Sport-Haley, Inc. has reported that on September 26, 2003, the United States Securities and Exchange Commission filed suit in the United States District Court for the District of Colorado against the Company, its Chairman and former Chief Executive Officer, Robert G. Tomlinson, and its former controller, Steve S. Auger.
The suit seeks an injunction against future violations and other relief, including disgorgement, civil penalties and an order barring either Mr. Tomlinson or Mr. Auger from serving as a director or officer of any publicly held company.
The suit alleges that the Defendants misrepresented inventories, period costs and losses on the sale of headwear equipment in annual and/or quarterly financial statements for the Company's fiscal years 2000, 1999 and 1998. The complaint alleges that the Company violated Section 17(a) of the Securities Act of 1933 (the “Securities Act”), Section 10(b), Section 13(b)(2) and Section 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) and various other rules promulgated thereunder. The complaint further alleges that Mr. Tomlinson and Mr. Auger violated Section 17(a) of the Securities Act, Section 10(b) and Section 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b-2 thereunder. Finally, the suit alleges that Mr. Tomlinson and Mr. Auger aided and abetted the Company's violations of Section 13(b)(2) and Section 15(d) of the Exchange Act and various rules promulgated thereunder. The Commission's suit (the “Complaint”) primarily relates to errors in the Company's previously issued financial statements that the Company previously reported when it voluntarily restated its financial statements for fiscal years 1999 and 1998 and subsequently corrected material financial information for the quarterly periods of fiscal years 2000, 1999 and 1998.
As of September 30, 2003, none of the Defendants have been served with the Complaint, and thus have not been required to answer the allegations of the Complaint. The Defendants intend to vigorously defend the Commission's allegations, which the Defendants believe are without merit. Based upon the information that is currently available, management cannot reasonably estimate the amount of future costs that the Company will incur defending the Commission's allegations.
However, if the suit were determined in favor of the Commission and against the Defendants, the possible monetary penalties and other relief that the Company might be required to pay could negatively impact the Company's financial position and the results of its operations.
