Sport-Haley, Inc. announced that the Audit Committee of the Company's Board of Directors, along with senior management, determined that the statements of operations and cash flows for the quarter ended September 30, 2005, contained an error, which when corrected would result in a material impact on results of operations for the quarter. The Audit Committee and senior management have therefore determined that these statements of operations and cash flows require restatement.
The error relates to the Company's accounting for bonuses paid to certain executive officers and a key employee in October 2005. Prior to September 30, 2005, the Compensation Committee of the Company's Board of Directors met and resolved that such bonuses, which did not relate to future services, should be paid in October 2005. The bonuses totaled $75,000 in cash plus a vehicle valued at approximately $14,000. The Audit Committee and senior management determined that the related compensation expense should have been recorded in the quarter ended September 30, 2005. Compensation expense relating to the bonuses had been recorded in October 2005.
The Company expects to file an amended interim report on Form 10-Q for the period ended September 30, 2005, within the next five business days. No other unrelated corrections to the statements of operations or cash flows for the period ended September 30, 2005, are expected.
While the correction of the error will not have any material effect on the Company's statements of operations or cash flows for the six months ended December 31, 2005, the correction will cause an increase in the amount of reported net loss for the quarter ended September 30, 2005, by approximately 24% and will cause the Company to record net income in the quarter ended December 31, 2005, of approximately $99,000, rather than a net loss of approximately $3,000.
Until the error is corrected with the filing of an amended Form 10-Q including restated statements of operations and cash flows, the Audit Committee and senior management have concluded that the currently filed statements of operations and cash flows for the quarter ended September 30, 2005, should not be relied upon. Members of the Audit Committee and senior management have discussed this conclusion, the nature of the error and the steps to be taken to remedy the error with the Company's independent auditors and have been advised that the auditors concur with their conclusions and the need to correct the error with restated statements of operations and cash flows for the quarter ended September 30, 2005.
