<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
450 Fifth Street, NW
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 4, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from to
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Commission file number 2-69336
CRAMER, INC.
A Kansas Corporation IRS Employment I.D. #48-0638707
625 Adams Street
Kansas City, Kansas 66105 Telephone No. (913) 621-6700
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X] No[ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 4,051,400 shares of common stock, no
par value, as of August 4, 1999.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CRAMER, INC.
BALANCE SHEET
UNAUDITED
(Amounts in Thousands, Except Share Data)
<TABLE>
<CAPTION>
7/4/99 12/31/98
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<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 68 $ 63
Accounts receivable, net of allowance of $21 1,474 1,114
Inventories 1,364 1,483
Prepaid expenses 395 230
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Total current assets 3,301 2,890
PROPERTY, PLANT AND EQUIPMENT
At cost 5,964 5,818
Accumulated depreciation 5,170 5,068
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794 750
OTHER ASSETS:
Intangible pension asset 160 160
Goodwill 180 190
Other non current assets 175 189
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Total Assets $ 4,610 $ 4,179
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable $ 1,998 $ 1,548
Accounts payable 589 429
Accrued liabilities 619 600
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Total current liabilities 3,206 2,577
NON-CURRENT LIABILITIES:
Pension benefits payable 460 494
Other 216 238
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Total non-current liabilities 676 732
STOCKHOLDERS' EQUITY:
Common stock, no par value; authorized, 6,000,000 shares; issued and
outstanding 4,051,400 shares at July 4, 1999,
and December 31, 1998 3,824 3,824
Accumulated deficit (2,829) (2,687)
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995 1,137
Minimum pension liability adjustment (267) (267)
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Net stockholders' equity 728 870
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Total Liabilities and Stockholders' Equity $ 4,610 $ 4,179
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</TABLE>
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CRAMER, INC.
STATEMENTS OF INCOME
UNAUDITED
(Amounts in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
7/4/99 7/5/98 7/4/99 7/5/98
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 3,293 $ 3,279 $ 6,494 $ 6,456
COST OF SALES 2,347 2,277 4,633 4,616
----------- ----------- ----------- -----------
Gross profit 946 999 1,861 1,840
OPERATING EXPENSES:
Selling expenses 718 608 1,302 1,184
General and administrative 338 319 636 588
----------- ----------- ----------- -----------
Total operating expenses 1,056 927 1,938 1,772
----------- ----------- ----------- -----------
Income (loss) from operations (110) 72 (77) 68
OTHER INCOME (EXPENSE):
Interest expense, net (30) (22) (55) (47)
Other, net (2) (31) (10) (5)
----------- ----------- ----------- -----------
Total other income (expense) (32) (53) (65) (52)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (142) 19 (142) 16
INCOME TAX EXPENSE (BENEFIT) 0 0 0 0
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (142) $ 19 $ (142) $ 16
=========== =========== =========== ===========
Net income (loss) per share based on weighted
average number of common equivalent
shares outstanding $ (0.04) $ 0.01 (0.04) $ 0.01
Weighted Average Common Equivalent
Shares Outstanding Basic 4,051,400 4,051,400 4,051,400 4,051,400
Diluted 4,051,400 4,051 400 4,051,400 4,051,400
</TABLE>
There is no difference between Net Income and Total Comprehensive Income (Loss)
for the quarter or six-month periods ending July 4, 1999 and July 5, 1998.
These interim financial statements contain all adjustments required for them to
be comparable to the annual financial statements issued on Form 10KSB.
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CRAMER, INC.
STATEMENTS OF CASH FLOWS
UNAUDITED
(Amounts in Thousands)
<TABLE>
<CAPTION>
Six Months Ended
7/4/99 7/5/98
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<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (142) $ 16
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 126 96
Changes in operating assets and liabilities:
Accounts receivable (360) (280)
Inventories 119 (18)
Prepaid expenses (165) 39
Accounts payable and accrued expenses 179 193
Other non-current liabilities (56) (22)
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Net cash provided by (used by) operating activities (299) 24
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Cash flows from investing activities:
Capital expenditures (146) (54)
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Cash flows from financing activities:
Principal payments on notes payable and long-term debt (2,306) (1,834)
Proceeds from issuance of notes payable and long-term debt 2,756 1,838
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Net cash provided by financing activities 450 4
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Net increase (decrease) in cash 5 (26)
Cash at beginning of year 63 52
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Cash at end of quarter $ 68 $ 26
======= =======
Supplemental disclosures:
Cash paid during the period for:
Interest $ 55 $ 47
======= =======
Income tax $ 0 $ 0
======= =======
</TABLE>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
A. FORWARD LOOKING STATEMENTS
Except for the historical information contained herein, this report on
Form 10-QSB contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially
from the forward looking statements. In connection with the "safe
harbor" provisions of the Private Securities Litigation Reform Act of
1995, Cramer, Inc. reminds readers that there are many important
factors that could cause the Company's actual results to differ
materially from those projected in forward-looking statements of the
Company made by, or on behalf of, the Company. When used in this Form
10-QSB and in other filings by the Company with the Securities and
Exchange Commission, in the Company's press releases and in oral
statements made with the approval of an authorized executive officer,
words or phrases such as "will likely result", "expects", "are
expected to", "will continue", "is anticipated", "estimate", "project"
or similar expressions are intended to identify forward-looking
statements. The Company wishes to caution readers not to place undue
reliance on such forward-looking statements.
There are a number of reasons why investors should not place undue
reliance on forward-looking statements. Among the risks and
uncertainties that could cause the Company's actual results for future
periods to differ materially from any forward-looking statements made
are the following:
- Fluctuations or reductions in product demand and market
acceptance
- The level of product development by the Company
- Capacity and supply constraints or difficulties
- The results of financing efforts
- The effect of new laws and regulations
- Unexpected additional expenses or operating losses
- Competition
- The Company's reliance on certain vendors for key
components.
- The possible effect of the year 2000 on computer systems
- The potential inability of the Company's keyboard line to
generate sufficient sales to cover sales, marketing and
introduction costs
-
The foregoing list of risks and uncertainties is not meant to be
complete.
B. POSSIBLE EFFECT OF THE YEAR 2000
As with many other companies, Cramer may be impacted by the "year 2000
problem". The "year 2000 problem" arose because many existing computer
programs use only the last two digits to refer to a year. Therefore,
these computer programs do not properly recognize a year that begins
with "20" instead of the familiar "19". If not corrected, many
computer applications could fail or create erroneous results.
In developing a response to the year 2000 issue, the Company has
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considered all of its computer systems, both those that are directly
related to information technology systems and other systems where
computer controls exist. The Company has also considered the readiness
of its key vendors and customers.
The Company's only critical system is its Enterprise Resource Planning
(ERP) system that encompasses the Company's manufacturing, scheduling,
purchasing, and accounting systems. The ERP system resides on an IBM
advanced 36/AS 400. The advanced 36/AS400's operating system and the
core ERP system will be converted to allow recognition of years
beginning with a "20" using the 100 year fixed window methodology.
This methodology converts all dates entered into the system in a
prescribed manner that will allow the ERP system to consistently
handle dates both before and after the turn of the century.
The Company's in-house EDP department has developed and installed
fixed window subroutines that will convert the ERP system to year 2000
compliance. Implementation of this process is proceeding through a
pre-established schedule for each of the various modules of the ERP
system. All modules in the ERP system have been remediated and users
are currently testing the revised system in a test environment that
simulates processing in the year 2000. The Company anticipates
converting to the revised system during the 3rd quarter of 1999.
Due to the time required for the year 2000 project, non-essential
enhancements to the company's computer systems have been delayed at
times, however, the direct costs associated with the year 2000 project
are expected to be less than $15,000.
The Company has appointed an internal task force to review year 2000
compliance issues for all other areas where computer controls exist.
This review includes all other information technology systems other
than the ERP system and possible computer controlled processes in the
Company's facilities, communications, manufacturing equipment, etc. At
July 30, 1999, the task force had completed its inventory of all of
the Company's systems. Furthermore, with the exception of the
Company's voice mail system, the task force has determined that all
computer controlled systems have already been appropriately remediated
for the year 2000. In conjunction with appropriate vendors, the
company's voice mail system is currently being assessed for year 2000
compliance. Once an assessment is completed, an appropriate
remediation plan will be implemented.
The Company has developed a questionnaire to assess its vendors'
readiness to handle the year 2000 issue. These questionnaires were
distributed to vendors in later portions of 1998 and in early 1999.
The responses to these questionnaires have been reviewed and, as
necessary, supplemented with verbal discussions with the vendor's
management and information system professionals. Based on these
procedures, the Company is unaware of any vendor that will not be year
2000 complaint by the end of 1999.
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Through discussions with appropriate parties, the Company is aware
that its 8 largest wholesale and catalog customers are aware of the
year 2000 issue and are currently determining how to convert their
systems to handle the problem. Since the remainder of the Company's
sales are to a wide variety of other furniture re-sellers, which
change from year to year, there are no efforts currently underway to
assess the status of these customers' year 2000 readiness.
The Company is developing contingency plans in case its ERP system,
its other computer controlled systems, its vendors, or major customers
prove not to be ready for the year 2000. With respect to the ERP
system, the Company believes that it can operate with manual controls
and systems for some period if all or portions of the ERP system were
not fully operational. Depending on the extent of the deficiency,
additional clerical personnel may have to be hired for a short period
of time. The Company's senior management will review the results of
the procedures performed in relation to the Company's key vendors
during the 3rd quarter of 1999. Contingency plans for vendor supplied
parts may include the purchase of additional inventory in the final
month of 1999.
There can be no assurance that year 2000 remediation by the Company or
third parties will be properly completed or timely and failure to do
so could have a material adverse effect on the Company's financial
condition. The Company can not fully predict the actual effects of the
year 2000 issue, which depends on numerous uncertainties such as (1)
whether major third parties address this issue properly and timely and
(2) whether broad-based or systemic economic failures may occur. The
Company is currently unaware of any events, trends, or condition
regarding this issue that may have a material effect on the Company's
results of operations, liquidity, or financial position.
C. SUMMARY OF OPERATIONS
Order income for the first half of 1999 was $6,604,000. This is a
reduction of approximately 4% as compared to the Company's order
income in the first half of 1998. The reduction in order intake is
consistent with the experience of the industry as a whole. For the
first 5 months of 1999, the Business and Institutional Furniture
Manufactures Association (BIFMA) reported that total industry sales
were approximately 4% less in 1999 as compared to 1998.
At $6,494,000, net sales for the first half of 1999 were $38,000
higher than for the same period in 1998. The Company was able to
increase sales in 1999 as compared to 1998 despite lower order volumes
by improving manufacturing and scheduling efficiency. This allowed new
orders to be scheduled with a 3 week lead time instead of the previous
4 week lead time. Management believes the Company's shorter lead
time provides better customer service and is a competitive advantage
in certain bidding situations.
The Company's backlog at the end of the first half of 1999 was
$974,000. This amount is virtually unchanged from the total at the end
of 1998. Substantially all of the Company's backlog is scheduled to
ship within the next three months.
As a percentage of net sales, gross margins in the first half of 1999
were
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28.7% as compared to 28.5% in the first half of 1998.
Selling expenses in the first half of 1999 increased by $118,000 as
compared to the first half of 1998. The increase consists primarily of
additional salaries associated with an expansion of sales personnel.
Personnel costs increased by $70,000 in the seating and utility
division in order to more actively manage the Company's key catalog
customers. These individuals will also manage specific markets areas
which will provide better support for the Company's commissioned sales
representatives. Personnel costs increased by $35,000 in the keyboard
division to allow more timely contact and follow-up with the
increasing number of customer leads being generated by the division's
web page. In addition to the above personnel increases, the Company's
1999 cost for catalog placement fees have increased by $60,000 as
compared to 1998 due to increases in the number of catalogs
participating in and increases in the rates being charged by certain
of the Company's larger volume customers. Partially offsetting the
above increases is a $57,000 reduction in the cost of sales literature
due to less emphasis being placed on this sales support mechanism.
General and administrative costs in the first half of 1999 increased
by $48,000 as compared to the total for the first half of 1998.
Approximately half of the increase represents additional legal fees
related to the defense of several product liability claims. The
majority of the remaining increase is due to higher long distance
costs resulting from the increase in the number of sales personnel
calling customers.
Interest expense in the first half of 1999 increased by $8,000 as
compared to the first half of 1998. The increase is consistent with
the increase in average borrowings discussed below.
As a result of the increases in operating expenses, the Company
experienced a loss before income taxes of $142,000 in the first half
of 1999. This is a difference of $158,000 when compared to the net
income before income taxes of $16,000 during the first half of 1998.
While the Company had an overall loss for the first half of 1999,
management notes that the Company's core seating and utility product
business remains profitable. The gross margins on these products have
improved in 1999 as compared to 1998, (see discussion in "Summary of
Operations" in the Company's first quarter 1999 Form 10QSB) Management
believes that the improvements in gross margins on these products will
continue throughout the remainder of the year. Furthermore, the
investments in new sales personnel for this division are anticipated
to increase order intake and sales levels during the remainder of the
year.
Sales of the Company's new articulating keyboard product continue to
be slow and the sales, marketing and introductory costs for the
product line continue to exceed the gross margin generated from its
sales. The resultant net loss from this product line was more than the
net income provided by the Company's
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<PAGE> 9
core seating and utility business. While keyboard sales levels are
anticipated to increase in the 2nd half of the year, the product line
will remain in a net loss position for the remainder of 1999.
Management believes that for 1999 as a whole, the profits from the
core seating and utility business will slightly exceed the losses
associated with the introduction of the keyboard products. Management
also believes that, in the long run, the keyboard product line will be
a successful addition to the Company's product offering providing a
net positive return on amounts invested.
D. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's trade accounts receivable increased by $360,000 from
December 31, 1998 to July 4, 1999. The increase is due to the timing
of sales in the final weeks of the respective periods. Weekly sales in
the final 4 weeks of 1998 averaged $251,000. Weekly sales in the final
4 weeks of the second quarter of 1999 averaged $276,000; an increase
if approximately 10%.
Inventories decreased by $119,000 during the first half of 1999. The
difference represents normal fluctuations in the Company's inventory
balances.
Capital expenditures aggregated $146,000 during the first half of 1999
and consisted primarily of replacements to tooling maintained at
vendors used in manufacturing the Company's existing utility products.
Most of the new tooling expenditures will allow reductions in existing
product costs or will eliminate anticipated product cost increases.
The Company's accounts payable increased by $160,000 from the December
31, 1998 balance. The increase is a result of increased purchases of
raw materials to support the increased business activity in the final
weeks of the first half of 1999.
During the first half of 1999 the Company reduced its long-term
pension liability by $34,000 in accordance with established payment
schedules.
The Company's notes payable increased by $450,000 during the first
half of 1999. The increase is principally due to the timing of sales
that was described above, the company's operating losses for the
period, and the expenditures for new tooling. The Company continues to
participate in a consolidated cash management and credit facility with
its parent, Rotherwood. (See discussion in Note 3 to the Financial
Statements in the Company's 1998 Form 10KSB.) The note matures during
the 3rd quarter of 1999. Based upon its preliminary discussions with
its bank, management anticipates no difficulties in renewing and
expanding this credit facility. Management also believes that the
Company's access to this facility, along with existing cash balances
and cash generated from future operations, will be adequate to meet
future operating requirements and liquidity needs.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a defendant in several lawsuits relating to product
liability claims arising from accidents allegedly occurring in
connection with the use of its products. The claims are covered by
insurance and are being defended by the Company's independent counsel,
or by counsel assigned by the insurance carriers, but are subject to
deductibles ranging from $0 to $100,000. A number of the claimants
allege substantial damages. While management believes the Company has
substantial defenses with respect to the claims, the ultimate outcome
of such litigation cannot be predicted with certainty. The Company has
reasonably estimated and accrued in its financial statements its
portion of the deductible as a product liability contingency. Such
claims are an ordinary aspect of the Company's business.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 15, 1999, the Company solicited proxies concerning the
election of Directors at a meeting held on May 18, 1999.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None.
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CRAMER, INC.
(Registrant)
Date: August 13, 1999 /s/ Gary A. Rubin
------------------------ -----------------------------
Gary A. Rubin
Vice President, Finance & CFO
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUL-04-1999
<CASH> 68
<SECURITIES> 0
<RECEIVABLES> 1474
<ALLOWANCES> 21
<INVENTORY> 1364
<CURRENT-ASSETS> 395
<PP&E> 5964
<DEPRECIATION> 5170
<TOTAL-ASSETS> 4610
<CURRENT-LIABILITIES> 3206
<BONDS> 0
0
0
<COMMON> 3824
<OTHER-SE> (3096)
<TOTAL-LIABILITY-AND-EQUITY> 4610
<SALES> 6494
<TOTAL-REVENUES> 6494
<CGS> 4633
<TOTAL-COSTS> 6571
<OTHER-EXPENSES> 10
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55
<INCOME-PRETAX> (142)
<INCOME-TAX> 0
<INCOME-CONTINUING> (142)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (142)
<EPS-BASIC> (.04)
<EPS-DILUTED> (.04)
</TABLE>
