<PAGE> United States Securities and Exchange Commission
Washington, D.C. 20549
------------------------------------------------
Form 10-K
(Mark One)
[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO 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.
(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, zip code)
Registrant's telephone number, including area code: (801) 224-0589
------------------------------------------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of class
Common Stock, par value $.01
------------------------------------------------
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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and will not 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-K or any
amendment to this Form 10-K. [x]
The aggregate market value of the registrant's voting Common Stock held
by non-affiliates of the registrant was approximately $28,214,000 (computed
using the closing price of $18.75 per share of Common Stock on May 21, 1999 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 3,197,088 shares of the registrant's Common Stock, par value
$.01 per share, outstanding on June 8, 1999.
Portions of the registrant's definitive Proxy Statement for the Annual
Meeting of Shareholders scheduled to be held on August 12, 1999, which Proxy
Statement will be filed no later than 120 days after the close of the
registrant's fiscal year ended March 31, 1999, are incorporated by reference
in Part III of this Annual Report on Form 10-K. Portions of the Registrant's
Annual Report to Shareholders filed as Exhibit 13 to this filing are
incorporated by reference in Part II of this Annual Report on Form 10-K.
<PAGE> 1
PART I
Item 1. Business
BACKGROUND
Mity-Lite, Inc. ("Mity-Lite" or the "Company") designs, manufactures and
markets innovative commercial furniture 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 and
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.
COMMERCIAL FURNITURE PRODUCTS
MULTIPURPOSE ROOM FURNITURE. 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 used
in multipurpose rooms. The Company has developed and currently manufactures
and markets 48 different plastic table sizes which come in three standard and
a variety of custom colors. These tables are made with several different
folding leg and custom color options. The Company has successfully applied
engineering grade plastics and sophisticated manufacturing and assembly
methods to the production of tables that weigh less and are more durable than
competing particle board or plywood table products of similar size. The
Company's plastic tables are manufactured using abrasion, stain and water
resistant materials. The Company's cornered tables are constructed using the
Company's proprietary high-impact corners which can withstand a two foot drop
without sustaining debilitating damage. All of the Company's plastic tables
include reinforced edging. Cornered tables are equipped with non-skid pads
which facilitate stacking and storage. Management believes the Company's
plastic table products appeal to its customers because they are durable,
lightweight, easy to handle and attractive.
The Company also manufacturers and sells Elite(TM) tables. The Elite(TM)
table is a distinctive, lightweight, folding leg wood conference style table.
The table is constructed of real wood veneers or high pressure laminates, PVC
or solid wood edges and a composite honeycomb core. The Elite(TM) line
provides easily removable elegant tables for offices, conference and training
rooms.
<PAGE> 2
In addition to its table products, the Company currently offers five
lines of stacking chairs: the MityTuff(R), the MityStack(TM), the
MityFlex(TM), the MityDeluxe(TM) and the MityHost(TM). The Company's chair
lines contain many standard features which some competitors offer only as
options. The MityHost(TM) chair, which is manufactured in house, has a
unique smile-bend frame which creates a curved seat for increase comfort. The
legs have unique anti-sway bars which keep seat and legs strong and in place
to absorb the shock of every day use. The back has a strong, one piece,
continuous frame which eliminates a weak, breaking point and has a convenient
handle for easy setup. The Company's other chair lines are purchased from
other suppliers and marketed under the Mity-Lite name.
In addition to lightweight, durable tables and stacking chairs, the
Company manufactures and markets accessory products including table and chair
carts, tablecloths, skirting and skirt clips.
SPECIALTY OFFICE SEATING AND OFFICE SYSTEMS. On April 9, 1999, the
Company, through its wholly owned subsidiary, C Core, Inc. acquired certain
assets and obligations of The CenterCore Group, Inc. ("CenterCore"), a
privately-owned designer, manufacturer and marketer of pod style and panel
systems furniture marketed to call centers and other high density office use
environments.
The Company's products include a line of cluster furniture, designed to
improve productivity and save space in offices and call center environments.
CenterCore was the originator of the "cluster concept" design which benefits
high-density commercial environments, call centers, as well as the federal
government. Within the C Core product line are two product families. The
circular Spacemaker2000(TM) system pioneered by CenterCore provides a simple,
cost-conscious solution to meet the needs of call center operations. By
situating two to eight workstations in a circular arrangement around a center
core, up to 40% more employees can be placed in the same total square footage
as a traditional rectangular office system. The Tec2000(TM) system provides
an array of different applications for support staff, supervisors and
managers, receptionists and team conferences. It is available in a wide
variety of shapes and sizes. Tec2000(TM) combines privacy panels,
free-standing modules and storage options. Tec2000(TM) can also integrate
with Spacemaker2000(TM) furniture for high density work environments.
Also included in specialty office seating and office systems is
Mity-Lite's 49.9 percent owned affiliate, DO Group, Inc. ("DO Group"),
headquartered in Elkhart, Indiana. Mity-Lite acquired its interest in DO
Group, Inc. in March 1997. DO Group markets its products under the Domore(TM),
DO3(TM) Systems, Domore Dispatch Seating(TM), JG Auditorium Seating(TM), Corel
Corporate Seating(TM) and DesignSeating(TM) trade names. DO Group operates
manufacturing facilities in Elkhart, Indiana and Marked Tree, Arkansas.
The DO Group's products consist of dispatch seating, big and tall
seating, auditorium seating, open plan systems panel furniture, computer free
standing furniture, task seating, ergonomic seating, custom fit seating,
secretarial seating, panel clusters, stacking chairs and other related
products.
<PAGE> 3
DO Group's systems products include office panels, movable full height
walls, work surfaces, pedestals, storage units, tables and other accessory
items used in office cubicles. DO Group offers two styles of panel systems.
The DO3(TM) post to panel system facilitates ease of assembly and takedown.
Panels are available in a variety of fabric, laminate or painted surfaces.
Domore(TM) Series System Seven(TM) panels are a value oriented panel to panel
system and connect using interlocking hinges. These panels are available in a
variety of fabric and laminate surfaces. Both the DO3(TM) and Domore(TM)
panel systems offer the latest electrical and voice/data transmission
capabilities, including access to CAT5 wiring at the beltline level.
DO Group's seating products are marketed under the Domore(TM), JG(TM),
Corel(TM), Stature Seating(TM) and DesignSeating(TM) trade name and consist of
ergonomic office task, executive, intensive use, fixed, auditorium and custom
seating lines. Management believes that Domore(TM) is a market leader in
intensive use seating, i.e. seating that is used three shifts per day, seven
days per week. Domore(TM) seating includes a unique proprietary control,
spring cushion seat and lumbar support as well as many other ergonomic
features. Domore(TM) offers a full line of electrostatic discharge intensive
use seating for the electronic dispatch environments.
Domore(TM) offers a complete line of big and tall seating for office and
24 hour use. DO Group believes that it provides the only office seating
tested to 800 pounds capacity in today's market. Through its JG Auditorium
Seating line, DO Group offers a range of four lines of auditorium and
classroom seating. The seating is ideal for theater, auditorium, court room
and classroom applications. The JG name is known for its high quality,
premium priced seating. Through its Corel product line, DO Group offers a
wide range of value priced ergonomic task, intensive use, stacking and side
chairs. Corel products are ideally suited for industrial environments.
HEALTH CARE SEATING. Through its wholly owned subsidiary, Broda
Enterprises, Inc., the Company designs, manufactures and markets health care
seating and accessories used in long term health care facilities located
primarily in the United States and Canada. Broda has developed and
manufactures twelve different health care chair lines. Most chair models come
in two standard sizes and six standard colors. The Company also custom
manufactures other sizes and colors of its standard health care seating
products.
Broda's high end seating products offer a unique combination of features
which differentiate them from the competition. Broda chairs have been tested
for interface pressures and stability which, combined with their rigid and
durable design, make Broda chairs suitable seating for some of the most
challenging long term care residents including those with Huntington's
Disease, Alzheimer's or Acquired Brain Injury. In addition, nursing home
residents susceptible to skin breakdown, suffering from loss of upper body
strength, or with other conditions which might otherwise restrict them to bed
or place them at risk of self injury or falls, can be safely and comfortably
seated in a Broda chair.
<PAGE> 4
MARKET OVERVIEW
Based upon management's analysis of companies known to sell multipurpose
room furniture and based upon management's experience and contacts in this
business, management estimates that the domestic market for multipurpose room
furniture exceeds $1 billion annually. It is estimated that folding tables
alone make up over $250 million of this domestic market. Chairs and other
related seating products are estimated to account for approximately $700
million of the estimated domestic multipurpose room furniture market. Other
products such as staging, risers, partitions, podiums, and flooring account
for the balance of the estimated domestic market.
In the office seating and systems market, the Company has positioned
itself as a niche supplier of specialty office seating and office system
products. Based upon independent research from professional societies like
the Business and Institutional Furniture Manufacturers Association, management
believes the office system market is approaching $4.5 billion. Management
believes that office seating is a $3.3 billion market.
In the health care seating market, management estimates that in the
United States and Canada there are over 28,000 nursing homes with over 1.8
million beds. Nursing homes and individuals residing in nursing homes
represent the typical Broda customer. In addition, Broda's market can include
facilities described as chronic care, psychiatric care or long term care.
Management estimates that the total North American market for its current
products is $56 million.
SALES AND MARKETING
MULTIPURPOSE ROOM FURNITURE. The Company primarily markets its
multipurpose room products directly to end users in the educational,
recreational, hotel and hospitality, governmental, office products, health
care, public assembly and church markets. This strategy enables the Company
to manage selling costs more effectively and maintain direct contact with its
customers. The Company currently employs 40 full-time in-house sales and
customer service employees. The Company's sales and customer service
personnel are compensated on a commission basis and may qualify for other
incentive bonuses based on individual, sales team and Company performance.
Each sales and customer service employee receives training in product
attributes, customer service, use of the Company's computerized sales
management system and in all aspects of the sales cycle.
<PAGE> 5
The Company typically markets its products by first identifying customers
through internal market research, referrals, trade shows, customer networking
and test marketing. Once a market has been identified, the Company's sales
and marketing staff will attempt to generate leads for prospective purchasers
in such markets by attending trade shows, through mass mailings and other lead
oriented advertising. The Company uses a proprietary, computer based sales
management system to qualify, track and manage sales leads for prospective and
existing customers and to compile customer feedback. While each sales and
customer service employee maintains some in-person contact with such
employee's assigned customers, most of the Company's sales efforts are pursued
using the telephone, fax machine, e-mail, internet, videotapes and overnight
mail services. The Company also uses a reference list of customers in each
geographical sales territory in order to promote sales of its products. The
Company has a sampling program and provides prospective purchasers with
product samples for 30-day trial periods. The Company does not extensively
advertise its products in trade publications.
The Company's plastic table products are sold with a twelve-year pro-rata
warranty covering materials and workmanship. The MityTuff(R) is sold with a
seven-year warranty covering materials and workmanship. The MityStack(TM),
MityFlex(TM) and the MityDeluxe(TM) are sold with a ten-year warranty covering
materials and workmanship. The MityHost(TM) is sold with a ten-year warranty
covering the structural integrity of the metal frame and a one-year warranty
covering the upholstery.
SPECIALTY OFFICE SEATING AND OFFICE SYSTEMS. The Company's specialty
office seating and office systems, are marketed directly through an in-house
sales force consisting of in-house sales representatives, field sales
representatives and telesales personnel, and indirectly through GSA dealers,
independent office product dealers, independent representatives, catalogue
distributors and specialty dealers. The Company also sells products directly
and indirectly to state governments and to the United States government
through the General Services Administration. Sales to state and federal
government agencies are on fixed terms and are not subject to price
renegotiation. The Company promotes its products through print advertising,
trade shows, mass mailings, internet sites and telephone solicitations
targeted to specific niche markets. C Core's products carry a five year
warranty covering materials and workmanship.
The specialty office seating and office systems sales organization,
including the Company's DO Group affiliate, consists of 15 in-house sales and
field sales representatives, 19 telesales personnel, and over 100 independent
representatives and dealers. In house sales personnel are compensated by a
combination of salary and incentive bonus. Limited quantities of select
finished goods inventories are maintained at the Company's principal
manufacturing plants. DO Group markets its products through independent
representatives and dealers, and to targeted, select national accounts. DO
Group also sells its intensive use seating through an in-house staff of
trained sales and customer service personnel to selected markets. DO Group's
sales are concentrated among a few key customers. Two customers represented
49 percent of DO Group's sales.
<PAGE> 6
HEALTH CARE SEATING. The Company markets its health care seating
products to end users and care givers in health care markets through its own
sales representatives and independent manufacturer's representatives,
distributors and retailers of durable medical equipment. The Company
currently employs nine full-time sales and customer service employees and 27
independent manufacturing representatives and distributors. The Company's
internal sales and customer service employees are compensated with a base
salary and may qualify for commission, incentive or bonus pay. The Company
promotes its products through print advertising, trade shows, mass mailings
and telephone solicitations targeted to health care professionals. The
Company has a sampling program and provides prospective purchasers with
product samples for 14-day trial periods. All of Broda's chairs carry a
limited three year warranty on the steel frame and a limited one year warranty
on the other components for defects and failure in normal use.
INTERNATIONAL SALES
Since its inception in 1987, the Company has focused its marketing
efforts primarily on domestic markets. The Company has, however, sold its
table products in Canada, South America, Europe, Asia, Middle East and
Australia. For the fiscal years ended March 31, 1997, 1998, and 1999, the
Company's international sales accounted for 7.4 percent, 7.8 percent and 11.0
percent of the Company's total net sales, respectively. In June 1995, the
Company created an international sales department under the direction of an
international sales manager. Since that time, the Company has been successful
in establishing distributor relationships in Canada, Mexico, Brazil,
Venezuela, Peru, Argentina, Colombia, Dominican Republic, England, France,
Spain, Germany, Israel, Jordan, United Arab Emirates, Hong Kong, China, South
Korea, Taiwan, Singapore and Malaysia. Over 60 percent of health care seating
sales are in Canada with all but one percent of the remaining amount being
United States sales.
MANUFACTURING AND MATERIALS
MULTIPURPOSE ROOM FURNITURE. The Company's manufacturing process for its
plastic table products consists principally of bonding a thermoformed ABS
plastic shell to a wood core frame. Metal legs, which are manufactured and
painted in-house, and edge trim are then attached to the table to complete the
process. Since its inception, the Company has implemented a number of changes
to its manufacturing process and product design which have resulted in
increased production volumes, improved production quality and increased
on-time shipping performance. The Company has designed and manufactured
certain proprietary equipment used in its manufacturing process. The Company
believes that its manufacturing innovations give it a competitive advantage,
allowing the Company to reduce production costs and increase productivity.
The Company's typical order to delivery lead time is between three and five
weeks.
<PAGE> 7
The Company's manufacturing process for its multipurpose chair products
consists principally of the manufacturing and painting of legs and frames,
upholstering seat and back cushions and final assembly of the components. The
MityTuff(R) and MityStack(TM) chairs are distributed by the Company under
original equipment manufacturer (OEM) arrangements with the chair
manufacturers. While portions of the MityFlex(TM) and the MityDeluxe(TM)
chairs are manufactured by the Company, Mity-Lite performs final assembly on
both of these chair lines. The MityHost(TM) stacking chair is manufactured
in-house at the Company's facility in Orem, Utah.
SPECIALTY OFFICE SEATING AND OFFICE SYSTEMS. The Company's manufacturing
process for office systems products consists primarily of painting and
assembling panels, storage bins, and pedestals and manufacturing laminated
work surfaces and center cores. The primary raw materials consist of formed
metal, particle board, laminate and fabric. The manufacturing process is
driven by an in house CAD drawing system that indicates the components
required.
The Company's manufacturing process for office seating products consists
primarily of assembling component parts and upholstery. The primary raw
materials consist of formed metal, particle board, castors, controls, gas
springs, foam and fabric. The Company uses a proprietary intensive use
seating control that gives the Company a competitive advantage.
HEALTH CARE SEATING. The Company's manufacturing process for its health
care seating products includes such metal fabricating processes as welding,
bending, punching, drilling and polishing. The Company also performs cut and
sew operations to produce its chair cushions and accessories. Metal
components are typically chrome plated, zinc plated or painted for corrosion
protection by outside suppliers. Components purchased for assembly into
chairs such as casters, gas springs, cables and plastic parts are generally
made to the Company's unique specifications.
Raw materials used in all of the Company's products such as plastic,
wood, metal and fabric are generally available from a number of suppliers.
The plastic used in the Company's multipurpose room products and tubing used
in the metal legs are manufactured according to the Company's specifications.
The multipurpose room operations operate without a substantial raw materials
inventory by depending on certain key suppliers to provide raw materials on a
"just-in-time" basis. Component parts are provided by a number of suppliers
to the Company's specifications. The Company's specialty seating operations
utilize a proprietary seating control. The Company's other raw materials such
as wood, formed metal, laminate, fabric and certain welding compounds are
commodity items. The Company believes that most of its raw materials are
available from alternative suppliers. However, any significant interruption
in delivery of such items could have a material adverse effect on the
Company's operations.
COMPETITION
The markets in which the Company participates are highly competitive.
The commercial furniture industry consists of a fragmented group of large
manufacturers and a host of smaller manufacturers. The health care chair
industry includes a fragmented group of major medical device manufacturers and
many small manufacturers.
<PAGE> 8
MULTIPURPOSE ROOM FURNITURE. Management believes that customers purchase
the Company's plastic tables primarily because of product performance,
reputation, on-time delivery, warranty service and perceived value. The
Company markets its table products based primarily on product performance
(lightweight and durable) and reputation, not price. The Company's average
table price is generally higher than the average price of competing particle
board, plywood or metal table products of its competitors. The Company
believes that it has a respected reputation for product quality, convenience
and customer service and that for these reasons, end users often choose its
table products over competitors' lower cost table products. Because only
certain elements of the Company's table design are patented, the Company's
tables may be reverse engineered and duplicated by competitors who are able to
develop the manufacturing equipment and processes to do so. Introduction of
similar products by low cost producers would put price and profit margin
pressure on the Company which would have a material adverse effect on the
Company's results of operations. Among the Company's primary competitors in
the table market are Palmer-Snyder, Inc., McCourt Manufacturing, Inc., Midwest
Folding Products, Krueger International, Shelby Williams Industries, Inc.,
Virco Manufacturing Corporation, Inc. and Howe Furniture Corporation which
market a thermoformed plastic table; Southern Aluminum, Inc., which produces
an aluminum table; Krueger International, Inc., U.S. Industries (Samsonite),
Bevis Custom Furniture, Inc., Globe Business Furniture and Virco Manufacturing
Corporation, Inc. which produce particle board tables; and Howe Furniture
Corporation, Midwest Folding Products, Palmer-Snyder, Inc., and Shelby
Williams Industries, Inc. which produce plywood tables.
Management believes that customers will purchase the Company's
multipurpose room chair products primarily because of product performance,
reputation, warranty service and convenience. The market for commercial
chairs is highly competitive and very fragmented. Although the Company has
not yet developed chairs which offer the same technological and performance
advances as the Company's table products, the Company believes its current
chair line has distinct selling features. Among the Company's primary
competitors in the multipurpose chair market are Steelcase, Falcon Products,
Inc., Virco Manufacturing Corporation, Artco-Bell Corporation, Globe Business
Furniture, Shelby Williams Industries, Inc., Krueger International, Inc. and
U.S. Industries (Samsonite).
SPECIALTY OFFICE SEATING AND OFFICE SYSTEMS. The specialty office
seating and office systems furniture market is part of the much larger office
furniture market. There are a number of major manufacturers and a host of
smaller manufacturers in this market place. The Company generally markets its
specialty office systems products on the basis of product performance (more
employees in comparable space than competitors, more easily reconfigurable),
options and reputation, not price. Among the Company's primary competitors in
this market are Tecknion, Interior Concepts, Hamilton Sorter, Steelcase,
Haworth, Herman Miller, Knoll, Kimball, Neutral Postures, HON, and US Prison
Industries.
<PAGE> 9
HEALTH CARE SEATING. Management believes that customers will purchase
the Company's health care seating products primarily because of product
performance, reputation and service, not price. The Company's average health
care chair price is generally higher than the average price of competing
chairs. The Company's chairs generally offer significantly more performance
in terms of function and durability and for these reasons are chosen over
lower cost competitors' products. Among the Company's primary competitors in
the health care seating market are Invacare Corp., L.P.A. Medical Inc.,
Graham-Field Inc., Maple Leaf Wheelchair Manufacturing Inc., Sunrise Medical
Inc., Hillenbrand Industries Inc., Winco Inc. and Homecrest Industries
Incorporated.
INTELLECTUAL PROPERTY
The Company has been granted two utility patents relating to the
construction of its table tops and one utility patent relating to the function
of its newest most functional health care chair model. Utility patents on the
Company's new mobility oriented health care chair and flipdown footrest are
pending. A design patent has been granted for the flipdown footrest in both
the U.S. and Canada. A design patent is pending for the Health Care Chair.
The Company has also acquired the rights to a patent on Airflow 2000, a
temperature blending and breathing zone filtration system which helps facility
managers address indoor environmental concerns resulting in increased employee
performance levels. The Company has chosen not to apply for international
patent protection for the two table concepts. The Company does not believe
this will have a material adverse effect on the Company. The Company believes
that aspects of its manufacturing processes are trade secrets of the Company.
The Company relies on trade secret law and nondisclosure agreements to protect
its trade secrets. The Company does have international patents on the two
health care chairs pending for Canada, Japan, Germany, United Kingdom, and
France. The Company has been granted a design patent on its geriatric
accessory tray for Canada and the United States. A design patent has been
granted for a health care chair back and is pending for Canada. The stylized
word BRODA(TM) has been trademarked for Canada and the United States and
trademark registration has been applied for in Europe. Broda's Comfort
Tension Seating(TM) has been trademarked in Canada. This trademark is pending
in the U.S. The Pedal Chair trademark has been applied for in the U.S. and
Canada. The Company believes that its patents and trade secrets provide
competitive advantages. The Company claims common law trademark rights in the
trademarks Elite(TM), MityFlex(TM), MityStack(TM), MityDeluxe(TM),
MityHost(TM), Xpeditor(TM), Xtreme Edge(TM) and MitySnap(TM). The Company has
a registered trademark on MityTuff(R) and the name Mity-Lite(R). The Company
does not own patent rights on any of these multipurpose room chair products.
<PAGE> 10
REGULATION AND ENVIRONMENTAL COMPLIANCE
The Company is subject to various local, state, provincial and federal
laws and regulations including, without limitation, regulations promulgated by
federal, state and provincial environmental and health agencies, the Federal
Occupational Safety and Health Administration, the Food and Drug
Administration, North American Free Trade Agreement, and laws pertaining to
the hiring, treatment, safety and discharge of employees. The Company's
manufacturing operations must also meet federal, state, provincial and local
regulatory standards in the areas of labor, safety and health. Historically,
the cost of regulatory compliance has not had a material adverse effect on the
Company's sales or operations. The Company believes it is in material
compliance with applicable laws including laws related to the handling and use
of environmentally hazardous materials.
EMPLOYEES
As of March 31, 1999, the Company had 266 full-time employees. Except
for certain executive officers, all of the Company's employees are employed at
will. None of the Company's employees is represented by a labor union. The
Company believes that its relationship with its employees is good.
In addition, its DO Group affiliate employed 134 full-time people at
March 31, 1999. Of the total, 46 are represented by the Carpenters Union and
18 are represented by the Steelworkers Union.
CERTAIN CONSIDERATIONS
COMPETITION. The markets in which the Company participates are highly
competitive. In the future, the Company expects increased competition from
the Company's existing competitors as well as from other companies which may
enter the markets served by the Company. Only certain elements of the
Company's products are patented so the unpatented elements could be reverse
engineered and duplicated by competitors who are able to develop the
manufacturing equipment and processes to do so. Many of the Company's
competitors have greater name recognition and greater financial, personnel,
manufacturing and marketing resources than the Company. The Company believes
that competition for its products is generally based on product quality and
characteristics, service and price. Most of the Company's products are more
expensive than products sold by the Company's competitors in the same
markets. However, the Company believes that it has been able to compete in
such markets and increase its market share by emphasizing the quality and
performance of its products as compared to its competitors' products.
Introduction of similar products by low cost producers would put price and
margin pressure on the Company. The Company's continued success will depend
upon, among other things, its ability to continue to manufacture and market
high quality, high performance products at prices competitive in the markets
served by the Company.
<PAGE> 11
COMPANY GROWTH AND ACQUISITIONS. The Company's financial performance may
be harmed if it is unable to effectively manage its existing operations or
anticipated growth. The Company has grown significantly since fiscal 1997
with net sales increasing to $18.7 million in fiscal 1997, $25.3 million in
fiscal 1998 and $29.5 million in fiscal 1999. Mity-Lite also recently added
substantial operations through the Broda Enterprises and CenterCore
acquisitions and intends to continue to pursue other complementary
acquisitions. The Company's growth and acquisitions have strained its
management team and other resources. Mity-Lite faces significant challenges
integrating the recent acquisitions into its operations, any of which could
adversely affect its revenue and earnings.
PRODUCT LINE EXPANSION STRATEGIES; ENTRY INTO NEW MARKETS. The Company's
expansion of its current product lines is contingent, among other things, upon
the Company's ability to develop and/or acquire additional lines of
complementary commercial furniture which can be purchased or manufactured in a
cost efficient manner and sold at competitive prices in the Company's
markets. Except for DO Group, Inc., the Company currently has no commitments,
agreements or understandings with respect to any acquisitions of product lines
or of companies with complementary products or businesses.
The Company's ability to increase penetration of the domestic table
market depends in part on the Company's ability to expand its in-house sales
and customer service staff and locate and hire qualified personnel. No
assurances can be made that the Company will be able to expand its product
lines and its sales force and further penetrate its markets.
RAW MATERIAL PRICES AND SOURCES. Both the plastic used in the Company's
products and the tubing used in the Company's table and chair legs are
manufactured according to Company specifications. The Company's control units
for its intensive use seating are proprietary. The Company's castors for its
health care seating are also manufactured to its specifications by a single
supplier. Mity-Lite's multipurpose room operations intend to operate without
substantial inventory levels of raw materials by depending on certain key
suppliers to provide raw materials on a "just-in-time" basis. The Company
believes that necessary materials are generally available from alternate
suppliers. However, any shortages or significant interruptions in the
delivery of raw materials could have a material adverse effect on the
Company's production schedule and operations. Price increases for raw
materials used in the Company's products would put pressure on the Company's
profit margins if the Company were unable to pass such price increases through
to customers.
WARRANTY SERVICE COSTS. The Company's warranty service costs for fiscal
years ended March 31, 1997, 1998, and 1999 totaled 1.4 percent of net sales
or $267,000, 1.5 percent of net sales or $373,000 and 1.6 percent of net sales
or $463,000, respectively. The Company intends to continue to offer
warranties covering materials and workmanship on its existing products and
anticipates providing a warranty covering materials and workmanship for all
complementary product lines developed or acquired by the Company. While the
Company has implemented improved quality control measures that it expects will
reduce warranty claims, it is possible that warranty servicing costs will
increase in future periods. Furthermore, the Company is not in a position to
anticipate the additional warranty service costs that may be incurred as a
result of the Company's expansion into new or complementary product lines.
<PAGE> 12
The Company also cannot predict what the future warranty costs will be with
respect to product lines from recent acquisitions.
C CORE, INC. As part of the strategy of acquiring the assets of The
CenterCore Group, Inc., the Company is currently closing the manufacturing and
corporate headquarters of CenterCore. The manufacturing will be moved to
Marked Tree, Arkansas and the headquarters, to Elkhart, Indiana. Management
anticipates that the move will be completed by June 30, 1999. There can be no
assurance that during the transition, the business operations of C Core will
not be adversely affected. Such interruptions may be material to the Company
as a whole.
FUTURE VARIATIONS IN OPERATING RESULTS. The Company's short-term
profitability could be adversely affected by its decision to develop or
acquire complementary product lines, hire additional sales staff, and transact
additional acquisitions. Various factors, including acquisition related
expenses, amortization of goodwill, the ability to find and train qualified
personnel, operational transitions, timing of new product introductions and
the cost of penetrating new markets and changes in product mix, may have an
adverse effect on the Company's results of operations. While the Company
believes that the addition of new product lines will increase the Company's
long term profitability, there can be no assurance that the Company will
continue to experience profitability at historical rates. No assurances can
be or are made that the Company will not experience temporary fluctuations in
operations. While the Company has not experienced substantial negative
variations in quarterly operating results during the fiscal years ended March
31, 1997, 1998 and 1999, no assurances can be made that the Company will not
experience such quarterly variations in the future.
REGULATION AND ENVIRONMENTAL CONSIDERATIONS. The Company is subject to
various local, state, provincial and federal laws and regulations including,
without limitation, regulations promulgated by federal, state and provincial
environmental, health and labor agencies. Historically, regulatory compliance
has not had a material adverse effect on the Company's sales or operations.
However, changes in the laws and regulations governing the Company's business
may impose an increased financial burden upon the Company which could
adversely affect the Company's business or operations. Actions by federal,
state, provincial and local governments concerning environmental or other
matters could result in regulations that could increase the cost of producing
the products manufactured and sold by the Company. Certain of the Company's
operations are subject to federal, state, provincial and local laws and
environmental regulations that impose limitations on the discharge of
pollutants into the air. The Company believes that it is in material
compliance with applicable air quality laws and regulations. The Company
cannot predict with any certainty its future capital expenditure requirements
relating to environmental compliance because of continually changing
compliance standards and technology. The Company does not have insurance
coverage for environmental liabilities and does not anticipate obtaining such
coverage in the future.
<PAGE> 13
FORWARD-LOOKING STATEMENTS. 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 filing 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 gross margins on chair products slightly less than its
gross margins on its table products, (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 complementary product lines or companies on terms acceptable
to the Company and integrate such acquisitions together with its recent
acquisitions 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 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 its cash from operations and other sources will be
sufficient for its current needs.
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 impacting the demand for
higher priced commercial furniture products such as those offered by the
Company, or the Company's inability, for any reason, to effectively introduce
new commercial furniture products meeting the Company's quality and price
standards or implement its marketing strategies, (b) management's ability to
manage effectively the Company's growth, integrate the Broda and CenterCore
<PAGE> 14
acquisitions and manage the Company's geographically diverse operations, (c)
the Company's ability to expand successfully into new markets such as in the
specialty office seating and systems market and 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 higher priced multipurpose room,
specialty office and health care 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 on a just-in-time
basis at current prices, (j) increased product warranty service costs if
warranty claims increase as a result of the Company's new manufacturing
bonding process, new product lines 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.
ITEM 2. PROPERTIES
The Company's corporate headquarters and multipurpose room furniture
manufacturing facility is located in Orem, Utah (approximately 40 miles south
of Salt Lake City). This facility consists of approximately 71,000 square
feet of leased manufacturing, office, research and development and storage
space located on approximately three acres of leased land. The facility and
related real estate is leased from a trust, of which Gregory L. Wilson's uncle
is one of the trustees, under a lease agreement for a five year term expiring
in the year 2000. The base monthly lease payment is $17,100. The Company
pays all maintenance costs, taxes and insurance. The Company believes that by
adding additional equipment and production shifts, its current facility will
serve its table manufacturing needs for the term of the lease. The Company
currently anticipates that it will need additional office space within the
next year and anticipates either leasing or constructing additional facilities
for future expansion.
<PAGE> 15
The Company's health care seating manufacturing facilities are located in
Waterloo, Ontario, Canada (approximately 60 miles west of Toronto). These
facilities consist of two adjacent buildings with approximately 30,000 square
feet of leased manufacturing, office, research and development and storage
space. The facilities and related real estate are leased under an agreement
for a two year term expiring in the year 2000. The Company will then have the
option of renewing the lease for two years upon the same terms and conditions
for an amount mutually agreed upon. The base monthly lease payment is
approximately $5,000. The Company pays all maintenance costs, taxes and
insurance. The Company believes that the facilities will serve its health
care seating manufacturing needs for the term of the lease.
The Company is temporarily utilizing a facility in Plainfield, New Jersey
as a result of The CenterCore Group, Inc. acquisition. The Company plans to
sell certain operating assets and inventory of CenterCore to the DO Group, a
49.9 percent affiliate of the Company, and to move all manufacturing
operations to the DO Group's Marked Tree, Arkansas facility. The move is
expected to be completed by June 30, 1999, at which time the Company will
discontinue using the Plainfield, New Jersey facility.
The Company's affiliate, DO Group, has two facilities. Its headquarters
and chair manufacturing operations are located in Elkhart, Indiana and are
leased from a related party. This facility, consisting of approximately
80,000 square feet, and related real estate are leased under an agreement for
a five year term expiring in the year 2002. The Company will then have the
option of renewing the lease for five years upon the same terms and conditions
for an amount mutually agreed upon. The base monthly lease payment is
approximately $11,800. The Company pays all maintenance costs, taxes and
insurance.
DO Group's other facility consists of 135,000 square feet and is located
in Marked Tree, Arkansas. This facility is owned by DO Group and includes its
panel and systems manufacturing operations.
ITEM 3. LEGAL PROCEEDINGS
The Company is the plaintiff in a suit against a former distributor of
its health care seating products. The Company is also subject to a
counterclaim by the defendant which the Company intends to vigorously defend.
The Company does not believe that the resolution of its claim and counterclaim
will have a material impact upon its operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended March 31, 1999.
<PAGE> 16
PART II
ITEM 5. MARKET VALUE OF THE REGISTRANT'S COMMON STOCK
The Company's Common stock is traded on the Nasdaq National Market System
under the symbol MITY. The Company's Common Stock first began trading on
April 29, 1994.
High Low
------------ ------------
Fiscal Year Ended March 31, 1998:
First Quarter $14.88 $11.50
Second Quarter 19.50 13.88
Third Quarter 21.25 16.50
Fourth Quarter 20.25 14.50
Fiscal Year Ended March 31, 1999:
First Quarter $19.75 $16.00
Second Quarter 18.50 14.50
Third Quarter 17.25 12.06
Fourth Quarter 16.00 13.00
There were approximately 140 security holders of record as of May 21,
1999. In addition, management estimates that there were approximately 1,700
beneficial shareholders. Since the closing of its public offering, the
Company has not declared dividends and intends to retain earnings for use in
the business and for potential acquisitions in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is incorporated by reference to the
Company's 1999 Annual Report to Shareholders, extracts of which are attached
as Exhibit 13.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this Item is incorporated by reference to the
Company's 1999 Annual Report to Shareholders, extracts of which are attached
as Exhibit 13.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company manufacturers its products in the United States and Canada
and sells its products in those markets as well as in other countries. Most
of the Company's sales and expenses are transacted in U.S. dollars with
limited transactions occurring in Canadian dollars or other foreign
currencies. For the year ended March 31, 1999, approximately 3.3 percent of
the Company's net sales and 4.8 percent of the Company's expenses were
denominated in currencies other than the U.S. dollar. Foreign currency
exchange rate fluctuations did not have a material impact on the financial
results of the Company during fiscal 1999. The Company generally does not
hedge its foreign currency exposure.
<PAGE> 17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated by reference to the
Company's 1999 Annual Report to Shareholders, extracts of which are attached
as Exhibit 13.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None to report.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated by reference to the
sections of the Company's Proxy Statement filed in connection with its 1999
Annual Meeting of Stockholders entitled "Nominees" and "Directors and
Executive Officers."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the
section of the Company's Proxy Statement filed in connection with its 1999
Annual Meeting of Stockholders entitled "Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
he information required by this item is incorporated by reference to the
section of the Company's Proxy Statement filed in connection with its 1999
Annual Meeting of Stockholders entitled "Security Ownership of Management and
Others."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
sections of the Company's Proxy Statement filed in connection with its 1999
Annual Meeting of Stockholders entitled "Executive Compensation" and "Certain
Transactions."
<PAGE> 18
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report
(1) Financial Statements
See "Item 8 - Financial Statements and Supplementary Data" and
"Exhibit 13 - 1999 Annual to Shareholders" for Financial
Statements included with this Annual Report on Form 10-K.
(2) Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
All other schedules have been omitted because they are not
required, not applicable, or the information is otherwise set
forth in the financial statements or notes thereto.
(3) Exhibits
INDEX TO EXHIBITS
Exhibit No. Description Location
- ----------- ------------------------------------------------------ --------
2.1 Contribution Agreement dated as of March 24, 1997 by
and among Estate of Chester E. Dekko, David Kebrdle,
Dennis and Mary M. Kebrdle, Domenic and Martha S.
Federico, ChiCol Group, Inc., DO Group, Inc., Sican
Corp., Sican II Corp., DO Group Holding, Inc. and
Mity-Lite, Inc. (5)
2.2 Stock Purchase Agreement dated as of March 13, 1997
between Mity-Lite, Inc. and Xaio, Inc. (5)
2.3 Stock Purchase Agreement dated as of March 13, 1997
between Mity-Lite, Inc. and Ellman Equities, Inc. (5)
2.4 Stock Purchase Agreement dated as of March 13, 1997
between Mity-Lite, Inc. and Key Equity Capital
Corporation (5)
2.5 Stock Purchase Agreement dated as of March 13, 1997
between Mity-Lite, Inc. and National City Capital
Corporation (5)
2.6 Stock Purchase Agreement dated as of March 13, 1997
between Mity-Lite, Inc. and Cardinal Development
Capital Fund I (5)
2.7 Term Loan Agreement dated as of March 24, 1997
between Mity-Lite, Inc. and Sican Corp. (5)
2.8 Put Agreement dated as of March 24, 1997 by and
among Mity-Lite, Inc. and Dennis Kebrdle, David
Kebrdle, Domenic Federico, ChiCol Group, Inc., Sican
II Corp., and DO Group, Inc. (5)
2.9 Stock Purchase Agreement dated as of November 20,
1998, by and among Mity-Lite Acquisition Corp. and
Stephen E. Brotherston, Glenn C. Brotherston, Ian D.
Brotherston, Margaret E. Brotherston and Sandra L.
Brotherston (9)
<PAGE> 19
Exhibit No. Description Location
- ----------- ------------------------------------------------------ --------
2.10 Asset Purchase Agreement dated as of April 9, 1999,
by and among The CenterCore Group, Inc., a Delaware
Corporation, Fleet Capital Corporation, a Rhode Island
Corporation, and C Core, Inc., a Utah Corporation and
wholly owned subsidiary of Mity-Lite, Inc. (10)
2.11 Form of Assignment Agreement by and among BOCCC, Inc.,
a Utah Corporation and wholly owned subsidiary of
Mity-Lite, Inc., and various parties holding subordinated
debt instruments of The CenterCore Group, Inc. This form
of Assignment Agreement is substantially the same
agreement that was signed by BOCCC, Inc. and nine
different subordinated debt holders. (10)
3.1 Amended and Restated Articles of Incorporation of
the Registrant (1)
3.2 Amended and Restated Bylaws of the Registrant (1)
3.3 First Amendment to the Amended and Restated Bylaws
of Registrant (1)
4.1 Form of Stock Certificate (1)
10.1 Revolving Note dated March 16, 1992 and Revolving
Loan Agreement dated March 16, 1992 between the
Registrant and First Security Bank of Utah, N.A. (1)
10.2 Modification Agreement dated March 16, 1993 between
the Registrant and First Security Bank of Utah, N.A. (1)
10.3 Lease Agreement dated November 1, 1993 between the
Registrant and the Walter M. and Orpha M. Lewis Family
Trust (1)
10.4 Trademark License dated November 23, 1993 between the
Registrant and R.D. Werner Co., Inc. (1)
10.5 Solicitation, Offer and Award Contract between the
Registrant and the General Services Administration
Federal Supply Service dated January 27, 1992 (issued
March 6, 1990) and Amendments thereto dated January
27, 1992 (effective July 16, 1990), January 27, 1992
(effective December 1, 1990), January 27, 1992
(effective December 28, 1991) and the Revision of
August 24, 1992 (1)
10.6 Notice of Contract Award dated June 23, 1993 between
the Registrant and the Commonwealth of Virginia,
Department of General Services Division of Purchases
and Supply (1)
10.7 Agreement dated July 26, 1990 between the Registrant
and the State of Utah, Department of Administrative
Services and Revisions thereto dated March 8, 1991,
June 5, 1991, and May 19, 1992 and March 10, 1993 (1)
10.8 Agreement dated December 17, 1991 between the
Registrant and the Air Force Nonappropriated Fund
Purchasing Office (1)
10.9 Purchasing Contract effective October 1, 1993 between the
Registrant and The Corporation of the Presiding Bishop of
The Church of Jesus Christ of Latter-Day Saints (1)
10.10 Employment Agreement with attached Proprietary
Information Agreement dated effective as of May 21, 1993
between Registrant and Gregory L. Wilson (1)
<PAGE> 20
Exhibit No. Description Location
- ----------- ------------------------------------------------------ --------
10.11 Employment Agreement with attached Proprietary
Information Agreement dated effective as of May 21, 1993
between Registrant and Stanley L. Pool (1)
10.12 Employment Agreement with attached Proprietary
Information Agreement dated effective as of May 21, 1993
between Registrant and Kenneth A. Law (1)
10.13 Employment Agreement with attached Proprietary
Information Agreement dated effective as of February
16, 1994 between Registrant and Brent Bonham (1)
10.14 Employment Agreement with attached Proprietary
Information Agreement dated effective as of February
16, 1994 between Registrant and Bradley T Nielson (1)
10.15 1990 Stock Option Plan, as amended and Form of Stock
Option Agreements (1)
10.16 Form of Indemnification Agreements between Registrant
and officers and directors of Registrant (1)
10.17 Form of Lock-up Agreements with Shareholders (1)
10.18 Form of Confidentiality Agreement entered into with
employees of the Registrant (1)
10.19 Key-Man Insurance Policy between the Company and
Chubb Sovereign Life Insurance Company (1)
10.20 Distributor Agreement between the Company and Sebel
Furniture Limited dated February 14, 1994 (2)
10.21 Lease Agreement dated March 31, 1995 between the Company
and the Walter M. and Orpha M. Lewis Family Trust (3)
10.22 Exclusive Distributor Agreement between the Company
and Mobilite International Limited (aka Mity-Lite
(Europe) Limited) (3)
10.23 Purchasing Contract effective October 1, 1995 between the
Registrant and The Corporation of the Presiding Bishop of
The Church of Jesus Christ of Latter-Day Saints (4)
10.24 Promissory Note dated December 6, 1995 between the
Registrant and Zions First National Bank (4)
10.25 Promissory Note dated October 27, 1995 between the
Registrant and First Security Bank (6)
10.26 Summary Plan Description and Basic Plan Document for
the 1995 Mity-Lite,Inc. Employee Retirement Plan (6)
10.27 Promissory Note dated January 23, 1997 between the
Registrant and Zions First National Bank (7)
10.28 Modification Agreement (dated October 27, 1996) to
Promissory Note dated October 27, 1995 between the
Registrant and First Security Bank (7)
10.29 Lease Agreement Amendment dated October 31, 1996
between the Company and the Walter M. and Orpha M.
Lewis Family Trust (7)
10.30 Promissory Note dated December 15, 1997 between the
Registrant and Zions First National Bank (8)
10.31 Modification Agreement (dated October 25, 1997) to
Promissory Note dated October 27, 1995 between the
Registrant and First Security Bank (8)
10.32 1997 Stock Incentive Plan and Form of Agreements (8)
10.33 Promissory Note dated November 18, 1999 between the
Registrant and Zions First National Bank
11.1 Statement Regarding Computation of Per Share Earnings
<PAGE> 21
Exhibit No. Description Location
- ----------- ------------------------------------------------------ --------
13 1999 Annual Report to Shareholders (only contains items
incorporated by reference in this Annual Report on
Form 10-K)
21 Subsidiaries of the Registrant
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Crowe, Chizek and Company LLP
27.1 Financial Data Schedule - Fiscal Year Ended March 31, 1999
99 Independent Auditors' Report to the Directors of DO
Group, Inc.
- --------------------------------------------
(1) Incorporated by reference to the referenced exhibit number to the
Company's Registration Statement on Form SB-2, Reg. No. 33-76758-D.
(2) Incorporated by reference to the referenced exhibit number to the
Company's Form 10-KSB for the year ended March 31, 1994.
(3) Incorporated by reference to the referenced exhibit number to the
Company's Form 10-KSB for the year ended March 31, 1995.
(4) Incorporated by reference to the referenced exhibit number to the
Company's Form 10-QSB for the quarter ended December 31, 1995.
(5) Incorporated by reference to the referenced exhibit number to the
Company's Form 8-K dated March 31, 1997.
(6) Incorporated by reference to the referenced exhibit number to the
Company's Form 10-KSB for the year ended March 31, 1996.
(7) Incorporated by reference to the referenced exhibit number to the
Company's Form 10-KSB for the year ended March 31, 1997.
(8) Incorporated by reference to the referenced exhibit number to the
Company's Form 10-KSB for the year ended March 31, 1998.
(9) Incorporated by reference to the referenced exhibit number to the
Company's Form 8-K dated November 25, 1998.
(10) Incorporated by reference to the referenced exhibit number to the
Company's Form 8-K dated April 9, 1999.
(b) Reports on Form 8-K
None to report.
<PAGE> 22
(c) Financial Statement Schedules
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Shareholders of Mity-Lite, Inc.:
We have audited the consolidated financial statements of Mity-Lite, Inc. and
subsidiary (the Company) as of March 31, 1999 and 1998, and for each of the
three years in the period ended March 31, 1999, and have issued our report
thereon dated May 13, 1999; such financial statements and report are included
in your 1999 Annual Report to Shareholders and are incorporated herein by
reference. Our audits also included the financial statement schedule of the
Company, listed in Item 14. This financial statement schedule is the
responsibility of Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as whole, presents fairly in all material respects the
information set forth therein.
Deloitte & Touche LLP
Salt Lake City, Utah
May 13, 1999
MITY-LITE, INC. AND SUBSIDIARY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED MARCH 31, 1999, 1998 AND 1997
Additions
Balance Charged Acquisitions
At to Costs from Deductions Balance
Beginning and Acquired from at End
of Period Expenses Companies Reserves of Period
--------- --------- ---------- --------- ---------
ACCOUNTS RECEIVABLE ALLOWANCE:
Year ended:
March 31, 1999 $259,000 $131,000 $25,000 $20,000 $395,000
March 31, 1998 $161,000 $101,000 -- $3,000 $259,000
March 31, 1997 $132,000 $35,000 -- $6,000 $161,000
<PAGE> 23
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Orem, State of Utah, on 14th of
June, 1999.
MITY-LITE, INC.
By: /s/ Gregory L. Wilson
--------------------------
Gregory L. Wilson, President
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 14, 1999
- --------------------- and Director
Gregory L. Wilson (Principal Executive Officer)
/s/ Bradley T Nielson Chief Financial Officer and June 14, 1999
- --------------------- Chief Operating Officer
Bradley T Nielson (Principal Financial and Accounting
Officer)
/s/ Ralph E. Crump Director June 14, 1999
- ---------------------
Ralph E. Crump
/s/ Peter Najar Director June 14, 1999
- ---------------------
Peter Najar
/s/ C. Lewis Wilson Director June 14, 1999
- ---------------------
C. Lewis Wilson
<PAGE> 1
Borrower: MITY-LITE, Inc. Lender: ZIONS FIRST NATIONAL BANK
1301 WEST 400 NORTH CENTRAL UTAH COMMERCIAL BANKING CTR
OREM, UT 84057 #1 SOUTH MAIN STREET
PO BOX 25822
SALT LAKE CITY, UT 84125
- ------------------------------------------------------------------------------
Principal Amount: $3,000,000.00 Initial Rate: 7.750% Date of Note: 11/18/98
PROMISE TO PAY. MITY-LITE, INC. ("Borrower") promises to pay to ZIONS FIRST
NATIONAL BANK ("Lender"), or order, in lawful money of the United States of
America, the principal amount of Three Million & 00/100 Dollars
($3,000,000.00) or so much as may be outstanding, together with interest on
the unpaid outstanding principal balance of each advance. Interest shall be
calculated from the date of each advance until repayment of each advance.
PAYMENT. Borrower will pay this loan in one payment of all outstanding
principal plus all accrued unpaid interest on December 5, 1999. In addition,
Borrower will pay regular monthly payments of accrued unpaid interest
beginning January 5, 1999, and all subsequent interest payments are due on the
same day of each month after that. The annual interest rate for this Note is
computed on a 365/360 basis; that is, by applying the ratio of the annual
interest rate over a year of 360 days, multiplied by the outstanding principal
balance, multiplied by the actual number of days the principal balance is
outstanding. Borrower will pay Lender at Lender's address shown above or at
such other place as Lender may designate in writing. Unless otherwise agreed
or required by applicable law, payments will be applied first to any unpaid
collection costs and any late charges, then to any unpaid interest, and any
remaining amount to principal.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an index which is the ZIONS FIRST
NATIONAL BANK PRIME RATE (the "Index"). "PRIME RATE" MEANS AN INDEX WHICH IS
DETERMINED DAILY BY THE PUBLISHED COMMERCIAL LOAN VARIABLE RATE INDEX HELD BY
ANY TWO OF THE FOLLOWING BANKS: CHASE MANHATTAN BANK, WELLS FARGO BANK N.A.,
AND BANK OF AMERICA N.T. & S.A. IN THE EVENT NO TWO OF THE ABOVE BANKS HAVE
THE SAME PUBLISHED RATE, THE BANK HAVING THE MEDIAN RATE WILL ESTABLISH
LENDERS' PRIME RATE. IF, FOR ANY REASON BEYOND THE CONTROL OF LENDER, ANY OF
THE AFOREMENTIONED BANKS BECOMES UNACCEPTABLE AS A REFERENCE FOR THE PURPOSE
OF DETERMINING THE PRIME RATE USED HEREIN, LENDER MAY, FIVE DAYS AFTER POSTING
NOTICE IN LENDERS OFFICES, SUBSTITUTE ANOTHER COMPARABLE BANK FOR THE ONE
DETERMINED UNACCEPTABLE. AS USED IN THIS PARAGRAPH, "COMPARABLE BANK" SHALL
MEAN ONE OF THE TEN LARGEST COMMERCIAL BANKS HEADQUARTERED IN THE UNITED
STATES OF AMERICA. THIS DEFINITION OF PRIME RATE IS TO BE STRICTLY
INTERPRETED AND IS NOT INTENDED TO SERVE ANY PURPOSE OTHER THAN PROVIDING AN
INDEX TO DETERMINE THE VARIABLE INTEREST RATE USED HEREIN. IT IS NOT THE
LOWEST RATE AT WHICH LENDER MAY MAKE LOANS TO ANY OF ITS CUSTOMERS, EITHER NOW
OR IN THE FUTURE.. Lender will tell Borrower the current index rate upon
Borrower's request. Borrower understands that Lender may make loans based on
other rates as well. The interest rate change will not occur more often than
each DAY. The index currently is 7.750% per annum. The interest rate to be
applied to the unpaid principal balance of this Note will be at a rate equal
to the index, resulting in an initial rate of 7.750% annum. NOTICE: Under no
circumstances will the interest rate of this Note be more than the maximum
rate allowed by applicable law.
<PAGE> 2
PREPAYMENT. Borrower may pay without penalty all or a portion of the amount
owed earlier than it is due. Early payments will not, unless agreed to by
Lender in writing, relieve Borrower of Borrower's obligation to continue to
make payments of accrued unpaid interest. Rather, they will reduce the
principal balance due.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform
when due any other term, obligation, covenant, or condition contained in this
Note or any agreement related to this Note, or in any other agreement or loan
Borrower has with Lender. (c) Any representation or statement made or
furnished to Lender by Borrower or on Borrower's behalf is false or misleading
in any material respect either now or at the time made or furnished. (d)
Borrower becomes insolvent, a receiver is appointed for any part of Borrower's
property, Borrower makes an assignment for the benefit of creditors, or any
proceeding is commenced either by Borrower or against Borrower under any
bankruptcy or insolvency laws. (e) Any creditor tries to take any of
Borrower's property on or in which Lender has a lien or security interest.
This includes a garnishment of any of Borrower's accounts with Lender. (f)
Any guarantor dies or any of the other events described in this default
section occurs with respect to any guarantor of this Note. (g) A material
adverse change occurs in Borrower's financial condition, or Lender believes
the prospect of payment or performance of the indebtedness is impaired. (h)
Lender in good faith deems itself insecure.
If any default, other than a default in payment, is curable and if Borrower
has not been given a notice of a breach of the same provision of this Note
within the preceding twelve (12) months, it may be cured (and no event of
default will have occurred) if Borrower, after receiving written notice from
Lender demanding cure of such default: (a) cures the default within fifteen
(15) days; or (b) if the cure requires more than fifteen (15) days,
immediately initiates steps which Lender deems in Lender's sole discretion to
be sufficient to cure the default and thereafter continues and completes all
reasonable and necessary steps sufficient to produce compliance as soon as
reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon default, including
failure to pay upon final maturity, Lender, at its option, may also, if
permitted under applicable law, increase the variable interest rate on this
Note to 3.000 percentage points over the index. The interest rate will not
exceed the maximum rate permitted by applicable law. Lender may hire or pay
someone else to help collect his Note if Borrower does not pay. Borrower also
will pay Lender that amount. This includes, subject to any limits under
applicable law, Lender's reasonable attorneys' fees and Lender's legal
expenses whether or not there is a lawsuit, including reasonable attorneys'
fees and legal expenses for bankruptcy proceedings (including efforts to
modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services. If not prohibited by
applicable law, Borrower also will pay any court costs, in addition to all
other sums provided by law. This Note has been delivered to Lender and
accepted by the Lender in the State of Utah. If there is a lawsuit, Borrower
agrees upon Lender's request to submit to the jurisdiction of the courts of
SALT LAKE County, the State of Utah. Subject to the provisions on
<PAGE> 3
arbitration, this Note shall be governed by and construed in accordance with
the laws of the State of Utah.
RIGHT OF SETOFF. Borrower grants to Lender a contractual security interest
in, and hereby assigns, conveys, delivers, pledges, and transfers to Lender
all Borrower's right, title and interest in and to, Borrower's accounts with
Lender (whether checking savings, or some other account), including without
limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on this Note against any
and all such accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances
under this Note may be requested orally by Borrower or by an authorized
person. Lender may, but need not, require that all oral requests by confirmed
in writing. All communications, instructions, or directions by telephone or
otherwise to Lender are to be directed to Lender's office shown above. The
following party or parties are authorized to request advances under the line
of credit until Lender receives from Borrower at Lender's address shown above
written notice of revocation of their authority: GREGORY L. WILSON, PRESIDENT;
BRADLEY T. NIELSON, CHIEF FINANCIAL OFFICER; PAUL KILLPACK, TREASURER; AND
GREGORY DYE, SECRETARY. Borrower agrees to be liable for all sums either: (a)
advanced in accordance with the instructions of an authorized person or (b)
credited to any of Borrower's accounts with Lender. The unpaid principal
balance owing on this Note at any time may be evidence by endorsements on this
Note or by Lender's accounts with Lender. The unpaid principal balance owing
on this Note at any time may be evidenced by endorsements on this Note or by
Lender's internal records, including daily computer print-outs. Lender will
have no obligation to advance funds under this Note if: (a) Borrower or any
guarantor is in default under the terms of this Note or any agreement that
Borrower or any guarantor has with Lender, including any agreement made in
connection with the signing of this Note; (b) Borrower or any guarantor ceases
doing business or is insolvent; (c) any guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such guarantor's guarantee of this Note or
any other loan with Lender; (d) Borrower has applied funds providing pursuant
to this Note for purposes other than those authorized by Lender; or (e) Lender
in good faith deems itself insecure under this Note or any other agreement
between Lender and Borrower.
ARBITRATION DISCLOSURES:
1. ARBITRATION IS FINAL AND BINDING ON THE PARTIES AND SUBJECT TO ONLY VERY
LIMITED REVIEW BY A COURT.
2. IN ARBITRATION THE PARTIES ARE WAIVING THEIR RIGHT TO LITIGATE IN COURT,
INCLUDING THEIR RIGHT TO A JURY TRIAL.
3. DISCOVERY IN ARBITRATION IS MORE LIMITED THAN DISCOVERY IN COURT.
4. ARBITRATORS ARE NOT REQUIRED TO INCLUDE FACTUAL FINDINGS OR LEGAL
REASONING IN THEIR AWARDS. THE RIGHT TO APPEAL OR TO SEEK MODIFICATION OF
ARBITRATORS' RULINGS IS VERY LIMITED.
<PAGE> 4
5. A PANEL OF ARBITRATORS MIGHT INCLUDE AN ARBITRATOR WHO IS OR WAS
AFFILIATED WITH THE BANKING INDUSTRY.
6. IF YOU HAVE QUESTIONS ABOUT ARBITRATION, CONSULT YOUR ATTORNEY OR THE
AMERICAN ARBITRATION ASSOCIATION.
(a) Any claim or controversy ("Dispute") between or among the parties and
their assigns, including but not limited to Disputes arising out of or
relating to this agreement, this arbitration provision ("arbitration clause"),
or any related agreements or instruments relating hereto or delivered in
connection herewith ("Related Documents'), and including but not limited to a
Dispute based on or arising from an alleged tort, shall at the request of any
party be resolved by binding arbitration in accordance with the applicable
arbitration rules of the American Arbitration Association (the
"Administrator"). The provisions of this arbitration clause shall survive any
termination, amendment, or expiration of this agreement or Related Documents.
The provisions of this arbitration clause shall supersede any prior
arbitration agreement between or among the parties. If any provision of this
arbitration clause should be determined to be unenforceable, all other
provisions of this arbitration clause shall remain in full force and effect.
(b) The arbitration proceedings shall be conducted in Salt Lake City, Utah,
at a place to be determined by the Administrator. The Administrator and the
arbitrator(s) shall have the authority to the extent practicable to take any
action to require the arbitration proceeding to be completed and the
arbitrator(s)' award issued within one hundred fifty (150) days of the filing
of the Dispute with the Administrator. The arbitrator(s) shall have the
authority to impose sanctions on any party that fails to comply with time
periods imposed by the Administrator or the arbitrator(s), including the
sanction of summarily dismissing any Dispute or defense with prejudice. The
arbitrator(s) shall have the authority to resolve any Dispute regarding the
terms of this agreement, this arbitration clause or Related Documents,
including any claim or controversy regarding the arbitrability of any
Dispute. All limitations periods applicable to any Dispute or defense,
whether by stature or agreement, shall apply to any arbitration proceeding
hereunder and the arbitrator(s) shall have the authority to decide whether any
Dispute or defense is barred by a limitations period and, if so, to summarily
enter an award dismissing any Dispute or defense on that basis. The doctrines
of compulsory counterclaim, res judicata, and collateral estoppel shall apply
to any arbitration proceeding hereunder so that a party must state as a
counterclaim in the arbitration proceeding any claim or controversy which
arises out of the transaction or occurrence that is the subject matter of the
Dispute. The arbitrator(s) may in the arbitrator(s)' discretion and at the
request of any party: (1) consolidate in a single arbitration proceeding any
other claim or controversy involving another party that is substantially
related to the Dispute where that other party is bound by an arbitration
clause with the Lender, such as borrowers, guarantors, sureties, and owners of
collateral; (2) consolidate in a single arbitration proceeding any other claim
or controversy that is substantially similar to the Dispute; and (3)
administer multiple arbitration claims or controversies as class actions in
accordance with the provisions of Rule 23 of the Federal Rules of Civil
Procedure.
<PAGE> 5
(c) The arbitrator(s) shall be selected in accordance with the rules of the
Administrator from panels maintained by the Administrator. A single
arbitrator shall have expertise in the subject matter of the Dispute. Where
three arbitrators conduct an arbitration proceeding, the Dispute shall be
decided by a majority vote of the three arbitrators, at least one of whom must
have expertise in the subject matter of the Dispute and at least one of whom
must be a practicing attorney. The arbitrator(s) shall award to the
prevailing party recovery of all costs and fees (including attorneys' fees and
costs, arbitration administration fees and costs, and arbitrator(s)' fees)./
The arbitrator(s), either during the pendency of the arbitration proceeding or
as part of the arbitration award, also may grant provisional or ancillary
remedies, including but not limited to an award of injunctive relief,
foreclosure, sequestration, attachment, replevin, garnishment, or the
appointment of a receiver.
(d) Judgement upon an arbitration award may be entered in any court having
jurisdiction, subject to the following limitation: the arbitration award is
binding upon the parties only if the amount doe not exceed Four Million
Dollars ($4,000,000.00); if the award exceeds that limit, either party may
demand the right to a court trial. Such a demand must be filed with the
Administrator within thirty (30) days following the date of the arbitration
ward; if such demand is not made within that time period, the amount of the
arbitration award shall be binding. The computation of the total amount of an
arbitration award shall include amounts awarded for attorneys' fees and costs,
arbitration administration fees and costs, and arbitrator(s)' fees.
(e) No provision of this arbitration clause, nor the exercise of any rights
hereunder, shall limit the right of any party to: (1) judicially or
non-judicially foreclose against any real or personal property collateral or
other security; (2) exercise self-help remedies, including but not limited to
repossession and setoff rights; or (3) obtain from a court having jurisdiction
thereover any provisional or ancillary remedies, including but not limited to
injunctive relief, foreclosure, sequestration, attachment, replevin,
garnishment, or the appointment of a receiver. Such rights can be exercised
at any time, before or during the initiation of an arbitration proceeding,
except to the extent such action is contrary to the arbitration award. The
exercise of such rights shall not continue a waiver of the right to submit any
Dispute to arbitration, and any claim or controversy related to the exercise
of such rights shall be a Dispute to be resolved under the provisions of this
arbitration clause. Any party may initiate arbitration with the
Administrator; however, if any party initiates litigation and another party
disputes any allegation in that litigation, the disputing party-upon the
request of the initiation party-must file a demand for arbitration with the
Administrator and pay the Administrator's filing fee. The parties may serve
by mail a notice an initial motion for an order of arbitration.
(f) Notwithstanding the applicability of any other law to this agreement,
the arbitration clause, or Related Documents between or among the parties, the
Federal Arbitration Act, 9 U.S. C. Section 1 et seq., shall apply to the
construction and interpretation of this arbitration clause.
<PAGE> 6
LOAN AGREEMENT. THIS PROMISSORY NOTE IS MADE IN ACCORDANCE WITH A BUSINESS
LOAN AGREEMENT DATED DECEMBER 6, 1995.
PRIOR NOTE. THIS IS A RENEWAL OF THE PROMISSORY NOTE FROM MITY-LITE, INC. TO
LENDER DATED DECEMBER 15, 1997 IN THE ORIGINAL PRINCIPAL AMOUNT OF
$3,000,000.00.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and an other person
who signs, guarantees or endorses this Note, to the extent allowed by law,
waive presentment, demand for payment, protest and notice of dishonor. Upon
any change in the terms of this Note, and unless otherwise expressly stated in
writing, no party who signs this Note, whether as maker, guarantor,
accommodation maker or endorser, shall be released from liability. All such
parties agree that Lender may renew or extend (repeatedly and for any length
of time) this loan, or release any party or guarantor or collateral; or
impair, fail to realize upon of perfect Lender's security interest in the
collateral; and take any other action deemed necessary by Lender without the
consent of or notice to anyone. All such parties also agree that Lender may
modify this loan without the consent of or notice to anyone other than the
party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE
PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS.
BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A
COMPLETED COPY OF THE NOTE.
BORROWER:
MITY-LITE, INC.
/s/ Gregory L. Wilson
By: GREGORY L. WILSON, PRESIDENT
/s/ Gregory Dye
GREGORY DYE, SECRETARY
Twelve months ended
March 31,
1999 1998 1997
---------- ---------- ----------
Net income as reported . . . . . $3,930,000 $3,189,000 $2,485,000
========== ========== ==========
BASIC:
Weighted average number of
common shares outstanding. 3,245,584 3,227,850 3,120,433
========== ========== ==========
Basic earnings per share. . . $1.21 $0.99 $0.80
========== ========== ==========
DILUTED:
Common and common equivalent shares
outstanding:
Weighted average number of
common shares outstanding. 3,245,584 3,227,850 3,120,433
Common stock equivalents
from options computed on
the treasury-stock method
using the average fair
market value of common
stock during the period. . 112,869 161,604 158,902
---------- ---------- ----------
Shares used in the
computation. . . . . . . . 3,358,453 3,389,454 3,279,335
========== ========== ==========
Diluted earnings per share. . . $1.17 $0.94 $0.76
========== ========== ==========
<PAGE>1
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, 1999, 1998 and 1997 and the balance sheet
data at March 31, 1999 and 1998 are derived from, and should be read in
conjunction with the audited Financial Statements included in this Annual
Report to Shareholders. The statement of income data set forth below with
respect to the fiscal year ended March 31, 1996 and 1995 and the balance sheet
data at March 31, 1997, 1996 and 1995 are derived from audited financial
statements not included in this Annual Report to Shareholders.
Statement of Income Data
Fiscal Year Ended March 31,
- ------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------
(in thousands, except per share data)
Net sales $29,468 $25,337 $18,680 $15,383 $13,029
Cost of products sold 18,122 15,988 10,921 9,125 7,669
- ------------------------------------------------------------------------------
Gross profit 11,346 9,349 7,759 6,258 5,360
Expenses:
Selling 4,234 3,782 2,969 2,194 1,982
General and administrative 1,301 843 865 707 601
Research and development 549 488 375 511 392
Expenses related to potential
acquisitions -- -- -- 128 --
- ------------------------------------------------------------------------------
Income from operations 5,262 4,236 3,550 2,718 2,385
Interest and other, net 842 707 339 219 116
- ------------------------------------------------------------------------------
Income before provision for
income taxes 6,104 4,943 3,889 2,937 2,501
Provision for income taxes 2,174 1,754 1,404 1,009 773
- ------------------------------------------------------------------------------
Net income $ 3,930 $ 3,189 $ 2,485 $ 1,928 $ 1,728
==============================================================================
Basic earnings per share $1.21 $0.99 $0.80 $0.62 $0.57
==============================================================================
Weighted average common shares
outstanding - basic 3,245,584 3,227,850 3,120,433 3,085,801 3,039,083
==============================================================================
Diluted earnings per share $1.17 $0.94 $0.76 $0.60 $0.55
==============================================================================
Weighted average common and
common equivalent shares
- diluted 3,358,453 3,389,454 3,279,335 3,235,061 3,143,308
==============================================================================
<PAGE> 2
BALANCE SHEET DATA
March 31,
- ------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------
(In thousands)
Total assets $23,463 $18,556 $14,264 $11,321 $9,090
Working capital 14,374 12,895 9,454 8,918 6,863
Current portion of
long term debt 45 -- -- -- --
Long term debt less
current portion 97 -- -- -- --
Stockholders' equity 19,918 16,819 12,933 10,231 8,167
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
The Company designs and manufactures commercial furniture and markets these
products in niche markets. The Company's product lines consist of
multipurpose room furniture, health care 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 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. These products are used in multipurpose
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(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 products have increased during the fiscal
years ended March 31, 1999, 1998 and 1997. Management expects, but cannot
assure, that this trend will continue. 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> 3
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.
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 and 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 $5.0 million. The final purchase
price will be determined based on asset values at closing and will be adjusted
dollar for dollar for increases and/or decreases in the closing book values of
accounts receivable, inventory, and machinery and equipment. C Core will
continue to design and market call center and panel systems furniture under
the CenterCore name. Product manufacturing will be transitioned to DO Group,
Inc., a 49.9 percent owned affiliate of the Company.
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. In addition, BOCCC, Inc. has
since purchased other certain claims. Cash from the Company's general working
capital was used to fund the purchases.
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. DO
Group's total sales for the years ended March 31, 1999 and 1998 were
$15,139,000 and $12,145,000 respectively. DO Group's net income for the
years ended March 31, 1999 and 1998 was $1,923,000 and $1,203,000. 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.
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:
<PAGE> 4
Fiscal Year Ended March 31,
- ------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------
Net sales 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of products sold 61.5 63.1 58.5 59.3 58.9
- ------------------------------------------------------------------------------
Gross profit 38.5 36.9 41.5 40.7 41.1
Operating expenses:
Selling 14.4 14.9 15.9 14.3 15.2
General and administrative 4.4 3.4 4.6 4.6 4.6
Research and development 1.8 1.9 2.0 3.3 3.0
Expenses related to
potential acquisitions -- -- -- 0.8 --
- ------------------------------------------------------------------------------
Income from operations 17.9 16.7 19.0 17.7 18.3
Interest and other, net 2.8 2.8 1.8 1.4 0.9
- ------------------------------------------------------------------------------
Income before tax 20.7 19.5 20.8 19.1 19.2
Provision for income taxes 7.4 6.9 7.5 6.6 5.9
- ------------------------------------------------------------------------------
Net income 13.3% 12.6% 13.3% 12.5% 13.3%
==============================================================================
COMPARISON OF FISCAL YEARS 1999, 1998 and 1997
Net Sales
The Company's fiscal 1999 net sales of $29,468,000 increased 16.3 percent over
net sales in fiscal 1998. For fiscal 1999, the increase reflected sales
growth of 11.0 percent in the Company's multipurpose room furniture lines.
Multipurpose room chair sales represented 8.8 percent of net sales for the
fiscal year ended March 31, 1999 as compared to 8.9 percent for the fiscal
year ended March 31, 1998. Health care chair and accessories sales, related
to the Broda acquisition, represented 4.5 percent of net sales for fiscal
1999. International sales represented 11.0 percent of net sales for fiscal
1999 as compared to 7.8 percent in fiscal 1998. The sales increase has
resulted mainly from increased sales in the government, recreation, church and
hospitality market segments and an overall higher average unit sales price
realized on table sales, as well as sales added as a result of the recent
Broda acquisition.
Net sales in fiscal 1998 of $25,337,000 increased 35.6 percent over net sales
in fiscal 1997. Chair sales represented 8.9 percent and 6.9 percent of net
sales for the fiscal years ended March 31, 1998 and 1997, respectively.
International sales represented 7.8 percent and 7.4 percent of net sales for
the same respective time periods. The sales increase has resulted mainly from
increased sales in the hospitality, church, public assembly and education
market segments and an overall higher average unit sales price realized on
table sales.
<PAGE> 5
Gross Profit
For the fiscal year ended March 31, 1999, gross profit as a percentage of net
sales increased by 1.6 percentage points to 38.5 percent as compared to 36.9
percent in the prior year. The increase was the result of a higher average
sales price on table products, lower material costs and higher labor
efficiency due to improved training and retention of employees. This was
partially offset by an increase in labor costs as well as a lower gross profit
on health care chair sales due to writing off the inventory purchase
adjustment resulting from the Broda acquisition.
For fiscal 1998, gross profit as a percentage of net sales decreased by 4.6
percentage points from 41.5 percent in fiscal 1997 to 36.9 percent for the
fiscal year ended March 31, 1998. The decrease was caused by increased
production costs related to a new bonding process, additional production and
labor costs associated with implementing a second production shift, increasing
labor rates and staffing levels, increasing freight costs, and increasing
chair sales which, when compared to table products, have lower gross profit
margins.
Operating Expenses
For fiscal 1999, selling expenses were 14.4 percent of net sales as compared
to 14.9 percent in the prior year. Actual expenses increased by $452,000 or
12.0 percent. The decrease as a percent of sales was due to lower personnel
and advertising costs partially offset by higher selling expenses for health
care chairs. For fiscal 1998, selling expenses were 14.9 percent of net sales
as compared to 15.9 percent for the prior fiscal year. Actual spending for
fiscal 1998 increased by 27.4 percent, or $813,000 as compared to fiscal 1997,
resulting from higher personnel, international selling, and advertising
costs.
General and administrative expenses were 4.4 percent, 3.4 percent and 4.6
percent of net sales in fiscal 1999, 1998 and 1997, respectively. The
increase of 1.0 percentage point, or $458,000 in fiscal 1999 over fiscal 1998
was due to additional personnel related expenses, the addition of the total
quality management and training position to the administrative staff,
increased investor relations spending and higher general and administrative
costs associated with Broda. In fiscal 1998, actual spending decreased by 2.5
percent, or $22,000. The decrease in spending resulted primarily from
decreases in personnel related expenses and rent expenses.
Research and development expenses were 1.8 percent, 1.9 percent and 2.0
percent of net sales in fiscal 1999, 1998 and 1997 respectively. For fiscal
1999, actual spending increased by 12.5 percent, or $61,000. This increase in
actual spending resulted from increased spending on product development and
prototyping partially offset by lower personnel expenses. For fiscal 1998,
actual spending increased by 30.1 percent, or $113,000. The increase in
research and development expenditures primarily resulted from increases in
personnel related expense partially offset by lower prototyping costs.
<PAGE> 6
Other Income/Expense
Other income and expense netted to $842,000 in fiscal 1999. Investment income
was $442,000, an increase of $67,000 from the prior fiscal year due to a
higher average balance of cash and cash equivalents and available-for-sale
securities. Mity-Lite recognized income of $480,000 from its investment in
the DO Group. The $480,000 represents Mity-Lite's proportionate share of DO
Group's net income for the year ended March 31, 1999, less certain additional
amortization and depreciation created as a result of the purchase. Mity-Lite
also incurred a net loss of $28,000 from the disposition of certain assets, a
loss of $10,000 on currency exchange, and $10,000 in interest expense
resulting from Broda's long term debt.
Other income and expense netted to $707,000 in fiscal 1998. Investment income
was $375,000, an increase of $15,000 from the prior fiscal year due to a
slightly greater average balance of cash and cash equivalents and
available-for-sale securities. Mity-Lite recognized income of $340,000 from
its investment in the DO Group. The $340,000 represents Mity-Lite's
proportionate share of DO Group's net income for the year ended March 31,
1998, less certain additional amortization and depreciation created as a
result of the purchase. During fiscal 1998, Mity-Lite also incurred an $8,000
loss from the disposition of certain assets.
Net Income
For reasons stated above, the Company's 1999 fiscal year net income of
$3,930,000 increased 23.2 percent over net income in fiscal 1998. For fiscal
1998, net income of $3,189,000 increased 28.3 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 twelve 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. Earnings per share information may not
add to match annual earnings per share information due to rounding.
Unaudited Quarterly Financial Information:
- ------------------------------------------------------------------------------
Q1 97 Q2 97 Q3 97 Q4 97
- ------------------------------------------------------------------------------
(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
Basic earnings per share 0.19 0.22 0.19 0.20
Diluted earnings per share 0.18 0.21 0.18 0.19
<PAGE> 7
- ------------------------------------------------------------------------------
Q1 98 Q2 98 Q3 98 Q4 98
- ------------------------------------------------------------------------------
(In thousands, except per share amounts)
Net sales $6,296 $7,341 $5,667 $6,033
Gross profit 2,423 2,780 2,003 2,143
Income before provision
for income tax 1,247 1,562 1,023 1,111
Net income 786 984 644 775
Basic earnings per share 0.25 0.31 0.20 0.24
Diluted earnings per share 0.24 0.29 0.19 0.23
- ------------------------------------------------------------------------------
Q1 99 Q2 99 Q3 99 Q4 99
- ------------------------------------------------------------------------------
(In thousands, except per share amounts)
Net sales $7,664 $7,361 $6,812 $7,631
Gross profit 2,753 2,815 2,733 3,045
Income before provision
for income tax 1,586 1,684 1,380 1,454
Net income 999 1,061 836 1,034
Basic earnings per share 0.31 0.33 0.26 0.32
Diluted earnings per share 0.29 0.31 0.25 0.31
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
commercial 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, chairs, office
furniture and complementary products that successfully adapt to current market
needs may also have an impact on future quarterly results of operations. No
assurances 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 $8.03 million at
March 31, 1999 which compared to $9.27 million at March 31, 1998. In
addition, the Company holds available-for-sale securities which totaled $3.90
million at March 31, 1999 and $1.21 million at March 31, 1998. The decrease
in cash and cash equivalents for fiscal 1999 as compared to fiscal 1998 was
due primarily to the net purchase of highly liquid available-for-sale
securities ($2.69 million), the purchase of Broda Enterprises ($2.01 million),
buying back shares of the Company's common stock ($1.16 million) and purchases
of manufacturing and computer equipment ($0.63 million). This decrease was
partially offset by cash generated from operations ($4.90 million), net
proceeds related to the exercise of stock options ($0.20 million) and interest
received from affiliate ($0.10 million).
<PAGE> 8
The increase in cash and cash equivalents for 1998 as compared to 1997 was due
primarily to cash generated from operations ($3.18 million), net proceeds
related to the exercise of stock options ($0.43 million) and interest received
from an affiliate ($0.10 million). This increase was partially offset by cash
used to purchase highly liquid available-for-sale securities ($1.21 million),
to purchase manufacturing and computer equipment, furniture and make certain
leasehold improvements ($0.78 million) and to buy back small amounts of the
Company's common stock ($0.10 million).
In recent history, the Company has financed its growth through cash from
operations. In addition, the Company has a revolving credit facility with
Zions First National Bank. The agreement, which expires on December 1, 1999,
allows the Company to draw up to $3,000,000 under the credit facility. As of
March 31, 1999, the Company had no amounts drawn under this facility. The
Company also has a revolving credit facility associated with its Broda
Enterprises subsidiary from Toronto Dominion Bank. The agreement allows the
Company to draw up to $364,000 under the credit facility. As of March 31, 1999,
the Company had drawn $286,000. The credit facilities require the maintenance
of certain financial ratios and levels of working capital, all of which were met
as of March 31, 1999. Also, up to $400,000 is contingently payable for the
Broda acquisition based on Broda obtaining certain sales and earnings growth
targets through December 31, 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.
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, 1999, the proceeds which would
have been received by the Company upon exercise of outstanding options which
were exercisable on that date were approximately $713,000. There is no
assurance that such options will be exercised.
The Company's material cash commitments at March 31, 1999 consisted primarily
of current liabilities to be repaid from funds generated from operations. At
March 31, 1999, the Company had total current liabilities of $3,177,000. The
Company has also entered into a lease agreement from a related party for its
Orem, Utah production and office facility under which it is obligated to pay
$17,100 per month through March 2000. The Company also leases production and
office facilities at its Waterloo, Ontario, Canada location. The current
agreement requires lease payments of $4,700 per month through July 2000. In
addition, in October 1998 the Company was authorized by the board of directors
<PAGE> 9
to repurchase up to 100,000 shares of Mity-Lite common stock. Approximately
46,000 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 determined that they are
Year 2000 compliant. The Company also 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 $50,000. To date, $25,000
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
domestic or foreign 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 third party vendors and service
providers 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. The
Company may not accurately identify all potential Year 2000 problems within
our business and the corrective measures we may implement may be ineffective
or incomplete. Any such problems could interrupt our operations and cause our
revenues to decrease.
<PAGE> 10
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 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, vendors and service providers in addressing
the Year 2000 problem, and similar uncertainties.
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
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
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 annual 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 gross margins on chair products slightly less
than its gross margins on its table products, (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 complementary product lines or companies on terms
acceptable to the Company and integrate such acquisitions together with its
<PAGE> 11
recent acquisitions 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 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 its cash from operations
and other sources will be sufficient for its current needs.
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 impacting the demand for
higher priced commercial furniture products such as those offered by the
Company, or the Company's inability, for any reason, to effectively introduce
new commercial furniture products meeting the Company's quality and price
standards or implement its marketing strategies, (b) management's ability to
manage effectively the Company's growth, integrate the Broda and CenterCore
acquisitions and manage the Company's geographically diverse operations, (c)
the Company's ability to expand successfully into new markets such as in the
specialty office seating and systems market and 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 higher priced multipurpose room,
specialty office and health care 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 on a just-in-time
basis at current prices, (j) increased product warranty service costs if
warranty claims increase as a result of the Company's new manufacturing
bonding process, new product lines 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.
<PAGE> 12
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> 13
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Mity-Lite, Inc.
We have audited the accompanying consolidated balance sheets of Mity-Lite,
Inc. and subsidiary as of March 31, 1999 and 1998, and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the three years in the period ended March 31, 1999. 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 audits. We did not audit the financial statements of DO Group, Inc.,
Mity-Lite's investment in which is accounted for by use of the equity method.
Mity-Lite's equity of $1,483,000 and $1,108,000 in the DO Group's net assets
at March 31, 1999 and March 31, 1998, and of $480,000 and $340,000 in that
company's net income for the respective years then ended are included in the
accompanying financial statements. The financial statements of DO Group, Inc.
were audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for such company, is
based solely on the report of such other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 audits and the report of the
other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, such
consolidated financial statements present fairly, in all material respects,
the financial position of Mity-Lite, Inc. and subsidiaries at March 31, 1999
and 1998, and the results of their operations and their cash flows for each of
the three years in the period ended March 31, 1999 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
May 13, 1999
<PAGE> 14
MITY-LITE, INC.
CONSOLIDATED BALANCE SHEETS
March 31, 1999 1998
- ------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 8,029,000 $9,266,000
Available-for-sale securities 3,899,000 1,207,000
Accounts receivable, less allowances
of $395,000 at March 31, 1999 and
$259,000 at March 31, 1998 3,596,000 2,586,000
Inventories 1,544,000 960,000
Prepaid expenses and other current assets 233,000 324,000
Deferred income tax assets 250,000 192,000
- ------------------------------------------------------------------------------
Total current assets 17,551,000 14,535,000
Property and equipment, net 2,155,000 1,912,000
Investment in affiliate 1,483,000 1,108,000
Note receivable from affiliate 1,066,000 1,000,000
Intangible assets 1,208,000 1,000
- ------------------------------------------------------------------------------
$23,463,000 $18,556,000
==============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank line of credit $ 286,000 $ --
Accounts payable 1,569,000 1,144,000
Accrued expenses 1,277,000 496,000
Current portion - long term debt 45,000 --
- ------------------------------------------------------------------------------
Total current liabilities 3,177,000 1,640,000
Deferred income tax liabilities 271,000 97,000
Long term debt 97,000 --
- ------------------------------------------------------------------------------
Total liabilities 3,545,000 1,737,000
COMMITMENTS AND CONTINGENCIES (NOTE 11) -- --
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 3,223,150 shares at
March 31, 1999 and 3,260,585 shares
at March 31, 1998 32,000 33,000
Additional paid-in capital 7,822,000 7,721,000
Retained earnings 12,009,000 9,065,000
Accumulated comprehensive income 55,000 --
- ------------------------------------------------------------------------------
Total stockholders' equity 19,918,000 16,819,000
- ------------------------------------------------------------------------------
$23,463,000 $18,556,000
==============================================================================
See accompanying notes to financial statements.
<PAGE> 15
MITY-LITE, INC.
CONSOLIDATED STATEMENTS OF INCOME
Year Ended March 31, 1999 1998 1997
- ------------------------------------------------------------------------------
Net sales $29,468,000 $25,337,000 $18,680,000
Cost of products sold 18,122,000 15,988,000 10,921,000
- ------------------------------------------------------------------------------
Gross profit 11,346,000 9,349,000 7,759,000
Selling 4,234,000 3,782,000 2,969,000
General and administrative 1,301,000 843,000 865,000
Research and development 549,000 488,000 375,000
- ------------------------------------------------------------------------------
Total operating expenses 6,084,000 5,113,000 4,209,000
- ------------------------------------------------------------------------------
Income from operations 5,262,000 4,236,000 3,550,000
Other income (expense):
Interest expense (10,000) -- (2,000)
Investment income 442,000 375,000 360,000
Equity in income of affiliate 480,000 340,000 --
Amortization of intangibles (32,000) -- --
Other (38,000) (8,000) (19,000)
- ------------------------------------------------------------------------------
Total other income, net 842,000 707,000 339,000
- ------------------------------------------------------------------------------
Income before provision for
income taxes 6,104,000 4,943,000 3,889,000
Provision for income taxes 2,174,000 1,754,000 1,404,000
- ------------------------------------------------------------------------------
Net income $3,930,000 $3,189,000 $2,485,000
==============================================================================
Basic earnings per share $1.21 $0.99 $0.80
==============================================================================
Weighted average number of common
shares - basic 3,245,584 3,227,850 3,120,433
==============================================================================
Diluted earnings per share $1.17 $0.94 $0.76
==============================================================================
Weighted average number of common and
common equivalent shares - diluted 3,358,453 3,389,454 3,279,335
==============================================================================
See accompanying notes to financial statements.
<PAGE> 16
<TABLE>
<CAPTION>
MITY-LITE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Accumulated
Common Additional Other Total
Stock Par Paid-In Retained Comprehensive Stockholders'
Value Capital Earnings Income Equity
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at April 1, 1996 $31,000 $6,744,000 $3,456,000 $0 $10,231,000
Comprehensive income:
Net income 2,485,000
Unrealized gains on avail-
able-for-sale securities --
Foreign currency translation --
------------
Total comprehensive income 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 0 12,933,000
Comprehensive income:
Net income 3,189,000
Unrealized gains on avail-
able-for-sale securities --
Foreign currency translation --
------------
Total comprehensive income 3,189,000
Issuance of 100,738 shares of
common stock from the
exercise of options 1,000 383,000 384,000
Issuance of 4,152 shares of
common stock to the
Company's 401(k) plan 50,000 50,000
Purchase and retirement of
5,664 shares of common stock (30,000) (73,000) (103,000)
Tax benefit of employee stock
options 366,000 366,000
- -----------------------------------------------------------------------------------------------------------
Balance at March 31, 1998 33,000 7,721,000 9,065,000 0 16,819,000
(Continued)
</TABLE>
See accompanying notes to financial statements.
<PAGE> 17
<TABLE>
<CAPTION>
MITY-LITE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
Accumulated
Common Additional Other Total
Stock Par Paid-In Retained Comprehensive Stockholders'
Value Capital Earnings Income Equity
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1998 33,000 7,721,000 9,065,000 0 16,819,000
Comprehensive income:
Net income 3,930,000
Unrealized gains on avail-
able-for-sale securities 5,000
Foreign currency translation 50,000
------------
Total comprehensive income 3,985,000
Issuance of 32,441 shares of
common stock from the
exercise of options 144,000 144,000
Issuance of 4,040 shares of
common stock to the
Company's 401(k) plan 58,000 58,000
Purchase and retirement of
73,916 shares of common
stock (1,000) (177,000) (986,000) (1,164,000)
Tax benefit of employee stock
options 76,000 76,000
- -----------------------------------------------------------------------------------------------------------
Balance at March 31, 1999 $32,000 $7,822,000 $12,009,000 $55,000 $19,918,000
===========================================================================================================
(concluded)
</TABLE>
See accompanying notes to financial statements.
<PAGE> 18
<TABLE>
<CAPTION>
MITY-LITE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended March 31, 1999 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $3,930,000 $3,189,000 $2,485,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 624,000 492,000 394,000
Deferred compensation -- -- 8,000
Deferred tax expense 9,000 34,000 (38,000)
Equity in income of affiliate (480,000) (340,000) --
Loss on disposal of property and equipment 30,000 8,000 19,000
Tax benefit from exercise of stock options 76,000 366,000 18,000
Changes in assets and liabilities (net of
effects from purchase of Broda):
Accounts receivable (322,000) (390,000) (588,000)
Inventories 146,000 (260,000) (191,000)
Prepaid expenses and other current assets (28,000) (236,000) 12,000
Related party receivable -- -- 353,000
Accounts payable 247,000 311,000 86,000
Accrued expenses 665,000 11,000 142,000
- ---------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,897,000 3,185,000 2,700,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale securities (3,429,000) (2,660,000) --
Sales of available-for-sale securities 743,000 1,453,000 --
Proceeds from sale of property and equipment 26,000 -- 6,000
Purchases of property and equipment (631,000) (783,000) (735,000)
Note receivable from affiliate (66,000) -- (1,000,000)
Cash received from (investment in) affiliate 105,000 94,000 (862,000)
Purchase of Broda Enterprises (net of cash acquired) (2,011,000) -- --
- ---------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (5,263,000) (1,896,000) (2,591,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from exercise of stock options 202,000 434,000 191,000
Purchase and retirement of common stock (1,164,000) (103,000) --
Increase in bank line of credit 107,000 -- --
Decrease in long term debt (19,000) -- --
- ---------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (874,000) 331,000 191,000
Effect of exchange rate changes on cash 3,000 -- --
- ---------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (1,237,000) 1,620,000 300,000
Cash and cash equivalents at beginning of year 9,266,000 7,646,000 7,346,000
- ---------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $8,029,000 $9,266,000 $7,646,000
=============================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 19
MITY-LITE, INC.
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
1999 1998 1997
- ------------------------------------------------------------------------------
Cash paid during the year for
income taxes $1,994,000 $1,594,000 $1,426,000
Cash paid for interest on long term debt $5,000 -- --
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Broda Acquisition:
In November of 1998, the Company purchased all of the capital stock of Broda
Enterprises 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
==========
NONCASH FINANCING ACTIVITIES:
Net change in unrealized gain on securities available for sale of $5,000 is
included in accumulated other comprehensive income.
See accompanying notes to financial statements.
<PAGE> 20
MITY-LITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business and Summary of Significant Accounting Policies
Mity-Lite, Inc. (the "Company") designs and manufactures commercial furniture
and health care seating and markets these products in niche markets. 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 markets its products throughout the United States, Canada and in
certain foreign countries.
Investment in Unconsolidated Affiliates
The Company's investment in unconsolidated affiliates is accounted for using
the equity method (see Note 4. Investment in and Note Receivable from
Affiliate).
Principles of Consolidation
The consolidated financial statements of the Company include the accounts of
Mity-Lite, Inc. and its majority-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments which have a term
maturity not greater than three months.
Available-for-Sale Securities
Debt securities, which consist of municipal bonds, corporate bonds and
government agency securities, are classified as available-for-sale. The fair
value of available-for-sale securities exceeds the amortized cost by $5,000. Th
is gain is recorded as a component of comprehensive income. The amortization
of premiums and discounts on debt securities in this category are included in
investment income and reflected in the amortized cost of the debt securities.
The cost of securities sold during the period is based on the specific
identification method. Interest on securities in this category are included
in investment income.
The contractual maturities of available-for-sale securities held at March 31,
1999 are summarized below:
- ------------------------------------------------------------------------------
Amortized Cost Fair Value
- ------------------------------------------------------------------------------
Due in one year or less $2,356,000 $2,360,000
Due after one year through two years 1,538,000 1,539,000
- ------------------------------------------------------------------------------
$3,894,000 $3,899,000
==============================================================================
Inventories
Inventories are stated at the lower of cost, on a first in, first out basis,
or market.
<PAGE> 21
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 (two
to ten years). Improvements to leased properties are amortized over their
estimated useful lives or the remaining term of the lease, whichever is
shorter (five to fifteen 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 notes receivable from affiliate approximates their book
value at March 31, 1999 and 1998. The fair value of available-for-sale
securities exceeds cost by $5,000 as of March 31, 1999 and approximates cost
as of March 31, 1998. The fair value of long term debt approximates cost as
of March 31, 1999 and 1998.
Income Taxes (see Note 10. Income Taxes)
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.
Stock Based Compensation
Statement of Financial Accounting Standards (SFAS) No. 123 "Accounting for
Stock-Based Compensation" 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 applying APB 25
(as permitted by SFAS No. 123), the appropriate required disclosure of the
effects of SFAS No. 123 are included in Note 8.
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.
<PAGE> 22
Long-Lived Assets
In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and of Long-Lived Assets to be Disposed Of," the Company evaluates the
carrying value of long-term assets based on current and anticipated
undiscounted cash flows and recognizes impairment when such cash flows will be
less than the carrying values. During the years ended March 31, 1999 and
1998, there were no impairments.
Intangible Assets
Intangible assets represent goodwill and patents. Goodwill that arose on the
Broda acquisition is amortized on a straight line basis over a twenty year
period. Patents are amortized over three years using a straight line basis.
Intangible assets are reviewed by management and are evaluated based on
expected future cash flows.
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 year ended March 31, 1999,
comprehensive income exceeded net income by $55,000. Of this amount, $5,000
was related to a holding gain on available-for-sale securities, and $50,000
was related to foreign currency adjustments. For the year ended March 31,
1998 and 1997, comprehensive income approximated net income.
2. Inventories
Inventories consisted of the following:
March 31,
- ------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------
Materials and supplies $1,071,000 $812,000
Work-in-progress 155,000 58,000
Finished goods 318,000 90,000
- ------------------------------------------------------------------------------
$1,544,000 $ 960,000
==============================================================================
The increase in inventory is due mainly to inventory resulting from the
acquisition of Broda Enterprises (see Note 5. Recent Acquisition).
<PAGE> 23
3. Property and Equipment
Property and equipment consisted of the following:
March 31,
- ------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------
Equipment $2,361,000 $1,835,000
Furniture and fixtures 1,383,000 1,130,000
Leasehold improvements 657,000 620,000
- ------------------------------------------------------------------------------
$4,401,000 3,585,000
Less accumulated depreciation and
amortization (2,246,000) (1,673,000)
- ------------------------------------------------------------------------------
$2,155,000 $1,912,000
==============================================================================
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(TM) and DO3(TM) trade names and has
manufacturing facilities in Elkhart, Indiana and Marked Tree, Arkansas.
Relevant financial information is summarized below:
Twelve months ended
- ------------------------------------------------------------------------------
March 31, March 31, Dec. 31,
1999 1998 1996
- ------------------------------------------------------------------------------
Net sales $15,139,000 $12,145,000 $14,235,000
Net income (loss) 1,923,000 1,203,000 (480,000)
Total assets 7,998,000 7,477,000 7,411,000
Total liabilities 5,789,000 7,088,000 8,264,000
Mity-Lite's share of DO Group's
net assets (deficit) 1,102,000 194,000 (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 $118,000.
Mity-Lite holds a put option to put back its investment to the DO Group
officers at any time until May 2000. The price 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. When the
put option expires, 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.
<PAGE> 24
Mity-Lite utilizes the equity method of accounting for its investment. Under
the equity method, Mity-Lite recognizes its proportionate share of the
earnings or losses of DO Group as incurred. For the year ended March 31, 1999
and 1998, DO Group contributed $480,000 and $340,000 respectively to
Mity-Lite's pretax profit. Mity-Lite's management estimates that the
difference between Mity-Lite's investment and its share of the underlying
equity in DO Group's net assets is approximately $519,000. Various components
of this amount are being amortized over periods ranging from five to thirty
years.
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 outstanding
balance of the note has increased to $1,052,000 and is included in note
receivable from affiliate. 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 continuing 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. 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 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 using the straight line method. Up to an additional
$400,000 of purchase price is contingently payable based on Broda obtaining
certain sales and earnings growth targets through December 31, 1999. If
achieved, goodwill will be increased by the amount paid out. The actual
amount of goodwill recorded will also 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 sellers' representations, warranties or
covenants.
The unaudited pro forma results of operations of the Company for the year
ended March 31, 1999, 1998 and 1997 (assuming the acquisition of Broda had
occurred as of April 1, 1996) are as follows:
<PAGE> 25
Fiscal Year Ended March 31,
- ------------------------------------------------------------------------------
(unaudited) 1999 1998 1997
- ------------------------------------------------------------------------------
Net sales $31,240,000 $27,494,000 $20,645,000
Net income 3,918,000 3,230,000 2,359,000
Basic earnings per share 1.21 1.00 0.76
Diluted earnings per share 1.17 0.95 0.72
6. Debt
The Company has an unsecured $3,000,000 line of credit with Zions First
National Bank which expires in December 1999 with interest at the bank's base
rate (7.75 percent at March 31, 1999). No balances were outstanding on this
line as of March 31, 1999 and 1998. Among other restrictions, debt covenants
related to the line of credit require the Company to maintain certain
financial ratios and levels of working capital, all of which were met at March
31, 1999 and 1998.
As a result of the Broda acquisition, the Company also has two bank term loans
associated with Broda Enterprises. The first loan has a balance outstanding
at March 31, 1999 of $20,000 with interest at Canadian prime plus 1.25 percent
(8.00 percent at March 31, 1999) payable in monthly installments of $1,000
plus interest. It is secured by a vehicle and is due August 1, 2000. The
second loan has a balance outstanding at March 31, 1999 of $122,000 with
interest at Canadian prime plus 1.25 percent (8.00 percent at March 31, 1999)
payable in monthly installments of $3,000 plus interest. It is secured by
leaseholds and equipment and is due March 30, 2003. Future principal payments
for both of these loans are as follows:
Year ended March 31, Principal due
-------------------- -------------
2000 $ 45,000
2001 37,000
2002 30,000
2003 30,000
----------
Total $142,000
==========
Broda Enterprises also has a line of credit, bearing interest at Canadian
prime plus 1.00 percent (7.75 percent at March 31, 1999) which is secured by a
General Security Agreement, an assignment of insurance and guarantees by
Mity-Lite. The limit on this loan is $364,000. As at March 31, 1999,
$286,000 of the line was outstanding.
<PAGE> 26
7. Accrued Expenses
Accrued expenses consisted of the following:
March 31,
- ------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------
Accrued payroll and payroll taxes $957,000 $341,000
Accrued warranty 210,000 155,000
Other 110,000 --
- ------------------------------------------------------------------------------
$1,277,000 $496,000
==============================================================================
8. Common Stock Options
At March 31, 1999, the Company has two stock incentive plans, the 1990 Stock
Option Plan (the "1990 Plan") and the 1997 Stock Incentive Plan (the "1997
Plan"). Mity-Lite authorized and reserved 500,000 shares of common stock for
issuance under each of the plans for a total of 1,000,000 shares. 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 except for shareholders holding more than ten
percent of the outstanding stock, whose options are issued at a ten percent
premium to the then current market value. A table of stock option activity is
shown below:
Weighted
Number Average
Of Options Exercise Price
- ------------------------------------------------------------------------------
Outstanding at April 1, 1996 304,299 $ 4.07
Granted 187,150 13.65
Exercised (62,317) 2.81
Forfeited (4,542) 6.79
- ------------------------------------------------------------------------------
Outstanding at March 31, 1997 424,590 8.45
Granted 69,000 15.13
Exercised (100,738) 3.84
Forfeited (7,725) 11.23
- ------------------------------------------------------------------------------
Outstanding at March 31, 1998 385,127 10.79
Granted 140,650 15.67
Exercised (32,441) 4.43
Forfeited (19,434) 16.86
- ------------------------------------------------------------------------------
Outstanding at March 31, 1999 473,902 $12.43
==============================================================================
Options exercisable at March 31, 1999, 1998 and 1997 were 138,356, 123,951 and
182,694, respectively. Options vest over a one to four year period.
<PAGE> 27
The following table summarizes the combined information from the 1990 and 1997
Plans' options outstanding at March 31, 1999:
Options Outstanding Options Exercisable
- ------------------------------------------------------- -------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life (in years) Price Exercisable Price
- ------------------------------------------------------------------------------
$ 2.73 - $ 3.50 58,467 5.07 $ 3.14 58,467 $ 3.14
6.00 - 8.63 49,417 5.89 7.25 49,417 7.25
9.13 - 11.63 33,768 4.45 10.01 17,694 9.69
14.25 - 17.75 332,250 8.95 15.07 12,778 15.81
- ------------------------------------------------------------------------------
$ 2.73 - $17.75 473,902 7.83 $12.43 138,356 $ 6.61
==============================================================================
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 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,
- ------------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------
Net income:
As reported $3,930,000 $3,189,000 $2,485,000
Pro forma 3,675,000 2,992,000 2,431,000
- ------------------------------------------------------------------------------
Earnings per share - basic:
As reported $1.21 $0.99 $0.80
Pro forma $1.13 $0.93 $0.78
Earnings per share - diluted:
As reported $1.17 $0.94 $0.76
Pro forma $1.09 $0.88 $0.74
- ------------------------------------------------------------------------------
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 1999, 1998 and 1997, respectively: expected
volatility of 30 percent, 30 percent and 31 percent, risk free interest rates
of 4.87 percent, 5.48 percent and 6.02 percent, and expected lives of one to
four years. Under SFAS No. 123, the weighted average fair value per share of
options issued during the years ended March 31, 1999, 1998 and 1997 were
$4.05, $3.36 and $3.85, respectively.
<PAGE> 28
9. 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, 1999, 1998 and 1997 were $42,000, $39,000 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. The number of shares
issued to the plan for the years ended March 31, 1999, 1998 and 1997 were
4,040, 4,152 and 2,570, respectively. As of March 31, 1999, 10,762 shares
had been issued under the provisions of the plan.
10. Income Taxes
Income tax provision consisted of the following components:
Year Ended March 31,
- ------------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------
Current:
Federal $1,792,000 $1,495,000 $1,242,000
State 289,000 225,000 200,000
Foreign 84,000 -- --
- ------------------------------------------------------------------------------
Total current 2,165,000 1,720,000 1,442,000
- ------------------------------------------------------------------------------
Deferred:
Federal 71,000 31,000 (35,000)
State 7,000 3,000 (3,000)
Foreign (69,000) -- --
- ------------------------------------------------------------------------------
Total deferred 9,000 34,000 (38,000)
- ------------------------------------------------------------------------------
$2,174,000 $1,754,000 $1,404,000
==============================================================================
<PAGE> 29
The tax provisions were at effective rates as follows:
Year Ended March 31,
- ------------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------
Federal statutory tax rates 34.0% 34.0% 34.0%
Foreign tax 0.2 -- --
State / Provincial income taxes, net of
federal benefit 3.3 3.3 3.3
Tax exempt interest (1.6) (1.6) (1.4)
Other (0.3) (0.2) 0.2
- ------------------------------------------------------------------------------
35.6% 35.5% 36.1%
==============================================================================
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,
- ------------------------------------------------------------------------------
1999 1998
---- ----
Current Long-Term Current Long-Term
- ------------------------------------------------------------------------------
Deferred tax assets:
Allowance for doubtful accounts $61,000 $36,000
Inventory 2,000 2,000
Vacation accrual 25,000 25,000
Warranty reserve and accrual 154,000 119,000
Other accruals 8,000 10,000
- ------------------------------------------------------------------------------
Total 250,000 192,000
Deferred tax liabilities:
Depreciation and amortization ($ 41,000) ($ 8,000)
Investment in affiliate (230,000) (89,000)
- ------------------------------------------------------------------------------
Net deferred tax asset (liability) $250,000 ($271,000) $192,000 ($ 97,000)
==============================================================================
11. Commitments
The Company leases its Orem location 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. Total rent
expense was $211,000, $209,000 and $208,000 for the years ended March 31,
1999, 1998 and 1997 respectively.
<PAGE> 30
The Company leases two buildings in its Waterloo, Ontario, Canada location
under an operating lease which expires in July 2000. The Company will then
have the option of renewing the lease for two years upon the same terms and
conditions for an amount mutually agreed upon. The current agreement requires
lease payments of $56,000 for fiscal year 2000 and $18,000 for the first four
months of fiscal year 2001. Total rent expense was $56,000 for the year ended
March 31, 1999. The Company also has other month to month lease agreements.
At March 31, 1999, the Company has committed to purchasing $31,000 in raw
materials inventory.
Related to the Broda acquisition, Mity-Lite is contingently committed to pay
after December 31, 1999 up to an additional $400,000 of purchase price based
on Broda obtaining certain sales and earnings growth targets during the 1999
calendar year (see Note 5. Recent Acquisitions).
12. 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 chair 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 fiscal year ended March 31, 1999 is as follows:
<PAGE> 31
Fiscal Year Ended March 31,
- ------------------------------------------------------------------------------
1999
- ------------------------------------------------------------------------------
Net sales:
Commercial furniture $28,132,000
Health care seating 1,336,000
-----------
$29,468,000
===========
Income from operations:
Commercial furniture $5,173,000
Health care seating 89,000
-----------
$5,262,000
===========
Total assets:
Commercial furniture $20,422,000
Health care seating 3,041,000
-----------
$23,463,000
===========
Depreciation & amortization expense:
Commercial furniture $555,000
Health care seating 69,000
-----------
$624,000
===========
Capital expenditure, net:
Commercial furniture $609,000
Health care seating 22,000
-----------
$631,000
===========
Because of Mity-Lite's recent acquisition of Broda Enterprises in November
1998, segment information for prior periods is not applicable. In 1998 and
1997, commercial furniture was the only segment.
13. 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> 32
14. Subsequent Events
On April 6, 1999, the Company announced it would acquire certain assets and
obligations of The CenterCore Group, Inc. ("CenterCore"), a privately-owned
designer, manufacturer and marketer of call center furniture. The transaction
closed on April 9, 1999.
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 $5.0 million. The final purchase
price will be determined based on asset values at closing and will be adjusted
dollar for dollar for increases and/or decreases in the closing book values of
accounts receivable, inventory, and machinery and equipment. C Core will
continue to design and market call center furniture under the CenterCore
name. Product manufacturing will be transitioned to DO Group, Inc., a 49.9
percent owned affiliate of the Company.
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 following are wholly-owned subsidiaries of the Company: Broda Enterprises
Inc. (a Canadian corporation); C Core, Inc. (a Utah corporation); and BOCCC,
Inc. (a Utah corporation).
We consent to the incorporation by reference in the Post-Effective Amendment
No. 2 to Registration Statement No. 333-11355 of Mity-Lite, Inc. on Form S-8
of our report dated May 13, 1999, appearing in this Annual Report on Form 10-K
of Mity-Lite, Inc. for the year ended March 31, 1999.
Deloitte & Touche LLP
Salt Lake City, Utah
June 14, 1999
We consent to the incorporation by reference in the Post-Effective Amendment
No. 2 to Registration Statement No. 333-11355 of Mity-Lite, Inc. on Form S-8
of our report dated May 4, 1999, appearing and incorporated by reference in
the Annual Report on Form 10-K of Mity-Lite, Inc. for the year ended March 31,
1999.
Crowe, Chizek and Company LLP
Elkhart, Indiana
June 14, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Balance Sheet at March 31, 1999 and Statements of Income for the twelve months
ended March 31, 1999 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> Mar-31-1999
<CASH> 8,029,000
<SECURITIES> 3,899,000
<RECEIVABLES> 3,991,000
<ALLOWANCES> 395,000
<INVENTORY> 1,544,000
<CURRENT-ASSETS> 17,551,000
<PP&E> 4,401,000
<DEPRECIATION> 2,246,000
<TOTAL-ASSETS> 23,463,000
<CURRENT-LIABILITIES> 3,177,000
<BONDS> 0
0
0
<COMMON> 7,854,000
<OTHER-SE> 12,064,000
<TOTAL-LIABILITY-AND-EQUITY> 23,463,000
<SALES> 29,468,000
<TOTAL-REVENUES> 29,468,000
<CGS> 18,122,000
<TOTAL-COSTS> 18,122,000
<OTHER-EXPENSES> 6,084,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,000
<INCOME-PRETAX> 6,104,000
<INCOME-TAX> 2,174,000
<INCOME-CONTINUING> 3,930,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,930,000
<EPS-BASIC> 1.21
<EPS-DILUTED> 1.17
</TABLE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
DO Group, Inc.
Elkhart, Indiana
We have audited the consolidated balance sheets of DO Group, Inc. and
Subsidiary as of March 31, 1999 and 1998, and the related consolidated
statements of income and accumulated deficit and cash flows for the years then
ended (which do not appear herein). Those financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on those financial statements based on our audits.
We conducted our audits 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 audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of DO Group,
Inc. and Subsidiary as of March 31, 1999 and 1998, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
Crowe, Chizek and Company LLP
Elkhart, Indiana
May 4, 1999
