<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended November 30, 1996
or
THE SECURITIES EXCHANGE ACT OF 1934
[ ]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 1-9681
------
JENNIFER CONVERTIBLES, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 11-2824646
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
419 Crossways Park Drive, Woodbury, New York 11797
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 496-1900
--------------
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
--- ---
(APPLICABLE ONLY TO CORPORATE ISSUERS)
Indicate the number of shares outstanding of the issuer's common
stock as of November 30, 1996: 5,700,725
<PAGE>
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements
Part I - Financial Information
Item I - Financial Statements
Consolidated Balance Sheets - November 30, 1996
(Unaudited) and August 31, 1996.............................. 2
Comparative Consolidated Statements of Operations
for the thirteen weeks ended November 30, 1996 and
November 25, 1995 (Unaudited).................................. 3
Comparative Consolidated Statements of Cash Flows
for the for the thirteen weeks ended November 30, 1996
and November 25, 1995 (Unaudited).............................. 4
Notes to Unaudited Consolidated Financial Statements........... 5
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations...................11
Part II - Other Information....................................15
<PAGE>
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
ASSETS
------
November 30, 1996 AUGUST 31, 1996
------------------- -----------------
Current assets: (unaudited)
<S> <C> <C>
Cash and cash equivalents $ 3,088 $ 3,600
Merchandise inventories 8,331 8,221
Refundable income taxes 23 23
Prepaid expenses 237 446
Accounts receivable 1,007 1,588
Other current assets 5 8
-------- --------
Total current assets 12,691 13,886
Store fixtures, equipment and leasehold improvements
at cost, net 8,583 8,739
Due from Private Company and Unconsolidated Licensees,net
of reserves of $7,324 at November 30, 1996
and August 31, 1996. - -
Deferred lease costs and other intangibles, net 1,361 1,317
Goodwill, at cost, net 564 568
Other assets (primarily security deposits) 771 925
-------- --------
$ 23,970 $ 25,435
======== ========
LIABILITIES AND (CAPITAL DEFICIENCY)
------------------------------------
Current liabilities:
Accounts payable, trade $ 16,556 $ 15,746
Customer deposits 8,591 8,875
Accrued expenses and other current liabilities 3,303 5,022
-------- --------
Total current liabilities 28,450 29,643
Deferred rent and allowances 5,912 5,868
Long-term obligations under capital leases 365 230
-------- --------
Total liabilities 34,727 35,741
-------- --------
Commitments and contingencies
(Capital Deficiency):
Preferred stock, par value $.01 per
share. Authorized 1,000,000 shares;
no shares issued - -
Common stock, par value $.01 per share.
Authorized 10,000,000 shares; issued and
outstanding 5,700,725 shares at November 30, 1996
and August 31, 1996 57 57
Additional paid in capital 22,911 22,911
Notes receivable from warrant holders (300) (300)
Accumulated (deficit) (33,425) (32,974)
-------- --------
(10,757) (10,306)
-------- --------
$ 23,970 $ 25,435
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
2
<PAGE>
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
Thirteen weeks Thirteen weeks
ended ended
November 30, 1996 November 25, 1995
----------------- -----------------
<S> <C> <C>
Net sales $ 27,767 $ 30,906
----------- -----------
Cost of sales, including store occupancy,
warehousing, delivery and fabric protection 18,704 20,468
Selling, general and administrative expenses 9,220 10,834
Provision for losses on amounts due from
Private Company and Unconsolidated Licensees -- 231
Loss from store closings 8 25
Depreciation and amortization 460 431
----------- -----------
28,392 31,989
----------- -----------
Operating (loss) (625) (1,083)
----------- -----------
Other income (expense):
Royalty income 94 65
Interest income 22 92
Interest expense (9) (16)
Other income, net 116 (49)
----------- -----------
223 92
----------- -----------
(Loss) before income taxes (402) (991)
Income taxes 49 63
----------- -----------
Net (loss) ($ 451) ($ 1,054)
=========== ===========
Net (loss) per common and common
equivalent share ($ 0.08) ($ 0.18)
=========== ===========
Weighted average number of common
and common equivalent shares 5,700,725 5,700,725
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
JENNIFER CONVERTIBLES INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands) (unaudited)
<TABLE>
<CAPTION>
Thirteen weeks Thirteen weeks
ended ended
November 30, 1996 November 25, 1995
----------------- -----------------
Cash flows from operating activities:
<S> <C> <C>
Net (loss) ($ 451) ($1,054)
Adjustments to reconcile net (loss)
to net cash provided by operating activities:
Depreciation and amortization 460 431
Loss from store closings 8 25
Deferred rent -- 85
Provision for losses on amounts due from
Private Company and Unconsolidated Licensees -- 231
Other (30) (4)
Changes in operating assets and liabilities:
(Increase) decrease in merchandise inventories (110) 1,390
Decrease in prepaid expenses 209 251
Decrease in accounts receivables 581 410
Decrease (increase) in other current assets 3 (4)
(Increase) in due from Private Company
and Unconsolidated Licensees -- (231)
(Increase) decrease in deferred lease costs
and other intangibles (44) 119
Decrease in other assets, net 154 59
Increase (decrease) in accounts payable trade 810 (2,656)
(Decrease) increase in customer deposits (284) 607
(Decrease) in accrued expenses
and other payables (1,719) (701)
------- -------
Net cash (used in) operating activities (413) (1,042)
------- -------
Cash flows from investing activities:
Capital expenditures (234) (546)
------- -------
Net cash (used in) investing activities (234) (546)
------- -------
Cash flows from financing activities:
Payments of obligations under capital leases 135 (45)
------- -------
Net cash provided by (used in) financing activities 135 (45)
------- -------
Net (decrease) in cash and cash equivalents (512) (1,633)
Cash and cash equivalents at beginning of period 3,600 7,729
------- -------
Cash and cash equivalents at end of period $ 3,088 $ 6,096
======= =======
Supplemental disclosure of cash flow information:
Income taxes paid during the period $ 49 $ 63
======= =======
Interest paid $ 9 $ 16
======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE>
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Thirteen Weeks Ended November 30, 1996
(In thousands except for share amounts)
(1) Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements of Jennifer
Convertibles, Inc. and subsidiaries (the "Company") and certain licensees have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Due to many factors inherent in the
retail industry, the operating results for the interim period ended
November 30, 1996 are not necessarily indicative of the results that may be
expected for the year ending August 30, 1997. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended August 31, 1996.
(2) Merchandise Inventories
-----------------------
Merchandise inventories are stated at the lower of cost (determined on the
first-in, first-out method) or market and are physically located, as follows:
11/30/96 8/31/96
-------- -------
Showrooms $4,008 $3,963
Warehouses 4,323 4,258
------ ------
$8,331 $8,221
====== ======
Vendor discounts and allowances in respect to merchandise purchased by the
Company are included as a reduction of inventory and cost of sales.
(3) Commitments, Contingencies and Other Matters
--------------------------------------------
Class Action and Derivative Action Lawsuits
-------------------------------------------
Between December 6, 1994 and January 5, 1995, the Company was served with
11 class action complaints and six derivative action lawsuits which deal with
losses suffered as a result of the decline in market value of the Company's
stock as well as the Company having "issued false and misleading statements
regarding future growth prospects, sales, revenues and net income". The
ultimate outcome of these matters is not presently determinable (see below).
5
<PAGE>
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Thirteen Weeks Ended November 30, 1996
(In thousands except for share amounts)
Proposed Settlement of Derivative Litigation
--------------------------------------------
In March 1996, the Company signed a Memorandum of Understanding
("Derivative Memorandum") for the purpose of settling all of the claims
involving those parties in the derivative litigation. The Derivative Memorandum
is subject to a settlement of all claims against the Company, its present
and/or former officers, directors, certain accountants, consultants and
representatives, the Private Company, its present and/or former officers,
directors, employees, accountants, consultants and/or representatives and the
discontinuance of the class action litigation presently pending. It also is
conditioned upon mutual releases between the Company and the Private Company.
Attorney's fees will be funded by an insurance carrier for one of the
defendants other than the Company for $500. The Private Company will pay $165
in cash and the Company will pay the remaining portion of fees and expenses in
("Preferred Stock"). The Preferred Stock will have an aggregate value of $130,
paying an annual dividend of 7% and convertible into Common Stock (at such time
as the Company's Common Stock trades at $7.00 per share or higher) at $7.00 per
share. This settlement is subject to execution of definitive documents and
final court approval. In accordance with FASB Statement No. 5, the $130 value
of the Preferred Stock has been accrued in the fiscal year ended August 26,
1995 as part of estimated settlement costs.
Proposed Settlement of Class Action Litigation
----------------------------------------------
In March 1996, the Company and the parties in the class action litigation
signed a Memorandum of Understanding ("Class Memorandum") which is subject to a
Stipulation of Settlement to be submitted to the court for final approval.
The Class Memorandum provides for the payment to certain members of the
class and their attorneys of an aggregate maximum amount of $7,000 in cash and
Preferred Stock having a value of $370. (Terms and conditions of such Preferred
Stock are described above.) The cash portion of the settlement will be funded
entirely by insurance company proceeds. In accordance with FASB Statement No.
5, the $370 value of the Preferred Stock has been accrued in the fiscal year
ended August 26, 1995.
The proposed settlement of the class action litigation is a claims made
settlement. All claimants who purchased the Company's Common Stock during the
period from December 9, 1992 through December 2, 1994 and who held their stock
through December 2, 1994, will be entitled to participate in the settlement.
6
<PAGE>
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Thirteen Weeks Ended November 30, 1996
(In thousands except for share amounts)
Proposed Settlement with the Private Company
--------------------------------------------
The Company signed an agreement ("Settlement Agreement") with the Private
Company subject to execution of definitive agreements and court approval and
settlement of the derivative and class action litigation. The Settlement
Agreement restructures the relationship between the Private Company and the
Company in order to reduce and eliminate any alleged actual or potential
conflicts of interest.
A) (Warehouse Services):
The Settlement Agreement contemplates that until December 31, 1997, the
Company will pay the Private Company for all services under the warehousing
agreement 8.3% of the retail sales prices, less the costs of certain services
that will be assumed by the Company previously provided by the Private Company,
but no lower than 7.2% of sales. For 1998, the fee will be 7.2% (see L below).
Upon the effective date, the Company will no longer pay the Private Company
separately for "fabric protection" services. The Company has also agreed to pay
an additional warehouse fee during the calendar year 1996 if the total retail
sales of the Company are less than $135 million. The Company will pay the
Private Company $65 for each million dollar shortfall in annual sales up to
$650 ($520 was accrued at August 31, 1996 and $130 has been accrued in the
thirteen weeks ended November 30, 1996). The Company has also agreed to pay a
re-delivery fee to the Private Company of 3% of selling price for customer
deliveries that have to be redelivered to customers under certain
circumstances. In 1997 and 1998, if an annual sales level of $140 million is
achieved, the Private Company will pay back 50% of previous shortfall payments
in each of such years. To the extent the shortfall is not so repaid in full,
starting on January 1, 1999, the Private Company will repay the balance of the
shortfall over seven years without interest.
B) (Assignment of Real Property Interests of Warehouses):
The Settlement Agreement contemplates that, effective January 1, 1999, the
Company will receive all real property interests in the various warehouses
serving the business along with the leasehold interests subject to mortgages
and other security agreements. The mortgage obligation on the Inwood, New York
warehouse will not exceed $2,850 at December 31, 1998. To the extent that such
mortgage is less than this amount as of that date, the Company will pay the
Private Company the difference between $2,850 and the actual amount of such
mortgage by way of set-off against the Private Company's obligation to the
Company for warehousing services (see L below).
7
<PAGE>
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Thirteen Weeks Ended November 30, 1996
(In thousands except for share amounts)
C) (Warehouse Services to the Private Company):
Commencing January 1, 1999, the Company will provide the Private Company
all warehousing services for 2% of the Private Company's delivered retail
selling prices, plus a fee for "fabric protection" services.
D) (Freight Charges):
The Company will continue to pay all freight charges (for inventory
delivered to warehouses) through December 31, 1998, based upon an agreed
schedule with the Private Company.
E) (Assignment of Interest in Certain Limited Partnerships and Other
Corporate Licensee):
The Private Company will purchase the interests of the limited
partnerships known as LP III, LP IV and LP V and the equity interest of the
shareholders of S.F.H.C. and assign these interests to the Company. The
Company, in turn, will release the limited partners and the shareholders,
officers and directors of S.F.H.C. from all claims and/or obligations owed to
the Company.
Although it is not reflected in the Settlement Agreement, it is currently
contemplated that the shareholders of S.F.H.C. will receive new ten year
warrants to purchase an aggregate of 180,000 shares of Common Stock at $7.00
per share. It is also contemplated that the limited partners of the
Partnerships will retain the Original Warrants (as described below). There are
no signed agreements with the limited partners of the Partnerships and the
shareholders of S.F.H.C. as to the transfers described above and there can be
no assurance that the Private Company will be able to obtain such agreements.
If the Private Company is unable to obtain such agreements and to make the
transfer, the settlement will not be consummated on the various terms outlined
herein or possibly, at all.
F) (Inter-Company Accounts):
The Private Company will pay the Company under the offset agreement
(described in J, below) $1,400 in resolution of certain inter-company account
balances as of August 26, 1995 at $17 per month to be applied toward principal
and interest at 6%, until repaid.
8
<PAGE>
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Thirteen Weeks Ended November 30, 1996
(In thousands except for share amounts)
G) (License of Computer Programs):
Commencing January 1, 1999, the Private Company will license the Company
to use and change the Private Company's computer programs without fee. The
Company will also assume the obligations and personnel of the Computer
Department, presently maintained by the Private Company.
H) (Warranty and Fabric Protection):
Upon execution of the Settlement Agreement, the Company will be
responsible for any claims for breach of warranty relating to "fabric
protection" in connection with sales by both the Company and the Private
Company.
I) (Amounts Due From Officers of S.F.H.C. of $1,200):
The Private Company will assume and pay $1,200 of the debt of the officers
of S.F.H.C. owed to S.F.H.C. This amount will be paid to the Company in 84
equal monthly installments, without interest, beginning January 1, 1999.
J) (Offset Agreements):
On November 1, 1995 and March 1, 1996, the Company and the Private Company
entered into offset agreements. Such offset agreements permit the two companies
to offset their current obligations to each other for merchandise purchases,
warehouses fees, fabric protection fees and freight. The Settlement Agreement
contemplates that amounts owing in excess of $1,000 at any time will be paid in
cash. As part of the offset agreement, the Private Company agreed to assume
certain liabilities owed to the Company by the Unconsolidated Licensees.
K) (Royalties):
The Unconsolidated Licensees will pay to the Company any royalties owed
under the offset agreement. The Private Company will pay royalties owed of $100
for stores that the Unconsolidated Licensees have closed commencing January 1,
1999 in 84 equal monthly installments without interest.
9
<PAGE>
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Thirteen Weeks Ended November 30, 1996
(In thousands except for share amounts)
L) (Agreement of Sale of Inwood, New York Warehouse):
On June 30, 1996, the Private Company sold the Inwood, New York warehouse
which has been the principal warehouse in the distribution system. In
connection with this sale, the Settlement Agreement contemplates that the
Company will receive from the Private Company payments of $25 per month for 84
months commencing January 1, 1999. The Agreement also contemplates that,
effective December 1, 1996, the warehouse fee will be reduced to 7.2% of the
retail sales prices and fabric protection revenue collected from customers.
M) (Subordination):
Subject to court approval of the Settlement Agreement, Messrs. Greenfield
and Seidner have agreed to subordinate, until January 1, 1999, their right to
receive payments in respect of the $10,273 owed to them by the Private Company,
if the Private Company is in default in the payment of any cash obligation to
the Company arising after August 7, 1996 after giving effect to any offsets as
between Messrs. Greenfield and Seidner and the Private Company. Such
subordination does not apply to any distribution in respect of a disposition of
substantially all of the assets of the Private Company.
Securities and Exchange Commission Investigation
------------------------------------------------
On December 9, 1994, the Company was advised that the Securities and
Exchange Commission (SEC) was conducting an inquiry of the Company's affairs
"to determine whether there have been violations of the federal securities
laws". The SEC requested that the Company voluntarily provide certain documents
in connection with its December 2, 1994 press release "concerning the
adjustment in the valuation of certain subsidiaries on the Company's balance
sheet". Since that date, the SEC has also requested the Final Report of Counsel
to the Independent Committee of the Board of Directors and the November 22,
1994 letter from a director of the Company to the President. Additionally, the
SEC requested the "responses" to these documents and the Company furnished them
with the "Response of Harley Greenfield to the January 26, 1995 Final Report of
Counsel to the Independent Committee" dated March 10, 1995 and the "Response of
Jerome I. Silverman to the letter dated November 22, 1994 from Michael Colnes
to Harley Greenfield" dated April 3, 1995.
On May 3, 1995 the SEC commenced a formal investigation into the affairs
of the Company. Subpoenas have been issued to the Company and certain of its
current and former management to furnish various contracts and accounting
records which have been complied with. The outcome of the SEC investigation is
not presently determinable.
10
<PAGE>
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Thirteen Weeks Ended November 30, 1996
(In thousands except for share amounts)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations:
----------------------
This Quarterly Report on Form 10-Q contains forward-looking
statements that involve certain risks and uncertainties. The Company's actual
results could differ materially from the results discussed in the
forward-looking statements.
Net Sales:
----------
The Company's sales decreased by 10.2% to $27,767 for the thirteen
weeks ended November 30, 1996 as compared to $30,906 for the same period in the
prior year. There were 150 stores in operation as of November 30, 1996 compared
to 157 stores at the end of the prior year fiscal quarter. Comparable store
sales (those open for the entire period in the current and prior year periods)
declined by 7.0%. These sales declines are mainly attributable to the closing
of seven stores since the prior year period, a physical split of Jennifer
Convertible stores into both a Jennifer Convertible store and a Jennifer
Leather store (thereby cannibalizing sales), a shift to more lower priced
promotional merchandise and an industry-wide softness.
Cost of Sales:
--------------
Cost of sales decreased by 8.6% to $18,704, 67.4% as a percentage of
sales, as compared to $20,468, 66.2% as a percentage of sales, for the same
period in the prior year. The dollar decline of $1,764 is primarily
attributable to the lower sales volume. Higher costs of merchandise by .6% and
higher freight costs of .2% were offset by higher delivery income of .9%. Total
occupancy costs did not change, however they increased substantially as a
percentage of sales due to the decline in sales (1.3%). Warehouse expenses of
$1,523, fabric protection services of $746 and freight of $855 provided by the
Private Company declined from $1,546, $895 and $907, respectively, from the
previous year due to lower sales volume in the current period.
11
<PAGE>
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Thirteen Weeks Ended November 30, 1996
(In thousands except for share amounts)
Selling, General and Administrative and Other Expenses:
-------------------------------------------------------
Selling, general and administrative expenses were $9,220, 33.2% as a
percentage of sales, as compared to $10,834, 35.1% as a percentage of sales,
for the prior period, a decrease of $1,614 or 14.9%. Part of the decline in
expenses was caused by a reduction in salaries of $567 principally because of
the lower sales volume which generated lower commissions and personnel.
reductions. Advertising expenses declined by $627 because of lower sales and a
shift in some programs to the Spring 1997 periods. Included in selling,
general and administrative expenses starting this fiscal quarter, are
adjustments related to cancelled customer orders of $223 which in prior periods
was classified in other income.
The Company's receivables from the Private Company, the
Unconsolidated Licensees and S.F.H.C. were $7,324 as of November 30, 1996 which
was unchanged from August 31, 1996. At August 31, 1996, the Company had
provided a reserve for the full amount due from these entities of $7,324. These
entities have losses and capital deficiencies. There can be no assurance that
the total receivables will be collected. It is the Company's intention to
continue to fund these operations in the future.
On November 1, 1995, the Company signed an Offset Agreement with the
Private Company whereby it assumed $1,866 of indebtedness to the Company
previously owed by certain Unconsolidated Licensees. In connection with the
uncertainty of collectibility and the relationship between the Private Company,
the Unconsolidated Licensees and the Company, the Company accounts for
subsequent transactions with these entities on an offset basis. If the result
of the offset is a receivable due from them, then such net amount will be
reserved for and generally recognized as income only at the time when cash is
received from these entities. For the thirteen weeks ended November 30, 1996
these receivables increased by $566 which has been offset by a cash payment by
the Private Company of $566 received in November 1996.
Liquidity and Capital Resources
-------------------------------
At November 30, 1996, the Company had an aggregate working capital
deficiency of $(15,759) compared to a deficiency of $(15,757) at August 31,
1996 and had available cash and cash equivalents of $3,088 compared to $3,600
at August 31, 1996. The decrease in cash equivalents since August 31, 1996 is
due principally to the net (loss) of $(451).
12
<PAGE>
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Thirteen Weeks Ended November 30, 1996
(In thousands except for share amounts)
Effective January 1, 1994, the Company assumed the responsibility of
purchasing inventory which responsibility was previously performed by the
Private Company. Accordingly, the Company acquires inventory for resale to its
affiliates and licensees. A portion of the inventory acquired for resale is
financed by normal trade credit terms. In March 1996, the Company executed a
Credit and Security Agreement ("Credit Agreement") with its principal supplier,
Klaussner Furniture Industries, Inc. ("Klaussner") which effectively extended
the payment terms for merchandise shipped from 60 days to 81 days. As part of
the Credit Agreement, the Company granted a security interest in all of its
assets as well as assigning leasehold interests, trademarks and a license
agreement to operate the Company's business in the event of a default. The
Company does not currently have any traditional bank financing and there can be
no assurance such financing will be available in the future. Although the
Company currently has credit card financing, there can be no assurance that
such financing will continue to be available. Klaussner also lent $1,440 to the
Private Company to be used to pay down the mortgage balance on the warehouse
property. This paydown also reduced the Company's potential exposure under a
guarantee to the mortgagor. Such exposure was subsequently extinguished by the
sale in June 1996 of the warehouse property and the payment in full of the
related debt by the Private Company. (See (3)L above.)
The cash portion of the proposed settlement of the derivative and
class action litigations (as described in the Company's Annual Report on Form
10-K for the fiscal year ended August 31, 1996) will come from insurance
company payments and the issuance of new Preferred Stock by the Company. There
will be no cash outlays by the Company other than for legal costs (a
substantial portion of which has already been paid). Additionally, the proposed
Settlement Agreement with the Private Company contemplates significant changes
to the operating relationship between the companies.
The Company and the LP's have closed stores for non-performance, but
a number of closings were due to the Company's decision to combine separate
Jennifer Convertibles and Jennifer Leather stores located in the same
demographic areas into one store. The primary benefit of combining both
operations into one store was an elimination of the real estate expenses and
other expenses associated with the closed showroom. Additional benefits
realized included reductions of personnel and, in a number of cases,
elimination of duplicate office equipment and telephone lines. Although
combining two stores into one store generally reduces sales, management
believes that sales at the combined store will generate more profit due to the
elimination or reduction of expenses described above.
13
<PAGE>
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Thirteen Weeks Ended November 30, 1996
(In thousands except for share amounts)
Management feels that with the above noted Credit Agreement,
available funds, funds derived from store operations, significant cost cutting
measures previously undertaken including, but not limited to, the reduction in
salaries of certain management personnel, additional vendor allowances of
$1,075 and cash payments from the Private Company in connection with the offset
agreements ($566 received in November 1996) the Company will have adequate cash
flow to fund its operations and meet its capital and liquidity requirements in
the near future.
14
<PAGE>
JENNIFER CONVERTIBLES, INC.
PART II
OTHER INFORMATION
ITEMS 1. through 5. NOT APPLICABLE.
ITEM 6. (a) EXHIBIT 11.1 - STATEMENT RE: COMPUTATION OF NET (LOSS) PER
SHARE
(b) REPORTS ON FORM 8-K - NONE
During the quarter ended November 30, 1996 the Company filed no
Current Reports on Form 8-K.
15
<PAGE>
JENNIFER CONVERTIBLES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
JENNIFER CONVERTIBLES, INC.
January 14, 1997 By: /s/ Harley J. Greenfield
------------------------
Harley J. Greenfield, Chairman
of the Board, President and
Chief Executive Officer
January 14, 1997 By: /s/ George J. Nadel
-------------------
George J. Nadel, Executive Vice President
Chief Financial Officer and Treasurer
(Principal Financial and Accounting
Officer)
16
<PAGE>
EXHIBIT 11.1
JENNIFER CONVERTIBLES INC. AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF NET (LOSS) PER SHARE
(in thousands, except per share data)
<TABLE>
<CAPTION>
Primary
-----------------
Thirteen weeks ended
November 30, 1996 November 25, 1995
----------------- -----------------
<S> <C> <C>
Net (loss) ($451) ($1,054)
Interest adjustments - -
----------------- -----------------
Adjusted net (loss) ($451) ($1,054)
================= =================
Weighted average common and
common equivalent shares outstanding:
Weighted average common shares outstanding 5,701 5,701
Weighted average common equivalents - -
----------------- -----------------
Weighted average common and
common equivalent shares outstanding 5,701 5,701
================= =================
Net (loss) per common and
common equivalent shares ($0.08) ($0.18)
================= =================
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-END> NOV-30-1996
<CASH> 3,088,000
<SECURITIES> 0
<RECEIVABLES> 1,007,000
<ALLOWANCES> 0
<INVENTORY> 8,331,000
<CURRENT-ASSETS> 12,691,000
<PP&E> 13,893,647
<DEPRECIATION> 5,310,361
<TOTAL-ASSETS> 23,970,000
<CURRENT-LIABILITIES> 28,450,000
<BONDS> 0
0
0
<COMMON> 57,000
<OTHER-SE> (10,814,000)
<TOTAL-LIABILITY-AND-EQUITY> 23,970,000
<SALES> 27,767,000
<TOTAL-REVENUES> 27,767,000
<CGS> 18,704,000
<TOTAL-COSTS> 28,392,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,000
<INCOME-PRETAX> (402,000)
<INCOME-TAX> 49,000
<INCOME-CONTINUING> (451,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (451,000)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
