UNITED STATES SECURITIES & EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
Quarterly report pursuant to Section 13 of 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 1997
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 preceding 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, 1997.
DAKOTAH, INCORPORATED
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets (Unaudited):
March 31, 1997 and December 31,1996
Statements of Operations (Unaudited):
Three month periods ended
March 31, 1997, and March 31, 1996
Statements of Cash Flows (Unaudited):
Three month periods ended
March 31, 1997, and March 31, 1996
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
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.) Exhibits
10.1 Eighth Amendment dated March 10, 1997 to Amended and
Restated Credit and Security Agreement with Norwest Business
Credit, Inc.
27.1 Financial Data Schedule
(b.) Reports on Form 8-K None
ITEM 1: FINANCIAL STATEMENTS
DAKOTAH, INCORPORATED
BALANCE SHEETS
(Unaudited)
March 31, December 31,
ASSETS 1997 1996
----------- -----------
CURRENT ASSETS
Cash and cash equivalents $ 8,231 $ 2,690
Accounts receivable less allowance
for doubtful accounts of $425,000
in 1997 and $324,000 in 1996 4,595,788 7,538,724
Inventories 14,017,824 9,555,897
Prepaid expenses and other 749,747 735,929
Income taxes receivable 114,988 -
Deferred income taxes 496,000 496,000
----------- -----------
Total current assets 19,982,578 18,329,240
PROPERTY, PLANT AND EQUIPMENT - AT COST
Land 36,000 36,000
Buildings and improvements 2,393,816 2,334,516
Leasehold improvements 122,362 123,731
Machinery and equipment 3,120,101 3,009,792
Office equipment, furniture and fixtures and other 1,073,294 958,758
----------- -----------
6,745,573 6,462,797
Less accumulated depreciation & amortization 2,721,513 2,555,767
----------- -----------
4,024,060 3,907,030
OTHER ASSETS
Deferred income taxes 185,000 185,000
Other 624,797 508,690
----------- -----------
809,797 693,690
----------- -----------
$24,816,435 $22,929,960
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable to bank $ 6,249,097 $ 7,123,000
Current maturities of long-term obligations, including
$268,300 in 1997 and $332,139 in 1996 to related parties 439,320 482,835
Accounts payable 5,000,762 2,134,845
Accrued liabilities
Compensation and related benefits 672,573 925,739
Other 771,028 716,217
Income taxes payable - 187,079
----------- -----------
Total current liabilities 13,132,780 11,569,715
LONG-TERM OBLIGATIONS, less current maturities, including
$129,162 in 1996 to related parties 1,602,247 912,585
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 6,929,156 6,904,156
Retained earnings 3,117,254 3,508,506
----------- -----------
10,081,408 10,447,660
----------- -----------
$24,816,435 $22,929,960
=========== ===========
The accompanying notes are an integral part of these Financial Statements.
DAKOTAH, INCORPORATED
STATEMENTS OF OPERATIONS
(Unaudited)
For the three months ended March 31,
1997 1996
----------- -----------
Net sales $ 6,681,849 $ 7,404,824
Cost of goods sold 4,957,173 5,440,591
----------- -----------
Gross profit 1,724,676 1,964,233
Operating expenses
Selling 1,183,278 1,094,198
General and administrative 969,153 774,926
----------- -----------
2,152,431 1,869,124
----------- -----------
Operating profit (loss) (427,755) 95,109
Other income (expense)
Interest (143,497) (78,878)
Other -- (13,134)
----------- -----------
(143,497) (92,012)
----------- -----------
Earnings (loss) before income taxes (571,252) 3,097
Income tax expense (benefit) (180,000) 1,115
----------- -----------
NET EARNINGS (LOSS) $ (391,252) $ 1,982
=========== ===========
Net earnings (loss) per share $ (0.11) $ --
=========== ===========
Weighted average
common shares outstanding 3,499,755 3,499,755
=========== ===========
The accompanying notes are an integral part of these Financial Statements.
DAKOTAH, INCORPORATED
STATEMENTS OF CASH FLOWS
(Unaudited)
For the three months ended March 31,
1997 1996
----------- -----------
Cash flows from operating activities:
Net earnings (loss) $ (391,252) $ 1,982
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities
Depreciation and amortization 165,746 162,634
Compensation to outside consultant 25,000 --
Changes in assets and liabilities:
Accounts receivable 2,942,936 1,437,654
Inventories (4,461,927) (1,544,940)
Prepaid expenses and other (13,818) (503,953)
Income taxes receivable (114,988)
Accounts payable 2,865,917 1,289,044
Accrued liabilities and other (198,355) (41,405)
Income taxes payable (187,079) --
----------- -----------
Total adjustments 1,023,432 799,034
----------- -----------
Net cash provided by operating activities 632,180 801,016
Cash flows from investing activities:
Capital expenditures (282,776) (476,777)
Other (116,107) --
----------- -----------
Net cash used in investing activities (398,883) (476,777)
Cash flows from financing activities:
Net payments under line-of-credit (873,903) (816,914)
Proceeds from issuance of long-term obligations 880,000 300,000
Principal payments on long-term obligations (233,853) (274,329)
----------- -----------
Net cash used in financing activities (227,756) (791,243)
----------- -----------
Net increase (decrease) in cash and cash equivalents 5,541 (467,004)
Cash and cash equivalents at beginning of period 2,690 477,330
----------- -----------
Cash and cash equivalents at end of period $ 8,231 $ 10,326
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 127,415 $ 63,128
Income taxes 120,000 --
The accompanying notes are an integral part of these Financial Statements.
DAKOTAH, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
NOTE A: BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with the instructions of Form 10-Q 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 normal recurring accruals necessary to
present fairly the financial position of the Company as of March 31, 1997 and
the results of operations and cash flows for the three month periods ended March
31, 1997 and 1996. These results are not necessarily indicative of results which
may be expected for the year as a whole.
The preparation of financial statements, in conformity with generally accepted
accounting principles, requires management to make estimates and assumptions
that affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE B: INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market and
consist of the following:
March 31, 1997 December 31, 1996
-------------- -----------------
Raw Materials $7,375,928 $5,722,944
Work-In-Process 2,393,490 1,667,023
Finished Goods 4,248,406 2,165,930
---------- ----------
$14,017,824 $9,555,897
========== ==========
NOTE C: NEW ACCOUNTING PRONOUNCEMENT
The FASB has issued Statement of Financial Accounting Standards No. 128,
EARNINGS PER SHARE, which is effective for financial statements issued after
December 15, 1997. Early adoption of the new standard is not permitted. The new
standard eliminates primary and fully diluted earnings per share and requires
presentation of basic and diluted earnings per share together with disclosure of
how the per share amounts were computed. Basic earnings per share excludes
dilution and is computed by dividing income available to common shareholders by
the weighted-average common shares outstanding for the period. Diluted earnings
per share reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised and converted into common
stock or resulted in the issuance of common stock that then shared in the
earnings of the entity. The effect of adopting this new standard has not been
determined.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
The following table sets forth the percentage relationship to net sales of
certain items in the Company's statements of operations for the three month
periods ended March 31, 1997 and 1996.
Percentage of Net Sales for the
three month period ended March 31,
1997 1996
---------------------
Net Sales 100.0% 100.0%
Gross Profit 25.8 26.5
Selling Expenses 17.7 14.8
General & Administrative 14.5 10.4
Operating Profit (Loss) (6.4) 1.3
Interest Expense 2.1 1.1
Earnings Before Income Taxes (8.5) 0.0
Net Earnings (Loss) (5.9) 0.0
NET SALES decreased from $7,405,000 in the first quarter of 1996 to $6,682,000
in the first quarter of 1997. The decrease in sales is primarily related to the
negative effect on production time as a result of (1) the Company's
consolidation of its primary warehouse and shipping and receiving facility to
the main Webster, SD manufacturing facility, (2) the move of the Webster, SD
pillow finishing manufacturing equipment to the main Webster, SD manufacturing
facility, (3) the comprehensive reconfiguration of the main Webster, SD
manufacturing facility and (4) the effect of the severe winter weather.
During the first quarter of 1997, net sales of the Company's pillow, table
linens, and bedcovering and accessories categories decreased approximately
$1,800,000 from the first quarter of 1996, primarily related to a decrease in
units produced as a result of the effects of the reconfiguration of the Webster,
SD operations,. This decrease was partially offset by an increase in sales of
Polarfleece(R) throws and blankets.
GROSS MARGIN PERCENTAGES decreased from 26.5% in the first quarter of 1996 to
25.8% in the first quarter of 1997. Gross margin percentages were adversely
affected by lost production time and an increase of off-standard and indirect
labor and other related costs associated with the Company's move of its Webster,
SD warehouse and Webster, SD pillow finishing manufacturing and the Webster, SD
plant reconfiguration. Gross margin percentages were positively affected by
improved product mix.
SELLING EXPENSES increased in the first quarter of 1997 as compared to the same
period of 1996 due to increased salaries, advertising, and travel expenses
primarily related to the Company's efforts to increase 1997 net sales, including
expanding its sales distribution channels and markets. Selling expenses grew
from $1,094,000 in the first quarter of 1996 to $1,183,000 in the first quarter
of 1997. As a percentage of net sales, selling expenses increased to 17.7% in
the first quarter of 1997 from 14.8% in the first quarter of 1996 as a result of
higher selling expenses and lower sales.
GENERAL AND ADMINISTRATIVE EXPENSES increased from $775,000 in the first quarter
of 1996 to $969,000 in the first quarter of 1997. The increase is primarily due
to an increase in design and product development salaries and related expenses,
administrative and clerical salaries to support the general growth of the
Company, and expenses related to the Company's planned computer software
conversion. As a percentage of net sales, general and administrative expenses
increased from 10.4% in the first quarter of 1996 to 14.5% in the first quarter
of 1997 as a result of lower net sales and higher general and administrative
expenses.
INTEREST EXPENSE increased to $143,000 in the first quarter of 1997 from $79,000
in the first quarter of 1996. The increase is the result of higher first quarter
average borrowings related to previous capital expenditures and the buildup of
inventory to support the Company's sales in the third and fourth quarters of
1997.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $7.0 million as of March 31, 1997 and $6.8 million as
December 31, 1996.
The net cash provided by operating activities during the first quarter of 1997
was primarily used to repay net borrowings under the line-of-credit and make
principal payments on long-term obligations.
The net cash used in investing activities during 1996 was primarily financed
from net borrowings under the Company's revolving line of credit. The net cash
provided by (used in) operating and investing activities was primarily related
to the increase in sales and manufacturing capacity during 1996.
Accounts receivable were approximately $4,600,000 as of March 31, 1997 and
$7,500,000 as of December 31, 1996. The decrease in the first quarter of 1997
was due to lower sales in the first quarter of 1997 as compared to the fourth
quarter of 1996.
The seasonality of the Company's sales cycle and the increase of sales volume
has resulted in increased working capital requirements. In addition, the buying
habits of the Company's customers indicate a trend away from substantial advance
stocking orders to smaller, more frequent orders. This trend requires the
Company to carry larger levels of work in process and finished goods inventories
than historically maintained.
Inventories were approximately $14,000,000 as of March 31, 1997 and $9,600,000
as of December 31, 1996. The increase in the first quarter of 1997 as compared
to year end 1996 is primarily related to an increase of finished goods inventory
of Polarfleece(R) to support the Company's planned sales in the third and fourth
quarters of 1997.
Accounts payable were approximately $5,001,000 as of March 31, 1997 and
$2,135,000 as of December 31, 1996. The increase in the first quarter of 1997 as
compared to year end 1996 is primarily related to an increase in inventory to
support the Company's planned sales in the third and fourth quarters of 1997.
The Company has used and expects to continue to use its revolving line of credit
to meet its short-term working capital requirements. During the first quarter
and in April of 1997, the Company renegotiated its credit facility, which
expires August 1998 and consists of a revolving note and a term note. The
amendments accommodate the Company's planned buildup of inventory, primarily
Polarfleece(R) throws, to allow the Company to maximize the sales opportunities
in the third and fourth quarters, optimize production capacity, and better serve
the Company's customers.
The total amount available under the revolving note, which is due on demand, is
limited to the lesser of $9 million or a defined borrowing base of eligible
accounts receivable and inventory. The term note is due on demand and requires
monthly principal payments of $20,833. Advances under the revolving note, based
on inventory balances, provide for monthly interest payments at 2% above the
bank's prime rate (10.5% at March 31, 1997). The term note and other advances
under the revolving note provide for monthly interest payments at 1.5% above the
bank's prime rate (10% at March 31, 1997). The outstanding balances on the
revolving note and term note were $5,603,000 and $646,000 at March 31, 1997. The
outstanding balances on the revolving note and term note were $6,415,000 and
$708,000 at December 31, 1996.
For the quarter ended March 31, 1997, the Company's capital expenditures were
$283,000. For the quarter ended March 31, 1996, the Company's capital
expenditures were $477,000.
The Company expects to spend an aggregate of approximately $1,000,000 in 1997 to
expand capacity and to up-grade existing buildings and production equipment. In
addition, the Company expects to spend between $250,000 and $400,000 to continue
the upgrade and expansion of the Company's computer system. The Company is
pursuing long term financing for its 1997 planned capital expenditures and for
capital expenditures previously financed through its revolving line of credit.
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, 1997, the total outstanding
indebtedness was approximately $268,000 compared to $461,000 at December 31,
1996. This indebtedness bears interest at 6% per annum 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.
FORWARD LOOKING STATEMENTS
Forward looking statements are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Investors are cautioned
that such forward looking statements involve risks and uncertainties, including,
without limitation, continued acceptance of the Company's products, cancellation
of orders, increased levels of competition for the Company, new products and
technological changes, the Company's dependence upon third party suppliers, and
intellectual property rights.
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 15, 1997 By: /s/ TROY JONES, JR.
------------------------------------
Troy Jones, Jr.
Chief Executive Officer
(Principal Financial and Accounting
Officer)
May 15, 1997 By: /s/ GEORGE WHYTE
------------------------------------
George Whyte
President and Chairman