<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 MARCH 31, 1997
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 past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days: Yes X No
--- ---
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 APRIL 30, 1997
COMMON STOCK, NO PAR VALUE 4,600,578
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
<PAGE>
INDEX
PAGE
----
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 7-10
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS 11-14
PART II - OTHER INFORMATION 15-16
SIGNATURES 17
<PAGE>
SPORT-HALEY, INC.
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
MARCH 31, JUNE 30,
1997 1996
----------- ----------
(UNAUDITED) (NOTE)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,203 $ 8,648
Short-term investments and marketable securities 1,713 2,750
Accounts receivable, net of allowances of
$126,000 and $90,000, respectively 6,180 4,549
Inventories 10,475 7,716
Other current assets 1,545 1,097
---------- ----------
27,116 24,760
---------- ----------
Property and equipment 3,076 2,294
Property held under capital leases 7 7
Less, accumulated depreciation (717) (601)
---------- ----------
2,366 1,700
---------- ----------
Other assets:
Long-term investments 34 1,274
Other assets 41 32
---------- ----------
75 1,306
---------- ----------
$ 29,557 $ 27,766
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,109 $ 2,141
Capital lease obligations maturing within one year 2 2
Accrued income taxes 202 464
Accrued commissions and other expenses 1,141 725
---------- ----------
2,454 3,332
---------- ----------
Long-term liabilities:
Capital lease obligations, net of current maturities 1 2
Other 96 66
---------- ----------
97 68
---------- ----------
2,551 3,400
---------- ----------
Stockholders' 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; 4,531,139 and
4,419,271 shares issued and outstanding, respectively 19,878 20,166
Additional paid in capital 75 63
Additional paid in capital - deferred option compensation 147 -
Unrealized losses on available for sale securities (199) (140)
Retained earnings 7,105 4,277
---------- ----------
27,006 24,366
---------- ----------
$ 29,557 $ 27,766
---------- ----------
---------- ----------
</TABLE>
Note: Taken from the audited balance sheet at that date.
3
<PAGE>
SPORT-HALEY, INC.
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
1997 1996 1997 1996
----------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales $ 8,823 $ 5,606 $ 20,822 $ 13,547
Cost of goods sold 5,089 3,286 12,001 7,823
---------- ---------- ---------- ----------
Gross profit 3,734 2,320 8,821 5,724
Selling, general and administrative expense 1,826 1,229 4,958 3,256
---------- ---------- ---------- ----------
Income from operations 1,908 1,091 3,863 2,468
Other income (expense):
Other income 87 57 540 210
Cash settlements - stock options (Note 5) (360) - (360) -
Interest and other expense (1) (1) (1) (11)
---------- ---------- ---------- ----------
(274) 56 179 199
---------- ---------- ---------- ----------
Income before income taxes 1,634 1,147 4,042 2,667
Provision for income taxes (Note 3) 435 430 1,214 1,000
---------- ---------- ---------- ----------
Net income $ 1,199 $ 717 $ 2,828 $ 1,667
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Earnings per common share $ 0.25 $ 0.20 $ 0.60 $ 0.47
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average common and
common equivalent shares outstanding 4,760,524 3,594,779 4,731,414 3,529,805
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
4
<PAGE>
SPORT-HALEY, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE NINE MONTHS ENDED
MARCH 31,
1997 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,828 $ 1,667
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 322 223
Depreciation recorded as prepaid expense (12) (20)
Deferred taxes, net (37) 1
Increase in allowance for doubtful accounts 36 6
Stock option compensation 147 -
Deferred rents 3 3
(Increase) decrease in assets:
Short-term investments to maturity 1,037 -
Accounts receivable (1,691) (1,501)
Inventory (2,759) (1,222)
Other current assets (425) (352)
(Increase) decrease in liabilities:
Accounts payable (1,032) (73)
Accrued commissions and other expenses 397 76
Accrued income taxes (263) (60)
Accrued and withheld taxes 18 8
Deferred rent (1) (3)
------- -------
Net cash used by operating activities (1,432) (1,247)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligation (1) (2)
Net proceeds from issuance of common stock 1,337 8,659
Stock purchased and retired (1,625) (190)
------- -------
Net cash provided by financing activities $ (289) $ 8,467
------- -------
------- -------
5
<PAGE>
SPORT-HALEY, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE NINE MONTHS ENDED
MARCH 31,
1997 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets $ (964) $ (416)
Investment in "available to sell"
securities, net 1,240 (234)
------- -------
Net cash used by investing activities 276 (650)
------- -------
Net increase (decrease) in cash (1,445) 6,570
CASH AND CASH EQUIVALENTS, BEGINNING 8,648 4,758
------- -------
CASH AND CASH EQUIVALENTS, ENDING $ 7,203 $11,328
------- -------
------- -------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes $ 1,050 $ 1,045
------- -------
------- -------
Interest $ 1 $ 1
------- -------
------- -------
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
At March 31, 1997, the Company has unrealized holding losses on marketable
securities of approximately $199,000.
6
<PAGE>
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 requires 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 March 31, 1997 consist of the following:
Raw materials $ 4,849,670
Finished goods 5,625,158
-----------
$10,474,828
-----------
-----------
NOTE 3 INCOME TAXES
The components of the deferred tax asset and net deferred tax
liability recognized in the accompanying balance sheet as of
March 31, 1997, are as follows:
CURRENT LONG-TERM
-------- ---------
Deferred tax (liability) $ - $(95,016)
Deferred tax asset 106,750 -
-------- --------
$106,750 $(95,016)
-------- --------
-------- --------
7
<PAGE>
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 March 31, 1997, are as
follows:
<TABLE>
Tax Effect
Difference Current Long-Term
---------- -------- ---------
<S> <C> <C> <C>
Allowance for doubtful accounts $126,379 $ 49,288 $ -
Stock option compensation 147,338 57,462 -
Accumulated depreciation 243,632 - (95,016)
-------- --------
$106,750 $(95,016)
-------- --------
-------- --------
</TABLE>
The components of income tax expenses are as follows:
Current:
Federal $1,079,700
State 171,500
----------
1,251,200
----------
Deferred:
Federal (32,117)
State (5,098)
----------
(37,215)
----------
$1,213,985
----------
----------
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. In October, 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
to 300,000 shares. During the nine months ended March 31, 1997,
the Company repurchased 127,290 shares of its common stock at a
cost of approximately $1.625 million. As of March 31, 1997, the
Company had repurchased a total of 160,000 shares of its common
stock.
8
<PAGE>
SPORT-HALEY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 5 COMMON STOCK OPTIONS
The shareholders of the Company, on February 14, 1997, voted to
amend and restate the Company's 1993 Stock Option Plan (the
"Plan") to increase the number of shares available under the Plan
from 950,000 to 1,200,000 and to simplify administration of the
Plan in accordance with revisions to Section 16 of the Securities
Exchange Act of 1934, as amended. At March 31, 1997, the Company
had options outstanding to purchase 476,271 shares of common
stock at prices ranging from $1.60 to $14.25, with expiration
dates between March 15, 2002 and February 14, 2008. During the
nine months ended March 31, 1997, option holders exercised their
options to purchase 205,782 shares of the Company's common stock.
The Company realized gross proceeds of approximately $1.134
million from the exercise of such options.
During May 1996, the Company's Board of Directors authorized the
Company to prepare and issue a "net issuance" offer to purchase
the interests of non-employee holders of the Company's non-qualified
stock options. The Company offered to 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 accepted the offer. As of March 31, 1997, the Company had
repurchased 30,909 options for approximately $360,000. The $360,000
cost represents a $(.05) net after tax decrease in earnings per
share. On April 1, 1997, the Company's Board of Directors voted to
terminate the "net issuance" offer by its terms. Accordingly, the
Company will no longer accept tendered offers to purchase
non-qualified stock options from option holders.
Included in the Company's nine month net income at March 31, 1997
is a charge of approximately $147,300 which is a result of the
Company's implementation of Statement of Financial Accounting
Standards No. 123 (SFAS 123), Accounting for Stock Based
Compensation.
NOTE 6 REGISTRATION OF WARRANTS
During January 1997, the Company filed a Registration Statement
on Form S-3 to register 90,000 shares of the Company's common
stock, 70,000 shares of which were to be issued upon exercise of
the representative's warrants (the "Representative's Warrants")
sold to Schneider Securities, Inc. (the "Representative") in
connection with an underwritten public offering undertaken in
April 1994 and 20,000 shares of which were to be issued upon
exercise of the advisor's warrants (the "Advisor's Warrants")
issued to Cruttenden Roth Incorporated (the "Advisor") in
connection with an investment banking agreement between the
Company and the Advisor in July 1995. The Company agreed to pay
the expenses of registering the shares offered. The total
registration costs of the shares offered were approximately
$14,000.
Subsequent to the effective date of the registration,
Representative's Warrants were exercised to purchase 35,750
shares of Common Stock at an exercise price of $6.50 per share,
resulting in gross proceeds of approximately $232,375 to the
Company. The Advisor's Warrants have not been exercised.
9
<PAGE>
SPORT-HALEY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 7 COMMITMENTS
EMPLOYMENT AGREEMENTS:
Effective January 1, 1997, the Company, with the approval of its
Compensation Committee, entered into an Employment Agreements
(the "Agreements") with Robert G. Tomlinson ("Mr. Tomlinson") and
Robert W. Haley ("Mr. Haley") who currently serve as the
Company's Chief Executive Officer and President, respectively.
Pursuant to the terms of the Agreements, Messrs. Tomlinson and
Haley will continue to serve in their respective positions
through December 31, 1999. Annual bonuses, if any, will be
determined by the Company's Board of Directors.
CONSULTING AGREEMENT:
During May 1996, the Company entered into a consulting agreement
(the "Agreement") with Nancy Haley ("Ms. Haley") who formerly
served as an officer and director of the Company. The Agreement
provided for certain consulting services to be rendered in the
areas of product design, advertising and public relations. The
Agreement commenced June 1, 1996 with annual compensation of
$90,000 per year for three years, payable in equal monthly
installments of $7,500. The Agreement could be terminated by Ms.
Haley at any time after the first ninety (90) days of the
Agreement by giving written notice at least ten (10) days prior
to the date of termination. The Agreement provided for certain
covenants by Ms. Haley during the term of the Agreement which
included among other things, a covenant not to compete. On April 2,
1997, Ms. Haley gave her notice to terminate the Agreement.
10
<PAGE>
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 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. The revolving line of
credit now provides for a maximum loan amount of $10.0 million, under which no
amount was outstanding at March 31, 1997.
During the nine months ended March 31, 1997, current assets increased
approximately $2.356 million. Current liabilities during this same period
decreased by approximately $878,000. The Company utilized cash and cash
equivalents of approximately $1.625 million to repurchase and retire common
stock, $964,000 to acquire property and equipment, and a net of $1.432 million
in operating activities.
During the nine months ended March 31, 1997, the Company expended approximately
$964,000 for property and equipment. These expenditures relate to equipment and
leasehold improvements for headwear and embroidery operations. Also, at the
beginning of the fiscal year the Company removed approximately $200,000 of fully
depreciated and disposed assets.
Other assets decreased $1.231 million during the nine months ending March 31,
1997, primarily due to long-term investments being classified as short term
investments and marketable securities.
During the period ended March 31, 1997, long-term liabilities increased by
approximately $29,000 primarily due to an increase in deferred income tax
liability.
The Company received proceeds of approximately $1.337 million from the exercise
of stock options and warrants during the nine months ended March 31, 1997. As a
result of such issuances and the repurchase discussed above, the outstanding
shares of common stock increased by 111,868 shares. Stockholders' equity
increased by approximately $2.640 million for the nine month period ended March
31, 1997.
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.
11
<PAGE>
SPORT-HALEY, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
Net sales for the third quarter ended March 31, 1997 were approximately $8.823
million, an increase of approximately $3.217 million, or 57%, from net sales of
$5.606 million for the same quarter in the prior fiscal year. Net sales for the
nine months ended March 31, 1997 were $20.822 million, an increase of
approximately $7.275 million, or 54%, from net sales of $13.547 million for the
same nine month period 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, the introduction of the headwear and
element lines, an increase in the number of golf course professional shops that
carry the Company's apparel and an increase in corporate and international
sales.
The Company's gross profit increased by approximately $1.414 million or 61% to
$3.734 million for the quarter ended March 31, 1997 from approximately $2.320
million for the same quarter in the prior fiscal year. The gross profit for the
nine month period increased by approximately $3.097 million or 54% to $8.821
million from $5.724 million for the same nine month period in the prior fiscal
year. Gross profit as a percentage of net sales was 42% and 41% for the
quarters ended March 31, 1997 and 1996, respectively. For each nine month
periods ended March 31, 1997 and 1996, the Company's gross profit as a percent
of sales was 42%. The Company has demonstrated continued control of its cost of
goods even with its higher sales volume.
Selling, general and administrative expenses increased by approximately $597,000
or 49% to $1.826 million for the third quarter ended March 31, 1997 from $1.229
million for the same quarter in the prior fiscal year. For the nine months
ended March 31, 1997 selling, general and administrative expenses increased
approximately $1.702 million or 52% to $4.958 million from approximately $3.256
million for the same nine month period in the prior fiscal year. The increases
in both the third quarter and the nine month period can be attributed to costs
associated with the Company's new headwear division and retail store operation,
as well as commissions paid to independent sales representatives on a higher
sale volume.
Other income for the third quarter and nine months ended March 31, 1997
increased by approximately $30,000 and $330,000, respectively. The increase in
both the quarter and the nine month period can be attributed to an increase in
interest income generated by short and long-term investments and tax refunds of
approximately $165,000 recorded at December 31, 1996.
Cash settlement for stock options increased to approximately $360,000 for the
three months and nine months ended March 31, 1997. The Company acquired 30,909
of its non-qualified stock options from non-employee option holders in the
quarter ended March 31, 1997. The $360,000 cost represents a $(.05) net after
tax decrease to earnings per share. On April 1, 1997, the Company's Board of
Directors voted to terminate the "net issuance" repurchase offer. Accordingly,
the Company will no longer accept tendered offers to purchase non-qualified
stock options from option holders.
12
<PAGE>
SPORT-HALEY, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
Income before provision for income taxes increased by approximately $487,000 or
42% to $1.634 million for the quarter ended March 31, 1997, from approximately
$1.147 million for the same quarter in the prior fiscal year. For the nine
months ended March 31, 1997, income before provision for income taxes increased
approximately $1.375 million or 52% to $4.042 million from $2.667 million for
the same nine month period in the prior fiscal year.
For the three month and nine month periods ended March 31, 1997, net income
increased approximately $482,000 or 67% and $1.161 million or 70%, respectively,
when compared to the same three and nine month periods in the prior fiscal year.
Earnings were $.25 per share for the quarter ended March 31, 1997 as compared to
$.20 for the same quarter ended in the prior fiscal year. These per share
earnings are based on 4,760,524 and 3,594,779 weighted average common shares
outstanding for the 1997 and 1996 quarters, respectively. Earnings per share
for the nine month periods ended March 31, 1997 and 1996 were $.60 and $.47 and
were based on 4,731,414 and 3,529,805 weighted average common shares
outstanding, respectively.
FACTORS THAT MAY AFFECT OPERATING RESULTS
The statements contained in this Report on Form 10-QSB that are not purely
historical are 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, including statements regarding the Company's expectations, hopes,
intentions, beliefs or strategies regarding the future. All forward-looking
statements included in this document are based on information available to the
Company on the date hereof, and the Company assumes no obligation to update any
such forward looking statements. It is important to note that the Company's
actual results could differ materially from those in such forward-looking
statements. You should consult the risk factors listed from time to time in the
Company's Form 10-KSB, annual reports to shareholders and registration
statements filed under the Securities Act of 1933. Forward-looking statements
include those relating to (i) development and maintenance of brand loyalty for
Haley apparel, (ii) enhancement of sales of outerwear and headwear as a result
of existing relationships among the Company, its independent sales
representatives and golf course professional shop customers, (iii) success of
additional marketing initiatives to be undertaken by the Company, (iv) increases
in international sales as a result of distribution being obtained in the United
Kingdom, Ireland and Japan and new distribution in other countries, (v)
increased distribution through expansion of its network of independent sales
representatives and the golf professional shop customer base, (vi) expansion of
sales to corporate and tournament customers and capitalizing on additional
embroidery capacities, (vii) the Company's success in establishing its factory
outlet store, as well as its ability to obtain retail prices for its close-out
apparel sold to the factory outlet store, (viii) success of the Company in
forecasting demand for particular apparel styles and its success in establishing
production schedules and forecasts which accurately anticipate market demand,
(ix) that the Company will achieve increases in per-account sales, (x) the
Company's success in diversifying its market through increasing sales to large
corporate accounts and universities, and (xi) achievement of high gross profit
margins by targeting the premium and mid-priced
13
<PAGE>
SPORT-HALEY, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FACTORS THAT MAY AFFECT OPERATING RESULTS (CONTINUED)
fashion golf apparel market, controlling manufacturing costs and expansion of
the Company's apparel lines to include other high margin products. As a result
of the foregoing or other factors, there can be no assurance that the Company
will not experience material fluctuations in future operating results on a
quarterly or annual basis, which would materially and adversely affect the
Company's business, financial condition and results of operations. Forward-
looking statements included herein are based on assumptions that the Company
will continue to develop and introduce new products on a timely basis, that
competitive conditions within the fashion golf apparel industry will not change
materially or adversely, that demand for the Company's fashion golf apparel will
remain strong, that the market will accept the Company's new apparel lines, that
inventory risks due to shifts in market demand will be minimized, that the
Company's forecast will accurately anticipate market demand, and that there will
be no material adverse change in the Company's operations or business.
Assumptions relating to the foregoing involve judgments with respect to, among
other things, future economic, competitive and market conditions, and future
business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond the control of the Company. Although
the Company believes that the assumptions underlying the forward-looking
statements are reasonable, any of the assumptions could prove inaccurate and,
therefore, there can be no assurance that the forward-looking information will
prove to be accurate. In light of the significant uncertainties inherent in the
forward-looking information included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives or plans of the Company will be achieved.
14
<PAGE>
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
(a) The annual meeting of shareholders was held February 14, 1997.
(b) The following were elected directors with terms until their
successor shall have have been duly elected and qualified.
Votes for Votes withheld
Robert G. Tomlinson 3,641,874 187,919
Robert W. Haley 3,641,874 187,919
Mark J. Stevenson 3,644,374 185,419
Ronald J. Norick 3,641,874 187,919
James H. Everest 3,641,874 187,919
(c) To consider and act upon a proposal to approve amendments to,
and a restatement of, the Company's 1993 Stock Option Plan
("Plan") to (I) permit the issuance of an additional 250,000
shares of common stock pursuant to the Plan, and (II) to
simplify administration of the Plan in accordance with revisions
to Section 16 of the Securities Exchange Act of 1934.
For 2,345,457
Against 407,238
Abstain 10,581
Not voted 1,066,517
To ratify the appointment of Levine, Hughes & Mithuen, Inc. as
auditors of the Company.
For 3,871,248
Against 10,655
Abstain 1,890
(d) None.
ITEM 5 OTHER INFORMATION - NONE
15
<PAGE>
SPORT-HALEY, INC.
PART II
OTHER INFORMATION (CONTINUED)
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
10.1.3 AMENDED AND RESTATED OPTION PLAN
27 FINANCIAL DATA SCHEDULE
(B) REPORTS ON FORM 8-K - NONE
16
<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: May 12, 1997 /s/ Robert G. Tomlinson
-------------------------------------
Robert G. Tomlinson
Chief Executive Officer
Date: May 12, 1997 /s/ Steve S. Auger
-------------------------------------
Steve S. Auger
Chief Accounting Officer
17
<PAGE>
EXHIBIT 10.1.3
SPORT-HALEY, INC.
AMENDED AND RESTATED
1993 STOCK OPTION PLAN
1. PURPOSE
The purpose of this Plan is to promote the interest of the Corporation and
its shareholders and the Corporation's success by providing a method whereby
equity-based incentive Awards may be granted to Employees and Directors of the
Corporation and its Subsidiaries and to selected Consultants who, in the course
of their business activities, direct a significant amount of business to the
Corporation or provide services to the Corporation.
2. DEFINITIONS
A. "AWARD" means any form of stock option granted under the Plan.
B. "AWARD NOTICE" means any written notice from the Corporation to a
Participant or agreement between the Corporation and a Participant that
establishes the terms applicable to an Award.
C. "BOARD OF DIRECTORS" means the Board of Directors of the Corporation.
D. "CODE" means the Internal Revenue Code of 1986, as amended.
E. "COMMITTEE" means the Compensation Committee of the Board of
Directors, or such other committee designated by the Board of Directors, which
is authorized to administer the Plan under Section 3 hereof. The number of
persons who shall serve on the Committee shall be specified from time to time by
the Board of Directors; however, in no event shall there be fewer than two
members of the Committee. The Committee will be composed in a manner such that
the Plan will qualify under Rule 16b-3 with regard to Awards to persons who are
subject to Section 16 of the Exchange Act. If at any time the Committee has
fewer than two members or the Committee otherwise ceases to exist, then the Plan
shall be administered by the Board of Directors, and all references herein to
the Committee shall refer to the Board of Directors.
F. "COMMON STOCK" means Common Stock of the Corporation, no par value per
share.
G. "CONSULTANT" means any individual who renders services directly to the
Corporation or to the Corporation's customers, any individual defined and
designated from time to time by the Committee as a Consultant, or any individual
from a group of individuals defined and designated from time to time by the
Committee.
H. "CORPORATION" means Sport-Haley, Inc.
I. "DIRECTOR" means a member of the Board of Directors.
J. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
K. "FAIR MARKET VALUE" means, on any date, the average of the high and
low sales prices of the Common Stock on the principal national securities
exchange, which includes the National Association of Securities Dealers
Automated Quotation System (NASDAQ), on which such Common Stock is listed or
admitted to trading or if not traded on that date, then on the date last traded;
or if such Common Stock is not so listed or admitted to trading, the arithmetic
mean of the per share closing bid price and per share closing asked price on
such date as quoted on any other system of NASDAQ or such other market in which
such prices are regularly quoted; or if there have been no published bid or
asked quotations, the Committee shall, in good faith and in accordance with
Section 422 of the Code, establish the method for determining the Fair Market
Value of the Common Stock.
<PAGE>
L. "EMPLOYEE" means any employee of the Corporation or a Subsidiary whose
performance the Committee determines can have a significant effect on the
success of the Corporation.
M. "PARTICIPANT" means any individual to whom an Award is granted under
the Plan.
N. "PLAN" means this Plan, which shall be known as the Sport-Haley, Inc.
Restated 1993 Stock Option Plan.
O. "RULE 16b-3" means Rule 16b-3 promulgated under the Exchange Act, as
amended effective November 1, 1996, or any successor rule.
P. "SUBSIDIARY" means a corporation or other business entity (i) of which
the Corporation directly or indirectly has an ownership interest of 50% or more,
or (ii) of which it has a right to elect or appoint 50% or more of the board of
directors or other governing body.
3. ADMINISTRATION
A. The Plan shall be administered by the Committee. The Committee shall
have the authority to:
(i) construe and interpret the Plan;
(ii) promulgate, amend and rescind rules relating to the implementation of
the Plan;
(iii) make all determinations necessary or advisable for the
administration of the Plan, including the selection of Employees,
Directors and Consultants who shall be granted Awards, the number
of shares of Common Stock to be subject to each Award, the Award
price, the vesting or duration of Awards, and the designation of
Awards as incentive stock options or non-qualified stock options;
(iv) determine the disposition of Awards in the event of a Participant's
divorce or dissolution of marriage;
(v) determine whether Awards will be granted alone or in combination or in
tandem with other Awards; and
(vi) determine whether cash will be paid or Awards will be granted in
replacement of, or as alternatives to, other grants under the Plan or
any other incentive or compensation plan of the Corporation, a
Subsidiary or an acquired business unit; and
(vii) approve in advance each particular Award to be granted hereunder
in a manner which will cause the Award to be exempt from Section
16(b) of the Exchange Act by virtue of Rule 16b-3.
B. Subject to the requirements of applicable law, the Committee may
correct any defect, supply any omission, or reconcile any inconsistency in the
Plan, any Award, or any Award Notice; take any and all other actions it deems
necessary or advisable for the proper administration of the Plan; designate
persons other than members of the Committee to carry out its responsibilities;
and prescribe such conditions and limitations as it may deem appropriate; except
that the Committee may not delegate its authority with regard to the selection
for participation of, or the granting of Awards to, persons under Section 16 of
the Exchange Act. Any determination, decision, or action of the Committee in
connection with the construction, interpretation, administration, or application
of the Plan shall be final, conclusive and binding upon all persons validly
claiming under or through persons participating in the Plan.
C. The Committee may at any time, and from time to time amend or cancel
any outstanding Award, but only with the consent of the person to whom the Award
was granted.
-2-
<PAGE>
4. ELIGIBILITY
A. Any Employee is eligible to become a Participant in the Plan.
B. Directors who are not Employees of the Corporation or a Subsidiary
shall receive Awards in accordance with Section 7.
C. Consultants who are not Employees or Directors of the Corporation
shall be eligible to receive Awards in accordance with Section 8.
5. SHARES AVAILABLE
A. Subject to Section 13 of the Plan, the maximum number of shares of
Common Stock available for Award grants (including incentive stock options)
shall be 1,200,000. Shares of Common Stock subject to an unexercised and
expired or terminated Award shall be available for an Award subsequently granted
in accordance with the Plan.
6. TERM
The Plan became effective upon approval of the Plan by the Corporation's
stockholders on March 1, 1993 and shall continue in effect until February 28,
2003.
7. AWARDS TO NON-EMPLOYEE DIRECTORS
Options granted to Directors who are not Employees of the Corporation or a
Subsidiary shall be subject to the following terms:
(i) The exercise price shall be equal to 100% of the Fair Market Value of
the underlying shares of Common Stock on the date of the grant,
payable in accordance with the alternatives stated in Section 9.B.(ii)
of the Plan;
(ii) The term of the options shall not be greater than ten (10) years from
the date of the grant;
(iii) The options shall be exercisable beginning 6 months after the
date of the grant; and
(iv) The options shall be subject to Section 11 of the Plan.
8. AWARDS TO CONSULTANTS
Consultants shall receive Awards in accordance with the following terms:
A. No Awards of incentive stock options shall be made to Consultants.
B. Awards of non-qualified stock options to such Consultants shall be
subject to the following terms:
(i) The exercise price shall be not less than 100% of the Fair Market
Value of the underlying shares of Common Stock on the date of the
grant, payable in accordance with the alternatives stated in Sections
9.B(ii) and (iii) of the Plan;
(ii) The term of the options shall not be greater than ten (10) years from
the date of grant;
(iii) The options shall be exercisable beginning 12 months after the
date of the grant; and
(iv) The options shall be subject to Section 11 of the Plan.
-3-
<PAGE>
9. STOCK OPTIONS
A. Awards shall be granted in the form of stock options. Stock options
may be incentive stock options within the meaning of Section 422A of the Code or
non-qualified stock options (i.e., stock options which are not incentive stock
options).
B. Subject to Section 9.C. relating to incentive stock options and to
Sections 7 and 8 relating to awards to Directors who are not Employees and to
Consultants, options shall be in such form and contain such terms as the
Committee deems appropriate. While the terms of options need not be identical,
each option shall be subject to the following terms:
(i) The exercise price shall be the price set by the Committee but may not
be less than 100% of the Fair Market Value of the underlying shares of
Common Stock on the date of the grant.
(ii) The exercise price shall be paid in cash (including check, bank draft,
or money order), or at the discretion of the Committee, all or part of
the purchase price may be paid by delivery of the optionee's full
recourse promissory note, delivery of Common Stock already owned by
the Participant for at least six (6) months and valued at its Fair
Market Value, or any combination of the foregoing methods of payment.
In the case of incentive stock options, the terms of payment shall be
determined at the time of grant.
(iii) Promissory notes given as payment of the exercise price, if
permitted by the Committee, shall contain such terms as set by
the Committee which are not inconsistent with the following: the
unpaid principal shall bear interest at a rate set from time to
time by the Committee; payments of principal and interest shall
be made no less frequently than annually; no part of the note
shall be payable later than ten (10) years from the date of
purchase of the underlying shares of Common Stock; the note must
be negotiable and be secured by collateral, other than the shares
issued upon exercise, having a fair market value at least equal
to the principal amount of the note; and there must be an
obligation to pay independent of collateral.
(iv) The term of an option may not be greater than ten (10) years from the
date of the grant.
(v) Neither a person to whom an option is granted nor such person's legal
representative, heir, legatee or distributee shall be deemed to be the
holder of, or to have any of the rights of a holder or owner with
respect to, any shares of Common Stock subject to such option unless
and until such person has exercised the option.
C. The following special terms shall apply to grants of incentive stock
options:
(i) Subject to Section 9.C.(iii) of the Plan, the exercise price of each
incentive stock option shall not be less than 100% of the Fair Market
Value of the underlying shares of Common Stock on the date of the
grant.
(ii) No incentive stock option shall be granted to any Employee who
directly or indirectly owns stock possessing more than 10% of the
total combined voting power of all classes of stock of the
Corporation, unless at the time of such grant the exercise price of
the option is at least 110% of the Fair Market Value of the underlying
shares of Common Stock subject to the option and such option is not
exercisable after the expiration of five (5) years from the date of
the grant.
(iii) No incentive stock option shall be granted to a person in his
capacity as a Employee of a Subsidiary if the Corporation has
less than a 50% ownership interest in such Subsidiary.
-4-
<PAGE>
(iv) Options shall contain such other terms as may be necessary to qualify
the options granted therein as incentive stock options pursuant to
Section 422A of the Code, or any successor statute.
10. DEFERRAL OF AWARDS
At the discretion of the Committee, payment of an Award or any portion
thereof may be deferred until a time established by the Committee. Deferrals
shall be made in accordance with guidelines established by the Committee to
ensure that such deferrals comply with applicable requirements of the Code and
its regulations. Deferrals shall be initiated by the delivery of a written,
irrevocable election by the Participant to the Committee or its nominee. Such
election shall be made prior to the date specified by the Committee. The
Committee may also (A) credit interest equivalents on cash payments that are
deferred and set the rates of such interest equivalents and (B) credit dividends
equivalents on deferred payments denominated in the form of shares of Common
Stock.
11. EXERCISE OF STOCK OPTIONS UPON TERMINATION OF EMPLOYMENT OR SERVICES.
A. Options granted to Participants other than Consultants shall be
exercisable upon the Participant's termination of service within the following
periods only. The definition of termination of service applicable to
Consultants shall be defined and determined by the Committee in its sole
discretion. Subject to Section 19, stock options granted to Participants other
than Consultants may permit the exercise of options upon the Participant's
termination of employment within the following periods, or such shorter periods
as determined by the Committee at the time of grant:
(i) If on account of death, within twelve (12) months of such event by the
person or persons to whom the Participant's rights pass by will or the
laws of descent or distribution.
(ii) If on account of retirement (as defined from time to time by
Corporation policy), stock options may be exercised within three (3)
months of such termination.
(iii) If on account of resignation, options may be exercised within one
(1) month of such termination.
(iv) If for cause (as defined from time to time by Corporation policy), no
unexercised option shall be exercisable to any extent after
termination.
(v) If on account of disability or leave of absence for the purpose of
serving the government or the country in which the principal place of
employment of the Participant is located, either in a military or a
civilian capacity, or for such other purpose or reason as the
Committee may approve subsequent to the time of grant, a Participant
shall not be deemed during the period of any such absence alone to
have terminated his service, except as the Committee may otherwise
expressly provide.
(vi) If for any reason other than death, retirement, resignation, cause, or
disability, options may be exercised within three (3) months of such
termination.
B. An unexercised option shall be exercisable only to the extent that
such option was exercisable on the date the Participant's employment or service
terminated. Notwithstanding the foregoing, and except as provided in Section
11.A. above, terms relating to the exerciseability of options may be amended by
the Committee before or after such termination, except in respect to options
granted under Section 7.
C. In no case may an unexercised option be exercised to any extent by
anyone after expiration of its term.
-5-
<PAGE>
12. NONASSIGNABILITY
The rights of a Participant under the Plan or under an Award shall not be
assignable by such Participant, by operation of law or otherwise, except by will
or the laws of descent and distribution. During the lifetime of the Participant
to whom a stock option is granted, such Participant alone may exercise the stock
option. No Participant may create a lien on any funds, securities, rights or
other property to which such Participant may have an interest under the Plan, or
which is held by the Corporation for the account of the Participant under the
Plan.
13. ADJUSTMENT OF SHARES AVAILABLE
The Committee shall make appropriate and equitable adjustments in the
shares of Common Stock available for future Awards, the number of shares of
Common Stock covered by unexercised, unvested or unpaid Awards and the exercise
prices of Awards upon the subdivision of the outstanding shares of Common Stock;
the declaration of a dividend payable in Common Stock; the declaration of a
dividend payable in a form other than Common Stock in an amount that has a
material effect on the price of the shares of Common Stock; the combination or
consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise) into a lesser number of shares of Common Stock; a recapitalization;
or a similar event.
14. PAYMENT OF WITHHOLDING TAXES
As a condition to receiving or exercising an Award, as the case may be, the
Participant shall pay to the Corporation or any employer Subsidiary the amount
of all applicable Federal, state, local and foreign taxes required by law to be
paid or withheld relating to receipt or exercise of the Award. Alternatively,
the Corporation may withhold shares of Common Stock with an aggregate Fair
Market Value equal to such withholding taxes, from any Award in shares of Common
Stock, to the extent the withholding is required by law. The Corporation also
may deduct such withholding taxes from any Award paid in cash.
15. AMENDMENTS
The Board of Directors shall have the authority to amend the Plan from time
to time without Shareholder approval, provided however, that the adoption of any
such amendment shall be permitted by Rule 16b-3. Rights and obligations under
any Award granted before any amendment of the Plan shall not be materially
altered or impaired adversely by such amendment, except with consent of the
person to whom the Award was granted.
16. REGULATORY APPROVALS AND LISTINGS
Notwithstanding any other provision in the Plan, the Corporation shall have
no obligation to issue or deliver certificates for shares of Common Stock under
the Plan prior to (A) obtaining approval from any governmental agency which the
Corporation determines is necessary or advisable, (B) admission of such shares
to listing on the stock exchange on which the Common Stock may be listed, and
(C) completion of any registration or other qualification of such shares under
any state or Federal law or ruling of any governmental body which the
Corporation determines to be necessary or advisable.
17. NO RIGHT TO CONTINUED EMPLOYMENT OR GRANTS
Participation in the Plan shall not give any Employee any right to remain
in the employ of the Corporation or any Subsidiary. Further, the adoption of
this Plan shall not be deemed to give any Employee or other individual the right
to be selected as a Participant or to be granted an Award.
-6-
<PAGE>
18. NO RIGHT, TITLE, OR INTEREST IN CORPORATION ASSETS
No Participant shall have any rights as a shareholder of the Corporation
until he acquires an unconditional right under an Award to have shares of Common
Stock issued to him.
19. SPECIAL PROVISION PERTAINING TO PERSONS SUBJECT TO SECTION 16
A. Notwithstanding any other item of this Plan, the following shall apply
to persons subject to Section 16 of the Exchange Act who receive an Award prior
to February 14, 1996, except in the case of death or disability:
(i) Restricted stock or other equity securities (within the meaning
used in Rule 16b-3 of the Exchange Act or any successor rule)
offered pursuant to this Plan must be held for at least six (6)
months from the date of grant; and
(ii) At least six (6) months must elapse from the date of acquisition
of any stock option, Performance Unit, Performance Share, stock
appreciation right or other derivative security (within the
meaning used in Rule 16b-3 of the Exchange Act or any successor
rule) issued pursuant to the Plan to the date of disposition of
such derivative security (other than upon exercise or conversion)
or its underlying equity security.
B. The restrictions contained in paragraphs A(i) and (ii) of this Section
22 shall also apply to any Award made on or after February 14, 1996, to a person
subject to Section 16 of the Exchange Act without the advance approval of the
Committee in the manner described in paragraph 3A(vii) above. Such restrictions
shall be applied and construed in a manner which will cause the Award to be
exempt from Section 16(b) of the Exchange Act by virtue of Rule 16b-3.
20. INDEMNIFICATION
In addition to such other rights of indemnification as they may have as
Directors or otherwise, the members of the Board of Directors or the Committee
administering the Plan shall be indemnified by the Corporation against the
reasonable expenses, including attorneys' fees actually and necessarily incurred
in connection with the defense of any action, suit or proceeding, or in
connection with any appeal therein, to which they or any of them may be a party
by reason of any action taken or failure to act under or in connection with the
Plan or any Award granted thereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by legal counsel
selected by the Corporation) or paid by them in satisfaction of a judgment in
any such action, suit or proceeding, except in relation to matters as to which
it shall be adjudged in such action, suit or proceeding that such member is
liable for negligence or misconduct in the performance of his duties; provided
that within 60 days after institution of any such action, suit or proceeding,
the member shall in writing offer the Corporation the opportunity, at its own
expense, to handle and defend the same.
21. SAVINGS PROVISION
The amendment and restatement of the Plan as provided herein, effective
February 14, 1997, shall not adversely affect the rights of Participants to whom
an Award was granted under the Plan prior to such amendment and restatement.
22. GOVERNING LAW
The Plan shall be governed by and construed in accordance with the laws of
the State of Colorado.
-7-
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<PAGE>
<ARTICLE> 5
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<S> <C>
<PERIOD-TYPE> 9-MOS
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<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 7,203
<SECURITIES> 1,713
<RECEIVABLES> 6,180
<ALLOWANCES> 126
<INVENTORY> 10,475
<CURRENT-ASSETS> 1,545
<PP&E> 3,083
<DEPRECIATION> 717
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<BONDS> 0
0
0
<COMMON> 19,878
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<TOTAL-LIABILITY-AND-EQUITY> 29,557
<SALES> 20,822
<TOTAL-REVENUES> 20,822
<CGS> 12,001
<TOTAL-COSTS> 12,001
<OTHER-EXPENSES> 4,958
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<INCOME-TAX> 1,214
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