<PAGE> 1
U.S. Securities and Exchange Commission
Washington, D.C. 20549
----------------------------------------------------------
Form 10-QSB
(Mark One)
[ x ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1943
For the transition period from to
Commission file number 0-23898
-----------------------------------------------------------
MITY-LITE, INC.
(Exact name of small business issuer as specified 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)
Issuer's telephone number: (801) 224-0589
N/A
(Former name, former address and former fiscal year, if changed since last
report)
-----------------------------------------------------------
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
There were 3,227,015 shares of the registrant's Common Stock, par value
$.01 per share, outstanding on January 27, 1999.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (Check one:) Yes No x
<PAGE> 2
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
MITY-LITE, INC.
BALANCE SHEETS
(unaudited)
Dec. 31, March 31,
ASSETS 1998 1998
---------- ----------
Current assets:
Cash and cash equivalents. . . . . . . . $ 8,517,000 $ 9,266,000
Available-for-sale securities. . . . . . 2,234,000 1,207,000
Accounts receivable, less allowance of
$352,000 at Dec. 31, 1998 and $259,000
at March 31, 1998. . . . . . . . . . . 3,529,000 2,586,000
Inventories. . . . . . . . . . . . . . . 1,341,000 960,000
Prepaid expenses and other current
assets . . . . . . . . . . . . . . . . 205,000 324,000
Deferred income taxes. . . . . . . . . . 192,000 192,000
---------- ----------
Total current assets . . . . . . . . . . . . 16,018,000 14,535,000
Property and equipment, net. . . . . . . . . 2,129,000 1,912,000
Note receivable from affiliate . . . . . . . 1,052,000 1,000,000
Investment in affiliate. . . . . . . . . . . 1,415,000 1,108,000
Intangibles. . . . . . . . . . . . . . . . . 1,208,000 1,000
---------- ----------
Total assets . . . . . . . . . . . . . . . . $21,822,000 $18,556,000
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank line of credit. . . . . . . . . . . $ 73,000 --
Accounts payable . . . . . . . . . . . . 910,000 $ 1,144,000
Accrued expenses . . . . . . . . . . . . 1,255,000 496,000
Current portion - long term debt . . . . 44,000 --
---------- ----------
Total current liabilities. . . . . . . . . . 2,282,000 1,640,000
Deferred income tax liabilities. . . . . . . 317,000 97,000
Long term debt . . . . . . . . . . . . . . . 107,000 --
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 3,229,979 at Dec. 31,
1998 and 3,260,585 at March 31, 1998 . 32,000 33,000
Additional paid-in capital . . . . . . . 7,814,000 7,721,000
Retained earnings. . . . . . . . . . . . 11,254,000 9,065,000
Accumulated comprehensive income . . . . 16,000 --
---------- ----------
Total stockholders' equity . . . . . . . . 19,116,000 16,819,000
---------- ----------
Total liabilities and stockholders' equity . $21,822,000 $18,556,000
========== ==========
See accompanying notes to financial statements.
<PAGE> 3
MITY-LITE, INC.
STATEMENTS OF INCOME
(unaudited)
Three months ended Dec. 31,
1998 1997
---------- ----------
Net sales . . . . . . . . . . . . . . . . . . $ 6,812,000 $ 5,667,000
Cost of products sold . . . . . . . . . . . . 4,079,000 3,664,000
---------- ----------
Gross profit. . . . . . . . . . . . . . . . . 2,733,000 2,003,000
Expenses:
Selling . . . . . . . . . . . . . . . . . 1,065,000 885,000
General and administrative. . . . . . . . 316,000 170,000
Research and development. . . . . . . . . 145,000 130,000
---------- ----------
Total expenses. . . . . . . . . . . . . . . . 1,526,000 1,185,000
---------- ----------
Income from operations. . . . . . . . . . . . 1,207,000 818,000
Other income (expense):
Interest expense. . . . . . . . . . . . . (3,000) --
Interest income . . . . . . . . . . . . . 108,000 104,000
Equity in income of affiliate . . . . . . 96,000 109,000
Amortization of intangibles . . . . . . . (13,000) --
Other . . . . . . . . . . . . . . . . . . (15,000) (8,000)
---------- ----------
Total other income. . . . . . . . . . . . . . 173,000 205,000
---------- ----------
Income before provision for income taxes. . . 1,380,000 1,023,000
Provision for income taxes. . . . . . . . . . 544,000 379,000
---------- ----------
Net income. . . . . . . . . . . . . . . . . . $ 836,000 $ 644,000
========== ==========
Basic earnings per share. . . . . . . . . . . $ 0.26 $ 0.20
========== ==========
Weighted average number of common
shares - basic. . . . . . . . . . . . . . . 3,229,979 3,241,025
========== ==========
Diluted earnings per share. . . . . . . . . . $ 0.25 $ 0.19
========== ==========
Weighted average common and common
equivalent shares - diluted . . . . . . . 3,322,512 3,417,439
========== ==========
See accompanying notes to financial statements.
<PAGE> 4
MITY-LITE, INC.
STATEMENTS OF INCOME
(unaudited)
Nine months ended Dec. 31,
1998 1997
---------- ----------
Net sales . . . . . . . . . . . . . . . . . . $21,837,000 $19,304,000
Cost of products sold . . . . . . . . . . . . 13,536,000 12,098,000
---------- ----------
Gross profit. . . . . . . . . . . . . . . . . 8,301,000 7,206,000
Expenses:
Selling . . . . . . . . . . . . . . . . . 3,042,000 2,850,000
General and administrative. . . . . . . . 901,000 665,000
Research and development. . . . . . . . . 379,000 356,000
---------- ----------
Total expenses. . . . . . . . . . . . . . . . 4,322,000 3,871,000
---------- ----------
Income from operations. . . . . . . . . . . . 3,979,000 3,335,000
Other income (expense):
Interest expense. . . . . . . . . . . . . (3,000) --
Interest income . . . . . . . . . . . . . 336,000 274,000
Equity in income of affiliate . . . . . . 386,000 231,000
Amortization of intangibles . . . . . . . (13,000) --
Other . . . . . . . . . . . . . . . . . . (35,000) (8,000)
---------- ----------
Total other income. . . . . . . . . . . . . . 671,000 497,000
---------- ----------
Income before provision for income taxes. . . 4,650,000 3,832,000
Provision for income taxes. . . . . . . . . . 1,754,000 1,418,000
---------- ----------
Net income. . . . . . . . . . . . . . . . . . $ 2,896,000 $ 2,414,000
========== ==========
Basic earnings per share. . . . . . . . . . . $ 0.89 $ 0.75
========== ==========
Weighted average number of common
shares - basic. . . . . . . . . . . . . . . 3,253,060 3,216,937
========== ==========
Diluted earnings per share. . . . . . . . . . $ 0.86 $ 0.71
========== ==========
Weighted average common and common
equivalent shares - diluted . . . . . . . 3,373,690 3,380,834
========== ==========
See accompanying notes to financial statements.
<PAGE> 5
MITY-LITE, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
Nine months ended Dec. 31,
1998 1997
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income . . . . . . . . . . . .. . . . . . $ 2,896,000 $ 2,414,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization. . . . . . . 440,000 355,000
Loss on disposal of equipment. . . . . . . 31,000 8,000
Deferred tax expense . . . . . . . . . . . 114,000 57,000
Equity in income of affiliate. . . . . . . (385,000) (231,000)
Tax benefit from exercise of stock options 77,000 360,000
Changes in assets and liabilities (net of
effects from purchase of Broda):
Accounts receivable. . . . . . . . . . . (267,000) (184,000)
Inventories. . . . . . . . . . . . . . . 340,000 (274,000)
Prepaid expenses and other current assets 237,000 (330,000)
Accounts payable . . . . . . . . . . . . (392,000) 82,000
Accrued expenses and other . . . . . . . 465,000 294,000
---------- ----------
Net cash provided by operating activities. . . 3,556,000 2,551,000
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of available-for-sale securities . . (1,341,000) --
Sales of available-for-sale securities . . . . 314,000 --
Proceeds from sales of property & equipment. . 25,000 --
Investment in and cash received from affiliate 78,000 69,000
Purchase of Broda Enterprises, (net of cash
acquired) . . . . . . . . . . . . . . . . . . (2,083,000) --
Purchases of property and equipment. . . . . . (445,000) (571,000)
---------- ----------
Net cash used in investing activities. . . . . (3,452,000) (502,000)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase and retirement of common stock. . . . (833,000) (104,000)
Increase in note receivable from affiliate . . (51,000) --
Decrease in bank operating loan. . . . . . . . (105,000) --
Decrease in long term debt . . . . . . . . . . (7,000) --
Issuance of common stock from stock options. . 142,000 343,000
---------- ----------
Net cash provided by (used in) financing
activities . . . . . . . . . . . . . . . . . (854,000) 239,000
---------- ----------
Effect of exchange rate changes on cash. . . . 1,000 --
---------- ----------
Net increase in cash and cash equivalents. . . (749,000) 2,288,000
Cash and cash equivalents at beginning of
period . . . . . . . . . . . . . . . . . . . 9,266,000 7,646,000
---------- ----------
Cash and cash equivalents at end of period . . $ 8,517,000 $ 9,934,000
========== ==========
See accompanying notes to financial statements.
<PAGE> 6
Supplemental schedule of nancash investing and financing activities:
In November of 1998, the Company purchased all of the capital stock of Broda
for $2,099,000. In conjunction with the acquisition, liabilities were assumed
as follows:
Fair value of assets acquired. . . . . . . . . . . $1,830,000
Cost in excess of fair value of assets . . . . . . 1,162,000
Cash paid for the capital stock. . . . . . . . . . (2,099,000)
---------
Liabilities assumed . . . . . . . . . . . . . . $ 893,000
=========
See accompanying notes to financial statements.
<PAGE> 7
MITY-LITE, INC.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
INTERIM PERIOD ACCOUNTING POLICIES
In the opinion of the Company's management, the accompanying unaudited
financial statements contain all normal recurring adjustments necessary to
present fairly the Company's financial position for the interim period.
Results of operations for the three months and nine months ended December 31,
1998 are not necessarily indicative of results to be expected for the full
fiscal year ending March 31, 1999.
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for annual financial
statements. Although the Company believes that the disclosures in these
unaudited financial statements are adequate to make the information presented
for the interim periods not misleading, certain information and footnote
information normally included in annual financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted pursuant to the rules and regulations of the Securities and
Exchange Commission, and these financial statements should be read in
conjunction with the Company's audited financial statements included in the
Company's annual report to shareholders for the fiscal year ended March 31,
1998.
2. Inventories
Inventories consisted of the following:
Dec. 31, March 31,
1998 1998
---------- ----------
Materials and supplies . . . . $ 867,000 $ 812,000
Work-in-progress . . . . . . . 160,000 58,000
Finished goods . . . . . . . . 314,000 90,000
---------- ----------
$ 1,341,000 $ 960,000
========== ==========
The increase in inventory is due mainly to inventory resulting from the
acquisition of Broda Enterprises (see Note 4. Recent Acquisition).
<PAGE> 8
3. Recently Issued Financial Accounting Standards
Effective April 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." This
Statement establishes standards for reporting and displaying comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements. This Statement requires the
classification of items of comprehensive income by their nature in a financial
statement and the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital in the equity section of
the balance sheet. For the three months and nine months ended December 31,
1998, comprehensive income exceeded net income by $16,000 related to a gain on
the foreign currency translation adjustment. For the three months and nine
months ended December 31, 1997, comprehensive income is the same as net
income.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of
an Enterprise and Related Information," which supersedes FASB Statement No.
14, "Financial Reporting for Segments of a Business Enterprise" and changes
the way public companies report information about operating segments. SFAS No.
131, which is based on the management approach to segment reporting,
establishes requirements to report selected segment information quarterly and
to report entity-wide disclosures about products and services, major customers
and the material countries in which the entity holds assets and reports
revenue. Management is currently evaluating the effects of this change on its
reporting of segment information. The Company will adopt SFAS No. 131 for its
fiscal year ending March 31, 1999.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which supersedes SFAS No. 80, "Accounting
for Future Contracts," SFAS No. 105, "Disclosure of Information about
Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments
with Concentration of Credit Risk," and SFAS No. 119, "Disclosure about
Derivative Financial Instruments and Fair Value of Financial Instruments," and
also amends certain aspects of other SFASs previously issued. This statement
is effective for all fiscal quarters of fiscal years beginning after June 15,
1999. This statement establishes accounting and reporting standards for
derivative instruments and hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. Management
does not believe this statement will have a significant impact on the Company.
<PAGE> 9
4. Recent Acquisition
Effective November 1, 1998, the Company acquired 100 percent of the
outstanding stock of Broda Enterprises Inc., a privately-owned designer,
manufacturer and marketer of geriatric health care seating and seating
accessories, based in Waterloo, Ontario, Canada. The transaction was treated
for accounting purposes as a purchase and accordingly, the Company has
included operations of Broda in the financial statements from November 1.
In conjunction with this acquisition, the Company paid $2,099,000 in cash
with $130,000 being held in escrow for one year to offset the effect of any
breaches of representations, warranties or covenants made by the sellers. The
acquisition resulted in goodwill of $1,162,000 which is being amortized over a
twenty year period. Up to an additional $400,000 of purchase price is
contingently payable based on Broda obtaining certain sales and earnings
growth targets over the next twelve months. If achieved, goodwill will be
increased by the amount paid out.
The unaudited pro forma results of operations of the Company for the
three months and nine months ended December 31, 1998 and 1997 (assuming the
acquisition of Broda had occurred as of April 1, 1997) are as follows:
Three months ended Dec. 31,
1998 1997
---------- ----------
Net sales . . . . . . . . . . . . . . . . . . $ 7,089,000 $ 6,320,000
Net income. . . . . . . . . . . . . . . . . . 897,000 656,000
Basic earnings per share. . . . . . . . . . . 0.28 0.20
Diluted earnings per share. . . . . . . . . . 0.27 0.19
Nine months ended Dec. 31,
1998 1997
---------- ----------
Net sales . . . . . . . . . . . . . . . . . . $23,640,000 $21,017,000
Net income. . . . . . . . . . . . . . . . . . 2,911,000 2,220,000
Basic earnings per share. . . . . . . . . . . 0.89 0.69
Diluted earnings per share. . . . . . . . . . 0.86 0.66
The preliminary allocation of the purchase price resulted in
approximately $1.2 million of goodwill. The actual amount of goodwill
recorded will vary based upon the final purchase price allocation resulting
from preacquisition contingencies related principally to outstanding
litigation and other post-closing purchase price adjustments which may result
from any breaches of the sellers' representations, warranties or covenants.
<PAGE> 10
Item 2.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
GENERAL
The Company designs and manufactures institutional furniture and markets
these products in niche markets. The Company's operations consist of multi-
purpose room furniture, geriatric seating and, through an affiliate, specialty
office seating and office systems. In addition, the Company continues to
actively pursue acquisitions of product lines or companies that will be
complementary to the Company's businesses.
The Company's multi-purpose room furniture is marketed under the Mity-
Lite trade name and consists of lightweight, durable, folding leg tables,
stacking chairs, and other related products. These products are used in
multi-purpose rooms of educational, recreational, hotel and hospitality,
government, office, health care, religious and other public assembly
facilities. The stacking chairs are marketed under the MityTuff(TM),
MityStack(TM), MityFlex(TM), MityDeluxe(TM) and MityHost(TM) trade names.
Some of these chairs are distributed by Mity-Lite under original equipment
manufacturer (OEM) arrangements with the chair manufacturers while others are
manufactured and/or assembled in the Company's Orem, Utah facility.
Historically, Mity-Lite's growth has come from an expanding base of new
customers and from increasing sales to existing customers in this segment of
the business. The multi-purpose room operation'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 chairs, staging,
flooring, partitions, podiums, risers and bench seating.
Net sales of the Mity-Lite's table products have increased during the
nine months ended December 31, 1998 as compared to the nine months ended
December 31, 1997. Management expects, but cannot assure, that this trend
will continue. The multi-purpose room furniture operations' management
anticipates that over the next 12 months, its primary business strategy and
emphasis will be on developing and introducing new table and chair products
while continuing to expand its share of the folding leg table market.
The Company's geriatric seating operations were acquired in November
1998. The Company acquired all of the outstanding capital stock of Broda
Enterprises Inc. for $2.5 million. The purchase price includes a contingent
amount of up to $0.4 million if certain net sales and earnings before
interest, tax, depreciation and amortization (EBITDA) targets are met for the
year ending December 31, 1999. Broda's products are marketed under the Broda
trade name and its operations are based in Waterloo, Ontario, Canada.
The Company also owns a 49.9 percent interest in DO Group, Inc., a
privately-held manufacturer of specialty office seating and office panel
systems headquartered in Elkhart, Indiana. DO Group markets its products
under the Domore, Corel, JG, and DO3 trade names and has manufacturing
facilities in Elkhart, Indiana and Marked Tree, Arkansas. In May 2000, the
majority owners of DO Group have the right to convert their 50.1 percent
interest in DO Group into 115,000 shares of Mity-Lite common stock. If this
option is exercised, DO Group will become a wholly-owned subsidiary of
Mity-Lite.
<PAGE> 11
Comparison of the Three Months and Nine Months Ended December 31, 1998 and
1997
NET SALES. The Company's third quarter fiscal 1999 net sales of
$6,812,000 were up 20.2 percent as compared with the third quarter net sales
in the prior fiscal year. Multi-purpose room domestic and international
chair sales represented 8.4 percent and 7.5 percent of net sales for the third
quarter ended December 31, 1998 and 1997, respectively, while international
table and chair sales represented 6.9 percent and 5.9 percent of net sales for
the same respective time periods. Geriatric chair and accessories sales,
related to the Broda acquisition, represented 7.8 percent of net sales for the
third quarter ending December 31, 1998. The overall sales increase has
resulted from increased sales in the hospitality and recreation markets as
well as sales from the recent Broda acquisition.
For the nine month period ended December 31, 1998, the Company's net
sales of $21,837,000 represented an increase of 13.1 percent over the same
period in the prior fiscal year. The increase reflected sales growth of 9
percent in the table product lines and 20 percent in the multi-purpose room
chair product lines. Multi-purpose room domestic and international chair
sales represented 9.4 percent and 8.8 percent of net sales for the nine month
period ended December 31, 1998 and 1997, respectively, while international
table and chair sales represented 8.9 percent and 7.0 percent of net sales for
the same respective time periods. Geriatric chair sales represented 2.4
percent of net sales for the nine months ended December 31, 1998. Geriatric
chair sales resulting from the Broda acquisition were included in the
Company's sales for the last two months of the period. The overall sales
increase has resulted mainly from increased sales in the government,
recreation and hospitality market segments, as well as increased international
sales.
GROSS PROFIT. Gross profit as a percentage of net sales increased over
the prior year by 4.8 percentage points, to 40.1 percent for the three months
ended December 31, 1998. The majority of the increase was the result of a
higher average sales price on table and chair products and lower material
costs partially offset by increasing multi-purpose room chair sales which,
when compared to table products, have lower gross profit margins. Geriatric
chair sales also had a lower gross profit due to partially writing off the
inventory purchase adjustment resulting from the Broda acquisition.
Gross profit as a percentage of net sales increased over the prior year by
0.7 percentage points, to 38.0 percent for the nine months ended December 31,
1998. The majority of the increase was caused by increases in the average
unit sales revenue from table and chair products and lower material costs.
These decreasing costs have partially been offset by increasing chair sales
which have lower gross profit margins.
SELLING EXPENSES. Selling expenses were 15.6 percent of net sales in the
third quarter of fiscal 1999 as compared to 15.6 percent for the third quarter
of the prior fiscal year. Actual expenses increased by $180,000 or 20.3
percent. The increase was due to increased costs for commissions and salaries
resulting from the higher sales volume.
Selling expenses were 13.9 percent of net sales for the nine months ended
December 31, 1998 as compared to 14.8 percent for the same period in the prior
fiscal year. The decrease in selling expenses as a percentage of net sales
resulted from overhead leverage from the increase in sales as well as tighter
controls on literature, advertising and office supplies costs. Actual selling
expenses increased by $192,000.
<PAGE> 12
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
were 4.6 percent of net sales for the third quarter of fiscal 1999 as compared
to 3.0 percent for the third quarter of the prior fiscal year. Actual
spending increased by 85.9 percent, or $146,000, resulting from additional
personnel related expenses, the addition of the total quality management and
training position to the administrative staff, increased investor relations
spending and increased general and administrative costs associated with Broda.
General and administrative expenses were 4.1 percent of net sales in the
nine months ended December 31, 1998, as compared to 3.4 percent for the same
period in the prior fiscal year. Actual spending increased by 35.5 percent,
or $236,000, resulting from reasons stated above.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
were 2.1 percent of net sales for the third quarter of fiscal 1999 as compared
to 2.3 percent for the third quarter of the prior fiscal year. Actual
spending increased by 11.5 percent, or $15,000 as a result of increased
outside services costs.
Research and development expenses were 1.7 percent of net sales for the
nine months ended December 31, 1998, as compared to 1.8 percent for the same
period in the prior fiscal year. Actual spending increased by 6.5 percent, or
$23,000, resulting from increased outside service costs.
OTHER INCOME AND EXPENSE. Other income and expense netted to $173,000
for the third quarter of fiscal 1999. Third quarter interest income was
$108,000, an increase of $4,000 from the third quarter of the prior fiscal
year. The increase was due to interest earned on the higher cash balance held
in the current fiscal year partially offset by a reduction in cash used in the
Broda acquisition. The Company also recognized income of $96,000 from its
investment in DO Group, Inc. The Company bought a 49.9 percent interest in
the DO Group on March 31, 1997. The Company's proportionate share of DO
Group's net income for the three months ended December 31, 1998 was $96,000, a
decrease of $13,000 over the same prior year period. In addition, the Company
recognized a loss of $11,000 on the disposal of certain fixed assets and
amortization of $13,000 of intangibles related to Broda.
Other income and expense netted to $671,000 for the nine months ended
December 31, 1998. Nine month interest income was $336,000, an increase of
$62,000 from the same period in the prior fiscal year. The increase was due
to interest earned on the Company's increasing cash and investment balances
partially offset by a reduction in cash used in the Broda acquisition. The
Company also recognized income of $386,000 from its investment in DO Group,
Inc. The $386,000, an increase of $155,000 over the same prior year period,
represents Mity-Lite's proportionate share of DO Group's net income for the
nine months ended December 31, 1998. In addition, the Company recognized a
loss of $31,000 on the disposal of certain fixed assets and amortization of
$13,000 of intangibles related to Broda.
NET INCOME. For reasons stated above, the Company's fiscal 1999 third
quarter net income of $836,000 increased $192,000, or 29.8 percent over third
quarter net income in the prior fiscal year. The Company's net income of
$2,896,000 for the nine month period ended December 31, 1998 increased
$482,000, or 20.0 percent over same period in the prior fiscal year.
<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents, which consist primarily of high-quality
municipal bonds and tax-advantaged money market instruments, totaled $8.52
million at December 31, 1998 as compared to $9.27 million at March 31, 1998.
The Company also holds available-for-sale securities totaling $2.23 million at
December 31, 1998. The decrease in cash and cash equivalents was due
primarily to the Broda acquisition ($2.01 million) in November 1998, the
purchase and retirement of common stock ($0.83 million), net purchases of
available-for-sale securities ($1.03 million) and purchases of property and
equipment ($0.45 million). This decrease was partially offset by cash
generated from operations ($3.48 million), net proceeds related to the
exercise of stock options ($0.14 million), and interest received from an
affiliate ($0.08 million).
In recent history, the Company has financed its growth through cash from
operations. The Company also has a revolving credit facility with Zions First
National Bank. The credit facility, which expires on December 5, 1999, allows
the Company to draw up to $3,000,000. As of December 31, 1998, the Company
had no amounts drawn under this facility. The credit facility requires the
maintenance of certain financial ratios and levels of working capital, all of
which were met as of December 31, 1998.
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. The
Company is actively pursuing acquisitions of product lines or companies with
complementary product lines. The Company's working capital requirements may
significantly increase following consummation of an acquisition. No
assurances are or can be given that the Company's capital resources will be
sufficient to fund the future needs of the Company and its affiliates
following any such acquisition. 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 December 31, 1998, the proceeds which
would have been received by the Company upon exercise of outstanding options
which were exercisable on that date were approximately $685,000. There is no
assurance that such options will be exercised.
The Company's material cash commitments at December 31, 1998 include
current liabilities of $2.28 million to be repaid from funds generated from
operations and the $400,000 contingent consideration as part of the Broda
acquisition. The Company is also evaluating several possible acquisitions.
If any of these acquisitions are consummated, the Company may utilize a
material portion of its existing cash reserves. 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. The Company has also entered into two lease agreements for Broda's
production and office facilities under which it is obligated to pay $7,218
Canadian (approximately US $4,700) per month through August 2000. In
addition, in October 1998 the Company was authorized by the board of directors
to repurchase up to 100,000 shares of Mity-Lite common stock. Approximately
70,000 shares remain to be purchased under the repurchase program.
<PAGE> 14
INFORMATION SYSTEMS AND THE YEAR 2000
The year 2000 problem is the result of computer programs being written
using two digits rather than four digits to define an applicable year. Any of
the Company's computer programs that have date sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculation causing disruptions of
operations, including, but not limited to, a temporary inability to process
transactions, send invoices, track supplies and status of manufacturing
activities, or engage in similar business activities.
The Company is in the process of addressing the impact of the Year 2000
problem on its operations. The Company is currently engaged in a
comprehensive project to upgrade its information, technology, manufacturing
and facilities computer software to programs that will consistently and
properly recognize the Year 2000. Many of the Company's systems include new
hardware and packaged software recently purchased from large vendors who have
represented that these systems are already Year 2000 compliant. The Company
has tested most of these systems and determined that they are Year 2000
compliant. The Company is in the process of completing testing of the
remaining systems. The Company is also obtaining assurances from vendors that
timely updates will be made available to make all remaining purchased software
and upgrades Year 2000 compliant.
The Company will utilize internal resources to test all of its software
for Year 2000 compliance and, where necessary, upgrade or replace noncompliant
systems. The Company expects to complete the project in early 1999. The
estimated cost of this project, including the cost of new systems which will
be capitalized, is less than $50,000. To date, $20,000 of this amount has
been expensed, and $5,000 has been capitalized. This cost will be funded
though operating cash flows. Failure by the Company and/or vendors and
customers to complete Year 2000 compliance work in a timely manner could have
a material adverse effect on certain of the Company's operations. In the
event of such failure, the Company may lose certain customers, vendors and
suppliers, and such third parties may not be able to perform their obligations
to the Company in a timely and efficient manner. The Company may also suffer
a decrease in manufacturing efficiency and manufacturing and inventory control
efficiency. The Company is currently assessing and evaluating back-up plans
in the event the Year 2000 problem does materially affect the Company's
operations.
<PAGE> 15
The costs of the project and the date on which the Company believes it
will complete the Year 2000 modifications are based on management's best
current estimates, which were derived utilizing numerous assumptions of future
events, including the continued availability of certain technical resources,
the success of customers and vendors in addressing the Year 2000 problem,
third party modification plans and other factors. Certain statements made
under the caption "Information System and the Year 2000" are "forward-looking
statements" as defined in the next paragraph below. Such forward-looking
statements relate to: (i) the Company's ability to timely and adequately test
its systems affected by the Year 2000 problem, and (ii) the Company's ability
to remedy the material Year 2000 problems in the early part of 1999 and in a
manner that will not materially affect the Company's financial condition or
results of operations. There can be no guarantee that these estimates will be
achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are
not limited to, the availability and cost of personnel trained in resolving
the Year 2000 problem, the ability to locate and correct all relevant computer
codes, the success of customers and vendors in addressing the Year 2000
problem, and similar uncertainties.
FORWARD-LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT FUTURE RESULTS OF
OPERATIONS
Certain statements made above in this Form 10-QSB are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 (the "Reform Act"). In addition, when used in this filing, the words
or phrases "may," "will," "Management believes," "Company believes," "Company
intends," "estimates," "projects," "anticipates," "expects" and similar
expressions are intended to identify "forward-looking statements" within the
meaning of the Reform Act.
Forward-looking statements contained herein include plans and objectives
of management for future operations, including plans and objectives relating
to the products, marketing, customers, product line expansions, manufacturing
process and potential acquisitions. These forward-looking statements involve
risks and uncertainties and are based on certain assumptions that may not be
realized. Actual results and outcomes may differ materially from those
discussed or anticipated. The forward-looking statements and associated risks
set forth herein and elsewhere in this quarterly report relate to: (i) the
Company's expectation that it will be able to continue to increase net sales
of table products and expand its share of the market for lightweight, durable,
folding leg tables, (ii) the Company's anticipation that it will be able to
attract new customers, (iii) the Company's intentions to expand into new
markets, (iv) the Company's ability to locate and consummate acquisitions of
product lines or companies on terms acceptable to the Company and integrate
such acquisitions into the Company's operations following consummation
thereof, including the successful integration of the Broda Enterprises Inc.
Acquisition into the Company's operations, (v) the Company's expectations that
it will be able to successfully address any issues relating to the Year 2000
problem, including (a) the Company's ability to timely and adequately test its
systems affected by the Year 2000 problem, and (b) the Company's ability to
remedy the material Year 2000 problems in the early part of 1999 and remedy
such problems in a manner that will not materially affect the Company's
financial condition or results of operations, (vi) the Company's intention to
expand and introduce new product lines to existing customers, and (vii) the
Company's expectation that it will be able to expand into new market segments
by developing new products or acquiring other products or businesses in such
segments.
<PAGE> 16
All forward-looking statements involve predictions and are subject to
known and unknown risks and uncertainties, including, without limitation,
those discussed below as well as general economic and business conditions,
that could cause actual results to differ materially from historical earnings
and those presently anticipated or projected. Readers should not place undue
reliance on any such forward-looking statements, which speak only as of the
date made. The considerations listed below and elsewhere in this filing could
affect the Company's financial performance and could cause the Company's
actual results for future periods to differ materially from any views or
statements expressed with respect to future periods. Important factors and
risks that might cause such differences, include, but are not limited to (a)
lower than expected revenue, revenue growth and cash flow from operations
because of adverse economic or business conditions or the Company's inability,
for any reason, to introduce new products or implement its marketing
strategies, (b) management's ability to manage effectively the Company's
growth, (c) the Company's ability to expand successfully into new markets such
as in the geriatric health care seating and seating accessories market, (d)
import restrictions and economic conditions in the Company's foreign markets,
(e) increased competition in the Company's existing and future markets, (f)
increased expenditures required to address the Year 2000 issue and a material
adverse impact on the Company's material suppliers, customers or manufacturing
partners resulting from the Year 2000 problem, (g) the market's acceptance of
additional products such as multi-purpose room furniture, (h) the Company's
ability to maintain relatively low cost labor rates in a period of lower
unemployment, (i) the Company's ability to source acceptable raw materials at
current prices, (j) increased product warranty service costs if warranty
claims increase as a result of the Company's new manufacturing bonding process
or for any other reason, (k) the Company's ability to refine and enhance the
quality and productivity of its manufacturing process, (l) the Company's
ability to manufacture and market at current margins high quality, high
performance products at competitive prices, and (m) the Company's ability to
locate and consummate acquisitions of complementary product lines or companies
on terms acceptable to the Company and integrate such acquisitions into the
Company's operations.
In light of the significant uncertainties inherent in forward-looking
statements, 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. The Company disclaims any obligation or
intent to update any such factors or forward-looking statements to reflect
future events or developments.
<PAGE> 17
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
11 Computation of Net Income per Share
27 Financial Data Schedule
(b) Reports on Form 8-K:
On November 25, 1998, the Company filed a current report on Form
8-K relating to its acquisition of all the outstanding
capital stock of Broda Enterprises Inc.
<PAGE> 18
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
MITY-LITE, INC.
Date: February 8, 1999 /s/ Gregory L. Wilson
-------------------------------------
Gregory L. Wilson
Chairman of the Board, President,
and Director (Principal Executive
Officer)
Date: February 8, 1999 /s/ Bradley T Nielson
-------------------------------------
Bradley T Nielson
Chief Financial Officer
(Principal Financial and Accounting
Officer)
<TABLE>
<CAPTION>
Three months ended Nine months ended
December 31, December 31,
1998 1997 1998 1997
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Net income as reported . . . . . $ 836,000 $644,000 $2,896,000 $2,414,000
========= ========= ========== ==========
BASIC:
Weighted average number of
common shares outstanding. 3,229,979 3,241,025 3,253,060 3,216,937
========= ========= ========== ==========
Basic net income per share . . $0.26 $0.20 $0.89 $0.75
========= ========= ========== ==========
DILUTED:
Common and common equivalent shares
outstanding:
Weighted average number of
common shares outstanding. 3,229,979 3,241,025 3,253,060 3,216,937
Common stock equivalents from
options computed on the
treasury-stock method using
the average fair market
value of common stock
outstanding during the
period . . . . . . . . . . 92,533 176,414 120,630 163,897
--------- --------- ---------- ----------
Shares used in the
computation. . . . . . . . 3,322,512 3,417,439 3,373,690 3,380,834
========= ========= ========== ==========
Diluted net income per share . $0.25 $0.19 $0.86 $0.71
========= ========= ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Balance Sheet at December 31, 1998 (unaudited) and Statements of Income for
the three months ended December 31, 1998 (unaudited) and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> DEC-31-1998
<CASH> 8,517,000
<SECURITIES> 2,234,000
<RECEIVABLES> 3,881,000
<ALLOWANCES> (352,000)
<INVENTORY> 1,341,000
<CURRENT-ASSETS> 16,018,000
<PP&E> 4,225,000
<DEPRECIATION> (2,096,000)
<TOTAL-ASSETS> 21,822,000
<CURRENT-LIABILITIES> 2,282,000
<BONDS> 0
0
0
<COMMON> 7,846,000
<OTHER-SE> 11,269,000
<TOTAL-LIABILITY-AND-EQUITY> 21,822,000
<SALES> 6,812,000
<TOTAL-REVENUES> 6,812,000
<CGS> 4,079,000
<TOTAL-COSTS> 4,079,000
<OTHER-EXPENSES> 1,526,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,000
<INCOME-PRETAX> 1,380,000
<INCOME-TAX> 544,000
<INCOME-CONTINUING> 836,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 836,000
<EPS-PRIMARY> .26
<EPS-DILUTED> .25
</TABLE>
