<PAGE> 1
U.S. Securities and Exchange Commission
Washington, D.C. 20549
------------------------------------------------------------
Form 10-Q
(Mark One)
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-23898
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MITY-LITE, INC.
(Exact name of registrant 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)
Registrant's telephone number: (801) 224-0589
N/A
(Former name, former address and former fiscal year, if changed since last
report)
------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes x No
There were 3,200,370 shares of the registrant's Common Stock, par value
$.01 per share, outstanding on July 30, 1999.
<PAGE> 2
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
MITY-LITE, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
June 30, March 31,
ASSETS 1999 1999
------------ ------------
Current assets:
Cash and cash equivalents. . . . . . . . $ 5,788,000 $ 8,029,000
Available-for-sale securities. . . . . . 1,047,000 3,899,000
Accounts receivable, less allowance of
$1,040,00 at June 30, 1999 and $395,000
at March 31, 1999. . . . . . . . . . . 6,767,000 3,596,000
Inventories. . . . . . . . . . . . . . . 1,596,000 1,544,000
Prepaid expenses and other current
assets . . . . . . . . . . . . . . . . 1,149,000 233,000
Deferred income taxes. . . . . . . . . . 249,000 250,000
------------ ------------
Total current assets . . . . . . . . . . . . 16,596,000 17,551,000
Property and equipment, net. . . . . . . . . 2,283,000 2,155,000
Investment in affiliate. . . . . . . . . . . 1,599,000 1,483,000
Note receivable from affiliate . . . . . . . 2,367,000 1,066,000
Intangibles. . . . . . . . . . . . . . . . . 2,737,000 1,208,000
------------ ------------
Total assets . . . . . . . . . . . . . . . . $25,582,000 $23,463,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank line of credit. . . . . . . . . . . $ 488,000 286,000
Accounts payable . . . . . . . . . . . . 1,894,000 $ 1,569,000
Accrued expenses and other current
liabilities. . . . . . . . . . . . . . 2,447,000 1,277,000
Current portion - long term debt . . . . -- 45,000
------------ ------------
Total current liabilities. . . . . . . . . . 4,829,000 3,177,000
Deferred income tax liabilities. . . . . . . 310,000 271,000
Long term debt . . . . . . . . . . . . . . . -- 97,000
------------ -----------
Total liabilities. . . . . . . . . . . . . . 5,139,000 3,545,000
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 3,200,270 at June 30,
1999 and 3,223,150 at March 31, 1999 . 32,000 32,000
Additional paid-in capital . . . . . . . 7,810,000 7,822,000
Retained earnings. . . . . . . . . . . . 12,503,000 12,009,000
Accumulated comprehensive income . . . . 98,000 55,000
------------ ------------
Total stockholders' equity . . . . . . . . 20,443,000 19,918,000
------------ ------------
Total liabilities and stockholders' equity . $25,582,000 $23,463,000
============ ============
See accompanying notes to consolidated financial statements.
<PAGE> 3
MITY-LITE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three months ended June 30,
1999 1998
------------ ------------
Net sales . . . . . . . . . . . . . . . . . . $11,223,000 $ 7,664,000
Cost of products sold . . . . . . . . . . . . 6,959,000 4,911,000
------------ ------------
Gross profit. . . . . . . . . . . . . . . . . 4,264,000 2,753,000
Expenses:
Selling . . . . . . . . . . . . . . . . . 1,978,000 982,000
General and administrative. . . . . . . . 620,000 304,000
Research and development. . . . . . . . . 235,000 119,000
------------ ------------
Total expenses. . . . . . . . . . . . . . . . 2,833,000 1,405,000
------------ ------------
Income from operations. . . . . . . . . . . . 1,431,000 1,348,000
Other income (expense):
Interest expense. . . . . . . . . . . . . (8,000) --
Interest income . . . . . . . . . . . . . 64,000 111,000
Equity in income of affiliate . . . . . . 142,000 140,000
Other . . . . . . . . . . . . . . . . . . (9,000) (13,000)
------------ ------------
Total other income. . . . . . . . . . . . . . 189,000 238,000
------------ ------------
Income before provision for income taxes. . . 1,620,000 1,586,000
Provision for income taxes. . . . . . . . . . 604,000 587,000
------------ ------------
Net income. . . . . . . . . . . . . . . . . . $ 1,016,000 $ 999,000
============ ============
Basic earnings per share. . . . . . . . . . . $ 0.32 $ 0.31
============ ============
Weighted average number of common
shares - basic. . . . . . . . . . . . . . . 3,200,270 3,267,851
============ ============
Diluted earnings per share. . . . . . . . . . $ 0.30 $ 0.29
============ ============
Weighted average common and common
equivalent shares - diluted . . . . . . . 3,346,623 3,414,246
============ ============
See accompanying notes to consolidated financial statements.
<PAGE> 4
MITY-LITE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three months ended June 30,
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income . . . . . . . . . . . .. . . . . . $ 1,016,000 $ 999,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization. . . . . . . 205,000 132,000
Loss (gain) on disposal of equipment . . . (1,000) 13,000
Deferred tax expense . . . . . . . . . . . 39,000 42,000
Equity in income of affiliate. . . . . . . (142,000) (140,000)
Tax benefit from exercise of stock options 9,000 24,000
Changes in assets and liabilities (net of
effects from purchase of CenterCore):
Accounts receivable. . . . . . . . . . . (614,000) (678,000)
Inventories. . . . . . . . . . . . . . . 36,000 37,000
Prepaid expenses and other current assets (269,000) 256,000
Accounts payable . . . . . . . . . . . . 262,000 5,000
Accrued expenses and other . . . . . . . 920,000 497,000
------------ ------------
Net cash provided by operating activities. . . 1,461,000 1,187,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of available-for-sale securities . . (447,000) (496,000)
Sales of available-for-sale securities . . . . 3,289,000 --
Proceeds from sales of property & equipment. . 1,000 --
Increase in note receivable from affiliate . . (42,000) --
Investment in and cash received from affiliate 27,000 25,000
Increase in acquisition advances . . . . . . . (408,000) --
Purchase of CenterCore, (net of cash
acquired). . . . . . . . . . . . . . . . . . (5,342,000) --
Purchases of property and equipment. . . . . . (287,000) (150,000)
------------ ------------
Net cash used in investing activities. . . . . (3,209,000) (621,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase and retirement of common stock. . . . (601,000) (85,000)
Increase in bank operating loan. . . . . . . . 196,000 --
Decrease in long term debt . . . . . . . . . . (146,000) --
Issuance of common stock from stock options. . 57,000 68,000
------------ ------------
Net cash provided by (used in) financing
activities . . . . . . . . . . . . . . . . . (494,000) (17,000)
------------ ------------
Effect of exchange rate changes on cash. . . . 1,000 --
------------ ------------
Net increase (decrease) in cash and cash
equivalents. . . . . . . . . . . . . . . . . (2,241,000) 549,000
Cash and cash equivalents at beginning of
period . . . . . . . . . . . . . . . . . . . 8,029,000 9,266,000
------------ ------------
Cash and cash equivalents at end of period . . $ 5,788,000 $ 9,815,000
============ ============
See accompanying notes to consolidated financial statements.
<PAGE> 5
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Three months ended June 30,
1999 1998
------------ ------------
Cash paid during the quarter for
income taxes $221,000 --
Cash paid for interest on long term
debt $ 1,000 --
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
In April of 1999, the Company acquired certain assets and obligations of The
CenterCore Group, Inc. for $5,342,000. In conjunction with the acquisition,
liabilities were assumed as follows:
Fair value of assets acquired. . . . . . . . . . . $4,292,000
Cost in excess of fair value of assets . . . . . . 1,538,000
Cash paid for the assets (net of cash acquired). . (5,342,000)
---------
Liabilities assumed . . . . . . . . . . . . . . $ 488,000
=========
Net change in unrealized loss on securities available for sale of $10,000 is
included in accumulated other comprehensive income.
After completing the CenterCore acquisition, $1,047,000 in inventory from
CenterCore, Inc. was sold to DO Group, Inc., a 49.9 percent owned affiliate of
the Company at cost. Also, $213,000 of fixed assets were sold to DO Group at
cost. These sales resulted in the creation of a note receivable from
affiliate of $1,260,000.
See accompanying notes to consolidated financial statements.
<PAGE> 6
MITY-LITE, INC.
NOTES TO CONSOLIDATED 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 ended June 30, 1999 are not
necessarily indicative of results to be expected for the full fiscal year
ending March 31, 2000.
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,
1999.
2. Inventories
Inventories consisted of the following:
June 30, March 31,
1999 1999
------------ ------------
Materials and supplies . . . . $ 1,009,000 $ 1,071,000
Work-in-progress . . . . . . . 135,000 155,000
Finished goods . . . . . . . . 452,000 318,000
------------ ------------
$ 1,596,000 $ 1,544,000
============ ============
3. Recently Issued Financial Accounting Standards
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> 7
4. Recent Acquisitions
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 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, 1998.
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 preliminary allocation of the purchase price resulted in
approximately $1,162,000 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.
On April 9, 1999, the Company acquired certain assets and obligations of
The CenterCore Group, Inc. ("CenterCore"), a privately-owned designer,
manufacturer and marketer of call center furniture.
Two wholly owned subsidiaries of Mity-Lite completed the transactions. C
Core, Inc., a Utah corporation, purchased the accounts receivable, inventory,
machinery and equipment, intellectual property and certain other assets of The
CenterCore Group, Inc. for an estimated $4.8 million. The final purchase
price is still being determined and will be based on final asset values at
closing. C Core will continue to design and market call center furniture under
the CenterCore name. Product manufacturing has been transitioned to DO Group,
Inc., a 49.9 percent owned affiliate of the Company. Included in the
Company's prepaid expenses and other current assets are $786,000 in advances
related to the CenterCore acquisition.
BOCCC, Inc., also a Utah corporation and wholly owned subsidiary of the
Company, purchased the outstanding subordinated debt obligations of CenterCore
for $500,000. The outstanding subordinated debt obligations of CenterCore
totaled approximately $2,000,000 million at closing. Cash from the Company's
general working capital was used to fund the purchases.
The preliminary allocation of the purchase price resulted in
approximately $1,538,000 of goodwill. The actual amount of goodwill recorded
will vary based on the final purchase price allocation resulting from
preacquisition contingencies related principally to post-closing purchase
price adjustments which may result from the final determination of asset
values and from any breaches of the sellers' representations, warranties or
covenants.
The unaudited pro forma results of operations of the Company for the
three months ended June 30, 1999 and 1998 (assuming the acquisition of Broda
and CenterCore had occurred as of April 1, 1998) are as follows:
<PAGE> 8
Three months ended June 30,
1999 1998
------------ ------------
Net sales . . . . . . . . . . . . . . . . . . $11,223,000 $14,973,000
Net income. . . . . . . . . . . . . . . . . . 1,044,000 753,000
Basic earnings per share. . . . . . . . . . . 0.32 0.23
Diluted earnings per share. . . . . . . . . . 0.31 0.22
5. Comprehensive Income
The Company adopted SFAS 130, "Reporting Comprehensive Income,"
effective April 1, 1998, the beginning of its 1999 fiscal year. SFAS No. 130
establishes standards for reporting and display of comprehensive income and
its components (revenues, expenses, gains, and losses) in a full set of
general purpose financial statements. The Company's comprehensive income
consists of foreign currency adjustments and an unrealized holding gain on
available-for-sale securities. For the three months ended June 30, 1999,
comprehensive income exceeded net income by $43,000. Of this amount,
$(10,000) was related to a holding loss on available-for-sale securities, and
$53,000 was related to foreign currency adjustments. For the three months
ended June 30, 1998, comprehensive income approximated net income.
6. Business Segment Information
The Company adopted SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information," effective with its 1999 fiscal year
beginning April 1, 1998. Management views the Company as being two business
segments: commercial furniture and health care seating with the former being
the principal business segment. The commercial furniture business segment
manufactures and markets lightweight, durable, folding leg tables, stacking
chairs, office systems and seating, and other related products. The Company's
health care seating segment manufactures and markets health care chairs and
related products.
Reportable segment data reconciled to the consolidated financial
statements for the three months ended June 30, 1999 is as follows:
<PAGE> 9
Three Months Ended June 30,
- -----------------------------------------------------------------------
1999
- -----------------------------------------------------------------------
Net sales:
Commercial furniture $10,372,000
Health care seating 851,000
-----------
$11,223,000
===========
Income from operations:
Commercial furniture $ 1,342,000
Health care seating 89,000
-----------
$ 1,431,000
===========
Total assets:
Commercial furniture $22,500,000
Health care seating 3,082,000
-----------
$25,582,000
===========
Depreciation & amortization expense:
Commercial furniture $ 163,000
Health care seating 42,000
-----------
$ 205,000
===========
Capital expenditure, net:
Commercial furniture $ 69,000
Health care seating 5,000
-----------
$ 74,000
===========
Because of Mity-Lite's recent acquisition of Broda Enterprises in November
1998 and The CenterCore Group, Inc. in April 1999, segment information for the
period ending June 30, 1998 is not applicable. In the three months ended June
30, 1998, commercial furniture was the only segment.
<PAGE> 10
Item 2.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
GENERAL
The Company designs, manufactures and markets innovative commercial
furniture and health care seating created to meet the efficiency needs of its
customers. The Company focuses on providing premium quality furniture
products to niche markets. The Company's product lines include multipurpose
room furniture, specialty office seating and systems and health care seating.
Mity-Lite sells its line of multipurpose room furniture both domestically in
internationally in educational, recreational, hotel and hospitality,
government, office, health care, church and other public assembly markets.
The Company sells its specialty office seating and systems products
domestically and internationally in the call center, high density office use,
corporate and dispatch markets. Mity-Lite sells its health care seating
mainly in Canada and the U.S. in the long term health care market. 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 multipurpose room furniture is marketed under the Mity-Lite
trade name and consists of lightweight, durable, folding leg tables, stacking
chairs and other related products. The stacking chairs are marketed under the
MityTuff(R), 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 multipurpose room operation's current and future growth is
largely dependent upon its ability to successfully introduce and market new
product lines of multipurpose room furniture such as chairs, staging,
flooring, partitions, podiums, risers and bench seating and its ability to
continue increasing its market penetration into the table market.
Net sales of the Company's table and chair products have increased during
the three months ended June 30, 1999 and 1998. Management expects, but cannot
assure, that this trend will continue. Gross margins and expenses associated
with 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.
The Company's health care seating operations were acquired in November
1998. The Company acquired all of the outstanding 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.
<PAGE> 11
On April 9, 1999, the Company acquired certain assets and obligations of
The CenterCore Group, Inc. ("CenterCore"), a privately-owned designer,
manufacturer and marketer of pod style panel systems furniture marketed to
call centers and other high density office use environments.
Two wholly owned subsidiaries of Mity-Lite completed the transactions. C
Core, Inc., a Utah corporation, purchased the accounts receivable, inventory,
machinery and equipment, intellectual property and certain other assets of The
CenterCore Group, Inc. for an estimated $4.8 million. The final purchase
price is still being determined and will be based on final asset values at
closing. C Core will continue to design and market call center furniture
under the CenterCore name. Product manufacturing has been transitioned to DO
Group, Inc., a 49.9 percent owned affiliate of the Company. Included in the
Company's prepaid expenses and other current assets are $786,000 in advances
related to the CenterCore acquisition.
BOCCC, Inc., also a Utah corporation and wholly owned subsidiary of the
Company, purchased the outstanding subordinated debt obligations of CenterCore
for $0.5 million. The outstanding subordinated debt obligations of CenterCore
totaled approximately $2.0 million at closing. Cash from the Company's
general working capital was used to fund the purchases.
The preliminary allocation of the purchase price resulted in
approximately $1.538 million of goodwill. The actual amount of goodwill
recorded will vary based on the final purchase price allocation resulting from
preacquisition contingencies related principally to post-closing purchase
price adjustments which may result from the final determination of asset
values and from any breaches of the sellers' representations, warranties or
covenants.
The Company also owns a 49.9 percent equity 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(TM), Corel(TM), JG(TM) and DO3(TM) trade names and has
manufacturing facilities in Elkhart, Indiana and Marked Tree, Arkansas.
Mity-Lite holds an option to put back its investment in DO Group to the DO
Group officers at any time until May 15, 2000. At the conclusion of the put
option period and if the put option has not been exercised, 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.
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998
NET SALES. The Company's first quarter fiscal 2000 net sales of
$11,223,000 were up 46 percent as compared with the first quarter net sales in
the prior fiscal year. Multipurpose room sales increased 12 percent and
represented 76 percent and 100 percent of net sales for the first quarter
ended June 30, 1999 and 1998, respectively. Specialty office seating and
systems sales, related to CenterCore's operations, represented 16 percent of
net sales for the first quarter ended June 30, 1999. Health care chair and
accessories sales, related to Broda's operations, represented 8 percent of net
sales for the first quarter ended June 30, 1999. International sales
represented 11 percent and 12 percent of net sales for the first quarter ended
June 30, 1999 and 1998, respectively. The overall sales increase has resulted
from increased sales in the education, hospitality and church markets as well
as sales from the recent Broda and CenterCore acquisitions.
<PAGE> 12
GROSS PROFIT. Gross profit as a percentage of net sales increased over
the prior year by 2 percentage points, to 38 percent for the three months
ended June 30, 1999. The majority of the increase was the result of a higher
average sales price on multi-purpose room products, lower material costs and
higher labor efficiencies as well as a higher gross margin associated with
health care seating products. The increase in gross profit was partially
offset by transition and relocation costs associated with the CenterCore
purchase as well as a lower gross profit due to writing off the inventory
purchase adjustment.
SELLING EXPENSES. Selling expenses were 17.6 percent of net sales in the
first quarter of fiscal 2000 as compared to 12.8 percent for the first quarter
of the prior fiscal year. Actual expenses increased by $996,000 or 101
percent. The increase was primarily due to increased selling costs for health
care seating and call center systems products resulting from the recent
acquisitions and one-time transition costs associated with CenterCore.
Multipurpose room furniture selling costs increased by $168,000 over the prior
fiscal year. This increase resulted from higher costs for commissions and
salaries due to the higher sales volume as well as increased costs for sales
samples and advertising. This increase was partially offset by lower costs
for outside services.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
were 5.5 percent of net sales for the first quarter of fiscal 2000 as compared
to 4.0 percent for the first quarter of the prior fiscal year. Actual
spending increased by 104 percent, or $316,000. This increase was primarily
due to increased general and administrative costs associated with Broda and
CenterCore. Multipurpose room furniture costs increased by $39,000 or 13
percent due to additional personnel related expenses.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
were 2.1 percent of net sales for the first quarter of fiscal 2000 as compared
to 1.6 percent for the first quarter of the prior fiscal year. Actual
spending increased by 97 percent, or $116,000. The increase was due to
increased outside services costs and prototyping costs in the multipurpose
room operations, as well as additional research and development costs
associated with Broda and CenterCore.
OTHER INCOME AND EXPENSE. Other income and expense netted to $189,000
for the first quarter of fiscal 2000. First quarter interest income was
$64,000, a decrease of $47,000 from the first quarter of the prior fiscal
year. The decrease was due to interest earned on the lower cash balance held
in the current fiscal year due to cash being used for the Broda and CenterCore
acquisitions. The Company had interest expense of $8,000 for the first
quarter of fiscal 2000. The Company also recognized income of $142,000 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 June 30, 1999 was an increase of
$2,000 over the same prior year period. In addition, the Company recognized a
gain of $1,000 on the disposal of certain fixed assets and a loss of $10,000
on currency exchange.
NET INCOME. For reasons stated above, the Company's fiscal 2000 first
quarter net income of $1,016,000 increased $17,000, or 1.7 percent over first
quarter net income 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 $5.79
million at June 30, 1999 as compared to $8.03 million at March 31, 1999. The
Company also holds available-for-sale securities totaling $1.05 million at
June 30, 1999 as compared to $3.90 million at March 31, 1999. The decrease in
cash and cash equivalents was due primarily to the CenterCore acquisition
($5.34 million) in April 1999, the purchase and retirement of common stock
($0.60 million), an increase in acquisition advances ($0.41 million),
purchases of property and equipment ($0.29 million) and the pay off of long
term debt associated with Broda ($0.15 million). This decrease was partially
offset by cash generated from operations ($1.46 million), net sales of
available-for-sale securities ($2.84 million), an increase in bank operating
loan associated with Broda ($0.20 million) and net proceeds related to the
exercise of stock options ($0.06 million).
Historically, 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 June 30, 1999, the Company had no
amounts drawn under this facility. The Company's subsidiary, Broda
Enterprises, also has a line of credit. The limit on this facility is
$670,000. As at June 30, 1999, $488,000 of this line was outstanding. Both
credit facilities requires the maintenance of certain financial ratios and
levels of working capital, all of which were met as of June 30, 1999.
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 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 June 30, 1999, the proceeds which would
have been received by the Company upon exercise of outstanding options which
were exercisable on that date were approximately $989,000. There is no
assurance that such options will be exercised.
<PAGE> 14
The Company's material cash commitments at June 30, 1999 include current
liabilities of $4.83 million to be repaid from funds generated from operations
and the potential $0.40 million contingent consideration as part of the Broda
acquisition. Current liabilities consist of $0.49 million in a bank line of
credit, $1.89 million in accounts payable, $1.09 million in accrued payroll,
$0.63 million in income tax payable, $0.45 in accrued expenses and $0.28
million in other accruals. 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
14,000 shares remain to be purchased under the repurchase program.
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 completed 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 these systems and believes that they are
Year 2000 compliant. The Company plans to test any newly acquired systems.
The Company has also obtained assurances and will continue to obtain
assurances from vendors that timely updates will be made available to make all
remaining purchased software and upgrades Year 2000 compliant.
The Company has utilized and will continue to utilize internal resources
to test all of its software for Year 2000 compliance and, where necessary,
upgrade or replace noncompliant systems. For existing systems, this project
has been completed. The estimated cost of this project, including the cost of
new systems which will be capitalized, is less than $40,000. To date, $25,000
of this amount has been expensed, and $5,000 has been capitalized. This cost
has been funded though operating cash flows. Failure by 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
FORWARD-LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT FUTURE RESULTS OF
OPERATIONS
Certain statements made above in this filing 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 and achieve relative profitability over time, (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 and
confirm compliance of third party systems affected by the Year 2000 problem,
and (b) the Company's ability to remedy any material Year 2000 problems 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, (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, and (viii) the Company's expectation that it will have sufficient
capital resources for the next 12 months.
<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 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 multipurpose 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:
11.1 Computation of Net Income per Share
27 Financial Data Schedule
(b) Reports on Form 8-K:
On April 23, 1999 the Company filed a current report on Form
8-K relating to its acquisition of certain assets and
obligations of The CenterCore Group, Inc.
On June 16, 1999 the Company filed an amendment of the current
report on Form 8-K relating to its acquisition of certain assets
and obligations of The CenterCore Group, Inc.
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: August 9, 1999 /s/ Gregory L. Wilson
-------------------------------------
Gregory L. Wilson
Chairman of the Board, President,
and Director (Principal Executive
Officer)
Date: August 9, 1999 /s/ Bradley T Nielson
-------------------------------------
Bradley T Nielson
Chief Financial Officer
(Principal Financial and Accounting
Officer)
<TABLE>
<CAPTION>
Three months ended
June 30,
1999 1998
---------- ----------
<S> <C> <C>
Net income as reported . . . . . . . . . $1,016,000 $ 999,000
========== ==========
BASIC:
Weighted average number of
common shares outstanding. . . . . 3,200,270 3,267,851
========= =========
Basic net income per share . . . . . . $0.32 $0.31
========= =========
DILUTED:
Common and common equivalent shares
outstanding:
Weighted average number of
common shares outstanding. . . . . 3,200,270 3,267,851
Common stock equivalents from
options computed on the
treasury-stock method using
the average fair market
value of common stock
outstanding during the
period . . . . . . . . . . . . . . 146,353 146,395
--------- ---------
Shares used in the
computation. . . . . . . . . . . . 3,346,623 3,414,246
========= =========
Diluted net income per share . . . . . $0.30 $0.29
========= =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Balance Sheet at June 30, 1999 (unaudited) and Statements of Income for the
three months ended June 30, 1999 (unaudited) and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> JUN-30-1999
<CASH> 5,788,000
<SECURITIES> 1,047,000
<RECEIVABLES> 7,807,000
<ALLOWANCES> (1,040,000)
<INVENTORY> 1,596,000
<CURRENT-ASSETS> 16,596,000
<PP&E> 4,686,000
<DEPRECIATION> (2,403,000)
<TOTAL-ASSETS> 25,582,000
<CURRENT-LIABILITIES> 4,829,000
<BONDS> 0
0
0
<COMMON> 7,842,000
<OTHER-SE> 12,601,000
<TOTAL-LIABILITY-AND-EQUITY> 25,582,000
<SALES> 11,223,000
<TOTAL-REVENUES> 11,223,000
<CGS> 6,959,000
<TOTAL-COSTS> 6,959,000
<OTHER-EXPENSES> 2,833,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,000
<INCOME-PRETAX> 1,620,000
<INCOME-TAX> 604,000
<INCOME-CONTINUING> 1,016,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,016,000
<EPS-BASIC> .32
<EPS-DILUTED> .30
</TABLE>
