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 25, 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 November 25, 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 November 25, 2000
(Unaudited) and August 26, 2000............................. 2
Comparative Consolidated Statements of Operations
(Unaudited) for the thirteen weeks ended
November 25, 2000 and November 27, 1999.................... 3
Comparative Consolidated Statements of Cash Flows
(Unaudited) for the thirteen weeks ended
November 25, 2000 and November 27, 1999.................... 4
Notes to Unaudited Consolidated Financial Statements.......... 5
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 7
Item 3 - Quantitative and Qualitative Disclosures about
Market Risk..........................................10
Part II - Other Information...................................11
<PAGE>
PART I - Financial Information
Item I. Financial Information
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
<TABLE>
Consolidated Balance Sheets
(In thousands, except for share data)
ASSETS
<CAPTION>
November August
25, 2000 26, 2000
(unaudited) ed)
<S> <C> <C>
Current assets:
Cash and cash equivalents $6,794 $6,384
Commercial paper 3,074 3,025
Accounts receivable 661 328
Merchandise inventories 12,519 11,064
Due from Private Company and
Unconsolidated Licensees,
net of reserves of $6,430 at
November 25, 2000 and August
August 26, 2000 1,985 1,494
Prepaid expenses and other
current assets 441 450
Total current assets 25,474 22,745
Store fixtures, equipment and
leasehold improvements at cost, net 5,248 5,180
Deferred lease costs and other
intangibles, net 464 505
Goodwill, at cost, net 1,928 1,970
Other assets (primarily security
deposits) 595 592
$33,709 $30,992
LIABILITIES AND (CAPITAL
DEFICIENCY)
Current liabilities:
Accounts payable, trade $15,810 $15,036
Customer deposits 10,431 8,956
Accrued expenses and other
current liabilities 5,652 4,959
Amounts payable under
acquisition agreement 0 239
Total current liabilities 31,893 29,190
Deferred rent and allowances 4,989 5,058
Total liabilities 36,882 34,248
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
25, 2000 and August 26, 2000
(liquidation preference
$5,000)
Series B Convertible
Preferred - 26,664 shares
issued and outstanding at November
25, 2000 and August 26, 2000
(liquidation preference $133)
Common stock, par value $.01 per
share
Authorized 10,000,000 shares;
issued and
outstanding 5,704,058 shares
at November 25,
2000 and August 26, 2000 57 57
Additional paid in capital 27,482 27,482
Accumulated (deficit) (30,712) (30,795)
(3,173) (3,256)
$33,709 $30,992
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
2
<PAGE>
JENNIFER CONVERTIBLES INC. AND
SUBSIDIARIES
<TABLE>
Consolidated Statements of Operations
(in thousands, except share data)
(unaudited)
<CAPTION>
Thirteen Thirteen
weeks weeks
ended ended
25-Nov-00 27-Nov-99
<S> <C> <C>
Net sales $32,882 $32,061
Cost of sales, including store occupancy,
warehousing, delivery and fabric protection 20,787 20,126
Selling, general administrative expenses 11,564 10,807
Depreciation and amortization 452 413
32,803 31,346
Operating income 79 715
Other income:
Royalty income 37 92
Interest income 135 70
Interest expense (17) (25)
Other income, net (18) 125
137 262
Income before income taxes 216 977
Income taxes 133 98
Net income $83 $879
Basic income per common share $0 $0
Diluted income per common share $0 $0
Weighted average common shares outstanding
basic income per share 5,704,058 5,704,058
Effect of potential common share issuance:
Stock options 147,263 11,646
Convertible preferred stock 1,443,165 1,443,165
Weighted average common shares outstanding
diluted income per share 7,294,486 7,158,869
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
JENNIFER CONVERTIBLES INC. AND SUBSIDIARIES
<TABLE>
Consolidated Statements of Cash Flows
(in thousands) (unaudited)
<CAPTION>
Thirteen Thirteen
weeks weeks
ended ended
25-Nov-00 27-Nov-99
<S> <C> <C>
Cash flows from operating activities:
Net income $83 $879
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 452 413
Deferred rent (69) (127)
Changes in operating assets and liabilities:
(Increase) in merchandise inventories (1,455) (828)
(Increase) decrease in prepaid expenses
and other current assets (41) 334
(Increase) in accounts receivables (332) (470)
(Increase) in due from Private Company (491) (14)
(Increase) decrease in other assets, net (2) 9
Increase (decrease) in accounts payable trade 773 (504)
Increase in customer deposits 1,475 99
Increase in accrued expenses and other
payables 692 565
Net cash provided by operating activities 1,085 356
Cash flows from investing activities:
Capital expenditures (436) (151)
Net cash used in investing activities (436) (151)
Cash flows from financing activities:
Payments of obligations under capital leases 0 (23)
Payment of note payable (239) 0
Net cash used in financing activities (239) (23)
Net increase in cash and cash equivalents 410 182
Cash and cash equivalents at beginning of 6,384 6,907
period
Cash and cash equivalents at end of period $6,794 $7,089
Supplemental disclosure of cash flow
information:
Income taxes paid during the period $543 $98
Interest paid $17 $25
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE>
JENNIFER CONVERTIBLES, INC.
Notes to Unaudited Consolidated Financial Statements
For the Thirteen Weeks Ended November 25, 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 November 25,
2000 are not necessarily indicative of the results that may be
expected for the year ending August 25,2001. 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 26, 2000.
(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:
11/25/00 8/26/00
Showrooms $ 5,366 $5,364
Warehouses 7,153 5,700
$ 12,519 $11,064
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
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
5
<PAGE>
JENNIFER CONVERTIBLES, INC.
Notes to Unaudited Consolidated Financial Statements
For the Thirteen Weeks Ended November 25, 2000
(In thousands except for share amounts)
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.
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.
6
<PAGE>
JENNIFER CONVERTIBLES, INC.
For the Thirteen Weeks Ended November 25, 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 26, 2000. 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 thirteen week period ended November 25, 2000,
our sales increased by 3% to $32,882 from the $32,061 reported for the
same period in the prior year. Comparable store sales (sales at those
stores open for the entire thirty-ninethirteen week period in the current
and prior year) increaseddecreased by 611.3%. This is attributable
to a slow down in the economy along with a backlog of merchandise
not received from a supplier.
Cost of Sales:
Cost of sales was $20,787 and increased by 0.4% as a
percentage of sales to 63.2%, as compared to $20,126 or 62.8% as a
percentage of sales for the same thirteen week period in the prior
year. The increase of 0.4% as a percentage of sales is primarily
attributable to an increase in store occupancy costs.
7
JENNIFER CONVERTIBLES, INC.
For the Thirteen Weeks Ended November 25, 2000
(In thousands except for share amounts)
Selling, General and Administrative and Other Expenses:
For the thirteen week period ended November 25, 2000,
selling, general and administrative expenses were
$11,564 (35.2% as a percentage of sales) as compared to
$10,807 (33.7% as a percentage of sales) for the same
period last year. The most significant reason for this increase
was an increase in advertising as a percentage of sales.
Interest income was $135 for the thirteen week period ended
November 25, 2000 as compared to $70 for the same period last
year. The increase is due to more available cash to invest and
higher returns on investments.
Royalty income was $37 for the thirteen week period ended
November 25, 2000 as compared to $92 for the same period last
year. The decrease is due to six stores previously paying us
royalties purchased by the us in March 2000.
Merchandise Inventories:
During the thirteen weeks ended November 25, 2000, total
inventories increased by $1,455. The increase in inventories is
attributable to an increase of undelivered sales.
Liquidity and Capital Resources:
At November 25, 2000, we had an aggregate working capital
deficiency of $6,419 compared to a deficiency of $6,445 at August
26, 2000 and had available cash and cash equivalents of $6,794
compared to $6,384 at August 26, 2000. The increase in working
capital is due to our positive results from operations over the
last thirteen 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 $6,430
as of November 25, 2000 will be collected.
8
<PAGE>
JENNIFER CONVERTIBLES, INC.
For the Thirteen Weeks Ended November 25, 2000
(In thousands except for share amounts)
Starting in 1995, the private company and we entered into
offset agreements that permit us to offset our current monthly
obligations to each other up to in excess of $1,000. Amounts in
excess of $1,000 are paid in cash. Based on the payment terms of
these offset agreements, current obligations of the private company
and the unconsolidated licensees as of November 25, 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.
In March 1996, we executed a Credit and Security
Agreement with our principal supplier, Klaussner Furniture
Industries, Inc., which extended the payment terms for
day payment terms by more than 14 days. As of November 25,
2000, there were no amounts owed to Klaussner which were over
these extended terms. 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.
We opened three stores and had no store closings during the thirteen
weeks ended November 25, 2000. We spent $436 for
capital expenditures during the thirteen week period
and we anticipate capital expenditures of approximating $1,500
during the balance of fiscal 2001 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 2001. In the opinion of
management, this positive cash flow will be adequate to fund
operations during the current fiscal year.
9
<PAGE>
JENNIFER CONVERTIBLES, INC.
For the Thirteen Weeks Ended November 25, 2000
(In thousands except for share amounts)
Item 3. Quantitative and Qualitative Disclosures about Market
Risk.
Not applicable.
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
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 8, 2001 By: /s/ Harley J. Greenfield
Harley J. Greenfield, Chairman of
the Board and Chief Executive
Officer
January 8, 2001 By: /s/ Rami Abada
Rami, Abada, Interim Chief
Financial Officer
12
<PAGE>
