<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, 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 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 NOVEMBER 8, 1997
COMMON STOCK, NO PAR VALUE 4,592,962
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 OPERATIONS 11-12
PART II - OTHER INFORMATION 13
SIGNATURE 14
<PAGE>
SPORT-HALEY, INC.
BALANCE SHEETS
(IN THOUSANDS)
SEPTEMBER 30, JUNE 30,
1997 1997
----------- -----------
(UNAUDITED) (NOTE)
ASSETS
Current assets:
Cash and cash equivalents $ 11,031 $ 10,273
Short-term investments and marketable securities 1,991 1,319
Accounts receivable, net of allowances of
$164,000 and $71,000, respectively 5,283 5,756
Inventories (Note 2) 10,756 9,982
Other current assets 1,281 1,116
----------- -----------
30,342 28,446
----------- -----------
Property and equipment 3,397 3,243
Property held under capital leases 7 7
Less, accumulated depreciation (973) (841)
----------- -----------
2,431 2,409
----------- -----------
Other assets:
Other assets 60 67
----------- -----------
60 67
----------- -----------
$ 32,833 $ 30,922
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,345 $ 1,319
Capital lease obligations maturing within one year 1 2
Accrued income taxes (Note 3) 302 -
Accrued commissions and other expenses 1,489 874
----------- -----------
3,137 2,195
----------- -----------
Long-term liabilities:
Capital lease obligations, net of current maturities 1 1
Other 16 20
----------- -----------
17 21
----------- -----------
3,154 2,216
----------- -----------
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; 4,669,399 and
4,651,073 shares issued and outstanding,
respectively 20,552 20,440
Additional paid in capital 352 285
Unrealized losses on available for sale securities (164) (206)
Retained earnings 8,939 8,187
----------- -----------
29,679 28,706
----------- -----------
Total Liabilities and Stockholders' Equity $ 32,833 $ 30,922
----------- -----------
----------- -----------
Note: Taken from the audited balance sheet at that date.
3
<PAGE>
SPORT-HALEY, INC.
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
SEPTEMBER 30,
1997 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
Net sales $ 6,835 $ 6,266
Cost of goods sold 4,258 3,646
-------- --------
Gross profit 2,577 2,620
Selling, general and administrative expense 1,652 1,486
-------- --------
Income from operations 925 1,134
Other income (expense):
Other income, net 107 164
-------- --------
Income before income taxes 1,032 1,298
Provision for income taxes (Note 3) 280 501
-------- --------
Net income $ 752 $ 797
-------- --------
-------- --------
Basic earnings per common share $ 0.16 $ 0.18
-------- --------
-------- --------
Diluted earnings per common share $ 0.16 $ 0.17
-------- --------
-------- --------
4
<PAGE>
SPORT-HALEY, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
THREE MONTHS ENDED
SEPTEMBER 30,
1997 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 752 $ 797
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 132 81
Amortization of investment premium 17 -
Allowance for doubtful accounts 93 (3)
Deferred rents - 1
Stock option compensation 67 -
Realized loss on investment 52 -
(Increase) decrease in assets:
Short-term investments to maturity (699) 1,489
Accounts receivable 380 475
Inventory (774) (900)
Other current assets (165) (29)
Other assets 7 -
(Increase) decrease in liabilities:
Accounts payable 26 (827)
Accrued commissions and other expenses 615 (254)
Accrued income taxes 302 21
Other liabilities (4) (1)
----------- -----------
Net cash used by operating activities 801 850
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligation (1) (1)
Net proceeds from issuance of common stock 112 54
----------- -----------
Net cash provided by financing activities $ 111 $ 53
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5
<PAGE>
SPORT-HALEY, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
THREE MONTHS ENDED
SEPTEMBER 30,
1997 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets $ (154) $ (702)
Disposal of assets - (15)
Investment in "available to sell" securities, net - (651)
----------- -----------
Net cash used by investing activities (154) (1,368)
----------- -----------
Net increase (decrease) in cash 758 (465)
CASH AND CASH EQUIVALENTS, BEGINNING 10,273 8,648
----------- -----------
CASH AND CASH EQUIVALENTS, ENDING $ 11,031 $ 8,183
----------- -----------
----------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes $ 4 $ 466
----------- -----------
----------- -----------
Interest $ - $ -
----------- -----------
----------- -----------
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
At September 30, 1997, the Company has unrealized holding losses on
marketable securities of approximately $216,000 of which $52,000 is
reflected in the Company's Statements of Income at September 30, 1997.
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, 1997. 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, 1997 consist of the following:
Raw materials $ 5,898,768
Finished goods 4,856,858
-----------
$10,755,626
-----------
-----------
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, 1997, are as follows:
Current Long-Term
------- ---------
Deferred tax (liability) $ - $(15,657)
Deferred tax asset 90,925 -
------- --------
$90,925 $(15,657)
------- --------
------- --------
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, 1997, as follows:
Tax Effect
Difference Current Long-Term
---------- ------- ---------
Loss on stock $206,022 $26,800 $ -
Allowance for doubtful accounts 164,483 64,125 -
Stock option compensation 233,773 - 91,171
Accumulated depreciation 273,918 - (106,828)
------- ---------
$90,925 $ (15,657)
------- ---------
------- ---------
The components of income tax expenses are as follows:
Current:
Federal $276,200
State 42,800
--------
319,000
--------
Deferred:
Federal (34,018)
State (5,273)
--------
(39,291)
--------
$279,709
--------
--------
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. 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 under the plan to 300,000 shares.
The repurchase of the Company's common stock is based upon the Board
of Director's belief the Company's common stock is underpriced given
its earnings and prospects for future operations. 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, 1997, the Company has
repurchased 160,000 shares of its common stock at a cost of
approximately $1.991 million.
8
<PAGE>
SPORT-HALEY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 4 REPURCHASE OF COMMON STOCK (continued)
During October 1997, the Company's Board of Directors authorized
another increase of an additional 150,000 common shares that the
Company may repurchase thus bringing the total common shares
authorized for repurchase to 450,000. From October 1, 1997 through
November 12, 1997, the Company repurchased an additional 170,000
shares of its common stock.
NOTE 5 COMMON STOCK OPTIONS
At September 30, 1997, the Company had 327,075 options outstanding to
purchase common stock at prices ranging from $2.50 to $14.25, with
expiration dates between March 15, 2002 and February 13, 2007. During
the three months ended September 30, 1997, option holders exercised
and purchased 18,326 shares of the Company's common stock. The
Company realized gross proceeds of approximately $112,000. During the
quarter ending September 30, 1997, the Company cancelled 22,152
options for individuals no longer covered under the Company's option
plan.
Included in the Company's first quarter net income is a charge of
approximately $67,000 which is a result of FASB 123-Accounting for
Stock Based Compensation.
NOTE 6 EARNINGS PER SHARE
The following tables reflect the Company's adoption of Financial
Accounting Standards Statement No. 128, Earnings Per Share.
Accordingly, the prior-period earnings per share has been restated.
FOR THE PERIOD ENDED
SEPTEMBER 30, 1997
---------------------------------
Net
Income Shares Per Share
-------- --------- ---------
BASIC EARNINGS PER SHARE
Income available
to common shareholders $752,000 4,659,185 $ 0.16
-------
-------
Effect of Dilutive Securities
Warrants 28,183
Options 112,437
-------- ---------
Diluted Earnings Per Share $752,000 4,799,805 $ 0.16
-------- --------- -------
-------- --------- -------
9
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SPORT-HALEY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 6 EARNINGS PER SHARE (continued)
FOR THE PERIOD ENDED
SEPTEMBER 30, 1997
---------------------------------
Net Per Share
Income Shares Amount
-------- --------- ---------
BASIC EARNINGS PER SHARE
Income available
to common shareholders $797,000 4,424,144 $ 0.18
-------
-------
Effect of Diluted Securities
Warrants 45,009
Options 271,547
-------- ---------
Diluted Earnings Per Share $797,000 4,740,700 $ 0.17
-------- --------- -------
-------- --------- -------
NOTE 7 SUBSEQUENT EVENT
On October 31, 1997, the Company renewed its line of credit agreement
with a bank which permits borrowings of up to $10 million. The new
line of credit agreement expires November 5, 1999, 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, 1997 there were no borrowings outstanding on the line of
credit.
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 improve as a result of growth
in net sales, and increase in net income. The Company intends to rely on
cash generated from operations and investments 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.
During the quarter ended September 30, 1997, current assets and current
liabilities increased by approximately $1.896 million and $942,000,
respectively.
For the three months ended September 30, 1997, the Company spent
approximately $154,000 for property and equipment. These expenditures relate
to office furniture and equipment.
The Company received proceeds of approximately $112,000 from the exercise of
stock options during the quarter ended September 30, 1997. Stockholders'
equity increased by approximately $973,000 for the quarter resulting
primarily from net income of $752,000.
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, 1997, were approximately
$6.8 million, an increase of approximately $570,000, or 9%, from net sales of
$6.3 million for the same quarter in the prior fiscal year. The increase in
net sales is due to a combination of factors, including a wider distribution
of the women's and men's product lines, and the Company's newly formed
headwear line.
The Company's gross profit, as a percentage of net sales, declined to 38%
from 42% but was approximately $2.6 million for the quarter ended September
30, 1997, and for the same quarter in the prior fiscal year.
11
<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
$166,000 or 11% for the first quarter ended September 30, 1997, from $1.5
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 and general administration expenditures.
Other income (expense) decreased by approximately $57,000 for the first
fiscal quarter ended September 30, 1997 as compared to the same quarter in
the prior fiscal year. The decrease can be attributed to the write down in
the carrying value of an investment held for sale.
Income before provision for income taxes decreased by approximately $266,000,
or 20%, for the first fiscal quarter ended September 30, 1997, from $1.3
million for the same quarter in the prior fiscal year.
The Company's effective tax rates for the quarters ended September 30, 1997
and September 30, 1996 were approximately 27% and 38%, respectively. The
decrease in the effective rate for the current quarter was due to certain
stock option tax deductions net of FASB 123-Accounting for Stock Based
Compensation book deductions.
Net income decreased by approximately $45,000 or 6% for the first fiscal
quarter ended September 30, 1997 from approximately $797,000 for the same
quarter in the prior fiscal year.
Basic and diluted earnings per share was $.16 for the quarter ended September
30, 1997. This compares to basic and diluted earnings per share of $18 and
$.17 per share for the same quarter in the prior fiscal year.
12
<PAGE>
SPORT-HALEY, INC.
PART II
OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS -
On August 28, 1997, the Company filed a complaint, titled SPORT-HALEY,
INC. V. NANCY HALEY, in the District Court, County of Jefferson,
State of Colorado, relating to a consulting agreement (the
"Agreement") entered into in May 1996 between the Company and Ms.
Haley, a former officer, director and principal shareholder of the
Company. The Agreement provided for Ms. Haley to render certain
consulting services and contained certain covenants by Ms. Haley which
included, among others, a covenant not to compete during the term of
the agreement and a covenant not to interfere with any business
relationship of the Company. The Agreement commenced June 1, 1996 and
Ms. Haley terminated the Agreement in April 1997. The Company alleges
in its complaint that Ms. Haley breached the Agreement by forming a
competing company while she was being paid by the Company as a
consultant and by interfering and attempting to interfere with the
Company's business relationship with its sales representatives. The
Company seeks such damages as may be proven at trial for breach of the
Agreement, breach of duty of loyalty and interference with contracts
as well as interest, costs and reasonable attorney's fees. Ms. Haley,
through counsel, has filed counter claims against the Company and has
joined Robert G. Tomlinson, Chief Executive Officer of the Company, as
a party to the action.
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
27 FINANCIAL DATA SCHEDULE
(B) REPORTS ON FORM 8-K -
Form 8-K was filed on October 28, 1997, wherein the registrant's
board of directors increased the total number of shares of common
stock that the registrant may repurchase from 300,000 shares to
450,000 shares.
13
<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 12, 1997 /s/ Robert G. Tomlinson
----------------- ----------------------------
Robert G. Tomlinson
Chief Executive Officer
Date: November 12, 1997 /s/ Steve S. Auger
----------------- ----------------------------
Steve S. Auger
Chief Accounting Officer
14
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<PAGE>
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 11,031
<SECURITIES> 1,991
<RECEIVABLES> 5,283
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0
0
<COMMON> 20,552
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<EPS-PRIMARY> .16
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