<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 26, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to ________________________
Commission file number: 0-17868
KRAUSE'S FURNITURE, INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0310773
- ---------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
200 North Berry Street, Brea, California 92821-3903
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(714) 990-3100
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
(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 April 27, 2000 the Registrant had 22,050,328 shares of common stock
outstanding.
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
- Consolidated balance sheet (unaudited) 3
- Consolidated statement of operations (unaudited) 4
- Consolidated statement of cash flows (unaudited) 5
- Notes to consolidated financial statements (unaudited) 6 - 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 14
Item 3. Market Risk 14
PART II OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2 Changes in Securities and Use of Proceeds 15
Item 3 Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 17
</TABLE>
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<PAGE> 3
PART I, ITEM 1
KRAUSE'S FURNITURE, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
March 26, December 26,
2000 1999
-------- --------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 10,829 $ 80
Accounts receivable, net of allowance of $250
for doubtful accounts ($197 at December 26, 1999) 1,228 569
Inventories 24,922 25,289
Prepaid expenses 890 656
-------- --------
Total current assets 37,869 26,594
Property, equipment, and leasehold improvements, net 16,265 15,592
Goodwill, net 12,157 12,412
Leasehold interests, net 644 700
Other assets 2,522 2,463
-------- --------
$ 69,457 $ 57,761
======== ========
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,273 $ 14,610
Accrued payroll and related expenses 2,786 2,086
Other accrued liabilities 5,492 6,054
Customer deposits 7,393 4,949
Notes payable 416 491
-------- --------
Total current liabilities 25,360 28,190
-------- --------
Long-term liabilities:
Notes payable 21,301 23,346
Other 2,010 1,960
-------- --------
Total long-term liabilities 23,311 25,306
-------- --------
Commitments and contingencies
Mandatorily redeemable preferred stock, $.001 par
value, 450,000 designated, 380,000 shares
outstanding; redemption value $50 per share 18,700 --
Stockholders' equity:
Convertible preferred stock, $.001 par value;
666,667 shares authorized, 450,000 designated;
380,000 shares outstanding -- --
Common stock, $.001 par value; 35,000,000 shares
authorized, 22,050,328 shares outstanding
(22,050,328 at December 26, 1999) 22 22
Capital in excess of par value 63,233 60,642
Accumulated deficit (61,169) (56,399)
-------- --------
Total stockholders' equity 2,086 4,265
-------- --------
$ 69,457 $ 57,761
======== ========
</TABLE>
See accompanying notes.
Page 3
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KRAUSE'S FURNITURE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
-----------------------
March 26, March 28,
2000 1999
-------- --------
<S> <C> <C>
Net sales $ 39,017 $ 34,934
Cost of sales 17,577 16,110
-------- --------
Gross profit 21,440 18,824
Operating expenses:
Selling 19,638 17,279
General and administrative 3,076 2,505
Amortization of goodwill 255 255
-------- --------
22,969 20,039
-------- --------
Loss from operations (1,529) (1,215)
Interest, net (635) (712)
Other income (expense) (15) 10
-------- --------
Net loss $ (2,179) $ (1,917)
======== ========
Basic and diluted loss per share $ (.10) $ (.09)
======== ========
Number of shares used in computing loss per share 22,050 21,984
======== ========
</TABLE>
See accompanying notes.
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<PAGE> 5
KRAUSE'S FURNITURE, INC
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
-----------------------
March 26, March 28,
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,179) $ (1,917)
Adjustments to reconcile net loss to net cash
provided (used) by
operating activities:
Depreciation and amortization 836 824
Other non-cash charges 310 245
Change in assets and liabilities
Accounts receivable (659) (324)
Inventories 367 (1,486)
Prepaid expenses and other assets (319) 403
Accounts payable and other liabilities (5,148) 1,639
Customer deposits 2,444 2,300
-------- --------
Net cash provided (used) by operating activities (4,348) 1,684
-------- --------
Cash flows from investing activities:
Capital expenditures (1,295) (1,177)
-------- --------
Net cash used by investing activities (1,295) (1,177)
-------- --------
Cash flows from financing activities:
Proceeds from long-term borrowings 50,007 40,311
Principal payments on long-term borrowings (52,315) (39,749)
Net proceeds from issuance of mandatorily
redeemable preferred stock 18,700 --
-------- --------
Net cash provided by financing activities 16,392 562
-------- --------
Net increase in cash 10,749 1,069
Cash and cash equivalents at beginning of period 80 80
-------- --------
Cash and cash equivalents at end of period $ 10,829 $ 1,149
======== ========
Supplemental disclosures of cash flow information-
Cash paid during the period for interest $ 551 $ 519
</TABLE>
See accompanying notes.
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KRAUSE'S FURNITURE, INC
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation.
The accompanying consolidated financial statements of Krause's
Furniture, Inc. (the "Company") and its wholly owned subsidiaries, including the
Company's principal subsidiary, Krause's Custom Crafted Furniture Corp.
("Krause's") have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission and reflect all normal recurring 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.
In January 2000, the Company changed its fiscal year from the Sunday
closest to January 31 to the Sunday closest to December 25. This report is for
the unaudited first fiscal 2000 quarter ended March 26, 2000. Unaudited
operating and cash flow information has been presented for the comparable fiscal
1999 period.
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 26, 1999. The
results of operations for the thirteen weeks ended March 26, 2000 are not
necessarily indicative of results to be expected in future periods.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reported
periods. Actual results could differ from those estimates.
2. Inventories
Inventories are carried at the lower of cost or market using the
first-in, first-out method and are comprised of the following:
<TABLE>
<CAPTION>
March 26, December 26,
2000 1999
---------- ------------
(in thousands)
<S> <C> <C>
Manufactured finished goods $ 8,437 $ 7,991
Finished goods purchased from others 10,608 10,370
Work in progress 275 180
Raw materials 5,602 6,748
------- -------
$24,922 $25,289
======= =======
</TABLE>
3. Notes Payable
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Notes payable consists of the following:
<TABLE>
<CAPTION>
March 26, December 26,
2000 1999
-------- --------
(in thousands)
<S> <C> <C>
Secured revolving credit notes $ 10,480 $ 12,655
Subordinated notes payable to shareholders 12,001
12,001
Unamortized debt discount, net of
accumulated amortization of $2,308
($2,120 at December 26, 1999) (1,967) (2,155)
Other notes 1,203 1,336
-------- --------
21,717 23,837
Less current portion 416 491
-------- --------
$ 21,301 $ 23,346
======== ========
</TABLE>
The secured revolving credit notes were issued under a revolving credit
agreement, which was most recently amended March 31, 2000, (the "Revolving
Credit Facility") between Krause's and a financial institution that expires
March 2002. The Revolving Credit Facility provides for revolving loans of up to
$15 million, based on the value of eligible inventories. Available borrowing
capacity under the terms of the Revolving Credit Facility at March 26, 2000 was
$3,270,000. Substantially all of Krause's assets are pledged as collateral for
the loan that is guaranteed by the Company. Interest on the loan is payable
monthly at a margin ranging from .5% to 1.0% in excess of the prime rate (9.00%
at March 26, 2000) which margin varies depending on the Company's performance.
Pursuant to the terms of the agreements related to the subordinated
notes and the Revolving Credit Facility, the Company and Krause's are required
to maintain certain financial ratios and minimum levels of tangible net worth
and working capital. In addition, the Company and Krause's are restricted from
entering into certain transactions or making certain payments and dividend
distributions without the prior consent of the lenders. As of March 26, 2000,
the Company and Krause's were in compliance with the terms and conditions of
these agreements.
4. Net Loss Per Share
Net loss per share amounts were computed based on the weighted average
number of common shares outstanding during the periods reported. Common
equivalent shares are not included in the computation since such share
equivalents are antidilutive. There were no differences between basic and
diluted loss per share.
5. Mandatorily Redeemable Preferred Stock
On January 14 and 19, 2000, the Company completed a private placement of
380,000 shares of Series A Convertible Preferred Stock at a price of $50.00 per
share. Proceeds from the private placement totaled approximately $18,700,000
after deducting legal fees and related expenses. Pursuant to the terms of a
Securities Purchase Agreement between the Company and the purchasers of the
Series A Convertible Preferred Stock, the Company and the purchasers have agreed
that $10 million of the proceeds will be used to launch the Company's business
to business and e-Commerce activities, including commerce related to
transactions on the internet, and that the balance of the proceeds will be used
to pay down debt, to fund the opening of new showrooms, and for general
corporate purposes.
Each share of Series A Convertible Preferred Stock is convertible into
approximately 45.45
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shares of common stock at any time at the option of the holder; has voting
rights equal to approximately 45.45 shares of common stock; has certain
redemption features; and does not pay a dividend. Conversion is mandatory upon
the occurrence of a qualified public offering, as defined. In the event of a
voluntary or involuntary liquidation, the holders of the Series A Convertible
Preferred Stock have, as to any distribution of assets, a preference to the
holders of common stock in an amount aggregating $19 million. Holders of the
Series A Convertible Preferred Stock may not request redemption prior to
January, 2005, except in the event of a change in control of the Company or a
default, prior to January, 2002, under the Securities Purchase Agreement; an
event of default includes the Company's failure to receive approval of the Board
of Directors of its e-Commerce business plan and its failure to use $10 million
of proceeds from the private placement for its e-Commerce business plan. The
redemption price of the Series A Convertible Preferred Stock is equal to $50.00
per share. The Company has no right to call or redeem any shares of the Series A
Convertible Preferred Stock.
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PART I, ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results
of Operations includes forward-looking statements within the meaning of the
Private Securities Reform Act of 1995. These statements include those related to
the Company's plans for sales through e-Commerce and business-to-business
channels; management's strategy for opening new stores, remodeling existing
stores and improving the Company's marketing approach; and those related to
management's expectation that the Company will achieve profitability. They also
include statements throughout the report using such forward-looking terminology
as "may," "will," "expect," "anticipate," "continue," "estimate," or the
negative of these terms or other comparable terminology. These statements
involve risks and uncertainties which may cause results to differ materially
from those set forth in these statements. Among other things,
o we lack experience in e-Commerce and business-to-business sales;
o demand for and acceptance of the Company's products could decrease;
o the market for furniture sales over the internet may not grow;
o the retail environment and the ability of the Company to execute its
operating strategies could deteriorate;
o the Company's planned marketing and promotional campaigns may not be
successful; and
o developer delays, weather and other conditions could slow the opening of
new stores; and competition from existing and new competitors could
increase.
These risks and the other economic, competitive and other factors noted
elsewhere in this Form 10-Q and in filings recently made by the Company with the
Securities and Exchange Commission, including the Company's Form 10-K and a
Registration Statement on Form S-1, which became effective on March 30, 1998,
constitute cautionary statements that identify risks and uncertainties that
could cause actual results to differ materially from those contained in the
forward-looking statements.
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto included elsewhere herein.
In 1997, management implemented a strategic plan for the business which
provides, among other things, for remodeling showrooms to provide a more
appealing setting for customers, opening new showrooms both in existing and new
markets and closing underperforming showrooms. To date, 38 showrooms have been
remodeled, 29 showrooms have been opened, and 15 showrooms have been closed. In
the opinion of management, this plan is expected to ultimately return the
Company to profitability; however, there can be no assurance that the Company
will achieve profitability.
As more fully described in Note 5 to the Consolidated Financial Statements, on
January 14 and 19, 2000, the Company completed a private placement of 380,000
shares of Series A Convertible Preferred Stock, net proceeds from which totaled
$18,700,000; of this amount, $10,000,000 is restricted to the development and
implementation of its internet business initiatives. Management believes this
investment will more rapidly enable the Company to leverage its considerable
manufacturing and
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distribution assets by becoming a leading retail e-Commerce provider in custom
upholstered furniture while also providing business-to-business solutions for
other furniture e-retailers and independent furniture retailers served by
internet alliance customers; however, there can be no assurance that the Company
will be successful in this regard.
Management believes that the Company has sufficient capital to fund its
plan to remodel showrooms and open new showrooms throughout fiscal 2000 as well
as to support the launch of its business-to-business and e-Commerce initiatives;
however, if this proves not to be the case, the Company will need to obtain
additional capital and there can be no assurance that any additional equity or
debt financing will be available or available on terms acceptable to the
Company. The Company's long-term success is dependent upon management's ability
to successfully execute its plans and, ultimately, to achieve sustained
profitable operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal cash needs are for funding capital expenditures
to open new showrooms and remodel existing showrooms; for manufacturing samples
of upholstered furniture for display in its new and existing showrooms as well
as to purchase merchandise from other manufacturers that complement the
upholstered furniture manufactured and displayed by the Company; for funding
capital expenditures related to the improvement and maintenance of its
management information systems; and to fund the development and deployment of
the Company's e-Commerce strategy. The cash required for funding production and
fulfillment of customer orders is typically provided by the Company's customers
from a deposit made at the time an order is placed. Beginning in fiscal 2001,
the Company will also require capital to make the scheduled principal payments
on its subordinated notes.
In recent periods, the Company has incurred additional debt and raised
equity capital to cover operating deficits and to finance the remodeling and
expansion of its showrooms. In fiscal 2000, management plans to add
approximately sixteen to twenty additional showrooms (of which six have been
opened through March 26, 2000), at an aggregate cost of approximately $3.6
million. In addition, current plans call for the closing of approximately six
showrooms (of which two have been closed through March 26, 2000) in fiscal 2000.
Management expects to fund such capital expenditures by internally generated
cash and by borrowings under the Company's Revolving Credit Facility.
As of March 26, 2000, the Company had cash and cash equivalents of
$10,829,000 and unused borrowing capacity under its revolving credit agreement
of approximately $3,270,000. Approximately $9,945,000 of the Company's cash and
cash equivalents at March 26, 2000 is restricted to the development and
implementation of the Company's e-Commerce initiatives. Cash flow activity for
the thirteen weeks ended March 26, 2000 and March 28, 1999 is presented in the
Consolidated Statement of Cash Flows.
Cash Flow - Thirteen weeks ended March 26, 2000
During the thirteen weeks ended March 26, 2000, cash and cash
equivalents increased by $10,749,000. Operating activities used net cash of
$4,348,000, principally from a cash loss from operations of $1,033,000; a
decrease in accounts payable and other liabilities of $5,148,000, increases in
accounts receivable and prepaid expenses and other assets of $659,000 and
$319,000, respectively, offset in part by increased customer deposits of
$2,444,000 and a decrease in inventories of $367,000. Investing activities
during the period included capital expenditures of $1,295,000 which was used
primarily to open six new showrooms and to fund capital requirements of the
ongoing upgrade of the
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management information systems infrastructure. Financing activities during the
period consisted principally of net proceeds of $18,700,000 from the sale of
380,000 shares of Series A Convertible Preferred Stock, net payments of
$2,175,000 on the Company's Revolving Credit Facility and $133,000 of principal
payments on other indebtedness. Management plans to continue its strategy of
adding new showrooms in existing and new markets. The Company expects to fund
the related expenditures from internally generated cash and from borrowings
under the Company's Revolving Credit Facility. The Company expects to incur
costs of approximately $3.6 million related to this program in fiscal 2000.
Cash Flow - Thirteen weeks ended March 28, 1999
During the thirteen weeks ended March 28, 1999, cash and cash
equivalents increased by $1,069,000. Operating activities provided net cash of
$1,684,000, principally from increases in customer deposits and accounts payable
and other liabilities of $2,300,000 and $1,639,000, respectively, and a decrease
in prepaid expenses and other assets of $403,000, offset in part by a cash loss
from operations of $848,000, and increases in inventories and accounts
receivable of $1,486,000 and $324,000, respectively. The increase in inventory
was principally due to the Company's decision to expand its accessories business
and higher levels of finished goods required in part by the addition of new
stores. Investing activities during the period included capital expenditures of
$1,177,000. Financing activities during the period consisted of net borrowings
of $562,000, primarily under the Company's revolving credit facility.
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RESULTS OF OPERATIONS
The following table sets forth the percentage relationship of net sales
to certain items included in the Consolidated Statement of Operations:
<TABLE>
<CAPTION>
13 Weeks Ended
------------------------------
March 26, March 28,
2000 1999
------------ ------------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 45.0 46.1
----- -----
Gross profit 55.0 53.9
Operating expenses:
Selling 50.3 49.5
General and administrative 7.9 7.2
Amortization of goodwill 0.7 0.7
----- -----
Total operating expenses 58.9 57.4
----- -----
Loss from operations (3.9) (3.5)
Interest expense, net (1.6) (2.0)
Other expense -- --
----- -----
Net loss (5.5%) (5.5%)
===== =====
</TABLE>
<TABLE>
<CAPTION>
13 Weeks Ended
------------------------
March 26, March 28,
Store (Showroom) Data 2000 1999
- --------------------- --------- ----------
<S> <C> <C>
Stores open at beginning of period 91 85
Stores opened during period 6 7
Stores closed during period 2 1
---- ----
Stores open at end of period 95 91
Average sales per showroom (1) $415 $389
Comparable store sales increase (2) 5.8% 13.2%
</TABLE>
(1) Based upon the weighted average number of stores open during the period
indicated.
(2) Comparable store sales are calculated by excluding the net sales of any
store for any month of the period if the store was not open during the same
month of the prior period. Also, a store opened at any time during the month
is deemed to have been open for the entire month.
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Thirteen weeks ended March 26, 2000 compared to thirteen weeks ended March 28,
1999
Net Sales. Net sales for the first quarter of fiscal 2000 were
$39,017,000 compared to $34,934,000 for the comparable period of fiscal 1999.
The increase in sales was due principally to management's continuing strategy of
opening new showrooms in existing and new markets, developing new products,
increasing the promotion and sale of accessories, and fine-tuning the marketing
and sales promotion program. The overall $4,083,000 increase in net sales is
attributable to a $1,857,000 or 5.8% increase in same-store sales, a $4,922,000
increase from new stores and $11,000 of sales from the e-Commerce division
offset in part by a decrease of $2,707,000 from closed stores.
Gross Profit. Gross profit was 55.0% of net sales in the first quarter
of fiscal 2000, as compared to 53.9% of net sales for the comparable period of
fiscal 1999. The increase in gross profit was primarily the result of higher
retail prices, reduced discounting and new product acceptance by customers.
Selling Expenses. Selling expenses were $19,638,000 or 50.3% of sales in
the first quarter of fiscal 2000 compared to $17,279,000 or 49.5% of sales in
the same period last year. The increase of $2,359,000 in selling expenses was
primarily due to higher variable expenses related to increased sales volume,
higher occupancy costs related to having opened four net new stores in the past
twelve months, and higher advertising costs as a result of increased use of
color circulars. $48,000 of the total increase is related to expenses from the
e-Commerce division.
General and Administrative Expenses. General and administrative expenses
increased by $571,000 and as a percentage of sales rose from 7.2% for the
quarter ended March 28, 1999 to 7.9% for the quarter ended March 26, 2000.
Approximately $173,000 of the total increase is related to expenses for the
e-Commerce initiative, consisting primarily of strategy consulting costs, and
$163,000 is related to costs incurred in connection with the Company's
management information systems conversion. The remainder of the increase is
primarily a result of higher payroll costs.
Interest Expense. Interest expense, including amortization of debt
discounts and deferred financing costs, net of interest income, for the quarter
ended March 26, 2000 decreased by $77,000 over the same period in the prior
fiscal year due primarily to interest income of $111,000 included in the current
quarter. Interest income is attributable primarily to the $10 million restricted
to the development and implementation of the Company's e-Commerce initiatives.
Interest expense consists of the following:
<TABLE>
<CAPTION>
March 26, March 28,
2000 1999
--------- ---------
(in thousands)
<S> <C> <C>
Interest expense on debt $552 $518
Amortization of debt discounts and
deferred financing costs 194 194
---- ----
746 712
Interest income 111 --
---- ----
Interest expense, net $635 $712
==== ====
</TABLE>
Income Taxes. The Company paid no income taxes and no income tax benefit
was recorded for either the first quarter of fiscal 2000 or fiscal 1999 due to
uncertainties regarding the realization of deferred tax assets available.
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Net Loss. As a result of the above factors, the net loss was $2,179,000
for the quarter ended March 26, 2000 as compared to a loss of $1,917,000 in the
same period of the prior fiscal year. Net loss per share in the 2000 quarter was
$0.10 versus a loss of $0.09 in the same period of fiscal 1999.
PART I, ITEM 3
Market Risk Exposure
There were no material changes in items affecting market risk. Refer to
the Company's Annual Report on Form 10-K for the year ended December 26, 1999
for more detail.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Item 3 in the Company's Annual Report on Form 10-K
for the fiscal year ended December 26, 1999. There has been no material
change.
Item 2. Changes in Securities and Use of Proceeds
Sale of the Company's Series A Convertible Preferred Stock. On January
14, 2000, the Company sold 280,000 shares of its Series A Convertible Preferred
Stock (the "Series A Preferred") and sold an additional 100,000 shares on
January 19, 2000. The purchase price of the Series A Preferred was $50 per
share, for an aggregate purchase price of $19,000,000. The Company sold the
Series A Preferred directly, without the services of an underwriter, in a
private placement made in reliance on Rule 506 of Regulation D under the
Securities Act of 1933. All of the purchasers were accredited investors within
the meaning of Regulation D. The Company received net proceeds of approximately
$18,700,000 after expenses related to the placement.
Each share of Series A Preferred is convertible into approximately 45.45
shares of the Company's common stock at the conversion rate of $1.10 per share
of common stock. The Company does not have sufficient authorized common stock to
permit the conversion of the Series A Preferred. The stockholders will vote on a
proposal to authorize additional common stock for this purpose at the annual
meeting on May 17, 2000. Once the additional common stock is authorized by the
stockholders, holders of the Series A Preferred will have the right to convert
their shares into common stock at any time. The Series A Preferred will be
converted automatically into common stock if the Company completes a public
offering of its shares with gross proceeds in excess of $25,000,000, and at a
price per share of Common Stock of at least $3.30. The Series A Preferred will
also be converted automatically if holders of 66 2/3% of the Series A Preferred
agree to do so.
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 filed during the quarter
---------------------------------------------------------
ended March 26, 2000
--------------------
(a) Exhibits
10.1 Ninth Amendment to Loan and Security Agreement by and
between Congress Financial Corporation (Western), Krause's
Custom Crafted Furniture Corp. and its wholly owned
subsidiary, Castro Convertible Corporation, dated as of
March 31, 2000.
10.2 Agreement by and among Krause's Furniture Inc., General
Electric Capital Corporation, and Japan Omnibus Ltd.,
dated April 3, 2000.
27.1 Financial Data Schedule (EDGAR version only)
(b) Reports on Form 8-K
The Registrant filed two reports on Form 8-K during the quarter
covered by this report.
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<PAGE> 16
1. Form 8-K was filed on January 19, 2000 to report a change
in the Company's fiscal year. No financial statements were
filed.
2. Form 8-K was filed on February 4, 2000 to report the sale
and issuance of the Company's Series A Convertible
Preferred Stock. No financial statements were filed.
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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)
Date: May 5, 2000 /s/ Philip M. Hawley
--------------------------------
Philip M. Hawley
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Date: May 5, 2000 /s/ Robert A. Burton
--------------------------------
Robert A. Burton
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
Page 17
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
10.1 Ninth Amendment to Loan and Security Agreement by and
between Congress Financial Corporation (Western), Krause's
Custom Crafted Furniture Corp. and its wholly owned
subsidiary, Castro Convertible Corporation, dated as of
March 31, 2000.
10.2 Agreement by and among Krause's Furniture Inc., General
Electric Capital Corporation, and Japan Omnibus Ltd.,
dated April 3, 2000.
27.1 Financial Data Schedule (EDGAR version only)
</TABLE>
Page 18
<PAGE> 1
NINTH AMENDMENT TO LOAN AND
SECURITY AGREEMENT
EXHIBIT 10.1
THIS NINTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (this "Amendment"),
dated as of March 31, 2000, is entered into by and between CONGRESS FINANCIAL
CORPORATION (WESTERN), a California corporation ("Lender"), with a place of
business at 251 South Lake Avenue, Suite 900, Pasadena, California 91101 and
KRAUSE'S CUSTOM CRAFTED FURNITURE CORP., a California corporation (formerly
known as Krause's Sofa Factory), and its wholly owned subsidiary, CASTRO
CONVERTIBLE CORPORATION, a New York corporation (jointly and severally,
"Borrower"), with its chief executive office located at 200 North Berry Street,
Brea, California 92821.
RECITALS
A. Borrower and Lender have previously entered into that certain Loan
and Security Agreement dated as of January 20, 1995, as amended by that certain
First Amendment to Loan and Security Agreement dated as of May 10, 1996, that
certain Second Amendment to Loan and Security Agreement dated as of August 26,
1996, that certain Third Amendment to Loan and Security Agreement dated as of
November 25, 1996, that certain Fourth Amendment to Loan and Security Agreement
dated as of August 14, 1997, that certain Fifth Amendment to Loan and Security
Agreement dated as of December 11, 1997, that certain Sixth Amendment to Loan
and Security Agreement dated as of March 15, 1999, that certain Seventh
Amendment to Loan and Security Agreement dated as of August 23, 1999 and that
certain Eighth Amendment to Loan and Security Agreement dated as of December 15,
1999 (collectively, the "Loan Agreement"), pursuant to which Lender has made
certain loans and financial accommodations available to Borrower. Terms used
herein without definition shall have the meanings ascribed to them in the Loan
Agreement.
B. Borrower has requested that Lender (i) modify the negative covenant
relating to permitted indebtedness to allow up to Sixty-Five Million Dollars
($65,000,000) of indebtedness to be outstanding to Parent and (ii) adjust the
minimum Adjusted Net Worth covenant to twelve Million Dollars ($12,000,000).
C. Lender is willing to agree to make such further amendments to the
Loan Agreement and such waiver under the terms and conditions set forth in this
Amendment. Borrower is entering into this Amendment with the understanding and
agreement that none of Lender's rights or remedies as set forth in the Loan
Agreement is being waived or modified by the terms of this Amendment.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
Page 19
<PAGE> 2
1. Amendments to Loan Agreement.
Paragraph (e) of Section 9.9 of the Loan Agreement (entitled "Indebtedness") is
hereby amended and restated in its entirety as follows:
"(e) unsecured indebtedness of Borrower to Krause's
Furniture, Inc., a Delaware corporation (`Parent'), in the
maximum principal amount of Sixty Five Million Dollars
($65,000,000), plus any amounts added as principal for accrued
and unpaid interest thereon, which indebtedness is subject to,
and subordinate in right of payment to, the right of Lender to
receive the prior payment in full of all of the Obligations;
provided that: (i) Borrower shall not, directly or indirectly,
make any payments in respect of such indebtedness, including, but
not limited to, any prepayments or other non-mandatory payments,
except that until an Event of Default, or event which with notice
or passage of time or both would constitute an Event of Default,
shall exist or have occurred and be continuing, Borrower may make
payments of principal and interest in accordance with the terms
of that certain Amended and Restated Subordination Agreement
between Parent and Lender dated August 26, 1996, as amended from
time to time (the "Subordination Agreement"), (ii) Borrower shall
not, directly or indirectly, (A) amend, modify, alter or change
any terms of such indebtedness or any agreement, document or
instrument related thereto, or (B) redeem, retire, defease,
purchase or otherwise acquire such indebtedness, or set aside or
otherwise deposit or invest any sums for such purpose, except as
permitted by the Subordination Agreement, (iii) Borrower shall
furnish to Lender all notices, demands or other materials
concerning such indebtedness either received by Borrower or on
its behalf, promptly after receipt thereof, or sent by Borrower
or on its behalf, concurrently with the sending thereof, as the
case may be and (iv) copies of all notes, instruments and/or
agreements evidencing such indebtedness shall be delivered to
Lender and be in form and substance satisfactory to Lender."
Section 9.14 of the Loan Agreement (entitled "Adjusted Net Worth") is hereby
amended and restated in its entirety to read as follows:
"9.14 Adjusted Net Worth. Borrower shall, as of the end of
each fiscal quarter of Borrower, maintain Adjusted Net Worth of
not less than twelve Million Dollars ($12,000,000)."
2. Effectiveness of this Amendment. Lender must have received the
following items, in form and substance acceptable to Lender, or evidence of the
occurrence thereof, before this Amendment is effective and before Lender is
required to extend any credit to Borrower as provided for by this Amendment.
(a) Amendment. This Amendment fully executed in a sufficient number of
counterparts for distribution to Lender and Borrower.
(b) Authorizations. Evidence that the execution, delivery and performance by
Borrower and each guarantor or subordinating creditor of this Amendment
and any instrument or agreement required under this Amendment have been
duly authorized.
(c) Representations and Warranties. The representations and warranties of
Borrower set forth in the Loan Agreement must be true and correct.
Page 20
<PAGE> 3
(d) Acknowledgment. Lender has received counterparts of the Acknowledgment
appended hereto executed by the Parent.
(e) Other Required Documentation. All other documents and legal matters in
connection with the transactions contemplated by this Amendment shall
have been delivered or executed or recorded and shall be in form and
substance satisfactory to Lender.
(f) Payment of Modification Fee. Lender shall have received from Borrower a
modification fee of five thousand Dollars ($5,000) for the processing and
approval of this Amendment, which fee shall be fully earned as of and
payable on the date hereof.
3. Choice of Law. The validity of this Amendment, its construction,
interpretation and enforcement, and the rights of the parties hereunder, shall
be determined under, governed by, and construed in accordance with the laws of
the State of California governing contracts wholly to be performed in that
State.
4. Counterparts. This Amendment may be executed in any number of
counterparts and by different parties on separate counterparts, each of which
when so executed and delivered, shall be deemed an original, and all of which,
when taken together, shall constitute but one and the same instrument.
5. Due Execution. The execution, delivery and performance of this
Amendment are within the powers of the Borrower, have been duly authorized by
all necessary corporate action, have received all necessary governmental
approval, if any, and do not contravene any law or any contractual restrictions
binding on Borrower.
6. Otherwise Not Affected. In the event of any conflict or inconsistency
between the Loan Agreement and the provisions of this Amendment, the provisions
of this Amendment shall govern. Except to the extent set forth herein, the Loan
Agreement shall remain in full force and effect.
7. Ratification. Borrower hereby restates, ratifies and reaffirms each
and every term and condition set forth in the Loan Agreement, as amended hereby,
and the Financing Agreements effective as of the date hereof.
8. Estoppel. To induce Lender to enter into this Amendment and to
continue to make advances to Borrower under the Loan Agreement, Borrower hereby
acknowledges and agrees that, after giving effect to this Amendment, as of the
date hereof, there exists no Event of Default and no right of offset, defense,
counterclaim or objection in favor of Borrower as against Lender with respect to
the Obligations.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the day and year first above written.
Page 21
<PAGE> 4
KRAUSE'S CUSTOM CRAFTED FURNITURE CORP.,
a California corporation
By: /s/ Robert A. Burton
------------------------------
Name: Robert A. Burton
----------------------------
Title: Exec. V.P./CFO
---------------------------
CASTRO CONVERTIBLE CORPORATION,
a New York corporation
By: /s/ Robert A. Burton
------------------------------
Name: Robert A. Burton
----------------------------
Title: Exec. V.P. / CFO
---------------------------
CONGRESS FINANCIAL CORPORATION (WESTERN),
a California corporation
By: /s/ J. K. Scott
------------------------------
Name: Jeffrey K. Scott
--------------------------------
Title: Vice President
--------------------------------
Page 22
<PAGE> 5
ACKNOWLEDGMENT
The undersigned Krause's Furniture, Inc., a Delaware corporation
("KFI"), parent of Krause's Custom Crafted Furniture Corp. ("Krause's"), in
consideration of Congress Financial Corporation (Western) ("Congress") continued
extension of credit to Krause's and Castro Convertible Corporation, hereby
consents to the foregoing Ninth Amendment to Loan and Security Agreement (the
"Amendment") and acknowledges and confirms that its Guarantee dated November 25,
1996 (the "Guarantee") in favor of Congress remains in full force and effect.
KFI further acknowledges and confirms that the "Junior Debt", as defined
in that certain Amended and Restated Subordination Agreement dated as of August
23, 1999 between KFI and Congress (the "Subordination Agreement"), includes
(without limitation) any additional indebtedness to KFI permitted by the
foregoing Amendment, that the "Junior Debt Documents", as defined in the
Subordination Agreement, includes (without limitation) any notes, instruments
agreements or other documents evidencing or relating to such additional
indebtedness and that such additional indebtedness shall in all respects be
subject to the terms and conditions of the Subordination Agreement.
Although Congress has informed KFI of the matters set forth above, and
KFI has acknowledged the same, KFI understands and agrees that Congress has no
duty under the Loan Agreement as defined above, the Guarantee or any other
agreement with KFI to so notify KFI or to seek such an acknowledgment, and
nothing contained herein is intended to or shall create such a duty as to any
advances or transactions hereafter.
Dated: March 31, 2000 KRAUSE'S FURNITURE, INC.,
a Delaware corporation
By:
-----------------------------------------------------------------------------
By: /s/ Robert A. Burton
--------------------------
Name: Robert A. Burton
-----------------------
Title: Exec. V.P./ CFO
----------------------
Name:
-----------------------
Title:
----------------------
Page 23
<PAGE> 1
EXHIBIT 10.2
AGREEMENT
This Agreement (this "Agreement") is entered into this 3rd day of
April, 2000, by and among Krause's Furniture, Inc., a Delaware corporation (the
"Company"), General Electric Capital Corporation, a New York corporation
("GECC"), and Japan Omnibus Ltd., an international business corporation
incorporated under the laws of the British Virgin Islands ("JOL").
RECITALS
GECC has purchased from the Company Notes dated (i) as of August
14, 1997, as amended as of March 31, 1999 and January 11, 2000, in the
outstanding principal amount of $5,501,091.20 (the "Initial Note"), (ii) as of
August 14, 1997, as amended as of March 31, 1999 and January 11, 2000, in the
outstanding principal amount of $2,500,000 (the "August 1997 Note") and (iii) as
of December 30, 1997, as amended as of March 31, 1999 and January 11, 2000, in
the outstanding principal amount of $2,500,000 (collectively with the Initial
Note and the August 1997 Note, the "GECC Notes").
JOL has purchased from the Company Notes dated (i) as of August 14,
1997, as amended as of March 31, 1999 and January 11, 2000, in the outstanding
principal amount of $500,000 (the "JOL August 1997 Note") and (ii) as of
December 30, 1997, as amended as of March 31, 1999 and January 11, 2000, in the
outstanding principal amount of $1,000,000 (together with the JOL August 1997
Note, the "JOL Notes"; the JOL Notes and the GECC Notes are referred to herein
collectively as the "Notes").
The Company, GECC and JOL are parties to a Supplemental Securities
Purchase Agreement dated as of August 14, 1997 (as amended on September 14,
1999, December 14, 1999 and January 11, 2000, the "Supplemental Purchase
Agreement") relating to the Notes. Capitalized terms used herein without
definition have the meanings set forth in the Supplemental Purchase Agreement.
The Company, GECC and JOL desire to amend certain provisions of the
Supplemental Purchase Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements contained herein, the parties hereto agree as follows:
1. Effective as of March 26, 2000, Sections 6.2(a), 6.2(b) and 6.2(c) of the
Supplemental Purchase Agreement shall be amended in their entirety to read as
follows:
(a) The Company will not permit its Consolidated Net
Worth at the end of any fiscal quarter to be less than the amount set forth
below for such fiscal quarter, provided that, upon any public or private
offering of capital stock of the Company for the Company's account, the amounts
set forth below for fiscal quarters subsequent to such offering shall be
adjusted upward by an amount equal to the net proceeds of any such offering
multiplied by 0.9:
Page 24
<PAGE> 2
<TABLE>
<CAPTION>
Year Q1 Q2 Q3 Q4
---- ------- ------- ------- -------
<S> <C> <C> <C> <C>
1999 N/A N/A 8.8 MM 4.0 MM
2000 9.2 MM 11.2 MM 10.1 MM 10.8 MM
2001 17.5 MM 20.0 MM 22.0 MM 26.0 MM
2002 29.0 MM 32.0 MM 35.0 MM 40.0 MM
2003 40.0 MM 40.0 MM N/A N/A
</TABLE>
(b) The Company and its Subsidiaries will not incur,
create, assume or permit to exist any Indebtedness at the end of any fiscal
quarter if such Indebtedness would result in a ratio of Consolidated Total
Indebtedness to Consolidated Net Worth of more than the amount for such fiscal
quarter indicated set forth below:
<TABLE>
<CAPTION>
Year Q1 Q2 Q3 Q4
---- ------- ------- ------- -------
<S> <C> <C> <C> <C>
1999 N/A N/A 3.75 7.50
2000 3.20 2.85 3.30 2.85
2001 1.30 1.10 1.00 1.00
2002 1.00 1.00 1.00 1.00
2003 1.00 1.00 N/A N/A
</TABLE>
(c) The Company will not permit its Fixed Charge Ratio
at the end of any fiscal quarter to be less than the amount set forth below for
such fiscal quarter:
<TABLE>
<CAPTION>
Year Q1 Q2 Q3 Q4
---- ------- ------- ------- -------
<S> <C> <C> <C> <C>
1999 N/A N/A 0.75 0.005
2000 0.65 0.74 0.84 1.05
2001 1.20 1.20 1.20 1.35
2002 1.30 1.30 1.30 1.50
2003 1.40 1.40 N/A N/A
</TABLE>
2. Effective as of March 26, 2000, the defined term "Consolidated Net Worth" set
forth in Section 11.1 of the Supplemental Purchase Agreement shall be amended in
its entirety to read as follows:
"`Consolidated Net Worth' shall mean the consolidated
stockholders' equity of the Company and its Subsidiaries determined in
accordance with generally accepted accounting principles consistently
applied (it being understood and agreed that (x) the Notes and any other
Subordinated Indebtedness which is not subordinated to the Notes shall
not be treated as equity for this purpose and (y) the Company's Series A
Convertible Preferred Stock, par value $0.001 per share, shall be
treated as equity for this purpose."
Page 25
<PAGE> 3
3. The Company acknowledges and agrees that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that GECC and JOL shall be entitled to an injunction to
prevent breaches of the provisions of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
thereof having jurisdiction, this being in addition to any other remedy to which
they may be entitled at law or equity.
4. This Agreement may be executed in one or more counterparts, all of which
shall be considered one and the same agreement, and shall become effective when
one or more of the counterparts have been signed by each party and delivered to
the other parties, it being understood that all parties need not sign the same
counterpart.
5. This Agreement may be amended as to GECC, JOL and their successors and
assigns, and the Company may take any action herein prohibited, or omit to
perform any act required to be performed by it, if the Company shall obtain the
written consent of the registered holders of not less than 66 2/3% of the
aggregate outstanding principal amount of the Notes then held by GECC, JOL and
their successors or assigns; provided, however, that without the written consent
of the holder or holders of all Notes at the time outstanding, no amendment to
or waiver of any terms of this Agreement shall change or affect the interest
rate, maturity, principal amount, time of payment, currency of payment, or the
amount or allocation of any prepayments of any Note. This Agreement may not be
waived, changed, modified, or discharged orally, but only by an agreement in
writing signed by the party or parties against whom enforcement of any waiver,
change, modification or discharge is sought or by parties with the right to
consent to such waiver, change, modification or discharge on behalf of such
party. Notwithstanding anything in this Agreement to the contrary, no provision
of this Section 5 may be waived, changed or modified.
6. All covenants and agreements contained herein shall bind and inure to the
benefit of the parties hereto and their respective successors and assigns. This
Agreement may be assigned by GECC or JOL to any transferee of Notes. This
Agreement may not be assigned by the Company.
7. The Company agrees to pay GECC and JOL for all reasonable outside legal fees
in connection with this Agreement.
8. This Agreement shall terminate upon the repayment in full of all amounts of
principal, interest and other sums due and payable on all Notes.
9. Each of the parties hereto agrees that it will make no statement regarding
the transactions contemplated hereby which is inconsistent with the press
release agreed to by the parties hereto. Notwithstanding the foregoing, each of
the parties hereto may, in documents required to be filed by it with the
Commission or other regulatory bodies, make such statements with respect to the
transactions contemplated hereby as each may be advised is legally necessary
upon advice of its counsel.
10. This Agreement shall be effective upon delivery of original signature pages
or facsimile copies thereof executed by each of the parties hereto.
11. The Company represents and warrants that other than the parties executing
this Agreement no consent, approval or waiver of any other person or entity is
required for the effectiveness or enforceability of this Agreement.
Page 26
<PAGE> 4
12. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE PRINCIPLES OF
CONFLICTS OF LAW. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND
UNCONDITIONALLY CONSENTS TO SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE COURTS
OF THE STATE OF NEW YORK AND OF THE UNITED STATES OF AMERICA, IN EACH CASE
LOCATED IN THE COUNTY OF NEW YORK, FOR ANY ACTION, PROCEEDING OR INVESTIGATION
IN ANY COURT OR BEFORE ANY GOVERNMENTAL AUTHORITY ("LITIGATION") ARISING OUT OF
OR RELATING TO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY (AND
AGREES NOT TO COMMENCE ANY LITIGATION RELATING THERETO EXCEPT IN SUCH COURTS),
AND FURTHER AGREES THAT SERVICE OF ANY PROCESS, SUMMONS, NOTICE OR DOCUMENT BY
U.S. REGISTERED MAIL TO ITS RESPECTIVE ADDRESS SET FORTH IN THIS AGREEMENT SHALL
BE EFFECTIVE SERVICE OF PROCESS FOR ANY LITIGATION BROUGHT AGAINST IT IN ANY
SUCH COURT. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVES ANY OBJECTION TO THE LAYING OF VENUE OF ANY LITIGATION ARISING OUT OF
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY IN THE COURTS OF THE
STATE OF NEW YORK OR THE UNITED STATES OF AMERICA, IN EACH CASE LOCATED IN THE
COUNTY OF NEW YORK, AND HEREBY FURTHER IRREVOCABLY AND UNCONDITIONALLY WAIVES
AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH LITIGATION
BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH OF THE
PARTIES IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED
BY APPLICABLE LAW, ANY AND ALL RIGHTS TO TRIAL BY JURY IN CONNECTION WITH ANY
LITIGATION ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
Page 27
<PAGE> 5
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their respective officers thereunto duly authorized.
KRAUSE'S FURNITURE, INC.
By:/s/ Daniel L. Felsenthal
-------------------------------------
Name:Robert A. Burton
Title: Executive Vice President
and Chief Financial Officer
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ George L. Hashbarger Jr.
-------------------------------------
Name:George L. Hashbarger, Jr.
Title: Senior Vice President/
Department Operations Manager
JAPAN OMNIBUS LTD.
By:________________________________________
Name:
Title:
Page 28
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-24-2000
<PERIOD-START> DEC-27-1999
<PERIOD-END> MAR-26-2000
<CASH> 10,829
<SECURITIES> 0
<RECEIVABLES> 1,478
<ALLOWANCES> 250
<INVENTORY> 24,922
<CURRENT-ASSETS> 37,869
<PP&E> 24,325
<DEPRECIATION> 8,060
<TOTAL-ASSETS> 69,457
<CURRENT-LIABILITIES> 25,360
<BONDS> 0
18,700
0
<COMMON> 22
<OTHER-SE> 2,064
<TOTAL-LIABILITY-AND-EQUITY> 69,457
<SALES> 39,017
<TOTAL-REVENUES> 39,017
<CGS> 17,577
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 22,969
<LOSS-PROVISION> 12
<INTEREST-EXPENSE> 635
<INCOME-PRETAX> (2,179)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,179)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,179)
<EPS-BASIC> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
