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 31, 1995
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 of incorporation) (I.R.S. Employer Identification No.)
5980 Stoneridge Drive, Suite 109, Pleasanton, California 94588
--------------------------------------------------------- --------------------------------------------
(Address of principal executive offices) (Zip Code)
(510) 460-6201
---------------------------------------------------------
(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 May 1, 1995 the Registrant had 11,054,953 shares of common stock
outstanding.
2
INDEX
Page
----
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
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 5 - 6
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 7
Signatures 7
3
KRAUSE'S FURNITURE, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
March 31, December 31,
1995 1994
----------- -------------
(In thousands, except share data)
Current assets:
Cash and cash equivalents $3,177 $1,617
Accounts receivable, net of allowance for
doubtful accounts of $603 and $912 966 1,040
Inventories 18,792 17,257
Deferred income taxes 920 920
Prepaid expenses 1,482 950
------- -------
Total current assets 25,337 21,784
Property, equipment, and
leasehold improvements, net 7,183 5,835
Goodwill, net 17,256 17,511
Leasehold interest, net 2,423 2,516
------- -------
Other assets 3,651 3,594
------- -------
$55,850 $51,240
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $16,962 $16,875
Accrued payroll and related expenses 1,699 1,889
Customer deposits 7,535 3,696
Notes payable 15 65
Income taxes payable 1,007 1,207
------- -------
Total current liabilities 27,218 23,732
Long-term liabilities:
Notes payable 5,589 89
Other liabilities 1,590 1,498
------- -------
7,179 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 (13,493) (9,025)
------- -------
Total stockholders' equity 21,453 25,921
------- -------
$55,850 $51,240
======= =======
See accompanying notes.
1
4
KRAUSE'S FURNITURE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per shar
Three Months Ended March 31,
----------------------------
1995 1994
---- ----
Net furniture sales $26,350 $25,182
Cost of sales 12,630 11,369
------- -------
Gross profit 13,720 13,813
------- -------
Operating expenses:
Selling expenses 14,905 13,240
General and administrative 3,231 2,761
------- -------
18,136 16,001
------- -------
Loss from operations (4,416) (2,188)
Equity in earnings of Mr. Coffee - 201
Interest expense (107) (777)
Other income 55 19
------- -------
Loss before income taxes (4,468) (2,745)
Provision for income taxes - -
------- -------
Net loss ($4,468) ($2,745)
======== ========
Net income (loss) per share ($0.40) ($0.26)
Average number of common
shares outstanding 11,055 10,469
See accompanying notes.
2
5
KRAUSE'S FURNITURE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended March 31,
----------------------------
1995 1994
---- ----
(In thousands)
Cash flows from operating activities:
Net loss ($4,468) ($2,745)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 598 875
Equity in earnings of Mr. Coffee - (201)
Change in assets and liabilities :
Accounts receivable 74 155
Inventories (1,535) (1,495)
Prepaid expenses and other a (589) (158)
Accounts payable and accrued liabilities (11) (1,300)
Customer deposits 3,839 2,190
Income taxes payable (200) -
------- -------
Net cash used by operating activities (2,292) (2,679)
Cash flows from investing activities:
Capital expenditures (1,598) (233)
------- -------
Net cash used by investing activities (1,598) (233)
Cash flows from financing activities:
Proceeds from issuance of long-term debt 5,504 -
Principal payments on short-term debt (54) (25)
------- -------
Net cash provided (used) by financing activities 5,450 (25)
------- -------
Net increase (decrease) in cash and cash equivalents 1,560 (2,937)
Cash and cash equivalents at beginning of period 1,617 6,302
------- -------
Cash and cash equivalents at end $3,177 $3,365
======= =======
Supplemental disclosures of cash flow information-
Cash paid during the period for:
Interest $45 $318
Income taxes 200 -
Noncash investing and financing activities-
None
See accompanying notes.
3
6
KRAUSE'S FURNITURE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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. Certain
reclassifications of previously reported information were made to conform to
the 1995 presentation.
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 quarter ended March 31, 1995 are not necessarily
indicative of results to be expected in future periods.
2. Inventories are carried at the lower of cost or market using the
first-in, first-out method and are comprised of the following at March 31,
1995:
Finished goods $13,572,000
Work-in-process 602,000
Raw materials 4,618,000
-----------
$18,792,000
===========
3. Notes payable at March 31, 1995 consist of:
Secured revolving credit notes $ 5,504,000
Other (current portion $15,000) 100,000
-----------
$ 5,604,000
===========
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
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULT OF OPERATIONS
RESULTS OF OPERATIONS
Three Months Ended March 31, 1995 Compared to Three Months Ended March 31,
1994
Net furniture sales for the first quarter 1995 was $26,350,000 which
was an increase of approximately 4.6% from net sales in the first quarter of
1994. The increase was primarily attributable to higher sales in new stores
and stores relocated offset somewhat by a 1.7% decrease in same-store sales in
the first quarter 1995 compared to the first quarter 1994.
Gross margin was 52.1% of net sales in the first quarter 1995 compared
to 54.9% in the first quarter 1994. The lower gross margins resulted from
more product promotions and higher freight costs associated with
proportionately higher sales in the East.
Selling expenses were $14,905,000 in the first quarter 1995 and
$13,240,000 in the first quarter 1994. The increase was principally due to
selling expenses attributable to additional sales and higher advertising
expenses in 1995.
General and administrative expenses increased by $470,000 to
$3,231,000 in the first quarter 1995 from the first quarter last year. General
administrative expenses were higher in the 1995 period principally because of
higher personnel costs and employee termination expenses.
Interest expense decreased by $670,000 in the first quarter 1995
compared to the first quarter 1994 due principally to significantly less debt
outstanding in 1995.
The Company's investment in Mr. Coffee, inc. is accounted for by the
equity method which has resulted in equity in earnings of $201,000 in the first
quarter 1994. The Company sold its investment in Mr. Coffee in August 1994.
As a result of the above factors, net loss was $4,468,000 in the
quarter ended March 31, 1995 compared to a loss of $2,745,000 in the first
quarter 1994. Net loss per share in the first quarter 1995 was $.40 based on
11,054,953 average shares outstanding. In the comparable 1994 quarter the net
loss per share was $.26 on 10,469,036 average shares outstanding.
No tax benefits are available for 1995 or 1994 operating losses.
5
8
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1995, the Company had $3,177,000 in cash and cash
equivalents compared to $1,617,000 as of December 31, 1994.
Cash Flow - Three Months Ended March 31, 1995
Cash and cash equivalents increased by $1,560,000 during the period.
Operating activities used net cash of $2,292,000 principally from a $3,870,000
cash loss from operations and an increase in inventories of $1,535,000, offset
by an increase in customer deposits of $3,839,000. Investing activities were
capital expenditures of $1,598,000 principally for costs of construction of a
showroom in Dallas and for additions to leasehold improvements of new
showrooms. Financing activities included $5,504,000 of net borrowings under a
revolving credit agreement (see Note 3).
Cash Flow - Three Months Ended March 31, 1994
Cash and cash equivalents decreased by $2,937,000 during the period.
Operating activities used net cash of $2,679,000, principally from a cash loss
from operations of $2,071,000, an increase in inventories of $1,495,000 and a
decrease in accounts payable and accrued liabilities of $1,300,000, offset by
an increase in customer deposits of $2,190,000. Investing activities during
the period were capital expenditures of $233,000, principally for additions to
leasehold improvements of retail showrooms. The only financing activities
during the period were $25,000 of payments on short-term notes.
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
March 31, 1995 there were no significant long-term capital expenditure
commitments. The Company has a deficiency in working capital of approximately
$1.9 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
9
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)
Date: May 15, 1995 /s/ Robert G. Sharpe
------------ -------------------------------
Robert G. Sharpe
Executive Vice President
7
10
Exhibit Index
Ex. 27 Financial Data Schedule