UNITED STATES SECURITIES & EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 1998
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 10, 1998.
DAKOTAH, INCORPORATED
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets (Unaudited):
March 31, 1998 and December 31,1997
Statements of Operations (Unaudited):
Three month periods ended
March 31, 1998, and March 31, 1997
Statements of Cash Flows (Unaudited):
Three month periods ended
March 31, 1998, and March 31, 1997
Notes to Financial Statements:
March 31, 1998
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.) Exhibit Number: Description:
10.28 Employment Agreement dated effective
April 8, 1997 between the Company
and William R. Retterath
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 1998 1997
------------ ------------
CURRENT ASSETS
Cash and cash equivalents $ 9,300 $ 45,084
Accounts receivable less allowance
for doubtful accounts of $370,094
in 1998 and $326,000 in 1997 3,040,563 4,491,697
Inventories 13,619,599 15,423,002
Income taxes receivable 963,000 963,000
Prepaid expenses 458,063 449,323
Deferred income taxes 848,800 568,800
------------ ------------
Total current assets 18,939,325 21,940,906
PROPERTY, PLANT AND EQUIPMENT - AT COST
Land 36,000 36,000
Buildings and improvements 2,418,374 2,418,374
Leasehold improvements 130,046 130,046
Machinery and equipment 3,284,979 3,278,933
Office equipment, furniture and fixtures and other 3,125,276 2,858,139
------------ ------------
8,994,675 8,721,492
Less accumulated depreciation & amortization 3,617,306 3,382,135
------------ ------------
5,377,369 5,339,357
OTHER ASSETS
Deferred income taxes 179,000 179,000
Other 9,200 9,200
------------ ------------
188,200 188,200
------------ ------------
$ 24,504,894 $ 27,468,463
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Outstanding checks in excess of bank balances $ 704,611 $ 452,784
Short-term debt 11,961,938 12,797,736
Current maturities of long-term obligations 81,324 80,549
Current maturities of capital lease obligations, including
$25,460 and $27,117 to related parties in 1997 and 1996 234,025 197,942
Current maturities of note payable to officer 263,800 263,800
Accounts payable 1,066,305 1,781,996
Accrued liabilities
Compensation and related benefits 532,320 566,165
Other 777,712 758,343
------------ ------------
Total current liabilities 15,622,035 16,899,315
LONG-TERM LIABILITIES
Long-term portion of long-term obligations 1,191,267 1,211,895
Long-term portion of capital lease obligations, including --
$50,537 and $57,069 to relates parties in 1998 and 1997 691,213 601,311
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 7,180,855 7,180,855
Retained earnings (accumulated deficit) (215,474) 1,540,089
------------ ------------
7,000,379 8,755,942
------------ ------------
$ 24,504,894 $ 27,468,463
============ ============
The accompanying notes are an integral part of these statements.
DAKOTAH, INCORPORATED
STATEMENTS OF OPERATIONS
(Unaudited)
For the three months ended March 31,
1998 1997
----------- -----------
Net sales $ 4,876,098 $ 6,681,849
Cost of goods sold 4,596,849 4,957,173
----------- -----------
Gross profit 279,249 1,724,676
Operating expenses
Selling 906,223 1,183,278
General and administrative 1,023,811 969,153
----------- -----------
1,930,034 2,152,431
----------- -----------
Operating loss (1,650,785) (427,755)
Other income (expense)
Interest expense (364,757) (143,497)
Other (20,021) --
----------- -----------
(384,778) (143,497)
Loss before income taxes (2,035,563) (571,252)
Income tax benefit (280,000) (180,000)
----------- -----------
NET LOSS $(1,755,563) $ (391,252)
=========== ===========
Net loss per share - basic and dilutive $ (0.50) $ (0.11)
=========== ===========
Weighted average common shares outstanding
Basic 3,499,755 3,499,755
=========== ===========
Dilutive 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,
1998 1997
----------- -----------
Cash flows from operating activities:
Net loss $(1,755,563) $ (391,252)
Adjustments to reconcile net loss to net
cash provided by operating activities
Depreciation and amortization 235,171 165,746
Compensation to outside consultant -- 25,000
Deferred income taxes (280,000) --
Changes in assets and liabilities:
Accounts receivable 1,451,134 2,942,936
Inventories 1,803,403 (4,461,927)
Prepaid expenses (8,740) (13,818)
Accounts payable (715,691) 2,865,917
Accrued liabilities (14,476) (198,355)
Income taxes -- (302,067)
----------- -----------
Total adjustments 2,470,801 1,023,432
----------- -----------
Net cash provided by operating activities 715,238 632,180
Cash flows from investing activities:
Capital expenditures (91,945) (282,776)
Other -- (116,107)
----------- -----------
Net cash used in investing activities (91,945) (398,883)
Cash flows from financing activities:
Outstanding checks in excess of bank balance 251,827 735,741
Net payments under short-term debt agreements (835,798) (1,609,644)
Proceeds from issuance of long-term obligations -- 880,000
Principal payments on long-term obligations (19,853) (15,062)
Principal payments on capital lease obligations (55,253) (21,290)
Principal payments on note payable to officer -- (197,501)
----------- -----------
Net cash used in financing activities (659,077) (227,756)
----------- -----------
Net increase (decrease) in cash and cash equivalents (35,784) 5,541
Cash and cash equivalents at beginning of period 45,084 2,690
----------- -----------
Cash and cash equivalents at end of period $ 9,300 $ 8,231
=========== ===========
Supplemental disclosure of non-cash investing/financing activity:
Acquisitions of property, plant and equipment through
capital lease arrangements $ 181,328 --
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 366,055 $ 127,415
Income taxes -- 120,000
The accompanying notes are an integral part of these 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, 1998, the
results of operations and cash flows for the three month periods ended March 31,
1998 and 1997. 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 method) or
market and consist of the following:
March 31, 1998 December 31, 1997
----------- -----------
Raw Materials $ 7,253,268 $ 7,606,938
Work In Progress 758,739 957,972
Finished Goods 5,607,592 6,858,092
----------- -----------
$13,619,599 $15,423,002
=========== ===========
NOTE C: RECLASSIFICATIONS
Certain amounts from the 1997 financial statements have been reclassified to
conform to the 1998 presentation.
NOTE D: SHORT-TERM DEBT
The Company has a credit facility with a financial institution consisting of
a revolving note and a term note which terminate in June 1999. The total
amount available under the revolving note, which is due on demand, is the
lesser of $15,000,000 or a defined borrowing base of eligible receivables,
and inventory balances, plus outstanding amounts under the term note, plus
$1,000,000. Advances under the revolving note, based on eligible receivables,
inventory balances and the additional $1,000,000 provide for monthly interest
payments at 1%, 3% and 4% above the financial institution's prime rate
(effective rates of 9.5%, 11.5% and 12.5% at March 31, 1998). Advances under
the term note, which is due on demand, requires monthly principal payments of
$33,333. Monthly interest payments are computed based on 1% above the
financial institution's prime rate (effective rate of 9.5% at March 31,
1998). The outstanding balances on the revolving note and term note were
$10,261,935 and $1,700,003 at March 31, 1998 and $10,997,734 and $1,800,002
at December 31, 1997.
In March, 1998, the Company renegotiated certain terms and covenants of its
credit facility. As part of that process, the Company obtained the additional
$1,000,000 of availability, above the amount of its borrowing base, under the
revolving note at the financial institution's prime rate plus 4%. This
additional funding is available to the Company through July 31, 1998. The
total amount provided for all of the notes, cannot exceed $15,000,000.
The current credit facility contains affirmative and negative covenants
including, among other things, provisions for minimum net earnings, minimum
tangible and book net worth requirements, and limitations on capital
expenditures. Additionally, the Company may not incur additional borrowings,
sell certain assets, acquire other businesses or pay cash dividends without
prior written consent. The Company was in compliance with or obtained waivers
for all covenants through May 31, 1998.
While the Company had anticipated a decline in sales and gross margin for the
first half of 1998, the extent of those declines in the later part of the
first quarter and continuing into the second quarter has significantly
exceeded what was anticipated by management. As a result of the declining
margins and sales in the first and second quarter of 1998, the Company has
determined that additional funds, in the form of debt or equity, are required
to continue operations into the fall of 1998, as its current cash flows
generated from operations and funds available as a result of its borrowing
capacity are insufficient to meet its working capital, projected capital
expenditures and other financing needs for 1998 and the future. In
conjunction with these needs, the Company has hired a consultant to assist in
obtaining this financing. The ability to obtain such financing is dependent
upon an increase in sales. Although management believes that this funding can
be obtained, there is no assurance the Company will receive such financing.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW:
Dakotah(R) Inc. (the "Company") designs, manufactures and markets textile home
fashion furnishings which are both functional and decorative. Its principal
products are decorative pillows, throws (polyester fleece and cotton), blankets,
bedroom ensembles and other home accessory products such as footstools, chair
pads and table linens. The Company's objective has been to build a strong brand
image associated with fashionable styling and high quality products. It markets
its products (primarily under the Dakotah(R) and Polarfleece(R) names and
various licensed names) tO a broad range of major retailers, including
department stores, specialty retailers, mass merchandisers and mail order
houses, both domestic and international. Showrooms for the Company's products,
which support sales are located across the country in New York, Atlanta,
Chicago, Denver and Seattle.
RESULTS OF OPERATIONS:
The following table sets forth selected financial information and the percentage
relationship to net sales of certain items in the Company's statements of
operations for the three months ended March 31, 1998 and 1997.
Percentage of Net Sales Selected Financial Data
for the three month period for the three months
ending March 31, ended March 31, (000's)
1998 1997 1998 1997
----------------------------- -----------------
Net Sales 100.0% 100.0% 4,876 6,682
Gross Profit 5.7 25.8 279 1,725
Selling Expenses 18.6 17.7 906 1,183
General & Administrative 21.0 14.5 1,024 969
Operating Loss (33.9) (6.4) (1,651) (427)
Interest and Other Expense 7.9 2.1 385 143
Loss Before Income Taxes (41.7) (8.5) (2,036) (571)
Net Loss (36.0) (5.9) (1,756) (391)
NET SALES decreased $1,806,000 to $4,876,000 for the three months ended March
31, 1998 from $6,682,000 in the same period of 1997. The decrease in net sales
in the first three months of 1998, as compared to the first three months of
1997, is due primarily to the heavy discounting the Company has undertaken to
liquidate inventory, the overall decline in orders for the first half of the
year due to excess inventories of customers, and
dissatisfaction of certain customers resulting from inadequate delivery
performance primarily related to the poor performance of certain suppliers of
the Company.
Sales of Polarfleece(R) throws and pillows declined dramatically in the first
quarter of 1998 as compared to the first quarter of 1997. The decline in sales
of Polarfleece throws resulted from the excessive inventory buildup of customers
in the last quarter of 1997, due to the warm weather. The decline in pillow
sales has continued due to the Company's past emphasis on Polarfleece(R). The
company has restructured its pillow pricing and introduced a new line of
pillows, which it expects to offset part or all of this decline. The decline in
these product categories was partially offset by a slight increase in blankets
and bedding and accessories.
During the first quarter of 1998, sales discounts amounted to approximately
$483,000 as compared to $85,000 in the first quarter of 1997. This increase has
been offset by a decline in sales returns which decreased approximately $124,000
in the first quarter of 1998 from the first quarter of 1997.
In order to diminish the Company's dependence on retailers and the associated
risks of returns, markdowns, inappropriate charge backs and other issues, the
Company is developing the institutional and the gift and specialty markets, and
is reorganizing its international marketing efforts. It is currently working to
substantially increase its sales force in the gift and specialty markets and
expects to see the results of its efforts to show late in the third quarter and
into the fourth quarter of 1998. In addition, the Company believes it has taken
and is continuing to take the necessary steps to reestablish its pillow sales.
As a result of these factors, the Company does not expect sales to continue to
decline at this rate for the remainder of 1998.
GROSS PROFIT MARGINS decreased from 25.8% in the first three months of 1997 to
5.7% for the same period of 1998. The decline in gross margins is due to (1) the
heavy discounting of inventory mentioned above, (2) the increase in sales of
closeouts which increased in the first quarter of 1998 over the same period of
1997, (3) the charge to cost of goods sold of approximately $206,000 of
manufacturing overhead relating to volume variances and (4) an increase in
direct labor wage rates. These negative effects were partially offset by
positive impacts resulting from (1) an increase in direct labor efficiencies to
77% in the first quarter of 1998 as compared to 60% in the first quarter of
1997, and (2) an overall decline in manufacturing overhead spending, which
decreased from $1,777,000 in the first quarter of 1997 to $1,157,000 in the
first quarter of 1998. These positive impacts had the effect of reducing
manufacturing variances from the levels incurred in previous years and would
have been capitalized in inventory or expensed through costs of goods sold. The
improvements are the result of efforts the Company has made in restructuring
during the end of the fourth quarter of 1997 and the first quarter of 1998.
The Company expects gross margins to increase as sales increase over the
remainder of 1998 and as a result of its declining levels of excess inventories.
In addition, the Company plans on overall spending in manufacturing overhead to
decline significantly in
1998 as compared to 1997 and for direct labor efficiencies to continue to rise.
Finally, in its efforts to gain control over inventory writedowns, which have
risen dramatically over the past three years, the Company is in the process of
substantially reducing its number of product offerings where the rates of sale
do not support the product. This will have the impact of reducing fabric
requirements and excess inventories.
SELLING EXPENSES declined from $1,183,000 in the first three months of 1997 to
$906,000 in the first three months of 1998. This decrease of $277,000 is
primarily the net result of (1) a decline of $32,000 in travel expenses, (2) a
decline in commission expense of approximately $214,000, which also declined to
3.3% of sales in the first quarter of 1998 as compared to 5.6% of sales in the
first quarter of 1997, (3) a decline of $15,000 for participation in trade shows
as the Company eliminated participation in shows, (4) a $20,000 decline in
showroom decorating and supplies and (5) a decline of approximately $122,000 in
advertising costs. These decreases were partially offset by an increase in
recruiting costs of approximately $87,000 relating to the hiring of a new Vice
President of Sales and Marketing, as well as an increase in wages for sales
staff offset by a decline in commissions as a percent of sales due to certain
changes in sales compensation programs, as mentioned above.
As a percentage of net sales, selling expenses increased from 17.7% in the first
three months of 1997 to 18.6% in the first three months of 1998 as a result of
the lower sales and the factors mentioned above.
GENERAL AND ADMINISTRATIVE EXPENSES increased from $969,000 in the first three
months of 1997 to $1,024,000 during the same period in 1998. The increase is
primarily due to the addition of a Chief Financial Officer in the second quarter
and the addition of a Controller in the fourth quarter of 1997 and an increase
of approximately $60,000 in depreciation costs on computer equipment purchased
in 1997, offset by (1) a decline in administrative and clerical support costs ,
(2) decreased office and computer supplies expenses of $31,000, and (3)
decreased professional fees of approximately $28,000 relating to reduced legal
costs and compensation paid to the Company's former Chief Executive Officer .
As a percentage of net sales, general and administrative expenses increased from
14.5% in the first three months of 1997 to 21.0% in the first three months of
1998 as a result of the above mentioned changes and lower sales levels.
The Company has instituted a plan to reduce general and administrative expenses
by more than $1,500,000 from 1997 annual levels. During the last month of 1997
and continuing into the first quarter of 1998 the Company began reducing costs
and through the first quarter of 1998 had reduced the majority of the monthly
expenses which had increased in 1997. Significant reductions, as compared to
1997, are expected for the rest of 1998.
INTEREST EXPENSE increased from $143,000 in the first three months of 1997 to
$365,000 in the first three months of 1998. This increase was the result of
higher average borrowings to finance the higher levels of inventory carried into
1998 as compared to 1997, and to finance losses and capital expenditures
occurring in 1997 and into 1998.
The EFFECTIVE INCOME TAX RATE was 13.8% for the first three months of 1998, as
compared to 31.5% for the first three months of 1997. This decline in the
benefit resulted from the recording of a valuation allowance which offsets the
deferred tax asset created by the net operating loss carryforward. In addition,
the Company has deferred tax assets of approximately $748,000. Realization of
these assets is dependent on the Company's return to profitability, which is
expected to occur in 1999. Realization of these tax benefits is dependent on
margins returning to pre-1997 levels and management's efforts at cost
reductions. The Company believes that it is more likely than not that it will
recover these deferred tax assets in the future.
RESTRUCTURING PLANS - During the first quarter of 1998, the Company presented an
annual budget for 1998 which called for, among other items (1) a reduction of
general and administrative expenses of approximately $1,500,000, (2) a reduction
of manufacturing overhead expenses of approximately $2,000,000 and (3) a
substantial reduction in capital expenditures. The Company is also working
diligently to improve systems and controls over inventory, including
improvements in purchasing, forecasting, disposition of slow moving products and
pricing controls. It is expected that the changes in inventory will
substantially reduce inventory writedowns in 1999 and future years which have
grown from less than $400,000 in 1995 to almost $1,500,000 in 1997. Part of this
process includes the restructuring of the Company's current line of products,
which it believes will not only improve the line offered, but will also allow
the Company to more aggressively pursue other markets. In addition, the process
will be facilitated by the implementation of new computer systems, which are
expected to be implemented at the end of May, 1998. These new systems should
position the Company to capitalize on additional cost reduction measures
throughout the organization.
The ability of the Company to succeed with its plans is dependent on an increase
in sales, which management believes can occur. The Company's plan primarily
focuses on development of the gift, specialty and institutional markets. In the
gift and specialty markets, it is currently in the process of increasing the
sales staff. During the first quarter of 1998, the Company also announced the
hiring of Michael Morton as its Vice President of Sales and Marketing. Mr.
Morton is experienced in growing sales in these types of markets.
Finally, one of the key factors in the Company's plans is the improvement of
deliveries to customers. As mentioned above, a primary cause of this has been
poor performance by certain suppliers. As part of the efforts to improve this
performance, the Company will be working with its key suppliers to improve this
performance.
While the Company had anticipated a decline in sales and gross margin for the
first half of 1998, the extent of those declines in the later part of the first
quarter and continuing into the second quarter has significantly exceeded what
was anticipated by management. As a result of the declining margins and sales in
the first and second quarter of 1998, the Company has determined that additional
funds, in the form of debt or equity, are required to continue operations into
the fall of 1998, as its current cash flows generated from operations and funds
available as a result of its borrowing capacity are insufficient to meet its
working capital, projected capital expenditures and other financing needs for
1998 and the future. In conjunction with these needs, the Company has hired a
consultant to assist in obtaining this financing. The ability to obtain such
financing is dependent upon an increase in sales. Although management believes
that this funding can be obtained, there is no assurance the Company will
receive such financing.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $3.3 million as of March 31, 1998 and $5.0 million as of
December 31, 1997.
The net cash provided by operating activities during the first quarter of 1998
was primarily used to repay borrowings under the revolving note, make principal
and interest payments on term debt obligations and acquire property and
equipment.
Accounts receivable were approximately $3,041,000 as of March 31, 1998 and
$4,492,000 as of December 31, 1997. The decrease in the first three months of
1998 was due to lower sales for the first quarter of 1998 as compared to the
fourth quarter of 1997.
The allowance for doubtful accounts increased from $326,000 at December 31, 1997
to $370,000 at March 31, 1998. The Company estimates the allowance for doubtful
accounts based on the best information available to management. Additionally, a
customer with which the Company has an outstanding balance of $118,000, went
into bankruptcy during the first quarter of 1998. Bankruptcy proceedings have
not yet been concluded, however the Company estimates that it will recover
approximately 46% of the amounts owed. Management believes that the allowance is
adequate to cover this and any additional losses which may occur.
Inventories were approximately $13,620,000 as of March 31, 1998 and $15,423,000
as of December 31, 1997. The decrease of $1.8 million from December 31, 1997 to
March 31, 1998 is primarily related to decreases of finished goods and raw
materials of Polarfleece(R) products as well as decreased pillow inventories.
The decreases were the results of the Company's efforts to reduce inventory
levels. However, due to continued slow sales during the quarter, the reduction
was not as significant as the Company had expected. The trend of decreasing
inventory levels is expected to continue into the second quarter of 1998.
Accounts payable were approximately $1,066,000 as of March 31, 1998 and
$1,782,000 as of December 31, 1997. The decrease as of March 31, 1998 as
compared to year end 1997 is primarily related to reduced raw materials
purchases in the first quarter of 1998 compared to the fourth quarter of 1997.
The reduction in purchasing is the result of the Company's efforts to reduce
inventories, coupled with lower requirements due to the sales decline in the
first three months of 1998 and continuing into the second quarter.
The total amount available under the revolving note, which is due on demand, is
limited to the lesser of $15,000,000 or a defined borrowing base of receivables,
inventory balances, plus outstanding amounts under the term note, plus
$1,000,000. Advances under the revolving note, based on eligible receivables,
inventory balances, and the additional $1,000,000, provide for monthly interest
payments at 1%, 3% and 4%, respectively, above the financial institution's prime
rate (effective rates of 9.5%, 11.5% and 12.5%, respectively at March 31, 1998).
Advances under the term note, which is due on demand and which requires monthly
principal payments of $33,333, provide for monthly interest payments at 1% above
the financial institution's prime rate (effective rate of 9.5% at March 31,
1998). The outstanding balances on the revolving note and term note were
$10,261,935 and $1,700,003 at March 31, 1998 and $10,997,734 and $1,800,002 at
December 31, 1997.
For the three months ended March 31, 1998, the Company's capital expenditures
were $273,000. These expenditures include $240,000 for the acquisition of
additional computer hardware and software necessary for the Company's impending
information systems conversion. The remaining $33,000 was primarily used for
trade show exhibit structures and equipment.
During the first quarter of 1998, the Company completed negotiations for the
expansion of its facilities in Sisseton, SD, which were to be financed through
the issuance of a long-term lease-purchase agreement and the exchange of its
current facility in Sisseton, SD. At this time, the Company does not intend to
go forward with the transaction. The Company does not have any additional plans
for material capital expenditures in 1998 as a result of its cost reduction
initiatives.
Upon termination of the officers' stock appreciation program in 1994, the
Company became indebted to the Company's President and a former Executive Vice
President in the aggregate amount of $1,318,000. The total outstanding
indebtedness was $263,800 as of March 31, 1998 and December 31, 1997. This
indebtedness bears interest at 12% per annum and is due on demand.
As stated above, the Company has determined that additional funds, in the form
of debt or equity, are required to continue operations into the fall of 1998, as
its current cash flows generated from operations and funds available as a result
of its borrowing capacity are insufficient to meet its working capital,
projected capital expenditures and other financing needs for 1998 and the
future. In conjunction with these needs, the Company has hired a consultant to
assist in obtaining this financing. The ability to obtain such financing is
dependent upon an increase in sales. Although management believes that
this funding can be obtained, there is no assurance the Company will receive
such financing.
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,
intellectual property rights and the Company's ability to obtain financing.
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 14, 1998 By: /S/ GEORGE C. WHYTE.
------------------------
George C. Whyte
Chief Executive Officer
May 14, 1998 By: /S/ WILLIAM R. RETTERATH
----------------------------
William R. Retterath
Chief Operating Officer and
Chief Financial Officer
(Principal Financial and
Accounting Officer)