SECURITIES AND EXCHANGE COMMISSION
                              Washington D.C. 20549

                                   FORM 10-KSB

[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended December 31, 1999

[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934

Commission File number:   0-25918

                           ACTIVE APPAREL GROUP, INC.
                 (Name of small business issuer in Its Charter)

                Delaware                               13-3672716
-------------------------------              ---------------------------------
(State or other jurisdiction of              (IRS Employer Identification No.)
  incorporation or organization)

1350 Broadway, Suite 2300,  New York, New York            10018
----------------------------------------------        ------------
(Address of principal executive offices)                Zip Code

Issuer's Telephone Number (212) 239-0990

Securities registered under Section 12(b) of the Exchange Act:

                                         Name of Each Exchange
       Title Of Each Class                On Which Registered
       -------------------                -------------------

          None                                  None

Securities registered under Section 12(g) of the Exchange Act:

                         Common Stock, $0.002 par value
                         ------------------------------
                               (Title of class)

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act 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  requirement  for the past 90 days. YES /X/   NO /  /

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation  S-B is not  contained  in  this  form,  and no  disclosure  will  be
contained  to  the  best  of  registrant's  knowledge  in  definitive  proxy  or
information statement  incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB [X]

State issuer's revenue for its most recent fiscal year: $24,464,139

On March  15,  2000 the  aggregate  market  value of the  voting  stock  held by
non-affiliates  of the Registrant was  approximately  $6,748,744  based upon the
average of the  highest  and  lowest bid  quotations  for such  Common  Stock as
obtained from the Nasdaq Stock Market on March 15, 2000.  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 15,  2000 was  2,492,581  shares of
Common Stock,  $.002 par value, and 100,000 shares of Class A Common Stock, $.01
par value.

Documents Incorporated by Reference  -   None

Transitional Small Business Disclosure Format (Check one): YES / /  NO / X /


<PAGE>

                                TABLE OF CONTENTS


                                                                            Page

PART I

Item 1      Business...........................................................1
Item 2      Properties........................................................ 8
Item 3      Legal Proceedings..................................................9
Item 4      Submission of Matters to a Vote of Security Holders................9


PART II

Item 5      Market for Registrant's Common Equity and Related
                 Stockholder Matters..........................................10
Item 6      Management's Discussion and Analysis or Plan of Operation.........11
Item 7      Financial Statements..............................................13
Item 8      Changes in and Disagreements with Accountants on Accounting
                 and Financial Disclosure.....................................14


PART III

Item 9      Directors, Executive Officers, Promoters and Control Persons;
                 Compliance with Section 16(a) of the Exchange Act............14
Item 10     Executive Compensation............................................16
Item 11     Security Ownership of Certain Beneficial Owners
                 and Management ..............................................20
Item 12     Certain Relationships and Related Transactions....................23
Item 13     Exhibits and Reports on Form 8-K..................................24


Signatures....................................................................29



                                       ii
<PAGE>
                                     PART I


ITEM 1.     BUSINESS

General

      Active  Apparel  Group,  Inc.  (the  "Company"),  a  Delaware  corporation
organized on July 6, 1992, is engaged in the design, manufacture,  marketing and
sale of women's  activewear,  sportswear,  swimwear and coverups (the  "Everlast
Women's  Products"),  and,  as of  January  1, 1999,  the  design,  manufacture,
marketing and sale of men's activewear,  sportswear and outerwear (the "Everlast
Men's  Products"  together  with the Everlast  Women's  Products,  the "Everlast
Products"),  featuring the widely-recognized  Everlast(R) trademark.  Generally,
the  Company  has the  exclusive  right  to use and  distribute  these  Everlast
Products in the United States,  its territories  and possessions  (collectively,
the "United  States") and Canada,  its provinces,  territories  and  possessions
(collectively,  "Canada").  ?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 Company's strategy is to expand the Company's operations and to become
a leading brand name supplier of women's and men's  activewear  and  sportswear.
Key elements of this strategy include:

o     balancing and diversifying the Company's  product  collections in terms of
      style and price range;

o     maximizing   visibility  in  the  Company's   products   through   focused
      traditional  advertising and marketing programs, as well as establishing a
      strong internet presence ;

o     expanding  its  product   distribution   system  by  establishing   better
      relationships  with a broader network of retailers subject to distribution
      restrictions of the Everlast Product licenses;

o     capitalizing on the Company's strengths through design and manufacture for
      private label activewear and sportswear customers.

      All of the Company's  products are manufactured by third party independent
manufacturing  contractors  in the United States and abroad.  These products are
distributed through a variety of department stores,  specialty stores,  sporting
goods stores, catalog operations,  and better mass merchandisers.  The Company's
products are sold to over 20,000 retail  locations  throughout the United States
and Canada. See "Sales and Distribution."


Products

      The Company's  product line primarily  consists of the Everlast  Products,
which are designed and marketed to highlight brand name recognition and consumer
preference.  The Company  performs  extensive  market  research in attempting to
provide its retail  customers and consumers  with  functionality  along with the
most  desirable  styles,  color  schemes and  fabrics.  The Company has actively
pursued a strategy of  developing  a balanced  and  diversified  mix of products
which  emphasizes  the  Everlast  brand name and appeals to various  demographic
groups and geographic areas.

      The Company sells a diverse collection of Everlast Products  consisting of
women's  activewear,  sportswear,  swimwear and  coverups,  and as of January 1,
1999, men's  activewear,  sportswear and outerwear under the Everlast  trademark
and logo.  Since 1910,  Everlast has gained wide recognition in



<PAGE>

professional and amateur boxing. The Company believes that the Everlast name has
become synonymous with quality athletic products.  The Everlast Products seek to
continue this tradition, while recognizing that the active person has particular
demands regarding quality,  comfort and style in activewear and sportswear.  The
Everlast  Products consist of  approximately  80 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 Everlast 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 Everlast
Products generally range from $15 to $70.


Licenses

       Everlast Women's License.  The Company obtained the license to market and
sell Everlast Women's Products ("Everlast License") in July 1992. Generally, the
Everlast  License  grants to the Company the exclusive  right and license to use
the Everlast  trademark in connection with the  manufacture,  advertisement  and
promotion,  packaging, sale and distribution of women's activewear,  sportswear,
swimwear and coverups in the United States and Canada during its term.  Everlast
World's Boxing Headquarters ("Everlast"),  however, reserved the right to use or
license the  Everlast  trademark  on  products  other than  women's  activewear,
sportswear, swimwear and coverups within the United States and Canada, and up to
January 1, 1999,  men's apparel,  and the right to use or license such trademark
outside the United  States or Canada.  Everlast  has also  reserved the right to
sell, in the United States or Canada,  women's activewear and sportswear through
Everlast's  product catalogs or flyers, at prices not less than the lowest price
offered by the Company.

      The  term of the  Everlast  License  ends on  December  31,  2002,  but is
renewable  at the  option  of the  Company  for up to two  successive  five year
periods commencing January 1, 2003 and January 1, 2008,  assuming the Company is
not then in default  under the Everlast  License and  assuming  further that the
Company  achieves  annual net sales in the  United  States of  Everlast  Women's
Products of at least  $10,500,000,  and in Canada, of at least  CN$2,500,000 for
the  exercise of the first  option and  achieves  annual net sales in the United
States of at least  $14,250,000 and in Canada of at least  CN$3,500,000  for the
exercise of the second option.  The Everlast License may be terminated in whole,
or only as to certain Everlast Women's Products, if the Company fails to fulfill
its  material  obligations  of  the  Everlast  License  (including  payments  of
royalties  or other  amounts  due),  fails to use  diligent  efforts to promote,
advertise,  manufacture,  sell or ship any Everlast Product, or to fill accepted
orders for Everlast  Women's  Products to  financially  secure  purchasers.  See
"Manufacturing  and Suppliers."  The Everlast  License may also be terminated if
net sales of Everlast Women's Products do not exceed certain minimum levels,  or
if the Company voluntarily or involuntarily  enters into a bankruptcy or similar
proceeding.  To date,  the  Company  has been in  compliance  with the  Everlast
License.

      Under the  Everlast  License,  the  Company is  required  to make  royalty
payments to Everlast of 6% of net sales (as defined therein), subject to minimum
annual  payments,  which  increase  over the term,  as amended,  of the Everlast
License.  The Company is also required to make  advertising  expenditures  of at
least 2.5% of net sales of Everlast Women's Products,  subject to annual minimum
expenditure  levels.  The minimum  annual  royalty  payments  under the Everlast
License for sales in the United States  (including  swimwear sales) are $630,000
and $679,500 for 1999 and 2000  (CN$168,000 and CN$186,000 with respect to sales
in Canada),  respectively.  The minimum annual advertising expenditures required
under the Everlast  License for sales of Everlast Women's Products in the United
States  (including  swimwear  sales) are $262,500 and $283,125 for 1999 and 2000
(CN$70,000  and  CN$77,500  with respect to sales in Canada),  respectively.  To
date,  all  required  levels have been met or  exceeded.  Royalty  payments  and
advertising  expenditures  are not  required  with  respect to sales of Everlast
Women's Products to Everlast.

                                       2
<PAGE>

The Company is also obligated to maintain product quality control,  obtain prior
approval of designs and standards,  and marketing,  advertising and distribution
programs, and may be required to indemnify Everlast against any losses resulting
from  alleged  defects  in the  Everlast  Women's  Products  arising  out of the
Company's  performance under the Everlast License or the manufacture,  promotion
or sale of such products in violation of applicable laws or third-party  rights.
According  to the terms of the  Everlast  License,  the Company  must secure and
maintain product liability insurance,  which the Company maintains. On the other
hand,  subject to the terms of the  Everlast  License,  Everlast  is required to
indemnify the Company  against any losses arising out of the use of the Everlast
trademark  or the  exercise  by the  Company  of its rights  under the  Everlast
License. Everlast is also required, generally, to defend the Company's rights to
use the Everlast trademark pursuant to the Everlast License.

      According to the terms of the Everlast License, the Company is required to
maintain, during the term thereof, letters of credit in favor of Everlast for an
amount equal to the minimum  annual  amounts due to Everlast  under the Everlast
License from time to time, or a cash deposit in varying amounts.  The Company is
in compliance with this requirement.

      Everlast  Men's  License.  The Company  obtained the license to market and
sell  Everlast  Men's  Products  ("Men's  License")  effective  January 1, 1999.
Generally,  the Men's  License  grants to the  Company the  exclusive  right and
license  to use the  Everlast  trademark  in  connection  with the  manufacture,
advertisement  and  promotion,   packaging,   sale  and  distribution  of  men's
activewear,  sportswear,  swimwear and outerwear in the United States and Canada
during the term of the Men's License.  Everlast,  however, reserved the right to
use or license the Everlast  trademark on products  other than men's and women's
activewear,  sportswear,  swimwear and men's outerwear  within the United States
and Canada,  and the right to use or license such  trademark  outside the United
States or Canada.  Everlast has also  reserved the right to sell,  in the United
States or Canada,  men's activewear and sportswear  through  Everlast's  product
catalogs  or flyers at prices  not less than the  lowest  price  offered  by the
Company.

      The term of the Men's License ends on December 31, 2001,  but is renewable
at  the  option  of the  Company  for up to two  successive  five  year  periods
commencing January 1, 2002 and January 1, 2007, assuming the Company is not then
in default  under the  Everlast  License and  assuming  further that the Company
achieves  annual net sales in the United States of Everlast Men's Products of at
least $6,500,000,  and in Canada,  of at least  CN$3,300,000 for the exercise of
the first option and achieves  annual net sales in the United States of at least
$9,317,000 and in Canada of at least CN$4,790,000 for the exercise of the second
option.  The Men's  License may be  terminated  in whole,  or only as to certain
Everlast  Men's  Products,   if  the  Company  fails  to  fulfill  its  material
obligations  of the Men's  License  (including  payments of  royalties  or other
amounts due), fails to use diligent efforts to promote, advertise,  manufacture,
sell or ship any Everlast men's product, or to fill accepted orders for Everlast
Men's  Products  to  financially  secure  purchasers.   See  "Manufacturing  and
Suppliers."  The Men's  License may also be  terminated if net sales of Everlast
Men's  Products  do  not  exceed  certain  minimum  levels,  or if  the  Company
voluntarily or involuntarily enters into a bankruptcy or similar proceeding.

      Under the Men's License,  the Company is required to make royalty payments
to Everlast of 6% of net sales (as defined  therein),  subject to minimum annual
payments,  which  increase over the term of the Men's License,  as amended.  The
Company is also required to make  advertising  expenditures  of at least 2.5% of
net sales of Everlast  Men's  Products,  subject to annual  minimum  expenditure
levels. The minimum annual royalty payments under the Men's License for sales of
the Everlast  Men's  Products in the United States are $180,000 and $300,000 for
1999 and 2000  (CN$72,000  and  CN$144,000  with  respect  to sales in  Canada),
respectively.  The minimum annual  advertising  expenditures  required under the
Men's  License for sales in the United  States are $75,000 and $125,000 for 1999
and  2000.   (CN$30,000   and  CN$60,000  with  respect  to  sales  in  Canada),
respectively.  Royalty  payments and advertising  expenditures  are not required
with respect to sales of Everlast  Men's  Products to  Everlast.


                                       3

<PAGE>

The Company is also obligated to maintain product quality control,  obtain prior
approval of designs and standards,  and marketing,  advertising and distribution
programs, and may be required to indemnify Everlast against any losses resulting
from  alleged  defects in the  Everlast  Products  arising out of the  Company's
performance  under the Men's  License or the  manufacture,  promotion or sale of
such products in violation of applicable laws or third-party  rights.  According
to the terms of the Men's License,  the Company must secure and maintain product
liability insurance,  which the Company maintains.  On the other hand subject to
the terms of the Men's  License,  Everlast is required to indemnify  the Company
against  any losses  arising  out of the use of the  Everlast  trademark  or the
exercise by the Company of its rights under the Men's License.  Everlast is also
required,  generally,  to  defend  the  Company's  rights  to use  the  Everlast
trademark pursuant to the Men's License.

      According  to the terms of the Men's  License,  the Company is required to
maintain, during the term thereof, letters of credit in favor of Everlast for an
amount  equal to the minimum  annual  amounts  due to  Everlast  under the Men's
License from time to time, or a cash deposit in varying amounts.  The Company is
in compliance with this requirement.

      Converse License The term of the Company's license with Converse, Inc.(the
"Converse  License")  ended on March 31, 1999.  The Converse  products  included
women's and girls' activewear and sportswear.  Because of slow sales of Converse
products,  the Board of  Directors of the Company  approved a resolution  not to
extend the Converse License. The Company believes that not renewing the Converse
License  will not have a  material  adverse  effect on the  Company's  business,
financial  condition or results of operations.  Under the Converse License,  the
Company was  required  to make  royalty  payments to Converse  Inc. of 7% of net
sales through March 31, 1999.

      MTV License.  The term of the Company's  license with MTV  Networks,  Inc.
(the "MTV License") ended on June 30, 1999. The MTV products included unisex and
women's activewear and accessories.  Because of slow sales of MTV products,  the
Board of  Directors of the Company  approved a resolution  not to extend the MTV
License.  The Company believes that not renewing the MTV License will not have a
material  adverse  effect on the  Company's  business,  financial  condition  or
results of operations.  Under the MTV License,  the Company was required to make
royalty  payments  to MTV  Networks,  Inc.  of 8% of net  sales of MTV  products
through June 30, 1999.

      Product Development. The Company's merchandising and design staff analyzes
demographic,  market,  style, fashion and fabric and technical  developments and
attempts to make the necessary adjustments in product mix, construction, design,
styles,  fabrics and colors in response  to these  developments.  Members of the
merchandising  and  design  staff  also  coordinate  their  activities  with the
Company's  production and sales staff, consult with buyers, visit retail outlets
and attend fashion and trade shows to gather additional  information  during the
design  process.  Sources of design and prints include,  among others,  industry
fashion  analyses,  the Company's  products  from  previous  years and freelance
artwork.

      After a  particular  product  concept  has been  designed,  members of the
design staff prepare  schematics  containing the proposed  styles,  patterns and
fabrics,  which are reviewed by senior members of the Company's management prior
to  prototype  construction.  Prototypes  of a  potential  new  product are then
constructed  and  subjected  to  numerous  tests  for  fit,  comfort,   quality,
functionality and consumer  acceptance.  New designs are previewed to buyers and
certain retail  accounts to solicit their comments as to which styles are likely
to be the more  popular.  In addition,  the Company's  performance  products are
given to fitness professionals for use and evaluation.  The Company's goal is to
minimize the risk of changing fashion trends or consumer preferences.

                                       4
<PAGE>

Marketing, Advertising and Promotions

      The Company  advertises  and promotes  its products to different  consumer
segments  through a variety of trade and consumer print  advertising  campaigns,
generally in selected magazines and other  publications  (including Women's Wear
Daily and Sporting  Goods  Business).  The Company's  advertising  and promotion
program  aims to  achieve a high  visibility  for its  products.  The  Company's
advertising  and  promotional  efforts  are  directed  towards  the  demographic
customer  profile for the  Company's  products.  The Company  maintains  its own
marketing and  advertising  staff who conceives and oversees  implementation  of
most aspects of the Company's  advertising and sales  promotions.  The marketing
and advertising  staff also develops  catalogs for all of the Company's  product
lines.

      The Company uses several  methods to advertise  and promote its  products.
The Everlast Products and the Company have received exposure through coverage in
both the print and  television  media.  Additionally,  the Company 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 also believes that grass roots promotion programs, such as the
limited  distribution  of samples of its 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 New York Race for the Cure," a
running race aimed to develop  awareness  of breast  cancer,  the American  Lung
Association's  "Jammin  With  the  Jets"  and  the  "Share-A-Walk,"  a New  York
fundraiser to raise awareness in the fight against cancer.  The Company has also
sponsored high school and college women's  basketball  teams and NBA and college
dance teams.

      The Company  also  attends  and  participates  in the  Atlanta  Supershow,
WWDMAGIC, Women's Wear Daily's annual national trade show, and other appropriate
trade shows.

Manufacturing and Suppliers

      The Company does not manufacture any of its products, but uses independent
contractors.  Approximately  65% of  the  Company's  products  are  supplied  by
manufacturers  in the United  States while the  remaining  35% 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 its  relationships  with such
contractors  are  good.  The  Company  does  not  believe  that  the loss of any
particular  contractor  would have a material  adverse  effect on its  business,
financial  condition  or  results  of  operations.  The  Company  believes  that
alternative sources of products would be readily available.

      The  supply  of the  Company's  foreign-sourced  products  is  subject  to
constraints  imposed by bilateral textile  agreements  between the United States
and foreign nations, which impose quotas on the amounts and types of goods which
can be imported into the United States.  Some of the Company's  manufactures 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,  as more
fully described herein. See "Quality Control." The Company's strategy is to find
manufacturers with specific product category expertise (such as fitness apparel,
tee shirts or outerwear)  and extensive  experience in the major  athletic brand
name apparel


                                       5
<PAGE>

industry.  The Company has no long-term agreements with any of its manufacturers
and competes with other apparel companies for production capacity.

      On December 31, 1998, the Company's  inventory was $3,026,241 on net sales
during the year ended December 31, 1998 (Fiscal year 1998) of $15,011,926,  with
a backlog of orders for future delivery of $4,019,603. At December 31, 1999, the
Company's  inventory was  $5,240,152 on net sales during the year ended December
31, 1999 (Fiscal year 1999) of $24,464,139,  with a backlog of orders for future
delivery  of  $5,217,824.   The  Company  has  implemented  an  Electronic  Data
Interchange (EDI) Quick Response  Replenishment  System by which customer orders
are  facilitated in seven working days.  Higher levels of inventory are required
to operate the EDI Quick Response  Replenishment System program.  Such levels of
inventory are needed as sales orders are generally received and shipped within a
seven day period.  Other than the EDI Quick Response  Replenishment  System, the
Company  practices a "just in time"  manufacturing and purchasing  program.  The
Company makes arrangements with its manufacturers for delivery  approximately 30
days before the scheduled shipment of products to the Company's  customers.  The
objectives of the "just-in-time"  system are to decrease the Company's inventory
risk and to allow the Company  flexibility to react to consumer responses to its
products and changing  consumer  preferences.  The Company  believes  that these
objectives are currently being achieved, although no assurance can be given that
such  objectives  will continue to be partially or fully achieved in the future.
The Company 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.  Although  manufacturing lateness has not been a
material  factor through the present date, the inability or  unwillingness  of a
manufacturer  to ship orders of the Company's  products in a timely manner could
adversely  affect the Company's  ability to deliver products to its customers on
time. Delay in delivery could result in missing certain  retailing  seasons with
respect to all or some of the Company's products,  or could adversely affect the
Company's  relationship with its customers,  which could have a material adverse
effect on the Company's business.

      As of December  31, 1999,  the  Company's  backlog of unfilled  orders was
$5,217,824  as  compared to  $4,019,603  as of December  31,  1998.  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.  The Company has an on-line computerized  order-entry
system that allows the Company to receive orders by computer and to follow daily
the status of orders received, shipped and unfilled.


Sales and Distribution

      The  Company's   products  are  distributed   through  department  stores,
specialty  stores,  sporting  goods stores,  catalog  operations and better mass
merchandisers.  The Company  distributes  its  products  to over  20,000  retail
locations  throughout the United States and Canada.  The Company's  products are
sold by retailers such as, Bloomingdale's, Nordstrom, Modell's, Oshmans, Gart's,
Footlocker, The Sports Authority and the Army Air Force Exchange and through the
internet  by web sites  such as Global  Sports  International,  Fashionmall.com,
Boo.com and Yahoo. In Canada,  the Company's products are sold by such retailers
as The Bay,  Sears-Canada,  Superstar  Group  and  Champs.  For the  year  ended
December 31, 1998, four customers  accounted for approximately 48% of sales, and
for the year ended December 31, 1999 three customers accounted for approximately
39% of sales.  The  Company's  strategy  is to expand its  network of  retailers
carrying the Company's products, and is focused on department stores,  specialty
stores, sporting goods stores, catalog operations and better mass merchandisers.

      The Company currently has seven in-house sales  representatives and twelve
non-employee  sales  representatives.   George  Horowitz,  President  and  Chief
Executive Officer, and a sales executive staff manage these  representatives and
coordinate  sales to  customers.  The  Company  works  closely  with  its  sales
representatives  to ensure that a consistent and unified image of the Company is
projected to its customers.

      The Company cooperates with major retailers to gauge promptly which styles
are the most popular and to track consumer  preferences  regarding its products.
Based upon its market data, as well as information  gained from trade shows, the
Company  attempts to shift its  production  orders  towards styles that are most
popular, which 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.  Most of the  Company's  products are  manufactured  in the
United States,  reducing,  in many instances,  the amount of time between orders
placed  by  the  Company   with  its   manufacturers   and   shipments  by  such
manufacturers.  The Company believes that its market  information  gathering and
shifting  in  production  efforts  towards  more  popular  styles  also  reduces
inventory risk.

      During fiscal year 1998 and 1999,  the Company's  foreign sales  accounted
for 8.9% and 8.7% respectively of the Company's net sales, the majority of which
were in Canada.

      Consistent with industry  practice,  the Company generally accepts returns
of any products  with defects in materials or  workmanship  or which do not meet
the quality  standards of the Company or its  customers  for up to 30 days.  The
Company  believes that its return levels are better than the industry  norms. In
addition to returns,  customers deduct  chargebacks from the purchase price with
or without the  Company's  consent.  Chargebacks  have an adverse  effect on the
Company's  business and results of  operations  since they reduce  overall gross
profit  margins on sales of the  Company's  products.  The  Company  experienced
chargeback  levels of  approximately  3.3% during 1999, which is consistent with
the  industry  norms of 3% to 5%. In 1998,  the Company  experienced  chargeback
levels of approximately 3.5%.

Quality Control

      Because  the  Company  emphasizes  fit,  performance  and  quality  of its
products,  the Company places high priority on quality control.  The Company has
established  stringent  quality  control  procedures  under which  domestic  and
international production of the Company's products at independent  manufacturing
locations  is  inspected  by agents of the  Company  who visit each  independent
manufacturing  contractor at such frequency as is necessary to ensure compliance
with the Company's specifications and delivery requirements and in order to meet
the Company's shipping schedules.  Prior to manufacture in large quantities, the
Company  receives samples of its products for  investigation  and, if necessary,
alteration.  The Company  performs  various  tests,  including fit tests on live
models, to ensure that the product meets specifications prior to the shipping of
product  by  the  Company.   In  addition,   senior  employees  of  the  Company
periodically  personally  inspect  the  manufacturing  process  and  quality  of
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 its  service  organizations  as  important
resources in  maintaining  high  standards for its products and assisting in the
reliable and timely delivery of its products to its retail customers.


Competition

      The apparel  industry is highly  competitive.  The  Company's  competitors
include apparel  manufacturers of all sizes, many of whom have greater financial
and manufacturing  resources than the Company.  The

                                       7

<PAGE>

Company  believes  that it has been able to  compete in the brand name men's and
women's  activewear  and  sportswear  market  because  of the  high  brand  name
recognition,  high quality and  affordability  of its  products.  The  Company's
products  may also  compete  with  lower-priced  men's and  women's  and  girls'
activewear and  sportswear  products that 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,  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.


Canadian Branch

      The  Company  has a Canadian  branch  that  markets  Everlast  Products in
Canada.  During fiscal year 1998 and fiscal year 1999, net sales from operations
in Canada  were U.S.  $1,234,441  and U.S.  $2,075,649,  respectively.  With the
exception of exchange rate  fluctuations,  the Company does not believe that the
Canadian  operations are subject to risks that are significantly  different from
domestic   operations.   The  Company  does  not  believe  that   exchange  rate
fluctuations  have had a material  adverse  effect on the  Company's  results of
operations,  although  there can be no assurance  that such  fluctuations,  with
respect to its Canadian  operations,  will not have a material adverse effect on
the Company's results of operations in the future.


Employees

      As of March 15,  2000,  the  Company  had 31  employees,  all of whom were
employed by the  Company on a  full-time  basis.  In  addition,  the Company may
employ  additional  full-time  and part-time  employees in  connection  with the
design,  marketing  and  sale of its  products  as and if the need  arises.  The
Company currently hires temporary employees from time to time as needed. None of
the  Company's  employees  is  covered  by a  collective  bargaining  agreement,
although  the  Company   considers  its  relations  with  its  employees  to  be
satisfactory.

ITEM 2.  PROPERTIES

      The Company had three  leases for  approximately  7,160  square feet for a
total  annual base rent of $166,629 at its  principal  executive  offices in New
York,  New York.  The  original  lease had an annual  base rent of  $93,672  and
expired January 31, 2000. This space, which occupied  approximately 3,981 square
feet,  also  included a showroom for the Everlast  Products.  In July 1994,  the
Company  increased  its  space  in New  York by  2,523  square  feet  to  create
additional showroom space and to accommodate  additional  employees.  Such lease
provided  for an annual base rent of $57,902 and expired  January 31,  2000.  In
January 1996, the Company  increased its space in New York by 656 square feet to
accommodate additional employees. Such lease provided for an annual base rent of
$15,055 and expired January 31, 2000.

      On July 20,  1999 the  Company  renewed  its real  property  leases  which
includes 6,863 square feet,  effective February 1, 2000, for a total annual base
rent of $171,575  through  September  30, 2002 and $185,301 from October 1, 2000
through  April 30, 2005.  On July 19, 1999 the Company also leased an additional
2,150  square  feet of adjacent  space for an annual  base rent of $53,750  from
November 1, 1999  through  June 30, 2002 and $58,050  from July 1, 2002  through
April 30, 2005. The Company does not pay rent on the  additional  space until it
is ready for  occupancy,  which the Company  expects to be on or about April 15,
2000.

                                       8

<PAGE>

      The Company leases  approximately 1,200 square feet of office and showroom
space in Montreal, Canada at an annual base rent of CN$18,000. The lease expires
in April 2000 and the Company plans to renew this lease.

      The Company believes that its existing facilities will be adequate to meet
its  needs  for the  foreseeable  future.  In the  event  the  Company  requires
additional  facilities in the future, the Company believes additional facilities
would be available at commercially reasonable rates.

ITEM 3.     LEGAL PROCEEDINGS

      The  Company  is  not  a  party  to  any  material  litigation.  No  legal
proceedings were terminated during the fiscal year ended December 31, 1999.

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 1999.


                                       9
<PAGE>

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

       The Company's  common stock had been quoted on the Nasdaq National Market
from  August 14,  1996 until  December  8, 1998  under the  symbol  "AAGP."  The
Company's  common  stock has been  quoted on the Nasdaq  SmallCap  Market  since
December  9,  1998,  and from May 4, 1995 until  August 14,  1996 under the same
symbol.  The following table sets forth, for the period  indicated,  the highest
and lowest bid  quotations  for the common  stock,  $.002 par value (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.

                                1998
                         High          Low
                         ----          ---

1st Quarter              3 1/2         2 1/8
2nd Quarter              2 7/8         1 3/4
3rd Quarter              2 3/8            11/16
4th Quarter              25               1/2


                                1999
                         High          Low
                         ----          ---

1st Quarter              10 11/16      2 1/2
2nd Quarter               5 23/32      2 1/4
3rd Quarter               3 13/16      2 1/4
4th Quarter               3 3/8        2 5/32


Holders

      The closing bid price of the Common Stock as of March 15, 2000 was 3 11/16
There  were 160  record  holders of the  Company's  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 more than 600 beneficial holders of the
Company's 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.


                                       10
<PAGE>

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

            This Report on Form 10-KSB contains forward-looking  statements that
involve  risks and  uncertainties.  The  Company's  actual  results could differ
materially from those anticipated in these forward-looking  statements.  Factors
that may cause such differences  include,  but are not limited to, the Company's
expansion into new markets, competition, technological advances and availability
of managerial personnel.


General

            The  Company is a  designer,  marketer  and  supplier of women's and
men's activewear,  sportswear,  swimwear and accessories.  The Company sells its
principal  product  collections  under the Everlast brand name through exclusive
licensing  arrangements.  The Company's products are manufactured by independent
manufacturing  contractors and are sold to over 20,000 retail  locations  mostly
throughout  the United  States and  Canada,  including  a variety of  department
stores,  specialty stores,  sporting goods stores, catalog operations and better
mass merchandisers.

            The  financial  statements  of the  Company  and the  notes  thereto
contain detailed information that should be referred to in conjunction with this
discussion.


Results of Operations

           Year End 1999 Compared to Year End 1998

           Net sales  increased to  $24,464,139  for the year ended December 31,
1999 from  $15,011,926  for the year ended  December  31,  1998,  an increase of
$9,452,213  or 63.0%.  The  increase  in net sales is  primarily  attributed  to
increased  sales volume of the  Company's  Women's  Products  through  continued
market penetration and introduction of the Company's Men's Products.

           Gross profit  increased to $9,885,763 for the year ended December 31,
1999 from  $5,528,335  for the year ended  December  31,  1998,  an  increase of
$4,357,428  or 78.8%.  Gross profit  increased  as a percentage  of net sales to
40.4%  from  36.8%.  The  increase  as a  percentage  of net sales is  primarily
attributed to higher prices received for the Company's products.

           Selling and shipping  expenses  increased to $5,871,751  for the year
ended December 31, 1999 from $3,637,729 for the year ended December 31, 1998, an
increase of $2,234,022 or 61.4%.  Selling and shipping  expenses as a percentage
of net sales decreased to 24.0% from 24.2%.  The decrease as a percentage of net
sales is  primarily  attributed  to the  increase  in sales as it relates to the
fixed portion of the selling and shipping expenses.

           General and  administrative  expenses increased to $2,024,539 for the
year ended  December 31, 1999 from  $1,911,621  for the year ended  December 31,
1998, an increase of $112,918 or 5.9%. General and administrative  expenses as a
percentage  of net  sales  decreased  to 8.3%  from  12.7%.  The  decrease  as a

                                       11
<PAGE>

percentage of net sales is primarily  attributed to the relative fixed nature of
general and administrative expenses.

           Financial  expenses increased to $557,627 for the year ended December
31, 1999 from  $413,713 for the year ended  December  31,  1998,  an increase of
$143,914 or 34.8%.  The increase is  attributed to the increase in the Company's
net borrowings from the factor and factor  commissions  paid on increased sales,
for the year ended  December 31, 1999 as compared to the year ended December 31,
1998, to finance growth.

           Operating  income increased to $1,431,846 for the year ended December
31,  1999 from a loss of  $434,728  for the year ended  December  31,  1998,  an
increase of  $1,866,574  for the reasons  stated  above.  Operating  income as a
percentage  of net  sales  was 5.85% for the year  ended  December  31,  1999 as
compared to negative 2.9% for the year ended December 31, 1998.

           The Company  incurred a tax  provision of $615,694 for the year ended
December  31, 1999 as  compared to a tax benefit of $194,093  for the year ended
December 31, 1998. This income tax provision is in proportion to the increase in
the Company's income.

            The Company had net income of $816,152  for the year ended  December
31, 1999 as compared to a loss of $240,635 for the year ended December 31, 1998,
an increase of $1,056,787.

            2000 Market Outlook

            While  the  retail  environment  remains  difficult,  the  Company's
management  believes it will continue to increase its sales growth,  although no
assurance can be given that such increase will continue.

            The continued  market  penetration of the Everlast men's  activewear
and  sportswear  line and the expansion of the  Company's  internet web site are
expected to add to the Company's  distribution  base.  The Company  continues to
focus on its core Everlast brand and to explore other opportunities for growth.

Liquidity and Capital Resources

            Net  cash  provided  by  operating  activities  for the  year  ended
December 31, 1999 was $222,766  compared to $202,937 for the year ended December
31, 1998. This increase was primarily attributable to an increase in net income.
Net cash used for investing  activities for the year ended December 31, 1999 was
$176,540  compared  to $79,414  for the year ended  December  31, 1998 due to an
increase  in capital  expenditures  for  computer  related  equipment.  Net cash
provided by  financing  activities  was $0 for the year ended  December 31, 1999
compared to $9,906 for the year ended  December 31, 1998 due to a decline in the
proceeds received from the exercise of stock options.

            During the year ended December 31, 1999, the Company's  primary need
for  funds  was to  finance  working  capital  due to growth in net sales of the
Company's  products.  The  Company  has  relied  primarily  upon  cash flow from
operations  and  advances  drawn  against  factored  receivables  to finance its
operations and expansion.  At December 31, 1999,  working capital was $5,850,064
compared to  $4,994,000  at December  31, 1998,  an increase of  $856,064.  This
increase was  primarily  attributable  to the  Company's net income for the year
ended  December 31, 1999, as compared to a net loss for the year ended  December
31, 1998.

            Due from factor  represents the amount receivable by the Company for
factored  receivables  net of  outstanding  advances  made by the  factor to the
Company under the factoring agreement.  At December 31, 1999 due from factor was
$1,549,047  as compared  to  $1,887,245  at December  31,  1998.  The


                                       12
<PAGE>

Company's  inventory  increased by 73.2% to $5,240,152 at December 31, 1999 from
$3,026,241 at December 31, 1998 to support the increased  backlog of open orders
and the Company's expanded product lines.

            2000 Liquidity Outlook

            Management  anticipates it will maintain a net surplus position with
the factor,  although no  assurance to that effect can be given.  Positive  cash
flow, if it occurs,  will provide for further  reduction in net borrowings,  and
create  additional  working capital to fund the Company's  continued growth over
the next 12 months. If a positive cash flow does not occur,  borrowings with the
factor will increase.


Year 2000 Compliance

            The Company  experienced  no  disruptions  to its normal  operations
related  to Year  2000  failures.  The  Company  believes  that it is Year  2000
compliant  and if failures do occur they will not have a material  impact on the
Company's results of operations, liquidity or financial condition.


ITEM 7.     FINANCIAL STATEMENTS.

            SEE PAGE 1f




                                       13
<PAGE>


ITEM 8.     CHANGES IN AND  DISAGREEMENT  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
            FINANCIAL DISCLOSURE

            None.

                                    PART III

ITEM 9.     DIRECTORS,   EXECUTIVE  OFFICERS,  PROMOTERS  AND  CONTROL  PERSONS;
            COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

            The Company's executive officers and directors are as follows:


    Name                     Age                 Position

    George Horowitz          49     President; Chief Executive Officer; Chairman
                                    of the Board; Treasurer; Director(1)
    James Anderson           63     Vice Chairman of the Board; Director(1)(2)
    Rita Cinque Kriss        34     Executive Vice  President;  Secretary of the
                                    Company; Director(3)
    Larry Kring              59     Director(2)(3)
    Edward Epstein           60     Director(2)(3)
    Angelo Giusti            49     Director(2)


(1)         Member of the Executive Committee of the Board of Directors
(2)         Member of the Compensation Committee of the Board of Directors
(3)         Member of the Audit Committee of the Board of Directors

            Mr. Horowitz is the Chairman,  Chief Executive Officer and President
of Active  Apparel  Group,  Inc.  and has  served in such  capacities  since his
founding of the company in 1992. Mr. Horowitz, formerly an educator, entered the
apparel  industry in 1976.  Mr.  Horowitz was employed by Golden Touch  Imports,
Inc., an apparel company in New York City,  where he served as Vice President of
Operations and was a shareholder  of that company.  The media  frequently  calls
upon Mr.  Horowitz  for his views on issues  pertaining  to his  company and the
industry in general.  He has appeared on CNBC's  "Squawk Box" and "Market Wrap,"
CNN's  "Business  Day" and  "Moneyline  News Hour with Lou  Dobbs," and Fox News
Channel's  "Cavuto Business  Report," among other shows. He has been included in
the Sportstyle  Magazine's Top 100 most influential people in the sporting goods
industry  for 3  consecutive  years.  He is currently  serving on the  Executive
Committee  for  the  Sports  Apparel  Product  Council  of  the  Sporting  Goods
Manufacturers  Association.  Mr. Horowitz is also a member of the  International
Radio and Television Society Foundation,  Inc. He has been a speaker for several
industry  events,  including  the Women's  Wear Daily CEO Annual  Summit and the
Fashion  Round Table.  Mr.  Horowitz  was chosen  along with other  selected top
leaders in the  fashion  industry  to join  President  Clinton  for a  memorable
evening   celebrating  The  William  Jefferson  Clinton   Presidential   Library
Foundation.  He serves as a member of the Benefit Committee of Fashion and Media
Leaders for the NOW Legal  Defense and  Education  Fund.  Mr.  Horowitz has been
involved with many civic and sports related community activities. He is a member
of the Three  Miles of Men  Honorary  Committee  for The Susan G.  Komen  Breast
Cancer  Foundation  New York City Race for the Cure.  He has served in different
capacities as a leader and a mentor to the youth in his community.

                                       14

<PAGE>

            Mr.  Anderson  has been a director of the Company  since August 1992
and was Chairman of the Board from January 1994  through  December  1995.  Since
January 1996, he has been  Vice-Chairman of the Board. Since August 1996, he has
been Managing  Partner of Millenium  Venture  Management LLC. Since July 1987 he
has been a management consultant in restructuring businesses. From 1981 to 1987,
he was  President of Pacific  First  Financial  Corp.  and Pacific First Federal
Savings  Bank and, in 1984,  also  became  chairman of the board and CEO of each
company. He has served on the boards of directors of numerous businesses, civic,
arts and educational  organizations and is a member of the Whitman College Board
of  Overseers.  He is  currently  a  member  of the  Board of  Directors  of the
Washington  Hospital  Insurance  Fund and the  Washington  Casualty  Company and
Chairman of the Board of Directors of Reality Based Learning Corp.

            Ms. Cinque Kriss has been Executive Vice President and a director of
the  Company  since  May  1994.  From  April  1993 to May  1994,  she  was  Vice
President-Operations  of the  Company,  and from August 1992 to April 1993,  she
served as a consultant  to the Company in operations  management.  From November
1990 to August  1992,  Ms.  Cinque  Kriss was the  President  of ITEW,  Ltd.,  a
management  consulting  company  in the  apparel  industry.  In 1986,  she was a
founding member of Women in  International  Trade,  an  organization  created to
promote international trade, where she served as a director from January 1990 to
January 1993.

            Mr.  Kring has been a director of the Company  since  January  1993.
Since  August  1993,  Mr.  Kring has been a Group Vice  President  of  Esterline
Technologies,   a   diversified   instrumentation,   equipment   and   component
manufacturing  company  listed on the New York  Stock  Exchange  and  located in
Bellevue,  Washington.  From July 1978 to July 1993, Mr. Kring was the President
and Chief Executive Officer of Heath Tecna Aerospace  Company, a manufacturer of
aircraft  interior  and  aerospace  components  and  a  division  of  Ciba-Geigy
Corporation.

            Mr.  Epstein has been a director  since January 1, 1996. Mr. Epstein
is an attorney  admitted to practice law in both New York and Florida.  He is an
experienced litigator, and has represented clients in all aspects of the garment
industry  for 30 years.  He is a member of the bars of the Supreme  Court of the
State of Florida,  the Supreme  Court of the State of New York,  various  United
States  District  Courts and the United  States  Court of Appeals for the Second
Circuit.  He is a  member  of the New  York  State  Trial  Lawyers  Association,
Association  of Trial  Lawyers  of  America  and the  Florida  Academy  of Trial
Lawyers.

            Mr.  Giusti has been a director  since  January 3, 1997. He has been
Vice  President of Operations  at the Company  since June 1997.  From 1984 until
June 1997,  Mr. Giusti was  President of Universal  Business  Forms,  a printing
company in New York City. From 1978 to 1984, Mr. Giusti was Sales Manager in New
York for  Uarco,  a national  printing  company.  Mr.  Giusti has served on many
community  boards and  activities.  He was a New York City Public School teacher
and he has remained active in local education and in youth sports activities. He
is a former President of the Holmdel (Jersey Shore) Pop Warner Football League.

Section 16(a) Beneficial Ownership Reporting Compliance.

            Section  16(a) of the  Securities  Exchange Act of 1934, as amended,
requires  the  Company's  directors  and  executive  officers,  and  persons who
beneficially  own more than ten percent of the Company's  Common Stock,  to file
with the Securities and Exchange  Commission (the "SEC") reports of


                                       15

<PAGE>

ownership of Common Stock and other equity securities of the Company.  Officers,
directors and more than ten percent  stockholders are required by SEC regulation
to furnish the Company with copies of all Section  16(a)  reports they file.  To
the  Company's  knowledge,  based solely on review of the copies of such reports
furnished  to the  Company  during the fiscal year ended  December  31, 1999 all
required Section 16(a) filings by beneficial owners were complied with.


ITEM 10.  EXECUTIVE COMPENSATION

                The  following  Summary  Compensation  Table sets forth  certain
information  concerning total annual  compensation paid to George Horowitz,  the
Company's President,  Chief Executive Officer and Treasurer,  Rita Cinque Kriss,
the Company's  Executive Vice  President and Secretary and Angelo  Giusti,  Vice
President of Operations (the "Named Executive Officers"),  for services rendered
in all  capacities by them to the Company  during  fiscal years 1999,  1998 and,
1997.

                           SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>

                                                Annual Compensation
                                       --------------------------------------
                                                                                                    Securities
      Name and                                                      Other Annual     All Other      Underlying
Principal Positions(1)      Year       Salary ($)      Bonus ($)    Compensation   Compensation     Options(11)
----------------------      ----       ----------      ---------    ------------   ------------     -----------
                                                                        $               $             (#)
                                                                        -               -             ---
<S>                         <C>          <C>             <C>         <C>              <C>               <C>
George Horowitz
 (President; Chief;         1999         277,697         21,000      21,068(3)        983(6)         40,000
 Executive Officer          1998         265,000         12,000      19,534(4)        853(6)            0
Treasurer)                  1997         265,000         18,000      17,257(5)        595(6)            0

Rita Cinque Kriss
 (Executive Vice            1999         128,462         18,265      12,048(7)          0            25,500
 President;                 1998         140,000           0         20,308(8)          0               0
 Secretary)                 1997         140,000         12,000(2)    9,565(9)          0               0


Angelo Giusti
 (Vice President of         1999         121,846          3,000           0             0             3,000
 Operations &               1998         110,000           0              0             0               0
 Director)                  1997          63,139(10)       0              0             0               0


</TABLE>


(1)      Other than  George  Horowitz, Rita  Cinque  Kriss and Angelo  Giusti no
         Named  Executive  Officer of the Company was paid more than $100,000 in
         total salary and bonus for fiscal year 1999, and accordingly,  no other
         Named Executive Officers are included in the table above.

(2)      The  Company  has  agreed  to pay the  amount  of tax owed on the bonus
         payment noted in the column above.

                                       16
<PAGE>

(3)      Consists  of an  aggregate  of  $21,068  paid  to or on  behalf  of Mr.
         Horowitz  by the  Company  in  fiscal  year  1999  in  connection  with
         automobile lease  installment  payments  ($15,242),  related  insurance
         premiums ($1,422) and parking expenses ($4,404).

(4)      Consists  of an  aggregate  of  $19,534  paid  to or on  behalf  of Mr.
         Horowitz  by the  Company  in  fiscal  year  1998  in  connection  with
         automobile lease  installment  payments  ($13,659),  related  insurance
         premiums ($1,088) and parking expenses ($4,787).

(5)      Consists  of an  aggregate  of  $17,257  paid  to or on  behalf  of Mr.
         Horowitz  by the  Company  in  fiscal  year  1997  in  connection  with
         automobile lease  installment  payments  ($13,660),  related  insurance
         premiums ($1,088) and parking expenses ($2,509).

(6)      Represents  premiums paid by the Company in fiscal year 1999,  1998 and
         1997on term life (7) insurancepolicies for the benefit of Mr. Horowitz.

(7)      Consists of an aggregate of $12,048 paid to or on behalf of Ms.  Cinque
         Kriss by the Company in fiscal year 1999 in connection  with automobile
         lease installment  payments  ($9,558),  and related insurance  premiums
         ($2,490).

(8)      Consists of an aggregate of $12,732 paid to or on behalf of Ms.  Cinque
         Kriss by the Company in fiscal year 1998 in connection  with automobile
         lease  installment   payments  ($8,019),   related  insurance  premiums
         ($3,806) and parking  expenses  ($907),  and $7,576 for income taxes on
         1997 bonus.

(9)      Consists of an aggregate  of $9,565 paid to or on behalf of Ms.  Cinque
         Kriss by the Company in fiscal year 1997 in connection  with automobile
         lease  installment   payments  ($5,601),   related  insurance  premiums
         ($1,846) and parking expenses ($2,118).

(10)     Mr. Giusti has been an employee of the Company since June 1997.

(11)     See report on  repricing  of options  section  for  details of repriced
         options.


Long-Term Incentive and Pension Plans

         The Company  currently  has no long-term  incentive or defined  pension
plans.  The Company  offers all employees a 401(k)  savings plan that allows the
employee to  voluntarily  defer a certain  portion of their income before taxes.
The Company pays all the administrative fees for the plan.


                                       17
<PAGE>

Option Grants In Last Fiscal Year

<TABLE>
<CAPTION>

                               Number of             Percent of
                               Securities         Total Options
                              Underlying            Granted To        Exercise Or
                                 Options           Employees in         Base Price
          Name                   Granted            Fiscal Year           ($/Sh)         Expiration Date
          ----                   -------            -----------           ------         ---------------

<S>                             <C>                     <C>                <C>                 <C>  <C>
  George Horowitz               20,000                  18.5%              $3.97               3/22/09
                                20,000                  18.5%              $2.23              12/31/09

  Rita Cinque Kriss             10,000                   9.3%              $3.97               3/22/09
                                10,000                   9.3%              $2.23              12/31/09

  Angelo Giusti                  2,500                   2.3%              $3.97               3/22/09
                                 2,500                   2.3%              $2.23              12/31/09
</TABLE>

               There were no other  option  grants to Named  Executive  Officers
during the year ended December 31, 1999.


Compensation of Directors

                  As  compensation  for  their  services  as  directors  of  the
Company,  effective  January  1, 1995,  non-employee  directors  of the  Company
receive options to purchase the Company's Common Stock pursuant to the Company's
1995  Non-Employee  Director  Stock  Option Plan.  The plan  provides for annual
automatic  grants of options to purchase  3,000  shares of Common  Stock to each
director  serving at the time of the grant who is not an officer or  employee of
the  Company.  The Chairman and  Secretary of the Board  (provided  they are not
officers or employees of the Company) also receive an automatic grant of options
to purchase an additional 200 shares,  and the  chairperson of a Board committee
(provided he or she is not an officer or employee of the Company)  also receives
an automatic grant of options to purchase an additional 100 shares. The exercise
price per share for all such  options is the fair market  value of the shares of
Common Stock covered by the option on the date of grant of such option. The term
of each  option is seven years from the date of grant,  and the options  vest in
three equal  installments on the first,  second and third  anniversaries  of the
date of grant.  Effective  January 1, 1998,  each  non-employee  director was to
receive a fee of $6,000  payable  quarterly  at the end of each  quarter.  As of
December 31, 1999,  Mr. James  Anderson,  Mr. Edward Epstein and Mr. Larry Kring
each received $6,000.  Directors also receive reimbursement of expenses incurred
by them in performing  their duties and in attending  Board  meetings,  provided
such expenses are reasonable and evidenced by appropriate documentation.


Employment Contracts

George  Horowitz.  The Company and George  Horowitz are parties to an employment
agreement,  dated as of August 1, 1994 (the  "Agreement")  pursuant to which Mr.
Horowitz serves as the President and Chief Executive Officer of the Company, for
which Mr.  Horowitz  was paid an annual  base  salary of  $265,000  through  the
balance of the Term (as defined below) of the Agreement, unless increased by the
Board of Directors on an annual basis  during the Term.  Mr.  Horowitz's  annual
base salary  from March 22,  1999  through  December  31,  1999 was  $280,000 as
approved by the Board of Directors. The initial


                                       18

<PAGE>

term of the  Agreement  expires on July 31, 2000 but  continues  thereafter  for
additional  one-year periods unless either Mr. Horowitz or the Company gives the
other ninety days' prior written notice of  non-renewal  (as and if so extended,
the "Term").  At the discretion of the Board of Directors,  the Company may also
pay Mr.  Horowitz a cash bonus on or before  December  31 of any year during the
Term. In addition to such base salary and contingent cash bonuses,  Mr. Horowitz
is  entitled  to receive an  automobile  allowance  which on August 12, 1996 was
modified from $12,000 annually to reimbursement  for an automobile  commensurate
with  his  position  and  duties  with  the  Company  (to  include   appropriate
insurance),  reimbursement  for parking expenses which was modified from a limit
of $6,000  annually to such amount as is reasonably and  customarily  charged in
the area of the Company's principal offices, health and medical insurance and is
entitled to participate in any retirement, life and disability insurance, dental
insurance  and any bonus,  incentive or  profit-sharing  plans which the Company
makes  available  from  time to time to its  executives.  Mr.  Horowitz  is also
entitled to receive reimbursement of all reasonable  out-of-pocket expenses that
he actually incurs relating to his services under the Agreement.

      The Agreement also  restricts,  generally,  Mr.  Horowitz from  disclosing
certain confidential  information obtained by Mr. Horowitz during the Term for a
period of three years  following the  termination or expiration of the Term, and
further  restricts  Mr.  Horowitz  from  competing  with the Company  (including
soliciting the Company's employees or agents) for a period of one year following
the  expiration or  termination  of the Term. The Agreement may be terminated by
the Company "for cause" (as defined in the Agreement),  and in the event of such
termination,  or in the event of the voluntary resignation by Mr. Horowitz,  the
obligations  of the Company  under the  Agreement  will  terminate  (except with
respect   to  certain   indemnification,   confidentiality   and   "non-compete"
provisions).  In the event of the  termination of the Agreement by reason of Mr.
Horowitz's death, his estate is entitled to receive an amount equal to twice his
then-current  base salary (which,  in the case of Mr.  Horowitz's  death, may be
funded, wholly or partially, by a life insurance policy paid for by the Company,
at its  option).  If the  Agreement  is  terminated  for reasons  other than Mr.
Horowitz's  death,  voluntary  resignation or "for cause, " Mr. Horowitz will be
entitled to receive an amount equal to twice his then-current base salary,  plus
all  other  amounts  due to him  under the  Agreement  through  the date of such
termination.  The Company is the beneficiary of  "key-executive"  life insurance
policies on George Horowitz in the amount of $5,000,000.

Rita  Cinque  Kriss.  The  Company  and Rita  Cinque  Kriss  are  parties  to an
employment  agreement,  dated as of August 1, 1994, pursuant to which Ms. Cinque
Kriss serves as Executive  Vice  President of the Company,  for which Ms. Cinque
Kriss was paid an annual  base  salary of $70,000  from  August 1, 1994  through
December 31, 1994, $90,000 from January 1, 1995 through June 30, 1995,  $105,000
from July 1, 1995  through  December  31,  1995,  $125,000  from January 1, 1996
through  December  31,  1996,  and is paid an annual  base  salary  of  $140,000
commencing  January  1,  1997 and  continuing  thereafter  through  the Term (as
defined below) of the agreement,  unless  increased by the Board of Directors on
an annual basis during the Term. The initial term of such  agreement  expired on
July 31, 1997 but was and will  continue to be renewed for  additional  one-year
periods  unless  either Ms.  Cinque Kriss or the Company  gives the other ninety
days' prior written notice of non-renewal  (as and if so extended,  the "Term").
At the discretion of the Board of Directors, the Company may also pay Ms. Cinque
Kriss a cash bonus on or before  December  31 of any year  during  the Term.  In
addition to such base salary and  contingent  cash bonuses,  Ms. Cinque Kriss is
entitled to receive an automobile  allowance of $9,000  annually,  reimbursement
for parking expenses up to $4,800 annually, health and medical insurance, and is
also entitled to participate in any retirement,  life and disability  insurance,
dental  insurance  and any bonus,  incentive or  profit-sharing  plans which the
Company makes available from time to time to its executives. Ms. Cinque Kriss is
also entitled to receive reimbursement for all reasonable out-of-pocket expenses
that she incurs  relating to her services under such  agreement.  The Company is
the beneficiary of a "key-executive"  life insurance policy on Rita Cinque Kriss
in the amounts of $1,000,000.

                                       19

<PAGE>

Report on Repricing of Options

                  On  December  31,  1999,  the  Company's  Board  of  Directors
approved the  cancellation  and  replacement  grant with a new exercise price of
previously  granted  options under the 1993  Employee  Stock Option Plan and the
1995 Non-Employee Directors Option Plan (collectively referred to as the "Option
Plans") to its directors as follows:

                                    No. of Option           Original Option
    Director                        Shares                  Exercise Price


    George Horowitz                 15,000                     $11.75
                                    25,000                     $14.25

    James Anderson                   3,200                     $11.75
                                     3,200                     $12.50
                                     3,100                     $14.25

    Rita Cinque-Kriss               10,500                     $11.75
                                    15,000                     $14.75

    Larry Kring                      3,100                     $11.75
                                     3,100                     $12.50
                                     3,100                     $14.75

    Edward Epstein                   3,000                     $12.50
                                     3,000                     $14.75

    Angelo Giusti                    3,000                     $14.75

      The Board of Directors determined that the original option exercise prices
shown above were significantly in excess of the then current market price of the
Common  Stock,  and  was not  fulfilling  its  designated  purpose  under  their
respective Option Plans of providing the various  directors  incentive to remain
in the employ and  service of the  Company  and to  stimulate  their  efforts on
behalf of the Company. Accordingly, to restore the purpose for which the options
were  granted,  the exercise  price of the options  were  reduced to $2.23,  the
average of the high and low trading  price of the Common  Stock as quoted on the
Nasdaq  SmallCap  Market on  December  30,  1999.  All  replacement  options are
immediately  exercisable  and  terminate  based  on  their  respective  original
termination  date.  This action was taken to help restore the incentive value of
the options.


ITEM 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
           MANAGEMENT

           The following  table sets forth certain  information  with respect to
the beneficial  ownership of the Company's Common Stock and Class A Common Stock
as of March 15, 2000 for (i) each of the  Company's  directors  (ii) each of the
Company's  executive  officers (iii) each stockholder known to be the beneficial
owner of more than five percent of any class of the Company's voting  securities
and (iv) all directors and executive officers as a group:


                                       20
<PAGE>

                                                   Beneficial Ownership
                                                        Common, and
                                                    Class A Common (1)

                                                                  Percentage of
Name and Address of                                               Outstanding
Beneficial Owner                                 Number (2)           Stock
----------------                                 ----------           -----
George Q. Horowitz                               624,795(3)          23.7%
        c/o Active Apparel Group, Inc.
        1350 Broadway, Suite 2300
        New York, NY 10018
James K. Anderson                                104,662(4)           4.0%
        4903 163rd Ave., N.E.
        Redmond, WA 98052
Rita Cinque Kriss                                106,033(5)           4.0%
        c/o Active Apparel Group, Inc.
        1350 Broadway, Suite 2300
        New York, NY 10018
Larry Kring                                       29,522(6)           1.1%
        3265 126th Ave., N.E.
        Bellevue, WA 98005
Edward R. Epstein                                 8,867(7)              *
        915 Middle River Drive
        Suite 419
        Fort Lauderdale, FL 33304
Angelo Giusti                                     5,366(8)              *
       19 Deer Path
        Holmdel, NJ 07733

All directors and                               879,245(3)(4)        32.3%
executive officers as a group (6 persons)       (5)(6)(7)(8)

(1)   Under rules adopted by the Securities and Exchange Commission, a person is
      deemed to be a beneficial  owner of securities  with respect to which such
      person has or shares:  (i) voting power,  which includes the power to vote
      or  direct  the vote of the  security,  or (ii)  investment  power,  which
      includes  the power to  dispose  of or to direct  the  disposition  of the
      security. Unless otherwise indicated below, the persons named in the table
      above have sole  voting and  investment  power with  respect to all shares
      beneficially owned.

(2)   As of March 15, 2000,  there were  outstanding  2,492,581 shares of Common
      Stock  and  100,000  shares  of Class A Common  Stock.  The Class A Common
      stock,  while held by George  Horowitz,  as they  currently  are,  entitle
      George Horowitz to five (5) votes for each share held.  Thus,  while there
      are 2,592,581  total shares  outstanding  (not  including any  unexercised
      options) this represents 2,992,581 votes.


                                       21
<PAGE>

(3)   Consists of (i) 478,128  shares of Common Stock (500 of which are owned by
      minor children) (ii) 100,000 shares of  super-voting  Class A Common Stock
      issued to Mr.  George Q.  Horowitz  in July 1995 in  exchange  for 112,500
      shares of Common  Stock and (iii) 46,667  shares of Common Stock  issuable
      upon  exercise  of  options  exercisable  currently  or  within  60  days,
      including (A) options to purchase  15,000 shares granted by the Company at
      the exercise  price of $2.23 per share,  which expire on November 3, 2005,
      (B)  options to  purchase  25,000  shares at an  exercise  price $2.23 per
      share, which expire on November 7, 2006, and (C) options to purchase 6,667
      shares at an exercise  price of $3.97 per share,  which  expire  March 22,
      2009.

 (4)  Consists of (i) 84,300  shares of Common Stock of which Mr.  Anderson owns
      44,300  shares of Common Stock with his wife, as joint  tenants,  and (ii)
      20,362   shares  of  Common  Stock   issuable  upon  exercise  of  options
      excercisable currently or within 60 days, including

          (A)    839 shares @ $  1.75 expires December 31, 2004
          (B)    839 shares @ $  3.00 expires December 31, 2004
          (C)    839 shares @ $  5.00 expires December 31, 2004
          (D)    839 shares @ $  6.25 expires December 31, 2004
          (E)    4,706 shares @ $  0.85 expires December 31, 2003
          (F)    3,200 shares @ $  2.23 expires November 3, 2002
          (G)    3,200 shares @ $  2.23 expires  January 2, 2003
          (H)    3,100 shares @ $ 2.23 expires January 3, 2004
          (I)    1,733 shares @ $ 3.59 expires  January 2, 2005
          (J)    1,067 shares @ $ 9.38 expires  January 3, 2006

(5)   Consists of (i) 77,200  shares of Common  Stock and (ii) 28,833  shares of
      Common Stock  issuable upon exercise of options  exercisable  currently or
      within 60 days  including (A) options to purchase  10,500 shares of Common
      Stock at an exercise price of $2.23 per share, which expire on November 3,
      2005 and (B) 15,000  shares of Common Stock at an exercise  price of $2.23
      per share,  which  expire on  December  13,  2006 and (C) 3,333  shares of
      Common Stock,  at an exercise  price of $3.97 per share which expire March
      22, 2009.

<PAGE>
(6)   Consists of (i) 10,338  shares of Common  Stock and (ii) 19,184  shares of
      Common Stock issuable upon the exercise of options  currently  exercisable
      or within 60 days, including

          (A)   839 shares @ $  1.75 expires December 31, 2004
          (B)   839 shares @ $  3.00 expires December 31, 2004
          (C)   839 shares @ $  5.00 expires December 31, 2004
          (D)   839 shares @ $  6.25 expires December 31, 2004
          (E)   3,762 shares @ $  0.85 expires December 31, 2003
          (F)   3,100 shares @ $  2.23 expires November 3, 2002
          (G)   3,100 shares @ $  2.23 expires  January 2, 2003
          (H)   3,100 shares @ $ 2.23 expires January 3, 2004
          (I)   1,733 shares @ $ 3.59 expires  January 2, 2005
          (J)   1,033 shares @ $ 9.38 expires  January 3, 2006

(7)   Consists of 8,867 shares of Common Stock issuable upon exercise of options
      exercisable currently or within 60 days, including (A) options to purchase
      3,000  shares of Common  Stock at an  exercise  price of $2.23 per  share,
      which  expire on January 2, 2003 and (B) options to purchase  3,000 shares
      of Common Stock at an exercise  price of $2.23 per share,  which expire on
      January 3, 2004,  (C) 1,800 shares of Common Stock at an exercise price of
      $3.59 which expire  January 2, 2005, (D) 1,067 shares at an exercise price
      of $9.38 which expire January 3, 2006.

                                       22

<PAGE>

(8)   Consists of (i) 700 shares of Common Stock and (ii) 4,666 shares of Common
      Stock issuable upon exercise of options exercisable currently or within 60
      days, including (A) options to purchase 3,000 shares of Common Stock at an
      exercise price of $2.23 per share, which expire on January 3, 2004 and (B)
      options to purchase  833 shares of Common  Stock at an  exercise  price of
      $2.094 per share,  which expire on June 6, 2008,  (C) 833 shares of Common
      Stock at an exercise price of $3.97 which expire March 22, 2009.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      Edward R. Epstein, a Director, was paid $93,889 for legal services for the
year ending December 31, 1999.

      The Company had a promissory  note dated December 23, 1996 with Mr. George
Q. Horowitz, President and Chief Executive Officer of the Company, in the amount
of $120,000 that was due July 31, 2000. The unpaid  principal  bears interest at
prime plus 1 1/2%.  This note was  refinanced on December 31, 1999 in the amount
of $91,200 and is due on July 31, 2009.



                                       23
<PAGE>

Item 13.  Exhibits AND REPORTS ON FORM 8-K

(a)   Exhibits

<TABLE>
<CAPTION>

<S>          <C>                                  <C>       <C>
Exhibit                                           Filed     Incorporated By
Index        Description of Document              Herewith  Reference to:
-----        -----------------------              --------  -------------

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

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

10.1         Trademark License Agreement, dated as          Exhibit 10.1 of the 1995
             of May 20, 1994, between Converse Inc.         Registration Statement
             and the Company.

10.2         License Agreement, dated as of June 1,         Exhibit 10.2 of the 1995
             1992 ("Everlast License"), between             Registration Statement
             Everlast World's Boxing
             Headquarters Corp. ("Everlast") and
             Total Impact, Inc. ("Total Impact").

10.3         First Amendment Agreement to Everlast          Exhibit 10.3 of the 1995
             License, dated as of June 1, 1992,             Registration Statement
             between  Everlast and Total Impact.

10.4         Assignment of Everlast License, dated as       Exhibit 10.4 of the 1995
             of July 7, 1992, between Everlast and          Registration Statement
             the  Company.

10.5         Consent to Assignment of Everlast              Exhibit 10.5 of the 1995
             License, dated as of August 18, 1992, by       Registration Statement
             Everlast to Total Impact.

10.6         Second Amendment Agreement to                  Exhibit 10.6 of the 1995
             Everlast License, dated as of January 1,       Registration Statement
             1993 between Everlast and the
             Company.

10.7         Third Amendment Agreement to                   Exhibit 10.7 of the 1995
             Everlast License, dated as of November         Registration Statement
             15, 1993 between Everlast and the
             Company.

10.8         License Agreement (Canada), dated as           Exhibit 10.8 of the 1995
             of January 1, 1993, ("Canada Everlast          Registration Statement
             License") between Everlast and the
             Company.

10.9         First Amendment Agreement to Canada            Exhibit 10.9 of the 1995
             Everlast License, dated as of November         Registration Statement
             5, 1993, between Everlast and the
             Company.
</TABLE>

                                       24

<PAGE>

<TABLE>
<CAPTION>

Exhibit                                           Filed     Incorporated By
Index        Description of Document              Herewith  Reference to:
-----        -----------------------              --------  -------------

<S>          <C>                                            <C>
10.10        Consulting Agreement, dated as of              Exhibit 10.10 of the 1995
             September 1, 1993, between the                 Registration Statement
             Company and Michael Bick.


10.11        Buying Agency Agreement, dated as of           Exhibit 10.11 of the 1995
             December 1, 1992, between the                  Registration Statement
             Company and D&P Fashion Collections
             Ltd.

10.12        Services Agreement, dated as of July 7,        Exhibit 10.12 of the 1995
             1992, between the Company and Total            Registration Statement
             Impact.

10.13        Factoring Agreement, dated as of August        Exhibit 10.13 of the 1995
             21, 1992 and as subsequently amended,          Registration Statement
             between the Company and Century
             Business Credit Corporation.

10.14        Lease Agreement, dated as of May 16,           Exhibit 10.14 of the 1995
             1991 ("Lease Agreement), between               Registration Statement
             Total Impact and 1350 Broadway
             Associates.

10.15        Assignment of Lease Agreement, dated           Exhibit 10.15 of the 1995
             as of September 23, 1992, by Total             Registration Statement
             Impact to the Company.

10.16        Memorandum of Agreement of Lease,              Exhibit 10.16 of the 1995
             dated as of September 27, 1993, between        Registration Statement
             the Company and 433 Building Corporation.

10.17        Lease, dated as of July 20, 1994,              Exhibit 10.17 of the 1995
             between the Company and 1350                   Registration Statement
             Broadway Associates.

10.18        Lease, dated as of July 21, 1994,              Exhibit 10.18 of the 1995
             between the Company and 1350                   Registration Statement
             Broadway Associates.

10.19        Form of Registration Rights Agreement,         Exhibit 10.19 of the 1995
             dated as of August 20, 1992, between the       Registration Statement
             Company and the holders of
             Preferred Stock.

10.20        Form of Registration Rights Agreement,         Exhibit 10.20 of the 1995
             dated as of August 20, 1992, between           Registration Statement
             the Company and the holders of
             Common Stock.

10.21        Form of Senior Subordinated Notes of           Exhibit 10.21 of the 1995
             the Company due December 31, 1994.             Registration Statement

10.22        Form of Non-Negotiable Convertible             Exhibit 10.22 of the 1995
             Promissory Notes of the Company due            Registration Statement
             May 31, 1995.
</TABLE>


                                       25
<PAGE>

<TABLE>
<CAPTION>

Exhibit                                           Filed     Incorporated By
Index        Description of Document              Herewith  Reference to:
-----        -----------------------              --------  -------------

<S>          <C>                                            <C>

10.23        Employment Agreement, dated as of              Exhibit 10.23 of the 1995
             August 1, 1994, between the Company            Registration Statement
             and George Horowitz.

10.24        Employment Agreement, dated as of              Exhibit 10.24 of the 1995
             September 1, 1994, between the Company         Registration Statement
             and Donald J Horowitz.

10.25        Employment Agreement, dated as of              Exhibit 10.25 of the 1995
             August 1, 1994, between the Company            Registration Statement
             and Rita Cinque Kriss.

10.26        Employment Agreement, dated as of              Exhibit 10.26 of the 1995
             September 1, 1994, between the                 Registration Statement
             Company and Rita Cinque Kriss.

10.27        Option Agreement, dated as of                  Exhibit 10.27 of the 1995
             November 23, 1994, between Century             Registration Statement
             Business Credit Corporation and the
             Company.

10.28        1993 Stock Option Plan of the Company.         Exhibit 10.28 of the 1995
                                                            Registration Statement

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

10.30        Amendment to 1993 Stock Option Plan            Exhibit 10.30 of the 1996
             of the Company, adopted on October 6,          Form  10-KSB for the year
             1995.                                          ended December 31, 1995

10.31        Amendment dated October 3, 1995 of             Exhibit 10.31 of the 1996 Form
             Trademark License Agreement dated              10-KSB for the year ended
             May 20, 1994 between the Company and           December 31, 1995
             Converse Inc.

10.32        Amendment dated April 28, 1995 to              Exhibit 10.32 of the 1996 Form
             amend Lease dated September, 1993              10-KSB for the year ended
             between the Company and 433 Building           December 31, 1995
             Corporation.

10.33        Amendment of Lease, made as of                 Exhibit 10.33 of the 1996 Form
             November 1, 1995 between the                   10-KSB for the year ended
             Company and 1350 Broadway                      December 31, 1995
             Associates.

10.34        Consolidated Amendment Agreement to            Exhibit 10.1 of the Form 8-K filed
             Everlast License, dated as of January 1,       on January 17, 1997
             1997 between Everlast and the
             Company.

10.35        Consolidated Amendment Agreement to            Exhibit 10.2 of the Form 8-K filed
             Canada Everlast License, dated as of           on January 17, 1997
             January 1, 1997 between Everlast and
             the Company.
</TABLE>


                                       26
<PAGE>
<TABLE>
<CAPTION>

Exhibit                                           Filed     Incorporated By
Index        Description of Document              Herewith  Reference to:
-----        -----------------------              --------  -------------

<S>          <C>                                            <C>

10.36        Third Amendment to the Trademark               Exhibit 10.36 of the 1997 Form 10-
             License Agreement, dated as of January         KSB for the year ended December
             7, 1997 between the Company and                31, 1996
             Converse Inc.

10.37        Fourth Amendment to the Trademark              Exhibit 10.37 of the 1997 Form 10-
             License Agreement, dated as of January         KSB for the year ended December 31,
             22, 1997 between the Company and               1996
             Converse Inc.

10.38        Employment Agreement, dated as of              Exhibit 10.38 of the 1997 Form 10-
             September 1, 1996 between the                  KSB for the year ended December
             Company and Donald Horowitz                    31, 1996

10.39        Amendment to Employment Agreement,             Exhibit 10.39 of the 1997 Form 10-
             dated as of August 9, 1996 between the         KSB for the year ended December
             Company and George Horowitz                    31, 1996

10.40        Fifth Amendment to the Trademark               Exhibit 10.40 of the 1999 Form 10-
             License Agreement, dated as of                 KSB for the year ended December
             September 19, 1997 between the                 31, 1998
             Company and Converse Inc.

10.41        Sixth Amendment to the Trademark               Exhibit 10.41 of the 1999 Form 10-
             License Agreement, dated as of April           KSB for the year ended December
             15, 1998 between the Company and               31, 1998
             Converse Inc.

10.42        Amendment to MTV License agreement             Exhibit 10.1 of the Form 10-QSB
             dated as of May 26, 1998 between the           for the Quarter ended September
             Company and MTV Networks                       30, 1998

10.43        Amendment to MTV License agreement             Exhibit 10.43 of the 1999 Form 10-
             dated as of October 22, 1998 between           KSB for the year ended December
             the Company and MTV Networks                   31, 1998

10.44        License Agreement, dated as of October         Exhibit 10.44 of the 1999 Form 10-
             23, 1998 ("Men's License"), between            KSB for the year ended December
             Everlast World's Boxing                        31, 1998

             Headquarters Corp. ("Everlast") and
             the Company

10.45        License Agreement, dated as of October         Exhibit 10.45 of the 1999 Form 10-
             23, 1998 ("Men's License-Canada"),             KSB for the year ended December
             between Everlast World's Boxing                31, 1998

             Headquarters Corp. ("Everlast") and the
             Company

10.46        Lease, dated as of November 1, 1999,       X
             between the Company and
             1350 Broadway Associates

10.47        Promissory Note dated December 31,         X
             1999 with George Q. Horowitz due July
             31, 2009
</TABLE>

                                       27

<PAGE>
<TABLE>
<CAPTION>

Exhibit                                           Filed     Incorporated By
Index        Description of Document              Herewith  Reference to:
-----        -----------------------              --------  -------------

<S>          <C>                                            <C>

10.48        Lease, dated as of February 1, 2000,
             between the Company and 1350
             Broadway Associates                       X

10.49        Consent from Berenson & Co. LLP
             regarding incorporation by
             reference of their report dated
             January 21, 2000 in the Form S-8          X
27           Financial Data Schedule                   X
</TABLE>

(b) Reports on Form 8-K

     No Current  Reports on Form 8-K were filed by the  Company  during the last
quarter of 1999.



                                       28
<PAGE>


      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.


                                        ACTIVE APPAREL GROUP, INC.


                                        By: /s/ George Horowitz
                                            -----------------------------------
                                            George Horowitz
                                            Chairman and Chief Executive Officer


Dated: March 17, 1999

      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 17, 2000      /s/ George Horowitz
                        --------------------------------
                        George Horowitz (Chairman; Chief
                        Executive Officer;  Chief Financial Officer;
                        principal  executive  officer,
                        and principal  accounting officer)

    March 17, 2000
                        /s/ James Anderson
                        ---------------------------------
                        James Anderson (Director)

    March 17, 2000      /s/ Rita Cinque Kriss
                        ---------------------------------
                        Rita Cinque Kriss (Executive Vice President
                        and Director)

    March 17, 2000     /s/ Larry Kring
                       -----------------------------------
                        Larry Kring (Director)

    March 17, 2000     /s/ Edward Epstein
                       -----------------------------------
                       Edward Epstein (Director)

    March 17, 2000     /s/ Angelo Giusti
                       -----------------------------------
                       Angelo Giusti (Director)



<PAGE>

                          ACTIVE APPAREL GROUP, INC.


                             FINANCIAL STATEMENTS


                               DECEMBER 31, 1999



<PAGE>




ITEM 7:  FINANCIAL STATEMENTS



                           ACTIVE APPAREL GROUP, INC.


                                TABLE OF CONTENTS


                                                                           Page
                                                                           ----

Independent Auditors' Report                                                1f


Balance Sheet                                                               2f


Statements of Operations                                                    3f


Statements of Changes in Stockholders' Equity                               4f


Statements of Cash Flows                                                    5f


Notes to Financial Statements                                             6f-14f



<PAGE>

                          INDEPENDENT AUDITORS' REPORT



Board of Directors
Active Apparel Group, Inc.
New York, NY


We have audited the accompanying  balance sheet of Active Apparel Group, Inc. as
of December 31,  1999,  and the related  statements  of  operations,  changes in
stockholders'  equity,  and cash flows for the years ended December 31, 1999 and
1998.  These  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards. Those standards require that we plan and perform the audits 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 financial  statements  referred to above present fairly, in
all material  respects,  the financial position of Active Apparel Group, Inc. as
of December  31, 1999 and the results of its  operations  and its cash flows for
the years ended December 31, 1999 and 1998 in conformity with generally accepted
accounting principles.


/S/ Berenson & Co. LLP


New York, NY
January 21, 2000



<PAGE>

                                                                         Page 2f
                           ACTIVE APPAREL GROUP, INC.

                                  BALANCE SHEET

                                DECEMBER 31, 1999

                                   A S S E T S
<TABLE>
<CAPTION>

Current assets:
<S>                                                                               <C>
   Cash and cash equivalents                                                      $   239,096
   Due from factor                                                                  1,549,047
   Inventory                                                                        5,240,152
   Prepaid expenses and other current assets                                          379,840
   Deferred tax asset                                                                 155,399
                                                                                 ------------
         Total current assets                                                       7,563,534

Note receivable, officer                                                               91,200
Property and equipment, net                                                           419,954
Security deposits and other assets                                                    199,510
                                                                                 ------------

                                                                                   $8,274,198
                                                                                 ============
                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Accounts payable                                                                $1,479,081
   Accrued expenses and other current liabilities                                     234,389
                                                                                 ------------
         Total liabilities, all current                                             1,713,470
                                                                                 ------------
Commitments

Stockholders' equity:
   Common stock, par value $.002; 10,000,000 shares authorized;
     2,666,581  issued;  2,492,581 outstanding                                          5,333
   Class A common stock, par value $.01; 100,000 shares
     authorized; 100,000 shares issued and outstanding                                  1,000
   Paid-in capital                                                                  6,136,341
   Retained earnings                                                                1,145,273
                                                                                  -----------
                                                                                    7,287,947
   Less treasury stock, at cost (174,000 common shares)                               727,219
                                                                                 ------------
                                                                                    6,560,728
                                                                                 ------------
                                                                                   $8,274,198
                                                                                 ============
</TABLE>

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


<PAGE>
                                                                         Page 3f

                           ACTIVE APPAREL GROUP, INC.

                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>

                                                                       Years ended
                                                                       December 31,
                                                              1 9 9 9             1 9 9 8
                                                          ----------------    ----------------

<S>                                                            <C>                 <C>
Net sales                                                      $24,464,139         $15,011,926

Cost of goods sold                                              14,578,376           9,483,591
                                                              ------------       -------------

Gross profit                                                     9,885,763           5,528,335
                                                             -------------       -------------

Operating expenses:
   Selling and shipping                                          5,871,751           3,637,729
   General and administrative                                    2,024,539           1,911,621
   Financial expenses                                              557,627             413,713
                                                            --------------      --------------
                                                                 8,453,917           5,963,063
                                                             -------------       -------------

Income (loss) before provision
  for (recovery of) income taxes                                 1,431,846            (434,728)

Provision for (recovery of) income taxes                           615,694            (194,093)
                                                            --------------      --------------

Net income (loss)                                            $     816,152       $    (240,635)
                                                             =============       =============


Basic earnings per share                                        $.31                 $(.09)
                                                                ====                 =====
</TABLE>



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


<PAGE>

                           ACTIVE APPAREL GROUP, INC.

                  STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

                     YEARS ENDED DECEMBER 31, 1999 AND 1998


<TABLE>
<CAPTION>

                                                                                                             Class A
                                                                                Common stock               common stock
                                                                         Shares           Amount       Shares          Amount
                                                                         ------           ------       ------          ------

<S>                                                                      <C>             <C>           <C>           <C>
Balance, January 1, 1998                                                 2,469,375       $5,283        100,000       $1,000

Stock options exercised                                                     24,706           50         -            -

Purchase of treasury stock                                                  (1,500)      -              -            -

Net loss, year ended December 31, 1998                                      -            -              -            -
                                                                   ---------------   ----------    -----------   ----------

Balance, December 31, 1998                                               2,492,581        5,333        100,000        1,000

Net income, year ended December 31, 1999                                    -            -              -            -
                                                                  ----------------   ----------   ------------   ----------

Balance, December 31, 1999                                               2,492,581       $5,333        100,000       $1,000
                                                                         =========       ======        =======       ======
</TABLE>



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


<PAGE>

                                                                         Page 4f

<TABLE>
<CAPTION>


        Paid-in           Retained                Treasury stock
        capital           earnings          Shares             Amount          Total
        -------           --------          ------             ------          -----

<S>     <C>                <C>              <C>              <C>               <C>
        $6,124,891        $   569,756       172,500          $(725,625)        $5,975,305

            11,450             -             -                  -                  11,500

              -                -              1,500             (1,594)            (1,594)

              -              (240,635)       -                  -                (240,635)
    ----------------      -----------   -----------     --------------       ------------

         6,136,341            329,121       174,000           (727,219)         5,744,576

              -               816,152        -                  -                 816,152
    ----------------     ------------  ------------    ---------------       ------------

        $6,136,341         $1,145,273       174,000          $(727,219)        $6,560,728
        ==========         ==========       =======          =========         ==========
</TABLE>




<PAGE>
                                                                         Page 5f

                           ACTIVE APPAREL GROUP, INC.

                            STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                                                                       Years ended
                                                                                                       December 31,
                                                                                           -------------------------------
                                                                                               1 9 9 9             1 9 9 8
                                                                                           --------------      --------------
Cash flows from operating activities:
<S>                                                                                           <C>                 <C>
   Net income (loss)                                                                          $   816,152         $  (240,635)
   Adjustments to reconcile net income (loss)
    to net cash provided by operating activities:
     Bad debts                                                                                     55,000             -
     Depreciation                                                                                 145,619             125,873
     Deferred tax benefit                                                                         (49,269)            (18,077)
     Changes in assets (increase) decrease:
       Refundable income taxes                                                                    284,478            (130,978)
       Due from factor                                                                            338,198            (230,962)
       Inventory                                                                               (2,213,911)            821,315
       Prepaid expenses and other current assets                                                  (80,018)             (3,849)
       Security deposits and other assets                                                          70,833              (9,002)
     Changes in liabilities increase (decrease):
       Accounts payable and accrued expenses and
        other current liabilities                                                                 855,684            (110,748)
                                                                                             ------------        ------------
              Net cash provided by operating activities                                           222,766             202,937
                                                                                             ------------        ------------

Cash flows from investing activities:
   Acquisition of property and equipment                                                         (205,340)            (79,414)
   Note receivable, officer                                                                        28,800              -
                                                                                            -------------   -----------------
              Net cash used by investing activities                                              (176,540)            (79,414)
                                                                                             ------------       -------------

Cash flows from financing activities:
   Purchase of treasury stock                                                                      -                   (1,594)
   Proceeds from stock options exercised                                                           -                   11,500
                                                                                       ------------------       -------------
         Net cash provided by financing activities                                                 -                    9,906
                                                                                       ------------------      --------------

Net increase in cash and cash equivalents                                                          46,226             133,429
Cash and cash equivalents, beginning of year                                                      192,870              59,441
                                                                                             ------------       -------------

Cash and cash equivalents, end of year                                                        $   239,096         $   192,870
                                                                                              ===========         ===========

Supplemental  disclosures  of cash flow  information:
   Cash paid during the year for:
     Interest                                                                                 $   279,804         $   120,950
     Income taxes                                                                                 433,959              88,584
</TABLE>

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


<PAGE>

                                                                         Page 6f
                           ACTIVE APPAREL GROUP, INC.

                          NOTES TO FINANCIAL STATEMENTS

                           DECEMBER 31, 1999 AND 1998

1.    Nature of business:

      Active  Apparel Group,  Inc. (the  "Company") is a distributor of licensed
      women's and men's  activewear,  sportswear,  and swimwear,  throughout the
      United States and Canada.

2.    Significant accounting policies:

      a.  Inventory:

          Inventory, consisting solely of finished goods, is stated at the lower
          of cost (first-in, first-out basis) or market.

      b.  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.

      c.  Cash and cash equivalents:

          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.

          For purposes of the  statements of cash flows,  the Company  considers
          all short-term  investments with an original  maturity of three months
          or less to be cash equivalents.

      d.  Fair value of financial instruments:

          i.   Cash and cash equivalents:

               The carrying  amount  reflected in the balance sheet 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.   Due from factor and accounts payable:

               The  carrying  amounts of due from  factor and  accounts  payable
               approximate  its fair values  because of the short  maturities of
               these instruments.


<PAGE>

                                                                         Page 7f
                           ACTIVE APPAREL GROUP, INC.

                          NOTES TO FINANCIAL STATEMENTS

                           DECEMBER 31, 1999 AND 1998


2.    Significant accounting policies: (Continued)

      e. Advertising expense:

          The Company expenses advertising costs as they are incurred.

          As of December 31, 1999 and 1998, the Company had incurred advertising
          and promotional expenses of $794,259 and $657,505, respectively.

      f.  Estimates:

          The  preparation of financial  statements in conformity with generally
          accepted  accounting  principles requires management to make estimates
          and  assumptions  that  affect  the  reported  amounts  of assets  and
          liabilities and disclosure of contingent assets and liabilities at the
          date of the financial  statements and the reported amounts of revenues
          and expenses  during the reporting  year.  Actual results could differ
          from those estimates.

      g.  Accounting for stock based compensation:

          The  Company  applies APB  Opinion 25 to account  for  employee  stock
          option  plans (note 8).  Accordingly,  no  compensation  cost has been
          recognized in 1999 and 1998. Had compensation  cost been determined on
          the basis of FASB  Statement  123, net income  (loss) and earnings per
          share would have been reduced as follows:

                                                 1 9 9 9         1 9 9 8
                                               -----------     ------------
                   Net income (loss):
                        As reported              $816,152       $(240,635)
                                                 ========       =========

                        Pro forma                $758,392       $(297,068)
                                                 ========       =========

                   Basic earnings per share:
                        As reported               $.31             $(.09)
                                                  ====             =====

                        Pro forma                 $.29             $(.12)
                                                  ====             =====



<PAGE>

                                                                         Page 8f
                           ACTIVE APPAREL GROUP, INC.

                          NOTES TO FINANCIAL STATEMENTS

                           DECEMBER 31, 1999 AND 1998


2.    Significant accounting policies: (Continued)

      g.  Accounting for stock based compensation: (Continued)

          The fair value of  compensation  was computed using an  option-pricing
          model which took into  account the  following  factors as of the grant
          date:

          o   the  exercise  price and  expected  life of the option
          o   the  current  price of the stock  and its  expected  volatility  o
              expected dividends, if any
          o   the  risk-free  interest rate for the expected term of the option
              using  Treasury  Note  rates with a  remaining  term equal to the
              expected life of the options

3.    Due from factor:

      Substantially  all of  the  Company's  accounts  receivable  are  assigned
      without  recourse to a commercial  factor.  The amount due from the factor
      represents net sales assigned in excess of advances  received.  The amount
      due from the  factor  is net of a  provision  for  future  chargebacks  of
      $62,317 at  December  31,  1999.  Interest is charged at 1% above prime on
      advances.  This factoring  arrangement is  collateralized by the Company's
      accounts receivable.

4.    Property and equipment:

             Furniture and fixtures                             $178,104
             Machinery and equipment                             666,122
             Leasehold improvements                               69,030
                                                               ---------
                                                                 913,256
             Less accumulated depreciation and amortization      493,302
                                                               ---------
                                                                $419,954
                                                               =========

5.    Note receivable, officer:

      The  Company  had a  promissory  note  dated  December  23,  1996 with the
      President and Chief  Executive  Officer in the amount of $120,000 that was
      due July 31, 2000. At December 31, 1999,  this note was  refinanced at its
      outstanding  balance of $91,200  with the term  extended  through July 31,
      2009. The unpaid principal bears interest at prime plus 1-1/2%.



<PAGE>

                                                                         Page 9f
                           ACTIVE APPAREL GROUP, INC.

                          NOTES TO FINANCIAL STATEMENTS

                           DECEMBER 31, 1999 AND 1998


6.    Commitments:

      a.  License agreements:

          Revenues  are  generated   principally   from  the  sale  of  licensed
          merchandise.  The Company is the  licensee on seven  agreements  which
          provide for certain royalty payments and charges.  Pursuant to five of
          the agreements  (with the same  licensor),  the Company is required to
          pay a royalty of 6% of net sales, on licensed  merchandise sold in the
          U.S.  and  Canada,  and to  spend  2  1/2%  of  annual  net  sales  on
          advertising.  The original two agreements  with this licensor  expired
          December 31, 1996.  Effective  January 1, 1997,  the  agreements  were
          amended to reflect a new expiration date of December 31, 2002 with two
          five year  renewal  options,  subject to minimum  sales  requirements,
          available  to the  Company.  Effective  January 1, 1999,  the  Company
          entered into two new agreements with this licensor covering the period
          January  1,  1999 to  December  31,  2001 with two  five-year  renewal
          options,  subject  to minimum  sales  requirements,  available  to the
          Company.  The  agreements  provide  for  minimum  guaranteed  payments
          annually.  Future minimum  guaranteed  payments are  approximately  as
          follows:
<TABLE>
<CAPTION>

                                                    United States                       Canada
                                               Royalty      Advertising         Royalty       Advertising
               Twelve months ending
<S>                            <C>           <C>               <C>              <C>           <C>
                 December 31,  2000          $   980,000       $408,000         $228,000      $  95,000
                               2001            1,149,000        479,000          291,000        121,000
                               2002              779,000        325,000          154,000         64,000
</TABLE>

          The  amounts  for Canada are  presented  in U.S.  dollars  assuming an
          exchange rate of $.69.

          The Company is required to maintain a standby  letter of credit  equal
          to the annual minimum royalties due per the licensing  agreements or a
          cash deposit in varying  amounts.  At December  31, 1999,  the Company
          maintained  deposits of $135,000 for the US  agreements  and CN$40,000
          for the Canadian agreements.

          The sixth and seventh license agreements expired on March 31, 1999 and
          June  30,  1999,  respectively.   The  Company  did  not  renew  these
          agreements.

          Royalty  expense  for the years ended  December  31, 1999 and 1998 was
          approximately $1,309,000 and $809,000, respectively.


<PAGE>

                                                                        Page 10f
                           ACTIVE APPAREL GROUP, INC.

                          NOTES TO FINANCIAL STATEMENTS

                           DECEMBER 31, 1999 AND 1998



6.    Commitments: (Continued)

      b.  Lease commitments:

          The Company has three  leases for office and  showroom  space,  one of
          which  will  expire  April 30,  2000 and the other two will  expire on
          April 30, 2005.

          At December 31, 1999,  future minimum rental  payments  required under
          the noncancelable leases are approximately as follows:

             Twelve months ending December 31,   2000                  $215,000
                                                 2001                   225,000
                                                 2002                   229,000
                                                 2003                   243,000
                                                 2004                   243,000
                                           Thereafter                    81,000

          Rent  expense  for the  years  ended  December  31,  1999 and 1998 was
          approximately $206,000 and $197,000, respectively.

      c.  Employment agreements:

          i.   The Company has an  employment  agreement  with its President and
               Chief  Executive  Officer at an annual  base  salary of  $265,000
               through the term (as defined) of the agreement.  The initial term
               of  the  agreement   expires  on  July  31,  2000  but  continues
               thereafter  for  additional  one-year  periods  unless either the
               President and Chief Executive Officer of the Company or the Board
               of Directors  gives the other ninety days prior written notice of
               nonrenewal.  At the  discretion  of the Board of  Directors,  the
               Company may pay the President and Chief Executive Officer a bonus
               on or before December 31, of any year during the term.

               Effective  January 1, 2000, the Board of Directors  increased the
               annual base salary of the President and Chief  Executive  Officer
               to $320,000.

               The agreement  also includes a noncompete  clause for a period of
               one year following its expiration or termination.



<PAGE>
                                                                        Page 11f

                           ACTIVE APPAREL GROUP, INC.

                          NOTES TO FINANCIAL STATEMENTS

                           DECEMBER 31, 1999 AND 1998




6.    Commitments: (Continued)

      c.  Employment agreements: (Continued)

          ii.  The Company has an  employment  agreement  with a Director of the
               Company,  whereby  the  Company  has  agreed to employ her as the
               Executive Vice-President at an annual compensation of $140,000.

               The agreement with the Executive  Vice-President  has restrictive
               covenants  similar to those of the President and Chief  Executive
               Officer.

7.    Class A common stock:

      The holder of the Class A common  stock is  entitled  to five votes on all
      matters upon which each holder of common stock is entitled to vote.  After
      the effective date of the initial public offering,  the Board of Directors
      issued  100,000  shares of the  Class A common  stock  exclusively  to the
      President and Chief  Executive  Officer in order to permit him to maintain
      approximately  the same voting power after the initial public  offering as
      held prior to the  offering.  In exchange for the shares of Class A common
      stock issued to him, he surrendered 112,500 shares of common stock.

8.    Stock options:

      The Company has three stock option plans;  the stock option plan, the 1993
      stock option plan and the 1995  non-employee  director  stock option plan.
      Pursuant to the stock  option  plan,  grants were  awarded in 1993 to four
      individuals  for  services  performed  regarding  the private  offering of
      preferred stock. These options are exercisable at $.375 for a term of five
      years through  September 30, 1998. All unexercised  options were cancelled
      in 1998. Under the 1993 stock option plan, a maximum of 443,900 shares may
      be granted by the Company.

      The option price of shares designated as nonqualified  shall be determined
      by the Board of Directors  each year for the following year at 85% of fair
      market  value and in the case of incentive  stock  options will be no less
      than the fair market value of the shares on the date of the grant.



<PAGE>
                                                                        Page 12f

                           ACTIVE APPAREL GROUP, INC.

                          NOTES TO FINANCIAL STATEMENTS

                           DECEMBER 31, 1999 AND 1998



8.    Stock options (Continued):

      The 1995  non-employee  director  stock option plan provides for automatic
      grants of options to purchase 3,000 shares and thereafter yearly grants to
      purchase 3,000 shares of common stock to each active  director  serving on
      the Board at the time of the grant who is not an  officer or  employee  of
      the Company.  The Director Plan provides  additional  grants of options to
      non-employee  directors of 100 shares to the  Chairman of a committee  and
      200 shares to the Chairman and Secretary of the Board of Directors.

      Effective  December 31, 1999, the Company granted 93,300 options  pursuant
      to the 1993 stock  option plan and the 1995  non-employee  director  stock
      plan to certain key employees and  directors.  The options were granted in
      exchange for the employees and directors  cancellation  of the same number
      of previously  granted  options  which had a higher  exercise  price.  The
      options granted have an effective exercise price of $2.23.

      The  exercise  price for options  granted is the fair market  value of the
      shares of common  stock on the date of the grant.  The term of each option
      is seven years from the date of the grant.
<TABLE>
<CAPTION>

                                                                      S H A R E S
                                                           1993           1995
                                                Stock     stock          non-employee
                                                option    option        director stock                    Option exercise
                1 9 9 9                         plan      plan           option plan       Total             prices
          -------------------                 --------  ----------     ----------------   ---------  --------------------

<S>                                               <C>      <C>              <C>             <C>           <C>      <C>
      Outstanding at January 1,                   -        195,979          35,700          231,679       $ .85 - $14.75
      Granted                                     -        176,000          46,800          222,800       $2.23 - $ 9.38

      Cancelled                                   -         86,300          27,800          114,100       $2.09 - $14.75

      Exercised                                   -         -               -                -                  -
                                                ------------------     -----------

      Outstanding at December 31,                 -        285,679          54,700          340,379       $ .85 - $ 9.38
                                                ======     =======          ======          =======

      Exercisable at December 31,                 -        166,976          24,566          191,542       $ .85 - $ 6.25
                                                ======     =======          ======          =======
</TABLE>



<PAGE>

                                                                        Page 13f

                           ACTIVE APPAREL GROUP, INC.

                          NOTES TO FINANCIAL STATEMENTS

                           DECEMBER 31, 1999 AND 1998


8.    Stock options: (Continued)
<TABLE>
<CAPTION>
                                                                    S H A R E S
                                     ------------------------------------------------------------------------------
                                                    1993            1995
                                       Stock       stock          non-employee
                                      option      option         director stock                 Option exercise
            1 9 9 8                   plan        plan            option plan      Total              prices
      -------------------            --------   ----------      ---------------   ---------  ----------------------

<S>             <C>                   <C>         <C>                <C>           <C>         <C>          <C>
      Outstanding at
        January 1                     48,700      243,187            27,800        319,687     $  .38  -    $14.75
      Granted                         -            16,000             7,900         23,900     $ 2.09  -    $ 3.59
      Cancelled                       28,700       58,502            -              87,202     $  .38  -    $ 5.38
      Exercised                       20,000        4,706            -              24,706     $  .38  -    $  .85
                                      ------     --------        ----------       --------
      Outstanding at
        December 31                   -           195,979            35,700        231,679     $  .85  -    $14.75
                                      ======      =======            ======        =======
      Exercisable at
        December 31                   -           165,647            16,567        182,214     $  .85  -    $14.75
                                      ======      =======            ======        =======
</TABLE>

9. Income taxes:

      a.  For the year ended  December  31,  1999 and 1998,  the  Company  had a
          provision for (recovery of) income taxes consisting of the following:

<TABLE>
<CAPTION>
                                                                            1 9 9 9            1 9 9 8
                                                                          ------------       -----------
               Current tax provision (recovery):
<S>                                                                           <C>              <C>
                   Federal                                                    $525,785         $(123,815)
                   State and local                                             139,178           (53,891)
                   Foreign                                                      -                  1,690
                                                                       ---------------      ------------
                                                                               664,963          (176,016)
               Deferred tax benefit:
                   Federal                                                     (38,957)          (13,015)
                   State and local                                             (10,312)           (5,062)
                                                                            ----------      ------------

               Income tax provision (recovery)                                $615,694         $(194,093)
                                                                              ========         =========
</TABLE>

          The deferred tax benefit primarily  consists of the utilization of net
          operating loss carryforwards.

      b.  The deferred tax asset primarily consists of the temporary  difference
          between the book and tax basis of inventory.


<PAGE>


                                                                        Page 14f
                           ACTIVE APPAREL GROUP, INC.

                          NOTES TO FINANCIAL STATEMENTS

                           DECEMBER 31, 1999 AND 1998


10. Economic dependency:

      For the year ended  December  31,  1999,  three  customers  accounted  for
      approximately  39% of sales.  For the year ended  December 31, 1998,  four
      customers accounted for approximately 48% of sales.

11. Geographic data:

      Geographic information for net sales is as follows:
<TABLE>
<CAPTION>

                                                                          1 9 9 9              1 9 9 8
                                                                     ----------------     ----------------

<S>                                                                       <C>                  <C>
                        U.S.                                              $22,331,244          $13,680,460
                        Canada                                              2,075,649            1,234,441
                        Other foreign countries                                57,246               97,025
                                                                       --------------       --------------

                                                                          $24,464,139          $15,011,926
                                                                          ===========          ===========
</TABLE>

12. Earnings per share:

      Basic  earnings  per share  amounts  are  computed  based on the  weighted
      average number of shares actually outstanding during the year.

      Diluted  earnings per share is not presented for December 31, 1999 because
      it is not materially dilutive. Diluted earnings per share is not presented
      for December 31, 1998 because it is anti-dilutive.
<TABLE>
<CAPTION>
                                                                                     1 9 9 9            1 9 9 8
                                                                                    ----------       -------------
<S>                                                                                   <C>               <C>
          Basic earnings per share:
               Net income (loss) available for common stock                           $816,152          $ (240,635)
                                                                                      ========          ==========

          Weighted average common stock outstanding                                  2,592,581           2,592,155
                                                                                     =========          ==========

          Basic earnings per share                                                        $.31               $(.09)
                                                                                          ====                =====
</TABLE>

13. Financial expenses:

      Included  in  financial  expenses  is  interest  expense of  $279,804  and
      $120,950 for the years ended December 31, 1999 and 1998, respectively.