Back to GetFilings.com
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, 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 January 7, 2005 5,763,058 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 November 27, 2004
(Unaudited) and August 28, 2004 2
Consolidated Statements of Operations
(Unaudited) for the thirteen weeks ended
November 27, 2004 and November 29, 2003 3
Consolidated Statements of Cash Flows
(Unaudited) for the thirteen weeks ended
November 27, 2004 and November 29, 2003 4
Notes to Unaudited Consolidated Financial Statements 5
Item 2. - Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. - Quantitative and Qualitative Disclosures About
Market Risk 14
Item 4. - Controls and Procedures 14
Part II - Other Information 15
Item 1. - Legal Proceedings 15
Item 2. - Changes in Securities and Use of Proceeds 15
Item 3. - Defaults Upon Senior Securities 15
Item 4. - Submission of Matters to a Vote of Security
Holders 15
Item 5. - Other Information 15
Item 6. - Exhibits 15
Signatures 16
Exhibit Index 17
Certification of Chief Executive Officer 18
Certification of Chief Financial Officer 19
Certification of Chief Executive Officer 20
Certification of Chief Financial Officer 21
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share data)
ASSETS
November 27, August 28,
2004 2004
Current assets:
Cash and cash equivalents $6,390 $ 3,294
Restricted cash 110 110
Accounts receivable 1,179 935
Merchandise inventories, net 13,653 14,044
Due from Private Company, net of
reserves of $4,722 at November 27, 2004
and August 28, 2004 3,818 3,288
Federal income tax refund receivable 314 314
Deferred tax asset 1,172 1,172
Prepaid expenses and other current assets 858 1,195
Total current assets 27,494 24,352
Store fixtures, equipment and leasehold
improvements, at cost, net 2,694 3,032
Annuity contract 1,096 1,088
Deferred lease costs and other intangibles, net 37 42
Goodwill 1,796 1,796
Other assets (primarily security deposits) 608 607
Deferred tax asset 605 605
$34,330 $31,522
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $16,177 $12,812
Customer deposits 8,529 7,878
Accrued expenses and other current liabilities 4,857 3,709
Due to Private Company 550 500
Deferred rent and allowances - current portion 488 489
Total current liabilities 30,601 25,388
Deferred rent and allowances, net of
current portion 3,280 3,320
Total liabilities
33,881 28,708
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 November 27,
2004 and August 28, 2004
(liquidation preference $5,000)
Series B Convertible Preferred-57,381
shares issued and outstanding at November
27, 2004 and August 28, 2004
(liquidation preference $287) 1 1
Common stock, par value $.01 per share
Authorized 12,000,000 shares at
November 27, 2004 and August 28, 2004;
issued and outstanding 5,763,058 shares at
November 27, 2004 and 5,713,058 shares
at August 28, 2004 57 57
Additional paid-in capital 27,828 27,728
Accumulated deficit (27,437) (24,972)
449 2,814
$34,330 $31,522
See Notes to Consolidated Financial Statements.
2
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except share data)
Thirteen Weeks ended
November 27, November 29,
2004 2003
Revenue:
Net sales $29,639 $31,502
Revenue from service contracts 2,021 2,222
31,660 33,724
Cost of sales, including store occupancy,
warehousing, delivery and service costs 22,787 23,740
Selling, general and administrative expenses 10,729 11,306
Depreciation and amortization 400 448
33,916 35,494
Loss from operations (2,256) (1,770)
Interest income 23 27
Loss from continuing operations before
income taxes and loss from discontinued
operations (2,233) (1,743)
Income tax expense 55 32
Loss from continuing operations (2,288) (1,775)
(Loss) income from operations of
discontinued operations (including
loss on store closings of $134 in 2004) (177) 84
Net loss $(2,465) $(1,691)
Basic and diluted loss per common share:
Loss from continuing operations $(0.40) $(0.31)
(Loss) income from discontinued operations (0.03) 0.01
Net loss $(0.43) $(0.30)
Weighted average common shares outstanding
basic and diluted loss 5,744,725 5,713,058
See Notes to Consolidated Financial Statements.
3
JENNIFER CONVERTIBLES INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands, except share data)
Thirteen weekd ended
November 27, November 29,
2004 2003
Cash flows from operating activities:
Net loss $(2,465) $(1,691)
Adjustments to reconcile net loss to net cash
provided by operating activities from continuing
operations:
Depreciation and amortization 400 448
Loss (income) from discontinued operations 177 (84)
Loss on disposal of equipment 7 -
Annuity contract (8) -
Deferred rent (23) (97)
Changes in operating assets and liabilities,
net of effects from discontinued operations:
Merchandise inventories-net 261 (1,817)
Prepaid expenses and other current assets 337 336
Accounts receivable (261) 117
Due from Private Company-net (483) (1,780)
Other assets, net (1) 8
Accounts payable trade 3,365 1,193
Customer deposits 682 5,687
Accrued expenses and other current liabilities 1,124 1,618
Net cash provided by operating activities from
continuing operations 3,112 3,938
Cash flows from investing activities:
Capital expenditures (125) (130)
Net cash (used in) investing activities from
continuing operations (125) (130)
Cash flows from financing activities:
Proceeds from exercise of stock options 100 -
Net cash provided by financing activities from
continuing operations 100 -
Net increase in cash and cash equivalents from
continuing operations 3,087 3,808
Net increase in cash and cash equivalents from
discontinued operations 9 89
Cash and cash equivalents at beginning of period 3,294 12,761
Cash and cash equivalents at end of period $6,390 $ 16,658
Supplemental disclosure of cash flow information:
Income taxes paid $117 $53
See Notes to Consolidated Financial Statements.
4
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
For the Thirteen Weeks Ended November 27, 2004
(In thousands, except for share amounts)
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 thirteen week period ended November 27, 2004 are not
necessarily indicative of the results that may be expected for
the fiscal year ending August 27, 2005.
The balance sheet as of August 28, 2004 has been derived from the
audited consolidated financial statements as of 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
28, 2004, as filed with the Securities and Exchange Commission.
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:
11/27/04 8/28/04
Showrooms $6,482 $6,797
Warehouses 7,171 7,247
$13,653 $14,044
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. AND SUBSIDIARIES
For the Thirteen Weeks Ended November 27, 2004
(In thousands, except for share amounts)
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 27, 2005 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, provided, however,
that on November 18, 2004, the Management Agreement and License,
pursuant to which we are required to make such royalty payments
to the private company was amended, such that the private company
has agreed to waive its rights to receive from us such annual
royalty payment during the period commencing January 1, 2005
through the date on which court approval is granted.
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. AND SUBSIDIARIES
For the Thirteen Weeks Ended November 27, 2004
(In thousands, except for share amounts)
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 presented the proposed
settlement to the court in May 2004, 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 28, 2004, as filed with the Securities
and Exchange Commission, 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 November 27, 2004 on the 57,381 Series B
Preferred Stock outstanding amounted to $32. 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 believes these suits
are without merit, denies liability, is vigorously defending
against the claims and does not believe that they will have a
significant impact on its financial position or results of
operations.
7
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
For the Thirteen Weeks Ended November 27, 2004
(In thousands, except for share amounts)
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 the Company from engaging in
certain alleged deceptive business practices. In the motion, the
Attorney General seeks a court order holding the Company in civil
and criminal contempt for violations of the 1998 order and a fine
in the amount of $5 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 has paid $105 and accrued $34 for
this litigation as of November 27, 2004 representing its half of
a proposed settlement, with the other half to be paid by the
Private Company.
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:
Thirteen weeks ended
November November
27, 29,
2004 2003
Net Sales:
Royalty income $30 $30
Warehouse fees 369 355
Delivery charges 608 610
$1,007 $995
Revenue from Service Contracts:
Fabric protection fees charged
by the Private Company ($150) ($150)
Selling, General and Administrative
Expenses:
Purchase administration fees
paid by the Private Company ($28) $0
Advertising reimbursement paid
by the Private Company (369) (363)
Royalty expense paid to the
Private Company 100 100
Expenses related to shortfall
payments charged by the Private
Company 367 355
$70 $92
8
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
For the Thirteen Weeks Ended November 27, 2004
(In thousands, except for share amounts)
NOTE 8: STOCK OPTION PLANS
In December 2002, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards ("SFAS") No. 148,
"Accounting for Stock-Based Compensation - Transition and
Disclosure," which amends the disclosure requirements of SFAS No.
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 No. 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 income (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.
Thirteen weeks ended
November November
27, 29,
2004 2003
Net loss as reported ($2,465) ($1,691)
Deduct: Total stock-based
employee compensation
expense determined
under the fair
value based method 128 134
Pro forma net loss ($2,593) ($1,825)
Basic and diluted loss per
share:
As reported ($0.43) ($.30)
Pro forma ($0.45) ($.32)
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 24.9% for the thirteen week period
ended November 27, 2004, expected life of options of five years,
weighted average risk free interest rate of 3.53% and a dividend
yield of 0%. The weighted average fair value of options granted
during the thirteen week period ended November 27, 2004 was $.30.
During the thirteen week period ended November 27, 2004, 233,333
options were granted.
9
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
For the Thirteen Weeks Ended November 27, 2004
(In thousands, except for share amounts)
NOTE 9: DISCONTINUED OPERATIONS
During fiscal 2005 the Company is planning on closing fourteen
stores of which, two are located in Kansas City, Missouri, one in
Lenexa, Kansas, three in Hartford, Connecticut, four in
Pittsburgh, Pennsylvania, one in upstate New York and three in
the metropolitan New York City area. The stores in Missouri,
Kansas, Hartford and Pittsburgh represent the only stores the
Company has in those areas. In accordance with Statement of
Financial Accounting Standards No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, as those stores are
closed, their results will be reported as discontinued operations
in the consolidated statement of operations for the current and
prior periods. Stores to be closed in the metropolitan New York
City area will also be reflected as discontinued operations
except for those stores where in management's judgment there will
be significant continuing sales to costumers of the closed stores
from other stores in the area. During the thirteen-week period
ended November 27, 2004, the Company closed the two stores in
Kansas City, one store in Lenexa and one store in Hartford.
Revenues from these stores amounted to $261 and $274 in the
thirteen-week periods ended November 27, 2004 and November 29,
2003 respectively. For the thirteen-week period ended November
27, 2004, the losses from operations of these stores were $177,
including loss related to store closings of $134. For the
thirteen-week period ended November 29, 2003 income from
operations of these stores amounted to $84.
10
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 28, 2004, as filed with the
Securities and Exchange Commission. 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 from continuing operations include merchandise sales
and home delivery income of $29,639,000 and $31,502,000 for the
thirteen-week periods ended November 27, 2004 and November 29,
2003, respectively. Net sales of merchandise and home delivery
income from continuing operations decreased by 5.9% in the
thirteen-week period ended November 27, 2004, down $1,863,000
from the thirteen-week period ended November 29, 2003. Revenue
from service contracts from continuing operations decreased by
9.0% in the thirteen-week period ended November 27, 2004 to
$2,021,000 from $2,222,000 for the thirteen-week period ended
November 29, 2003.
Net sales and revenue from service contracts are recorded when
goods are delivered to our customers. At November 27, 2004 we
had approximately $11,000,000 of orders, which will be delivered
during fiscal 2005 as compared to $19,000,000 of such orders as
of November 29, 2003. The decrease of $8,000,000 is a result of
ordering more products from an overseas supplier, which resulted
in increased time to manufacture and deliver the products to our
customers. These delayed sales were delivered in the second and
third quarters of fiscal 2004.
Cost of sales from continuing operations as a percentage of
revenue for the thirteen-week period ended November 27, 2004 was
72.0%, compared to 70.4% for the period ended November 29, 2003.
The increase is primarily attributable to an increase in store
occupancy costs including rent, combined with the decrease in
revenues. The decrease in revenues is primarily attributable to
the overall softness in the economy as well as the effects of
significant deflation on the furniture industry as a whole, which
had a negative impact on our sales.
Selling, general and administrative expenses from continuing
operations were $10,729,000 (33.9% as a percentage of revenue)
during the thirteen-week period ended November 27, 2004, compared
11
to $11,306,000 (33.5% as a percentage of revenue from continuing
operations) for the thirteen-week period ended November 29, 2003.
Advertising expense from continuing operations decreased by
$292,000 and insurance costs decreased by $62,000 during the
thirteen-week period ended November 27, 2004, compared to the
same period last year. The decrease in advertising costs are
partially attributed to a refund of $119,000 that we received
from a newspaper in which we advertise in that failed to meet its
circulation requirements. In addition, advertising costs
associated with Labor Day sales in September 2003 overlapped the
fourth quarter of fiscal 2003 and the first quarter of fiscal
2004. The decreases in insurance costs from continuing
operations are attributed to a decrease in premiums related to
certain corporate policies.
Net loss from continuing operations for the thirteen-week period
ended November 27, 2004 was $2,288,000, compared to net loss of
$1,775,000 for the thirteen-week period ended November 29, 2003.
This increase is primarily attributable to the overall softness
in the economy as well as the effects of significant deflation on
the furniture industry as a whole, which had a negative impact on
our sales.
During the thirteen-week period ended November 27, 2004, we
closed two of our stores in Missouri, one store in Kansas and one
of our three stores in Hartford. The remaining two Hartford
stores will close in the second quarter of fiscal 2005. Revenues
from these store amounted to $261,000 and $274,000 in the
thirteen-week periods ended November 27, 2004 and November 29,
2003, respectively. The losses from operations of these stores
were $177,000, including loss on store closings of $134,000, for
the thirteen-week period ended November 27, 2004, compared to
income from operations of these stores in the amount of $84,000,
for the thirteen-week period ended November 29, 2003.
Liquidity and Capital Resources
As of November 27, 2004, we had an aggregate working capital
deficiency of $3,107,000, compared to an aggregate working
capital deficiency of $1,036,000 at August 28, 2004 and had
available cash and cash equivalents of $6,390,000, compared to
$3,294,000 at August 28, 2004. The increase in cash and cash
equivalents is a result of longer payment terms with our
principal suppliers.
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 28, 2004, are approved, we will acquire
100% of such limited partnerships.
As of November 27, 2004, we had net receivables of $3,818,000
from the private company. As of such date, we have fully reserved
uncollected amounts, which totaled an additional $4,722,000. The
collectibility of this amount is uncertain and contingent upon
court approval of the proposed settlement agreements and the
Interim Operating Agreement.
Starting in 1995, we entered into agreements with a related
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, as of November 27,
2004, all obligations of the private company and the
unconsolidated licensees were paid. Additionally, as part of
12
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.
We opened one store and closed four stores during the thirteen
weeks ended November 27, 2004. We spent $125,000 for capital
expenditures during such thirteen-week period and we anticipate
capital expenditures approximating $150,000 during the balance of
fiscal 2005 to support the maintenance of existing facilities.
We do not anticipate needing outside financing for such
expansion.
We anticipate generating positive operating cash flow for the
year ending August 27, 2005. In the opinion of management, cash
on hand and cash flow from operations will be adequate to fund
operations during the current fiscal year.
13
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.
14
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 us from engaging in certain
alleged deceptive business practices. In the motion, the
Attorney General seeks a court order holding us 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 we have 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 have paid $104,500 and accrued $34,000 for
this litigation as of November 27, 2004 representing our half of
a proposed settlement, with the other half to be paid by a
related private company.
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.
None.
Item 5. Other Information.
None.
Item 6. Exhibits.
(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
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.
January 11, 2005 By: /s/ Harley J. Greenfield
Harley J. Greenfield, Chairman of
the Board and Chief Executive Officer
January 11, 2005 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.
Date: January 11, 2005 /s/ Harley J. Greenfield
Harley J. Greenfield, Chief Executive Officer
18
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.
Date: January 11, 2005 /s/ Rami Abada
Rami Abada, Chief Financial Officer
19
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 November 27,
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: January 11, 2005 /s/ Harley J. Greenfield
Harley J. Greenfield
Chief Executive Officer
(Principal Executive Officer)
A signed original of this written statement required by Section
906 has been provided to the Company and will be retained by the
Company and furnished to the Securities and Exchange Commission
upon request.
20
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 November 27,
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: January 11, 20 /s/ Rami Abada
Rami Abada
Chief Financial Officer
(Principal Financial Officer)
A signed original of this written statement required by Section
906 has been provided to the Company and will be retained by the
Company and furnished to the Securities and Exchange Commission
upon request.
21