<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 April 4, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to __________
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 May 7, 1999.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CRAMER, INC.
BALANCE SHEET
UNAUDITED
(Amounts in Thousands, Except Share Data)
<TABLE>
<CAPTION>
ASSETS 4/4/99 12/31/98
------ --------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 40 $ 63
Accounts receivable, net of allowance of $21 1,408 1,114
Inventories 1,403 1,483
Prepaid expenses 325 230
------- -------
Total current assets 3,176 2,890
PROPERTY, PLANT AND EQUIPMENT:
At cost 5,933 5,818
Accumulated depreciation 5,118 5,068
------- -------
815 750
OTHER ASSETS:
Intangible pension asset 160 160
Goodwill 185 190
Other non current assets 182 189
------- -------
Total Assets $ 4,518 $ 4,179
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable $ 1,731 $ 1,548
Accounts payable 541 429
Accrued liabilities 658 600
------- -------
Total current liabilities 2,930 2,577
NONCURRENT LIABILITIES:
Pension benefits payable 480 494
Other 238 238
------- -------
Total noncurrent liabilities 718 732
STOCKHOLDERS' EQUITY:
Common stock, no par value; authorized, 6,000,000 shares; issued and
outstanding 4,051,400 shares at April 4, 1999,
and December 31, 1998 3,824 3,824
Accumulated deficit (2,687) (2,687)
------- -------
1,137 1,137
Minimum pension liability adjustment (267) (267)
------- -------
Net stockholders' equity 870 870
------- -------
Total Liabilities and Stockholders' Equity $ 4,518 $ 4,179
======= =======
</TABLE>
<PAGE> 3
CRAMER, INC.
STATEMENTS OF INCOME
UNAUDITED
(Amounts in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
QUARTER ENDED
4/4/99 4/5/98
----------- -----------
<S> <C> <C>
NET SALES $ 3,201 $ 3,180
COST OF SALES 2,286 2,339
----------- -----------
Gross profit 915 841
OPERATING EXPENSES:
Selling expenses 584 576
General and administrative 298 269
----------- -----------
Total operating expenses 882 845
----------- -----------
Income (loss) from operations 33 (4)
OTHER EXPENSE:
Interest expense, net (25) (25)
Other, net (8) 26
---------- ----------
Total other expense (33) 1
---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES 0 (3)
INCOME TAX EXPENSE (BENEFIT) 0 0
---------- ----------
NET INCOME (LOSS) $ (0) $ (3)
========== ==========
Net income (loss) per share based on weighted
average number of common equivalent
shares outstanding - basic and diluted $ 0.00 $ 0.00
Weighted Average Common Equivalent
Shares Outstanding: Basic 4,051,400 4,051,400
Diluted 4,051,400 4,051,400
</TABLE>
There is no difference between Net Income and Total Comprehensive Income for the
quarters ending April 4, 1999 and April 5, 1998.
These interim financial statements include all adjustments required for them to
be comparable to the annual financial statements issued on Form 10KSB.
<PAGE> 4
CRAMER, INC.
STATEMENTS OF CASH FLOWS
UNAUDITED
(Amounts in Thousands)
<TABLE>
<CAPTION>
QUARTER ENDED
4/4/99 4/5/98
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 0 $ (3)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 49 40
Changes in operating assets and liabilities:
Accounts receivable (294) 11
Inventories 80 (46)
Prepaid expenses (95) 30
Other assets 12 0
Accounts payable and accrued expenses 171 127
Other noncurrent liabilities (14) 15
------- -------
Net cash provided by (used in) operating activities (91) 174
------- -------
Cash flows from investing activities:
Capital expenditures (115) (20)
Cash flows from financing activities:
Principal payments on notes payable (1,008) (1,003)
Proceeds from issuance of notes payable 1,191 830
------- -------
Net cash provided by (used in) financing activities 183 (173)
------- -------
Net decrease in cash (23) (19)
Cash at beginning of year 63 52
------- -------
Cash at end of quarter $ 40 $ 33
======= =======
Supplemental disclosures:
Cash paid during the period for:
Interest $ 25 $ 25
======= =======
Income tax $ 0 $ 0
======= =======
</TABLE>
<PAGE> 5
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 risk and
uncertainties. The Company's actual results could differ materially. 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 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
considered all of its computer systems, both those that are directly
related to information technology systems and other systems where
computer controls
<PAGE> 6
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 is developing and installing the
fixed window subroutines that will be used in converting 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. Initial remediation efforts focused on the
manufacturing portions of the ERP system. Corrections have been
completed and are presently in the testing phase. The final portions of
the remediation effort will focus on the accounting portions of the ERP
system. Remediation of these portions of the ERP system are scheduled
to be completed by the end of the 2nd quarter of 1999. Once remediation
of the entire ERP system has been completed, all daily transactions
will be run on the converted system in a test environment that
simulates processing in the year 2000. This final test process is
scheduled to occur in 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
April 26, 1999, the task force had completed its inventory of all of
the Company's systems. Furthermore, with the exception of the Company's
phone and 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 phone and voice mail system will be assessed in the 2nd or
3rd quarter of 1999. 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 are currently being reviewed. Special
attention will be given to
<PAGE> 7
significant vendors and in these cases, we will supplement their
answers with verbal discussions with appropriate management and
information system professionals.
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 evaluate the preparedness
of its key vendors in the summer of 1999. Contingency plans for vendor
supplied parts will 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 and timely completed and failure to do
so could have a material adverse effect on the Company's financial
condition. The Company can not predict the actual effects to it 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
At $3,201,000, net sales in the first quarter of 1999 were virtually
the same as in the first quarter of 1998. While sales were unchanged,
the Company's gross margin in the first quarter of 1999 increased by
$74,000 from the level in the same period last year. As a percentage of
net sales, gross margins in the first quarter of 1999 were 28.6% as
compared to 26.4% in the first quarter of 1998. The improvement in
margins reflects (a) reduced labor costs achieved through reductions in
indirect and clerical personnel, (b) lower workers compensations costs
due to the Company's continued success in managing employee safety, and
(c) lower expenses for anticipated product liability defense costs due
to the Company's success in reducing settlements during the past few
years.
The Company's backlog of unfilled orders at the end of the quarter was
$891,000. Substantially all of the Company's quarter-end backlog is
<PAGE> 8
scheduled to ship in the next 3 months.
Selling, and general and administrative expenses during the first
quarter of 1999 increased by $37,000 as compared to the same period in
1998. The increase consists primarily of additional salaries associated
with an expansion of personnel in the Company's sales and engineering
departments. The Company has increased the number of internal sales
representatives in order to more actively manage its key catalog
customers. These individuals will also develop market driven sales
literature, which will better support the Company's commissioned sales
representatives. The Company has increased engineering personnel in
order to enhance its research and development efforts so that it can
expand its product offering while shortening the new product
development cycle.
Primarily as a result of the increase in gross margins, the Company had
a positive $33,000 in operating income during the first quarter of
1999. This is an increase of $37,000 as compared to the $4,000
operating loss suffered during the first quarter of 1998.
Other, non-operating income (expense) changed from a net income of
$26,000 in the first quarter of 1998 to a net expense of $8,000 in the
first quarter of 1999. In 1998 the Company received a $18,000 refund of
workers compensation insurance premiums paid in 1996. The premium
refund was due to the Company's ability to reduce workers compensation
costs as compared to 1995 and prior years. No such refund was received
in the first quarter of 1999, however, as noted above, workers
compensation insurance premiums paid in 1999 are at a substantially
lower rate than in 1988.
While the Company's operating income in the first quarter of 1999 was
significantly improved over the same period in the prior year, as a
result of the decrease in other non-operating income, the Company broke
even in the first quarter of 1999. This is a slight improvement from
the $3,000 net loss experienced in the same period in the prior year.
While overall, the Company broke even in the first quarter of 1999,
management notes that the Company's core seating and utility product
business remains profitable. Management believes that the improvements
in gross margins on these products, which were realized in the first
quarter of 1999, will continue throughout the remainder of the year.
However, 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. This situation is anticipated to continue throughout the
remainder of the current year as distribution of the product is
established and as technical enhancements are completed. However, in
the long run the Company believes that the product line will be a
successful addition to the Company's product offering providing a net
positive return on amounts invested.
<PAGE> 9
D. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's trade accounts receivable increased by $294,000 from
December 31, 1998 to April 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 first quarter of 1999 averaged $305,000; an increase if
approximately 22%.
Inventories decreased by $80,000 during the first quarter of 1999. The
difference represents normal fluctuations in the Company's inventory
balances.
Capital expenditures aggregated $115,000 during the first quarter 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 $112,000 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 quarter of 1999.
The Company's notes payable increased by $183,000 during the first
quarter of 1999. The increase is principally due to the timing of sales
that was described above 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.)
Management 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.
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.
<PAGE> 10
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None.
<PAGE> 11
SIGNATURES
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: 5-11-99 /s/ Gary A. Rubin
--------------------- ---------------------------
Gary A. Rubin
Vice President, Finance & CFO
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> APR-04-1999
<CASH> 40
<SECURITIES> 0
<RECEIVABLES> 1408
<ALLOWANCES> 21
<INVENTORY> 1403
<CURRENT-ASSETS> 325
<PP&E> 5933
<DEPRECIATION> 5118
<TOTAL-ASSETS> 4518
<CURRENT-LIABILITIES> 2930
<BONDS> 0
0
0
<COMMON> 3824
<OTHER-SE> (2954)
<TOTAL-LIABILITY-AND-EQUITY> 4518
<SALES> 3201
<TOTAL-REVENUES> 3201
<CGS> 2286
<TOTAL-COSTS> 3168
<OTHER-EXPENSES> 8
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> (.00)
<EPS-DILUTED> (.00)
</TABLE>
