SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
COMMISSION FILE NO. 1-12888
SPORT-HALEY, INC.
(Exact name of small business issuer as specified in its charter)
COLORADO 84-1111669
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4600 E. 48TH AVENUE, DENVER, COLORADO 80216
(Address of principal executive offices)
(303) 320-8800
(Issuer's telephone number including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or
for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past
90 days: Yes /X/ No / /
State the number of shares outstanding in each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT MARCH 9, 2001
COMMON STOCK, NO PAR VALUE 3,441,985
Transitional Small Business Disclosure Format (check one): Yes / / No /X/
TABLE OF CONTENTS
PAGE
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PART 1 - CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS 3
CONSOLIDATED STATEMENTS OF INCOME 4
CONSOLIDATED STATEMENTS OF CASH FLOWS 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 12
PART II - OTHER INFORMATION 18
SIGNATURES 19
SPORT-HALEY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARES OF STOCK)
MARCH 31, JUNE 30,
1999 1998
----------- -----------
(UNAUDITED) (***)
ASSETS
Current assets:
Cash and cash equivalents $ 4,738 $ 4,505
Marketable securities 997 1,996
Accounts receivable, net of allowances of
$186 and $261, respectively 7,272 6,647
Inventories 13,985 16,445
Other current assets 810 340
Deferred taxes 191 179
------- -------
Total current assets 27,993 30,112
Property and equipment, net 2,402 2,271
Net assets of discontinued operations 461 441
Goodwill 86 94
Deferred taxes 124 53
Other assets 60 37
------- -------
Total Assets $31,126 $33,008
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit $ 600 $ 500
Accounts payable 601 1,847
Accrued commissions and other expenses 615 1,005
------- -------
Total current liabilities 1,816 3,352
------- -------
Minority interest -- 60
------- -------
Shareholders' equity:
Preferred stock, no par value; 1,500,000 shares
authorized; none issued and outstanding -- --
Common stock, no par value; 15,000,000 shares
authorized; 4,362,552 and 4,512,962 shares issued
and outstanding, respectively 16,853 18,416
Additional paid-in capital 1,582 1,386
Retained earnings 10,875 9,794
------- -------
Total shareholders' equity 29,310 29,596
------- -------
Total Liabilities and Shareholders' Equity $31,126 $33,008
======= =======
*** Taken from the audited balance sheet at that date.
See accompanying notes to consolidated financial statements.
3
SPORT-HALEY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
1999 1998 1999 1998
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
Net sales $ 7,915 $ 8,386 $ 20,824 $ 21,369
Cost of goods sold 5,630 5,233 13,476 13,493
-------- -------- -------- --------
Gross profit 2,285 3,153 7,348 7,876
Selling, general and
administrative expense 2,025 2,027 5,732 5,361
-------- -------- -------- --------
Income from operations 260 1,126 1,616 2,515
Other income, net 70 141 300 492
Recognized loss on available for
sale securities -- (16) -- (231)
-------- -------- -------- --------
Income from continuing operations
before minority loss and
provision for income taxes 330 1,251 1,916 2,776
Minority loss -- -- 60 --
Provision for income taxes (171) (411) (849) (1,049)
-------- -------- -------- --------
Income from continuing operations 159 840 1,127 1,727
Discontinued operations:
Income (loss) from discontinued
operations, net of income tax
(expense) benefit of 12, (18), 29
and (13), respectively (19) 30 (46) 23
-------- -------- -------- --------
Net income $ 140 $ 870 $ 1,081 $ 1,750
======== ======== ======== ========
Basic and diluted earnings
per common share $ 0.03 $ 0.19 $ 0.24 $ 0.38
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
4
SPORT-HALEY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
NINE MONTHS ENDED
MARCH 31,
-------------------------
AS AS
AMENDED AMENDED
1999 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,081 $ 1,750
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 464 345
Loss on disposition of assets 5 1
Deferred taxes and other (83) (154)
Allowance for doubtful accounts 105 --
Stock option compensation 196 230
Minority interest (60) --
Recognized loss on available for sales securities -- 231
Cash provided (used) due to changes in assets and
liabilities, net of purchase of B&L Sportswear, Inc.:
Accounts receivable (730) (888)
Inventory 2,460 (6,073)
Other assets (510) 28
Accounts payable (1,246) 903
Accrued commissions and other expenses (390) (388)
Income taxes payable -- 728
------- -------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 1,292 (3,287)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Redemption of held-to-maturity investments 2,000 8,349
Sale of fixed assets 38 18
Purchase of B&L Sportswear, Inc. -- (165)
Purchase of fixed assets (650) (418)
Purchases of held-to-maturity investments (983) (7,679)
------- -------
NET CASH PROVIDED BY INVESTING ACTIVITIES 405 105
------- -------
See accompanying notes to consolidated financial statements.
5
SPORT-HALEY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
NINE MONTHS ENDED
MARCH 31,
-------------------------
AS AS
AMENDED AMENDED
1999 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM FINANCING ACTIVITIES:
Advance on revolving line of credit $ 99 $ --
Net proceeds from issuance of common stock 206 525
Principal payments on notes payable -- (1)
Repurchase of common stock (1,769) (2,711)
------- -------
NET CASH USED BY FINANCING ACTIVITIES (1,464) (2,187)
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 233 (5,369)
CASH AND CASH EQUIVALENTS, BEGINNING 4,505 7,828
------- -------
CASH AND CASH EQUIVALENTS, ENDING $ 4,738 $ 2,459
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes $ 694 $ 466
======= =======
Interest $ 32 $ 16
======= =======
See accompanying notes to consolidated financial statements.
6
SPORT-HALEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements included herein have been prepared by
Sport-Haley, Inc. (the "Company") without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in the financial statements
prepared in accordance with generally accepted accounting principles have
been condensed or omitted as allowed by such rules and regulations. The
Company believes that the disclosures are adequate to make the information
presented not misleading. These financial statements should be read in
conjunction with the Company's annual audited consolidated financial
statements dated June 30, 2000, included in the Company's annual report on
Form 10-K as filed with the Securities and Exchange Commission. The results
for interim periods are not necessarily indicative of results that may be
expected for any other interim period or for the full year.
The management of the Company believes that the accompanying unaudited
condensed consolidated financial statements prepared in conformity with
generally accepted accounting principles, which require the use of
management estimates, contain all adjustments (including normal recurring
adjustments) necessary to present fairly the operations and cash flows for
the periods presented.
The consolidated financial statements include the accounts of Sport-Haley,
Inc., and its subsidiary, B&L Sportswear, Inc. (collectively referred to as
the Company). All significant inter-company accounts and transactions have
been eliminated.
NOTE 2 RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
The Company determined that its financial statements for the years ended
June 30, 1999 and 1998 required restatement. The restatement resulted from
corrections related to accounting for work-in-progress inventory,
capitalization of certain prepaid and fixed assets, the acquisition of the
Company's subsidiary and the related minority interest in the subsidiary's
losses, certain losses relating to discontinued operations and the income
tax benefit from stock options exercised.
The following comparison of consolidated statements of income for the three
months and nine months ended March 31, 1999 and 1998 present the effects
resulting from restating the Company's financial statements for the
aforementioned reasons, as applicable to these amended interim financial
statements.
7
SPORT-HALEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA)
------------------------------------------------------
AS ORIGINALLY AS AS ORIGINALLY AS
REPORTED AMENDED REPORTED AMENDED
1999 1999 1998 1998
------------- ----------- -------------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
Net sales $ 7,903 $ 7,915 $ 8,610 $ 8,386
Cost of goods sold 5,547 5,630 4,996 5,233
------- ------- ------- -------
Gross profit 2,356 2,285 3,614 3,153
Selling, general and
administrative expense 1,802 2,025 1,986 2,027
------- ------- ------- -------
Income from operations 554 260 1,628 1,126
Other income, net 106 70 122 141
Recognized loss on available for
sale securities -- -- -- (16)
------- ------- ------- -------
Income from continuing operations
before minority loss and
provision for income taxes 660 330 1,750 1,251
Minority loss 53 -- -- --
Provision for income taxes (289) (171) (344) (411)
------- ------- ------- -------
Income from continuing operations 424 159 1,406 840
Discontinued operations:
Income (loss) from discontinued
operations, net of income tax
(expense) benefit of 12, 12, 0
and (18), respectively (19) (19) -- 30
------- ------- ------- -------
Net income 405 140 1,406 870
Other comprehensive income:
Unrealized holding losses on
available for sale securities -- -- (47) --
------- ------- ------- -------
Comprehensive income $ 405 $ 140 $ 1,359 $ 870
======= ======= ======= =======
Basic and diluted earnings
per common share $ 0.09 $ 0.03 $ 0.30 $ 0.19
======= ======= ======= =======
8
SPORT-HALEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA)
---------------------------------------------------------
AS PREVIOUSLY AS AS PREVIOUSLY AS
REPORTED AMENDED REPORTED AMENDED
1999 1999 1998 1998
------------- ----------- ------------ ----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
Net sales $ 20,823 $ 20,824 $ 21,911 $ 21,369
Cost of goods sold 13,737 13,476 13,313 13,493
-------- -------- -------- --------
Gross profit 7,086 7,348 8,598 7,876
Selling, general and
administrative expense 5,186 5,732 5,355 5,361
-------- -------- -------- --------
Income (loss) from operations 1,900 1,616 3,243 2,515
Other income, net 337 300 474 492
Recognized loss on available for
sale securities -- -- -- (231)
-------- -------- -------- --------
Income (loss) from continuing operations
before minority loss and
provision for income taxes 2,237 1,916 3,717 2,776
Minority loss 151 60 -- --
Provision for income taxes (838) (849) (716) (1,049)
-------- -------- -------- --------
Income from continuing operations 1,550 1,127 3,001 1,727
Discontinued operations:
Income (loss) from continuing
operations, net of income tax
(expense) benefit of 29, 29, 0
and (13), respectively (46) (46) -- 23
-------- -------- -------- --------
Net income 1,504 1,081 3,001 1,750
Other comprehensive income:
Unrealized holding losses on
available for sale securities -- -- (99) --
-------- -------- -------- --------
Comprehensive income $ 1,504 $ 1,081 $ 2,902 $ 1,750
======== ======== ======== ========
Basic and diluted earnings
per common share $ 0.34 $ 0.24 $ 0.63 $ 0.38
======== ======== ======== ========
9
SPORT-HALEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 REPURCHASE OF COMMON STOCK
The Company's Board of Directors previously authorized the repurchase of up
to 1,820,000 shares of the Company's issued and outstanding common stock.
The shares may be repurchased from time to time in open market transactions
at prevailing market prices or in privately negotiated transactions. The
Company has no commitment or obligation to repurchase all or any portion of
the shares authorized for repurchase. All shares repurchased by the Company
are to be canceled and returned to the status of authorized but unissued
common stock.
Through March 31, 1999, the Company repurchased a total of 582,000 shares
of its common stock at a cost of approximately $6.5 million.
NOTE 4 COMMON STOCK OPTIONS
At March 31, 1999, there were outstanding options to purchase 437,826
shares of the Company's common stock at prices ranging from $2.50 to
$12.06, with expiration dates between March 15, 2002, and January 4, 2009.
During the three months ended March 31, 1999, 1,940 options were exercised,
on which the Company realized gross proceeds of approximately $15,000.
Included in net income for the nine months ended March 31, 1999 is a charge
of approximately $196,000 which is the result of applying Statement of
Financial Accounting Standards No. 123, Accounting for Stock Based
Compensation.
NOTE 5 EARNINGS PER SHARE
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 128, Earnings per Share, (SFAS No. 128) effective with the
year ended June 30, 1998. SFAS No. 128 requires the presentation of basic
and diluted earnings per common share. The following table provides a
reconciliation of the numerator and denominator of basic and diluted
earnings per common share:
THREE MONTHS ENDED MARCH 31, 1999
-----------------------------------------
NET WEIGHTED
INCOME AVERAGE SHARES PER SHARE
---------- -------------- ----------
EARNINGS PER COMMON SHARE
Basic earnings per share $ 140,000 4,401,152 $ 0.03
Effect of dilutive securities
options -- 49,358 --
---------- ---------- --------
Diluted earnings per share $ 140,000 4,450,510 $ 0.03
========== ========== ========
10
SPORT-HALEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 1999
-----------------------------------------
NET WEIGHTED
INCOME AVERAGE SHARES PER SHARE
---------- -------------- ----------
EARNINGS PER COMMON SHARE
Basic earnings per share $1,081,000 4,443,072 $ 0.24
Effect of dilutive securities
options -- 66,106 --
---------- ---------- --------
Diluted earnings per share $1,081,000 4,509,178 $ 0.24
========== ========== ========
THREE MONTHS ENDED MARCH 31, 1998
-----------------------------------------
NET WEIGHTED
INCOME AVERAGE SHARES PER SHARE
---------- -------------- ----------
EARNINGS PER COMMON SHARE
Basic earnings per share $ 870,000 4,499,406 $ 0.19
Effect of dilutive securities
options and warrants -- 62,658 --
---------- ---------- --------
Diluted earnings per share $ 870,000 4,562,064 $ 0.19
========== ========== ========
NINE MONTHS ENDED MARCH 31, 1998
-----------------------------------------
NET WEIGHTED
INCOME AVERAGE SHARES PER SHARE
---------- -------------- ----------
EARNINGS PER COMMON SHARE
Basic earnings per share $1,750,000 4,587,482 $ 0.38
Effect of dilutive securities
options and warrants -- 99,364 --
---------- ---------- --------
Diluted earnings per share $1,750,000 4,686,846 $ 0.38
========== ========== ========
11
SPORT-HALEY, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Report on Form 10-Q contains certain forward-looking statements. When used
in this report, the words "may," "will," "expect," "anticipate," "continue,"
"estimate," "project," "intend," "believe" and similar expressions are intended
to identify forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934
regarding events, conditions and financial trends including, without limitation,
business conditions and growth in the fashion golf apparel market and the
general economy, competitive factors, and price pressures in the high-end
golf-apparel market; inventory risks due to shifts in market and/or price
erosion of purchased apparel, raw fabric and trim; cost controls; changes in
product mix; and other risks or uncertainties detailed in other Securities and
Exchange Commission filings made by Sport-Haley. Such statements are based on
management's current expectations and are subject to risks, uncertainties and
assumptions. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, the actual plan of operations,
business strategy, operating results and financial position of Sport-Haley could
differ materially from those expressed in, or implied by, such forward-looking
statements.
FINANCIAL CONDITION
The Company relied on cash generated from operations and available cash on hand
to finance its working capital requirements for the 12-month period following
March 31, 1999. The Company did not make any periodic borrowings under its
revolving line of credit during the same 12-month period. Working capital at
March 31, 1999 was approximately $26.2 million and was approximately $26.8
million at June 30, 1998. Working capital decreased primarily because the
Company expended approximately $1.8 million to repurchase 182,000 shares of its
common stock during the nine months ended March 31, 1999. The Board of Directors
had authorized the repurchase, and management believed that the repurchase of
these shares would benefit the shareholders by increasing book value per share
with no material adverse effect on working capital. Book value per share at
March 31, 1999 increased by approximately $0.16 per share since June 30, 1998 to
approximately $6.72 per share.
Cash and cash equivalents increased since June 30, 1998 by approximately
$233,000. Net accounts receivable increased by approximately $625,000 to $7.3
million from $6.6 million at June 30, 1998. The increase in receivables was
consistent with respective changes at March 31 of prior years. Since June 30,
1998, inventories decreased by approximately $2.5 million to $14.0 million from
$16.4 million. Due to the combination of these and other various factors, during
the nine months ended March 31, 1999, operating activities provided cash of
approximately $1.3 million.
Other current assets increased by approximately $470,000 since June 30, 1998 to
approximately $810,000. The change was due primarily to increases in income
taxes receivable and other receivables during the nine months ended March 31,
1999.
12
SPORT-HALEY, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the nine months ended March 31, 1999, the Company spent approximately
$650,000 for the purchase of property and equipment, and approximately $464,000
in depreciation and amortization was charged to current operations. During the
same nine-month period, investing activities provided cash of approximately
$405,000, due to redemption and purchase of held-to-maturity investments
combined with sales and purchases of fixed assets.
Accounts payable and accrued expenses decreased by approximately $1.6 million
since June 30, 1998. The decrease was due to a combination of several factors
including decreases of approximately $1.2 million in accounts payable, $159,000
in accrued payroll, $107,000 in accrued sales commissions payable and $87,000 in
other accrued expenses.
Total shareholders' equity decreased by approximately $286,000 for the
nine-month period. The decrease was primarily attributable to the repurchase of
182,000 shares of the Company's common stock during the nine month period at a
cost of approximately $1.8 million combined with net income for the same period.
Book value per share increased by approximately $0.16 to $6.72 per share at
March 31, 1999 as compared with $6.56 per share at June 30, 1998.
RECENT DEVELOPMENTS
In July 2000, as previously reported, the Company's Audit Committee recommended
that the Company's prior independent auditors be discharged and that the Company
retain a new independent public accountant to audit the Company's financial
statements for the year ended June 30, 2000. As a result of a review initiated
by senior management and conducted prior to completion of the audit process for
the Company's 2000 fiscal year, information was developed that indicated certain
accounting errors might exist in prior years' financial statements that, when
corrected, would result in a material impact on the results of operations for
the 2000 fiscal year and certain prior periods. At the conclusion of the review,
the Company determined that the financial statements for the years ended June
30, 1999 and 1998 required restatement due to accounting errors. The accounting
errors consisted primarily of the following: (i) incorrect recording,
classification and valuation of inventory work in process; (ii) incorrect
recording of certain prepaid and fixed assets; (iii) incorrect accounting for
the acquisition of the Company's subsidiary (the "Subsidiary") and the related
minority interest in the losses of the Subsidiary; (iv) incorrect recording of
certain losses relating to discontinued operations; and, (v) the income tax
benefit from stock options exercised. See Note 2 to the consolidated financial
statements.
13
SPORT-HALEY, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company retained a new independent accounting firm shortly after June 30,
2000. The Company engaged the new accounting firm to audit the Company's
financial statements for the year ended June 30, 2000 and to re-audit the
previously issued financial statements for the years ended June 30, 1999 and
1998, which the Company restated. The Audit Committee of the Company retained an
independent consultant to assist it in evaluating the restatements that were
necessary in order that the Company's financial statements, as restated and
taken as a whole, presented fairly in all material respects the Company's
financial position, results of operations and cash flows for the fiscal years
ended June 30, 2000, 1999 and 1998, in conformity with generally accepted
accounting principles. The Audit Committee does not believe that the accounting
errors that have been identified by the Company constitute irregularities. As a
result of recommendations made by the audit committee and the Company's senior
management, and concurred in by the independent consultant, the Company has
taken appropriate action to ensure that these errors do not reoccur in the
future.
The effects of significant financial statement adjustments related to the
restatements for the years ended June 30, 1999 and 1998 are set forth in the
Company's Form 10-K for the fiscal year ended June 30, 2000, which was filed
with the Securities and Exchange Commission on November 3, 2000. The effects of
the restatements on the specific line items of the income statement and earnings
per share for the periods ended March 31, 1999 and 1998 are set forth in the
notes to the financial statements accompanying this amended quarterly report
(Note 2).
The restatements described above may lead to litigation against the Company.
There is no litigation currently pending or threatened against the Company
concerning the restatements. However, if such litigation is initiated, it could
have a material adverse impact on the Company's income from continuing
operations.
The Company has incurred approximately $380,000 in expenses related to the
restatements of its fiscal year 1999 and 1998 financial statements and the
correction of material quarterly information for fiscal years 2000, 1999 and
1998. The Company is presently evaluating whether such expenses will be
recoverable in a future reporting period.
As previously reported, on October 16, 2000, The Nasdaq Stock Market(R)
("Nasdaq"), halted trading in the securities of the Company and requested
additional information from the Company. Nasdaq advised the Company that the
trading halt was instituted because of the Company's alleged failure to observe
certain corporate governance requirements for ongoing listing of its securities
on the Nasdaq National Market. Nasdaq advised the Company that the trading halt
would continue until the Company complied with Nasdaq's request for additional
information, which the Company provided. Nasdaq further proposed to de-list the
Company's securities from trading on the Nasdaq National Market. The Company
appeared at a hearing before the Nasdaq Listing Qualifications Panel (the
"Panel") on November 10, 2000 in order to address the proposed de-listing of the
Company's securities.
14
SPORT-HALEY, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On December 11, 2000, the Panel rendered its decision, granting an exception to
the filing requirement set forth in Nasdaq Marketplace Rule 4310, requiring that
on or before January 15, 2001, the Company file amended Forms 10-Q for all
quarters during fiscal years 2000, 1999 and 1998. Further, the Panel determined
that the Company's late filings of Form 10-K for the fiscal year ended June 30,
2000 and its Form 10-Q for the period ended September 30, 2000 merited the
application of additional and more stringent criteria under Marketplace Rule
4300. Accordingly, the Panel stated that if the Company satisfies the first
protion of the Panel's exception expiring January 15, 2001, the Company must
also timely file all periodic reports with the Securities and Exchange
Commission and Nasdaq for all reporting periods ending on or before December 31,
2001. The Panel stated in its decision that if the Company fails to make any
filing in accordance with the exception granted, the Company will not be
entitled to a new hearing and its securities will be de-listed from Nasdaq.
Based upon its determination, the Panel ordered that trading resume in the
Company's securities on Nasdaq effective December 12, 2000.
On December 26, 2000, the Company notified Nasdaq of its request that the Nasdaq
Listing Review Council (the "Review Council") review the Panel's decision. The
Company requested that the Review Council grant it additional time in which to
comply with the filing of historical amended Forms 10-Q and requested that the
additional and more stringent criteria under Marketplace Rule 4300 be applied
only in the event the Company fails to make any current filing during the
calendar year 2001, or has not filed the amended quarterly Forms 10-Q for fiscal
years 2000, 1999 and 1998 by March 15, 2001. The Company filed amended Forms
10-Q for fiscal year 2000 on January 16, 2001. On or about January 25, 2001, the
Review Council granted the Company the requested extension to file the remaining
amended quarterly filings on or before March 15, 2001. The Review Council's
review of the remaining portions of the Panel's decision is pending.
The Company was advised in a letter dated November 7, 2000 that the Securities
and Exchange Commission (the "Commission") is conducting an informal inquiry
into matters concerning the Company. The Commission made an informal request
that the Company voluntarily produce certain documents. The Company provided the
requested documents to the Commission. In addition, the Company voluntarily
provided testimony to the Commission.
RESULTS OF OPERATIONS
The Company's business is seasonal in nature, and therefore the results for any
one or more quarters are not necessarily indicative of the annual results or
continuing trends.
Net sales for the fiscal quarter and nine months ended March 31, 1999, were
approximately $7.9 million and $20.8 million, respectively, decreases of
approximately $471,000 or 6%, and $545,000 or 3%, from net sales of
approximately $8.4 million and $21.4 million for the same periods in the prior
fiscal year. The decrease in net sales was primarily due to slower sales to golf
professional shops and reduction of prior seasons' inventories at reduced
selling prices.
15
SPORT-HALEY, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company's gross profit, as a percentage of net sales, was approximately 29%
and 35% for the quarter and nine months ended March 31, 1999, respectively, and
38% and 37% for the same periods in the prior fiscal year. The decrease in gross
profit is due to a combination of factors, including the disposal of prior
seasons' inventories at reduced sales prices and increases in production costs.
Selling, general and administrative expenses for the nine months ended March 31,
1999 increased by approximately $371,000, or 7%, to approximately $5.7 million
from $5.4 million for the same period in the prior fiscal year. The increase was
primarily attributable to the implementation of the Company's new corporate
sales marketing program during the nine months ended March 31, 1999. As a
percentage of sales, selling, general and administrative expenses were 26% and
28% for the quarter and nine months ended March 31, 1999, respectively, as
compared with 24% and 25% for the same periods in the prior fiscal year.
Other income, net for the nine months ended March 31, 1999 was approximately
$300,000, a decrease of approximately $192,000, or 39%, as compared with
$492,000 for the same nine-month period in the prior fiscal year. The decrease
was primarily attributable to lower interest income earned on a decreased amount
of cash equivalents and held to maturity investments.
Income from continuing operations before minority loss and provision for income
taxes decreased by approximately $921,000, or 74%, to approximately $330,000 for
the fiscal quarter ended March 31, 1999, from $1.3 million for the same quarter
in the prior fiscal year. Income from continuing operations before minority loss
and provision for income taxes decreased by approximately $860,000, or 31%, to
approximately $1.9 million for the nine months ended March 31, 1999, from $2.8
million for the same period in the prior fiscal year. The decrease for the
nine-month period was primarily attributable to lower sales volume, lower gross
margins, higher selling, general and administrative expense and lower interest
earned on cash equivalents and held to maturity investments combined with losses
on available for sale securities that were recognized during the nine months
ended March 31, 1998. During the fiscal year ended June 30, 1996, the Company
invested approximately $234,000 in the common stock of Brassie Golf. During the
fiscal quarter ended September 30, 1997, management determined that the
Company's investment in Brassie Golf was permanently impaired. As of March 31,
1998, the Company had recognized cumulative losses on available for sale
securities of approximately $231,000.
The Company's subsidiary incurred a loss for the nine-month period ended March
31, 1999. Because the subsidiary's loss for the nine-month period exceeded the
minority interest in the equity of the subsidiary, a portion of the minority
share of the loss was absorbed by the Company during the same period.
The Company's effective tax rates for the nine months ended March 31, 1999 and
1998 were 43% and 38%, respectively. The effective tax rate in any fiscal period
can vary significantly from the effective tax rate in another period due to
differences between the recording of certain transactions for financial versus
tax purposes. Certain deductions recognized for tax purposes may not be expensed
for financial statement purposes, and certain expenses recorded for financial
statement purposes may not be deductible for tax purposes.
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SPORT-HALEY, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the fiscal quarter and nine months ended March 31, 1999, income from
continuing operations decreased by approximately $681,000 and $600,000, or 81%
and 35%, respectively, when compared to the same periods in the prior fiscal
year. The decrease was primarily the result of lower sales volume, lower gross
margins, higher selling, general and administrative expenses and lower interest
earned on cash equivalents and held to maturity investments combined with the
loss recognized on available for sale securities during the prior nine months
ended March 30, 1997.
The Company discontinued the manufacturing and sale of headwear during the
fiscal year ended June 30, 1999, and had disposed of all inventories and
equipment related to its headwear operations as of December 31, 1999. Included
in earnings for the fiscal quarter and nine months ended March 31, 1999, were
losses of approximately $19,000 and $46,000, net of income tax benefit of
approximately $12,000 and $29,000, respectively, from discontinued headwear
manufacturing operations. Comparatively, income from discontinued headwear
manufacturing operations for the fiscal quarter and nine months ended March 31,
1998 was approximately $30,000 and $23,000, net of income tax expense of
approximately $18,000 and $13,000, respectively.
Both the basic and diluted earnings per share were $0.03 and $0.24 for the
fiscal quarter and nine months ended March 31, 1999, respectively. This compares
to basic and diluted earnings per share of $0.19 and $0.38 for the same periods
in prior fiscal year.
YEAR 2000 COMPUTER CONVERSION
The Company was cognizant of the Year 2000 issues associated with programming
code in computer systems. The Company utilizes an integrated computer system to
manage all business transactions, historical data and record keeping, including
sourcing, warehousing, embroidering and shipping. In preparation for the Year
2000, the Company installed a Year 2000 compliant upgrade to the software for
this system and tested all other systems. As of March 15, 2001, the Company had
not experienced, nor does it expect to experience any disruptions related to
Year 2000 issues in the operation of its systems. To the best knowledge of the
Company, none of the material suppliers, vendors and financial institutions with
which the Company has a business relationship experienced any failures or
disruptions in their computer systems caused by the Year 2000 issues.
17
SPORT-HALEY, INC.
PART II
OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS - NONE
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS- NONE
ITEM 3 DEFAULTS UPON SENIOR SECURITIES - NONE
ITEM 4 SUBMISSION TO MATTERS TO A VOTE OF SECURITY HOLDERS - NONE
ITEM 5 OTHER INFORMATION - NONE
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS - NONE
(B) REPORTS ON FORM 8-K - NONE
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
SPORT-HALEY, INC.
(Registrant)
Date: March 15, 2001 /s/ Robert G. Tomlinson
-----------------------
Robert G. Tomlinson
Chief Executive Officer
Date: March 15, 2001 /s/ Patrick W. Hurley
-----------------------
Patrick W. Hurley
Chief Financial Officer
19