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 28, 1998
-----------------
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 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 - November 28, 1998
(Unaudited) and August 29, 1998.............................. 2
Comparative Consolidated Statements of Operations
for the thirteen weeks ended November 28, 1998 and
November 29, 1997 (Unaudited).................................. 3
Comparative Consolidated Statements of Cash Flows
for the thirteen weeks ended November 28, 1998
and November 29, 1997 (Unaudited).............................. 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>
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
ASSETS
------
November 28, 1998 August 29, 1998
----------------- ---------------
Current assets: (unaudited)
<S> <C> <C>
Cash and cash equivalents $ 1,488 $ 4,384
Accounts receivable 1,020 500
Merchandise inventories 8,170 10,018
Due from Private Company
and Unconsolidated Licensees, current portion 1,123 601
Prepaid expenses and other current assets 235 388
---------- ----------
Total current assets 12,036 15,891
Store fixtures, equipment and leasehold improvements,
at cost, net 5,833 6,147
Due from Private Company and Unconsolidated Licensees, net of reserves of
$6,696 and $6,696 at November 28, 1998 and August 29, 1998 -- --
Deferred lease costs and other intangibles, net 683 783
Goodwill, at cost, net 531 535
Other assets (primarily security deposits) 736 743
---------- ----------
$ 19,819 $ 24,099
========== ==========
LIABILITIES AND (CAPITAL DEFICIENCY)
------------------------------------
Current liabilities:
Accounts payable, trade $ 11,787 $ 14,917
Customer deposits 6,880 6,892
Accrued expenses and other current liabilities 4,785 5,192
---------- ----------
Total current liabilities 23,452 27,001
Deferred rent and allowances 5,392 5,497
Long-term obligations under capital leases 49 49
---------- ----------
Total liabilities 28,893 32,547
---------- ----------
Commitments and contingencies
(Capital deficiency)
Preferred stock, par value $.01 per share
Authorized 1,000,000 shares; 10,000 issued and
outstanding at November 28, 1998 and August 29, 1998 -- --
Common stock, par value $.01 per share
Authorized 10,000,000 shares; issued and
outstanding 5,700,725 shares at November 28,1998
and August 29, 1998 57 57
Additional paid-in capital 27,710 27,710
Notes receivable from warrant holders (270) (270)
Accumulated (deficit) (36,571) (35,945)
---------- ----------
(9,074) (8,448)
---------- ----------
$ 19,819 $ 24,099
========== ==========
See accompanying notes to unaudited consolidated financial statements.
2
</TABLE>
<PAGE>
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except share data)
(unaudited)
Thirteen weeks Thirteen weeks
ended ended
November 28, 1998 November 29, 1997
----------------- -----------------
Net sales $ 28,374 $ 27,907
--------------- ---------------
Cost of sales, including store occupancy,
warehousing, delivery and fabric protection 18,730 18,773
Selling, general and administrative expenses 9,886 9,015
Depreciation and amortization 421 440
--------------- ---------------
29,037 28,228
--------------- ---------------
Operating (loss) (663) (321)
--------------- ---------------
Other income (expense):
Royalty income 107 101
Interest income 47 23
Interest expense (51) (8)
Other income, net 58 63
--------------- ---------------
161 179
--------------- ---------------
(Loss) before income taxes (502) (142)
Income taxes 124 88
--------------- ---------------
Net (loss) $ (626) $ (230)
=============== ===============
Basic (loss) per share ($0.11) ($0.04)
=============== ===============
Weighted average number of common shares 5,700,725 5,700,725
=============== ===============
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
JENNIFER CONVERTIBLES INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands) (unaudited)
Thirteen weeks Thirteen weeks
ended ended
November 28, 1998 November 29, 1997
----------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) $ ( 626) $ (230)
Adjustments to reconcile net (loss)
to net cash provided by operating activities:
Depreciation and amortization 421 440
Provision for warranty costs 25 --
Loss from store closing (9) (20)
Deferred rent (105) (14)
Changes in operating assets and liabilities:
Decrease (increase) in merchandise inventories 1,848 (1,639)
Decrease in prepaid expenses and other current assets 153 236
(Increase) in accounts receivables (520) (852)
(Increase) in due from Private Company
and Unconsolidated Licensees (522) (651)
Decrease in other assets, net 60 10
(Decrease) increase in accounts payable trade (3,130) 2,479
(Decrease) increase in customer deposits (12) 829
(Decrease) in accrued expenses
and other payables (359) (711)
------------- -------------
Net cash (used in) operating activities (2,776) (123)
------------- -------------
Cash flows from investing activities:
Capital expenditures (59) (25)
Decrease (increase) in deferred lease costs
and other intangibles 2 (15)
------------- -------------
Net cash (used in) investing activities (57) (40)
------------- -------------
Cash flows from financing activities:
Payments of obligations under capital leases (63) (37)
------------- -------------
Net cash (used in) provided by financing activities (63) (37)
------------- -------------
Net (decrease) in cash and cash equivalents (2,896) (200)
Cash and cash equivalents at beginning of period 4,384 3,405
------------- -------------
Cash and cash equivalents at end of period $ 1,488 $ 3,205
============= =============
Supplemental disclosure of cash flow information:
Income taxes paid during the period $ 124 $ 88
============= =============
Interest paid $ 51 $ 8
============= =============
See accompanying notes to unaudited consolidated financial statements.
4
</TABLE>
<PAGE>
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Thirteen Weeks Ended November 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 November 28, 1998
are not necessarily indicative of the results that may be expected for the year
ending August 28, 1999. 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 29, 1998.
(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:
11/28/98 8/29/98
-------- --------
Showrooms $ 3,875 $ 4,113
Warehouses 4,295 5,905
------ -------
$8,170 $10,018
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".
5
<PAGE>
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Thirteen Weeks Ended November 28, 1998
(In thousands except for share amounts)
Settlement of Class Action Litigation
-------------------------------------
On November 30, 1998 the court approved the settlement of the class
action litigation. The settlement 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. 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 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.
Based upon valid proofs of claim actually filed, the Company anticipates that it
will not have to issue more than $260 in Preferred Stock.
Proposed Settlement of Derivative Litigation
--------------------------------------------
As described in prior filings with the Securities and Exchange
Commission, the Company had entered into settlement agreements as to the
derivative litigation, subject, in the case of certain of such agreements, to
court approval of such settlement by a certain date. Such court approval was not
obtained by such date. The Company and the Private Company are negotiating with
respect to a new settlement. There can be no assurance that a settlement will be
reached or as to the terms of such settlement. The ultimate outcome of these
matters is not presently determinable.
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 previously proposed settlement agreements which have been
terminated.
6
<PAGE>
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
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 THE RISK FACTORS SET FORTH UNDER THE CAPTION "RISK FACTORS" IN THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED AUGUST 29, 1998.
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 1.7% to $28,374 for the thirteen weeks
ended November 28, 1998 as compared to $27,907 for the same period in the prior
year. There were 142 stores in operation as of November 28, 1998 compared to 147
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 2.7%.
Cost of Sales:
--------------
Cost of sales decreased by .2% to $18,730, 66.0% as a percentage of
sales, as compared to $18,773, 67.3% as a percentage of sales, for the same
period in the prior year. The dollar decrease of $43 is affected by various
components. Merchandise costs decreased by 1.6% as a percentage of sales due to
higher sales volume in the Jennifer Leather division. As a percentage of sales,
freight costs declined by .7% and delivery income declined by .3%. Total
occupancy costs did not change. Costs for customer repairs declined by .2% as a
percentage of sales. Warehouse expenses of $1,417, fabric protection services of
$612 and freight of $621 provided by the Private Company compared to $1,395,
$663 and $794, respectively, from the previous year.
7
<PAGE>
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Selling, General and Administrative and Other Expenses:
-------------------------------------------------------
Selling, general and administrative expenses were $9,886, 34.8% as a
percentage of sales, as compared to $9,015, 32.3% as a percentage of sales, for
the prior period, an increase of $871 or 9.7%. This increase was essentially the
result of payroll expenses (and related employee benefits) increasing by $401
and advertising expenses increasing by $327. Starting January 1, 1998, the
Company assumed certain payroll expenses previously funded by the Private
Company totalling $351 for the current period. Also included in selling general
and administrative expenses for this period was a credit in the amount of $110
which reflects the reversal of a reserve in connection with the settlement of
the class action litigation. Included in selling, general and administrative
expenses in the prior year were credit adjustments related to cancelled customer
orders of $131, (.5% as a percentage of sales) as compared to none in the
current period. Costs in connection with an enhanced private label credit card
program were $407, 1.4% as a percentage of sales, as compared to $150 (.5% as a
percentage of sales) in the prior year.
The Company's receivables from the Private Company, the Unconsolidated
Licensees and S.F.H.C. were $7,819 as of November 28, 1998 which had increased
by $522 from August 29, 1998. At August 29, 1998, the Company had provided a
reserve for the non-current amounts due from these entities of $6,696. 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
January 12, 1999, the current receivables of $1,123 as of November 28, 1998 have
been paid and no additional reserve has been provided.
8
<PAGE>
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Liquidity and Capital Resources:
-------------------------------
At November 28, 1998, the Company had an aggregate working capital
deficiency of $(11,416) compared to a deficiency of $(11,110) at August 29, 1998
and had available cash and cash equivalents of $1,488 compared to $4,384 at
August 29, 1998. This decrease since August 29, 1998 is due principally to the
net (loss) of $(626), the increase in amounts due from the Private Company, the
Unconsolidated Licensees and S.F.H.C. of $522, an increase in accounts
receivables of $520 and lower current liabilities of $3,549, all of which was
partially offset by lower merchandise inventory levels of $1,848.
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 net receivables at November 28, 1998 of $1,123 from the Private
Company, the Unconsolidated Licensees (other than S.F.H.C.), and S.F.H.C., have
been fully paid by January 12, 1999. 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 monthly obligations to each other in excess of $1,000 of credit extended
by the Company to the Private Company. Additionally, 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 extended the payment
terms for merchandise shipped from 60 days to 81 days. As of November 28, 1998,
amounts owed to Klaussner were within these extended payment terms. On December
11, 1997, the Agreement was modified to include a late fee of .67% per month for
invoices the Company pays beyond the normal 60 day terms. This provision became
effective commencing with the month of January 1998. 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 license agreement to operate the
Company's business in the event of default.
9
<PAGE>
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
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.
During the fiscal year ended August 29, 1998, the Company opened
letters of credit in favor of an Italian supplier of leather furniture by
depositing funds into an interest bearing money market account. The supplier had
drawn down on these letters of credit as shipments were made. As of November 28,
1998, $500 of standby letters of credit remain, which expired unused on December
31, 1998.
On November 30, 1998, the court approved a settlement of all the class
actions pending against the Company. The cash portion of the settlement will be
funded entirely by insurance company proceeds. Based upon the proofs of claim
filed, the Company anticipates that it will not have to issue more than $260 in
Preferred Stock and there will be no cash outlays by the Company other than
legal costs.
In fiscal 1998 and 1997, the Company and the LP's closed an aggregate
of six stores. In the thirteen weeks ended November 28, 1998, one additional
store was 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 showrooms. 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 a breakeven to slight profit for fiscal 1999,
with positive operating cash flow. Such cash flow, together with the Credit and
Security Agreement with Klaussner and the $5,000 sale of Preferred Stock to
Klaussner on December 11, 1997, will provide the Company, in the opinion of
management, adequate cash to fund its operations for the current fiscal year.
10
<PAGE>
JENNIFER CONVERTIBLES, INC.
PART II
OTHER INFORMATION
ITEMS 1. through 5. NOT APPLICABLE.
ITEM 6. (a) NONE
(b) REPORTS ON FORM 8-K
During the quarter ended November 28, 1998, the Company filed one
Current Report on Form 8-K, dated October 12, 1998 reporting on Item 5. with
respect to the termination of the investigation of the Company by the Securities
and Exchange Commission.
11
<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 12, 1999 By: /s/ Harley J. Greenfield
----------------------------------------------
Harley J. Greenfield, Chairman of the
Board and Chief Executive Officer
January 12, 1999 By: /s/ George J. Nadel
----------------------------------------------
George J. Nadel, Executive Vice President,
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000806817
<NAME> JENNIFER CONVERTIBLES, INC.
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-28-1999
<PERIOD-START> AUG-30-1998
<PERIOD-END> NOV-28-1998
<EXCHANGE-RATE> 1
<CASH> 1,488,000
<SECURITIES> 0
<RECEIVABLES> 2,143,000
<ALLOWANCES> 0
<INVENTORY> 8,170,000
<CURRENT-ASSETS> 12,036,000
<PP&E> 13,793,000
<DEPRECIATION> 7,960,000
<TOTAL-ASSETS> 19,819,000
<CURRENT-LIABILITIES> 23,452,000
<BONDS> 0
0
0
<COMMON> 57,000
<OTHER-SE> (9,017,000)
<TOTAL-LIABILITY-AND-EQUITY> 19,819,000
<SALES> 28,374,000
<TOTAL-REVENUES> 28,374,000
<CGS> 18,730,000
<TOTAL-COSTS> 29,037,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 51,000
<INCOME-PRETAX> (502,000)
<INCOME-TAX> 124,000
<INCOME-CONTINUING> (626,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (626,000)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
