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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

For the fiscal year ended March 31, 2001

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to            

Commission file number 0-23898

MITY ENTERPRISES, INC.

(Exact name of registrant as specified in its charter)

Utah (State or other jurisdiction of incorporation or organization)

87-0448892 (I.R.S. Employer 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. [    ]

The aggregate market value of the registrant's voting Common Stock held by non-affiliates of the registrant was approximately $21,293,000 (computed using the closing price of $8.15 per share of Common Stock on June 6, 2001 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 5,108,838 shares of the registrant's Common Stock, par value $.01 per share, outstanding on June 6, 2001.

Portions of the registrant's definitive Proxy Statement for the Annual Meeting of Shareholders scheduled to be held on August 7, 2001, which Proxy Statement will be filed no later than 120 days after the close of the registrant's fiscal year ended March 31, 2001, are incorporated by reference in Part III of this Annual Report on Form 10-K.

PART I

Item 1. Business

Background

MITY Enterprises, Inc. ("MITY Enterprises" or the "Company"and formerly known as Mity-Lite, Inc.) designs, manufactures and markets innovative institutional 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 Enterprises 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 Enterprises sells its health care seating mainly in Canada and the U.S. in the long term healthcare market.

Institutional 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, folding chairs, lecterns and other related products used in multipurpose rooms. The Company has developed and currently manufactures and markets more than 50 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 currently offers three lines of stacking chairs and a line of folding chairs: MityTuff®, MityStack, MityHost, and SwiftSet. The MityHost chair line is manufactured in-house while the Company's other stacking chair lines are purchased from suppliers and marketed under the Mity-Lite name. The SwiftSet is manufactured in-house and has a plastic seat and back designed to be more comfortable, durable and lightweight than other folding chairs.

In the fall of 2000, the Company introduced a new line of lightweight, durable lecterns under the trade name of Summit Lectern. The lecterns are made of high quality polyethylene and can withstand abusive environments. They are offered in a variety of colors, with custom inserts that allow customers to match decor.

In addition to lightweight, durable tables, chairs, and lecterns, the Company manufactures and/or markets accessory products including table and chair carts, tablecloths, skirting and skirt clips.

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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 office 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" office furniture designed for high-density institutional environments, call centers, as well as the federal government. Within the CenterCore product line are two product families. The circular Spacemaker2000 system pioneered by CenterCore provides a simple, cost-conscious solution to meet the needs of call center operations. The Tec2000 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 combines privacy panels, free standing modules and storage options. Tec2000 can also integrate with Spacemaker2000 furniture for high density work environments. The Company's CenterCore product line is manufactured in Marked Tree, Arkansas.

Also included in specialty office seating and office systems is MITY Enterprises' wholly owned subsidiary, DO Group, Inc. ("DO Group"), headquartered in Elkhart, Indiana. MITY Enterprises acquired its initial 49.9 percent equity interest in DO Group, Inc. in March 1997 and acquired the remainder of DO Group on April 1, 2000. DO Group markets its products under the Domore, DO3 Systems, Domore Dispatch Seating, JG Auditorium Seating, and Corel Corporate Seating 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, secretarial seating, panel clusters and other related products.

DO Group's seating products are marketed under the Domore, JG and Corel trade names and consist of ergonomic office task, executive, intensive use, big and tall, fixed and auditorium seating lines. Management believes that Domore is a market leader in intensive use seating, i.e., seating that is used three shifts per day, seven days per week. Domore seating includes a unique proprietary control, spring cushion seat and lumbar support as well as many other ergonomic features. Domore offers a full line of electrostatic discharge intensive use seating for the electronic dispatch environments.

Domore 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 designed for industrial environments.

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 post to panel system facilitates ease of assembly and takedown. Panels are available in a variety of fabric, laminate or painted surfaces. Domore Series System Seven 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 and Domore panel systems offer the latest electrical and voice/data transmission capabilities, including access to CAT5 wiring at the beltline level.

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Healthcare Seating. Through its wholly owned subsidiary, Broda Enterprises, Inc., the Company designs, manufactures and markets healthcare seating and accessories used in long term healthcare facilities located primarily in the United States and Canada. Broda has developed and manufactures nine different healthcare 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 healthcare seating products.

Broda's high end seating products offer a 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 long term care residents including those with Huntington's Chorea 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.

Market Overview

Based upon management's analysis of companies known to sell multipurpose room furniture and based upon management's experience and contacts in its industry, management estimates that the domestic market for multipurpose room furniture exceeds $1.5 billion annually. It is estimated that folding tables alone make up more than $400 million of this domestic market. Chairs and other related seating products are estimated to account for approximately $1 billion of the domestic multipurpose room furniture market. Other products such as staging, risers, partitions, lecterns, 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 organizations 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 $3.1 billion market.

In the healthcare seating market, management estimates that in the United States and Canada there are more than 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 chronic care, psychiatric care or long term care facilities. Management estimates that the total North American market for its current products is $60 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, healthcare, 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 58 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.

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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 and lectern products are sold with a twelve-year pro-rata warranty covering materials and workmanship. The MityTuff® is sold with a seven-year warranty covering materials and workmanship. The MityStack and SwiftSet are sold with a ten-year warranty covering materials and workmanship. The MityHost is sold with a ten-year warranty covering the structural integrity of the metal frame and a one-year warranty covering the upholstery. The Summit Lectern is sold with a twelve-year warranty covering materials and workmanship.

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 General Services Administration (GSA) dealers, independent office product dealers, independent representatives, and specialty dealers. In-house sales personnel are compensated by a combination of salary and commission. The Company also sells products directly and indirectly to state governments and to the United States government through a GSA contract. Sales to state and federal government agencies are on fixed terms and are not subject to price renegotiation. The Company currently employs five field sales representatives, eleven telesales personnel, and various independent representatives and dealers. The Company promotes its specialty office seating and office systems products through print advertising, trade shows, mass mailings, internet sites and telephone solicitations targeted to specific niche markets. All DO Group and CenterCore products carry a five-year warranty covering materials and workmanship. One customer represented 24 percent of this segment's net sales in fiscal 2001. The loss of this customer would likely have a material adverse effect on this segment.

Healthcare Seating. The Company markets its healthcare seating products to end users and care givers in healthcare markets through its own sales representatives and independent manufacturer's representatives, distributors and retailers of durable medical equipment. The Company currently employs 14 full-time sales and customer service employees and 31 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 healthcare 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.

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International Sales

Since its inception in 1987, the Company has focused its marketing efforts primarily on domestic markets. The Company has, however, sold its products in Canada, South America, Europe, Asia, Middle East and Australia. For the fiscal years ended March 31, 1999, 2000, and 2001, the Company's international sales accounted for 11.0 percent, 11.3 percent and 13.2 percent of the Company's total net sales, respectively. The Company has been successful in establishing distributor relationships in Canada, Mexico, Brazil, Venezuela, Peru, Argentina, Colombia, Dominican Republic, Spain, England, France, Jordan, United Arab Emirates, Hong Kong, China, Korea, Taiwan, Singapore and Malaysia. Approximately 48 percent of healthcare seating sales are in Canada with all but three percent of the remaining sales in the United States.

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.

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 for the MityHost chair, injection molding the seat and back for the SwiftSet chair, and final assembly of the components. The MityTuff® and MityStack chairs are distributed by the Company under original equipment manufacturer (OEM) arrangements with the chair manufacturers. The MityHost stacking chair and SwiftSet folding chair are manufactured in-house at the Company's facility in Orem, Utah.

The Company's manufacturing process for its lectern products consists primarily of assembling electronic components, attaching the laminated insert, and final assembly of the components.

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.

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Healthcare Seating. The Company's manufacturing process for its healthcare 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 includes casters, gas springs, cables and plastic parts.

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 institutional furniture industry consists of a fragmented group of large manufacturers and a host of smaller manufacturers. The healthcare chair industry also includes a fragmented group of major medical device manufacturers and many small manufacturers.

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. In the past few years, several competitors have introduced plastic tables with many similar characteristics to the Company's products. These introductions have increased price and profit margin pressures on the Company's products. To date, these competing products have not had a materially adverse effect on the Company. However, further improvements in these products or introductions of new competing products by lower cost producers would put additional price and profit margin pressure on the Company which could have a material 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, Inc., Falcon Products, Inc., SICO and Virco Manufacturing Corporation which market a thermoformed plastic table; Southern Aluminum, Inc., which produces an aluminum table; Lifetime Products which markets a blow molded plastic 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 Falcon Products, Inc., Midwest Folding Products, and Palmer-Snyder, Inc., which produce plywood tables.

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Management believes that customers purchase the Company's multipurpose room chair products primarily because of product performance, reputation, warranty service and convenience. The market for institutional chairs is highly competitive and very fragmented. The Company believes that its new folding chair line has technological and performance advantages over its competitors. Although the Company's other chair lines do not offer the same advances as the Company's table and folding chair products, the Company believes they do have distinct selling features. Among the Company's primary competitors in the multipurpose chair market are Steelcase Inc., Falcon Products, Inc., Virco Manufacturing Corporation, Artco-Bell Corporation, Globe Business Furniture, Shelby Williams Industries, Inc., MTS Seating, Krueger International, Inc., U.S. Industries (Samsonite), Clarin, a division of Greenwich Industries, and Meco Corporation.

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 Teknion Corporation, Interior Concepts, Hamilton Sorter Company, Inc., Steelcase Inc., Haworth Furniture Inc., Herman Miller, Inc., Knoll, Inc., Kimball International, Inc., Neutral Posture Ergonomics, Inc., HON Industries, Inc., US Prison Industries, and BodyBilt, Inc.

Healthcare seating. Management believes that customers purchase the Company's healthcare seating products primarily because of product performance, reputation and service, not price. The Company's average healthcare 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 healthcare 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., Dolomite and Homecrest Industries Incorporated.

Intellectual Property

The Company has been granted two utility patents relating to the construction of its table tops. A design patent and four utility patents have been granted and two utility patents are pending on the SwiftSet chair. The Company claims common law trademark rights in the trademarks MityHost, SwiftSet, Xpeditor, Xtreme Edge, Summit Lectern, and MitySnap. The Company has a registered trademarks on MityTuff®, MityStack® and the name Mity-Lite®. Except for the SwiftSet, the Company does not own patent rights on any of its multipurpose room chair products. 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.

Utility patents have also been granted in the United States covering the Company's laterally-adjustable armrest and intensive use chair. Patents are pending for an adjustable chair mechanism and wall panel system. In addition, the Company 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 registered trademarks on Domore®, A2Z®, Neo7®, CenterCore®, TEC2000®, Spacemaker 2000®, and AIRFLOW 2000®.

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Utility patents relating to the function of its newest most functional healthcare chair model have been granted in the United States and Canada. A utility patent on its flipdown footrest has been granted in the United States and is pending in Canada. Utility patents on the Company's new mobility oriented healthcare chair and commode chair are pending in the United States and Canada. The Company does have international patents pending on healthcare chairs in Canada, Japan, Germany, United Kingdom, and France. The Company has been granted design patents on its geriatric accessory tray, healthcare chair back, flipdown footrest, and healthcare chair for Canada and the United States. A design patent has also been granted in the United States for the Company's commode chair and is pending in Canada. The stylized word BRODA has been trademarked for Canada and the United States and trademark registration has been applied for in Europe. Broda's Comfort Tension Seating has been trademarked in Canada and the U.S. The Pedal Chair trademark has been applied for in the U.S. and Canada.

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 believes that its patents and trade secrets provide competitive advantages.

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, 2001, the Company had approximately 460 full-time and 25 part-time employees. Approximately 62 employees at the Company's Marked Tree, Arkansas facility are represented by the Carpenters Union. No other employees have union representation. The Company believes that its relationship with its employees is good.

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.

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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 1999 with net sales increasing to $29.5 million in fiscal 1999, $47.5 million in fiscal 2000 and $59.4 million in fiscal 2001. MITY Enterprises also recently added substantial operations through the Broda Enterprises, CenterCore, and DO Group 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 Enterprises faces significant challenges integrating the recent DO Group and CenterCore acquisitions into its operations, which has adversely affected its 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 institutional furniture which can be purchased or manufactured in a cost efficient manner and sold at competitive prices in the Company's markets. 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. MITY Enterprises' 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, 1999, 2000, and 2001 totaled 1.6 percent of net sales or $463,000, 1.2 percent of net sales or $574,000 and 1.1 percent of net sales or $624,000, 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. The Company also cannot predict what the future warranty costs will be with respect to product lines from recent acquisitions.

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CenterCore and DO Group Acquisitions. As part of the strategy of acquiring the assets of The CenterCore Group, Inc., the Company closed the manufacturing and corporate headquarters of CenterCore. Manufacturing was moved to Marked Tree, Arkansas and the headquarters, to Elkhart, Indiana. Both DO Group and CenterCore produce office systems in a shared manufacturing facility in Marked Tree, Arkansas. The Marked Tree operations have experienced various operational challenges. Material costs increased as a percent of sales primarily because of outsourcing of component fabrication, increasing obsolescence reserves, increasing customer services costs, and lower material order quantities. Small component orders have been more expensive than large production runs might have been. Labor costs as a percentage of net sales have increased primarily because of operational inefficiencies, lower sales volumes, and increased customer service costs related to completing incomplete orders, replacing freight damaged products, and resolving customer complaints. Overhead costs have increased both as a percentage of sales and in the aggregate primarily because of lower sales volumes, higher freight costs and higher personnel costs resulting from these operational difficulties. The average sales prices of the Company's products have declined as a result of discounting on a few large orders and offering a limited number of customer service discounts. In addition, the operation's management information systems were not adequately implemented to fully support the operations.

The operational inefficiencies, information system problems, and their related costs have significantly and adversely impacted the Company's gross margin and customer service levels. As a result, the Marked Tree operations have been expediting incoming materials and product shipments to customers, shipping orders late and sometimes incomplete, incurring additional warranty and customer services costs, and generally incurring additional costs as a result of the inefficiencies. Because of these problems, CenterCore's and DO Group's sales have declined and cumulative losses have grown.

During the quarter ended June 30, 2000, the Company began the process of restructuring the DO Group and CenterCore management teams and implementing information system policies and controls that the Company believes will better allow it to control and manage the operations. The changes and improvements being made are ongoing and will likely continue for at least the next several months or until the product lines are sold.

Because of the problems described above, DO Group and CenterCore have lost some customer orders and its sales base has deteriorated. Traditionally, the Company has experienced strong order volume in its General Service Administration (GSA) or government market segment during its second and third fiscal quarters each year, especially from Europe and Asia. During the six-month period ended December 31, 1999, the Company received orders totaling approximately $5.9 million in the GSA markets. During the six months ended December 31, 2000, GSA orders were less than $0.8 million, with limited orders coming from Europe and Asia. In addition, one of the Company's major OEM customers, that historically purchased approximately $2 million annually from the Company, implemented product design changes during the year. Because of these changes, this customer delayed its purchases until the design was complete. This customer has recently approved the new design and has begun placing orders again with the Company.

Since acquiring and taking over the direct management of DO Group in April 2000, the Company has worked to identify and resolve operational and other problems. The Company has taken action it thought would reduce the amount of losses being incurred at DO Group and CenterCore by reducing personnel costs through layoffs and implementing more sound business practices. The Company has devoted additional management as well as outside consulting resources to the resolution of these problems. In spite of these cutbacks and other management initiatives, DO Group and CenterCore continue to sustain losses. The Company cannot assure that management will be successful in turning around the operations and restoring its related customer base. In December 2000, the Company announced it was seeking a buyer for the CenterCore product line. In February 2001, the Company announced that it had retained McDonald Investments, Inc. to investigate strategic alternatives for the Company, including the sale of all or parts of the Company. With the assistance of McDonald Investments, the Company continues to evaluate the possible sale of all or parts of the Company, including CenterCore and DO Group. The Company may be unable to consummate a sale of such operations at a gain or at all. If the Company is unable to sell its CenterCore and DO Group operations and/or is unable to make them profitable, it may have to discontinue these operations which would likely result in substantial costs to the Company and a negative impact to its short-term profitability.

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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, transact additional acquisitions, and continue to integrate existing 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 and 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.

Forward-Looking Statements. Certain statements made in the "Business" and "Management's Discussion and Analysis" portions of 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.

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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 processes, sale of all or part of the Company, 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) references to an expanding base of new customers and increasing sales to new customers related to the Company's multipurpose room furniture operations; (ii) references to current and future growth in the Company's multipurpose room operations being largely dependent upon the Company's ability to successfully introduce and market new product lines; (iii) statements that changes and improvements in the Company's DO Group and CenterCore subsidiaries are being made and continue to be made and are likely to continue for at least the next several months; (iv) references to the Company's efforts to restructure management of the DO Group and CenterCore subsidiaries; (v) statements related to the Company's anticipation that a major OEM customer will continue to place orders with the Company; (vi) statements relating to the Company's efforts to sell the CenterCore product line and plans to evaluate all strategic alternatives related to the DO Group and CenterCore subsidiaries and that the Company has not yet decided to pursue a specific strategic alternative; (vii) statements indicating that the Company has hired McDonald Investments to find a buyer for CenterCore and assist the Company in evaluating strategic alternatives for the Company or parts thereof, and the Company's belief it can recover at least the net book value of the remaining CenterCore assets or use these assets in other product lines; (viii) statements indicating that increasing fuel prices and a tightening labor market may continue to put pressure on the Company's gross margins; (ix) statements relating to the Company's beliefs that cash flow from its current operations, existing cash reserves, and available lines of credit will be sufficient to support its working capital requirements to fund existing operations for at least the next twelve months; (x) statements relating to continuing losses in the Company's DO Group and CenterCore subsidiaries and working capital requirements related thereto; (xi) the Company's anticipation that it will access the Company's line of credit from time to time to meet the cash flow requirements for the business as a whole; (xii) the Company's anticipation that substantial investment of capital and management resources will be required to improve DO Group and CenterCore's operations regardless of the strategic alternatives explored or pursued by the Company; (xiii) statements relating to the Company's possible need to raise additional capital if its cash flow from operations and debt financing are insufficient to fund the Company's working capital requirements; (xiv) other statements of the Company related to the operational difficulties in its DO Group and CenterCore subsidiaries; and (xv) statements related to anticipated capital expenditures.

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) the inability of management to successfully install in a timely manner and operate adequate management information systems in its DO Group and CenterCore subsidiaries leading to manufacturing inefficiencies, higher material and labor costs, lower gross margins and profitability, inefficient or inaccurate inventory management and continuing customer dissatisfaction; (b) the Company's inability to increase sales, increase consumer confidence and restore DO Group's and CenterCore's customer base; (c) the Company's inability to fund continuing losses at DO Group and CenterCore; (d) the Company's inability for any reason to pursue a satisfactory strategic alternative with respect to DO Group and CenterCore; (e) the Company's inability to find a buyer for its DO Group and CenterCore businesses or to consummate such a sale on acceptable terms; (f) the Company's inability to identify and pursue beneficial strategic alternatives for the Company as a whole; (g) loss of important customer contracts; (h) limited management and key employee resources; (i) the Company's inability to effectively restructure DO Group and CenterCore's management team; (j) declines in sales volumes and profit margins in the Company's core businesses; (k) lower than expected revenue, revenue growth, cash flow and gross margins from operations because of recent acquisitions (particularly DO Group and CenterCore) and any operating and post acquisition integration challenges related thereto, adverse economic or business conditions or the Company's inability, for any reason, to profitably introduce new products or implement its marketing strategies in the healthcare seating, call center, and specialty seating and office panel systems markets; (l) management's ability to manage effectively the Company's growth; (m) the Company's ability to expand successfully into new markets such as in the healthcare seating and seating accessories, call center, specialty seating and office panel systems markets; (n) import restrictions and economic conditions in the Company's foreign markets and foreign currency risks associated therewith; (o) increased competition in the Company's existing and future markets; (p) the market's acceptance of products currently being developed by the Company; (q) the Company's ability to maintain relatively low cost labor rates in a period of lower unemployment; (r) the Company's ability to source a sufficient volume of acceptable raw materials at current prices; (s) increased product warranty service costs if warranty claims increase as a result of the Company's new product introductions or acquisitions or for any other reason; (t) the Company's ability to refine and enhance the quality and productivity of its manufacturing process and build its new manufacturing facility on a cost effective and timely basis; (u) the Company's ability to manufacture and market at current margins high quality, high performance products at competitive prices; (v) the Company's ability to locate and successfully consummate and integrate acquisitions, if any, of complementary product lines or companies on terms acceptable to the Company and effectively integrate such acquisitions into the Company's operations; (w) the Company's ability to obtain waivers from its lenders, if needed, and the continued availability of credit facilities; (x) the Company's ability to retain and maintain relationships with key customers; and (y) the Company's inability to raise capital, if needed. No assurance can be given that the Company will be able to correct the current DO Group and CenterCore operational problems or satisfactorily address or resolve any of the foregoing risks or contingencies.

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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 are 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 four acres of leased land. The facility and related real estate are 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 2005. The base monthly lease payment is $17,100. The Company pays all maintenance costs, taxes and insurance. In addition, the Company purchased approximately nine acres of land across the street from its leased facility. The Company used a portion of the property to construct a 57,000 square foot office and manufacturing facility to house its sales force and multipurpose room chair operations. The Company estimates the new property includes enough real estate to build approximately an additional 200,000 square feet of facility to support the future growth of the Company. The Company also purchased an adjacent 2,400 square foot building that sits on approximately one acre of land. The Company believes that by adding additional equipment and production shifts, its existing facilities will serve its current product lines for the term of the lease. However, if the operation adds additional product lines and/or significantly modifies its existing products lines, additional facilities may need to be constructed on the Company's existing land.

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The Company's healthcare 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 2002. 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 $9,000. The Company pays all maintenance costs, taxes and insurance. The Company believes that these facilities will serve its healthcare seating manufacturing needs for the term of the lease.

The Company's DO Group and CenterCore subsidiaries have two shared facilities. Their 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 March 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. The Company believes that the leased facilities will serve its specialty office seating manufacturing needs for the term of the lease and that the owned facility will serve its specialty office systems manufacturing needs for the next several years.

Item 3. Legal Proceedings

From time to time, the Company is subject to legal proceedings and other claims arising in the ordinary course of its business. The Company maintains insurance coverage against potential claims in an amount which it believes to be adequate. There are no material pending legal proceedings, other than routine litigation incidental to the business, to which the Company is a party or of which any of the Company's property is the subject.

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, 2001.

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PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

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, 2001:
First Quarter	$18.00	$11.63
Second Quarter	14.38	9.50
Third Quarter	10.56	4.88
Fourth Quarter	9.38	5.56
Fiscal Year Ended March 31, 2000:
First Quarter	$17.33	$10.17
Second Quarter	19.00	12.50
Third Quarter	20.75	14.50
Fourth Quarter	19.25	15.06

There were 134 security holders of record as of June 6, 2001. In addition, management estimates that there were approximately 2,400 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 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, 2001, 2000 and 1999 and the balance sheet data at March 31, 2001 and 2000 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, 1998 and 1997 and the balance sheet data at March 31, 1999, 1998 and 1997 are derived from audited financial statements not included in this Annual Report to Shareholders.

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Statement of Income Data

(in thousands, except per share data)

 

Net sales	$59,427	$47,496	$29,468	$25,337	$18,680
Cost of products sold	42,122	29,127	18,122	15,988	10,921

 Balance Sheet Data

(in thousands)

 

Total assets	$32,287	$29,432	$23,463	$18,556	$14,264
Working capital	16,300	13,574	14,374	12,895	9,454
Current portion of long-term debt	--	--	45	--	--
Long-term debt less current portion	--	--	97	--	--
Stockholders' equity	27,469	24,385	19,918	16,819	12,933

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ASSETS  

Current assets:
Cash and cash equivalents	$ 4,857,000	$ 6,141,000
Available-for-sale securities	1,180,000	--
Accounts receivable, less allowances of $802,000 at
March 31, 2001 and $1,179,000 at March 31, 2000	8,071,000	9,393,000
Inventories	3,900,000	1,410,000
Prepaid expenses and other current assets	1,412,000	1,152,000
Deferred income tax assets	1,698,000	234,000