<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
--- EXCHANGE ACT
COMMISSION FILE NO. 1-12888
SPORT-HALEY, INC.
(Exact name of small business issuer as specified in its charter)
COLORADO 84-1111669
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4600 E. 48TH AVENUE, DENVER, COLORADO 80216
(Address of principal executive offices)
(303) 320-8800
(Issuer's telephone number including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days: Yes /X/
No / /
State the number of shares outstanding in each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT DECEMBER 31, 2000
COMMON STOCK, NO PAR VALUE 3,460,385
Transitional Small Business Disclosure Format (check one): Yes / / No /X/
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART 1 - CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS 3
CONSOLIDATED STATEMENTS OF INCOME 4
CONSOLIDATED STATEMENTS OF CASH FLOWS 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 13
PART II - OTHER INFORMATION 19
SIGNATURES 20
</TABLE>
<PAGE>
SPORT-HALEY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARES OF STOCK)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 1999
------------ --------
(UNAUDITED) (***)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,596 $ 8,581
Accounts receivable, net of allowances of
$112 and $183, respectively 3,595 5,466
Inventories 11,608 11,887
Other current assets 925 1,023
Deferred taxes 110 145
------- -------
Total current assets 24,834 27,102
Property and equipment, net 2,292 2,456
Net assets of discontinued operations, net -- 46
Goodwill 74 84
Deferred taxes 209 162
Other assets 175 305
------- -------
Total Assets $27,584 $30,155
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit $ 600 $ 600
Accounts payable 390 789
Accrued commissions and other expenses 469 744
------- -------
Total current liabilities 1,459 2,133
------- -------
Shareholders' equity:
Preferred stock, no par value; 1,500,000 shares
authorized; none issued and outstanding -- --
Common stock, no par value; 15,000,000 shares
authorized; 3,697,052 and 4,257,552 shares issued
and outstanding, respectively 14,052 16,355
Additional paid-in capital 1,831 1,725
Retained earnings 10,242 9,942
------- -------
Total shareholders' equity 26,125 28,022
------- -------
Total Liabilities and Shareholders' Equity $27,584 $30,155
======= =======
</TABLE>
*** Taken from the audited balance sheet at that date.
See accompanying notes to consolidated financial statements.
3
<PAGE>
SPORT-HALEY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998
----------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales $ 4,726 $ 5,562 $ 9,962 $ 12,909
Cost of goods sold 3,067 3,730 6,545 7,846
-------- -------- -------- --------
Gross profit 1,659 1,832 3,417 5,063
Selling, general and
administrative expense 1,604 1,675 3,249 3,707
-------- -------- -------- --------
Income from operations 55 157 168 1,356
Other income, net 113 111 323 230
-------- -------- -------- --------
Income from continuing operations
before minority loss and
provision for income taxes 168 268 491 1,586
Minority loss -- 54 -- 60
Provision for income taxes (72) (173) (191) (678)
-------- -------- -------- --------
Income from continuing operations 96 149 300 968
Discontinued operations:
Loss from discontinued operations,
net of income tax benefit of 0, 17, 0,
and 17, respectively -- (26) -- (27)
-------- -------- -------- --------
Net income $ 96 $ 123 $ 300 $ 941
======== ======== ======== ========
Basic and diluted earnings
per common share $ 0.03 $ 0.03 $ 0.08 $ 0.21
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
SPORT-HALEY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
-------------------------------
AS AS
AMENDED AMENDED
1999 1998
---------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 300 $ 941
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 317 319
Deferred taxes and other (36) (42)
Allowance for doubtful accounts 206 57
Allowance for sales returns (28) --
Stock option compensation 105 131
Minority interest -- (60)
Cash provided (used) due to changes in assets and liabilities:
Accounts receivable 1,693 1,637
Inventory 279 380
Other assets 252 (611)
Accounts payable (399) (1,527)
Accrued commissions and other expenses (274) (514)
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,415 711
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Redemption of held-to-maturity investments -- 2,000
Sale of fixed assets 54 45
Purchase of fixed assets (150) (476)
Purchase of held-to-maturity investments -- (983)
------- -------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (96) 586
------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
SPORT-HALEY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
-------------------------------
AS AS
AMENDED AMENDED
1999 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Advance on note payable $ -- $ 99
Net proceeds from issuance of common stock 11 46
Repurchase of common stock (2,315) (1,138)
------- -------
NET CASH USED BY FINANCING ACTIVITIES (2,304) (993)
------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS 15 304
CASH AND CASH EQUIVALENTS, BEGINNING 8,581 4,505
------- -------
CASH AND CASH EQUIVALENTS, ENDING $ 8,596 $ 4,809
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes $ -- $ 694
======= =======
Interest $ 24 $ 22
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
SPORT-HALEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements included herein have been prepared by
Sport-Haley, Inc. (the "Company") without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in the financial statements
prepared in accordance with generally accepted accounting principles have
been condensed or omitted as allowed by such rules and regulations. The
Company believes that the disclosures are adequate to make the information
presented not misleading. These financial statements should be read in
conjunction with the Company's annual audited consolidated financial
statements dated June 30, 2000, included in the Company's annual report on
Form 10-K as filed with the Securities and Exchange Commission. The results
for interim periods are not necessarily indicative of results that may be
expected for any other interim period or for the full year.
The management of the Company believes that the accompanying unaudited
condensed consolidated financial statements prepared in conformity with
generally accepted accounting principles, which require the use of
management estimates, contain all adjustments (including normal recurring
adjustments) necessary to present fairly the operations and cash flows for
the periods presented.
The consolidated financial statements include the accounts of Sport-Haley,
Inc., and its subsidiary, B&L Sportswear, Inc. (collectively referred to as
the Company). All significant inter-company accounts and transactions have
been eliminated.
NOTE 2 RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
The Company determined that its prior year financial statements required
restatement. The restatement resulted from corrections related to
accounting for work-in-progress inventory, capitalization of certain
prepaid and fixed assets, the acquisition of the Company's subsidiary and
the related minority interest in the subsidiary's losses, certain losses
relating to discontinued operations and the income tax benefit from stock
options exercised.
The following comparison of consolidated statements of income for the three
months and six months ended December 31, 1999 and 1998 present the effects
resulting from restating the Company's financial statements for the
aforementioned reasons, as applicable to these amended interim financial
statements.
7
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SPORT-HALEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA)
------------------------------------------------------------------------
AS PREVIOUSLY AS AS PREVIOUSLY AS
REPORTED AMENDED REPORTED AMENDED
1999 1999 1998 1998
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales $ 4,726 $ 4,726 $ 5,574 $ 5,562
Cost of goods sold 3,378 3,067 3,673 3,730
------- ------- ------- -------
Gross profit 1,348 1,659 1,901 1,832
Selling, general and
administrative expense 1,688 1,604 1,601 1,675
------- ------- ------- -------
Income (loss) from operations (340) 55 300 157
Other income, net 290 113 112 111
------- ------- ------- -------
Income (loss) from continuing operations
before minority loss and
provision for income taxes (50) 168 412 268
Minority loss 8 -- 85 54
Provision for income taxes 78 (72) (199) (173)
------- ------- ------- -------
Income from continuing operations 36 96 298 149
Discontinued operations:
Loss from discontinued operations,
net of income tax benefit of 0, 0, 17,
and 17, respectively -- -- (26) (26)
Loss on disposal of assets, net of
income tax benefit of 65, 0, 0,
and 0, respectively (101) -- -- --
------- ------- ------- -------
Net Income (Loss) $ (65) $ 96 $ 272 $ 123
======= ======= ======= =======
Basic and diluted earnings
per common share $ (0.01) $ 0.03 $ 0.07 $ 0.03
======= ======= ======= =======
</TABLE>
8
<PAGE>
SPORT-HALEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA)
---------------------------------------------------------------------------
AS PREVIOUSLY AS AS PREVIOUSLY AS
REPORTED AMENDED REPORTED AMENDED
1999 1999 1998 1998
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales $ 9,934 $ 9,962 $ 12,921 $ 12,909
Cost of goods sold 6,934 6,545 8,191 7,846
-------- -------- -------- --------
Gross profit 3,000 3,417 4,730 5,063
Selling, general and
administrative expense 3,230 3,249 3,384 3,707
-------- -------- -------- --------
Income (loss) from operations (230) 168 1,346 1,356
Other income, net 415 323 231 230
-------- -------- -------- --------
Income from continuing operations
before minority loss and
provision for income taxes 185 491 1,577 1,586
Minority loss 11 -- 98 60
Provision for income taxes (14) (191) (549) (678)
-------- -------- -------- --------
Income from continuing operations 182 300 1,126 968
Discontinued operations:
Loss from continuing operations,
net of income tax benefit of 0,0,17,
and 17, respectively -- -- (27) (27)
Loss on disposal of assets, net of
income tax benefit of 101, 0, 0
and 0, respectively (158) -- -- --
-------- -------- -------- --------
Net income $ 24 $ 300 $ 1,099 $ 941
======== ======== ======== ========
Basic and diluted earnings
per common share $ 0.01 $ 0.08 $ 0.25 $ 0.21
======== ======== ======== ========
</TABLE>
9
<PAGE>
SPORT-HALEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 REPURCHASE OF COMMON STOCK
The Company's Board of Directors authorized the repurchase of up to
1,820,000 shares of the Company's issued and outstanding common stock. The
shares may be repurchased from time to time in open market transactions at
prevailing market prices or in privately negotiated transactions. The
Company has no commitment or obligation to repurchase all or any portion of
the shares authorized for repurchase. All shares repurchased by the Company
are canceled and returned to the status of authorized but unissued common
stock.
Through December 31, 1999, the Company repurchased a total of 1,252,000
shares of its common stock at a cumulative cost of approximately $9.3
million.
NOTE 4 COMMON STOCK OPTIONS
During October 1999, the Board of Directors authorized a 100,000 share
increase in the maximum number of shares of common stock available for
award grants (including incentive stock options). As of December 31, 1999,
the maximum number of shares of common stock available for award grants was
1,450,000.
At December 31, 1999, there were outstanding options to purchase 390,214
shares of the Company's common stock at prices ranging from $2.50 to
$10.63, with expiration dates between March 15, 2002, and January 4, 2009.
During the six months ended December 31, 1999, 4,500 options were exercised
at a price of $2.50 per share.
In January 2000, the Compensation Committee of the Board of Directors
granted to certain employees the option to collectively purchase 166,000
shares of common stock at a price of $3.00 per share. Those options expire
on January 5, 2010.
10
<PAGE>
SPORT-HALEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 EARNINGS PER SHARE
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 128, EARNINGS PER SHARE, (SFAS No. 128) effective with the
year ended June 30, 1998. SFAS No. 128 requires the presentation of basic
and diluted earnings per common share. The following table provides a
reconciliation of the numerator and denominator of basic and diluted
earnings per common share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31, 1999
--------------------------------------------------
NET WEIGHTED
INCOME AVERAGE SHARES PER SHARE
--------- -------------- ---------
<S> <C> <C> <C>
EARNINGS PER COMMON SHARE
Basic earnings per share $ 96,000 3,771,242 $ 0.03
Effect of dilutive securities
options and warrants -- 3,902 --
--------- --------- --------
Diluted earnings per share $ 96,000 3,775,144 $ 0.03
========= ========= ========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 31, 1999
--------------------------------------------------
NET WEIGHTED
INCOME AVERAGE SHARES PER SHARE
--------- -------------- ---------
<S> <C> <C> <C>
EARNINGS PER COMMON SHARE
Basic earnings per share $ 300,000 3,862,647 $ 0.08
Effect of dilutive securities
options and warrants -- 4,962 --
--------- --------- --------
Diluted earnings per share $ 300,000 3,867,609 $ 0.08
========= ========= ========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31, 1998
--------------------------------------------------
NET WEIGHTED
INCOME AVERAGE SHARES PER SHARE
--------- -------------- ---------
<S> <C> <C> <C>
EARNINGS PER COMMON SHARE
Basic earnings per share $ 123,000 4,425,208 $ 0.03
Effect of dilutive securities
options and warrants -- 69,588 --
--------- --------- --------
Diluted earnings per share $ 123,000 4,494,796 $ 0.03
========= ========= ========
</TABLE>
11
<PAGE>
SPORT-HALEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 31, 1998
--------------------------------------------------
NET WEIGHTED
INCOME AVERAGE SHARES PER SHARE
--------- -------------- ---------
<S> <C> <C> <C>
EARNINGS PER COMMON SHARE
Basic earnings per share $ 941,000 4,463,577 $ 0.21
Effect of dilutive securities
options and warrants -- 75,481 --
--------- --------- --------
Diluted earnings per share $ 941,000 4,539,058 $ 0.21
========= ========= ========
</TABLE>
12
<PAGE>
SPORT-HALEY, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Report on Form 10-Q contains certain forward-looking statements. When used
in this report, the words "may," "will," "expect," "anticipate," "continue,"
"estimate," "project," "intend," "believe" and similar expressions are intended
to identify forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934
regarding events, conditions and financial trends including, without limitation,
business conditions and growth in the fashion golf apparel market and the
general economy, competitive factors, and price pressures in the high-end
golf-apparel market; inventory risks due to shifts in market and/or price
erosion of purchased apparel, raw fabric and trim; cost controls; changes in
product mix; and other risks or uncertainties detailed in other Securities and
Exchange Commission filings made by Sport-Haley. Such statements are based on
management's current expectations and are subject to risks, uncertainties and
assumptions. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, the actual plan of operations,
business strategy, operating results and financial position of Sport-Haley could
differ materially from those expressed in, or implied by, such forward-looking
statements.
FINANCIAL CONDITION
The Company relied on cash generated from operations and available cash on hand
to finance its working capital requirements for the 12-month period following
December 31, 1999. The Company did not make any periodic borrowings under its
revolving line of credit during the same 12 month period. Working capital at
December 31, 1999 was approximately $23.4 million and was approximately $25.0
million at June 30, 1999. Working capital decreased primarily because the
Company expended approximately $2.3 million to repurchase 565,000 shares of its
common stock during the six months ended December 31, 1999. The Board of
Directors had authorized the repurchase, and management believed that the
repurchase of these shares would benefit the shareholders by increasing book
value per share with no material adverse effect on working capital. Book value
per share at December 31, 1999 increased by approximately $0.49 per share since
June 30, 1999 to approximately $7.07 per share.
Cash and cash equivalents increased since June 30, 1999 by approximately
$15,000. Net accounts receivable decreased by approximately $1.9 million to $3.6
million from $5.5 million at June 30, 1999. Receivables have decreased primarily
because of the Company's intensified collection efforts and fewer orders placed
by golf professional shops for the Fall 1999 season. Since June 30, 1999,
inventories decreased by approximately $279,000 to $11.6 million from $11.9
million. The decrease in inventories is reflective of management's efforts to
reduce prior seasons' inventories and the implementation of improved controls
relating to levels of production for current-season merchandise. Due to the
combination of these and other factors, during the six months ended December 31,
1999, operating activities provided cash of approximately $2.4 million.
Other current assets increased by approximately $133,000 since June 30, 1999 to
approximately $1.0 million. The change was due primarily to increases in other
receivables and inventory deposits and decreases in income taxes receivable and
deferred taxes during the six months ended December 31, 1999.
13
<PAGE>
SPORT-HALEY, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the six months ended December 31, 1999, the Company spent approximately
$150,000 for the purchase of property and equipment, and approximately $317,000
in depreciation and amortization was charged to current operations. During the
same six-month period, investing activities used cash of approximately $96,000,
due to sales and purchases of fixed assets.
Accounts payable and accrued expenses decreased by approximately $674,000 since
June 30, 1999. The decrease was due to a combination of several factors
including a decrease of approximately $399,000 in accounts payable and a
decrease of approximately $163,000 in accrued sales commissions payable.
Total shareholders' equity decreased by approximately $1.9 million for the six
months period. The decrease was primarily attributable to the repurchase of
565,000 shares of the Company's common stock during the six month period at a
cost of approximately $2.3 million combined with net income for the same period.
Book value per share increased by approximately $0.49 to $7.07 per share at
December 31, 1999 as compared with $6.58 per share at June 30, 1999.
RECENT DEVELOPMENTS
In July 2000, as previously reported, the Company's Audit Committee recommended
that the Company's prior independent auditors be discharged and that the Company
retain a new independent public accountant to audit the Company's financial
statements for the year ended June 30, 2000. As a result of a review initiated
by senior management and conducted prior to completion of the audit process for
the Company's 2000 fiscal year, information was developed that indicated certain
accounting errors might exist in prior years' financial statements that, when
corrected, would result in a material impact on the results of operations for
the 2000 fiscal year and certain prior periods. At the conclusion of the review,
the Company determined that the financial statements for the years ended June
30, 1999 and 1998 required restatement due to accounting errors. The accounting
errors consisted primarily of the following: (i) incorrect recording,
classification and valuation of inventory work in process; (ii) incorrect
recording of certain prepaid and fixed assets; (iii) incorrect accounting for
the acquisition of the Company's subsidiary (the "Subsidiary") and the related
minority interest in the losses of the Subsidiary; (iv) incorrect recording of
certain losses relating to discontinued operations; and, (v) the income tax
benefit from stock options exercised. See Note 2 to the consolidated financial
statements.
14
<PAGE>
SPORT-HALEY, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company retained a new independent accounting firm shortly after June 30,
2000. The Company engaged the new accounting firm to audit the Company's
financial statements for the year ended June 30, 2000 and to re-audit the
previously issued financial statements for the years ended June 30, 1999 and
1998, which the Company restated. The Audit Committee of the Company retained an
independent consultant to assist it in evaluating the restatements that were
necessary in order that the Company's financial statements, as restated and
taken as a whole, presented fairly in all material respects the Company's
financial position, results of operations and cash flows for the fiscal years
ended June 30, 2000, 1999 and 1998, in conformity with generally accepted
accounting principles. The Audit Committee does not believe that the accounting
errors that have been identified by the Company constitute irregularities. As a
result of recommendations made by the audit committee and the Company's senior
management, and concurred in by the independent consultant, the Company has
taken appropriate action to ensure that these errors do not reoccur in the
future.
The effects of significant financial statement adjustments related to the
restatements for the years ended June 30, 1999 and 1998 are set forth in the
Company's Form 10-K for the fiscal year ended June 30, 2000, which was filed
with the Securities and Exchange Commission on November 3, 2000. The effects of
the restatements on the specific line items of the income statement and earnings
per share for the periods ended December 31, 1999 and 1998 are set forth in the
notes to the financial statements accompanying this amended quarterly report
(Note 2).
The Company is in the process of completing corrections to material quarterly
financial information for the prior interim reporting periods of fiscal 1999 and
1998. The Company expects to complete the corrections to that information and to
file amended Forms 10-Q for those interim periods by March 15, 2001.
The restatements described above may lead to litigation against the Company.
There is no litigation currently pending or threatened against the Company
concerning the restatements. However, if such litigation is initiated, it could
have a material adverse impact on the Company's income from continuing
operations.
As previously reported, on October 16, 2000, The Nasdaq Stock Market(R)
("Nasdaq"), halted trading in the securities of the Company and requested
additional information from the Company. Nasdaq advised the Company that the
trading halt was instituted because of the Company's alleged failure to observe
certain corporate governance requirements for ongoing listing of its securities
on the Nasdaq National Market. Nasdaq advised the Company that the trading halt
would continue until the Company complied with Nasdaq's request for additional
information, which the Company provided. Nasdaq further proposed to de-list the
Company's securities from trading on the Nasdaq National Market. The Company
appeared at a hearing before the Nasdaq Listing Qualifications Panel (the
"Panel") on November 10, 2000 in order to address the proposed de-listing of the
Company's securities.
15
<PAGE>
SPORT-HALEY, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On December 11, 2000, the Panel rendered its decision, granting an exception to
the filing requirement set forth in Nasdaq Marketplace Rule 4310, requiring that
on or before January 15, 2001, the Company file amended Forms 10-Q for all
quarters during fiscal years 2000, 1999 and 1998. Further, the Panel determined
that the Company's late filings of Form 10-K for the fiscal year ended June 30,
2000 and its Form 10-Q for the period ended September 30, 2000 merited the
application of additional and more stringent criteria under Marketplace Rule
4300. Accordingly, the Panel stated that if the Company satisfies the first
portion of the Panel's exception expiring January 15, 2001, the Company must
also timely file all periodic reports with the Securities and Exchange
Commission and Nasdaq for all reporting periods ending on or before December 31,
2001. The Panel stated in its decision that if the Company fails to make any
filings in accordance with the exception granted, the Company will not be
entitled to a new hearing and its securities will be de-listed from Nasdaq.
Based upon its determination, the Panel ordered that trading resume in the
Company's securities on Nasdaq effective December 12, 2000.
On December 26, 2000, the Company notified Nasdaq of its request that the Nasdaq
Listing Review Council (the "Review Council") review the Panel's decision. The
Company requested that the Review Council grant it additional time in which to
comply with the filing of historical amended Forms 10-Q and requested that the
additional and more stringent criteria under Marketplace Rule 4300 be applied
only in the event the Company fails to make any current filing during the
calendar year 2001, or has not filed the amended quarterly Forms 10-Q for fiscal
years 2000, 1999 and 1998 by March 15, 2001. The Review Council's review of the
Panel's decision is pending. In the meantime, the Company is diligently working
to complete the amended Forms 10-Q.
The Company was advised in a letter dated November 7, 2000 that the Securities
and Exchange Commission (the "Commission") is conducting an informal inquiry
into matters concerning the Company. The Commission made an informal request
that the Company voluntarily produce certain documents. The Company has provided
the requested documents to the Commission.
RESULTS OF OPERATIONS
The Company's business is seasonal in nature, and therefore the results for any
one or more quarters are not necessarily indicative of the annual results or
continuing trends.
Net sales for the fiscal quarter and six months ended December 31, 1999, were
approximately $4.7 million and $10.0 million, respectively, decreases of
approximately $836,000 or 15%, and $2.9 million or 23%, from net sales of
approximately $5.6 million and $12.9 million for the same periods in the prior
fiscal year. The decrease in net sales was primarily due to fewer orders placed
by golf professional shops for the Fall 1999 season, continued reduction of
prior seasons' inventories at reduced selling prices, and relatively flat sales
in the intensely competitive golf apparel market as a whole.
16
<PAGE>
SPORT-HALEY, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company's gross profit, as a percentage of net sales, was approximately 35%
and 34% for the quarter and six months ended December 31, 1999, respectively,
and 33% and 39% for the same periods in the prior fiscal year. The decrease in
gross profit is due to a combination of factors, including the disposal of prior
seasons' inventories at reduced sales prices and increases in direct costs.
During the quarter ended December 31, 1999, management implemented new marketing
strategies designed to improve brand loyalty for the Company's products in an
attempt to bolster future sales and gross profit margins.
Selling, general and administrative expenses for the quarter and six months
ended December 31, 1999 decreased by approximately $71,000 and $458,000, or 4%
and 12%, respectively to approximately $1.6 million and $3.2 million from $1.7
million and 3.7 million for the same periods in the prior fiscal year. The
decrease was primarily attributable to commissions paid to independent sales
representatives on lower sales volume and decreased advertising and general and
administrative expenditures. As a percentage of sales, selling, general and
administrative expenses were 34% and 33% for the quarter and six months ended
December 31, 1999, respectively, as compared with 30% and 29% for the same
period in the prior fiscal year.
Other income, net for the six months ended December 31, 1999 was approximately
$323,000, an increase of approximately $93,000, or 40%, as compared with
$230,000 for the same six-month period in the prior fiscal year. The increase
was primarily attributable to greater interest earned on cash equivalents.
Effective July 1, 1999, the Company increased its 52% ownership in its
subsidiary to a 93% interest by exchanging outstanding debt owed to the Company
by the subsidiary for additional equity in the subsidiary. The subsidiary
incurred a loss for the six-month period ended December 31, 1999. Because the
minority interest in the equity of the subsidiary had previously been reduced to
zero, the entire loss of the subsidiary for the period was absorbed by the
Company.
Income from continuing operations before minority loss and provision for income
taxes decreased by approximately $100,000, or 69%, to approximately $168,000 for
the fiscal quarter ended December 31, 1999, from $268,000 for the same
three-month period in the prior fiscal year. Income from continuing operations
before minority loss and provision for income taxes decreased by approximately
$1.1 million, or 69%, to approximately $491,000 for the six months ended
December 31, 1999, from $1.6 million for the same period in the prior fiscal
year. The decrease for the six-month period was primarily attributable to lower
sales volume and lower gross margins.
The Company's effective tax rates for the six months ended December 31, 1999 and
1998 were 39% and 41%, respectively. The effective tax rate in any fiscal year
can vary significantly from the effective tax rate in another year due to
differences between the recording of certain transactions for financial versus
tax purposes. Certain deductions recognized for tax purposes may not be expensed
for financial statement purposes, and certain expenses recorded for financial
statement purposes may not be deductible for tax purposes.
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SPORT-HALEY, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the fiscal quarter ended December 31, 1999, net income decreased by
approximately $27,000 or 22% when compared to the same three-month period in the
prior fiscal year. For the six months ended December 31, 1999, net income
decreased by approximately $641,000, or 68%, when compared with the same
six-month period in the prior fiscal year. The decreases were primarily the
result of lower sales volume, lower gross margins, and higher percentage of
sales with respect to selling, general and administrative expenses.
Both the basic and diluted earnings per share were $0.03 and $0.08 for the
fiscal quarter and six months ended December 31, 1999, respectively. This
compares to basic and diluted earnings per share of $0.03 and $0.21 for the same
periods in prior fiscal year.
YEAR 2000 COMPUTER CONVERSION
The Company was cognizant of the Year 2000 issues associated with programming
code in computer systems. The Company utilizes an integrated computer system to
manage all business transactions, historical data and record keeping, including
sourcing, warehousing, embroidering and shipping. In preparation for the Year
2000, the Company installed a Year 2000 compliant upgrade to the software for
this system and tested all other systems. As of January 15, 2001, the Company
had not experienced, nor does it expect to experience any disruptions related to
Year 2000 issues in the operation of its systems. To the best knowledge of the
Company, none of the material suppliers, vendors and financial institutions with
which the Company has a business relationship experienced any failures or
disruptions in their computer systems caused by the Year 2000 issues.
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SPORT-HALEY, INC.
PART II
OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS - NONE
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS - NONE
ITEM 3 DEFAULTS UPON SENIOR SECURITIES - NONE
ITEM 4 SUBMISSION TO MATTERS TO A VOTE OF SECURITY HOLDERS - NONE
ITEM 5 OTHER INFORMATION - NONE
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS - NONE
(B) REPORTS ON FORM 8-K - NONE
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
SPORT-HALEY, INC.
(Registrant)
Date: January 15, 2001 /s/ Robert G. Tomlinson
---------------- -----------------------
Robert G. Tomlinson
Chief Executive Officer
Date: January 15, 2001 /s/ Patrick W. Hurley
---------------- -----------------------
Patrick W. Hurley
Chief Financial Officer
20
