Krause’s Accounting Firm Arthur Andersen Resigns

Krause’s Furniture Inc. said Thursday its independent accounting firm, which recently questioned the money-losing retailer’s ability to survive, has resigned.

The Brea company disclosed the departure of Arthur Andersen and announced that losses widened in the first quarter, largely from costs of shutting down 15 unprofitable stores.

The accounting firm resigned because Krause’s no longer met Andersen’s “client profile,” Krause’s said in a statement. The company said it is seeking new accountants.

Nearly a month ago, Andersen issued a qualified opinion in Krause’s annual report that questioned whether the company, battered by losses, could continue operations.

At the time, the furniture maker and retailer said it was in discussions with Andersen on lifting that opinion.

Krause’s said its losses widened in the first quarter on lower revenue, reflecting an industrywide slowdown that began a year ago.

The company lost $9 million, or 38 cents a share, for the three months, including a charge of $3.1 million from the store closures. A year earlier, losses totaled $2.2 million, or 22 cents a share. Revenue fell 10% to $36 million.

In a move to improve liquidity, the company said preferred stockholders have removed restrictions on Krause’s use of cash. The company also said it is negotiating with a major shareholder for an additional line of credit.

The announcement came after the close of regular U.S. trading hours. The stock closed at 17 cents, off 2 cents, on the American Stock Exchange.