UNITED STATES SECURITIES & EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
Quarterly report pursuant to Section 13 of 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 1996
Commission File Number 0-23604
DAKOTAH, INCORPORATED
(Exact Name of Registrant as Specified in Its Charter)
South Dakota 46-0339860
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation of Organization) Identification Number)
One North Park Lane
Webster, SD 57274
(Address of Principal Executive Offices, Zip Code)
Registrant's Telephone Number, Including Zip Code: (605) 345-4646
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 proceeding 12 months and (2) has been subject to such filing requirements
for the past 90 days.
Yes: X No:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Common stock, $.01 par value, 3,499,755 shares outstanding
as of May 1, 1996.
DAKOTAH, INCORPORATED
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets (Unaudited):
March 31, 1996 and December 31,1995
Statements of Earnings (Unaudited):
Three month periods ended
March 31, 1996, and March 31, 1995
Statements of Cash Flows (Unaudited):
Three month periods ended
March 31, 1996, and March 31, 1995
Notes to Financial Statements:
March 31, 1996
Item 2. Management's Discussion and Analysis
or Plan of Operation
PART II. OTHER INFORMATION
Items 1 through 5 have been omitted since items
are inapplicable or answer is negative
Item 6. Exhibits and Reports on Form 8-K
(a.) Exhibit Number: Description:
10.1 1995 Stock Option Plan
10.2 1996 Stock Option Plan for Directors
10.3 Nonstatutory Option Agreement with Orion
Financial Corp. of South Dakota dated
effective January 1, 1996
27.1 Financial Data Schedule
(b.) Reports on Form 8-K None
DAKOTAH, INCORPORATED
BALANCE SHEETS
(Unaudited)
March 31, December 31,
ASSETS 1996 1995
----------- -----------
CURRENT ASSETS
Cash and cash equivalents $ 10,326 $ 477,330
Accounts receivable less allowance
for doubtful accounts of $330,895
in 1996 and $324,000 in 1995 4,927,952 6,365,606
Inventories 8,908,975 7,364,035
Prepaid expenses 981,460 477,507
Deferred income taxes 467,000 467,000
----------- -----------
Total current assets 15,295,713 15,151,478
PROPERTY, PLANT AND EQUIPMENT - AT COST
Land 36,000 36,000
Buildings and improvements 1,414,715 1,405,536
Leasehold improvements 123,731 123,731
Machinery and equipment 2,412,076 2,047,676
Office equipment, furniture and fixtures and other 585,014 481,816
----------- -----------
4,571,536 4,094,759
Less accumulated depreciation & amortization 2,047,908 1,885,274
----------- -----------
2,523,628 2,209,485
OTHER ASSETS
Deferred income taxes 349,000 349,000
Other 425,869 425,869
----------- -----------
774,869 774,869
----------- -----------
$18,594,210 $18,135,832
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable to bank $ 2,849,882 $ 3,666,796
Current maturities of long-term obligations, including
$440,409 in 1996 and $234,077 in 1995 to related parties 522,628 577,152
Accounts payable 3,542,325 2,253,281
Accrued liabilities
Compensation and related benefits 606,558 654,036
Other 419,098 413,025
----------- -----------
Total current liabilities 7,940,491 7,564,290
LONG TERM OBLIGATIONS, less current maturities, including
$364,808 in 1996 and $572,062 in 1995 to related parties 1,131,682 1,051,487
STOCKHOLDERS' EQUITY
Common stock, par value $.01; 10,000,000 shares authorized;
issued & outstanding shares 3,499,755 34,998 34,998
Additional contributed capital 6,804,156 6,804,156
Retained earnings 2,682,883 2,680,901
----------- -----------
9,522,037 9,520,055
----------- -----------
$18,594,210 $18,135,832
=========== ===========
The accompanying notes are an integral part of these statements
DAKOTAH, INCORPORATED
STATEMENTS OF EARNINGS
(Unaudited)
For the three months ended March 31,
1996 1995
----------- -----------
Net sales $ 7,404,824 $ 6,245,326
Cost of goods sold 5,440,591 4,603,793
----------- -----------
Gross profit 1,964,233 1,641,533
Operating expenses
Selling 1,094,198 926,670
General and administrative 774,926 631,751
----------- -----------
1,869,124 1,558,421
----------- -----------
Operating profit 95,109 83,112
Other income (expense)
Interest expense (78,878) (40,252)
Gain on sale of equipment -- 56,210
Other (13,134) 10,317
----------- -----------
(92,012) 26,275
Earnings before income taxes 3,097 109,387
Income tax expense 1,115 39,400
----------- -----------
NET EARNINGS $ 1,982 $ 69,987
=========== ===========
Net earnings per share $ -- $ 0.02
=========== ===========
Weighted average
common shares outstanding 3,499,755 3,499,755
=========== ===========
The accompanying notes are an integral part of these statements.
DAKOTAH, INCORPORATED
STATEMENTS OF CASH FLOWS
(Unaudited)
For the three months ended March 31,
1996 1995
----------- -----------
Cash flows from operating activities:
Net earnings $ 1,982 $ 69,987
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities
Depreciation and amortization 162,634 86,279
Changes in assets and liabilities:
Accounts receivable 1,437,654 556,710
Inventories (1,544,940) (64,371)
Prepaid expenses (503,953) (150,306)
Accounts payable 1,289,044 (151,560)
Accrued liabilities (41,405) 14,365
Income taxes payable -- (199,409)
----------- -----------
Total adjustments 799,034 91,708
----------- -----------
Net cash provided by operating activities 801,016 161,695
Cash flows from investing activities:
Capital expenditures (476,777) (68,905)
----------- -----------
Net cash used in investing activities (476,777) (68,905)
Cash flows from financing activities:
Net payments under line-of-credit (816,914) (109,025)
Proceeds from issuance of long-term obligations 300,000 92,126
Principal payments on long-term obligations (274,329) (87,032)
----------- -----------
Net cash used in financing activities (791,243) (103,931)
----------- -----------
Net decrease in cash and cash equivalents (467,004) (11,141)
Cash and cash equivalents at beginning of period 477,330 575,684
----------- -----------
Cash and cash equivalents at end of period $ 10,326 $ 564,543
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest 63,128 15,607
Income taxes -- 239,000
The accompanying notes are an integral part of these statements.
NOTE A: BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with the instructions of Form 10-QSB pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although management believes
that the disclosures are adequate to make the information presented not
misleading.
In the opinion of management, the unaudited condensed financial statements
contain all adjustments (consisting of only normal recurring adjustments)
necessary to present fairly the financial position as of March 31, 1996, the
results of operations for the three month periods ended March 31, 1996 and 1995,
and the cash flows for the three month periods ended March 31, 1996 and 1995.
Operating results for interim periods are not necessarily indicative of results
which may be expected for the year as a whole.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS:
The following table sets forth the percentage relationship to net sales of
certain items in the Company's statements of earnings for the three month
periods ended March 31, 1996 and 1995.
Percentage of Net Sales
for the three month
period ended March 31,
1996 1995
------------------------
Net Sales 100.0% 100.0%
Gross Profit 26.5 26.3
Selling Expenses 14.8 14.9
General & Administrative 10.4 10.1
Operating Profit 1.3 1.3
Interest Expense 1.1 0.6
Gain on Sale of Equipment 0.0 0.9
Earnings Before Income Taxes 0.0 1.8
Net Earnings 0.0 1.1
NET SALES increased from $6,245,000 in the first quarter of 1995 to $7,405,000
in the first quarter of 1996. The increase in net sales in the first quarter of
1996, as compared to the first quarter of 1995, is due primarily to the effect
of the Company's new Polarfleece(R) line for products and expanded sales of the
Company's table linen and bedding and accessories products. The sales increase
was adversely affected by a reduction of sales of triple woven cotton throws and
footstools.
GROSS MARGIN PERCENTAGES increased slightly from 26.3% in the first quarter of
1995 to 26.5% for the same period of 1996. During the first quarter of 1996,
compared to the comparable period of 1995, gross margin was positively affected
by a decrease in the raw materials as a percentage of sales and negatively
affected by increased depreciation expense and other manufacturing overhead
expenses related to new manufacturing capacity.
SELLING EXPENSES, as a percentage of net sales, were consistent with the same
period a year earlier. The amount of selling expenses increased primarily as the
result of the Company's efforts to develop new channels of distribution and
customers, including but not limited to the Company's expansion of in-house
sales staff, participation in the Heimtextil trade show in Frankfurt, and
expanded showrooms in Chicago and Atlanta.
GENERAL AND ADMINISTRATIVE EXPENSES increased from $632,000 in the first quarter
of 1995 to $775,000 in the same period of 1996. The increase is primarily due to
the Company's expansion design and product development capabilities and middle
management and clerical support. General and administrative expenses were
adversely affected by the April 18, 1996 bankruptcy filing of Pacific Linen, who
owes the Company $113,000. The allowance for doubtful accounts includes a
reserve for the entire Pacific Linen account receivable.
GAIN ON SALE OF EQUIPMENT was $56,000 in the first quarter of 1995, compared to
no gain or loss during the first quarter of 1996. The 1995 gain resulted from
the sale of excess equipment.
INTEREST EXPENSE increased from $40,000 in the first quarter of 1995 to $79,000
in the first quarter of 1996. This increase was the result of higher first
quarter average borrowings to finance capital expenditures, and higher accounts
receivable and inventories.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $7.6 million as of December 31, 1995 compared to $7.4
million as of March 31, 1996.
At December 31, 1995, the Company had cash and cash equivalents of $477,000 and
$10,000 at March 31, 1996. The decrease in cash was applied to the Company's
revolving line-of-credit.
The Company has used and expects to continue using bank lines of credit to meet
its short-term working capital requirements. During 1995, the Company
renegotiated its credit facility. The new credit facility, which expires August
1997, consists of a revolving note and a term note. The total amount available
under the revolving note, which is due on demand, is limited to the lesser of $6
million or a defined borrowing base of eligible accounts receivable.
During March of 1996, the Company renegotiated its line of credit to allow for a
temporary advance against inventory to temporarily finance the capital
expenditures related to the opening of the new Redfield Polarfleece(R)
manufacturing facility and the procurement of additional Polarfleece(R) fabric
at advantageous prices from the Company's supplier of Polarfleece(R) fabrics.
The term note is due on demand and requires monthly principal payments of
$20,833. Both notes provide for monthly interest payments at 1.5% above the
bank's prime rate and are collateralized by accounts receivable, inventory,
equipment, and general intangibles. The outstanding balances on the revolving
note and term note were $1,954,000 and $896,000 at March 31, 1996.
For the quarter ended March 31, 1996, the Company's capital expenditures were
$477,000. The first quarter of 1996, capital expenditures include $364,000 to
expand manufacturing capacity, upgrade existing buildings, and additional
production equipment and $102,000 to upgrade the Company's computer system. The
Company expects to spend approximately an additional $350,000-$500,000 for the
remainder of 1996 to expand capacity, up-grade existing buildings and production
equipment. In addition, the Company expects to spend an additional $100,000 to
continue the upgrade and expansion of the Company's computer system.
Upon termination of the officers' stock appreciation program, the Company became
indebted to the Company's President and a former Executive Vice President in the
aggregate amount of $1,318,000. As of March 31, 1996, the total outstanding
indebtedness was $668,000. This indebtedness bears interest at 6% per and is
payable in varying installments through January 1998.
The Company believes that cash flows generated from operations and funds
available as a result of its borrowing capacity will be adequate to meet its
short-term working capital, projected capital expenditures and other financing
needs.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registered has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DAKOTAH, INCORPORATED
May 7, 1995 By: /s/ Troy Jones, Jr.
----------------------
Troy Jones, Jr.
Chief Executive Officer
(Principal Financial and Accounting
Officer)
May 7, 1995 By: /s/ George Whyte
-------------------
George Whyte
President and Chairman