<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 DECEMBER 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 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 FEBRUARY 10, 1998
COMMON STOCK, NO PAR VALUE 4,492,962
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
<PAGE>
INDEX
<TABLE>
PAGE
----
<S> <C>
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
</TABLE>
<PAGE>
SPORT-HALEY, INC.
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
DECEMBER 31, JUNE 30,
1997 1997
------------ --------
(UNAUDITED) (NOTE)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8,600 $10,273
Short-term investments and marketable securities - 1,319
Accounts receivable, net of allowances of
$60,000 and $71,000, respectively 5,049 5,756
Inventories (Note 2) 14,143 9,982
Other current assets 1,105 1,116
------- -------
28,897 28,446
------- -------
Property and equipment 3,536 3,243
Property held under capital leases 7 7
Less, accumulated depreciation (1,092) (841)
------- -------
2,451 2,409
------- -------
Other assets:
Other assets 153 67
------- -------
$31,501 $ 30,922
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $522 $ 1,319
Capital lease obligations maturing within one year 2 2
Accrued income taxes (Note 3) - -
Accrued commissions and other expenses 2,582 874
------- -------
3,106 2,195
------- -------
Long-term liabilities:
Capital lease obligations, net of current maturities - 1
Other 10 20
------- -------
10 21
------- -------
3,116 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; 4,492,962 and
4,651,073 shares issued and outstanding,
respectively 18,347 20,440
Additional paid in capital 440 285
Unrealized losses on available for sale securities (129) (206)
Retained earnings 9,727 8,187
------- -------
28,385 28,706
------- -------
Total Liabilities and Stockholders' Equity $31,501 $ 30,922
------- -------
------- -------
</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 SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
----------- ----------- ----------- ----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales $ 6,464 $ 5,733 $ 13,299 $ 11,999
Cost of goods sold 4,059 3,266 8,317 6,902
---------- ---------- ---------- ----------
Gross profit 2,405 2,467 4,982 5,097
Selling, general and administrative expense 1,717 1,646 3,369 3,148
---------- ---------- ---------- ----------
Income from operations 688 821 1,613 1,949
Other income (expense):
Other income 193 289 352 459
Interest and other expense - - (52) -
---------- ---------- ---------- ----------
Income before income taxes 881 1,110 1,913 2,408
Provision for income taxes (Note 3) 92 279 372 780
---------- ---------- ---------- ----------
Net income $ 789 $ 831 $ 1,541 $ 1,628
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Basic earnings per common share $ 0.17 $ 0.19 $ 0.33 $ 0.37
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Diluted earnings per common share 0.17 0.18 0.33 0.35
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
4
<PAGE>
SPORT-HALEY, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
SIX MONTHS ENDED
DECEMBER 31,
1997 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,541 $ 1,628
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 274 198
Depreciation recorded as prepaid expense (6) (8)
Deferred taxes, net 4 7
(Decrease) increase in allowance for doubtful accounts 11 (7)
Deferred stock option compensation 155 50
Deferred rents 1 2
(Increase) decrease in assets:
Short-term investments to maturity 1,319 2,749
Accounts receivable 719 297
Inventory (4,162) (3,324)
Other current assets (93) (331)
(Increase) decrease in liabilities:
Accounts payable (366) (683)
Accrued commissions and other expenses 1,258 231
Accrued income taxes - (464)
---------- ----------
Net cash provided by operating activities 655 345
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligation (1) (1)
Net proceeds from issuance of common stock 395 271
Stock purchased and retired (2,488) (1,485)
---------- ----------
Net cash provided by financing activities $ (2,094) $ (1,215)
---------- ----------
</TABLE>
5
<PAGE>
SPORT-HALEY, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
SIX MONTHS ENDED
DECEMBER 31,
1997 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets $ (311) $ (814)
Disposal of assets 77 -
Investment in "available to sell" securities, net - (2,581)
------- -------
Net cash used by investing activities (234) (3,395)
------- -------
Net increase (decrease) in cash (1,673) (4,265)
CASH AND CASH EQUIVALENTS, BEGINNING 10,273 8,648
------- -------
CASH AND CASH EQUIVALENTS, ENDING $ 8,600 $ 4,383
------- -------
------- -------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes $ 466 $ 1,352
------- -------
------- -------
Interest $ - $ -
------- -------
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</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
At December 31, 1997, the Company has unrealized holding losses on
marketable securities of approximately $181,000 of which $52,000 has been
charged off in the Company's statement of income at December 31, 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 December 31, 1997 consist of the following:
<TABLE>
<S> <C>
Raw materials $ 6,411,093
Finished goods 7,732,003
-----------
$14,143,096
-----------
-----------
</TABLE>
NOTE 3 INCOME TAXES
The components of the deferred tax asset and net deferred tax liability
recognized in the accompanying balance sheet as of December 31, 1997,
are as follows:
<TABLE>
Current Long-Term
------- ---------
<S> <C> <C>
Deferred tax (liability) $ - $ (9,888)
Deferred tax asset 50,037 -
------- --------
$50,037 $ (9,888)
------- --------
------- --------
</TABLE>
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 December 31, 1997, as follows:
<TABLE>
Tax Effect
Difference Current Long-Term
---------- ------- ---------
<S> <C> <C> <C>
Loss on stock $206,022 $26,800 $ -
Allowance for doubtful accounts 59,583 23,237 -
Stock option compensation 320,856 - 125,134
Accumulated depreciation 346,211 - (135,022)
------- ---------
$50,037 $ (9,888)
------- ---------
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</TABLE>
The components of income tax expenses are as follows:
<TABLE>
<S> <C>
Current:
Federal $325,400
State 51,275
--------
376,675
--------
Deferred:
Federal (3,871)
State (611)
--------
(4,482)
--------
$372,193
--------
--------
</TABLE>
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. Additionally, the Board of Directors
authorized increases of 150,000 common shares during October, 1996 and
1997, respectively that may be repurchased thus bringing the total
common shares authorized for repurchases under the plan to 450,000
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.
8
<PAGE>
NOTE 4 REPURCHASE OF COMMON STOCK (continued)
As of December 31, 1997, the Company has repurchased 380,000 shares
of its common stock at a cost of approximately $4.479 million. From
January 1, 1998 through February 10, 1998 the Company repurchased an
additional 20,000 shares of its common stock.
NOTE 5 COMMON STOCK OPTIONS
At December 31, 1997, the Company had 422,075 options outstanding to
purchase common stock at prices ranging from $2.50 to $14.25, with
expiration dates between March 15, 2003 and November 13, 2007.
During the six months ended December 31, 1997 the Company issued
135,001 option shares. Additionally, option holders exercised and
purchased 53,326 shares of the Company's common stock and the Company
realized gross proceeds of approximately $395,000 from the sale and
exercise of these options. During the six months ending December 31,
1997, the Company cancelled 27,152 options for individuals no longer
covered under the Company's option plan.
Included in the Company's six month net income is a charge of
approximately $155,000, 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 have been restated.
<TABLE>
THREE MONTHS ENDED DECEMBER 31, 1997
------------------------------------
Net
Income Shares Per Share
-------- --------- ---------
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE
Income available
to common shareholders $789,000 4,600,992 $0.17
-----
-----
Effect of Dilutive Securities
Warrants 17,242
Options, net of future tax benefit 42,615
-------- ---------
DILUTED EARNINGS PER SHARE $789,000 4,660,849 $0.17
-------- --------- -----
-------- --------- -----
</TABLE>
9
<PAGE>
SPORT-HALEY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 6 EARNINGS PER SHARE (continued)
<TABLE>
SIX MONTHS ENDED DECEMBER 31, 1997
----------------------------------
Net
Income Shares Per Share
---------- --------- ---------
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE
Income available
to common shareholders $1,541,000 4,630,563 $0.33
-----
-----
Effect of Dilutive Securities
Warrants 17,242
Options, net of future tax benefit 42,615
---------- ---------
DILUTED EARNINGS PER SHARE $1,541,000 4,690,420 $0.33
---------- --------- -----
---------- --------- -----
</TABLE>
<TABLE>
THREE MONTHS ENDED DECEMBER 31, 1996
---------------------------------------
Net
Income Shares Per Share Amount
-------- --------- ----------------
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE
Income available
to common shareholders $831,000 4,353,580 $0.19
-----
-----
Effect of Diluted Securities
Warrants 44,576
Options 255,020
-------- ---------
DILUTED EARNINGS PER SHARE $831,000 4,653,176 $0.18
-------- --------- -----
-------- --------- -----
</TABLE>
<TABLE>
SIX MONTHS ENDED DECEMBER 31, 1996
----------------------------------------
Net
Income Shares Per Share Amount
---------- --------- ----------------
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE
Income available
to common shareholders $1,628,000 4,388,862 $0.37
-----
-----
Effect of Diluted Securities
Warrants 44,576
Options 255,020
---------- ---------
DILUTED EARNINGS PER SHARE $1,628,000 4,688,458 $0.35
---------- --------- -----
---------- --------- -----
</TABLE>
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 six months ended December 31, 1997, current assets and current
liabilities increased by approximately $451,000 and $911,000, respectively.
For the six months ended December 31, 1997, the Company spent approximately
$311,000 for property and equipment. These expenditures were for office
furniture and equipment.
The Company received proceeds of approximately $395,000 from the exercise of
stock options and warrants during the six months ended December 31, 1997.
Stockholders' equity decreased by approximately $321,000 for the six month
period. Net income increased stockholders' equity by approximately $1.5 million
while the Company expended approximately $2.5 million to repurchase 220,000
shares of its common stock.
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 second quarter ended December 31, 1997, were approximately
$6.5 million, an increase of approximately $731,000, or 13%, from net sales of
$5.7 million for the same quarter in the prior fiscal year. Net sales for the
six months ended December 31, 1997 were $13.3 million. This is an increase of
$1.3 million or 11%, over the same six month period of fiscal 1997.
The Company's second quarter ended December 31, 1997 experienced lower than
expected sales and net income resulting from the continuing effect of the UPS
strike. The effect of the UPS strike resulted in canceled sales orders and
increased returns and allowances from late shipments during the first quarter.
The UPS strike caused the delay in the shipment of raw materials to the
Company's manufacturers and the delivery of finished product to the Company.
The Company's gross profit declined approximately $62,000 and $115,000 for the
three months and the six months ended December 31, 1997. Gross profit as a
percentage of sales declined to 37% from 43% and 37% from 42% for the three
months and six month periods, respectively.
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 $71,000
or 4% for the second quarter ended December 31, 1997, from $1.6 million for the
same quarter in the prior fiscal year. For the six months ended December 31,
1997, these costs increased by approximately $221,000, or 7% from $3.1 million
in the same six month period in the prior fiscal year. The increase for both
periods can be attributed to personnel additions necessary to handle increased
sales volume, commissions paid to independent sales representatives on higher
sales volume, increased advertising and general administration expenditures.
Other income (expense) decreased by approximately $96,000 and $159,000 for the
three months and the six months ended December 31, 1997 as compared to the same
quarter in the prior fiscal year. The decrease can be attributed to lower cash
balances available for investing, resulting in lower interest income, and the
write down in the carrying value of an investment held available for sale.
Income before provision for income taxes decreased by approximately $229,000, or
21%, for the second fiscal quarter ended December 31, 1997, from $1.1 million
for the same quarter in the prior fiscal year. Income before provisions for
income taxes decreased by approximately $495,000 or 21% for the six months ended
December 31, 1997, from $2.4 million in the same period in the prior fiscal
year.
The Company's effective tax rates for the quarters ended December 31, 1997
and December 31, 1996 were approximately 10% and 25%, respectively. The
effective tax rates for the six month periods ended December 31, 1997 and
1996, were 19% and 32%, respectively. The decrease in the effective rate for
the fiscal 1998 periods are due to certain stock option tax deductions net of
FASB 123-Accounting for Stock Based Compensation book deductions.
For the three month and the six month periods ended December 31, 1997, net
income declined by approximately $42,000 or 5% and $87,000 or 5%, respectively,
when compared to the same three and the six month periods in the prior fiscal
year.
Both the basic and diluted earnings per share were $.17, respectively, for the
second quarter ended December 31, 1997. This compares to basic and diluted
earnings per share of $.19 and $.18, respectively, for the same quarter in
fiscal 1997. The six month basic and diluted earnings per share at December 31,
1997 were both $.33, respectively. This compares to basic and diluted earnings
per share of $.37 and $.35 per share, respectively, for the same six month
period in fiscal 1997.
12
<PAGE>
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
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: February 12, 1998 /s/ Robert G. Tomlinson
----------------- ---------------------------------------
Robert G. Tomlinson
Chief Executive Officer
Date: February 12, 1998 /s/ Steve S. Auger
----------------- ---------------------------------------
Steve S. Auger
Chief Accounting Officer
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 8,600
<SECURITIES> 0
<RECEIVABLES> 5,049
<ALLOWANCES> 60
<INVENTORY> 14,143
<CURRENT-ASSETS> 28,897
<PP&E> 3,543
<DEPRECIATION> 1,092
<TOTAL-ASSETS> 31,501
<CURRENT-LIABILITIES> 3,106
<BONDS> 0
0
0
<COMMON> 18,347
<OTHER-SE> 10,038
<TOTAL-LIABILITY-AND-EQUITY> 31,501
<SALES> 13,299
<TOTAL-REVENUES> 13,299
<CGS> 8,317
<TOTAL-COSTS> 8,317
<OTHER-EXPENSES> 3,369
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,913
<INCOME-TAX> 372
<INCOME-CONTINUING> 1,541
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,541
<EPS-PRIMARY> .33
<EPS-DILUTED> .33
</TABLE>
