UNITED STATES SECURITIES & EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q-A
Quarterly report pursuant to Section 13 of 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 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 August 12, 1997.
<PAGE>
DAKOTAH, INCORPORATED
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets (Unaudited):
June 30, 1997 and December 31,1996
Statements of Operations (Unaudited):
Three and six month periods ended
June 30, 1997, and June 30, 1996
Statements of Cash Flows (Unaudited):
Six month periods ended
June 30, 1997, and June 30, 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 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) Exhibits
10.1* Credit and Security Agreement dated June 30, 1997
with Diversified Business Credit, Inc.
10.2* First Amendment dated July 7, 1997 to Credit and
Security Agreement with Diversified Business Credit,
Inc.
27.1* Financial Data Schedule
------------------
* Previously filed
b) Reports on Form 8-K None
<PAGE>
DAKOTAH, INCORPORATED
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1997 1996
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 5,956 $ 2,690
Accounts receivable less allowance
for doubtful accounts of $439,000
in 1997 and $382,000 in 1996 4,556,736 7,538,724
Inventories 19,473,090 9,555,897
Prepaid expenses and other 551,177 735,929
Income taxes receivable 425,987
Deferred income taxes 496,000 496,000
----------- -----------
Total current assets 25,508,946 18,329,240
PROPERTY, PLANT AND EQUIPMENT - AT COST
Land 36,000 36,000
Buildings and improvements 2,399,645 2,334,516
Leasehold improvements 122,362 123,731
Machinery and equipment 3,227,898 3,009,792
Office equipment, furniture and fixtures and other 1,671,143 958,758
----------- -----------
7,457,048 6,462,797
Less accumulated depreciation & amortization 2,895,221 2,555,767
----------- -----------
4,561,827 3,907,030
OTHER ASSETS
Deferred income taxes 185,000 185,000
Other 814,783 508,690
----------- -----------
999,783 693,690
----------- -----------
$31,070,556 $22,929,960
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Outstanding checks in excess of bank balances $ 1,006,639 $
Notes payable to bank 10,740,014 7,123,000
Current maturities of long-term obligations, including
$288,800 in 1997 and $332,139 in 1996 to related parties 959,281 482,835
Accounts payable 6,079,650 2,134,845
Accrued liabilities
Compensation and related benefits 699,243 925,739
Other 505,311 716,217
Income taxes payable -- 187,079
----------- -----------
Total current liabilities 19,990,138 11,569,715
LONG TERM OBLIGATIONS, less current maturities, including
$129,162 in 1996 to related parties 1,544,103 912,585
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 6,967,156 6,904,156
Retained earnings 2,534,161 3,508,506
----------- -----------
9,536,315 10,447,660
----------- -----------
$31,070,556 $22,929,960
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
DAKOTAH, INCORPORATED
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended June 30, For the six months ended June 30,
1997 1996 1997 1996
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 6,856,237 $ 6,559,731 $ 13,538,086 $ 13,964,555
Cost of goods sold 5,221,003 4,929,806 10,178,176 10,370,397
----------- ----------- ------------ ------------
Gross profit 1,635,234 1,629,925 3,359,910 3,594,158
Operating expenses
Selling 1,022,175 984,484 2,205,453 2,078,682
General and administrative 1,297,050 842,126 2,266,203 1,617,052
----------- ----------- ------------ ------------
2,319,225 1,826,610 4,471,656 3,695,734
----------- ----------- ------------ ------------
Operating profit (loss) (683,991) (196,685) (1,111,746) (101,576)
Other income (expense)
Interest expense (210,102) (124,969) (353,599) (203,847)
Gain on sale of equipment 6,867 6,867
Other (11,866) (25,000)
----------- ----------- ------------ ------------
(210,102) (129,968) (353,599) (221,980)
Earnings (loss) before income (894,093) (326,653) (1,465,345) (323,556)
taxes
Income tax expense (benefit) (311,000) (107,595) (491,000) (106,480)
----------- ----------- ------------ ------------
NET EARNINGS (LOSS) $ (583,093) $ (219,058) $ (974,345) $ (217,076)
=========== =========== ============ ============
Net earnings (loss) per share $ (0.17) $ (0.06) $ (0.28) $ (0.06)
=========== =========== ============ ============
Weighted average
common shares outstanding 3,499,755 3,499,755 3,499,755 3,499,755
=========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
DAKOTAH, INCORPORATED
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the six months ended June 30,
1997 1996
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (974,345) $ (217,076)
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities
Depreciation and amortization 339,453 341,259
Compensation to outside consultant 63,000
Changes in assets and liabilities:
Accounts receivable 2,981,988 1,967,727
Inventories (9,917,193) (3,688,672)
Prepaid expenses 184,752 (160,923)
Income taxes receivable (425,987)
Accounts payable 3,944,805 92,733
Accrued liabilities (437,402) 12,488
Income taxes payable (187,079) (134,000)
------------ -----------
Total adjustments (3,453,663) (1,569,388)
------------ -----------
Net cash used in operating activities (4,428,008) (1,786,464)
Cash flows from investing activities:
Capital expenditures (994,250) (898,602)
Other (306,093) --
------------ -----------
Net cash used in investing activities (1,300,343) (898,602)
Cash flows from financing activities:
Outstanding checks in excess of bank balances 1,006,639
Net borrowings under notes payable 3,617,014 2,211,113
Proceeds from issuance of long-term obligations 1,495,673 300,000
Principal payments on long-term obligations (387,709) (271,464)
------------ -----------
Net cash provided by financing activities 5,731,617 2,239,649
------------ -----------
Net increase (decrease) in cash and cash equivalents 3,266 (445,417)
Cash and cash equivalents at beginning of period 2,690 477,330
------------ -----------
Cash and cash equivalents at end of period $ 5,956 $ 31,913
============ ===========
Supplemental disclosures of cash flow information:
Cash paid during the period
for:
Interest 323,435 155,575
Income taxes 120,000 --
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
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 June 30, 1997 and the
results of operations for the three and six month periods ended June 30, 1997
and 1996 and the cash flows for the six month periods ended June 30, 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:
June 30, 1997 December 31, 1996
------------- -----------------
Raw Materials $ 9,483,192 $5,722,944
Work-In-Process 2,221,859 1,667,023
Finished Goods 7,768,039 2,165,930
----------- ----------
$19,473,090 $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.
<PAGE>
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.
NOTE D: NOTES PAYABLE TO BANK
During the second quarter of 1997, the Company refinanced its credit facility
and further amended it in July of 1997. The total amount available under the
revolving note, which is due on demand is limited to the lesser of $15 million
or a defined borrowing base of eligible accounts receivable, inventory, and
outstanding amounts under the term note. The term note is due on demand and
requires monthly principal payments of $33,333. Advances under the revolving
note, based on inventory balances, provide for monthly interest payments at 3%
above the bank's prime rate (9.5% at June 30, 1997). The outstanding balances on
the revolving note and term note were $8,740,000 and $2,000,000 at June 30,
1997. The outstanding balances on the previous revolving note and term note were
$6,415,000 and $708,000 at December 31, 1996.
The current credit facility contains affirmative and negative covenants
including among other things, provisions for minimum net earnings and net worth
requirements and limitations on capital expenditures. Additionally, the Company
may not incur additional borrowings, sell certain assets, aquire other
businesses or pay cash dividends without prior consent.
<PAGE>
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 and six
month periods ended June 30, 1997 and 1996.
<TABLE>
<CAPTION>
Percentage of Net Sales for the Percentage of Net Sales for the
three month period ended June 30, six month period ended June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
Gross Profit 23.8 24.9 24.8 25.7
Selling Expenses 14.9 15.0 16.3 14.9
General & Administrative 18.9 12.9 16.7 11.5
Operating Profit (Loss) (10.0) (3.0) (8.2) (0.7)
Interest Expense 3.0 1.9 2.6 1.6
Earnings (Loss) Before
Income Taxes (13.0) (5.0) (10.8) (2.3)
Net Earnings (Loss) (8.5) (3.3) (7.2) (1.6)
</TABLE>
NET SALES decreased 3% to $13,538,000 for the six months ended June 30, 1997
from $13,965,000 in the same period of 1996. Net sales increased from $6,560,000
in the second quarter of 1996, to $6,856,000 in the second quarter of 1997. The
decrease in sales for the six months ended June 30,1997 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.
The increase in net sales for the second quarter of 1997 from the second quarter
of 1996 is the result of increasing sales of the Company's Polarfleece(R) line
of products and blankets offset by a decline in sales of pillows and table
linens.
GROSS MARGIN PERCENTAGES decreased from 25.7% in the first six months of 1996 to
24.8% in the first six months of 1997. During the second quarter of 1997,
compared to the same period of 1996, gross profit percentages decreased to 23.8%
from 24.9%. Gross margin percentages were adversely affected in the first six
months of 1997 by the costs associated with the Company's efforts to build
capacity and infrastructure for the Fall selling season, by lost production time
and an increase of off-standard and
<PAGE>
indirect labor and other related costs associated with the Company's move of its
Webster, SD warehouse and pillow finishing manufacturing and the Webster, SD
plant reconfiguration. In the first six months of 1996, gross profit percentages
were negatively affected by the April, 1996 startup of the Company's
Polarfleece(R) manufacturing facility in Redfield, South Dakota.
SELLING EXPENSES grew from $2,079,000 in the first six months of 1996 to
$2,205,000 in the first six months of 1997. The $126,000 increase is primarily
the result of (1) increased costs of catalog and promotional literature of
approximately $73,000, (2) increased cost of showroom decorating and supplies of
approximately $45,000 and (3) increased costs of travel and lodging for the
sales force. These increases are related to the Company's efforts to increase
1997 net sales and expand its sales distribution channels and markets. As a
percentage of net sales, selling expenses increased to 16.3% in the first six
months of 1997 from 14.9% in the first six months of 1996 as a result of higher
selling expenses and lower sales.
GENERAL AND ADMINISTRATIVE EXPENSES increased from $1,617,000 in the first six
months of 1996 to $2,266,000 in the first six months of 1997. The increase is
primarily due to (1) an increase in administrative, clerical and management
staff of $150,000, to support the anticipated general growth of the Company and
the need to provide staff to accomplish the planned computer conversion and
re-engineering of the Company's processes and systems, (2) an increase of
approximately $80,000 in senior management recruiting costs and (3) increased
professional fees of approximately $74,000 primarily related to expanding
product distribution to international markets and increased accounting
fees, and (4) a general increase in costs related to the Company's planned
computer conversion. As a percentage of net sales, general and administrative
expenses increased from 11.5% in the first six months of 1996 to 16.7% in the
first six months of 1997 as a result of lower net sales and higher general and
administrative expenses.
INTEREST EXPENSE increased from $204,000 in the first six months of 1996 to
$354,000 in the first six months of 1997. The increase is the result of higher
average borrowings during the first six months related to previous capital
expenditures and the buildup of inventory to support the Company's sales in the
third and fourth quarters of 1997.
RESTATEMENT OF SECOND AND THIRD QUARTER FORM 10-Q'S. During the close of the
Company's 1996 annual close procedures, the Company noted that it had
inadvertently overlooked certain items during the preparation of its second and
third quarter Form 10-Q's. Upon identification of those matters, the Company
amended the respective Form 10-Q's to adjust for those items. The discussion
and analysis herein reflects these amendments.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $5.5 million as of June 30, 1997 and $6.8 million as
December 31, 1996.
The net cash used in operating activities during the first six months of 1997
was primarily used to fund the Company's buildup of inventory to support the
Company's anticipated sales in the third and fourth quarters of 1997.
<PAGE>
The net cash used in investing activities during the first six months of 1997
was primarily provided by the refinancing and increased borrowings of term debt.
Accounts receivable were approximately $4,557,000 as of June 30, 1997 and
$7,500,000 as of December 31, 1996. The decrease in the first six months of 1997
was due to lower sales in the second quarter of 1997 as compared to the fourth
quarter of 1996.
The allowance for doubtful accounts increased from $382,000 at December 31, 1996
t0 $439,000 at June 30, 1997. The Company estimates the allowance for doubtful
accounts based upon the best information available to management. In addition to
a substantial increase in sales and new customers, the Company had a number of
customers go into bankruptcy for which bankruptcy proceedings have not been
concluded. Management believes that the allowance is adequate to cover any
losses as a result of these items.
The seasonality of the Company's sales cycle and the planned 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 $19,473,000 as of June 30, 1997 and $9,600,000 as
of December 31, 1996. The increase in the first six months 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 $6,080,000 as of June 30, 1997 and
$2,135,000 as of December 31, 1996. The increase as of June 30, 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 second quarter
of 1997, the Company refinanced its credit facility. The Company also amended
the credit facility in July of 1997. The new credit facility, which expires in
June 1999, accommodates 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 $15 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 $33,333. Advances under the revolving note, based
on inventory balances, provide for monthly interest payments at 3% above the
bank's prime rate (11.5% at June 30, 1997). The term note and other advances
under the revolving note provide for monthly interest payments at 1.0% above the
bank's prime rate (9.5% at June 30, 1997). The outstanding balances on the
revolving note and term note were $8,740,000 and $2,000,000 at June 30, 1997.
The outstanding balances on the revolving note and term note were $6,415,000 and
$708,000 at December 31, 1996.
For the six months ended June 30, 1997, the Company's capital expenditures were
$994,000. These capital expenditures include $493,000 to upgrade computer
hardware
<PAGE>
and refinance operating leases existing prior to the upgrade. The remaining
$501,000 was used primarily to upgrade and purchase additional manufacturing and
transportation equipment.
The Company expects to spend an additional $500,000 in 1997 to expand capacity
and to up-grade existing buildings and production equipment.
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, 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.
<PAGE>
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
At the Annual Meeting of Stockholders on June 12, 1997, the Company submitted to
a vote of security-holders the following matters which received the indicated
votes.
1. Election of Directors:
For Withhold Authority Broker Non-Votes
--- ------------------ ----------------
Leo T. Reynolds 3,293,239 20,343 0
Troy Jones, Jr. 3,293,133 20,449 0
Michael G. Grosek 3,293,239 20,343 0
2. Ratify the appointment of Grant Thorton LLP as independent auditors for
the current fiscal year:
For Against Abstain Broker Non-Votes
--- ------- ------- ----------------
3,288,560 16,270 8,752 0
<PAGE>
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 19, 1997 By: /s/ TROY JONES, JR.
------------------------------------
Troy Jones, Jr.
Chief Executive Officer
August 19, 1997 By: /s/ WILLIAM R. RETTERATH
------------------------------------
William R. Retterath
Chief Financial Officer
(Principal Financial and Accounting
Officer)
