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 June 30, 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 July 12, 1996.
DAKOTAH, INCORPORATED
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets (Unaudited):
June 30, 1996 and December 31,1995
Statements of Earnings (Unaudited):
Three month and six month periods ended
June 30, 1996, and June 30, 1995
Statements of Cash Flows (Unaudited):
Six month periods ended
June 30, 1996, and June 30, 1995
Notes to Financial Statements:
June 30, 1996
Item 2. Management's Discussion and Analysis
or Plan of Operation
PART II. OTHER INFORMATION
Items 1 through 3 and 5 have been omitted since
items are inapplicable or answer is negative
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
(a.) Exhibit Number: Description:
27.1 Financial Data Schedule
(b.) Reports on Form 8-K None
<TABLE>
<CAPTION>
ITEM 1: Financial Statements
DAKOTAH, INCORPORATED
BALANCE SHEETS
(Unaudited)
June 30, December 31,
ASSETS 1996 1995
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 31,913 $ 477,330
Accounts receivable less allowance
for doubtful accounts of $361,000
in 1996 and $324,000 in 1995 4,397,879 6,365,606
Inventories 11,352,707 7,364,035
Prepaid expenses 738,430 477,507
Deferred income taxes 467,000 467,000
----------- -----------
Total current assets 16,987,929 15,151,478
PROPERTY, PLANT AND EQUIPMENT - AT COST
Land 36,000 36,000
Buildings and improvements 1,526,165 1,405,536
Leasehold improvements 122,362 123,731
Machinery and equipment 2,614,847 2,047,676
Office equipment, furniture and fixtures and other 693,987 481,816
----------- -----------
4,993,361 4,094,759
Less accumulated depreciation & amortization 2,226,533 1,885,274
----------- -----------
2,766,828 2,209,485
OTHER ASSETS
Deferred income taxes 349,000 349,000
Other 425,869 425,869
----------- -----------
774,869 774,869
----------- -----------
$20,529,626 $18,135,832
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable to bank $ 5,877,909 $ 3,666,796
Current maturities of long-term obligations, including
$435,603 in 1996 and $209,893 in 1995 to related parties 532,365 577,152
Accounts payable 2,346,014 2,253,281
Accrued liabilities
Compensation and related benefits 630,037 654,036
Other 449,512 413,025
----------- -----------
Total current liabilities 9,835,837 7,564,290
LONG-TERM OBLIGATIONS, less current maturities, including
$356,787 in 1996 and $1,155,600 in 1995 to related parties 1,124,810 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 2,729,825 2,680,901
----------- -----------
9,568,979 9,520,055
----------- -----------
$20,529,626 $18,135,832
=========== ===========
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
<CAPTION>
DAKOTAH, INCORPORATED
STATEMENTS OF EARNINGS
(Unaudited)
For the three months ended June 30, For the six months ended June 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 6,559,731 $ 5,586,749 $ 13,964,555 $ 11,832,075
Cost of goods sold 4,529,806 3,978,964 9,970,397 8,582,757
------------ ------------ ------------ ------------
Gross profit 2,029,925 1,607,785 3,994,158 3,249,318
Operating expenses
Selling 984,484 926,886 2,078,682 1,853,556
General and administrative 842,126 595,337 1,617,052 1,227,088
------------ ------------ ------------ ------------
1,826,610 1,522,223 3,695,734 3,080,644
------------ ------------ ------------ ------------
Operating profit 203,315 85,562 298,424 168,674
Other income (expense)
Interest expense (124,969) (36,237) (203,847) (76,489)
Gain on sale of equipment 6,867 2,722 6,867 58,932
Other (11,866) 6,833 (25,000) 17,150
------------ ------------ ------------ ------------
(129,968) (26,682) (221,980) (407)
Earnings before income taxes 73,347 58,880 76,444 168,267
Income tax expense 26,405 21,100 27,520 60,500
------------ ------------ ------------ ------------
NET EARNINGS $ 46,942 $ 37,780 $ 48,924 $ 107,767
============ ============ ============ ============
Net earnings per share $ 0.01 $ 0.01 $ 0.01 $ 0.03
============ ============ ============ ============
Weighted average
common shares outstanding 3,499,755 3,499,755 3,499,755 3,499,755
============ ============ ============ ============
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
<CAPTION>
DAKOTAH, INCORPORATED
STATEMENTS OF CASH FLOWS
(Unaudited)
For the six months ended June 30,
1996 1995
----------- -----------
Cash flows from operating activities:
<S> <C> <C>
Net earnings $ 48,924 $ 107,767
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities
Depreciation and amortization 341,259 189,173
Changes in assets and liabilities:
Accounts receivable 1,967,727 1,319,100
Inventories (3,988,672) (1,447,092)
Prepaid expenses (260,923) (256,890)
Accounts payable 92,733 589,162
Accrued liabilities 12,488 (76,699)
Income taxes payable -- (178,309)
----------- ----------
Total adjustments (1,835,388) 138,445
----------- ----------
Net cash provided by operating activities (1,786,464) 246,212
Cash flows from investing activities:
Capital expenditures (898,602) (259,184)
----------- ----------
Net cash used in investing activities (898,602) (259,184)
Cash flows from financing activities:
Net payments under line-of-credit 2,211,113 66,356
Proceeds from issuance of long-term obligations 300,000 25,268
Principal payments on long-term obligations (271,464) (16,762)
----------- ---------
Net cash used in financing activities 2,239,649 74,862
----------- ---------
Net increase (decrease) in cash and cash equivalents (445,417) 61,890
Cash and cash equivalents at beginning of period 477,330 575,684
----------- ---------
Cash and cash equivalents at end of period $ 31,913 $ 637,574
=========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest 155,575 30,123
Income taxes -- 323,174
The accompanying notes are an integral part of these statements.
</TABLE>
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-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 June 30, 1996, the
results of operations for the three and six month periods ended June 30, 1996
and 1995, and the cash flows for the six month periods ended June 30, 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 and six
month periods ended June 30, 1996 and 1995.
<TABLE>
<CAPTION>
Percentage of Net Sales Percentage of Net Sales
for the three month for the six month
period ended June 30, period ended June 30,
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
Gross Profit 30.9 28.8 28.6 27.5
Selling Expenses 15.0 16.6 14.9 15.7
General & Administrative 12.8 10.7 11.6 10.4
Operating Profit 3.1 1.5 2.1 1.4
Interest Expense 1.9 0.6 1.5 0.6
Earnings Before Income Taxes 1.1 1.1 .5 1.4
Net Earnings 0.7 0.7 .4 0.9
</TABLE>
NET SALES increased 18% to $13,965,000 for the six months ended June 30, 1996
from $11,832,000 in the same period of 1995. Net sales increased from $5,587,000
in the second quarter of 1995 to $6,560,000 in the second quarter of 1996. The
increase in net sales in the first six months of 1996, as compared to the first
six months of 1995, is due primarily to the Company's new Polarfleece(R) line of
products and expanded sales of the Company's table linen, bedding, and
accessories products.
GROSS PROFIT PERCENTAGES increased from 27.5% in the first six months of 1995 to
28.6% for the same period of 1996. During the second quarter of 1996, compared
to the same period of 1995, gross profit percentages increased to 30.9% from
28.8%. Gross profit percentages were positively affected by a decrease in the
cost of raw materials as a percentage of sales and negatively affected by
increased labor expense, depreciation expense, and other manufacturing overhead
expenses related to new and expanded manufacturing capacity.
SELLING EXPENSES, as a percentage of net sales, decreased from 15.7% in the
first six months for 1995 to 14.9% in 1996. The decline in selling expense as a
percentage of net sales from the first six months 1995 to the comparable period
in 1996 is primarily due to the increase in net sales. The amount of selling
expenses increased primarily as the result of higher sales representative
commissions related to increased net sales, 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 and the hiring of a new Vice
President of Corporate Sales. Additionally, the Company's participation in the
Heimtextil trade show in Frankfurt, Germany and expanded showrooms in Chicago
and Atlanta has increased selling expenses in 1996 as compared to 1995.
GENERAL AND ADMINISTRATIVE EXPENSES increased from $1,226,000 in the first six
months of 1995 to $1,617,000 during the same period in 1996. The increase is
primarily due to the Company's expansion of design and product development
capabilities, middle management and clerical support, and other general support
for the addition of the Polarfleece(R) line of products and the related
manufacturing facilities in Platte and Redfield, SD.
GAIN ON SALE OF EQUIPMENT was $56,000 in the first six months 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 $76,000 in the first six months of 1995 to
$204,000 in the first six months of 1996. This increase was the result of higher
average borrowings to finance capital expenditures, higher accounts receivable,
and higher inventories. Most of the buildup of inventory is related to shipments
to be made in the third and fourth quarters.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $7.6 million as of December 31, 1995 compared to $7.1
million as of June 30, 1996.
At December 31, 1995, the Company had cash and cash equivalents of $477,000 and
$32,000 at June 30, 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. On July 11, 1996, the Company
amended its credit facility. The amended credit facility, which expires August
1998, 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 $9
million or a defined borrowing base of eligible accounts receivable and eligible
inventories.
The Company's amendment to the line of credit allows for a permanent advance
against inventory and finances the capital expenditures related to the opening
of the new Redfield Polarfleece(R) manufacturing facility, the procurement of
additional Polarfleece(R) fabric at advantageous prices from the Company's
supplier of Polarfleece(R) fabrics and the production of Polarfleece(R) products
for shipment in the third and fourth quarters of 1996.
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 $5,045,000 and $833,000 at June 30, 1996.
For the six month period ended June 30, 1996, the Company's capital expenditures
were $899,000. These capital expenditures include $687,000 to expand
manufacturing capacity, upgrade existing buildings, and additional production
equipment and $189,000 to upgrade the Company's computer system but do not
include the capital expenditure related to the acquisition of the Company's
42,000 square foot Polarfleece(R) manufacturing facility in Redfield, South
Dakota. The Company expects to enter into a lease purchase agreement with the
Redfield Development Corporation during the third or fourth quarter of 1996. The
total capital expenditure related to the Redfield plant will be approximately
$700,000.
The Company expects to spend an additional $1,100,000 for the remainder of 1996
to expand capacity and to expand and up-grade existing buildings and production
equipment. These future capital expenditures include approximately $550,000 for
a 32,000 square foot expansion onto the Company's main manufacturing facility in
Webster, South Dakota. In addition to the above capital expenditures the Company
expects to spend an additional $150,000 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 June 30, 1996, the total outstanding
indebtedness was $669,000. 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.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders on June 12, 1996, the Company submitted to
a vote of security-holders the following matters which received the indicated
votes.
<TABLE>
<CAPTION>
1. Election of Directors:
For Withhold Authority Broker Non-Votes
<S> <C> <C> <C>
James D. Becker 3,343,136 11,821 -0-
Linda J. Laskowski 3,341,986 12,971 -0-
Lee A. Schoenbeck 3,338,476 16,481 -0-
Leo T. Reynolds 3,341,986 12,971 -0-
</TABLE>
2. Approval of the adoption of the 1995 Stock Option Plan:
For Against Abstain Broker Non-Votes
2,257,185 308,298 14,984 774,490
3. Approval of the adoption of the 1996 Stock Option Plan for Directors:
For Against Abstain Broker Non-Votes
2,422,709 140,338 25,720 766,190
4. Ratify the appointment of Grant Thornton LLP as independent auditors
for the current fiscal year:
For Against Abstain Broker Non-Votes
3,334,778 13,361 6,818 -0-
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
August 12, 1996 By: /s/ Troy Jones, Jr.
-------------------------------------
Troy Jones, Jr.
Chief Executive Officer
(Principal Financial and Accounting
Officer)
August 12, 1996 By: /s/ George Whyte
------------------------------------
George Whyte
President and Chairman
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 31,913
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 11,352,707
<CURRENT-ASSETS> 16,987,929
<PP&E> 4,993,361
<DEPRECIATION> 2,226,533
<TOTAL-ASSETS> 20,529,626
<CURRENT-LIABILITIES> 9,835,837
<BONDS> 1,124,810
0
0
<COMMON> 34,998
<OTHER-SE> 9,533,981
<TOTAL-LIABILITY-AND-EQUITY> 20,529,626
<SALES> 13,964,555
<TOTAL-REVENUES> 13,964,555
<CGS> 9,970,397
<TOTAL-COSTS> 9,970,397
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 203,847
<INCOME-PRETAX> 76,444
<INCOME-TAX> 27,520
<INCOME-CONTINUING> 48,924
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 48,924
<EPS-PRIMARY> .01
<EPS-DILUTED> 0
</TABLE>
