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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, 2004
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
Indicate by check mark whether registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).
Yes No X
As of April 12, 2004 5,713,058 shares of the issuer's common
stock, par value $.01, were outstanding.
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Index
Part I - Financial Information
Item 1. - Financial Statements (Unaudited)
Consolidated Balance Sheets at February 28, 2004
(Unaudited) and August 30, 2003................................. 2
Comparative Consolidated Statements of Operations
(Unaudited) for the thirteen and twenty-six weeks ended
February 28, 2004 and March 1, 2003............................. 3
Comparative Consolidated Statements of Cash Flows
(Unaudited) for the twenty-six weeks ended
February 28, 2004 and March 1, 2003............................. 4
Notes to Unaudited Consolidated Financial Statements............ 5
Item 2. - Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 10
Item 3. - Quantitative and Qualitative Disclosures about
Market Risk..................................................... 13
Item 4. - Controls and Procedures............................... 13
Part II - Other Information.......................................... 14
Item 1 - Legal Proceedings...................................... 14
Item 2 - Changes in Securities and Use of Proceeds.............. 14
Item 3 - Defaults Upon Senior Securities........................ 14
Item 4 - Submission of Matters to a Vote of Security Holders.... 14
Item 5 - Other Information...................................... 15
Item 6 - Exhibits and Reports on Form 8-K....................... 15
Signatures .......................................................... 16
Exhibit Index ....................................................... 17
Certification of Chief Executive Officer ............................ 18
Certification of Chief Financial Officer ............................ 20
Certification of Chief Executive Officer ............................ 22
Certification of Chief Financial Officer ........................... 23
PART I - FINANCIAL INFORMATION
Item I - Financial Statements
JENNIFER CONVERTIBLES, INC. AND
SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share data)
February 28, August 30,
2004 2003
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 8,419 $ 12,761
Restricted cash 110 -
Accounts receivable 220 408
Merchandise inventories, net 14,447 12,721
Due from private company, net of
reserves of $4,722 at February 28,
2004 and August 30, 2003 3,401 3,150
Deferred tax asset 2,895 2,895
Prepaid expenses and other current assets 1,546 1,398
Total current assets 31,038 33,333
Store fixtures, equipment and leasehold
improvements, at cost, net 3,272 3,854
Annuity contract 1,007 -
Deferred lease costs and other intangibles, net 60 98
Goodwill, at cost, net 1,796 1,796
Other assets (primarily security deposits) 622 626
$37,795 $39,707
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $10,380 $15,049
Customer deposits 13,652 9,203
Accrued expenses and other current liabilities 5,326 4,135
Due to Private Company 500 500
Deferred rent and allowances - current portion 630 821
Total current liabilities 30,488 29,708
Deferred rent and allowances, net of current
portion 3,170 3,155
Total liabilities 33,658 32,863
Commitments and contingencies
Stockholders' Equity:
Preferred stock, par value $.01 per
share, authorized 1,000,000 shares
Series A convertible preferred -
10,000 shares issued and outstanding
at February 28, 2004 and August 30,
2003 (liquidation preference $5,000)
Series B convertible preferred -
57,381 shares issued and outstanding
at February 28, 2004 (liquidation
preference $287) and 26,664 shares
issued and outstanding at August 30,
2003 (liquidation preference $133) 1 -
Common stock, par value $.01 per share,
authorized 12,000,000 shares
at February 28, 2004 and 10,000,000
shares at August 30, 2003; issued
and outstanding 5,713,058 shares at
February 28, 2004 and August 30, 2003 57 57
Additional paid in capital 27,728 27,617
Accumulated deficit (23,649) (20,830)
4,137 6,844
$37,795 $39,707
See Notes to the Consolidated Financial Statements.
2
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except share data)
(Unaudited)
Thirteen weeks ended Twenty-six weeks ended
February 28, March 1, February 28, March 1,
2004 2003 2004 2003
Revenue:
Net sales $30,276 $27,569 $62,047 $62,435
Revenue from service
contracts 2,143 1,825 4,387 4,034
32,419 29,394 66,434 66,469
Cost of sales, including
store occupancy,
warehousing, delivery
and service costs 23,792 20,145 47,606 44,700
Selling, general and
administrative expenses 9,337 9,863 20,771 21,403
Depreciation and amortization 407 433 860 857
33,536 30,441 69,237 66,960
Operating loss (1,117) (1,047) (2,803) (491)
Interest income 22 42 49 83
Interest expense 2 - 2 -
Loss before income taxes (1,097) (1,005) (2,756) (408)
Income tax (benefit) expense 30 (184) 62 (90)
Net loss $(1,127) $(821) $(2,818) $(318)
Basic and diluted loss per
common share $(0.20) $(0.14) $(0.50) $(0.06)
Weighted average common
shares outstanding
basic and diluted loss
per share 5,713,058 5,710,426 5,713,058 5,707,242
See Notes to the Consolidated Financial Statements.
3
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Twenty-six weeks ended
February 28, March 1,
2004 2003
Cash flows from operating activities:
Net loss $(2,818) $(318)
Adjustments to reconcile net loss to
net cash (used in) operating activities:
Depreciation and amortization 860 857
Loss on disposal of equipment 22 -
Deferred rent (176) (151)
Allowance for inventory valuation (36) -
Recovery of amounts due from
Private Company - (22)
Changes in operating assets and liabilities:
Merchandise inventories (1,690) (1,182)
Prepaid expenses and other current assets (148) (870)
Accounts receivable 188 93
Due from Private Company, net (251) 1,112
Other assets, net 4 35
Accounts payable, trade (4,669) (1,136)
Customer deposits 4,449 93
Accrued expenses and other current
liabilities 1,191 (2,175)
Net cash (used in) operating activities (3,074) (3,664)
Cash flows from investing activities:
Purchase of investments - (993)
Purchase of annuity contract (1,007) -
Restricted cash (110) -
Proceeds from maturity of short-term
corporate bonds - 993
Capital expenditures (262) (697)
Net cash (used in) investing activities (1,379) (697)
Cash flows from financing activities:
Proceeds from exercise of stock options - 16
Proceeds from issuance of preferred stock 128 -
Preferred stock dividends paid (17) -
Net cash provided by financing activities 111 16
Net (decrease) in cash and cash equivalents (4,342) (4,345)
Cash and cash equivalents at beginning
of period 12,761 15,973
Cash and cash equivalents at end of period $8,419 $11,628
Supplemental disclosure of cash flow
information:
Income taxes paid during the period $64 $573
Interest paid $ 2 $ -
See Notes to the Consolidated Financial Statements.
4
JENNIFER CONVERTIBLES, INC.
For the Twenty-Six Weeks Ended February 28, 2004
(In thousands, except for share amount)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of
Jennifer Convertibles, Inc. and its subsidiaries (the "Company")
have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim
financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by accounting
principles generally accepted in the United States of America for
complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals plus other
adjustments referred to in Note 3) considered necessary for a
fair presentation have been included. The operating results for
the twenty-six week period ended February 28, 2004 are not
necessarily indicative of the results that may be expected for
the fiscal year ending August 28, 2004.
The balance sheet as of August 30, 2003 has been derived from the
audited financial statements as such date but does not include
all of the information and footnotes required by accounting
principles generally accepted in the United States of America for
complete financial statements.
For further information, please 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, 2003.
Certain reclassifications have been made to prior period
financial statements to conform to the current year presentation.
NOTE 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:
02/28/04 8/30/03
Showrooms $ 6,829 $ 6,811
Warehouses 7,618 5,910
$14,447 $12,721
Vendor discounts and allowances in respect of merchandise
purchased by the Company are included as a reduction of inventory
and cost of sales.
5
JENNIFER CONVERTIBLES, INC.
For the Twenty-Six Weeks Ended February 28, 2004
(In thousands, except for share amount)
NOTE 3: REVENUE RECOGNITION
Sales are recognized upon delivery of the merchandise to the
customer. A minimum deposit of 50% is typically required when a
non-financed sales order is placed. The Company also finances
sales and sells financed receivables on a non-recourse basis to a
finance company. The Company neither retains any interests in nor
services the sold receivables. The selling price of the
receivables represents the amount due from the customer less a
fee. Fees paid to the finance company are included in selling,
general and administrative expenses.
The Company also derives revenues from the sale of service
contracts related to lifetime protection plans. Prior to an
amendment to the Company's Warehouse Agreement with a related
private company (the "Private Company"), as described below, the
Company was responsible for providing services related to
separately priced fabric protection plans.
The Company amended its warehouse agreement with the Private
Company, whereby, effective June 23, 2002, the Private Company
became the sole obligor on all lifetime fabric and leather
protection plans sold by the Company or the Private Company on or
after such date through August 28, 2004 and assumed all
performance obligations and risk of loss thereunder. The Company
has no obligation with respect to such plans. The Private
Company receives a monthly payment of $50, subject to an
adjustment based on the annual volume of sales of the plans. In
addition, for a payment of $400 (payable $50 per month beginning
three months after the date of the agreement) to be made by the
Company, the Private Company also assumed responsibility to
service and pay any claims related to sales made by the Company
or the Private Company prior to June 23, 2002. Accordingly, the
Company has no obligations for any claims filed after June 23,
2002 and revenue from the sale of fabric protection plans is
recognized upon delivery of the merchandise.
NOTE 4: GOODWILL
Goodwill consists of the excess of cost of the Company's
investments in certain subsidiaries over the fair value of net
assets acquired. The Company has performed the required
impairment tests and has determined that there is no impairment
of the Company's goodwill.
NOTE 5: LETTER OF CREDIT
In February 2004, the Company entered into a standby letter of
credit in the amount of $110, as required by the Company's new
workers' compensation insurance provider. The Company has
purchased a certificate of deposit for the same amount from a
financial institution as collateral for the letter of credit and
has classified this cash as restricted.
6
JENNIFER CONVERTIBLES, INC.
For the Twenty-Six Weeks Ended February 28, 2004
(In thousands, except for share amount)
NOTE 6: CONTINGENCIES
The Derivative Litigation
Beginning in December 1994, a series of six actions were
commenced as derivative actions on the Company's behalf against
certain present and former officers and directors of the Company,
the Private Company and others.
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. The Company had entered into settlement agreements
with respect to the derivative litigation, subject, in the case
of certain of those agreements, to court approval of the
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.
On July 6, 2001, the Private Company and the Company entered into
a series of agreements designed to settle the derivative action
among the Private Company, certain of our current and former
officers and directors and certain of our former accounting firms
and the Company. Effectiveness of the agreements is subject to
certain conditions, including court approval and receipt by the
Company of a fairness opinion or appraisal. The Company also
entered into an Interim Operating Agreement designed to implement
certain of the provisions of the settlement agreement prior to
court approval. While the Company expects the proposed
settlement to be presented to the court soon, there can be no
assurance that the court will approve the settlement or that a
settlement will occur. Please see the Company's Annual Report on
Form 10-K for the year ended August 30, 2003 for a more complete
description of the terms of the proposed settlement.
In connection with the class action litigation, on November 7,
2003, the Company issued an additional 30,717 shares of Series B
Preferred Stock, convertible into 21,501 shares of the Company's
Common Stock based on valid proofs of claims. The Series B
Preferred Stock shares are non-voting, have a liquidation value
of $5.00 per share and accrue dividends at a rate of $.35 per
share per annum. Accumulated unpaid dividends for the period
from May 1, 2003 through February 28, 2004 on the 57,381 Series B
Preferred Stock outstanding amounted to $17. The preferred stock
is convertible at the option of the Company at any time after the
Common Stock trades at a price of at least $7.00 per share.
Other Matters
The Company is also subject to other litigation, including a
claim for $10 million for assault and battery, conversion of
identity, defamation, consumer fraud, and infliction of emotional
distress, and another claim for unspecified damages for sexual
harassment, discrimination, retaliation, mental infliction of
emotional stress, false imprisonment and collateral claims. The
matters are in early stages and the Company denies liability and
does not believe that these matters will have significant impact
on its financial position or results of operations.
7
JENNIFER CONVERTIBLES, INC.
For the Twenty-Six Weeks Ended February 28, 2004
(In thousands, except for share amount)
NOTE 7: TRANSACTIONS WITH THE PRIVATE COMPANY
Included in the Consolidated Statements of Operations are the
following amounts charged by and to the Private Company:
Increase (decrease)
Thirteen weeks ended Twenty-six weeks ended
February 28, March 1, February 28, March 1,
2004 2003 2004 2003
Net Sales:
Royalty income $ 25 $ 22 $ 55 $ 53
Warehouse fees 303 246 658 589
Delivery charges 549 377 1,158 849
$ 877 $ 645 $1,871 $1,491
Revenue from Service Contracts:
Fabric protection fees
charged by the Private
Company $ (100) $ (150) $ (250) $ (350)
Selling, General and
Administrative Expenses:
Advertising reimbursement
paid by the Private
Company $ (368) $ (369) $ (731) $ (735)
Royalty expense paid to
the Private Company 100 100 200 200
Expenses related to
shortfall payments charged
by the Private Company 157 194 512 194
$ (111) $ (75) $ (19) $ (341)
NOTE 8: STOCK OPTION PLANS
In December 2002, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 148, "Accounting
for Stock-Based Compensation - Transition and Disclosure," which
amends the disclosure requirements of SFAS 123, "Accounting for
Stock-Based Compensation" and provides alternative methods of transition
for a voluntary change to the fair value method of accounting for
stock-based employee compensation. As permitted by SFAS 148, the
Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees' (APB 25) and
related interpretations in accounting for its employee stock
options. Under APB 25, in the event that the exercise price of
the Company's employee stock options is less than the market
price of the underlying stock on the date of the grant,
compensation expense is recognized. No stock-based employee
compensation cost is reflected in net loss, as all options
granted under the Company's employee stock option plans had an
exercise price equal to the market value of the underlying common
stock on the date of grant. The following table illustrates the
effect on net loss and loss per share if the Company had applied
the fair value recognition provisions of SFAS No. 123 to stock-
based employee compensation.
8
JENNIFER CONVERTIBLES, INC.
For the Twenty-Six Weeks Ended February 28, 2004
(In thousands, except for share amount)
Thirteen weeks ended Twenty-six weeks ended
February 28, March 1, February 28, March 1,
2004 2003 2004 2003
Net loss, as reported $(1,127) $(821) $(2,818) $(318)
Deduct: Total stock-based
employee compensation
expense determined
under the fair value
based method, net of
related tax effects 134 150 268 174
Pro forma net loss $(1,261) $(971) $(3,086) $(492)
Loss per share (basic and
diluted):
As reported $(0.20) $(0.14) $(0.50) $(0.06)
Pro forma $(0.22) $(0.17) $(0.54) $(0.09)
The fair value of each option grant on the date of grant is
estimated using the Black-Scholes option-pricing model based on a
weighted average volatility of 49.7% for the twenty-six week
period ended March 1, 2003, expected life of options of five
years, weighted average risk free interest rate of 3.13% and a
dividend yield of 0%. The weighted average fair value of options
granted during the twenty-six week period ended March 1, 2003 was
$1.82. No options were granted during the twenty-six week period
ended February 28, 2004.
NOTE 9: SUBSEQUENT EVENT
On April 5, 2004, the Attorney General of the State of New York
filed a motion for contempt under New York law in the Supreme
Court of the State of New York, County of Albany, alleging non-
compliance with an order of the Attorney General's Office
obtained in 1998 which enjoined Jennifer Convertibles from
engaging in certain alleged deceptive business practices. In the
motion, the Attorney General seeks a court order holding Jennifer
Convertibles in civil and criminal contempt for violations of the
1998 order and a fine in the amount of $5,000 per day for each
day it has allegedly disobeyed the 1998 order and certain other
fees, as well as an unspecified amount of monetary damages to the
petitioners. The case is being handled by the Nassau Regional
Office of the Attorney General. The Company believes this suit
is without merit, deny liability and are vigorously defending
against the claims.
9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion and analysis should be read in conjunction
with the consolidated financial statements and accompanying notes
filed as part of this report.
Forward-Looking Information
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
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 our Annual Report on Form 10-K for
the fiscal year ended August 30, 2003. In addition to statements
that 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.
Results of Operations
Net sales include merchandise sales and home delivery income of
$29,398,000 and $26,924,000 and revenue from the private company
of $878,000 and $645,000 for the thirteen-week periods ended
February 28, 2004 and March 1, 2003, respectively. Net sales of
merchandise and home delivery income increased by 9.2% in the
thirteen-week period ended February 28, 2004, up $2,474,000 from
the thirteen-week period ended March 1, 2003. Revenue from
service contracts increased by 17.4% in the thirteen-week period
ended February 28, 2004 to $2,143,000, from $1,825,000 for the
thirteen-week period ended March 1, 2003. Such increases during
the second quarter of fiscal 2004, compared to the same quarter
in fiscal 2003, are partially attributable to the adverse effects
of the overall softness in the economy and poor weather
conditions in the Northeast during fiscal 2003, especially during
President's Day weekend. During the latter part of the thirteen-
week period ended February 28, 2004, we began to deliver the
backlog of merchandise from an overseas supplier as more fully
described below.
Net sales for the twenty-six weeks ended February 28, 2004,
inclusive of merchandise sales and home delivery income, were
$60,176,000, a decrease of 1.3% compared to $60,944,000 for the
twenty-six weeks ended March 1, 2003. Revenue from the private
company was $1,871,000 and $1,491,000 for the twenty-six week
periods ended February 28, 2004 and March 1, 2003, respectively.
Revenue from service contracts increased by 8.8% during the
twenty-six week period ended February 28, 2004 to $4,387,000,
from $4,034,000 for the twenty-six week period ended March 1,
2003. Such increases during the twenty-six weeks ended February
28, 2004, compared to the same period ended March 1, 2003, are
partially attributable to the adverse effects of the overall
softness in the economy and poor weather conditions in the
Northeast during fiscal 2003. In addition, we increased service
contract rates and sold more units during the same period in
fiscal 2004.
10
As of February 28, 2004, we had $17,180,000 in written sales that
had not been delivered, compared to $10,818,000 as of March 1,
2003. This is attributable to (1) an increase in sales written
during President's Day this year versus last year due to adverse
weather in the Northeast during 2003 and (2) a delay in the
delivery of sales. Sales have been delayed as a result of
ordering more products overseas, which results in increased time
to manufacture and deliver the products to our customers. Since
sales are recorded when goods are delivered to the customers,
those delayed sales may be recognized in the second half of
fiscal 2004. These undelivered sales with respect to delayed
overseas merchandise are expected to sell at gross margins lower
than other similar products. Historically, we have not
experienced significant differences between written and delivered
sales. During the months of February and March 2004, we began to
deliver the backlog of merchandise from an overseas supplier.
Cost of sales, as a percentage of revenue for the thirteen-week
and twenty-six week periods ended February 28, 2004, was 73.4%
and 71.7%, respectively, compared to 68.5% and 67.2% for those
periods ended March 1, 2003. Such increases are primarily
attributable to an increase in store occupancy costs and lower
margins associated with merchandise imports.
Selling, general and administrative expenses were $9,337,000
(28.8% as a percentage of revenue) and $9,863,000 (33.5% as a
percentage of revenue) during the thirteen-week period ended
February 28, 2004 and March 1, 2003, respectively. Selling,
general and administrative expenses were $20,771,000 (31.3% as a
percentage of revenue) and $21,403,000 (32.2% as a percentage of
revenue) during the twenty-six week period ended February 28,
2004 and March 1, 2003, respectively. This decrease was primarily
attributable to a reduction of fees associated with our private
label card business. This was partially offset by an increase in
our advertising costs and amounts charged to us by the private
company in accordance with the terms of the Interim Operating
Agreement.
The net loss was $1,127,000 and $821,000 for the thirteen-week
period ended February 28, 2004 and March 1, 2003, respectively.
Net loss for the twenty-six weeks ended February 28, 2004 was
$2,818,000 compared to a net loss of $318,000 for the twenty-six
week period ended March 1, 2003. Such increases are attributable
to an increase in our cost of sales, combined with the delay in
delivering our written merchandise sales, as more fully described
above.
Liquidity and Capital Resources
As of February 28, 2004, we had an aggregate working capital of
$550,000 compared to an aggregate working capital of $3,625,000
at August 30, 2003 and had available cash and cash equivalents of
$8,419,000 compared to $12,761,000 at August 30, 2003. The
decrease in cash and cash equivalents is a result of shorter
payment terms with a principal overseas supplier as well as the
purchase of an annuity contract. The decrease in working capital
is impacted by the decrease in delivered sales volume during the
twenty-six week period ended February 28, 2004. Unless the U.S.
economy worsens, we anticipate achieving positive operating cash
flow for fiscal 2004.
11
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 and, if the new
settlement agreements discussed in our Annual Report on Form 10-K
for the year ended August 30, 2003, are approved, we will acquire
100% of such limited partnerships. Our receivables from the
private company and the unconsolidated licensees had been
substantially reserved in prior years and continue to be
reserved. There can be no assurance that the reserved amount of
such receivables, a total of $4,722,000 as of February 28, 2004,
will be collected.
Starting in 1995, we entered into agreements with the private
company that permit us to offset our current monthly obligations
to one another for an amount up to $1,000,000. Amounts in excess
of $1,000,000 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 March 1, 2003, were 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. As described above, our
receivables from the private company and the unconsolidated
licensees, which arose in fiscal 1996 and prior years, had been
reserved.
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 February 1999, we have not exceeded these
81-day payment terms. As of March 1, 2003, there were no amounts
owed to Klaussner that violated 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 paid by us
beyond the normal 60-day terms. This provision became effective
in 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. In May 2003, as a result of our
improved financial condition, we executed a Termination Agreement
and Release whereby Klaussner released the liens on our assets.
In connection with the release, a $1.5 million credit line, which
Klaussner had made available to us in 1999, was also terminated.
The credit line had never been drawn upon.
We had three store openings and one store closing during the
twenty-six weeks ended February 28, 2004. We spent $262,000 for
capital expenditures during such twenty-six week period and we
anticipate capital expenditures approximating $275,000 during the
balance of fiscal 2004 to support the opening of new stores. We
do not anticipate needing outside financing for such expansion.
Unless the U.S. economy worsens, we anticipate generating
positive operating cash flow for the year ending August 28, 2004.
In the opinion of management, this positive cash flow and cash on
hand will be adequate to fund operations during the current and
next fiscal year.
12
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly
Report on Form 10-Q (the "Evaluation Date"), our Chief Executive
Officer and Chief Financial Officer carried out an evaluation of
the effectiveness of our "disclosure controls and procedures" (as
defined in the Securities Exchange Act of 1934 Rules 13a-15(e)
and 15d-15(e)). Based on that evaluation, these officers
concluded that, as of the Evaluation Date, our disclosure
controls and procedures were adequate and effective to ensure
that material information relating to us and our consolidated
subsidiaries was made known to them by others within those
entities, particularly during the period in which this report was
being prepared.
Changes in Internal Controls
There were no changes in our internal controls over
financial reporting identified in connection with the evaluation
of such internal controls that occurred during our last fiscal
quarter that have materially affected, or are reasonably likely
to materially affect, our internal controls over financial
reporting.
13
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
On April 5, 2004, the Attorney General of the State of New York
filed a motion for contempt under New York law in the Supreme
Court of the State of New York, County of Albany, alleging non-
compliance with an order of the Attorney General's Office
obtained in 1998 which enjoined Jennifer Convertibles from
engaging in certain alleged deceptive business practices. In the
motion, the Attorney General seeks a court order holding Jennifer
Convertibles in civil and criminal contempt for violations of the
1998 order and a fine in the amount of $5,000 per day for each
day it has allegedly disobeyed the 1998 order and certain other
fees, as well as an unspecified amount of monetary damages to the
petitioners. The case is being handled by the Nassau Regional
Office of the Attorney General. We believe this suit is without
merit, deny liability and are vigorously defending against the
claims.
Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
At our annual meeting of stockholders, which was held on February
10, 2004, our stockholders:
(1) Elected seven nominees for directors to serve for a term ending in 2005;
(2) Ratified the appointment of Eisner LLP as our independent auditors and
public accountants for the fiscal year ended August 28, 2004.
The following tables show the common stock votes cast with
respect to the proposals identified above:
Withheld
Election of Directors: For Authority
Harley J. Greenfield 5,176,551 256,125
Edward Seidner 5,176,551 256,125
Edward Bohn 5,182,551 250,125
Kevin Coyle 5,182,551 250,125
Bernard Wincig 5,156,551 276,125
Rami Abada 5,176,551 256,125
Mark Berman 5,182,551 250,125
Total All Directors 36,233,857 1,794,875
Proposal 2 For Against Abstentions
Proposal 2 5,195,951 234,925 1,800
14
Item 5. Other Information.
None.
Item 6. Exhibits and Reports Filed on Form 8-K
(a) Exhibits filed with this report:
31.1 Certification of Chief Executive Officer
31.2 Certification of Chief Financial Officer
32.1 Certification of Principal Executive Officer pursuant to
U.S.C. Section 1350
32.2 Certification of Principal Financial Officer pursuant to
U.S.C. Section 1350
(b) Reports on Form 8-K:
None.
15
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 13, 2004 By: /s/Harley J. Greenfield
Harley J. Greenfield, Chairman of
the Board and Chief Executive
Officer
April 13, 2004 By: /s/Rami Abada
Rami Abada, Chief Financial Officer
and Chief Operating Officer
16
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
31.1 Certification of Chief Executive Officer *
31.2 Certification of Chief Financial Officer *
32.1 Certification of Principal Executive Officer
pursuant to U.S.C. Section 1350 *
32.2 Certification of Principal Financial Officer
pursuant to U.S.C. Section 1350 *
* Filed herewith.
17
EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Harley J. Greenfield, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Jennifer
Convertibles, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors
and the audit committee of the registrant's board of directors
(or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
18
Date: April 13, 2004 /s/ Harley J. Greenfield
Harley J. Greenfield, Chief Executive
Officer
19
EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Rami Abada, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Jennifer
Convertibles, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors
and the audit committee of the registrant's board of directors
(or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
20
Date: April 13, 2004 /s/Rami Abada
Rami Abada, Chief Financial Officer
21
EXHIBIT 32.1
Certification of Principal Executive Officer
Pursuant to U.S.C. Section 1350
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
I, Harley J. Greenfield, Chief Executive Officer of Jennifer
Convertibles, Inc., hereby certify, to my knowledge, that the
quarterly report on Form 10-Q for the period ending February 28,
2004 of Jennifer Convertibles, Inc. (the "Form 10-Q") fully
complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 and the information contained in
the Form 10-Q fairly presents, in all material respects, the
financial condition and results of operations of Jennifer
Convertibles, Inc.
Dated: April 13, 2004 /s/ Harley J. Greenfield
Harley J. Greenfield
Chief Executive Officer
(Principal Executive Officer)
22
EXHIBIT 32.2
Certification of Principal Financial Officer
Pursuant to U.S.C. Section 1350
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
I, Rami Abada, Chief Financial Officer of Jennifer
Convertibles, Inc., hereby certify, to my knowledge, that the
quarterly report on Form 10-Q for the period ending February 28,
2004 of Jennifer Convertibles, Inc. (the "Form 10-Q") fully
complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 and the information contained in
the Form 10-Q fairly presents, in all material respects, the
financial condition and results of operations of Jennifer
Convertibles, Inc.
Dated: April 13, 2004 /s/ Rami Abada
Rami Abada
Chief Financial Officer
(Principal Financial Officer)
23