UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 June 26, 2004
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: 000-50807
DESIGN WITHIN REACH, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 94-3314374 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| 225 Bush Street, 20th Floor, San Francisco, CA | 94104 | |
| (Address of principal executive offices) | (Zip Code) | |
(415) 676-6500
(Registrant’s telephone number, including area code)
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. ¨ Yes x No
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No
The number of outstanding shares of the registrant’s common stock, par value $0.001 per share, as of July 31, 2004 was 12,823,644.
FORM 10-Q — QUARTERLY REPORT
FOR THE QUARTERLY PERIOD ENDED JUNE 26, 2004
TABLE OF CONTENTS
| Page No | ||||
| PART I – FINANCIAL INFORMATION |
||||
| Item 1 |
3 | |||
| 3 | ||||
| 4 | ||||
| 5 | ||||
| 6 | ||||
| Item 2 |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
12 | ||
| Item 3 |
30 | |||
| Item 4 |
30 | |||
| PART II – OTHER INFORMATION |
||||
| Item 2 |
31 | |||
| Item 4 |
31 | |||
| Item 6 |
32 | |||
| 34 | ||||
2
PART I – FINANCIAL INFORMATION
Condensed Balance Sheets
(amounts in thousands)
| June 26, 2004 |
December 27, 2003 |
June 28, 2003 |
||||||||||
| (unaudited) | (unaudited) | |||||||||||
| ASSETS |
||||||||||||
| Current assets |
||||||||||||
| Cash and cash equivalents |
$ | 14 | $ | 44 | $ | 23 | ||||||
| Accounts receivable (less allowance for doubtful accounts of $61, $36 and $36) |
1,519 | 620 | 1,412 | |||||||||
| Inventory, net |
11,969 | 11,425 | 7,593 | |||||||||
| Prepaid catalog costs |
984 | 614 | 1,449 | |||||||||
| Deferred income taxes, net of valuation allowance |
1,430 | 1,022 | — | |||||||||
| Other current assets |
1,073 | 680 | 487 | |||||||||
| Total current assets |
16,989 | 14,405 | 10,964 | |||||||||
| Property and equipment, net |
14,776 | 9,018 | 6,296 | |||||||||
| Deferred income taxes |
706 | 309 | — | |||||||||
| Other non-current assets |
467 | 111 | 403 | |||||||||
| Total assets |
$ | 32,938 | $ | 23,843 | $ | 17,663 | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||||||
| Current liabilities |
||||||||||||
| Accounts payable |
$ | 6,995 | $ | 4,852 | $ | 5,524 | ||||||
| Accrued expenses |
3,438 | 2,714 | 1,548 | |||||||||
| Deferred revenue |
2,121 | 687 | 1,386 | |||||||||
| Customer deposits and other liabilities |
1,315 | 1,091 | 1,131 | |||||||||
| Bank credit facility |
5,501 | 3,325 | — | |||||||||
| Capital lease obligation, current portion |
112 | 90 | — | |||||||||
| Total current liabilities |
19,482 | 12,759 | 9,589 | |||||||||
| Deferred rent and lease incentives |
1,307 | 587 | 346 | |||||||||
| Capital lease obligation |
195 | 260 | — | |||||||||
| Deferred income tax liabilities |
500 | 399 | — | |||||||||
| Total liabilities |
21,484 | 14,005 | 9,935 | |||||||||
| Stockholders’ equity |
||||||||||||
| Preferred stock Series A – $1.00 par value; authorized 2,040 shares; issued and outstanding, 2,040, 2,040 and 2,040, respectively |
2,040 | 2,040 | 2,040 | |||||||||
| Preferred stock Series B – $1.00 par value; authorized 6,000 shares; issued and outstanding, 3,359, respectively |
10,044 | 10,044 | 10,044 | |||||||||
| Common stock – no par value; authorized 13,000 shares; issued and outstanding, none, 3,322 and 3,253, respectively |
— | 240 | 219 | |||||||||
| Common stock – $0.001 par value; authorized 30,000 shares; issued and outstanding, 3,428 |
3 | — | — | |||||||||
| Additional paid-in capital |
2,445 | — | — | |||||||||
| Deferred compensation |
(1,900 | ) | — | — | ||||||||
| Accumulated deficit |
(1,178 | ) | (2,486 | ) | (4,575 | ) | ||||||
| Total stockholders’ equity |
11,454 | 9,838 | 7,728 | |||||||||
| Total liabilities and stockholders’ equity |
$ | 32,938 | $ | 23,843 | $ | 17,663 | ||||||
The accompanying notes are an integral part of these financial statements.
3
Condensed Statements of Earnings
(Unaudited)
(amounts in thousands, except per share data)
| Thirteen weeks ended |
Twenty-six weeks ended |
|||||||||||||||
| June 26, 2004 |
June 28, 2003 |
June 26, 2004 |
June 28, 2003 |
|||||||||||||
| Net sales |
$ | 28,223 | $ | 19,358 | $ | 50,736 | $ | 35,499 | ||||||||
| Cost of sales |
15,103 | 10,210 | 27,199 | 19,066 | ||||||||||||
| Gross margin |
13,120 | 9,148 | 23,537 | 16,433 | ||||||||||||
| Selling, general and administrative expenses |
10,896 | 8,102 | 19,617 | 14,816 | ||||||||||||
| Stock based compensation |
149 | — | 225 | — | ||||||||||||
| Depreciation and amortization |
710 | 440 | 1,285 | 750 | ||||||||||||
| Facility relocation costs |
— | 1 | 198 | 9 | ||||||||||||
| Earnings from operations |
1,365 | 605 | 2,212 | 858 | ||||||||||||
| Interest income (expense) |
||||||||||||||||
| Interest income |
— | — | — | 12 | ||||||||||||
| Interest expense |
(51 | ) | — | (83 | ) | — | ||||||||||
| Earnings before income taxes |
1,314 | 605 | 2,129 | 870 | ||||||||||||
| Income tax expense |
508 | — | 821 | — | ||||||||||||
| Net earnings |
806 | 605 | 1,308 | 870 | ||||||||||||
| Deemed preferred stock dividends |
— | (1,765 | ) | — | (1,765 | ) | ||||||||||
| Net earnings (loss) available to common stockholders |
$ | 806 | $ | (1,160 | ) | $ | 1,308 | $ | (895 | ) | ||||||
| Net earnings (loss) per share: |
||||||||||||||||
| Basic |
$ | 0.23 | $ | (0.36 | ) | $ | 0.38 | $ | (0.28 | ) | ||||||
| Diluted |
$ | 0.07 | $ | (0.36 | ) | $ | 0.11 | $ | (0.28 | ) | ||||||
| Weighted average shares used in calculation of net earnings (loss) per share: |
||||||||||||||||
| Basic |
3,476 | 3,246 | 3,419 | 3,238 | ||||||||||||
| Diluted |
11,671 | 3,246 | 11,516 | 3,238 | ||||||||||||
| Pro forma net earnings per share: |
||||||||||||||||
| Basic |
$ | 0.09 | $ | 0.07 | $ | 0.14 | $ | 0.09 | ||||||||
| Diluted |
$ | 0.07 | $ | 0.05 | $ | 0.11 | $ | 0.08 | ||||||||
| Weighted average shares used in the calculation of pro forma net earnings per share: |
||||||||||||||||
| Basic |
9,136 | 9,217 | 9,079 | 9,331 | ||||||||||||
| Diluted |
11,671 | 11,377 | 11,516 | 11,495 | ||||||||||||
The accompanying notes are an integral part of these financial statements.
4
Condensed Statements of Cash Flows
(Unaudited)
(amounts in thousands)
| Twenty-six weeks ended |
||||||||
| June 26, 2004 |
June 28, 2003 |
|||||||
| Cash flows from operating activities |
||||||||
| Net earnings |
$ | 1,308 | $ | 870 | ||||
| Adjustments to reconcile net earnings to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
1,285 | 750 | ||||||
| Amortization of deferred compensation |
225 | — | ||||||
| Change in assets and liabilities: |
||||||||
| Accounts receivable |
(899 | ) | (351 | ) | ||||
| Inventory |
(544 | ) | (908 | ) | ||||
| Prepaid catalog costs |
(370 | ) | (883 | ) | ||||
| Deferred income taxes, net of valuation allowance |
(805 | ) | — | |||||
| Other current assets |
(393 | ) | (133 | ) | ||||
| Other non-current assets |
||||||||