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 FEBRUARY 28, 1998
or
[ ] 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 February 28, 1998: 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 - February 28, 1998
(Unaudited) and August 30, 1997.............................. 2
Comparative Consolidated Statements of Operations
(Unaudited) for the twenty-six weeks and
thirteen weeks ended February 28, 1998 and
March 1, 1997 ............................................... 3
Comparative Consolidated Statements of Cash Flows
(Unaudited) for the twenty-six weeks and
thirteen weeks ended February 28, 1998 and
March 1, 1997 ............................................... 4
Notes to Unaudited Consolidated Financial Statements........... 5
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 9
Part II - Other Information....................................13
<PAGE>
<TABLE>
<CAPTION>
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except for share data)
ASSETS
February 28, 1998 August 30, 1997
----------------- ---------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,688 $ 3,405
Merchandise inventories 9,210 7,943
Accounts receivable 572 1,149
Due from Private Company and Unconsolidated Licensees, net
of reserves of $7,142 and $6,898 at February 28, 1998
and August 30, 1997 233
Prepaid expenses and other current assets 669 477
----------------- ---------------
Total current assets 12,372 12,974
Store fixtures, equipment and leasehold improvements
at cost, net 6,967 7,669
Deferred lease costs and other intangibles, net 880 1,001
Goodwill, at cost, net 544 553
Other assets (primarily security deposits) 780 801
----------------- ---------------
$ 21,543 $ 22,998
================= ===============
LIABILITIES AND (CAPITAL DEFICIENCY)
Current liabilities:
Accounts payable, trade $ 11,579 $ 16,614
Customer deposits 8,632 8,841
Accrued expenses and other current liabilities 4,673 4,777
----------------- ---------------
Total current liabilities 24,884 30,232
Deferred rent and allowances 5,660 5,712
Long-term obligations under capital leases 324 421
----------------- ---------------
Total liabilities 30,868 36,365
----------------- ---------------
Commitments and contingencies
(Capital Deficiency):
Preferred stock, par value $.01 per share.
Authorized 1,000,000 shares; issued and
outstanding at February 28, 1998,
10,000 shares Series A Convertible Preferred -- --
Common stock, par value $.01 per share.
Authorized 10,000,000 shares; issued and
outstanding 5,700,725 shares at February 28, 1998
and August 30, 1997 57 57
Additional paid in capital 27,881 22,911
Notes receivable from warrant holders (270) (300)
Accumulated (deficit) (36,993) (36,035)
----------------- ---------------
(9,325) (13,367)
----------------- ---------------
$ 21,543 $ 22,998
================= ===============
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except share data)
(unaudited)
Thirteen weeks Thirteen weeks Twenty-six weeks Twenty-six weeks
ended ended ended ended
February 28, 1998 March 1, 1997 February 28, 1998 March 1, 1997
----------------- -------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Net sales $ 25,281 $ 22,078 $ 53,188 $ 49,845
--------- --------- --------- --------
Cost of sales, including store occupancy,
warehousing, delivery and fabric protection 17,258 15,683 36,031 34,387
Selling, general and administrative expenses 8,141 6,457 17,156 15,681
Provision for amounts due from
Private Company and Unconsolidated Licensees 244 -- 244 --
Loss from store closings 25 24 25 32
Depreciation and amortization 442 472 882 932
--------- --------- --------- ---------
26,110 22,636 54,338 51,032
Operating (loss) (829) (558) (1,150) (1,187)
--------- --------- --------- ---------
Other income (expense):
Royalty income 93 94 194 188
Interest income 15 18 38 40
Interest expense (5) (8) (13) (17)
Other income, net 53 75 116 195
--------- --------- --------- ---------
156 179 335 406
--------- --------- --------- ---------
(Loss) before income taxes (673) (379) (815) (781)
Income taxes 55 63 143 112
--------- --------- --------- ---------
Net (loss) $ (728) $ (442) $ (958) $ (893)
========= ========= ========= =========
Basic (loss) per common share $ (0.13) $ (0.08) $ (0.17) $ (0.16)
========= ========= ========= =========
Weighted average number of common shares 5,700,725 5,700,725 5,700,725 5,700,725
========= ========= ========= =========
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
JENNIFER CONVERTIBLES INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands) (unaudited)
Thirteen weeks Thirteen weeks Twenty-six weeks Twenty-six weeks
ended ended ended ended
February 28, 1998 March 1, 1997 February 28, 1998 March 1, 1997
----------------- -------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) $ (728) $ (442) $ (958) $ (893)
Adjustments to reconcile net (loss)
to net cash provided by operating activities:
Depreciation and amortization 442 472 882 932
Loss from store closings 25 24 25 32
Deferred rent (38) -- (52) --
Provision for losses on amounts due from
Private Company and Unconsolidated Licensees 244 -- 244 --
Other -- 30 -- --
Changes in operating assets and liabilities:
Decrease (increase)in merchandise inventories 372 (7) (1,267) (117)
Decrease in refundable income taxes -- 23 -- 23
(Increase)in prepaid expenses & other current assets (428) (690) (192) (478)
Decrease in accounts receivable 1,429 256 577 837
Decrease (increase) in due from Private Company
and Unconsolidated Licensees 174 -- (477) --
Decrease in deferred lease costs
and other intangibles 16 180 16 136
Decrease (increase) in other assets, net 11 (33) 21 121
(Decrease) in accounts payable trade (7,514) (1,085) (5,035) (275)
(Decrease)in customer deposits (1,038) (534) (209) (818)
Increase (decrease) in accrued expenses
and other payables 604 1,375 (127) (344)
------ ------ ------ ------
Net cash (used in) operating activities (6,429) (431) (6,552) (844)
------ ------ ------ ------
Cash flows from investing activities:
Capital expenditures (43) (118) (68) (352)
Decrease in deferred lease costs and other intangibles 15
Net cash (used in) investing activities (28) (118) (68) (352)
Cash flows from financing activities:
Payments of obligations under capital leases (60) 48 (97) 183
Sale of Series A Preferred Stock 5,000 5,000
------ ------ ------ ------
Net cash provided by financing activities 4,940 48 4,903 183
------ ------ ------ ------
------ ------ ------ ------
Net (decrease) in cash and cash equivalents (1,517) (501) (1,717) (1,013)
Cash and cash equivalents at beginning of period 3,205 3,088 3,405 3,600
------ ------ ------ ------
Cash and cash equivalents at end of period $1,688 $2,587 $1,688 $2,587
====== ====== ====== ======
Supplemental disclosure of cash flow information:
Income taxes paid during the period $ 55 $ 63 $ 143 $ 112
====== ====== ====== ======
Interest paid $ 5 $ 8 $ 13 $ 17
====== ====== ====== ======
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
4
<PAGE>
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Twenty-Six Weeks Ended February 28, 1998
(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 February 28, 1998
are not necessarily indicative of the results that may be expected for the year
ending August 29, 1998. 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 30, 1997.
(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:
2/28/98 8/30/97
------- -------
Showrooms $3,984 $4,271
Warehouses 5,226 3,672
------ ------
$9,210 $7,943
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 eleven 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.
Notes to Unaudited Consolidated Financial Statements
For the Twenty-Six Weeks Ended February 28, 1998
(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 final court approval. In accordance with FASB
Statement No. 5, the $130 value of the Preferred Stock had been accrued in the
fiscal year ended August 26, 1995 as part of estimated settlement costs.
A group of shareholders claiming to own approximately 8.5% of the
outstanding shares of the Company have filed (as a group) objections to the
fairness of the settlement in the Derivative Memorandum. The group has requested
deposition and document discovery in advance of any hearing on the fairness of
the settlement, and the Company has provided some document and deposition
discovery voluntarily. However, the group of objectors has made a motion for
additional discovery which the Company has opposed. The motion is still pending.
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 that settlement of the class action
litigation is contingent upon final court approval of the proposed settlement of
the derivative litigation referred to above.
6
<PAGE>
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Twenty-Six Weeks Ended February 28, 1998
(In thousands except for share amounts)
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 had 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.
PROPOSED SETTLEMENT WITH THE PRIVATE COMPANY
The Company signed an agreement ("Settlement Agreement") with the
Private Company subject to 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. The Settlement Agreement may
be terminated upon written notice by the Private Company if not previously
approved by the Court. Although the Company disputes the Private Company's
position that the agreements are so terminable, there can be no assurance that
the Company will prevail in such dispute. The Private Company has not given any
notice of termination, but the Private Company has indicated to the Company that
it has certain issues with the current Settlement Agreements and that it
reserves the right to terminate during negotiations. The parties continue to
negotiate.
The Settlement Agreement provides, among other things, for (i)
certain changes in the billing rates and arrangements with respect to
warehousing, fabric protection and freight, (ii) the turnover of the warehouse
to the Company in January 1999, (iii) the assignment by the Private Company to
the Company, for no consideration, of limited partnership interests and stock of
licensees owning 55 licensed Jennifer Convertibles stores, and (iv) for the
payment, or offset, of certain amounts owing (a) by the Company to the Private
Company and (b) by the Private Company and certain licensees for which the
Private Company has assumed responsibility to the Company. The Company believes
the effective date of such changes will be the date court approval is obtained.
The Private Company has stated that the effective date is March 1996. The
Company believes this claim is without merit and has not provided for any losses
that may accrue as a result of this assertion which approximates $1,500 at
February 28, 1998. For a more complete description of the contemplated
Settlement Agreement, see the Company's Annual Report on Form 10-k for the
fiscal year ended August 30, 1997 under the caption "Legal Proceedings."
7
<PAGE>
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Twenty-Six Weeks Ended February 28, 1998
(In thousands except for share amounts)
In addition, the Company has received a demand letter from an
attorney for the Private Company requesting repayment of approximately $2,000
paid by the Private Company during the period November 1995 to December 1997.
The Private Company considers this amount a loan while the Company has treated
these payments as a reduction of payroll expenses. During this time period,
employees of the Private Company were transferred to the payroll of the Company
as operating responsibilities for the businesses were shifted. There was no
corresponding reduction in the 5% warehousing fees during this period to offset
this increased payroll expense. The Company disputes this demand from the
Private Company and has not provided for any losses that may accrue. The Company
believes that Private Company's demand is an alternative to the $1,500 claim
referred to in the preceding paragraph as the two claims are internally
inconsistent.
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 (as more fully described above).
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 provide testimony and to furnish various
contracts and accounting records which have been complied with. The outcome of
the SEC investigation is not presently determinable.
8
<PAGE>
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Twenty-Six Weeks Ended February 28, 1998
(In thousands except for share amounts)
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THIS
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE U.S.
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, AS AMENDED. THESE STATEMENTS
INVOLVE KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES THAT MAY CAUSE THE COMPANY'S
ACTUAL RESULTS OR OUTCOME TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS,
PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD LOOKING
STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH DIFFERENCES INCLUDE, BUT ARE NOT
LIMITED TO RISK FACTORS SUCH AS UNCERTAINTY AS TO THE OUTCOME OF THE LITIGATION
CONCERNING THE COMPANY, FACTORS AFFECTING THE FURNITURE INDUSTRY GENERALLY, SUCH
AS THE COMPETITIVE AND MARKET ENVIRONMENT, AND MATTERS WHICH MAY AFFECT THE
COMPANY'S SUPPLIERS OR THE PRIVATE COMPANY. IN ADDITION TO STATEMENTS WHICH
EXPLICITLY DESCRIBE SUCH RISKS AND UNCERTAINTIES, INVESTORS ARE URGED TO
CONSIDER STATEMENTS LABELED WITH THE TERMS "BELIEVES," "BELIEF," "EXPECTS,"
"INTENDS," "PLANS" OR "ANTICIPATES" TO BE UNCERTAIN AND FORWARD-LOOKING.
NET SALES:
The Company's sales increased by 6.7% to $53,188 for the
twenty-six weeks ended February 28, 1998 as compared to $49,845 for the same
period in the prior year. Sales for the thirteen weeks ended February 28, 1998
increased by 14.5% to $25,281 from $22,078 for the same period in the prior
year. There were 147 stores in operation as of February 28, 1998 compared to 149
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)
increased by 7.8% and 15.6 %, respectively. The significant increase in sales is
primarily attributable to the Jennifer Leather division which increased by 20.3%
and 57.2%, respectively.
9
<PAGE>
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Twenty-Six Weeks Ended February 28, 1998
(In thousands except for share amounts)
COST OF SALES:
TWENTY-SIX WEEKS ENDED FEBRUARY 28, 1998:
Cost of sales increased by 4.8% to $36,031 (67.7% as a percentage
of sales) as compared to $34,387 (69.0% as a percentage of sales) for the same
period in the prior year. The dollar increase of $1,644 is primarily
attributable to the higher sales volume. Merchandise costs as a percentage of
sales increased by 1.1% essentially due to greater sales in the Jennifer Leather
division. This was offset by freight costs which declined by .4% (as a
percentage of sales) as well as customer repairs which declined by .6% (as a
percentage of sales) primarily due to vendor allowances for repairs from the
Company's principal supplier. Total occupancy costs did not change, but declined
as a percentage of sales by .9% due to the higher sales volume. Warehouse
expenses of $2,715, fabric protection services of $1,261 and freight of $1,401
provided by the Private Company compared to $2,628, $1,308 and $1,523,
respectively, from the previous year.
THIRTEEN WEEKS ENDED FEBRUARY 28, 1998:
Cost of sales increased by 10.0% to $17,258 (68.3% as a percentage
of sales) as compared to $15,683 (71.0% as a percentage of sales) for the same
period in the prior year. The dollar increase of $1,575 is primarily
attributable to the higher sales volume. Freight costs (as a percentage of
sales) declined by .6%. Total occupancy costs did not change, but declined as a
percentage of sales by 2.2% due to the higher sales volume. Warehouse expenses
of $1,320, fabric protection services of $599 and freight of $606 provided by
the Private Company compared to $1,105, $562 and $668, respectively, from the
previous year.
SELLING, GENERAL AND ADMINISTRATIVE AND OTHER EXPENSES:
TWENTY-SIX WEEKS ENDED FEBRUARY 28, 1998:
Selling, general and administrative expenses were $17,156 (32.3%
as a percentage of sales) as compared to $15,681 (31.5% as a percentage of
sales) for the prior period, an increase of $1,475 or 9.4%. The increase in
expenses was caused by: A.) higher payroll expense of $159 principally because
of the higher sales volume, B.) higher advertising expenses of $340 principally
because the prior year period included a credit of $1,075 from Klaussner
Furniture Industries, Inc., C.) new costs of $489 in connection with an enhanced
private label credit card program started in the current fiscal year and D.)
lower levels of credit adjustments related to cancelled customer orders of $420.
10
<PAGE>
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Twenty-Six Weeks Ended February 28, 1998
(In thousands except for share amounts)
THIRTEEN WEEKS ENDED FEBRUARY 28, 1998:
Selling, general and administrative expenses were $8,141 (32.2% as
a percentage of sales) as compared to $6,457 (29.3% as a percentage of sales)
for the prior period, an increase of $1,684 or 26.1%. The increase in expenses
was caused by: A.) higher payroll expense of $183 principally because of the
higher sales volume, B.) higher advertising expenses of $649 principally because
the prior year period included a credit of $1,075 from Klaussner Furniture
Industries, Inc., C.) new costs of $360 in connection with an enhanced private
label credit card program started in the current fiscal year and D.) lower
levels of credit adjustments related to cancelled customer orders of $337.
The Company's receivables from the Private Company, the
Unconsolidated Licensees and S.F.H.C. were $7,375 as of February 28, 1998 which
had increased by $477 from August 30, 1997. A reserve of $7,142 has been
provided at February 28, 1998. At August 30, 1997, the Company had provided a
reserve for the full amount due from these entities of $6,898. These entities
have losses and/or capital deficiencies and there can be no assurance that the
gross receivables will be collected. It is the Company's intention to continue
to fund these operations in the future. The Company has accounted for
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 generally recognized
as income only at the time when cash is received from these entities. As of
April 13, 1998, the unreserved receivables of $233 as of February 28, 1998 have
been paid.
Commencing January 1, 1998, the Private Company discontinued
reimbursing the Company for the payroll of employees transferred to the Company
starting in November 1995. In the twenty-six weeks ended February 28, 1998, this
resulted in a write-off of amounts billed to the Private Company of $244 for the
January and February 1998 monthly periods.
LIQUIDITY AND CAPITAL RESOURCES:
At February 28, 1998, the Company had an aggregate working capital
deficiency of $(12,512) compared to a deficiency of $(17,258) at August 30, 1997
and had available cash and cash equivalents of $1,688 compared to $3,405 at
August 30, 1997. This decrease since August 30, 1997 is due principally to the
net (loss) of $(958) and higher inventory levels.
11
<PAGE>
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Twenty-Six Weeks Ended February 28, 1998
(In thousands except for share amounts)
The Company is continuing to fund the operations of the LP's
which, as described above, continue to generate operating losses. All such
losses have been consolidated in the Company's consolidated financial
statements. The Company's receivables from the Private Company, the
Unconsolidated Licensees (other than S.F.H.C.), and S.F.H.C., which had been
fully reserved for in prior years, increased by $477 and $233 of this amount has
been fully paid by April 13, 1998. It is the Company's intention to continue to
fund these operations in the future. The Company and the Private Company have
entered into offset agreements that permit the two companies to offset their
current obligations to each other. As part of such agreements, the Private
Company agreed to assume certain liabilities owed to the Company by the
Unconsolidated Licensees, other than S.F.H.C..
In March 1996, the Company executed a Credit and Security
Agreement ("Agreement") with its principal supplier, Klaussner which gives the
Company the right to extend payment terms for merchandise shipped from 60 days
to 81 days. As of February 28, 1998 there were no past due amounts. As part of
the Agreement, the Company granted a security interest in all of its assets as
well as assigning leasehold interests, trademarks and a licensee agreement to
operate the Company's business in the event of default.
On December 11, 1997, the Company sold to Klaussner 10,000 shares
of Series A Convertible Preferred Stock ("Preferred Stock"), convertible into
1,424,500 shares of the Company's Common Stock for $5,000. These shares are
non-voting, have a liquidation preference of $5,000 and do not pay dividends
(except if declared on the Common Stock). The Preferred Stock is not convertible
until September 1, 1999, or earlier under certain circumstances (e.g. if another
person or group acquires 12.5% or more of the Common Stock or there are certain
changes in management or the Board of Directors), and has other rights
associated with it. In addition, the Credit and Security Agreement with
Klaussner was modified to include a late fee of .67% per month for invoices the
Company pays beyond the normal 60 day terms.
In September and November 1997, the Company opened letters of
credit in favor of an Italian supplier of leather furniture aggregating $1,350
by depositing these funds into an interest bearing money market account. The
supplier draws down on these letters of credit as shipments are made. These
letters of credit, which total $500 at February 28, 1998, expire on June 30,
1998.
The Company does not currently have any traditional bank financing
and there can be no assurance such financing will be available in the future.
12
<PAGE>
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Twenty-Six Weeks Ended February 28, 1998
(In thousands except for share amounts)
The proposed settlement of the derivative and class action
litigations (as described elsewhere) will come from insurance company payments
and the issuance of new Preferred Stock by the Company. If approved, there will
be no cash outlays by the Company other than legal costs. Additionally, a new
proposed agreement with the Private Company (as described in the Notes to the
Consolidated Financial Statements) contemplates significant changes to the
operating relationship between the companies.
In fiscal 1996 and 1995, the Company and the LP's closed an
aggregate of 40 stores. In fiscal 1997, three additional stores were closed.
Several were closed for non-performance, but a number of such 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.
The Company anticipates losses for fiscal 1998. However, as a
result of the Credit and Security Agreement with Klaussner and the $5,000 sale
of Preferred Stock to Klaussner on December 11, 1997, the Company, in the
opinion of management, will have adequate cash flow to fund its operations for
the current fiscal year.
13
<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
During the quarter ended February 28, 1998 the Company filed two current
reports on Form 8-K, one dated February 2, 1998 and the other dated February 27,
1998, each reporting on Item 5 as to the status of the Company's Settlement
Agreement with the Private Company.
14
<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.
April 14, 1998 By: /s/ HARLEY J. GREENFIELD
----------------------------------------------
Harley J. Greenfield, Chairman of the
Board and Chief Executive Officer
April 14, 1998 By: /s/ GEORGE J. NADEL
----------------------------------------------
George J. Nadel, Executive Vice President,
Chief Financial Officer and Treasurer
(Principal Financial and Accounting
Officer)
15
<TABLE>
<CAPTION>
JENNIFER CONVERTIBLES INC. AND SUBSIDIARIES EXHIBIT 11.1
STATEMENT RE: COMPUTATION OF NET (LOSS) PER SHARE
THIRTEEN AND TWENTY-SIX WEEKS ENDED FEBRUARY 28, 1998 AND MARCH 1, 1997
(in thousands, except per share data)
Primary Primary
-------------------- ----------------
Thirteen weeks ended Twenty-six weeks ended
----------------------------------- ------------------------------------------
February 28, 1998 March 1, 1997 February 28, 1998 March 1, 1997
-------------------- ------------- ----------------- ----------------------
<S> <C> <C> <C> <C>
Net (loss) $ (728) $ (442) $ (958) $ (893)
=================== ============= ================= ======================
Common shares outstanding 5,701 5,701 5,701 5,701
=================== ============= ================= ======================
Basic (loss) per common share (0.13) $ (0.08) $ (0.17) $ (0.16)
=================== ============= ================= ======================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000806817
<NAME> JENNFIER CONVERTIBLES, INC.
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-29-1998
<PERIOD-START> NOV-30-1997
<PERIOD-END> FEB-28-1998
<EXCHANGE-RATE> 1
<CASH> 1,688,000
<SECURITIES> 0
<RECEIVABLES> 572,000
<ALLOWANCES> 0
<INVENTORY> 9,210,000
<CURRENT-ASSETS> 12,372,000
<PP&E> 14,100,000
<DEPRECIATION> 7,133,000
<TOTAL-ASSETS> 21,543,000
<CURRENT-LIABILITIES> 24,884,000
<BONDS> 0
0
100
<COMMON> 57,000
<OTHER-SE> (9,382,100)
<TOTAL-LIABILITY-AND-EQUITY> 21,543,000
<SALES> 25,281,000
<TOTAL-REVENUES> 25,281,000
<CGS> 17,258,000
<TOTAL-COSTS> 26,110,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,000
<INCOME-PRETAX> (673,000)
<INCOME-TAX> 55,000
<INCOME-CONTINUING> (728,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (728,000)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
