-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LQpFgbhXIdvGnS/77huIBuYLChNYKXVdkFEBvERqvlDdz3+JzYG6J3t+U3sI5nSs W4zyc9JGbgJkFkd70B5uPg== 0000897101-97-000949.txt : 19970820 0000897101-97-000949.hdr.sgml : 19970820 ACCESSION NUMBER: 0000897101-97-000949 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970819 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DAKOTAH INC CENTRAL INDEX KEY: 0000859944 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FABRICATED TEXTILE PRODUCTS [2390] IRS NUMBER: 460339860 STATE OF INCORPORATION: SD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-23604 FILM NUMBER: 97666558 BUSINESS ADDRESS: STREET 1: ONE N PARK LN CITY: WEBSTER STATE: SD ZIP: 57274-0120 BUSINESS PHONE: 6053454646 MAIL ADDRESS: STREET 1: ONE NORTH PARK LANE CITY: WEBSTER STATE: SD ZIP: 57274-0120 10-Q/A 1 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. 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 DAKOTAH, INCORPORATED BALANCE SHEETS (Unaudited)
June 30, December 31, ASSETS 1997 1996 ----------- ----------- 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 =========== ===========
The accompanying notes are an integral part of these statements. DAKOTAH, INCORPORATED STATEMENTS OF OPERATIONS (Unaudited)
For the three months ended June 30, For the six months ended June 30, 1997 1996 1997 1996 ----------- ----------- ------------ ------------ 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 =========== =========== ============ ============
The accompanying notes are an integral part of these statements. DAKOTAH, INCORPORATED STATEMENTS OF CASH FLOWS (Unaudited)
For the six months ended June 30, 1997 1996 ------------ ----------- 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 --
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 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. 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. 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.
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 ---- ---- ---- ---- 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)
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 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. 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 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. 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 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) -----END PRIVACY-ENHANCED MESSAGE-----