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 27, 1999
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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
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Commission file number 1-9681
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JENNIFER CONVERTIBLES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 11-2824646
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
419 CROSSWAYS PARK DRIVE, WOODBURY, NEW YORK 11797
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 496-1900
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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 27, 1999: 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 - November 27, 1999
(Unaudited) and August 28, 1999..............................................2
Comparative Consolidated Statements of Operations
for the thirteen weeks ended November 27, 1999 and
November 28, 1998 (Unaudited)................................................3
Comparative Consolidated Statements of Cash Flows
for the thirteen weeks ended November 27, 1999
and November 28, 1998 (Unaudited)............................................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..........................................................11
PART II - OTHER INFORMATION...................................................12
<PAGE>
<TABLE>
<CAPTION>
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share data)
ASSETS Nov. 27, 1999 Aug. 28, 1999
------------- -------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,089 $ 6,907
Accounts receivable 501 31
Merchandise inventories 10,462 9,634
Due from Private Company and
Unconsolidated Licensees, net 1,198 1,184
Prepaid expenses and other current assets 262 596
-------- --------
Total current assets 19,512 18,352
Store fixtures, equipment and leasehold improvements,
at cost, net 5,175 5,377
Deferred lease costs and other intangibles, net 571 611
Goodwill, at cost, net 1,122 1,142
Other assets (primarily security deposits) 654 663
-------- --------
$ 27,034 $ 26,145
======== ========
LIABILITIES AND (CAPITAL DEFICIENCY)
Current liabilities:
Accounts payable, trade $ 14,526 $ 15,030
Customer deposits 8,856 8,757
Accrued expenses and other current liabilities 5,263 4,447
Accounts payable under acquisition agreement 448 699
-------- --------
Total current liabilities 29,093 28,933
Deferred rent and allowances 5,058 5,185
Long-term obligations under capital leases 40 63
-------- --------
Total liabilities 34,191 34,181
COMMITMENTS AND CONTINGENCIES
(Capital deficiency)
Preferred stock, par value $.01 per share
Authorized 1,000,000 shares
Series A Convertible Preferred - 10,000 shares issued
and outstanding at November 27, 1999 and August 28, 1999
(liquidation preference $5,000) -- --
Series B Convertible Preferred - 26,664 shares issued
and outstanding at November 27, 1999 and August 28, 1999
(liquidation preference $133)
Common stock, par value $.01 per shared
Authorized 10,000,000 shares; issued and
outstanding 5,704,058 shares at November 27, 1999 and
August 28, 1999 57 57
Additional paid in capital 27,482 27,482
Accumulated (deficit) (34,696) (35,575)
-------- --------
(7,157) (8,036)
-------- --------
$ 27,034 $ 26,145
======== ========
See Accompanying notes to unaudited consolidated financial statements.
</TABLE>
2
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Consolidated Statement of Operations
(In thousands, except share data)
Thirteen weeks Thirteen weeks
ended ended
Nov. 27, 1999 Nov. 28, 1998
-------------- --------------
Net sales $ 32,061 $ 28,374
----------- -----------
Cost of sales, including store occupancy,
warehousing, delivery and fabric protection -- 18,730
Selling, general and administrative expenses -- 9,886
Depreciation and amortization -- 421
----------- -----------
-- 29,037
----------- -----------
Operating profit (loss) 32,061 (663)
----------- -----------
Other income (expense):
Royalty income -- 107
Interest income -- 47
Interest expense -- (51)
Other income, net -- 58
----------- -----------
-- 161
----------- -----------
Profit (loss) before income taxes 32,061 (502)
Income taxes -- 124
----------- -----------
Net profit (loss) $ 32,061 $ (626)
=========== ===========
Basic profit (loss) per common share $ 0.15 $ (0.11)
=========== ===========
Diluted profit (loss) per common share $ 0.12 $ (0.11)
=========== ===========
Weighted average common shares outstanding
basic profit (loss) per share 5,704,058 5,700,725
Effect of potential common share issuance:
Stock options 11,646
Convertible preferred stock 1,443,165
----------- -----------
Weighted average common shares outstanding
diluted profit (loss) per share 7,158,869 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
Nov. 27, 1999 Nov. 28, 1998
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net profit (loss) $ 879 $ (626)
Adjustments to reconcile net profit (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 413 421
Provision for warranty costs 25
Loss from store closing (9)
Deferred rent (127) (105)
Changes in operating assets and liabilities:
(Increase) decrease in merchandise inventories (828) 1,848
Decrease in prepaid expenses and other current assets 334 153
(Increase) in accounts receivables (470) (520)
(Increase) in due from Private Company
and Unconsolidated Licenses (14) (522)
Decrease in other assets, net 9 60
(Decrease) in accounts payable trade (504) (3,130)
Increase (decrease) increase in customer deposits 99 (12)
Increase (decrease) in accrued expenses
and other payables 565 (359)
------- -------
Net cash provided by (used in) operating activities 356 (2,776)
------- -------
Cash flows from investing activities:
Capital expenditures (151) (59)
(Increase) decrease in deferred lease costs
and other intangibles -- 2
------- -------
NET CASH (USED IN) INVESTING ACTIVITIES (151) (57)
------- -------
Cash flows from financing activities:
Payments of obligations under capital leases (23) (63)
------- -------
Net cash (used in) provided by financing activities (23) (63)
------- -------
Net increase (decrease) in cash and cash equivalents 182 (2,896)
Cash and cash equivalents at beginning of period 6,907 4,384
------- -------
Cash and cash equivalents at end of period $ 7,089 $ 1,488
======= =======
Supplemental disclosure of cash flow information:
Income taxes paid during the period $ 98 $ 124
======= =======
Interest paid $ 25 $ 51
======= =======
See Accompanying notes to unaudited consolidated financial statements.
</TABLE>
4
<PAGE>
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Thirteen Weeks Ended November 27, 1999
(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 November 27, 1999
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:
11/27/99 8/28/99
-------- -------
Showrooms $ 4,383 $ 4,203
Warehouses 6,079 5,431
------- -------
$10,462 $ 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 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 27, 1999
(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 November 27, 1999 totaled $10. 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. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Thirteen Weeks Ended November 27, 1999
(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.
7
<PAGE>
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(Numbers are in thousands except for share amounts)
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 OUR ACTUAL RESULTS OR
OUTCOMES 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 OUR 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:
Our sales increased by 13% to $32,061 for the thirteen weeks ended
November 27, 1999 as compared to $28,374 for the same period in the prior year.
Comparable store sales (those open for the entire period in the current and
prior year periods) increased by 10.9%.
COST OF SALES:
Cost of sales was $20,126, 62.8% as a percentage of sales, as compared
to $18,730, 66.0% as a percentage of sales, for the same period in the prior
year. The decrease in percentage of sales of 3.2% is primarily due to a
percentage of sales decrease in warehousing and store occupancy costs of 2.4%
and an increase in delivery income of .5% which offset delivery costs.
Warehouse expenses reflect a reduction of $450 in the current quarter
due to a reduction negotiated with the private company which provides
distribution services to us and certain of our licensees.
8
<PAGE>
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
SELLING, GENERAL AND ADMINISTRATIVE AND OTHER EXPENSES:
Selling, general and administrative expenses were $10,807, 33.7% as a
percentage of sales, as compared to $9,886, 34.8% as a percentage of sales, for
the prior period. This increase was essentially the result of expenses
decreasing as a percentage of sales due to the sales increase.
LIQUIDITY AND CAPITAL RESOURCES:
At November 27, 1999, we had an aggregate working capital deficiency of
$(7,157) compared to a deficiency of $(8,036) at August 28, 1999 and had
available cash and cash equivalents of $7,089 compared to $6,907 at August 28,
1999. During the quarter ended November 27, 1999, we reduced our working capital
deficiency by $879.
The increase in working capital is due to the positive cash flow from
operations of $356 for the last three months.
We continue to fund the operations of certain of our limited
partnership licensees whose accounts are included in our consolidated financial
statements and which we refer to in this report as our "LP's", some of which
continue to generate operating losses. Any such losses have been consolidated in
our consolidated financial statements. Our receivables from the private company,
the unconsolidated licensees, and Southeastern Florida Holding Corp. had been
fully reserved for in prior years. There can be no assurance that the total
reserved amount of receivables of $6,713 as of November 27, 1999 will be
collected. It is our intention to continue to fund these operations in the
future. 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.
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 Southeastern Florida Holding Corp. Based on the payment terms of the offset
agreements current obligations of the private company and the unconsolidated
licensees as of November 27, 1999 have been paid.
9
<PAGE>
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
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 November 27, 1999 there were no amounts owed to
Klaussner 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 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 default.
For the fiscal quarter ended November 27, 1999, the LP's and we
together spent $151 for capital expenditures. We currently anticipate capital
expenditures approximating $1,150 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. As of November 27, 1999, we had 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
adequately fund operations during the current fiscal year.
10
<PAGE>
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
11
<PAGE>
JENNIFER CONVERTIBLES, INC.
PART II
OTHER INFORMATION
ITEMS 1. through 5. NOT APPLICABLE.
ITEM 6. (a) NONE
12
<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 11, 2000 By: /s/ HARLEY J. GREENFIELD
-------------------------------------
Harley J. Greenfield, Chairman of the
Board and Chief Executive Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000806817
<NAME> JENNIFER CONVERTIBLES, INC.
<MULTIPLIER> 1,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-26-2000
<PERIOD-START> AUG-29-1999
<PERIOD-END> NOV-27-1999
<EXCHANGE-RATE> 1
<CASH> 7,089
<SECURITIES> 0
<RECEIVABLES> 501
<ALLOWANCES> 0
<INVENTORY> 10,462
<CURRENT-ASSETS> 19,512
<PP&E> 5,175
<DEPRECIATION> 0
<TOTAL-ASSETS> 27,034
<CURRENT-LIABILITIES> 29,093
<BONDS> 0
0
0
<COMMON> 57
<OTHER-SE> (7,214)
<TOTAL-LIABILITY-AND-EQUITY> 27,034
<SALES> 32,061
<TOTAL-REVENUES> 32,061
<CGS> 2,126
<TOTAL-COSTS> 31,346
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25
<INCOME-PRETAX> 977
<INCOME-TAX> 98
<INCOME-CONTINUING> 879
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 879
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</TABLE>
