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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ___________________________________________________
or
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from January 1, 1995 to January 29, 1995
Commission file number: 0-17868
KRAUSE'S FURNITURE, INC.
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(Exact name of registrant as specified in its charter)
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<S> <C>
Delaware 77-0310773
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(State or other jurisdiction of incorporation) (I.R.S. Employer Identification No.)
</TABLE>
5980 Stoneridge Drive, Suite 109, Pleasanton, California 94588
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(Address of principal executive offices) (Zip Code)
(510) 460-6201
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
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 (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. [x] Yes [ ] No
As of May 1, 1995 the Registrant had 11,054,953 shares of common stock
outstanding.
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INDEX
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<CAPTION>
Page
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
- Consolidated balance sheet 1
- Consolidated statement of operations 2
- Consolidated statement of cash flows 3
- Notes to consolidated financial statements 4 - 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6 - 7
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 8
Signatures 8
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KRAUSE'S FURNITURE INC
CONSOLIDATED BALANCE SHEET
ASSETS
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<CAPTION>
January 29, December 31,
1995 1994
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(In thousands, except share)
<S> <C>
Current assets:
Cash and cash equivalents $1,952 $1,617
Accounts receivable, net of allowance for
doubtful accounts of $847 and $912 959 1,040
Inventories 18,016 17,257
Deferred income taxes 920 920
Prepaid expenses 1,450 950
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Total current assets 23,297 21,784
Property, equipment, and
leasehold improvements, net 6,519 5,835
Goodwill, net 17,425 17,511
Leasehold interest, net 2,485 2,516
Other assets 3,793 3,594
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$53,519 $51,240
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $17,311 $16,875
Accrued payroll and related expenses 1,704 1,889
Customer deposits 6,809 3,696
Notes payable 17 65
Income taxes payable 1,207 1,207
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Total current liabilities 27,048 23,732
Long-term liabilities:
Other note 2,181 89
Other liabilities 1,590 1,498
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3,771 1,587
Commitments and contingencies
Stockholders' equity:
Convertible preferred stock, $.001 par value;
2,000,000 shares authorized, 483,780 outstanding
(at stated value) (liquidation preference $22.50
per share) 10,455 10,455
Common stock, $.001 par value; 25,000,000
shares authorized, 11,054,953 shares outstanding 11 11
Capital in excess of par value 24,480 24,480
Accumulated deficit (12,246) (9,025)
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Total stockholders' equity 22,700 25,921
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$53,519 $51,240
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See accompanying notes.
1
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KRAUSE'S FURNITURE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data)
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<CAPTION>
One Month Ended
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January 29, January 30,
1995 1994
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<S> <C> <C>
Net furniture sales $7,179 $7,326
Cost of sales 3,647 3,519
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Gross profit 3,532 3,807
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Operating expenses:
Selling expenses 5,446 4,935
General and administrative 1,317 913
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6,763 5,848
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Loss from operations (3,231) (2,041)
Equity in earnings of Mr. Coffee - 93
Interest expense (12) (258)
Other income 22 21
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Loss before income taxes (3,221) (2,185)
Provision for income taxes - -
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Net loss ($3,221) ($2,185)
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Net loss per share ($0.29) ($0.21)
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Average number of common
shares outstanding 11,055 10,469
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See accompanying notes.
2
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KRAUSE'S FURNITURE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
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<CAPTION>
One Month One Month
January 29, January 30,
1995 1994
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(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net loss ($3,221) ($2,185)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 197 301
Equity in earnings of Mr. Coffee - (93)
Change in assets and liabilities :
Accounts receivable 81 (160)
Inventories (759) (1,396)
Prepaid expenses and other assets (699) (176)
Accounts payable and other liabilities 343 (1,899)
Customer deposits 3,113 2,349
Income taxes payable - 42
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Net cash used by operating activities (945) (3,217)
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Cash flows from investing activities:
Capital expenditures (764) (60)
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Net cash used by investing activities (764) (60)
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Cash flows from financing activities:
Proceeds from issuance of long-term debt 2,092 -
Principal payments on short-term debt (48) -
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Net cash provided by financing activities 2,044 -
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Net increase (decrease) in cash and cash equivalents 335 (3,277)
Cash and cash equivalents at beginning of period 1,617 6,302
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Cash and cash equivalents at end of period $1,952 $3,025
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Supplemental disclosures of cash flow information-
Cash paid during the period for:
Interest $ - $ 915
Income taxes - 2,100
Noncash investing and financing activities-
Note receivable reduction in exchange for
common stock and warrants - 50
Conversion of preferred stock into common stoc - 1,401
</TABLE>
See accompanying notes.
3
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying consolidated financial statements of Krause's
Furniture, Inc. (the "Company") and its wholly owned subsidiary, Krause's Sofa
Factory ("KSF") have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission and reflect all adjustments which are, in
the opinion of management, necessary for a fair presentation for the periods
reported. Certain information and note disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to those rules or
regulations, although management believes that the disclosures made are
adequate to make the information presented not misleading. By unanimous
written consent of the Board of Directors, dated April 12, 1995, the Company
has changed its fiscal year end to the last Sunday in January, as determined by
the 52/53 retail fiscal year. This transition report is for the period from
the end of the previous fiscal year (December 31, 1994) to January 29, 1995.
Unaudited financial information for January 1994 is included in the statement
of operations and statement of cash flows for comparative purposes.
These financial statements should be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1994. The
results of operations for the month ended January 29, 1995 are not necessarily
indicative of results to be expected in future periods.
2. Cash and cash equivalents at January 29, 1995 includes U.S. Treasury
bills and commercial paper with maturities of less than 90 days and which are
carried at amortized cost, which approximates market. These securities are
classified as held-to-maturity in accordance with Statement of Financial
Accounting Standard (SFAS) No. 115. The Company has no securities classified as
available-for-sale under SFAS No. 115.
3. Inventories are carried at the lower of cost or market using the
first-in, first-out method and are comprised of the following at January 29,
1995:
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Finished goods $13,161,000
Work-in-process 479,000
Raw materials 4,376,000
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$18,016,000
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4. Notes payable at January 29, 1995 consist of:
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Secured revolving credit notes $ 2,092,000
Other (current portion $17,000) 106,000
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$ 2,198,000
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The secured revolving credit notes were issued under a two-year
revolving credit arrangement entered into with a financial institution in
January 1995. The credit agreement provides for revolving loans of up to $10
million based on the value of inventories, as defined in the agreement.
Substantially all of KSF's assets are pledged as collateral for the loans which
are guaranteed by the Company. Interest on the loans is payable monthly at the
rate of 1.5% in excess of the prime rate. KSF is required to maintain certain
financial covenants for working capital and stockholder's equity. In addition
the credit agreement provided for a closing fee of $100,000 and a monthly
facility fee of $2,500.
4
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULT OF OPERATIONS
RESULTS OF OPERATIONS
Five Weeks Ended January 29, 1995 Compared to Five Weeks Ended January 30,
1994
Net furniture sales for January 1995 were $7,179,000 which was a
decrease of approximately 2.0% from net sales in January 1994. The decrease
was primarily attributable to lower backlog position in the 1995 period.
Gross margin was 49.2% of net sales in January 1995 compared to 52.0%
in January 1994. The lower gross margins resulted from more product
discounting and higher freight costs associated with proportionately higher
sales in the East and a higher level of customer credits.
Selling expenses were $5,446,000 in January 1995 and $4,935,000 in
January 1994. The increase was principally due to higher advertising expenses
in 1995 offset by lower selling expenses attributable to lower sales volume.
General and administrative expenses increased by $404,000 to
$1,317,000 in January 1995 from the prior year. General administrative
expenses were higher in the 1995 period principally because of higher personnel
costs and employee termination expenses.
Interest expense decreased by $246,000 in January 1995 compared to
January 1994 due principally to significantly less debt outstanding in 1995.
The Company's investment in Mr. Coffee, inc. was accounted for by the
equity method and the Company recorded equity in earnings from Mr. Coffee of
$93,000 in January 1994. The Company sold its investment in Mr. Coffee in
August 1994.
As a result of the above factors, net loss was $3,221,000 in January
1995 compared to a loss of $2,185,000 in January 1994. Net loss per share in
January 1995 was $.29 based on 11,054,953 average shares outstanding. In the
comparable 1994 period the net loss per share was $.21 on 10,469,036 average
shares outstanding.
No tax benefits are available for January 1995 or 1994 operating
losses.
5
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LIQUIDITY AND CAPITAL RESOURCES
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As of January 29, 1995, the Company had $1,952,000 in cash and cash
equivalents compared to $1,617,000 as of December 31, 1994.
Cash Flow - Five Weeks Ended January 29, 1995
Cash and cash equivalents increased by $335,000 during the period.
Operating activities used net of $945,000 principally from a $3,026,000 cash
loss from operations and an increase in inventories of $759,000, offset by an
increase in customer deposits of $3,113,000. Investing activities were capital
expenditures of $764,000 principally for costs of construction of a showroom in
Dallas and for additions to leasehold improvements of new showrooms. Financing
activities included $2,092,000 of net borrowings under a revolving credit
agreement (see Note 4).
Cash Flow - Five Weeks Ended January 30, 1994
Cash and cash equivalents decreased by $3,277,000 during the period.
Operating activities used net cash of $3,217,000, principally from a cash loss
from operations of $1,977,000, an increase in inventories of $1,396,000 and a
decrease in accounts payable and other liabilities of $1,899,000, offset by
an increase in customer deposits of $2,349,000. Investing activities during
the period were capital expenditures of $60,000, principally for additions to
leasehold improvements of retail showrooms. There were no financing activities
during the period.
Outlook
The Company's cash, expected cash flow from operations and credit line
are considered adequate to meet cash requirements for operations, including any
short-term capital expenditure requirements, for the next 12 months. As of
January 29, 1995 there were no significant long-term capital expenditure
commitments. The Company has a deficiency in working capital of approximately
$3.8 million. In order to sustain growth and reduce liabilities the Company
may raise additional equity or debt in the future.
Management has no knowledge of any trends or events that are likely to
substantially increase or decrease liquidity needs in the near future other
than as noted above or for acquisitions and expansion of the business that the
Company may undertake from time to time.
6
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PART II _ OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K filed during the first quarter
ended March 31, 1995
On January 26, 1995, the Registrant filed a Current Report dated
January 20, 1995 on Form 8-K. This report described under Item 5 - Other
Events the completion of a revolving credit financing by Registrant's
subsidiary, Krause's Sofa Factory.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
KRAUSE'S FURNITURE, INC.
(Registrant)
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<S> <C> <C>
Date: May 25, 1995 /s/ Robert G. Sharpe
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Robert G. Sharpe
Executive Vice President
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7
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EXHIBIT INDEX
Exhibit No.
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27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> JAN-29-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JAN-29-1995
<CASH> 1,952
<SECURITIES> 0
<RECEIVABLES> 1,806
<ALLOWANCES> 847
<INVENTORY> 18,016
<CURRENT-ASSETS> 23,297
<PP&E> 12,016
<DEPRECIATION> 5,497
<TOTAL-ASSETS> 53,519
<CURRENT-LIABILITIES> 27,048
<BONDS> 0
<COMMON> 11
0
10,455
<OTHER-SE> 12,234
<TOTAL-LIABILITY-AND-EQUITY> 53,519
<SALES> 7,179
<TOTAL-REVENUES> 7,179
<CGS> 3,647
<TOTAL-COSTS> 3,647
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (65)
<INTEREST-EXPENSE> 12
<INCOME-PRETAX> (3,221)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,221)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,221)
<EPS-PRIMARY> (.29)
<EPS-DILUTED> (.29)
</TABLE>
