<PAGE> 1
U.S. Securities and Exchange Commission
Washington, D.C. 20549
--------------------------------------------------
Form 10-KSB/A Amendment 1
(Mark One)
[ x ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended March 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1943 [No Fee Required]
For the transition period from to
Commission file number 0-23898
--------------------------------------------------
MITY-LITE, INC.
(Name of small business issuer in its charter)
Utah 87-0448892
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1301 West 400 North
Orem, Utah 84057
(Address of principal executive offices, zip code)
Issuer's telephone number: (801) 224-0589
--------------------------------------------------
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
TITLE OF CLASS
Common Stock, par value $.01
--------------------------------------------------
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
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to the Form 10-KSB. [ ]
The Company's net sales for the fiscal year just ended were $18,680,000.
The aggregate market value of the registrant's voting Common Stock held by
non-affiliates of the registrant was approximately $15,077,000 (computed using
the closing price of $12.875 per share of Common Stock on May 23, 1997 as
reported by Nasdaq). Shares of Common Stock held by each officer and director
(and their affiliates) and each person who owns 5 percent or more of the
outstanding Common Stock have been excluded in that such persons may be deemed
affiliates for purposes of this calculation. The determination of affiliate
status is not necessarily a conclusive determination for other purposes.
There were 3,164,026 shares of the registrant's Common Stock, par value
$.01 per share, outstanding on May 23, 1997.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (Check one:) Yes No x
--------------------------------------------------
Portions of the registrant's definitive Proxy Statement for the Annual
Meeting of Shareholders scheduled to be held on August 21, 1997, which Proxy
Statement will be filed no later than 120 days after the close of the regis-
trant's fiscal year ended March 31, 1997, are incorporated by reference in
Part III of this Annual Report on Form 10-KSB. Portions of the registrant's
1997 Annual Report to Shareholders, attached hereto as Exhibit 13, are
incorporated by reference in Part II, Items 6 and 7 of this Annual Report on
Form 10-KSB.
<PAGE> 2
SIGNATURES
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated:
SIGNATURE TITLE DATE
/s/ Gregory L. Wilson Chairman of the Board, President, June 25, 1997
- ------------------------- and Director
Gregory L. Wilson (Principal Executive Officer)
/s/ Bradley T Nielson Chief Financial Officer June 25, 1997
- ------------------------- (Principal Financial and Accounting
Bradley T Nielson Officer)
<PAGE> 1
EXHIBIT 13
ANNUAL REPORT TO SHAREHOLDERS
(Including only those items incorporated by reference)
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
Financial Statements and the Notes thereto included in this Annual Report to
Shareholders. The statement of income data set forth below with respect to
the fiscal years ended March 31, 1996 and 1997 and the balance sheet data at
March 31, 1996 and 1997 are derived from, and should be read in conjunction
with the audited Financial Statements included elsewhere herein. The
statement of income data set forth below with respect to the fiscal year ended
March 31, 1995 and the balance sheet at March 31, 1995 are derived from
audited financial statements not included in this Annual Report to
Shareholders.
STATEMENTS OF INCOME DATA
Fiscal Year Ended March 31,
- ---------------------------------------------------------------------------
1995 1996 1997
- ---------------------------------------------------------------------------
(in thousands, except per share data)
Net sales $13,029 $15,383 $18,680
Cost of products sold 7,669 9,125 10,921
- ---------------------------------------------------------------------------
Gross profit 5,360 6,258 7,759
Expenses:
Selling 1,982 2,194 2,969
General and administrative 601 707 865
Research and development 392 511 375
Expenses related to potential acquisitions -- 128 --
- ---------------------------------------------------------------------------
Income from operations 2,385 2,718 3,550
Interest and other, net 116 219 339
- ---------------------------------------------------------------------------
Income before provision for income taxes 2,501 2,937 3,889
Provision and pro forma provision for
income taxes, including $766,000 of
actual tax expense and a reduction of
$144,000 for the cumulative effect of
change in tax status for the year ended
March 31, 1995(1) 773 1,009 1,404
- ---------------------------------------------------------------------------
Net income and pro forma net income $1,728 $1,928 $2,485
===========================================================================
Net income and pro forma net income
per share $0.55 $0.60 $0.76
===========================================================================
Weighted average common and common
equivalent shares 3,143,308 3,235,061 3,279,335
===========================================================================
<PAGE> 2
BALANCE SHEET DATA
March 31,
- ---------------------------------------------------------------------------
1995 1996 1997
- ---------------------------------------------------------------------------
(in thousands)
Total assets $9,090 $11,321 $14,251
Working capital 6,863 8,918 9,441
Current portion of long-term debt -- -- --
Long-term debt less current portion -- -- --
Stockholders' equity 8,167 10,231 12,933
- --------------------------
(1) From April 1, 1988 through April 30, 1994, the Company elected to be
treated as an S Corporation under the provisions of the Internal
Revenue Code and was not subject to federal or state income taxes. The
amount for 1995 reflects a pro forma tax provision. To allow
comparisons with C Corporations, the Company has used a pro forma tax
rate of 36.7 percent, excluding the cumulative effect of change in tax
status described below, to compute its pro forma provision for income
taxes. Concurrent with the termination of its S Corporation status, the
Company was required to establish deferred taxes according to the
provisions of SFAS No. 109 "Accounting for Income Taxes." Under the
liability method prescribed by SFAS 109, deferred income taxes reflect
the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and
amounts used for income tax purposes. The Company recognized this
cumulative effect of change in tax status by recording a net deferred
tax asset for existing temporary differences in the amount of $144,000.
The resulting adjustment was recorded as an income tax benefit for the
year ended March 31, 1995.
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company designs, manufactures and markets lightweight, durable,
folding leg tables, stacking chairs, and other related products used in
multi-purpose rooms of educational, recreational, hotel and hospitality,
government, office, health care, religious and other public assembly
facilities. Historically, the Company's growth has come from an expanding
base of new customers and from increasing sales to existing customers. The
Company's current and future growth is largely dependent upon its ability to
continue increasing table sales to new and existing customers and its ability
to successfully introduce and market new product lines of multi-purpose room
furniture such as folding and stacking chairs, staging, flooring, partitions,
podiums, risers and bench seating. The Company anticipates that over the next
12 months, its primary business strategy and emphasis will be on expanding
domestic and international table sales while seeking appropriate product line
expansion through acquisitions.
In addition to its table products, the Company currently offers five
lines of stacking chairs, the MityTuff(TM), the MityStack(TM), the
MityFlex(TM), the MityDeluxe(TM) and the MityHost(TM). The MityTuff(TM) and
MityStack(TM) chairs are distributed by the Company under OEM arrangements
with the chair manufacturers. Portions of the MityFlex(TM) and the
MityDeluxe(TM) chairs are manufactured by the Company. In addition, the
Company performs final assembly on these two chair lines. The MityHost(TM) is
manufactured in-house at the Company's facility in Orem, Utah.
From April 1, 1988 through April 30, 1994, the Company elected to be
treated as an S Corporation under the provisions of the Internal Revenue Code
and was not subject to federal or state income taxes. The net income for 1995
reflects a pro forma tax provision. To allow comparisons with C Corporations,
the Company used a pro forma tax rate of 36.7 percent, excluding the
cumulative effect of change in tax status described below, to compute its pro
forma provision for income taxes. Concurrent with the termination of its S
Corporation status, the Company was required to establish deferred taxes
according to the provisions of SFAS No. 109 "Accounting for Income Taxes."
Under the liability method prescribed by SFAS 109, deferred income taxes
reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and amounts
used for income tax purposes. The Company recognized this cumulative effect
of change in tax status by recording a net deferred tax asset for existing
temporary differences in the amount of $144,000. The resulting adjustment was
recorded as an income tax benefit for the fiscal year ended March 31, 1995.
Net sales of the Company's table products have increased during the
fiscal years ended March 31, 1995, 1996 and 1997. Management expects, but
cannot assure, that this trend will continue. It is not anticipated that
gross profit on table products as a percent of table sales will increase
significantly above current levels. Gross margins and expenses associated
with chairs and other new product lines are difficult to predict during start
up periods but the Company believes that by applying its management techniques
to these product lines, profitability rates slightly less than those achieved
on table products can ultimately be reached. However, no assurance can be
given that these results will be realized.
<PAGE> 4
As discussed in the Current Report on Form 8-K filed by the Company on
March 4, 1997, and in the Company's Annual Report on Form 10-KSB for the fiscal
year ended March 31, 1997, the Company changed its independent auditors from
Price Waterhouse LLP to Deloitte & Touche LLP. A copy of the Company's Annual
Report on Form 10-KSB may be obtained from the Company.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
of net sales represented by items included in or derived from the Company's
Statements of Income:
Fiscal Year Ended March 31,
- ---------------------------------------------------------------------------
1995 1996 1997
- ---------------------------------------------------------------------------
Net sales 100.0% 100.0% 100.0%
Cost of products sold 58.9 59.3 58.5
- ---------------------------------------------------------------------------
Gross profit 41.1 40.7 41.5
Operating expenses:
Selling 15.2 14.3 15.9
General and administrative 4.6 4.6 4.6
Research and development 3.0 3.3 2.0
Expenses related to potential acquisitions -- 0.8 --
- ---------------------------------------------------------------------------
Income from operations 18.3 17.7 19.0
Interest and other, net 0.9 1.4 1.8
- ---------------------------------------------------------------------------
Income before tax 19.2 19.1 20.8
Provision and pro forma
provision for income taxes(1) 5.9 6.6 7.5
- ---------------------------------------------------------------------------
Net income and pro forma net income 13.3% 12.5% 13.3%
===========================================================================
(1) From April 1, 1988 through April 30, 1994, the Company elected to be
treated as an S Corporation under the provisions of the Internal Revenue Code
and was not subject to federal or state income taxes. The amount for 1995
reflects a pro forma tax provision. To allow for comparisons to C
corporations, the Company has used its pro forma tax rate of 36.7 percent,
excluding the cumulative effect of change in tax status described below, to
compute its pro forma provision for income taxes. Concurrent with the
termination of its S Corporation status, the Company was required to establish
deferred taxes according to the provisions of SFAS No. 109 "Accounting for
Income Taxes." Under the liability method prescribed by SFAS 109, deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes
and amounts used for income tax purposes. The Company recognized this
cumulative effect of change in tax status by recording a net deferred tax
asset for existing temporary differences in the amount of $144,000. The
resulting adjustment was recorded as an income tax benefit for the year ended
March 31, 1995.
<PAGE> 5
COMPARISON OF FISCAL YEARS 1996 AND 1997
Net Sales
The Company's fiscal 1997 net sales of $18,680,000 increased 21.4 percent
over net sales in the prior fiscal year. The increase reflected sales growth
of 18.7 percent in the table product lines and 57.2 in the chair product
lines. Chair sales represented 6.9 percent and 5.3 percent of net sales for
the fiscal years ended March 31, 1997 and 1996, respectively, while
international sales represented 7.4 percent and 5.7 percent of net sales for
the same respective time periods. The sales increase has resulted mainly from
increased sales in the hospitality, recreation and office products market
segments and an overall higher average unit sales price realized on table
sales.
Gross Profit
Gross profit as a percentage of net sales increased over the prior year
by 0.8 percentage points, to 41.5 percent for the fiscal year ended March 31,
1997. The increase was primarily due to increases in the average unit sales
price realized on table products, partially offset by lower gross profit
margins realized on increasing sales of the Company's chair products.
Operating Expenses
Selling expenses were 15.9 percent of net sales in fiscal 1997 as
compared to 14.3 percent for the prior fiscal year. Actual spending increased
by 35.3 percent, or $775,000, resulting from higher personnel, international
selling, and tradeshow costs.
General and administrative expenses were 4.6 percent of net sales in
fiscal 1997 and 1996. Actual spending increased by 22.3 percent, or $158,000.
The increases in spending resulted primarily from increases in personnel
related expenses incurred to support the growing business needs and the
implementation of a new management information system.
Research and development expenses were 2.0 percent of net sales in fiscal
1997 as compared to 3.3 percent for the prior fiscal year. Actual spending
decreased by 26.6 percent, or $136,000. The decrease in research and
development expenditures primarily resulted from one-time expenses incurred in
the June 1995 quarter associated with the development of the Company's
Tesla(TM) folding chair and the Mity-Lite Elite(TM) and Mity-Lite Aluminum(TM)
tables and lower legal expenses incurred for patents. These new product lines
were introduced at the Neocon Trade Show in Chicago and significant
development resources were expended during that quarter to prepare for the
trade show. The Company postponed developing further the Tesla(TM), but began
selling the Mity-Lite Elite(TM) and Mity-Lite Aluminum(TM) tables during the
previous fiscal year.
Also included in operating expenses for the fiscal year ended March 31,
1996 were certain expenses the Company incurred related to the proposed
acquisitions of Fixtures Manufacturing Company and The Lineal Group (Samsonite
Furniture Company). When the Fixtures Manufacturing Company acquisition
discussions were terminated in August 1995, the Company recorded a $95,000
pre-tax charge. In addition, the Company attempted to purchase The Lineal
Group, Inc. which was under bankruptcy protection. The Lineal Group was
eventually purchased by another bidder. The Company incurred approximately
$33,000 in pre-tax expenses related to this potential acquisition. These one-
time charges represented 0.8 percent of net sales for fiscal year ended March
31, 1996.
<PAGE> 6
Other Income/Expense
Other income and expense netted to $339,000 in fiscal 1997. Interest
income was $360,000, an increase of $112,000 from the prior fiscal year due to
a greater average balance of cash and cash equivalents. During fiscal 1997, a
$19,000 loss was incurred from the disposition of certain manufacturing and
research and development assets.
Net Income
For reasons stated above, the Company's 1997 fiscal year net income of
$2,485,000 increased 28.9 percent over net income in the prior fiscal year.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth selected unaudited quarterly financial data for
the most recent eight quarters. This quarterly financial data reflects, in
the opinion of Management, all adjustments necessary to present fairly the
results of operations for such periods. The operating results for any quarter
are not necessarily indicative of results for any future period. The Company
anticipates that operating results may fluctuate on a quarterly basis
depending upon a number of factors.
Unaudited Quarterly Financial Information:
YEAR ENDED MARCH 31, 1997
- ---------------------------------------------------------------------------
Q1 Q2 Q3 Q4
- ---------------------------------------------------------------------------
(in thousands, except per share amounts)
Net sales $4,647 $4,939 $4,517 $4,577
Gross profit 2,006 2,046 1,865 1,842
Income before provision for income tax 922 1,057 929 981
Net income 585 672 588 640
Net income per share 0.18 0.21 0.18 0.19
YEAR ENDED MARCH 31, 1996
- ---------------------------------------------------------------------------
Q1 Q2 Q3 Q4
- ---------------------------------------------------------------------------
(in thousands, except per share amounts)
Net sales $3,835 $3,978 $3,666 $3,904
Gross profit 1,586 1,625 1,522 1,525
Income before provision for income tax 764 724 735 714
Net income 478 445 466 539
Net income per share 0.15 0.14 0.14 0.17
The Company's quarterly operating results can fluctuate significantly
depending on factors such as timing of new product introductions, market
acceptance of new products, increased competitive pressures, growth in the
institutional furniture market, acquisitions, expansion of international
operations, timing and expansion into complementary products such as chairs,
changes in raw material sources and costs, and adverse changes in general
economic conditions in any of the countries in which the Company does
business. The Company's ability to develop and market tables and
complementary products that successfully adapt to current market needs may
also have an impact on future quarterly results of operations. No assurances
<PAGE> 7
can be or are made that the Company will not experience such quarterly
variations in the future.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents, which consist primarily of high-quality
municipal bonds and tax-advantaged money market instruments, totaled $7.65
million at March 31, 1997 as compared to $7.35 million at March 31, 1996. The
increase in cash and cash equivalents was due primarily to cash generated from
operations ($2.70 million) and proceeds related to the exercise of stock
options ($0.19 million). This increase was mostly offset by cash used to 1)
purchase a 49.9 percent equity interest in DO Group, Inc. ($0.86 million), 2)
loan capital to a wholly owned subsidiary of DO Group ($1.00 million), 3)
purchase manufacturing and computer equipment, furniture, and 4) make certain
leasehold improvements ($.73 million).
The Company has historically financed its growth through cash from
operations and borrowings under a revolving credit facility. The Company has
revolving credit facilities with Zions First National Bank and First Security
Bank of Utah, N.A. The agreements, which expire on December 5, 1997 and
October 27, 1997, respectively, allow the Company to draw up to a combined
$4,000,000 under the credit facilities. As of March 31, 1997, the Company had
no amounts drawn under these facilities. The credit facilities require the
maintenance of certain financial ratios and levels of working capital, all of
which were met as of March 31, 1997.
The Company believes that cash flow from its current operations together
with existing cash reserves will be sufficient to support its working capital
requirements for its existing operations for at least the next 12 months.
However, the Company's working capital requirements may significantly increase
if other acquisitions are consummated. No assurances can be given as to the
sufficiency of the Company's working capital to support the Company's
operations following any such acquisitions. If the existing cash reserves,
cash flow from operations and debt financing are insufficient or if working
capital requirements are greater than estimated, the Company could be required
to raise additional capital. There can be no assurance the Company will be
capable of raising additional capital or that the terms upon which such
capital will be available to the Company will be acceptable. Additional
sources of equity capital are available to the Company through the exercise by
holders of outstanding options. At March 31, 1997, the proceeds which would
have been received by the Company upon exercise of outstanding options which
were exercisable on that date were approximately $700,000. There is no
assurance that such options will be exercised. The Company is also evaluating
strategic business and product line acquisitions.
The Company's material cash commitments at March 31, 1997 consisted
primarily of current liabilities to be repaid from funds generated from
operations. At March 31, 1997, the Company had total current liabilities of
$1,318,000. The Company has also entered into a lease agreement from a
related party for its production and office facility under which it is
obligated to pay $17,100 per month through March 2000.
IMPACT OF INFLATION AND ENVIRONMENTAL REGULATIONS
The Company believes that inflation has not had a material effect on its
operating results. However, significant increases in the price of raw
materials could have a material adverse impact on the Company's results of
<PAGE> 8
operations. In addition, compliance with environmental laws or regulations
has not had a material effect on the Company's operations.
FORWARD-LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT FUTURE RESULTS OF
OPERATIONS
All statements made in this annual report that are not historical facts or
that include the words "expect," "anticipate," "project," "estimate,"
"believes," or similar words are forward-looking statements deemed by the Compa-
ny to be covered by and to qualify for the safe harbor protection provided by
the Private Securities Litigation Reform Act of 1995 (the "1995 Act"). Invest-
ors and prospective investors in the Company should understand that several
factors govern whether any forward-looking statement contained herein will be or
can be achieved. Any one of those factors could cause actual results to differ
materially from those projected herein. These forward-looking statements in-
clude expected increases in net sales of table products, anticipated margin
improvements related to chairs and other new products, plans and objectives of
management for future operations, including plans and objectives for products,
marketing, customers, product line expansions, enhancements to its manufacturing
process, and potential acquisitions. The forward-looking statements included
herein are based on current expectations that involve a number of risks and
uncertainties. These forward-looking statements are based on assumptions, among
others, that the Company a) will be able to successfully increase its share of
the table market, introduce new product lines to existing customers, market
products directly to end users, enter new markets, and continue enhancing its
manufacturing process, b) will continue to manufacture and market at current
margins high quality, high performance products at competitive prices, c) can
continue to source acceptable raw materials at current prices, d) will continue
to experience current levels of warranty service costs, and e) will realize a
return on investment from the DO Group acquisition. Assumptions relating to the
foregoing involve judgments with respect to, among other things, future econo-
mic, 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 contained herein are
reasonable, any of those assumptions could prove inaccurate and, therefore,
there is and can be no assurance that the results contemplated in any such
forward-looking statement will be realized. Budgeting and other management
decisions are subjective in many respects and thus susceptible to interpreta-
tions and periodic revision. The impact of actual experience and business
developments may cause the Company to alter its marketing, capital expenditure
plans or other budgets, which may in turn affect the Company's result of opera-
tions. In light of the significant uncertainties inherent in the forward-
looking statements included herein, the inclusion of any such statement 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.
Due to factors noted above and elsewhere in Management's Discussion and
Analysis of Financial Condition and Results of Operations, the Company's future
earnings and stock price may be subject to significant volatility, particularly
on a quarterly basis. Past financial performance should not be considered a
reliable indicator of future performance and investors should not use historical
trends to anticipate results or trends in future periods. Any shortfall in net
sales or earnings from the levels anticipated by securities analysts could have
an immediate and significant effect on the trading price of the Company's common
stock in any given period. Additionally, the Company may not learn of such
shortfalls until late in a fiscal quarter, which could result in an even more
immediate and adverse effect on the trading price of the Company's common stock.
<PAGE> 9
Independent Auditors' Report
To the Board of Directors and
Shareholders of Mity-Lite, Inc.:
We have audited the accompanying balance sheet of Mity-Lite, Inc. as of March
31, 1997, and the related statements of income, stockholders' equity, and cash
flows for the year then ended. These financial statements are the
responsibility of Mity-Lite's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Mity-Lite, Inc. at March 31, 1997, and the
results of its operations and its cash flows for the year then ended, in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
May 2, 1997
<PAGE> 10
Report of Independent Accountants
May 13, 1996
To the Board of Directors and
Stockholders of Mity-Lite, Inc.
In our opinion, the accompanying balance sheet and the related statements of
income, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Mity-Lite, Inc. at March 31, 1996,
and the results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for the
opinion expressed above.
PRICE WATERHOUSE LLP
Salt Lake City, Utah
<PAGE> 11
BALANCE SHEETS
March 31, 1997 1996
- ------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 7,646,000 $ 7,346,000
Accounts receivable, less allowances of
$161,000 at March 31, 1997 and $132,000
at March 31, 1996 2,196,000 1,608,000
Inventories 700,000 509,000
Deferred income taxes 129,000 91,000
Prepaid expenses and other current assets 88,000 101,000
Related party receivable -- 353,000
------------------------------
Total current assets 10,759,000 10,008,000
Property and equipment, net 1,629,000 1,313,000
Note receivable from affiliate 1,000,000 --
Investment in affiliate 862,000 --
Intangibles 1,000 --
------------------------------
$14,251,000 $11,321,000
==============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 833,000 $ 747,000
Accrued expenses 485,000 343,000
------------------------------
Total current liabilities 1,318,000 1,090,000
Commitments and Contingencies -- --
Stockholders' equity:
Preferred stock, par value $.10 per share;
authorized 3,000,000 shares; no shares
issued and outstanding -- --
Common stock, par value $.01 per share;
authorized 10,000,000 shares; issued and
outstanding 3,161,359 shares at March 31,
1997 and 3,096,472 shares at March 31, 1996 32,000 31,000
Additional paid-in capital 6,952,000 6,744,000
Retained earnings 5,949,000 3,456,000
------------------------------
Total stockholders' equity 12,933,000 10,231,000
------------------------------
$14,251,000 $11,321,000
==============================
See accompanying notes to financial statements.
<PAGE> 12
STATEMENTS OF INCOME
Year Ended March 31, 1997 1996
- ------------------------------------------------------------------------------
Net sales $18,680,000 $15,383,000
Cost of products sold 10,921,000 9,125,000
------------------------------
Gross profit 7,759,000 6,258,000
Selling 2,969,000 2,194,000
General and administrative 865,000 707,000
Research and development 375,000 511,000
Expenses related to potential acquisitions -- 128,000
------------------------------
Total operating expenses 4,209,000 3,540,000
------------------------------
Income from operations 3,550,000 2,718,000
Other income (expense):
Interest expense (2,000) (3,000)
Interest income 360,000 248,000
Other (19,000) (26,000)
------------------------------
Total other income (expense) 339,000 219,000
------------------------------
Income before provision for income taxes 3,889,000 2,937,000
Provision for income taxes 1,404,000 1,009,000
------------------------------
Net income $2,485,000 $1,928,000
==============================
Net income per share $0.76 $0.60
==============================
Weighted average number of common and
common equivalent shares 3,279,335 3,235,061
==============================
See accompanying notes to financial statements.
<PAGE> 13
STATEMENTS OF STOCKHOLDERS' EQUITY
Common Additional Total
Stock Par Paid-In Retained Stockholders'
Value Capital Earnings Equity
- ------------------------------------------------------------------------------
Balance at April 1, 1995 $31,000 $6,616,000 $1,520,000 $8,167,000
Net income 1,928,000 1,928,000
Issuance of 25,331 shares
of common stock from the
exercise of options 85,000 85,000
Deferred compensation 8,000 8,000
Tax benefit of employee
stock options 43,000 43,000
-------------------------------------------------
Balance at March 31, 1996 31,000 6,744,000 3,456,000 10,231,000
-------------------------------------------------
Net income 2,485,000 2,485,000
Issuance of 62,317 shares
of common stock from the
exercise of options 1,000 170,000 171,000
Issuance of 2,750 shares of
common stock to the
Company's 401(k) plan 20,000 20,000
Deferred compensation 8,000 8,000
Tax benefit of employee
stock options 18,000 18,000
-------------------------------------------------
Balance at March 31, 1997 $32,000 $6,952,000 $5,949,000 $12,933,000
=================================================
See accompanying notes to financial statements.
<PAGE> 14
STATEMENTS OF CASH FLOWS
Year Ended March 31, 1997 1996
- ------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $2,485,000 $1,928,000
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation 394,000 354,000
Deferred compensation 8,000 8,000
Deferred tax expense (38,000) (8,000)
Loss on disposal of property and equipment 19,000 26,000
Tax benefit from exercise of stock options 18,000 43,000
Changes in assets and liabilities:
Accounts receivable (588,000) (75,000)
Inventories (191,000) (86,000)
Prepaid expenses and other current assets 13,000 38,000
Related party receivable 353,000 (153,000)
Intangibles (1,000) --
Federal tax deposit -- 313,000
Accounts payable 86,000 103,000
Accrued expenses and other 142,000 64,000
------------------------------
Net cash provided by operating activities 2,700,000 2,555,000
------------------------------
Cash flows from investing activities:
Proceeds from sale of property and equipment 6,000 1,000
Purchases of property and equipment (735,000) (390,000)
Note receivable from affiliate (1,000,000) --
Investment in affiliate (862,000) --
Receivable from sale of European sales branch -- 272,000
------------------------------
Net cash used in investing activities (2,591,000) (117,000)
------------------------------
Cash flows from financing activities:
Net proceeds from exercise of stock options 191,000 85,000
------------------------------
Net cash provided by financing activities 191,000 85,000
------------------------------
Net increase in cash and cash equivalents 300,000 2,523,000
Cash and cash equivalents at beginning of period 7,346,000 4,823,000
------------------------------
Cash and cash equivalents at end of period $7,646,000 $7,346,000
==============================
Supplemental schedule of non-cash investing and
financing activities:
Cash paid during the year for income taxes $1,426,000 $944,000
See accompanying notes to financial statements.
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Mity-Lite, Inc. (the "Company") designs, manufactures and markets
lightweight, durable, folding leg tables, stacking chairs and related products
used in multi-purpose rooms of educational, recreational, hotel and
hospitality, government, office, health care, religious and other public
assembly facilities. The Company typically sells its products directly to end
users using a proprietary, computerized sales management system and an
in-house staff of trained sales and customer service personnel. The Company
markets its products throughout the United States and in certain foreign
countries.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly liquid investments which have a
term maturity not greater than three months.
INVENTORIES
Inventories are stated at the lower of cost, on a first in, first out
basis, or market.
ADVERTISING
Advertising costs consist primarily of print advertising costs which are
charged to expense as incurred. Advertising costs expensed during the years
ended March 31, 1996 and 1997 were $124,000 and $103,000, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Maintenance and repairs are
charged to operations as incurred, whereas major replacements and improvements
are capitalized and subsequently depreciated. Depreciation and amortization
on the company's equipment, furniture, and fixtures are provided on a
straight-line basis over the estimated useful lives of the related assets (3
to 7 years). Improvements to leased properties are amortized over their
estimated useful lives or the remaining term of the lease, whichever is
shorter (5 to 15 years).
REVENUE RECOGNITION
Revenue is recognized upon shipment of product.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of trade receivables and cash
equivalents. In the normal course of business, the company provides credit
terms to its customers. Accordingly, the Company performs ongoing credit
evaluations of its customers and maintains allowances for possible losses
which, when realized, have been within the range of management's expectations.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the note receivable from affiliate approximates its
book value at March 31, 1997.
INCOME TAXES (see Note 9)
Mity-Lite uses an asset and liability approach for financial accounting
and reporting for income taxes. Deferred income taxes are provided for
temporary differences in the bases of assets and liabilities as reported for
financial statement purposes and income tax purposes.
<PAGE> 16
STOCK BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-based Compensation," which became effective for Mity-Lite beginning
April 1, 1996. SFAS No. 123 requires expanded disclosures of stock-based
compensation arrangements with employees and encourages (but does not require)
compensation cost to be measured based on the fair value of the equity
instrument awarded. Since Mity-Lite has decided to continue to apply APB 25
(as permitted by SFAS No. 123), the appropriate required disclosure of the
effects of SFAS No. 123 are included in Note 7.
USE OF ESTIMATES
The preparation of these financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
LONG-LIVED ASSETS
Impairment of long-lived assets is determined in accordance with SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and of Long-Lived
Assets to be Disposed Of," which was adopted on January 1, 1996. There were
no impairments as of March 31, 1997.
RECLASSIFICATIONS
Certain reclassifications have been made to 1996 balances to be
consistent with the 1997 presentation.
2. INVENTORIES
Inventories consisted of the following:
March 31, 1997 1996
- ------------------------------------------------------------------------------
Materials and supplies $611,000 $432,000
Work-in-progress 58,000 51,000
Finished goods 31,000 26,000
------------------------------
$700,000 $509,000
==============================
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
March 31, 1997 1996
- ------------------------------------------------------------------------------
Equipment $1,605,000 $1,335,000
Furniture and fixtures 770,000 591,000
Leasehold improvements 509,000 410,000
------------------------------
2,884,000 2,336,000
Less accumulated depreciation and amort. (1,255,000) (1,023,000)
------------------------------
$1,629,000 $1,313,000
==============================
<PAGE> 17
4. INVESTMENT IN AND NOTE RECEIVABLE FROM AFFILIATE
On March 31, 1997, the Company completed the acquisition of a 49.9
percent equity interest in DO Group, Inc., a privately-held manufacturer of
office seating and office panel systems headquartered in Elkhart, Indiana. DO
Group markets its products under the Domore and DO3 trade names and has
manufacturing facilities in Elkhart, Indiana and Marked Tree, Arkansas. DO
Group's seating and system sales totaled approximately $12 million for the
twelve months ended December 31, 1996. Total sales and net loss for the year
ended December 31, 1996, including the operations of its unprofitable wood
case goods division which was sold on December 31, 1996, were $14.2 million
and ($0.5) million respectively. Total assets and liabilities as of December
31, 1996 were $7.4 million and $8.3 million, respectively. Mity-Lite's share
of DO Group's net assets as of December 31, 1996 totaled ($426,000).
Mity-Lite purchased its 49.9 percent equity interest for $750,000 in cash
and the payment of certain closing and due diligence costs totaling $112,000
as of March 31, 1997. Mity-Lite holds a put option to put back its investment
to the DO Group officers at any time during the next three years. The value
of the put option equals the greater of Mity-Lite's cost of investment plus 10
percent per annum or the value of Mity-Lite's interest in DO Group using Mity-
Lite's then current price earnings ratio applied to the earnings of DO Group.
Mity-Lite's put option is collateralized by the remaining 50.1 percent
interest in DO Group. At the conclusion of the three year period, the
majority owners of DO Group will have the right to convert their 50.1 percent
interest in DO Group into 115,000 shares of Mity-Lite common stock, at which
time DO Group will become a wholly owned subsidiary of Mity-Lite. In
addition, Mity-Lite set aside options to purchase 175,000 shares of stock
under the 1997 Stock Incentive Plan (see Note 7). If Mity-Lite does not
exercise its put option, these options will vest in three years.
Mity-Lite will utilize the equity method of accounting for its
investment. Under the equity method, Mity-Lite will recognize its
proportionate share of the earnings or losses of DO Group as incurred.
Management estimates that the difference between Mity-Lite's investment cost
and its share of the underlying equity in DO Group's net assets is
approximately $1,270,000. Various components of this amount will be amortized
over a 1- to 30-year period.
As part of the acquisition, Mity-Lite loaned $1,000,000 in a senior
subordinated note to a wholly owned subsidiary of DO Group. The note, which
is subordinated to a financial institution's interest, is secured by
inventories, receivables, machinery & equipment, furniture and fixtures, real
property, and all other assets of DO Group. The note is callable in the event
the put option is exercised. The note matures on March 24, 2000 and bears
interest at 10 percent payable quarterly. The Company believes the interest
rate approximates the market rate of interest for similar debt instruments
negotiated at arms length.
Because of the liquidation of the wood case goods division, the pay down
of borrowings from the related proceeds, and the expected positive net income
and cash flows of DO Group, Management believes the investment in DO Group
will be recoverable and the note receivable will be collectible.
5. DEBT
The Company has an unsecured $2,000,000 line of credit with Zions First
National Bank which expires in December 1997 with interest at the bank's base
<PAGE> 18
rate (8.50 percent at March 31, 1997). In addition, the Company has an
unsecured $2,000,000 line of credit with First Security Bank which expires in
October 1997 with interest at the bank's prime rate (8.50 percent at March 31,
1997). No balances were outstanding on either line as of March 31, 1996 and
1997. Among other restrictions, debt covenants related to the lines of credit
require the Company to maintain certain financial ratios and levels of working
capital, all of which were met at March 31, 1997 and 1996.
6. ACCRUED EXPENSES
Accrued expenses consisted of the following:
March 31, 1997 1996
- ------------------------------------------------------------------------------
Accrued payroll and payroll taxes $336,000 $248,000
Accrued warranty 140,000 84,000
Other 9,000 11,000
------------------------------
$485,000 $343,000
==============================
7. COMMON STOCK OPTIONS
At March 31, 1997, the Company has two stock incentive plans, the 1990
Stock Incentive Plan (the "1990 Plan") and the 1997 Stock Incentive Plan (the
"1997 Plan"). Under the 1990 Plan, Mity-Lite authorized and reserved a total
of 500,000 shares of common stock for issuance under the plan. Under the 1997
Plan, which is still subject to shareholder approval, Mity-Lite plans to
authorize and reserve a total of 300,000 shares of common stock for issuance
under the plan. The purchase price for the shares under the Plans is equal to
the fair value of the Common Stock at the date the options are granted as
determined by the closing price listed on Nasdaq. A table of stock option
activity is shown below:
Number Option Price
Of Options Per Share
- ------------------------------------------------------------------------------
Outstanding at April 1, 1995 262,506 $0.82-$7.38
Granted 67,500 6.13-8.63
Exercised (25,331) 1.64-3.50
Forfeited (376) 2.73
------------------------------
Outstanding at March 31, 1996 304,299 0.82-8.63
Granted 187,150 9.13-14.50
Exercised (62,317) 0.82-3.50
Forfeited (4,542) 2.73-9.13
------------------------------
Outstanding at March 31, 1997 424,590 $1.64-$14.50
==============================
Options exercisable at March 31, 1997 and 1996 were 182,694 and 151,847,
respectively.
Mity-Lite applied APB Opinion 25 and related Interpretations in
accounting for its plans. Accordingly, no compensation cost has been
recognized for its stock option plans. Had compensation cost of Mity-Lite's
two stock-based compensation plans been determined based on the fair value at
the grant dates for awards under those plans consistent with the method of
<PAGE> 19
SFAS No. 123, Mity-Lite's net income and earnings per share would have changed
to the pro forma amounts indicated below:
Year Ended March 31, 1997 1996
- ------------------------------------------------------------------------------
Net income:
As reported $2,485,000 $1,928,000
Pro forma 2,431,000 1,883,000
------------------------------
Earnings per share assuming no dilution
As reported $0.76 $0.60
Pro forma $0.74 $0.58
Fully diluted earnings per share assuming
full dilution
As reported $0.76 $0.59
Pro forma $0.74 $0.58
------------------------------
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-
average assumptions used for grants in 1997 and 1996, respectively: expected
volatility of 31 percent and 31 percent, risk free interest rates of 6.02
percent and 5.39 percent, and expected lives of one to three years. Under
SFAS No. 123, the weighted average fair value per share of options issued
during the years ended March 31, 1997 and 1996 were $3.85 and $1.49,
respectively.
8. EMPLOYEE BENEFIT PLANS
In January 1995, The Company established a defined contribution plan
which qualifies under Section 401(k) of the Internal Revenue Code. The plan
provides retirement benefits for employees meeting minimum age and service
requirements. Participants may contribute up to 20 percent of their gross
wages, subject to certain limitations. The plan provides for discretionary
matching contributions by the company, as determined by the Board of
Directors. The discretionary amounts contributed to the plan for the years
ended March 31, 1996 and 1997 were $23,000 and $35,000, respectively.
In October 1996, the Board of Directors reserved up to 25,000 shares of
Mity-Lite common stock to be issued under the provisions of the 401(k) plan.
Shares are issued to the plan on a quarterly basis at a price reflecting a 15
percent discount from the market price of the stock at the beginning or the
end of the quarter, whichever is less. The number of shares issued to the
plan during the plan year was 2,750.
<PAGE> 20
9. INCOME TAXES
Income tax provision consisted of the following components:
Year Ended March 31, 1997 1996
- ------------------------------------------------------------------------------
Current:
Federal $1,242,000 $ 870,000
State 200,000 147,000
------------------------------
Total current 1,442,000 1,017,000
------------------------------
Deferred:
Federal (35,000) (11,000)
State (3,000) 3,000
------------------------------
Total deferred (38,000) (8,000)
------------------------------
$1,404,000 $1,009,000
==============================
The tax provisions were at effective rates as follows:
Year Ended March 31, 1997 1996
- ------------------------------------------------------------------------------
Federal statutory tax rates 34.0% 34.0%
State income taxes, net of federal benefit 3.3 3.3
Tax exempt interest (1.4) (2.5)
Research and development tax credit -- (0.8)
Other 0.2 0.4
------------------------------
36.1% 34.4%
==============================
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities are as follows:
Year Ended March 31, 1997 1996
- ------------------------------------------------------------------------------
Deferred tax:
Depreciation ($13,000) ($2,000)
Allowance for bad debts 28,000 25,000
Inventory 2,000 2,000
Vacation accrual 19,000 10,000
Warranty accrual 84,000 56,000
Other accruals 9,000 --
------------------------------
Total deferred tax $129,000 $91,000
==============================
The Company has not provided an allowance against the deferred taxes
recorded in the financial statements since management believes that it is more
likely than not that future earnings will be sufficient to recover deferred
tax.
<PAGE> 21
10. COMMITMENTS AND RELATED PARTY TRANSACTIONS
The Company leases its building facilities from a related party under an
operating lease which expires in March 2000 and is renewable at the then
current market rates for an additional ten years. The agreement requires
minimum lease payments of $205,000 per year until expiration. The Company has
no other noncancelable lease agreements. Total rent expense was $208,000 and
$157,000 for the years ended March 31, 1997 and 1996, respectively.
During the year ended March 31, 1996, the Company incurred certain capital
costs related to the construction of additional manufacturing and office space
at its current facility. A portion of these amounts, totaling $353,000 as of
March 31, 1996, has been recorded as a related party receivable. During the
year ended March 31, 1997, this amount was reimbursed to the Company by the
lessor once the additions were substantially completed.
11. RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 128, "Earnings per Share." This standard establishes standards for
computing and presenting earnings per share (EPS). SFAS No. 128 simplifies
the approach for computing earnings per share previously found in Accounting
Principles Board Opinion (APB) Opinion No. 15. It replaces the presentation
of primary EPS with a presentation of basic EPS. It also requires dual
presentation of basic and diluted EPS on the face of the income statement for
all entities with complex capital structures.
Under the new structure, basic EPS excludes dilution and is computed by
dividing income available to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock.
SFAS No. 128 is effective for financial statements issued for periods
ending after December 15, 1997. The computation of basic EPS under SFAS No.
128 would have resulted in net income per common share of $0.62 and $0.80 for
the fiscal years ended March 31, 1996 and 1997, respectively. Diluted EPS
computed under SFAS No. 128 would have resulted in net income per common share
of $0.60 and $0.76 for the fiscal years ended March 31, 1996 and 1997,
respectively.
