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                                                                    EXHIBIT 4.1E

                          FIFTH AMENDMENT TO LOAN AND
                               SECURITY AGREEMENT



        THIS FIFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (this "Amendment"),
dated as of December 11, 1997, is entered into by and between CONGRESS
FINANCIAL CORPORATION (WESTERN), a California corporation ("Lender"), with a
place of business at 225 South Lake Avenue, Suite 1000, Pasadena, California
91101 and KRAUSE'S CUSTOM CRAFTED FURNITURE CORP., a California corporation
(formerly known as Krause's Sofa Factory), and its wholly owned subsidiary,
CASTRO CONVERTIBLE CORPORATION, a New York corporation (jointly and severally,
"Borrower"), with its chief executive office located at 200 N. Berry Street,
Brea, California 92821.


                                    RECITALS

        A.      Borrower and Lender have previously entered into that certain
Loan and Security Agreement dated as of January 20, 1995, as amended by that
certain First Amendment to Loan and Security Agreement dated as of May 10,
1996, that certain Second Amendment to Loan and Security Agreement dated as of
August 26, 1996, that certain Third Amendment to Loan and Security Agreement
dated as of November 25, 1996 and that certain Fourth Amendment to Loan and
Security Agreement dated as of August 14, 1997 (collectively, the "Loan
Agreement"), pursuant to which Lender has made certain loans and financial
accommodations available to Borrower. Terms used herein without definition
shall have the meanings ascribed to them in the Loan Agreement.

        B.      Borrower has informed Lender that on September 29, 1997, it
changed Krause's name from "Krause's Sofa Factory" to "Krause's Custom Crafted
Furniture Corp." and in connection therewith, Borrower has requested that
Lender (a) waive its default under the Loan Agreement as a result of Borrower's
failure to provide prior notice of the change of Krause's name and (b) amend
the Loan Agreement and other Financing Agreements to reflect such name change.

        C.      Borrower has further requested that Lender waive the financial
covenant default pertaining to EBITDA for the fiscal quarter ending October
1997.

        D.      Lender is willing to waive such defaults and further amend the
Loan Agreement under the terms and conditions set forth in this Amendment.
Borrower is entering into this Amendment with the understanding and agreement
that none of Lender's rights or remedies as set forth in the Loan Agreement is
being waived or modified by the terms of this Amendment.



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     NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
herein contained, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:

     1.   Amendment to Loan Agreement.
          
          (a)  The definition of "Borrower" set forth in the introductory
     paragraph of the Loan Agreement is hereby amended in its entirety as
     follows:

          "Krause's Custom Crafted Furniture Corp., a California corporation,
          and its wholly owned subsidiary, Castro Convertible Corporation, a New
          York corporation"

          (b)  The definition of "Krause's" set forth in Section 1.23 is hereby
     amended in its entirety as follows:

               "1.23 'Krause's' shall mean Krause's Custom Crafted Furniture
          Corp., a California corporation."

     2.   Amendment to other Financing Agreements. Each reference in the other
Financing Agreements to "Krause's Sofa Factory" is hereby amended to read
"Krause's Custom Crafted Furniture Corp."

     3.   Waiver by Lender of Compliance with Covenants in the Loan Agreement.
Borrower hereby acknowledges that (a) it has failed to provide prior notice to
Lender of the change in Krause's name as required by Section 9.1 of the Loan
Agreement and (b) as of the end of the fiscal quarter ended October 1997, it was
not in compliance with the financial covenant relating to EBITDA set forth in
Section 9.15 of the Loan Agreement, and that such failure and non-compliance
constitute Events of Default under the Loan Agreement. Lender hereby waives
compliance by Borrower with (a) the covenant set forth in Section 9.1 of the
Loan Agreement through the date hereof and (b) the financial covenant set forth
in Section 9.15 of the Loan Agreement through the end of the fiscal quarter
ended October 1997, and shall not exercise its rights and remedies under the
Loan Agreement or applicable law in respect of such Events of Default; provided,
however, that Lender shall be free to exercise all of its rights and remedies
under the Loan Agreement in the event of Borrower's violation or breach after
the date hereof of Section 9.1 of the Loan Agreement or of Borrower's
non-compliance after the end of the fiscal quarter ended October 1997 with
Section 9.15 of the Loan Agreement. The foregoing waiver is not a continuing
waiver, and Lender does not by this waiver amend the terms and provisions of the
Loan Agreement. Upon the occurrence of any Event of Default after the date
hereof, or in the event that Lender learns of any Event of Default which
occurred prior to the date hereof (other than a breach of the covenant set forth
in Section 9.1 of the Loan Agreement or of the financial covenant set forth in
Section 9.15 of the Loan Agreement for the fiscal quarter ended October 1997).
Lender shall be free to exercise any and all of its various rights and remedies
under the Loan Agreement.

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          4.   Effectiveness of this Amendment.  Lender must have received the
following items, in form and substance acceptable to Lender, or evidence of the
occurrence thereof, before this Amendment is effective and before Lender is
required to extend any credit to Borrower as provided for by this Amendment.
The date on which all of the following conditions have been satisfied is the
"Closing Date".

               (a)  Amendment.  This Amendment fully executed in a sufficient
          number of counterparts for distribution to Lender and Borrower.

               (b)  Authorizations. Evidence that the execution, delivery and
          performance by Borrower and each guarantor or subordinating creditor
          of this Amendment and any instrument or agreement required under this
          Amendment have been duly authorized.


               (c)  Representations and Warranties.  The Representations and
          Warranties set forth in the Loan Agreement must be true and correct.


               (d)  UCC Amendments.  Lender shall have received Uniform
          Commercial Code Financing Statements executed by Krause's amending
          each of the Financing Statements previously filed by Lender against
          Krause's to reflect Krause's name change.


               (e)  Other Required Documentation.  All other documents and legal
          matters in connection with the transactions contemplated by this
          Amendment shall have been delivered or executed or recorded and shall
          be in form and substance satisfactory to Lender.


               (f)  Payment of Modification and Waiver Fee.  Lender shall have
          received from Borrower a modification and waiver fee of Three Thousand
          Dollars ($3,000), which fee shall be fully earned as of and payable on
          the date hereof.

          5.   Choice of Law.  The validity of this Amendment, its
construction, interpretation and enforcement, and the rights of the parties
hereunder, shall be determined under, governed by, and construed in accordance
with the laws of the State of California governing contracts wholly to be
performed in that State.

          6.   Counterparts.  This Amendment may be executed in any number of
counterparts and by different parties on separate counterparts, each of which
when so executed and delivered, shall be deemed an original, and all of which,
when taken together, shall constitute but one and the same instrument.

          7.   Due Execution.  The execution, delivery and performance of this
Amendment are within the powers of the Borrower, have been duly authorized by
all necessary corporate action, have received all necessary governmental
approval, if any, and do not contravene any law or any contractual restrictions
binding on Borrower.









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     8.   Otherwise Not Affected. In the event of any conflict or inconsistency
between the Loan Agreement and the provisions of this Amendment, the provisions
of this Amendment shall govern. Except to the extent set forth herein, the Loan
Agreement shall remain in full force and effect.

     9.   Ratification. Borrower hereby restates, ratifies and reaffirms each
and every term and condition set forth in the Loan Agreement, as amended
hereby, and the Financing Agreements effective as of the date hereof.

     10.  Estoppel. To induce Lender to enter into this Amendment and to
continue to make advances to Borrower under the Loan Agreement, Borrower hereby
acknowledges and agrees that, after giving effect to this Amendment, as of the
date hereof, there exists no Event of Default and no right of offset, defense,
counterclaim or objection in favor of Borrower as against Lender with respect
to the Obligations.

          IN WITNESS WHEREOF, the parties hereto have executed this Amendment
as of the day and year first above written.

                                             KRAUSE'S CUSTOM CRAFTED
                                             FURNITURE CORP.,
                                             a California corporation


                                             By: /s/ ROBERT A. BURTON
                                                ------------------------------
                                             Name: Robert A. Burton
                                                  ----------------------------
                                             Title: Senior Vice President, CFO
                                                   ---------------------------


                                             CASTRO CONVERTIBLE
                                             CORPORATION,
                                             a New York corporation


                                             By: /s/ ROBERT A. BURTON
                                                ------------------------------
                                             Name: Robert A. Burton
                                                  ----------------------------
                                             Title: Senior Vice President, CFO
                                                   ---------------------------


                                             CONGRESS FINANCIAL
                                             CORPORATION (WESTERN),
                                             a California corporation


                                             By: /s/ RANDY J. BOWNAN
                                                ------------------------------
                                             Name: Randy J. Bownan
                                                  ----------------------------
                                             Title: Senior Vice President
                                                   ---------------------------


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                                 ACKNOWLEDGMENT


     The undersigned Krause Furniture, Inc., a Delaware corporation ("KFI"),
parent of Krause's Custom Crafted Furniture Corp. ("Krause's"), in
consideration of Congress Financial Corporation (Western) ("Congress") continued
extension of credit to Krause's and Castro Convertible Corporation, hereby
consents to the foregoing Fifth Amendment to Loan and Security Agreement and
acknowledges and confirms that its Guarantee dated November 25, 1996 (the
"Guarantee") in favor of Congress remains in full force and effect.  Although
Congress has informed KFI of the matters set forth above, and KFI has
acknowledged same.  KFI understands and agrees that Congress has no duty under
the Loan Agreement as defined above, the Guarantee or any other agreement with
KFI to so notify us or to seek such an acknowledgment, and nothing contained
herein is intended to or shall create such a duty as to any advances or
transaction hereafter.  


Dated: December 11, 1997                KRAUSE'S FURNITURE, INC.
                                        a Delaware corporation


                                        By: /s/  ROBERT A. BURTON
                                          --------------------------
                                        
                                        Name:  Robert A. Burton
                                             -------------------------


                                        Title:  Senior Vice President, CFO
                                              -----------------------------




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