SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
COMMISSION FILE NO. 1-12888
SPORT-HALEY, INC.
(Exact name of small business issuer as specified in its charter)
COLORADO 84-1111669
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4600 E. 48TH AVENUE, DENVER, COLORADO 80216
(Address of principal executive offices)
(303) 320-8800
(Issuer's telephone number including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or
for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past
90 days: Yes /X/ No / /
State the number of shares outstanding in each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT MARCH 9, 2001
COMMON STOCK, NO PAR VALUE 3,441,985
Transitional Small Business Disclosure Format (check one): Yes / / No /X/
TABLE OF CONTENTS
PAGE
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PART 1 - CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS 3
CONSOLIDATED STATEMENTS OF INCOME 4
CONSOLIDATED STATEMENTS OF CASH FLOWS 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10
PART II - OTHER INFORMATION 15
SIGNATURES 16
SPORT-HALEY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARES OF STOCK)
SEPTEMBER 30, JUNE 30,
1998 1998
------------ -------
(UNAUDITED) (***)
ASSETS
Current assets:
Cash and cash equivalents $ 5,411 $ 4,505
Marketable securities -- 1,996
Accounts receivable, net of allowances
of $232 and $261, respectively 5,927 6,647
Inventories 16,243 16,445
Other current assets 652 340
Deferred taxes 154 179
------- -------
Total current assets 28,387 30,112
Property and equipment, net 2,242 2,271
Net assets of discontinued operations 430 441
Goodwill 87 94
Deferred taxes 87 53
Other assets 39 37
------- -------
Total Assets $31,272 $33,008
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit $ 500 $ 500
Accounts payable 292 1,847
Accrued commissions and other expenses 580 1,005
------- -------
Total current liabilities 1,372 3,352
------- -------
Minority interest 54 60
------- -------
Shareholders' equity:
Preferred stock, no par value; 1,500,000 shares
authorized; none issued and outstanding -- --
Common stock, no par value; 15,000,000 shares
authorized; 4,455,254 and 4,512,962 shares issued
and outstanding, respectively 17,783 18,416
Additional paid-in capital 1,451 1,386
Retained earnings 10,612 9,794
------- -------
Total shareholders' equity 29,846 29,596
------- -------
Total Liabilities and Shareholders' Equity $31,272 $33,008
======= =======
*** Taken from the audited balance sheet at that date.
See accompanying notes to consolidated financial statements.
3
SPORT-HALEY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------------
AS AS
AMENDED AMENDED
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
Net sales $ 7,350 $ 6,645
Cost of goods sold 4,117 3,994
------- -------
Gross profit 3,233 2,651
Selling, general and administrative expense 2,032 1,780
------- -------
Income from operations 1,201 871
Other income, net 119 158
Recognized loss on available for sale securities -- (215)
------- -------
Income from continuing operations before
minority loss and provision for income taxes 1,320 814
Minority loss 6 --
Provision for income taxes (506) (376)
------- -------
Income from continuing operations 820 438
Discontinued operations:
Income (loss) from discontinued operations,
net of income tax (expense) benefit of 1 and (17),
respectively (2) 28
------- -------
Net income $ 818 $ 466
======= =======
Basic and diluted earnings per common share $ 0.18 $ 0.10
======= =======
See accompanying notes to consolidated financial statements.
4
SPORT-HALEY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------------
AS AS
AMENDED AMENDED
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 818 $ 466
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 171 114
Deferred taxes and other 1 (39)
Allowance for doubtful accounts 15 --
Stock option compensation 65 67
Minority interest (6) --
Recognized loss on available for sale securities -- 215
Cash provided (used) due to changes in assets and liabilities:
Accounts receivable 705 557
Inventory 202 (881)
Other assets (324) 20
Accounts payable (1,555) 737
Accrued commissions and other expenses (425) (133)
Accrued income taxes -- 411
------- -------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (333) 1,534
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Redemption of held to maturity investments 2,000 2,365
Purchase of fixed assets (127) (123)
Purchase of held to maturity investments -- (4,569)
------- -------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 1,873 (2,327)
------- -------
See accompanying notes to consolidated financial statements.
5
SPORT-HALEY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------------
AS AS
AMENDED AMENDED
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock $ 16 $ 112
Repurchase of common stock (650) --
------- -------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (634) 112
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 906 (681)
CASH AND CASH EQUIVALENTS, BEGINNING 4,505 7,828
------- -------
CASH AND CASH EQUIVALENTS, ENDING $ 5,411 $ 7,147
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes $ 330 $ 4
======= =======
Interest $ 10 $ --
======= =======
See accompanying notes to consolidated financial statements.
6
SPORT-HALEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements included herein have been prepared by
Sport-Haley, Inc. (the "Company") without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in the financial statements
prepared in accordance with generally accepted accounting principles have
been condensed or omitted as allowed by such rules and regulations. The
Company believes that the disclosures are adequate to make the information
presented not misleading. These financial statements should be read in
conjunction with the Company's annual audited consolidated financial
statements dated June 30, 2000, included in the Company's annual report on
Form 10-K as filed with the Securities and Exchange Commission. The results
for interim periods are not necessarily indicative of results that may be
expected for any other interim period or for the full year.
The management of the Company believes that the accompanying unaudited
condensed consolidated financial statements prepared in conformity with
generally accepted accounting principles, which require the use of
management estimates, contain all adjustments (including normal recurring
adjustments) necessary to present fairly the operations and cash flows for
the periods presented.
The consolidated financial statements include the accounts of Sport-Haley,
Inc., and its subsidiary, B&L Sportswear, Inc. (collectively referred to as
the Company). All significant inter-company accounts and transactions have
been eliminated.
NOTE 2 RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
The Company determined that its financial statements for the years ended
June 30, 1999 and 1998 required restatement. The restatements resulted from
corrections related to accounting for work- in-progress inventory,
capitalization of certain prepaid and fixed assets, the acquisition of the
Company's subsidiary and the related minority interest in the subsidiary's
losses, certain losses relating to discontinued operations and the income
tax benefit from stock options exercised.
The following comparison of consolidated statements of income for the three
months ended September 30, 1998 and 1997 present the effects resulting from
restating the Company's financial statements for the aforementioned
reasons, as applicable to these amended interim financial statements.
7
SPORT-HALEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30,
(IN THOUSANDS, EXCEPT PER SHARE DATA)
------------------------------------------------------
AS ORIGINALLY AS AS ORIGINALLY AS
REPORTED AMENDED REPORTED AMENDED
1998 1998 1997 1997
------------- ----------- ------------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
Net sales $ 7,496 $ 7,350 $ 6,835 $ 6,645
Cost of goods sold 4,609 4,117 4,258 3,994
------- ------- ------- -------
Gross profit 2,887 3,233 2,577 2,651
Selling, general and
administrative expense 1,842 2,032 1,652 1,780
------- ------- ------- -------
Income (loss) from operations 1,045 1,201 925 871
Other income, net 119 119 107 158
Recognized loss on available for
sale securities -- -- -- (215)
------- ------- ------- -------
Income from continuing operations
before minority loss and
provision for income taxes 1,164 1,320 1,032 814
Minority loss 13 6 -- --
Provision for income taxes (350) (506) (280) (376)
------- ------- ------- -------
Income from continuing operations 827 820 752 438
Discontinued operations:
Income (loss) from discontinued
operations, net of income tax
(expense) benefit of 0, 1, 0 and (17),
respectively -- (2) -- 28
------- ------- ------- -------
Net income 827 818 752 466
Other comprehensive income:
Unrealized holding losses on
available for sale securities -- -- (164) --
------- ------- ------- -------
Comprehensive income $ 827 $ 818 $ 588 $ 466
======= ======= ======= =======
Basic and diluted earnings
per common share $ 0.18 $ 0.18 $ 0.16 $ 0.10
======= ======= ======= =======
8
SPORT-HALEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 REPURCHASE OF COMMON STOCK
The Company's Board of Directors previously authorized the repurchase of up
to 1,820,000 shares of the Company's issued and outstanding common stock.
The shares may be repurchased from time to time in open market transactions
at prevailing market prices or in privately negotiated transactions. The
Company has no commitment or obligation to repurchase all or any portion of
the shares authorized for repurchase. All shares repurchased by the Company
are canceled and returned to the status of authorized but unissued common
stock. Through September 30, 1998, the Company had repurchased a total of
460,000 shares of its common stock at a cost of approximately $5.4 million.
NOTE 4 EARNINGS PER SHARE
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 128, EARNINGS PER SHARE, (SFAS No. 128) effective with the
year ended June 30, 1998. SFAS No. 128 requires the presentation of basic
and diluted earnings per common share. The following table provides a
reconciliation of the numerator and denominator of basic and diluted
earnings per common share:
THREE MONTHS ENDED SEPTEMBER 30, 1998
---------------------------------------
NET WEIGHTED
INCOME AVERAGE SHARES PER SHARE
--------- -------------- ---------
EARNINGS PER COMMON SHARE
Basic earnings per share $ 818,000 4,501,946 $ 0.18
Effect of dilutive securities
options and warrants -- 81,374 --
--------- --------- --------
Diluted earnings per share $ 818,000 4,583,320 $ 0.18
========= ========= ========
THREE MONTHS ENDED SEPTEMBER 30, 1997
---------------------------------------
NET WEIGHTED
INCOME AVERAGE SHARES PER SHARE
--------- -------------- ---------
EARNINGS PER COMMON SHARE
Basic earnings per share $ 466,000 4,659,185 $ 0.10
Effect of dilutive securities
options and warrants -- 156,072 --
--------- --------- --------
Diluted earnings per share $ 466,000 4,815,257 $ 0.10
========= ========= ========
9
SPORT-HALEY, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Report on Form 10-Q contains certain forward-looking statements. When used
in this report, the words "may," "will," "expect," "anticipate," "continue,"
"estimate," "project," "intend," "believe" and similar expressions are intended
to identify forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934
regarding events, conditions and financial trends including, without limitation,
business conditions and growth in the fashion golf apparel market and the
general economy, competitive factors, and price pressures in the high-end
golf-apparel market; inventory risks due to shifts in market and/or price
erosion of purchased apparel, raw fabric and trim; cost controls; changes in
product mix; and other risks or uncertainties detailed in other Securities and
Exchange Commission filings made by Sport-Haley. Such statements are based on
management's current expectations and are subject to risks, uncertainties and
assumptions. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, the actual plan of operations,
business strategy, operating results and financial position of Sport-Haley could
differ materially from those expressed in, or implied by, such forward-looking
statements.
FINANCIAL CONDITION
The Company relied on cash generated from operations and available cash on hand
to finance its working capital requirements for the 12-month period following
September 30, 1998. The Company did not make any periodic borrowings under its
revolving line of credit during the same 12-month period. Working capital at
September 30, 1998 was approximately $27.0 million and was approximately $26.8
million at June 30, 1998.
Cash and cash equivalents increased since June 30, 1998 by approximately
$906,000. Net accounts receivable decreased by approximately $720,000 to $5.9
million from $6.6 million at June 30, 1998. Since June 30, 1998, inventories
decreased by approximately $202,000 to $16.2 million from $16.4 million. Due to
other factors combined with the decreases in net accounts receivable and
inventories, during the fiscal quarter ended September 30, 1998, operating
activities used cash of approximately $333,000.
Other current assets increased by approximately $312,000 since June 30, 1998 to
approximately $652,000. The change was due primarily to an increase in inventory
deposits during the three months ended September 30, 1998.
For the three months ended September 30, 1998, the Company spent approximately
$127,000 for the purchase of property and equipment, and approximately $171,000
in depreciation and amortization was charged to current operations. During the
same three-month period, investing activities provided cash of approximately
$1.9 million, primarily due to the redemption of held to maturity investments.
Accounts payable and accrued expenses decreased by approximately $2.0 million
since June 30, 1998. The decrease was primarily due to the combination of
decreases in trade accounts payable, accrued payroll expenses and accrued sales
commissions payable.
10
SPORT-HALEY, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Total shareholders' equity increased by approximately $250,000 for the fiscal
quarter. The increase was primarily attributable to net income for the fiscal
quarter combined with the repurchase of 60,000 shares of the Company's common
stock during the same three-month period at a cost of approximately $650,000.
Book value per share increased by approximately $0.14 to $6.70 per share at
September 30, 1998 as compared with $6.56 per share at June 30, 1998.
RECENT DEVELOPMENTS
In July 2000, as previously reported, the Company's Audit Committee recommended
that the Company's prior independent auditors be discharged and that the Company
retain a new independent public accountant to audit the Company's financial
statements for the year ended June 30, 2000. As a result of a review initiated
by senior management and conducted prior to completion of the audit process for
the Company's 2000 fiscal year, information was developed that indicated certain
accounting errors might exist in prior years' financial statements that, when
corrected, would result in a material impact on the results of operations for
the 2000 fiscal year and certain prior periods. At the conclusion of the review,
the Company determined that the financial statements for the years ended June
30, 1999 and 1998 required restatement due to accounting errors. The accounting
errors consisted primarily of the following: (i) incorrect recording,
classification and valuation of inventory work in process; (ii) incorrect
recording of certain prepaid and fixed assets; (iii) incorrect accounting for
the acquisition of the Company's subsidiary (the "Subsidiary") and the related
minority interest in the losses of the Subsidiary; (iv) incorrect recording of
certain losses relating to discontinued operations; and, (v) the income tax
benefit from stock options exercised. See Note 2 to the consolidated financial
statements.
The Company retained a new independent accounting firm shortly after June 30,
2000. The Company engaged the new accounting firm to audit the Company's
financial statements for the year ended June 30, 2000 and to re-audit the
previously issued financial statements for the years ended June 30, 1999 and
1998, which the Company restated. The Audit Committee of the Company retained an
independent consultant to assist it in evaluating the restatements that were
necessary in order that the Company's financial statements, as restated and
taken as a whole, presented fairly in all material respects the Company's
financial position, results of operations and cash flows for the fiscal years
ended June 30, 2000, 1999 and 1998, in conformity with generally accepted
accounting principles. The Audit Committee does not believe that the accounting
errors that have been identified by the Company constitute irregularities. As a
result of recommendations made by the audit committee and the Company's senior
management, and concurred in by the independent consultant, the Company has
taken appropriate action to ensure that these errors do not reoccur in the
future.
The effects of significant financial statement adjustments related to the
restatements for the years ended June 30, 1999 and 1998 are set forth in the
Company's Form 10-K for the fiscal year ended June 30, 2000, which was filed
with the Securities and Exchange Commission on November 3, 2000. The effects of
the restatements on the specific line items of the income statement and earnings
per share for the periods ended September 30, 1998 and 1997 are set forth in the
notes to the financial statements accompanying this amended quarterly report
(Note 2).
11
SPORT-HALEY, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The restatements described above may lead to litigation against the Company.
There is no litigation currently pending or threatened against the Company
concerning the restatements. However, if such litigation is initiated, it could
have a material adverse impact on the Company's income from continuing
operations.
The Company has incurred approximately $380,000 in expenses related to the
restatements of its fiscal year 1999 and 1998 financial statements and the
correction of material quarterly information for fiscal years 2000, 1999 and
1998. The Company is presently evaluating whether such expenses will be
recoverable in a future reporting period.
As previously reported, on October 16, 2000, The Nasdaq Stock Marketr ("Nasdaq")
halted trading in the securities of the Company and requested additional
information from the Company. Nasdaq advised the Company that the trading halt
was instituted because of the Company's alleged failure to observe certain
corporate governance requirements for ongoing listing of its securities on the
Nasdaq National Market. Nasdaq advised the Company that the trading halt would
continue until the Company complied with Nasdaq's request for additional
information, which the Company provided. Nasdaq further proposed to de-list the
Company's securities from trading on the Nasdaq National Market. The Company
appeared at a hearing before the Nasdaq Listing Qualifications Panel (the
"Panel") on November 10, 2000 in order to address the proposed de-listing of the
Company's securities.
On December 11, 2000, the Panel rendered its decision, granting an exception to
the filing requirement set forth in Nasdaq Marketplace Rule 4310, requiring that
on or before January 15, 2001, the Company file amended Forms 10-Q for all
quarters during fiscal years 2000, 1999 and 1998. Further, the Panel determined
that the Company's late filings of Form 10-K for the fiscal year ended June 30,
2000 and its Form 10-Q for the period ended September 30, 2000 merited the
application of additional and more stringent criteria under Marketplace Rule
4300. Accordingly, the Panel stated that if the Company satisfies the first
portion of the Panel's exception expiring January 15, 2001, the Company must
also timely file all periodic reports with the Securities and Exchange
Commission and Nasdaq for all reporting periods ending on or before December 31,
2001. The Panel stated in its decision that if the Company fails to make any
filing in accordance with the exception granted, the Company will not be
entitled to a new hearing and its securities will be de-listed from Nasdaq.
Based upon its determination, the Panel ordered that trading resume in the
Company's securities on Nasdaq effective December 12, 2000.
On December 26, 2000, the Company notified Nasdaq of its request that the Nasdaq
Listing Review Council (the "Review Council") review the Panel's decision. The
Company requested that the Review Council grant it additional time in which to
comply with the filing of historical amended Forms 10-Q and requested that the
additional and more stringent criteria under Marketplace Rule 4300 be applied
only in the event the Company fails to make any current filing during the
calendar year 2001, or has not filed the amended quarterly Forms 10-Q for fiscal
years 2000, 1999 and 1998 by March 15, 2001. The Company filed amended Forms
10-Q for fiscal year 2000 on January 16, 2001. On or about January 25, 2001, the
Review Council granted the Company the requested extension to file the remaining
amended quarterly filings on or before March 15, 2001. The Review Council's
review of the remaining portions of the Panel's decision is pending.
12
SPORT-HALEY, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company was advised in a letter dated November 7, 2000 that the Securities
and Exchange Commission (the "Commission") is conducting an informal inquiry
into matters concerning the Company. The Commission made an informal request
that the Company voluntarily produce certain documents. The Company provided the
requested documents to the Commission. In addition, the Company voluntarily
provided testimony to the Commission.
RESULTS OF OPERATIONS
The Company's business is seasonal in nature, and therefore the results for any
one or more quarters are not necessarily indicative of the annual results or
continuing trends.
Net sales for the fiscal quarter ended September 30, 1998, were approximately
$7.4 million, an increase of approximately $705,000, or 11%, from net sales of
$6.6 million for the same quarter in the prior fiscal year. The increase in net
sales was due to a combination of factors, including a comparatively wider
distribution of the women's and men's product lines.
The Company's gross profit, as a percentage of net sales, was 44% for the
quarter ended September 30, 1998, and 40% for the same quarter in the prior
fiscal year. The increase in gross profit was primarily due to a lower
percentage of sales discounts and term discounts allowed during the three months
ended September 30, 1998.
Selling, general and administrative expenses increased by approximately
$252,000, or 14%, to approximately $2.0 million for the fiscal quarter ended
September 30, 1998, from $1.8 million for the same quarter in the prior fiscal
year. The increase was primarily attributable to commissions paid to independent
sales representatives on higher sales volume and increased advertising and
general and administrative expenditures. As a percentage of sales, selling,
general and administrative expenses were approximately 28% and 27% for the
fiscal quarters ended September 30, 1998 and 1997, respectively.
Other income, net for the quarter ended September 30, 1998 was approximately
$119,000, a decrease of approximately $39,000, or 25%, as compared with $158,000
for the same quarter in the prior fiscal year. The decrease was primarily
attributable to lower interest income earned on a decreased amount of cash
equivalents and held to maturity securities.
Income from continuing operations before minority loss and provision for income
taxes increased by approximately $506,000, or 62%, to approximately $1.3 million
for the fiscal quarter ended September 30, 1998, from $814,000 for the same
quarter in the prior fiscal year. The increase was primarily attributable to
higher gross margins achieved during the fiscal quarter ended September 30, 1998
combined with the loss on available for sale securities that was recognized
during the fiscal quarter ended September 30, 1997. During the fiscal year ended
June 30, 1996, the Company invested approximately $234,000 in the common stock
of Brassie Golf. In the fiscal quarter ended September 30, 1997, management
determined that the Company's investment in Brassie Golf was permanently
impaired, and the Company recognized a loss on available for sale securities of
approximately $215,000 during that fiscal quarter.
13
SPORT-HALEY, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company's effective tax rates for the fiscal quarters ended September 30,
1998 and 1997 were 38% and 46%, respectively. The effective tax rate in any
fiscal period can vary significantly from the effective tax rate in another
period due to differences between the recording of certain transactions for
financial versus tax purposes. Certain deductions recognized for tax purposes
may not be expensed for financial statement purposes, and certain expenses
recorded for financial statement purposes may not be deductible for tax
purposes.
For the fiscal quarter ended September 30, 1998, income from continuing
operations increased by approximately $382,000 or 87% when compared to the same
three-month period in the prior fiscal year. The increase was primarily the
result of higher gross margins achieved during the fiscal quarter ended
September 30, 1998 combined with the loss recognized on available for sale
securities during the fiscal quarter ended September 30, 1997.
The Company discontinued the manufacturing and sale of headwear during the
fiscal year ended June 30, 1999, and had disposed of all inventories and
equipment related to its headwear operations as of December 31, 1999. Included
in earnings for the fiscal quarter ended September 30, 1998 was a loss of
approximately $2,000, net of income tax benefit of approximately $1,000, from
discontinued headwear manufacturing operations. Comparatively, income from
discontinued headwear manufacturing operations for the fiscal quarter ended
September 30, 1997 was approximately $28,000, net of income tax expense of
approximately $17,000.
Both the basic and diluted earnings per share were $0.18, for the quarter ended
September 30, 1998. This compares to basic and diluted earnings per share of
$0.10 for the same quarter in prior fiscal year.
YEAR 2000 COMPUTER CONVERSION
The Company was cognizant of the Year 2000 issues associated with programming
code in computer systems. The Company utilizes an integrated computer system to
manage all business transactions, historical data and record keeping, including
sourcing, warehousing, embroidering and shipping. In preparation for the Year
2000, the Company installed a Year 2000 compliant upgrade to the software for
this system and tested all other systems. As of March 15, 2001, the Company had
not experienced, nor does it expect to experience any disruptions related to
Year 2000 issues in the operation of its systems. To the best knowledge of the
Company, none of the material suppliers, vendors and financial institutions with
which the Company has a business relationship experienced any failures or
disruptions in their computer systems caused by the Year 2000 issues.
14
SPORT-HALEY, INC.
PART II
OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS - NONE
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS- NONE
ITEM 3 DEFAULTS UPON SENIOR SECURITIES - NONE
ITEM 4 SUBMISSION TO MATTERS TO A VOTE OF SECURITY HOLDERS - NONE
ITEM 5 OTHER INFORMATION - NONE
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS - NONE
(B) REPORTS ON FORM 8-K - NONE
15
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
SPORT-HALEY, INC.
(Registrant)
Date: March 15, 2001 /s/ Robert G. Tomlinson
------------------------------
Robert G. Tomlinson
Chief Executive Officer
Date: March 15, 2001 /s/ Patrick W. Hurley
------------------------------
Patrick W. Hurley
Chief Financial Officer
16