Overview

Economic conditions, weak consumer confidence, lower housing activity, and continued high levels of unemployment and consumer debt have continued to affect demand for residential furniture in our price segment and product categories. Shipments in the first quarter of 2012 of new bedroom groups that started shipping in the second quarter of 2011 led to a slight increase in residential sales as compared to the prior year period. However, the ongoing difficult operating environment in the residential furniture market contributed to lower residential sales compared to the fourth quarter of 2011. We reduced our backlog in commercial furniture orders in the first quarter of 2012 which led to increased commercial sales over the prior year period, however, a reduction in commercial orders in the first quarter of 2012 reflected a slowdown in the improvement in the U.S. office furniture market experienced during 2011. We expect our acquisition of EOC, a California-based manufacturer and distributor of commercial office suites and waiting area furniture products, and with an extensive health care line, will complement our current commercial product line by offering its branded products to our current customers while also expanding our customer base.

We have repositioned our residential furniture product lines by introducing better value imports, utilizing a product licensing arrangement for marketing support, and replacing unprofitable and slow moving items offered in our line. We continue to review and reduce operating costs to be in line with our current revenue base. A prolonged economic downturn could cause outcomes to differ materially from those expected above.

Results of Operations

The following table sets forth the Condensed Consolidated Statements of Operations of Chromcraft Revington for the three months ended March 31, 2012 and April 2, 2011 expressed as a percentage of sales.

                                                        Three Months Ended
                                                    March 31,         April 2,
                                                       2012             2011
     Sales                                               100.0 %          100.0 %
     Cost of sales                                        79.5             86.7
     Gross margin                                         20.5             13.3
     Selling, general and administrative expenses         25.2             27.1
     Operating loss                                       (4.7 )          (13.8 )
     Interest expense                                     (0.7 )           (0.6 )
     Net loss                                             (5.4 ) %        (14.4 ) %

2012 Compared to 2011

Consolidated sales in the three months ended March 31, 2012 of $13.9 million represented an 11.3% increase over sales of $12.5 million in the prior year period, primarily due to increased shipments of commercial seating products. Shipments of residential furniture in the first quarter of 2012 were slightly higher than the first quarter of 2011, primarily due to sales of new bedroom groups which began shipping in the second quarter of 2011. Sales of the Company's other residential product lines for the first quarter of 2012 were comparable to the prior year period which reflected the impact of weakness in consumer demand for residential products in our price segment which we believe is consistent with industry trends; the continuing economic difficulties which reflect the ongoing labor and housing market struggles and high levels of consumer debt. The consolidated sales increase for the three months ended March 31, 2012 compared to the prior year period was primarily due to higher unit volume.

Gross margin for the three months ended March 31, 2012 was $2.9 million, representing a 71.9% increase over the $1.7 million gross margin in the prior year period. The higher gross margin in the first quarter of 2012 as compared to the first quarter of 2011 was primarily due to increased sales, a favorable product sales mix and lower unabsorbed fixed manufacturing costs.

Selling, general and administrative expenses were $3.5 million, or 25.2% of net sales, in the first quarter of 2012 as compared to $3.4 million, or 27.1% of net sales, in the prior year period. The decrease in selling, general and administrative expenses as a percent of sales was due to the spreading of certain fixed selling, general and administrative expenses over a higher sales volume in 2012.

Net interest expense, which includes Credit Facility fees, was $0.1 million for both the first quarter of 2012 and the prior year period.

At December 31, 2011 and 2010, the Company maintained a full valuation allowance against the entire net deferred income tax balance. The Company expects to maintain a full valuation allowance on its entire net deferred tax assets at December 31, 2012, resulting in an effective tax rate of zero for the quarter ended March 31, 2012 and the prior year period.

Financial Condition, Liquidity and Capital Resources

Working capital, excluding cash and the effect of the acquisition of EOC, decreased $0.8 million in the first quarter of 2012 primarily due to a decrease in inventories and accounts receivable, partially offset by a reduction in accounts payable. The decrease in inventories and accounts payable in the first quarter of 2012 compared to December 31, 2011 is primarily due to lower import purchases, partially due to delays in receiving certain products. Accounts receivable decreased at the end of the first quarter of 2012 compared to December 31, 2011 primarily due to lower sales in the first quarter of 2012 as compared to the fourth quarter of 2011 which experienced high sales volume late in the quarter.

Operating activities of the Company provided $1.1 million of cash in the first quarter of 2012 as compared to $0.4 million of cash used in the prior year period. The improved cash flow from operations in the first quarter of 2012 compared to the prior year period was primarily due to a lower operating loss and an increase in cash from net working capital.

Investing activities includes the Company's purchase of EOC on March 20, 2012 for $0.5 million, of which $0.1 million was paid at closing, net of cash acquired, and the balance will be paid in equal quarterly installments beginning July 1, 2012 and ending April 1, 2015. Investing activities also includes capital expenditures in the first quarter of 2012 which were comparable to the prior year period. The Company expects to spend approximately $0.2 million for capital expenditures in 2012.

Financing activities includes $0.9 million of net debt repayments on the Former Credit Facility in the first quarter of 2012.

At March 31, 2012, the Company had a Former Credit Facility with FBCC that allowed the Company to borrow up to $10.0 million (including letters of credit) based on eligible accounts receivable of the Company. On April 20, 2012, the Company terminated the Former Credit Facility with FBCC and entered into the New Credit Facility with Gibraltar. The New Credit Facility allows the Company to borrow up to $5.0 million (including letters of credit) based on eligible accounts receivable. A summary of the Former Credit Facility and the New Credit Facility is included under Item 1 above in Note 7 to our Condensed Consolidated Financial Statements and is incorporated herein by reference. A copy of the loan and security agreement for the New Credit Facility is being filed as an exhibit to this Form 10-Q.

The Company had an outstanding loan balance of $0 and approximately $4.6 million of availability under the Former Credit Facility at March 31, 2012, which reflects a $0.6 million reduction for a letter of credit outstanding in connection with a self-insured workers compensation program of $0.4 million and other reserves. The Company would have had $5.0 million of availability under the New Credit Facility at March 31, 2012.

We believe that our available line of credit under our New Credit Facility provides the Company with the borrowing capacity to meet our anticipated cash requirements for working capital purposes and normal capital expenditures for at least the next twelve months and, in addition, provides greater flexibility than the Former Credit Facility. However, there can be no assurance regarding these matters given the current state of the global economy, which has negatively impacted our ability to accurately forecast our results of operations and cash position, and which may result in deterioration of our revenues from what we anticipate. We believe further deterioration in our revenues would expose us to declining margins as a result of unabsorbed fixed manufacturing overhead, operating inefficiencies and an imbalance between our inventory levels and customer demand which would likely result in continued losses and reduced liquidity. Additionally, if our trade creditors were to impose unfavorable terms on us, it would negatively impact our ability to obtain raw materials, products and services on acceptable terms. We have implemented expense controls and limitations on capital expenditures to conserve cash during the current economic downturn.

Because we presently are incurring losses, the continued availability of credit under our New Credit Facility is critical to meeting our liquidity needs. The Company expects to borrow under the New Facility in 2012. In addition, the loan and security agreement for our New Credit Facility allows us to incur other indebtedness at a favorable interest rate under certain government programs up to $1.5 million for capital expenditures and improvements for our Senatobia, Mississippi facility without the consent of Gibraltar.

We will need to generate adequate cash flow from operations in future periods in order to meet our long term liquidity needs. In the absence of adequate cash flow from operations in the future, the Company may need to further restrict expenditures, sell assets, seek additional business funding or capital or consider other alternatives. Our ability to obtain additional funding or capital would likely be adversely affected because all of our assets have been secured as collateral for our New Credit Facility and the New Credit Facility contains restrictions on most other indebtedness of the Company as well as other liens on our assets without Gibraltar's prior consent and because our financial results could adversely affect the availability and terms of any such funding or capital.

Recently Issued Accounting Standards

There have been no recent accounting standards or changes in accounting standards during the three months ended March 31, 2012, that are of significance, or potential significance to the Company, as compared to the recent accounting standards described in the Company's Annual Report on Form 10-K for the year ended December 31, 2011.

Forward-Looking Statements

Certain information and statements contained in this report including, without limitation, in the section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations," are forward-looking statements. These forward-looking statements can be generally identified as such because they include future tense or dates, are not historical or current facts, or include words such as "believe," "may," "expect," "intend," "plan," "anticipate," or words of similar import. Forward-looking statements express management's current expectations or forecasts of future events or outcomes, but are not guarantees of performance or outcomes and are subject to certain risks and uncertainties that could cause actual results or outcomes to differ materially from those in such statements.

Among such risks and uncertainties that could cause actual results or outcomes to differ materially from those identified in the forward-looking statements are the impact of the current economic difficulties in the United States and elsewhere; import and domestic competition in the furniture industry; our ability to execute our business strategies; our ability to grow sales and reduce expenses to eliminate our operating losses; the recent slowdown in the U.S. office furniture market will continue; our ability to sell the right product mix; our inability to raise prices in response to increasing costs: our ability to anticipate or respond to changes in the tastes or needs of our end users in a timely manner; supply disruptions with products manufactured in China, Vietnam and other Asian countries; continued credit availability under the Company's credit facility; market interest rates; consumer confidence levels; cyclical nature of the furniture industry; consumer and business spending; changes in relationships with customers; customer acceptance of existing and new products; new home and existing home sales; financial viability of our customers and their ability to continue or increase product orders; loss of key management; other factors that generally affect business; and certain risks set forth in the Company's annual report on Form 10-K for the year ended December 31, 2011.

The Company does not undertake any obligation to update or revise publicly any forward-looking statements to reflect information, events, circumstances or outcomes after the date of such statements or to reflect the occurrence of anticipated or unanticipated events or circumstances.