<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
/ / 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
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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 NOVEMBER 8, 1996
COMMON STOCK, NO PAR VALUE 4,311,147
Transitional Small Business Disclosure Format
(check one): Yes No X
----- -----
<PAGE>
INDEX
PAGE
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PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BALANCE SHEETS 3
STATEMENTS OF INCOME 4
STATEMENTS OF CASH FLOWS 5-6
NOTES TO FINANCIAL STATEMENTS 7-9
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OPERATIONS 10-11
PART II - OTHER INFORMATION 12
SIGNATURE 13
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SPORT-HALEY, INC.
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1996 1996
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(UNAUDITED) (NOTE)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,183 $ 8,648
Short-term investments and marketable securities 1,260 2,750
Accounts receivable, net of allowances of
$88,000 and $90,000, respectively 4,077 4,549
Inventories (Note 2) 8,568 7,716
Other current assets 1,207 1,097
---------- ----------
23,295 24,760
---------- ----------
Property and equipment 2,782 2,294
Property held under capital leases 7 7
Less, accumulated depreciation (479) (601)
---------- ----------
2,310 1,700
---------- ----------
Other assets:
Long-term investments 1,925 1,274
Other assets 25 32
---------- ----------
1,950 1,306
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$ 27,555 $ 27,766
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,315 $ 2,141
Capital lease obligations maturing within one year 1 2
Accrued income taxes (Note 3) 485 464
Accrued commissions and other expenses 471 725
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2,272 3,332
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Long-term liabilities:
Capital lease obligations, net of current maturities 2 2
Other 87 66
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89 68
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2,361 3,400
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Stockholders' equity: (Note 4)
Preferred stock, no par value; 1,500,000 shares
authorized; none issued and outstanding -- --
Common stock, no par value;
15,000,000 shares authorized; 4,428,437 and
4,419,271 shares issued and outstanding, respectively 20,220 20,166
Additional paid in capital 87 63
Unrealized losses on available for sale securities (187) (140)
Retained earnings 5,074 4,277
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25,194 24,366
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Total Liabilities and Stockholders' Equity $ 27,555 $ 27,766
---------- ----------
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</TABLE>
Note: Taken from the audited balance sheet at that date.
3
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SPORT-HALEY, INC.
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
SEPTEMBER 30,
1996 1995
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(UNAUDITED) (UNAUDITED)
Net sales $ 6,266 $ 4,168
Cost of goods sold 3,646 2,373
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Gross profit 2,620 1,795
Selling, general and administrative expense 1,486 1,048
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Income from operations 1,134 747
Other income (expense):
Other income 164 84
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Income before income taxes 1,298 831
Provision for income taxes (Note 3) 501 309
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Net Income $ 797 $ 522
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-------- --------
Net income per common share $ 0.17 $ 0.15
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Weighted average number of common and
common equivalent shares outstanding 4,776 3,511
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-------- --------
4
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SPORT-HALEY, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
THREE MONTHS ENDED
SEPTEMBER 30,
1996 1995
----------- ----------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 797 $ 522
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 85 59
Depreciation recorded as prepaid expense (4) (6)
Deferred taxes, net 14 (6)
Increase in allowance for doubtful accounts (3) 8
Deferred rents 1 1
(Increase) decrease in assets:
Short-term investments to maturity 1,489 --
Accounts receivable 475 198
Inventory (900) (545)
Other current assets (43) 37
(Increase) decrease in liabilities:
Accounts payable (827) (771)
Accrued commissions and other expenses (254) 290
Accrued income taxes 21 (189)
Deferred rent (1) (1)
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Net cash used by operating activities 850 (403)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligation (1) (1)
Net proceeds from issuance of common stock 54 177
Stock purchased and retired -- (129)
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Net cash provided by financing activities $ 53 $ 47
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5
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SPORT-HALEY, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
THREE MONTHS ENDED
SEPTEMBER 30,
1996 1995
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(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets $ (702) $ (48)
Disposal of assets (15) --
Investment in "available to sell"
securities, net (651) --
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Net cash used by investing activities (1,368) (48)
Net increase (decrease) in cash (465) (404)
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CASH AND CASH EQUIVALENTS, BEGINNING 8,648 4,758
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CASH AND CASH EQUIVALENTS, ENDING $ 8,183 $ 4,354
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes $ 466 $ 489
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Interest $ -- $ --
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SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
At September 30, 1996, the Company has unrealized holding losses on
marketable securities of approximately $187,000.
6
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SPORT-HALEY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 CONDENSED FINANCIAL STATEMENTS
The 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. It is suggested that these financial statements
be read in conjunction with the Company's annual financial
statements dated June 30, 1996. While management believes the
procedures followed in preparing these financial statements are
reasonable, the accuracy of the amounts are, in some respects,
dependent upon the facts that will exist, and procedures that
will be accomplished by the Company later in the year.
The management of the Company believes that the accompanying
unaudited condensed 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 period presented.
NOTE 2 INVENTORIES
Inventories at September 30, 1996 consist of the following:
Raw materials $ 3,791,057
Finished goods 4,776,708
---------------
$ 8,567,765
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---------------
NOTE 3 INCOME TAXES
The components of the deferred tax asset and net deferred tax
liability recognized in the accompanying balance sheet as of
September 30, 1996, are as follows:
Current Long-Term
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Deferred tax (liability) $ -- $(82,871)
Deferred tax asset 43,655 --
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$43,655 $(82,871)
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7
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SPORT-HALEY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 3 INCOME TAXES (Continued)
The types of temporary differences between the tax bases of
assets and liabilities and the financial reporting amounts that
give rise to a significant portion of the deferred tax liability
and their appropriate tax effects at September 30, 1996, as
follows:
Tax Effect
Difference Current Long-Term
---------- -------- ---------
Allowance for doubtful accounts $ 87,534 $ 34,138 $ --
Stock option compensation 24,403 9,517 --
Accumulated depreciation 212,491 -- (82,871)
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$ 43,655 $(82,871)
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The components of income tax expenses are as follows:
Current:
Federal $ 424,300
State 62,700
-----------
487,000
-----------
Deferred:
Federal 11,965
State 1,770
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13,735
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$ 500,735
-----------
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NOTE 4 REPURCHASE OF COMMON STOCK
During December 1994, the Company's Board of Directors authorized
the repurchase of up to 150,000 shares of the Company's issued
and outstanding common stock. The shares may be purchased from
time to time in open market transactions at prevailing market
prices. The Company has no commitment or obligation to purchase
all or any portion of the shares. All shares purchased by the
Company will be cancelled and returned to the status of
authorized but unissued common stock. As of September 30, 1996,
the Company repurchased 15,100 shares of its common stock.
Subsequent to September 30, 1996, the Company's Board of
Directors authorized an increase of an additional 150,000 common
shares that the Company may repurchase thus bringing the total
common shares authorized for repurchase under the plan to 300,000
shares. From October 1, 1996 through November 8, 1996, the
Company repurchased an additional 117,290 shares of its common stock.
8
<PAGE>
SPORT-HALEY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 5 COMMON STOCK OPTIONS
At September 30, 1996, the Company had 493,593 options granted to
purchase common stock at prices ranging from $1.60 to $12.75,
with expiration dates between March 15, 2002 and July 1, 2006.
During the three months ended September 30, 1996, option holders
exercised and purchased 9,166 shares of the Company's common
stock. The Company realized gross proceeds of approximately
$54,000.
During May 1996, the Company's Board of Directors authorized the
Company to prepare and issue a "net issuance" offer to the
holders of the Company's non-qualified stock options, to purchase
the interests of the option holders. The Company will pay the
difference between the exercise price of the non-qualified stock
option and the fair market value of the Company's common stock on
the date the option holder accepts the offer. As of September
30, 1996, the Company had repurchased 2,500 non-qualified stock
options for approximately $30,800. At September 30, 1996 the
Company had outstanding, approximately 310,000 non-qualified
stock options. Accordingly, the Company's net issuance cost to
repurchase these options would be approximately $2.5 million if
substantially all of the non-qualified option holders elected to
accept the Company's offer.
Included in the Company's first quarter net earnings is a charge
of approximately $13,700 which is a result of the Company's
implementation of FASB 123-Accounting for Stock Based
Compensation.
NOTE 6 SUBSEQUENT EVENT
On October 28, 1996, the Company announced it had signed a new
line of credit agreement with a bank which now permits borrowings
of up to $10 million. The Company's former line of credit
provided for borrowings of up to $4 million. The new line of
credit agreement expires October 31, 1997, and is collateralized
by accounts receivable, inventories, machinery and equipment and
general intangibles. The interest rate on borrowings is at 1/2 %
below the bank's base rate with interest payable monthly. At
September 30, 1996 there were no borrowings outstanding on the
line of credit.
9
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SPORT-HALEY, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
The Company's financial position continues to demonstrate strength from
growth in its net sales, gross profit margin and net income. The Company
intends to rely on its cash generated from operations and the net proceeds
realized from the March 1996 public offering to finance in its working
capital requirements for at least the next 12 months. To the extent such
amounts are insufficient to finance the Company's working capital
requirements, the Company may also make periodic borrowings under its
revolving line of credit.
During the quarter ended September 30, 1996, current assets and current
liabilities decreased by approximately $1.5 million and $1.0 million,
respectively.
For the three months ended September 30, 1996, the Company spent
approximately $702,000 for property and equipment. These expenditures relate
to equipment and leasehold improvements for the headwear and embroidery
operations. Also, during this quarter the Company removed approximately
$200,000 of fully depreciated and disposed assets.
The Company received proceeds of approximately $54,000 from the exercise of
stock options during the quarter ended September 30, 1996. Stockholders'
equity increased by approximately $828,000 for the quarter resulting
primarily from its net income of $797,000.
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 first quarter ended September 30, 1996, were approximately
$6.3 million, an increase of approximately $2.1 million, or 50%, from net
sales of $4.2 million for the same quarter in the prior fiscal year. The
increase in net sales is due to a combination of factors, including a greater
number of products within each of the women's and men's lines, an increase in
the number of golf course professional shops that carry the Company's apparel
and increase in corporate and international sales.
The Company's gross profit increased by approximately $825,000 or 46% to $2.6
million for the first quarter ended September 30, 1996, from $1.8 million for
the same quarter in the prior fiscal year. The Company's gross profit margin
continued relatively unchanged at approximately 42% of net sales.
10
<PAGE>
SPORT-HALEY, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
Selling, general and administrative expenses increased by approximately
$438,000 or 42% for the first quarter ended September 30, 1996, from $1.0
million for the same quarter in the prior fiscal year. The increase can be
attributed to commissions paid to independent sales representatives on higher
sales volume, increased advertising expenditures and costs associated with
the start up of the head wear operations.
Other income increased by approximately $80,000 for the first fiscal quarter
ended September 30, 1996 as compared to the same quarter in the prior fiscal
year. The increase can be attributed to an increase in interest income
generated by short-and long-term investments during the quarter.
Income before provision for income taxes increased by approximately $467,000,
or 56%, for the first fiscal quarter ended September 30, 1996, from $831,000
for the same quarter in the prior fiscal year.
Net income increased by approximately $275,000 or 53% for the first fiscal
quarter ended September 30, 1996 from approximately $522,000 for the same
quarter in the prior fiscal year.
Earnings were $.17 per share for the quarter ended September 31, 1996 as
compared to $.15 for the same quarter in the prior fiscal year. These
earnings per share are based on 4,776,000 and 3,511,000 weighted average
shares outstanding for the 1996 and 1995 quarters, respectively.
11
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SPORT-HALEY, INC.
PART II
OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS - NONE
ITEM 2 CHANGES IN SECURITIES - 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
27 FINANCIAL DATA SCHEDULE
(B) REPORTS ON FORM 8-K - NONE
12
<PAGE>
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: NOVEMBER 11, 1996 /s/ Robert G. Tomlinson
------------------------
Robert G. Tomlinson
Chief Executive Officer
Date: NOVEMBER 11, 1996 /s/ Steve S. Auger
------------------------
Steve S. Auger
Chief Accounting Officer
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 8,183
<SECURITIES> 1,260
<RECEIVABLES> 4,165
<ALLOWANCES> 88
<INVENTORY> 8,568
<CURRENT-ASSETS> 23,295
<PP&E> 2,789
<DEPRECIATION> 479
<TOTAL-ASSETS> 27,555
<CURRENT-LIABILITIES> 2,272
<BONDS> 0
0
0
<COMMON> 20,220
<OTHER-SE> 4,974
<TOTAL-LIABILITY-AND-EQUITY> 27,554
<SALES> 6,266
<TOTAL-REVENUES> 6,266
<CGS> 3,646
<TOTAL-COSTS> 3,646
<OTHER-EXPENSES> 1,486
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,298
<INCOME-TAX> 501
<INCOME-CONTINUING> 797
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 797
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
