DESIGN WITHIN REACH INC - 10-Q Quarterly Report

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 September 25, 2004

¨	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, 20^th 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. x Yes ¨ 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 October 28, 2004 was 12,857,180.

DESIGN WITHIN REACH, INC.

FORM 10-Q — QUARTERLY REPORT

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 25, 2004

TABLE OF CONTENTS


			Page No
PART I – FINANCIAL INFORMATION

	Item 1	Financial Statements	3

		Condensed Balance Sheets as of September 25, 2004 (unaudited), December 27, 2003 and September 27, 2003 (unaudited)	3

		Condensed Statements of Earnings (unaudited) for the thirteen and thirty-nine week periods ended September 25, 2004 and September 27, 2003	4

		Condensed Statements of Stockholders’ Equity (unaudited) for the thirty-nine weeks ended September 25, 2004	5

		Condensed Statements of Cash Flows (unaudited) for the thirty-nine week periods ended September 25, 2004 and September 27, 2003	6

		Notes to Unaudited Condensed Financial Statements	7

	Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13

	Item 3	Quantitative and Qualitative Disclosure about Market Risk	20

	Item 4	Controls and Procedures	20

PART II – OTHER INFORMATION

	Item 2	Changes in Securities and Use of Proceeds	21

	Item 6	Exhibits and Reports on Form 8-K	21

SIGNATURES			23

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Design Within Reach, Inc.

Condensed Balance Sheets

(amounts in thousands, except per share data)


	September 25, 2004			December 27, 2003			September 27, 2003
	(unaudited)						(unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	20,884		$	44		$	65
Investments		1,502			—			—
Accounts receivable (less allowance for doubtful accounts of $76, $36 and $36, respectively)		1,487			620			1,680
Inventory, net		14,323			11,425			11,653
Prepaid catalog costs		1,732			614			1,235
Deferred income taxes, net of valuation allowance		970			1,022			—
Other current assets		1,069			680			648

Total current assets		41,967			14,405			15,281

Property and equipment, net		16,484			9,018			7,337
Investments, non-current		2,009			—			—
Deferred income taxes		811			309			—
Other non-current assets		553			111			414

Total assets	$	61,824		$	23,843		$	23,032

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	6,933		$	4,852		$	6,265
Accrued expenses		3,296			2,714			1,865
Deferred revenue		2,162			687			1,858
Customer deposits and other liabilities		1,387			1,091			1,147
Bank credit facility		—			3,325			3,042
Capital lease obligation, current portion		112			90			—

Total current liabilities		13,890			12,759			14,177

Deferred rent and lease incentives		1,559			587			375
Capital lease obligation		168			260			—
Deferred income tax liabilities		438			399			—

Total liabilities		16,055			14,005			14,552

Stockholders’ equity
Preferred stock Series A – $1.00 par value; authorized 2,040 shares; issued and outstanding, none, 2,040 and 2,040, respectively		—			2,040			2,040
Preferred stock Series B – $1.00 par value; authorized 6,000 shares; issued and outstanding, none, 3,359, and 3,359, respectively		—			10,044			10,044
Common stock – no par value; authorized 13,000 shares; issued and outstanding, none, 3,322 and 3,253, respectively		—			240			232
Common stock – $0.001 par value; authorized 30,000 shares; issued and outstanding, 3,428, none, and none		13			—			—
Additional paid-in capital		47,825			—			—
Deferred compensation		(1,751	)		—			—
Accumulated Other Comprehensive Income		(47	)		—			—
Accumulated deficit		(271	)		(2,486	)		(3,836	)

Total stockholders’ equity		45,769			9,838			8,480

Total liabilities and stockholders’ equity	$	61,824		$	23,843		$	23,032

The accompanying notes are an integral part of these financial statements.

Design Within Reach, Inc.

Condensed Statements of Earnings

(Unaudited)

(amounts in thousands, except per share data)


	Thirteen weeks ended						Thirty-nine weeks ended
	September 25, 2004			September 27, 2003			September 25, 2004			September 27, 2003
Net sales	$	30,146		$	20,647		$	80,882		$	56,146
Cost of sales		16,096			10,852			43,294			29,918

Gross margin		14,050			9,795			37,588			26,228
Selling, general and administrative expenses		11,703			8,532			31,320			23,348
Stock-based compensation		149			—			374			—
Depreciation and amortization		775			475			2,060			1,225
Facility relocation costs		—			28			198			37

Earnings from operations		1,423			760			3,636			1,618
Interest income (expense)
Interest income		58			—			58			12
Interest expense		(9	)		(21	)		(92	)		(21	)

Earnings before income taxes		1,472			739			3,602			1,609
Income tax expense		566			—			1,387			—

Net earnings		906			739			2,215			1,609
Deemed preferred stock dividends		—			—			—			(1,765	)

Net earnings (loss) available to common stockholders	$	906		$	739		$	2,215		$	(156	)

Net earnings (loss) per share:
Basic	$	0.07		$	0.23		$	0.34		$	(0.05	)
Diluted	$	0.06		$	0.07		$	0.18		$	(0.05	)
Weighted average shares used in calculation of net earnings (loss) per share:
Basic		12,643			3,254			6,493			3,244
Diluted		14,636			11,078			12,556			3,244

The accompanying notes are an integral part of these financial statements.

Design Within Reach, Inc.

Statement of Stockholders’ Equity

Thirty-nine weeks ended September 25, 2004

(amounts in thousands)


	Preferred Stock Series A			Preferred Stock Series B			Common Stock			Additional Paid-in Capital		Deferred Stock based Compensation		Accumulated Other Comprehensive Income		Accumulated Deficit			Total
	Shares	Amount		Shares	Amount		Shares	Amount		Additional Paid-in Capital		Deferred Stock based Compensation		Accumulated Other Comprehensive Income		Accumulated Deficit			Total
Balance - December 27, 2003	2,040	$	2,040	3,359	$	10,044	3,322	$	240	$	—	$	—	$	—	$	(2,486	)	$	9,838
Issuance of common stock pursuant to 1999 employee stock option plan (unaudited)	—		—	—		—	106		67		—

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