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 October 1, 2000
/ / 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 November 1, 2000.
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CRAMER, INC.
BALANCE SHEETS
UNAUDITED
(Amounts in Thousands, Except Share Data)
ASSETS 10/1/00 12/31/99
--------- ----------
CURRENT ASSETS:
Cash ............................................................... $ 93 $ 49
Accounts receivable, net of allowance of $31 at October 1, 2000,
and $21 at December 31, 1999 ................................... 1,314 1,263
Inventories ........................................................ 1,441 1,355
Prepaid expenses and other current assets .......................... 428 309
------- -------
Total current assets ...................................... 3,276 2,976
PROPERTY, PLANT AND EQUIPMENT
At cost ............................................................ 6,288 6,046
Accumulated depreciation ........................................... 5,423 5,271
------- -------
865 775
OTHER ASSETS:
Intangible pension asset ........................................... 108 108
Goodwill ........................................................... 156 171
Other non current assets ........................................... 143 160
------- -------
Total Assets .............................................. $ 4,548 $ 4,190
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable ....................................................... $ 2,315 $ 1,842
Cash overdrafts .................................................... 241 246
Accounts payable ................................................... 784 466
Accrued liabilities ................................................ 472 477
------- -------
Total current liabilities ................................. 3,812 3,031
NON-CURRENT LIABILITIES:
Pension benefits payable ........................................... 272 301
Other .............................................................. 150 210
------- -------
Total non-current liabilities ............................. 422 511
STOCKHOLDERS' EQUITY:
Common stock, no par value; authorized, 6,000,000 shares; issued and
outstanding 4,051,400 shares at October 1, 2000,
and December 31, 1999 .......................................... 3,824 3,824
Accumulated deficit ................................................ (3,313) (2,979)
------- -------
511 845
Minimum pension liability adjustment ............................... (197) (197)
------- -------
Net stockholders' equity .................................. 314 648
------- -------
Total Liabilities and Stockholders' Equity ................ $ 4,548 $ 4,190
======= =======
3
CRAMER, INC.
STATEMENTS OF INCOME
UNAUDITED
(Amounts in Thousands, Except Per Share Data)
QUARTER ENDED NINE MONTHS ENDED
10/1/00 10/3/99 10/1/00 10/3/99
------------ ------------ ------------ ------------
NET SALES ..................................................... $ 3,165 $ 3,349 $ 9,947 $ 9,843
COST OF SALES ................................................. 2,268 2,389 7,186 7,022
------------ ------------ ------------ ------------
Gross profit .................................... 897 960 2,761 2,821
OPERATING EXPENSES:
Selling expenses ......................................... 555 644 1,976 1,946
General and administrative ............................... 279 347 910 983
------------ ------------ ------------ ------------
Total operating expenses ........................ 834 991 2,886 2,929
------------ ------------ ------------ ------------
Income (loss) from operations ................... 63 (31) (125) (108)
OTHER EXPENSE:
Interest expense, net .................................... (58) (33) (159) (88)
Other, net ............................................... (21) (53) (50) (63)
------------ ------------ ------------ ------------
Total other expense ............................. (79) (86) (209) (151)
------------ ------------ ------------ ------------
LOSS BEFORE INCOME TAXES ...................................... (16) (117) (334) (259)
INCOME TAX BENEFIT ............................................ 0 0 0 0
------------ ------------ ------------ ------------
NET LOSS ..................................................... $ (16) $ (117) $ (334) $ (259)
============ ============ ============ ============
Net loss per share based on basic and diluted
weighted average number of common
equivalent shares outstanding ....................... $ (0.00) $ (0.03) $ (0.08) $ (0.06)
Weighted Average Common Equivalent
Shares Outstanding Basic.............. 4,051,400 4,051,400 4,051,400 4,051,400
Diluted ............... 4,051,400 4,051,400 4,051,400 4,051,400
There is no difference between Net Loss and Total Comprehensive Loss for the
quarter or nine-month periods ending October 1, 2000 and October 3, 1999.
These interim financial statements contain all adjustments required for them to
be comparable to the annual financial statements issued on Form 10KSB.
4
CRAMER, INC.
STATEMENTS OF CASH FLOWS
UNAUDITED
(Amounts in Thousands)
Nine Months Ended
10/1/00 10/3/99
------- -------
Cash flows from operating activities:
Net loss ...................................................... $ (334) $ (259)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization ............................ 184 192
Changes in operating assets and liabilities:
Accounts receivable .................................. (51) (373)
Inventories .......................................... (86) 53
Prepaid expenses ..................................... (119) (39)
Accounts payable and other current liabilities ....... 308 224
Other non-current liabilities ........................ (89) (73)
------- -------
Net cash used by operating activities ... (187) (278)
------- -------
Cash flows from investing activities:
Capital expenditures ..................................... (242) (209)
------- -------
Cash flows from financing activities:
Principal payments on notes payable ...................... (3,385) (3,810)
Proceeds from issuance of notes payable .................. 3,858 4,306
------- -------
Net cash provided by financing activities 473 496
------- -------
Net increase in cash .......................................... 44 12
Cash at beginning of year ..................................... 49 63
------- -------
Cash at end of quarter ........................................ $ 93 $ 75
======= =======
Supplemental disclosures:
Cash paid during the period for:
Interest ............................................. $ 159 $ 88
======= =======
Income tax ........................................... $ 0 $ 0
======= =======
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 risks and
uncertainties. The Company's actual results could differ materially
from the forward looking statements. In connection with the "safe
harbor" provisions of the Private Securities Litigation Reform Act of
1995, Cramer, Inc. reminds readers that there are many important
factors that could cause the Company's actual results to differ
materially from those projected in forward-looking statements of the
Company made by, or on behalf of, the Company. When used in this Form
10-QSB and in other filings by the Company with the Securities and
Exchange Commission, in the Company's press releases and in oral
statements made with the approval of an authorized executive officer,
words or phrases such as "will likely result", "expects", "are expected
to", "will continue", "is anticipated", "estimate", "project" or
similar expressions are intended to identify forward-looking
statements. The Company wishes to caution readers not to place undue
reliance on such forward-looking statements.
There are a number of reasons why investors should not place undue
reliance on forward-looking statements. Among the risks and
uncertainties that could cause the Company's actual results for future
periods to differ materially from any forward-looking statements made
are the following:
- Fluctuations or reductions in product demand and market
acceptance
- The level of product development by the Company
- Capacity and supply constraints or difficulties
- The results of financing efforts
- The effect of new laws and regulations
- Unexpected additional expenses or operating losses
- Competition
- The Company's reliance on certain vendors for key components.
The foregoing list of risks and uncertainties is not meant to be
complete.
B. SUMMARY OF OPERATIONS
At $9,947,000, net sales for the first three quarters of 2000 were
$104,000, or 1%, higher than during the same period in 1999. The
Company's sales in the first three quarters of 2000 to its catalog
distributors increased by 18% as compared to the first three-quarters
of 1999. Management attributes the Company's sales growth in this area
to increased sales contacts with key personnel at these targeted
companies and programs that provided these distributors with more
specific incentive programs. The sales increase to catalog distributors
was offset by an 8% decrease in sales volume to contract furniture
dealers. This sales decrease is due to lower unit volume of the
6
Company's Triton product. Management attributes the decrease in volume
to increased competition in the 24 hour, heavy duty usage niche
pioneered by the Triton as other seating manufacturers introduce
alternative products.
The Company's backlog at the end of October 1, 2000 was $767,000. This
is a decrease of $233,000 as compared to the Company's backlog at the
end of 1999. The Company has been able to reduce its order backlog by
implementing cellular manufacturing and the use of Kanbans and similar
visual production management techniques. These improvements in
manufacturing and scheduling efficiency are allowing the Company to
schedule approximately 90% of its orders with a 5 day lead time. This
compares to the 3 to 4 week lead time that was used for scheduling in
1999. Management believes the Company's shorter lead-time provides
better customer service and is a competitive advantage in many
situations.
As a percentage of net sales, gross margins in the first nine months of
2000 were 27.8% as compared to 28.6% in the first nine months of 1999.
The decrease in gross margins reflects the increased labor costs in the
first quarter of the year arising from training the Company's
production employees in the use of the new cellular manufacturing
techniques.
At $2,886,000, total operating expenses during the first three quarters
of 2000 are substantially unchanged from the total operating expenses
for the same period in 1999. However, operating expenses in the third
quarter of 2000 were only $834,000. This is a $157,000, or 16%,
reduction as compared to these operating expenses in the third quarter
of 1999. In addition, third quarter 2000 operating expenses were
$228,000, or 21%, less than operating expenses in the second quarter of
2000.
The reduction in operating expenses reflects management's decision in
July of 2000 to restructure the Company's sales operations targeted
toward the internet and other direct to end user sales channels. In the
12 months ending June 2000, the company had spent approximately
$633,000 in costs such as staffing of a telemarketing center, printing
and postage for literature mailed directly to end-users, and
advertisements in selected national publications. These costs
significantly exceeded the sales in these new market channels and were
not producing the desired return. Therefore, the Company reduced its
costs by (a) contracting with a third party to staff the telemarketing
center on a commissioned basis, (b) significantly reducing the number
of mailing to end users, and (c) eliminating the use of national
advertising campaigns.
Interest expense in the first three-quarters of 2000 increased by
$71,000 as compared to the first three-quarters of 1999. While the
increase is principally due to the increase in average borrowing
levels, interest rates are slightly higher in 2000 as compared to 1999.
7
Other non-operating expenses decreased by $13,000 in the first nine
months of 2000 as compared to the same period in 1999. Furthermore,
these costs were $32,000 lower in the third quarter of 2000 as compared
to the third quarter of 1999. The decrease is due to the Company's sale
for $25,000 of certain intellectual property rights related to the use
of infrared keyboard technology to another manufacturer of high-end
ergonomic keyboards.
In the third quarter of 2000 the Company transferred the keyboard
manufacturing of its Floating Arm keyboard product line from a contract
manufacturer to another manufacturer and distributor of ergonomic
keyboards. The ergonomic keyboard manufacturer will produce the
Floating Arms keyboard for the Company and its own use. This
manufacturer distributes its other ergonomic keyboards through market
channels that the Company does not participate in. Therefore,
management believes that the other manufacturers' sales will not impact
the sale of the Company's Floating Arm keyboard products. The other
manufacturer will pay a royalty to the Company for all Floating Arm
keyboards it sells.
The Company's cost for individual Floating Arm keyboards will be
substantially the same as that charged by the contract manufacturer.
However, as a result of this transfer, the Company was able to
eliminate an approximately $7,700 monthly charge by the contract
manufacturer for inventory management and facility usage.
As a result of the cost savings actions described above, the Company
reduced its loss before income taxes from $235,000 in the second
quarter of 2000 to $16,000 in the third quarter of 2000. Management
notes that the operating trend within the quarter is positive as the
Company had a net loss in July and then net income in both August and
September.
Management expects that the restructuring of the sales and marketing
efforts associated with the direct to end user sales channels will
return the Company to profitability. The Company's core seating and
utility product business has been consistently profitable. Sales to
catalog distributors are increasing and management expects this trend
to continue. Furthermore, while sales of Tritons to contract furniture
dealers have decreased recently, management expects that these sales
will be replaced by the sales of the Company's new RhinoPlus seating
line and other new proprietary products. These products were recently
introduced and have gathered favorable reviews.
While management expects the 4th quarter to be profitable, it is likely
that the overall results for 2000 will be a net loss.
C. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's trade accounts receivable increased by $51,000 from
December 31, 1999 to October 1, 2000. The increase is due to the timing
of
8
sales in the final weeks of the respective periods. Weekly sales in the
final month of 1999 aggregated $1,121,000 while sales in the final
month of the quarter ended October 1, 2000 aggregated $1,251,000, an
increase of $130,000. Trade accounts receivable at the end of the third
quarter of 2000 is $158,000 lower than at the end of the second quarter
of 2000. This reflects an improvement in aging. Days sales outstanding
decreased from 40 to 38 during the third quarter.
Inventories increased by $86,000 during the period from December 31,
1999 to October 1, 2000. The difference represents normal fluctuations
in the Company's inventory balances. The above is net of a $110,000
sale of inventory to another keyboard manufacturer in conjunction with
the transfer of the manufacturing of this product (see above).
Prepaid expenses and other current assets increased by $119,000 during
the first three quarters of 2000. The increase is principally due to a
short term note receivable for the keyboard inventory transfer.
Payments are being made on the note in accordance with its term and
management expects that the full balance will be paid within the coming
12 months.
Capital expenditures aggregated $242,000 during the first
three-quarters of 2000. Approximately $45,000 consisted of the
programming and development costs for significantly enhancing the
Company's two web sites. Another $72,000 consists of improvements in
electrical wiring and fixtures made in the Company's manufacturing
facility as part of the development of new work cells. $25,000 was
expended to purchase new data processing equipment. The remaining
increase consists of improvements and additions to tooling used in
manufacturing the Company's products.
The Company's accounts payable balance at October 1, 2000 increased by
$318,000 from the December 31, 1999 balance. The increase is due to
actions by the Company to improve cash flow by more aggressive payment
terms with vendors.
The Company's notes payable increased by $473,000 during the first
three quarters of 2000. The increase is principally due to the
increases in accounts receivable, inventory, short term receivable, and
property plant and equipment discussed above as well as the Company's
operating loss. During the most recent quarter, the Company was able to
reduce amounts due on this note by $155,000.
During the first three-quarters of 2000, the Company reduced its
long-term pension liability by $29,000 in accordance with established
payment schedules.
The Company continues to participate in a consolidated cash management
and credit facility with its parent, Rotherwood, and other affiliated
companies. (See discussion in Note 3 to the Financial Statements in the
Company's 1999
9
Form 10KSB.) At the end of the third quarter of 2000 the credit
facility aggregated $2,600,000 and was for the sole use of the Company
and one other company substantially owned by Rotherwood. Rotherwood
supports this new facility by a $2 million letter of credit. At
present, the entire credit facility is available for the Company's use.
This situation is expected to continue through out the note's term.
Members of the Company's management provide financial advisory services
for the affiliated company and is aware of its expected cash
availability and / or cash needs. As a result, Management believes that
the Company's access to the entire $2,600,000 credit 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.
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.
10
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: 11/14/00 /s/ Gary Rubin
----------------- --------------------------------
Gary A. Rubin
Vice President, Finance & CFO