----------      -----           -----

Outstanding at January 1           555,500         278,179           58,100          891,779         $7.63

Granted                                  -               -            9,500            9,500         $3.83

Cancelled                                -               -                -                -             -

Exercised                                -          (8,468)         (12,200)         (20,668)        $1.66
                                   -------         -------           ------          -------
Outstanding at December 31         555,500         269,711           55,400          880,611         $7.73
                                   =======         =======           ======          =======
Exercisable at December 31         555,500         246,678           42,600          844,778         $7.92
                                   =======         =======           ======          =======


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

                                      21-f





                                                                                     SHARES
                                                       --------------------------------------------------------------------------
                                                                                       1995
                                                         2000             1993       Non-employee
         2001                                            Stock           Stock      director stock                 Weighted average
         ----                                          option plan    option plan   option plan         Total       exercise 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
                                                          =======        =======         ======        =======


                                                         Outstanding                               Exercisable
                                         -----------------------------------------------   ---------------------------
                                                     Weighted-average
                                                     contractual life   Weighted-average              Weighted-average
          Exercise price range           Shares          remaining       exercise price    Shares      exercise price

                   $.85  -   $2.35        157,900     4.85 years           $  2.22         148,397         $2.21
                  $3.00  -   $3.97        128,712     5.72 years              3.49         102,382          3.53
                  $4.00  -   $6.25        204,499     4.53 years              3.49         204,499          4.76
                   $9.38  - $13.00        389,500     7.85 years             12.91         389,500         12.91
                                          -------                                          -------

                       Total              880,611     3.13 years              7.73         844,778          7.92
                                          =======                                          =======

            The  weighted-average  grant-date  fair  value for  options  granted
during the years ended  December  31, 2003,  2002 and 2001 was $4.01,  $2.80 and
$2.88, respectively.

                                      22-f


15. Income taxes:

            For the years ended December 31, 2003,  2002 and 2001, the Company's
provision for income taxes consisted of the following:

                                                                  2003               2002               2001
                                                              -----------        -----------        -----------
                     Current tax provision:
                        Federal                               $   (63,000)       $ 1,590,013        $ 1,249,789
                        State and local                            20,000            409,454            388,157
                        Foreign                                   120,000             89,375            208,668
                                                              -----------        -----------        -----------

                                                                   77,000          2,088,842          1,846,614
                                                              -----------        -----------        -----------
                     Deferred tax benefit:
                        Federal                                   (42,000)       $   (29,380)       $      --
                        State and local                              --              (14,690)              --
                        Foreign                                      --              (40,000)              --
                                                              -----------        -----------        -----------
                                                                  (42,000)           (84,070)              --
                                                              -----------        -----------        -----------

                                 Total                        $    35,000        $ 2,004,772        $ 1,846,614
                                                              ===========        ===========        ===========

            Included in prepaid  expenses and other current assets is a deferred
tax asset of $197,000  and $239,000  December  31, 2003 and 2002,  respectively,
which primarily  consists of the temporary  difference  between the book and tax
basis  of  inventory,   provision  for  bad  debts  and  a  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,
                                                                       ----------------------------------
                                                                       2003           2002           2001
                                                                       ----           ----           ----

            Federal income tax rate                                   (34.0%)         34.0%          34.0%
            State taxes, net of federal income tax benefit              2.2            6.1            6.1
            Nondeductible amortization of
              intangible assets and other items                        27.6            7.9           10.8
            Foreign income taxes                                       11.1            2.0            5.0
            Work credit and other credits                              (4.9)          (4.4)          (9.3)
            Other                                                       1.8            (.6)          (2.5)
                                                                       ----           ----           ----

                                                                        3.8%          45.0%          44.1%
                                                                       ====           ====           ====


16. Economic dependency:

            For the years ended  December 31, 2003,  2002 and 2001, one customer
accounted for approximately 17%, 19% and 22% of sales, respectively.

                                      23-f




17. Geographic data:

            Geographic information for net sales is as follows:

                                                 2003                 2002                 2001
                                             -----------          -----------          -----------

            U.S                              $53,791,886          $60,116,686          $48,263,348
            Canada                             3,934,000            5,227,786            4,184,216
            Other foreign countries              310,000              268,540              503,946
                                             -----------          -----------          -----------

                                             $58,035,886          $65,613,012          $52,951,510
                                             ===========          ===========          ===========

18. Earnings per share:

          We report basic and diluted  earnings  (loss) per share in  accordance
     with SFAS No. 128,  "Earnings Per Share" ("SFAS No. 128").  Basic  earnings
     (loss)  per share  excludes  the  dilutive  effects  of  options  and other
     contingent  consideration  that was given as part of the  merger in October
     2000 of Everlast  Worldwide,  Inc. Diluted earnings per share includes only
     the dilutive effects of common stock  equivalents such as stock options and
     contingent stock consideration.

            The following  table sets forth the computation of basic and diluted
earnings (loss) per share pursuant to SFAS No. 128:

                                                                  2003                  2002                  2001
                                                              -----------           -----------           -----------
Net income (loss) available to common stockholders:
   Net income (loss)                                          $  (954,839)          $ 2,448,251           $ 2,338,896
   Redeemable participating
     preferred stock dividends                                       --              (1,450,808)           (1,674,840)
                                                              -----------           -----------           -----------

                                                              $  (954,839)          $   997,443           $   664,056
                                                              ===========           ===========           ===========


                                                                   2003                  2002                  2001
                                                                   ----                  ----                  ----
Basic weighted average
  common stock outstanding                                      3,108,293             3,101,261             3,098,936

Effect of dilutive securities:
   Stock options                                                     --                  48,027                14,870
   Contingent consideration                                          --                 989,863             1,722,128
                                                              -----------           -----------           -----------

Diluted weighted average
  common stock outstanding                                      3,108,293             4,139,151             4,835,934
                                                              ===========           ===========           ===========

Basic earnings (loss) per common share                        $     (0.31)          $       .32           $       .21
                                                              ===========           ===========           ===========

Diluted earnings (loss) per common share (a)                  $     (0.31)          $       .24           $       .14
                                                              ===========           ===========           ===========



(a)  As a result of the net loss in 2003,  the  dilutive  effect of options  and
     contingent consideration  (1,434,000) are not shown as the results would be
     anti-dilutive.



                                      24-f


            As  part of the  Company's  October  2000  acquisition  of  Everlast
Holding Corp (EHC),  contingent  consideration may be required to be paid to the
former owners of EHC. This  consideration  may be in the form of cash, or at the
Company's option,  payable in common shares.  The consideration  will be paid if
the  Company's  stock does not meet a  guaranteed  share  price of $13.00.  This
guarantee  pertains to 380,000  outstanding  shares,  of which 38,000 shares are
subject to an October 2005 payment or issuance  date and the  remaining  342,000
shares are subject to an October 2007 payment or issuance date.

19.    Stockholders' Equity

            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.

20. Cash flow information:

         a. Supplemental disclosures of cash flow information:

                                                              2003              2002              2001
                                                              ----              ----              ----
                Cash paid during the year for:
                   Interest                                $1,000,000        $  755,665        $  530,799
                   Income taxes                               600,000         1,576,314         2,449,879


21. Quarterly financial data (unaudited):

            Unaudited  quarterly  financial  date  for  fiscal  2003 and 2002 is
summarized as follows:

                                                                                    2003
                                                          -------------------------------------------------------------
                                                           First            Second             Third             Fourth
                                                          Quarter           Quarter           Quarter           Quarter
                                                          -------           -------           -------           -------

Net sales                                                12,355,283      $ 12,939,061      $ 16,075,363      $ 16,666,179

Gross profit (a)                                          3,435,241         3,552,264         4,032,592         3,510,662

Restructuring and non-recurring charges                        --                --                --           1,095,000

Net income (loss) available to common stockholder's          15,878           111,159           104,208        (1,186,084)

Earnings (loss) per share - basic (b)                  $       0.01      $       0.04      $       0.03      $      (0.38)

Earnings (loss) per share - diluted                    $       0.00      $       0.02      $       0.02      $      (0.38)


                                      25-f



                                                                                      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 available to common stockholder's               384,588           240,073           371,580             1,203

Earnings per share - basic                             $      0.12       $      0.08       $      0.12       $      0.00

Earnings per share - diluted                           $      0.09       $      0.06       $      0.06       $      0.00




(a)  Included  within  gross  profit in the fourth  quarter  of fiscal  2003 are
     restructuring   charges  aggregating  $1.1  million  related  to  inventory
     write-downs,  which  for  accounting  purposes  must  be  classified  as  a
     reduction of gross profit.

(b)  As a result  of the net loss in the  fourth  quarter  of fiscal  2003,  the
     dilutive  effect of options  and  contingent  stock  consideration  are not
     shown, as the results would be anti-dilutive.





                                      26-f`