UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D C. 20549
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended May 27, 2000
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 May 27, 2000: 5,704,058
<PAGE>
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements
Part I - Financial Information
Item I - Financial Statements
Consolidated Balance Sheets at May 27, 2000
(Unaudited) and August 28, 1999................................ 2
Comparative Consolidated Statements of Operations
(Unaudited) for the thirty-nine weeks and
thirteen weeks ended May 27, 2000 and
May 29, 1999 .................................................. 3
Comparative Consolidated Statements of Cash Flows
(Unaudited) for the thirty-nine weeks and
thirteen weeks ended May 27, 2000 and
May 29, 1999 .................................................. 4
Notes to Unaudited Consolidated Financial Statements............. 5
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 8
Item 3 - Quantitative and Qualitative Disclosures about
Market Risk.............................................13
Part II - Other Information......................................14
<PAGE>
Item I. Financial Information
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except for share data)
<TABLE>
ASSETS
<CAPTION>
May 27, August
2000 28, 1999
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $10,106 $6,907
Accounts receivable 354 31
Merchandise inventories 11,309 9,634
Due from Private Company and
Unconsolidated Licensees,
net of reserves of $6,654 1,587 1,184
Prepaid expenses and other 533 596
current assets
Total current assets 23,889 18,352
Store fixtures, equipment and
leasehold improvements,
at cost, net 5,340 5,377
Deferred lease costs and 554 611
other intangibles, net
Goodwill, at cost, net 1,937 1,142
Other assets (primarily 687 663
security deposits)
$32,407 $26,145
LIABILITIES AND (CAPITAL DEFICIENCY)
Current liabilities:
Accounts payable, trade $16,871 $15,030
Customer deposits 10,652 8,757
Accrued expenses and other 5,164 4,447
current liabilities
Amounts payable under 225 699
acquisition agreement
Total current liabilities 32,912 28,933
Deferred rent and allowances 5,039 5,185
Long-term obligations under 34 63
capital leases
Total liabilities 37,985 34,181
Commitments and contingencies
(Capital deficiency)
Preferred stock, par value
$.01 per share.
Authorized 1,000,000 shares
Series A Convertible 0 0
Preferred - 10,000 shares
issued and outstanding at
May 27, 2000 and August 28,
1999(liquidation preference
$5,000)
Series B Convertible
Preferred - 26,664 shares
issued and outstanding at
May 27, 2000 and August 28,
1999 (liquidation preference
$133)
Common stock, par value $.01
per share
Authorized 10,000,000 shares;
issued and outstanding
5,704,058 57 57
Additional paid in capital 27,482 27,482
Accumulated (deficit) (33,117) (35,575)
(5,578) (8,036)
$32,407 $26,145
</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>
Thirty- Thirty-
Thirteen Thirteen nine nine
weeks weeks weeks weeks
ended ended ended ended
27-May- 29-May- 27-May- 29-May-
00 99 00 99
<S> <C> <C> <C> <C>
Net sales $31,420 $26,412 $90,410 $78,016
Cost of sales, including
store occupancy,
warehousing, delivery and
fabric protection 19,939 17,163 57,386 51,514
Selling, general
administrative expenses 9,858 8,937 29,683 27,352
Provision for amounts due
from Private Company and
Unconsolidated Licenses 0 0 0 119
Loss from store closings 0 9 0 9
Depreciation and
amortization 420 420 1,235 1,252
30,217 26,529 88,304 80,246
Operating income (loss) 1,203 (117) 2,106 (2,230)
Other income:
Royalty income 48 85 226 290
Interest income 95 44 226 110
Interest expense (1) (11) (53) (98)
Other income, net 84 34 211 102
226 152 610 404
Income (loss) before income 1,429 35 2,716 (1,826)
taxes
Income taxes 78 47 258 279
Net income (loss) $1,351 ($12) $2,458 ($2,105)
Basic income (loss) per $0.24 ($0.00) $0.43 ($0.37)
common share
Diluted income (loss) per $0.19 ($0.00) $0.34 ($0.37)
common share
Weighted average common shares
outstanding basic income
(loss) per share 5,704,058 5,700,725 5,704,058 5,700,725
Weighted average common shares
outstanding diluted income
(loss) per share 7,212,109 5,700,725 7,272,219 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 Thirteen Thirty-nine Thirty-nine
weeks weeks weeks weeks
ended ended ended ended
27-May-00 29-May-99 27-May-00 29-May-99
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $1,351 ($12) $2,458 ($2,105)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 420 420 1,235 1,252
Provision for warranty costs 50
Loss from store closing 0 9 0 9
Deferred rent (12) (72) (204) (300)
Provision for losses from Private Company and
Unconsolidated Licenses 0 0 0 119
Changes in operating assets and liabilities:
(Increase) decrease in merchandise inventories (927) (466) (1,469) 797
Decrease in prepaid expenses and other current assets 41 152 67 (8)
(Increase) in accounts receivables 179 373 (238) 433
(Increase) in due from Private Company
and Unconsolidated Licenses (682) (253) (405) (954)
(Increase) decrease in deferred lease costs
and other intangibles (72) (30) (52) (29)
(Increase) decrease in goodwill 0 0 0 0
(Increase) decrease in other assets, net 61 9 45 71
(Decrease) in accounts payable trade 5,282 2,415 1,835 (1,316)
Increase (decrease) increase in customer deposits (297) 1,444 1,524 3,816
Increase (decrease) in accrued expenses
and other payables (255) (183) 611 (491)
Net cash provided by (used in) operating activities 5,089 3,806 5,407 1,344
Cash flows from investing activities:
Capital expenditures (536) (119) (925) (273)
Acquistion of Jennifer Chicago, L.P. 0 0 (474) 0
Acquisition of South Florida Holding Company,
net of $20 cash received (780) 0 (780) 0
Net cash (used in) investing activities (1,316) (119) (2,179) (273)
Cash flows from financing activities:
Payments of obligations under capital leases 0 (72) (29) (201)
Net cash (used in) provided by financing activities 0 (72) (29) (201)
Net increase (decrease) in cash and cash equivalents 3,773 3,615 3,199 870
Cash and cash equivalents at beginning of period 6,333 1,639 6,907 4,384
Cash and cash equivalents at end of period $10,106 $5,254 $10,106 $5,254
Supplemental disclosure of cash flow information:
Income taxes paid during the period $78 $48 $258 $279
Interest paid $1 $11 $53 $98
Supplemental disclosure of non-cash financing activities:
Issuance of Series B Preferred Stock-in settlement $0 $0 $0 $111
of liability
</TABLE>
See Accompanying notes to unaudited consolidated financial statements.
4
<PAGE>
JENNIFER CONVERTIBLES, INC.
Notes to Unaudited Consolidated Financial Statements
For the Thirty-Nine Weeks Ended May 27, 2000
(In thousands except for share amounts)
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements of
Jennifer Convertibles, Inc. (the "Company") and subsidiaries 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 May 27, 2000 are not
necessarily indicative of the results that may be expected for the year
ending August 26, 2000. 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 28, 1999.
(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:
5/27/00 8/28/99
Showrooms $ 5,111 $ 4,203
Warehouses 6,198 5,431
$11,309 $ 9,634
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".
5
<PAGE>
JENNIFER CONVERTIBLES, INC.
Notes to Unaudited Consolidated Financial Statements
For the Thirty-Nine Weeks Ended May 27, 2000
(In thousands except for share amounts)
Settlement Of Class Action Litigation
On November 30, 1998, the court approved the settlement of a
series of 11 class actions commenced in December 1994 against the
Company, various of the Company's present and former officers and
directors, and certain third parties, in the United States District
Court for the Eastern District of New York. The complaints in all of
these actions alleged that the Company and the other named defendants
violated Section 10(b) of the Securities Exchange Act of 1934 and Rule
10b-5 promulgated thereunder in connection with the press release
issued by the Company on or about December 2, 1994. All of these class
actions were consolidated under the caption In Re Jennifer
Convertibles, Case No. 94 Civ. 5570, pending in the Eastern District of
New York. 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 was funded entirely by insurance company proceeds.
The Company issued 26,664 shares of series B preferred stock,
convertible into 18,664 shares of our common stock. These shares are
non-voting, have a liquidation preference of $5.00 per share or $133 in
total, and accrue dividends at the rate of $.35 per share per annum.
The cumulative unpaid dividends at May 27, 2000 totaled $14. The
preferred stock is convertible at the Company's option at any time
after the common stock trades at a price of at least $7.00 per share.
The Derivative Litigation
Beginning in December 1994, a series of six actions were
commenced as derivative actions on the Company's behalf against Harley
J. Greenfield, Fred J. Love, Edward B. Seidner, Bernard Wincig, Michael
J. Colnes, Michael Rosen, Al Ferarra, William M. Apfelbaum, Glenn S.
Meyers, Lawrence R. Haut, the private company, Jerome I. Silverman,
Jerome I. Silverman Company, Selig Zises and BDO Seidman & Co. (each of
these individuals and entities is named as a defendant in at least one
action) in: (a) the United States District Court for the Eastern
District of New York, entitled Philip E. Orbanes V. Harley J.
Greenfield, et al., Case No. CV 94-5694 (DRH) and Meyer Okun and David
Semel V. Al Ferrara, et al., Case No. CV 95-0080 (DRH); Meyer Okun
Defined Benefit Pension Plan, et al. V. Bdo Seidman & Co., Case No. CV
95-1407 (DRH); and Meyer Okun Defined Benefit Pension Plan V. Jerome I.
Silverman Company, et. al., Case No. CV 95-3162 (DRH); (b) the Court of
Chancery for the County of New Castle in the State of Delaware,
entitled Massini V. Harley Greenfield, et. al., Civil Action No. 13936
(WBC); and (c) the Supreme Court of the State of New York, County of
New York, entitled Meyer Okun Defined Benefit Pension Plan V.
Harley J. Greenfield, et. al., Index No. 95-110290.
6
<PAGE>
JENNIFER CONVERTIBLES, INC.
Notes to Unaudited Consolidated Financial Statements
For the Thirty-Nine Weeks Ended May 27, 2000
(In thousands except for share amounts)
The complaints in each of these actions assert various acts
of wrongdoing by the defendants, as well as claims of breach of
fiduciary duty by the Company's present and former officers and
directors, including but not limited to claims relating to the matters
described in the Company's December 2, 1994 press release. As
described in prior filings, 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, and in
July 1998, the private company exercised its option to withdraw from
the settlement. The Company is currently negotiating with the private
company with respect to a new settlement. However, there can be no
assurance that a settlement will be reached or as to the terms of such
settlement.
(4) Purchase of South Florida Holding Company
On March 23, 2000 the Company purchased the stock of the
previously unconsolidated licensee known as South Florida Holding
Company for the sum of $800. The acquisition added six stores in
Florida to the consolidated total.
7
<PAGE>
JENNIFER CONVERTIBLES, INC.
For the Thirty-Nine Weeks Ended May 27, 2000
(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
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 28, 1999. 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:
During the thirty-nine week period ended May 27, 2000, our sales
increased by 15.9% to $90.4 million from the $78.0 million reported for
the same period in the prior year. Comparable store sales (sales at those
stores open for the entire thirty-nine week period in the current and
prior year) increased by 11.3%.
For the thirteen-week period ended May 27, 2000, our sales
increased by 18.9% to $31.4 million from the $26.4 million for the same
period in the prior fiscal year. Comparable store sales (sales at those
stores open for the entire period in the current and prior year periods)
increased by 11.2% for the thirteen-week period ended May 27, 2000.
As previously reported, on March 23, 2000, the Company purchased
the stock of the previously unconsolidated licensee known as South
Florida Holding Company. The acquisition added six owned stores in
Florida with sales, from March 26, 2000 through May 27, 2000, of $873
included in the thirteen-week period ended May 27, 2000.
8
<PAGE>
JENNIFER CONVERTIBLES, INC.
For the Thirty-Nine Weeks Ended May 27, 2000
(In thousands except for share amounts)
Merchandise Inventories:
During the thirty-nine weeks ended May 27, 2000, total
inventories increased by $1,675. The total inventories increase, of
$1,675, includes $950 for 13 new stores opened in the current fiscal year
and for six stores acquired from our previous unconsolidated licensee,
known as South Florida Holding Company, on March 23, 2000.
Cost of Sales:
Thirty-nine Weeks Ended May 27, 2000:
Cost of sales was $57,386 and decreased by 2.5% as a percentage
of sales to 63.5%, as compared to $51,514 or 66.0% as a percentage of
sales for the same thirty-nine week period in the prior year. The
decrease of 2.5% as a percentage of sales is primarily attributable to:
Merchandise cost decreases of .8% as a percentage of sales.
Occupancy costs decreases of .7% as a percentage of sales, due to
higher sales volume.
Warehouse expenses reflecting a $756 reduction or .8% as a
percentage of sales, due to a cost reduction negotiated with the
private company.
Thirteen-weeks Ended May 27, 2000:
Cost of sales decreased by 1.5% as a percentage of sales for
the thirteen-week period ended May 27, 2000 as compared to the same
period in the prior year. The decrease in cost of sales is primarily
attributable to merchandise purchase cost reductions.
9
<PAGE>
JENNIFER CONVERTIBLES, INC.
For the Thirty-Nine Weeks Ended February 26, 2000
(In thousands except for share amounts)
Selling, General and Administrative and Other Expenses:
For the thirty-nine week period ended May 27, 2000, selling,
general and administrative expenses were $29,683 (32.8% as a percentage
of sales) as compared to $27,352 (35.1% as a percentage of sales) for
the same period last year.
For the thirteen-week period ended May 27, 2000 selling,
general and administrative expenses were $9,858 (31.4% as a percentage
of sales) as compared to $8,937 (33.8% as a percentage of sales) for
the same thirteen-week period last year.
The most significant reason for the decrease in selling,
general and administrative expenses, as a percentage of sales, was the
ability to apply fixed cost dollars in corporate office rent and base
salaries to the higher sales volumes.
Included in the costs for the thirteen-weeks ended May 27,
2000 is $134 of expenses associated with the opening of four new
stores. These new stores generated only $25 in sales in the quarter due
to their recent store opening dates.
Net income for the thirteen-week period ended May 27, 2000 was
$1,351 or $.24 basic income per share compared to a net loss of ($12)
or ($0.0) basic income per share for the same period in the prior
fiscal year. For the thirty-nine weeks ended May 27, 2000, net income
was $2,458 or $.43 basic income per share compared to a net loss of
($2,105) or ($0.37) basic income per share in the prior year fiscal
period.
10
<PAGE>
JENNIFER CONVERTIBLES, INC.
For the Thirty-Nine Weeks Ended May 27, 2000
(In thousands except for share amounts)
Liquidity and Capital Resources:
At May 27, 2000, we had an aggregate working capital
deficiency of $(9,023) compared to a deficiency of $(10,581) at August
28, 1999 and had available cash and cash equivalents of $10,106
compared to $6,907 at August 28, 1999. The increase in working capital
is due to our positive results from operations over the last thirty-
nine week period.
We continue to fund the operations of certain of our limited
partnership licensees whose results are included in our consolidated
financial statements, some of which continue to generate operating
losses. Any such losses have been consolidated in our consolidated
financial statements. It is our intention to continue to fund these
operations in the future. Our receivables from the private company and
the unconsolidated licensees had been substantially reserved for in
prior years. There can be no assurance that the total reserved amount
of receivables of $6,654 as of May 27, 2000 will be collected.
Starting in 1995, the private company and we entered into
offset agreements that permit us to offset our current monthly
obligations to each other in excess of $1,000 of credit extended by us
to the private company. Based on the payment terms of these offset
agreements, current obligations of the private company and the
unconsolidated licensees as of May 27, 2000 have been paid.
Additionally, as part of such agreements, the private company in
November 1995 agreed to assume certain liabilities owed to us by the
unconsolidated licensees and South Florida Holding Corp.
Merchandise Inventories:
During the thirty-nine weeks ended May 27, 2000, total
inventories increased by $1,675. The total inventories increase, of
$1,675, includes $950 for 13 new stores opened in the current fiscal year
and for six stores acquired from our previous unconsolidated licensee,
known as South Florida Holding Company, on March 23, 2000.
11
<PAGE>
JENNIFER CONVERTIBLES, INC.
For the Thirty-Nine Weeks Ended May 27, 2000
(In thousands except for share amounts)
In March 1996, we executed a Credit and Security Agreement
with our principal supplier, Klaussner Furniture Industries, Inc.,
which extended the payment terms for merchandise shipped from 60 days
to 81 days. Since the second quarter of the past fiscal year, we have
not exceeded these 60-day payment terms by more than 14 days. As of May
27, 2000, there were no amounts owed which were over 60 days. On
December 11, 1997, the Credit and Security Agreement was modified to
include a late fee of .67% per month for invoices we pay beyond the
normal 60 day terms. This provision became effective commencing with
the month of January 1998. As part of the Credit and Security
Agreement, we granted to Klaussner a security interest in all of our
assets including the collateral assignment of our leasehold interests,
our trademarks and a licensee agreement to operate our business in the
event of our default.
During the thirty-nine weeks ended May 27, 2000, we had sales
for 13 new stores and sales for six stores acquired on March 23, 2000
from South Florida Holding Company a previous unconsolidated licensee
for the sum of $800. We had no store closings during the thirty-nine
week period. We spent $925 for capital expenditures during the thirty-
nine week period and we anticipate capital expenditures of
approximating $595 during the balance of fiscal 2000 to support the
opening of new stores. A portion of our store openings may be funded by
Klaussner pursuant to an agreement, entered into in December 1999,
pursuant to which Klaussner agreed, subject to certain conditions, to
lend us $150 per new store for up to 10 new stores. Each loan will be
evidenced by a three-year note, bearing interest at the LIBOR plus 3%.
The notes are subject to acceleration under certain circumstances
including closing of the stores funded by the loan or if we do not
purchase at least 50% of our upholstered furniture by dollar volume
from Klaussner. In addition, Klaussner will be entitled to a premium on
the cost of furniture purchased from it by us for sale to customers of
the stores funded by Klaussner. To date, we have not borrowed any
funds from Klaussner under this arrangement.
We anticipate continued positive operating cash flow through
the end of fiscal 2000. In the opinion of management, this positive
cash flow will be adequate to fund operations during the current fiscal
year.
12
<PAGE>
JENNIFER CONVERTIBLES, INC.
For the Thirty-Nine Weeks Ended May 27, 2000
(In thousands except for share amounts)
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable.
13
JENNIFER CONVERTIBLES, INC.
PART II
OTHER INFORMATION
ITEMS 1. through 5. NOT APPLICABLE.
ITEM 6. (a) NONE
(b) REPORTS ON FORM 8-K
14
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.
July 10, 2000 By: /s/ Harley J. Greenfield
Harley J. Greenfield, Chairman of the
Board and Chief Executive Officer
15
<PAGE>
