-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CCuAEnCPmAg7S5ueNAzo7uAjFJ4mEAq/x8rRVLxMOG7cIdk43b2SVK+HW5lg8O5F KmknOIo/KbopA2vDGlrhRA== 0000950148-98-002002.txt : 19980817 0000950148-98-002002.hdr.sgml : 19980817 ACCESSION NUMBER: 0000950148-98-002002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: JERRYS FAMOUS DELI INC CENTRAL INDEX KEY: 0000948308 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 953302338 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26956 FILM NUMBER: 98688724 BUSINESS ADDRESS: STREET 1: 12711 VENTURA BLVD STREET 2: STE 400 CITY: STUDIO CITY STATE: CA ZIP: 91604 BUSINESS PHONE: 8187668311 MAIL ADDRESS: STREET 1: 12711 VENTURA BLVD STREET 2: STE 400 CITY: STUDIO CITY STATE: CA ZIP: 91604 10-Q 1 FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q (MARK ONE) [X[ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998 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 No. 33-94724 JERRY'S FAMOUS DELI, INC. (Exact name of registrant as specified in its charter) California 95-3302338 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 12711 Ventura Boulevard, Suite 400, Studio City, California 91604 (Address of Principal Executive Offices) (818) 766-8311 (Registrant's Telephone Number, Including Area Code) (Former name, former address and former fiscal year, if changed since last report) 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 each of the issuer's classes of common stock, as of the latest practicable date. As of July 17, 1998, outstanding common shares totaled 15,144,664. 2 JERRY'S FAMOUS DELI, INC. INDEX
Page Number PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Consolidated Balance Sheets as of June 30, 1998 and December 31, 1997 ......... 2 Consolidated Statements of Operations for the Three Months and Six Months Ended June 30, 1998 and June 30, 1997 ............................................... 3 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1998 and June 30, 1997 ............................................... 4 Notes to Consolidated Financial Statements .................................... 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations ......................................................... 9 Liquidity and Capital Resources ............................................... 10 Item 3. Quantitative and Qualitative Disclosure About Market Risk ..................... 11 PART II - OTHER INFORMATION Items 1. through 6. .................................................................... 11 Signatures ............................................................................. 12
1 3 JERRY'S FAMOUS DELI, INC. CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31, 1998 1997 ----------- ----------- ASSETS Current assets Cash and cash equivalents $ 754,509 $ 2,264,308 Accounts receivable, net 317,281 272,511 Inventory 1,054,151 525,200 Prepaid expenses 571,545 1,729,687 Preopening costs 249,023 105,318 Deferred income taxes 121,711 63,063 Prepaid income taxes -- 24,605 ----------- ----------- Total current assets 3,068,220 4,984,692 Property and equipment, net 33,691,358 29,835,529 Organization costs 85,650 92,143 Deferred income taxes 725,983 725,983 Goodwill and covenants not to compete 9,965,818 1,757,342 Other assets 734,871 581,917 ----------- ----------- Total assets $48,271,900 $37,977,606 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 3,826,398 $ 2,195,980 Accrued expenses 1,113,181 1,426,073 Sales tax payable 191,982 402,220 Current portion of long-term debt 2,061,537 752,063 ----------- ----------- Total current liabilities 7,193,098 4,776,336 Long-term debt 12,895,116 7,690,219 Deferred rent 435,327 455,129 ----------- ----------- Total liabilities 20,523,541 12,921,684 Minority interest 489,018 480,379 Shareholders' equity Preferred stock Series A, no par, 5,000,000 shares authorized, no shares issued or outstanding at June 30, 1998 or at December 31, 1997 -- -- Common stock, no par value, 60,000,000 shares authorized, 15,144,664 and 14,210,155 issued and outstanding at June 30, 1998 and December 31, 1997, respectively 26,119,630 23,724,484 Equity 1,139,711 851,059 ----------- ----------- Total shareholders' equity 27,259,341 24,575,543 ----------- ----------- Total liabilities and shareholders' equity $48,271,900 $37,977,606 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements 2 4 JERRY'S FAMOUS DELI, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, --------------------------------- --------------------------------- 1998 1997 1998 1997 ------------ ------------ ------------ ------------ Revenues $ 16,094,831 $ 13,026,122 $ 30,359,516 $ 27,837,878 Cost of sales 5,339,797 4,035,500 9,723,981 8,414,417 ------------ ------------ ------------ ------------ Gross profit 10,755,034 8,990,622 20,635,535 19,423,461 Operating expenses Labor 5,226,873 4,735,456 10,379,460 10,254,322 Occupancy and other 2,162,817 1,679,070 4,221,115 3,479,206 Occupancy - related party 256,535 160,434 417,053 338,658 General and administrative expenses 1,454,811 1,091,232 2,551,465 2,293,921 Depreciation and amortization expenses 1,117,681 905,383 2,085,502 1,863,007 ------------ ------------ ------------ ------------ Total expenses 10,218,717 8,571,575 19,654,595 18,229,114 ------------ ------------ ------------ ------------ Income from operations 536,317 419,047 980,940 1,194,347 Other income (expense) Interest income 18,477 9,040 35,559 40,900 Interest expense (370,156) (151,877) (562,728) (305,618) Other income (expense), net 287 (1,776) 287 (1,361) ------------ ------------ ------------ ------------ Income before provision for income taxes and minority interest 184,925 274,434 454,058 928,268 Provision for income taxes 50,091 75,800 108,474 276,000 Minority interest 26,430 44,771 52,302 91,921 ------------ ------------ ------------ ------------ Net income $ 108,404 $ 153,863 $ 293,282 $ 560,347 ============ ============ ============ ============ Net income per share: Basic $ 0.01 $ 0.01 $ 0.02 $ 0.04 ============ ============ ============ ============ Diluted $ 0.01 $ 0.01 $ 0.02 $ 0.04 ============ ============ ============ ============ Weighted average shares outstanding - Basic 15,144,664 14,019,468 15,144,664 14,019,468 ============ ============ ============ ============ Weighted average shares outstanding - Diluted 15,212,901 14,059,408 15,246,076 14,076,184 ============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements 3 5 JERRY'S FAMOUS DELI, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, --------------------------------- 1998 1997 ------------ ------------ Cash flows from operating activities: Net income $ 293,282 $ 560,347 ------------ ------------ Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 2,085,502 1,863,007 Gain on sale of assets -- (2,756) Minority interest 52,302 91,921 Deferred income taxes (58,648) (7,850) Deferred income -- 41,668 Changes in assets and liabilities Accounts receivable (44,770) (58,730) Inventory (120,150) 43,819 Prepaid expenses 1,158,142 (551,829) Prepaid income taxes 24,605 -- Preopening costs (222,693) (15,191) Other assets (130,719) (47,818) Accounts payable 1,630,418 (1,704,651) Accrued expenses (312,892) 25,674 Sales tax payable (210,238) (241,905) Deferred credits -- 20,752 ------------ ------------ Total adjustments 3,850,859 (543,889) ------------ ------------ Net cash provided by operating activities 4,144,141 16,458 ------------ ------------ Cash flows from investing activities: Purchase of Epicure Market (8,504,323) -- Acquisition of restaurant (1,760,000) -- Additions to equipment (404,950) (767,946) Additions to improvements - land, building and leasehold (346,692) (482,871) Additions to construction-in-progress (1,107,251) (1,954,661) Proceeds from sale of fixed assets -- 7,000 ------------ ------------ Net cash used in investing activities (12,123,216) (3,198,478) ------------ ------------ Cash flows from financing activities: Borrowings on credit facilities 6,965,000 -- Payments on long-term debt (450,631) (289,370) Capital lease payments -- (13,612) Dividends paid to minority shareholders (45,093) (46,851) Proceeds from exercise of 65,000 warrants, net of related costs -- 57,048 Purchase of Company's common stock -- (103,203) ------------ ------------ Net cash provided by (used in) financing activities 6,469,276 (395,988) ------------ ------------ Net decrease in cash and cash equivalents (1,509,799) (3,578,008) Cash and cash equivalents, beginning of period 2,264,308 4,145,265 ------------ ------------ Cash and cash equivalents, end of period $ 754,509 $ 567,257 ============ ============
The accompanying notes are an integral part of these consolidated financial statements 4 6 JERRY'S FAMOUS DELI, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION AND ORGANIZATION: Basis of Presentation The accompanying consolidated financial statements of Jerry's Famous Deli, Incorporated and its subsidiaries ("the Company") for the three and six months ended June 30, 1998 and June 30, 1997 have been prepared in accordance with generally accepted accounting principles and with the instructions to Form 10-Q and Article 10 of Regulation S-X. These financial statements have not been audited by independent accountants, but include all adjustments (consisting of normal recurring adjustments) which are, in Management's opinion, necessary for a fair presentation of the financial condition, results of operations and cash flows for such periods. However, these results are not necessarily indicative of results for any other interim period or for the full year. The December 31, 1997 balance sheet is derived from the audited financial statements included in the Company's December 31, 1997 Form 10-K. Certain information and footnote disclosures normally included in financial statements in accordance with generally accepted accounting principles have been omitted pursuant to requirements of the Securities and Exchange Commission. Management believes that the disclosures included in the accompanying interim financial statements and footnotes are adequate to make the information not misleading, but should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Form 10-K for the preceding fiscal year. Organization The accompanying consolidated financial statements consist of Jerry's Famous Deli, Incorporated ("JFD--Inc."), a California corporation, JFD-Encino ("JFD--Encino"), a California limited partnership and National Deli Corporation, ("NDC"), a Florida corporation and wholly-owned subsidiary of JFD, Inc. JFD--Inc. and JFD--Encino operate family oriented, full-service restaurants. NDC operates the Epicure Market ("Epicure"), a specialty gourmet food store located in Miami Beach, Florida, which was acquired on April 1, 1998. These entities are collectively referred to as "Jerry's Famous Deli, Inc." or the "Company." JFD--Inc. and JFD--Encino include the operations of the Southern California restaurants located in Studio City, Encino, Marina del Rey, West Hollywood, Pasadena, Westwood, Sherman Oaks, Woodland Hills, Costa Mesa and Rascal House, which is located in Florida. On July 1, 1998, the Company opened its eleventh restaurant, a second Rascal House, in Boca Raton, Florida. 2. SUPPLEMENTAL CASH FLOW INFORMATION
Six Months Ended June 30, 1998 1997 ---------- ---------- Supplemental cash flow information: Cash paid for: Interest .......................................................... $ 588,000 $ 307,000 Income taxes ...................................................... $ 236,000 $ 233,000 Supplemental information on noncash investing and financing activities: Common Stock issued in purchase of market ......................... $2,395,147 $ -- Preferred stock converted into common stock ....................... $ -- $9,153,000 Write-off of fully depreciated capital leases, equipment, and leasehold improvements .......................... $ -- $ 169,000 Issuance of 200,000 unregistered common shares in connection with a consulting agreement ......................... $ -- $ 750,000
5 7 3. NET INCOME PER SHARE In February 1997, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 128, "Earnings Per Share." SFAS No. 128 supersedes and simplifies the previous computational guidelines under Accounting Principles Board Opinion ("APB") No. 15, "Earnings Per Share." Among other changes, SFAS No. 128 eliminates the presentation of primary earnings per share ("EPS") and replaces it with basic EPS for which common stock equivalents are not considered in the computation. It also revises the computation of diluted EPS. Basic net income per share is computed by dividing the net income attributable to common shareholders by the weighted average number of common shares outstanding during the period. Diluted net income per common share is computed by dividing the net income attributable to common shareholders by the weighted average number of common and common share equivalents outstanding during the period. Common share equivalents included in the diluted computation represent shares issuable upon assumed exercise of stock options using the treasury stock method. Net income per share and weighted average shares outstanding for all prior periods have been restated in accordance with SFAS No. 128. 4. IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS Consistent with the restaurant industry, the Company defers its restaurant preopening costs and amortizes them over a twelve-month period following the opening of the respective restaurant. In April 1998, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position ("SOP") 98-5 entitled "Reporting on the Costs of Start-Up Activities." The SOP requires entities to expense as incurred all start-up and preopening costs that are not otherwise capitalizable as long-lived assets. The SOP is effective for fiscal years beginning after December 15, 1998, with earlier adoption encouraged. Restatement of previously issued financial statements is not permitted by the SOP, and entities are not required to report the pro forma effects of the retroactive application of the new accounting standard. The Company's adoption of the new accounting principle at January 1, 1999, will involve the recognition of the cumulative effect of the change in accounting principle required by the SOP as a one-time charge against earnings, net of any related income tax effect, retroactive to that date. Net unamortized deferred preopening costs were approximately $249,000 at June 30, 1998. 5. UNAUDITED PRO FORMA FINANCIAL STATEMENTS On April 1, 1998, Jerry's Famous Deli, Inc. ("JFD") acquired certain assets and the operations of the Epicure Market, Inc., a specialty gourmet food market located in Miami Beach, Florida. The following table presents the unaudited Pro Forma Statement of Operations as if the purchase of assets and operations of Epicure had occurred as of January 1, 1998. This financial statement should be read in conjunction with the Company's Form 10-K for the year ended December 31, 1997 and the Company's Form 8-K and Amended Form 8-K/A filed April 16, 1998 and April 23, 1998, respectively. In management's opinion, all adjustments necessary to reflect the purchase of Epicure by JFD have been made. The amounts below indicated in the JFD column represent the consolidated operations of JFD and Epicure from April 1, 1998 to June 30, 1998. The Epicure column represents activity for January 1, 1998 to March 31, 1998. The Unaudited Pro Forma Statement of Operations is not necessarily indicative of what the actual results of operations of JFD and Epicure would have been had the acquisition actually occurred as of January 1, 1998, nor do they purport to represent the results of operations for future periods. 6 8
Six Months Ended June 30, 1998 ------------------------------ JFD Epicure Adjustments Pro-Forma ------------ ------------ ------------ ------------ (in thousands, except per share data) Revenues $ 30,360 $ 4,146 -- $ 34,506 Cost of Goods Sold 9,724 1,743 -- 11,467 ------------ ------------ ------------ ------------ Gross Profit 20,636 2,403 -- 23,039 Operating expenses 15,018 1,312 $ (19)(a) 16,311 General and administrative expenses 2,551 315 (55)(b) 2,811 Depreciation and amortization expenses 2,086 29 105 (c) 2,220 ------------ ------------ ------------ ------------ Total expenses 19,655 1,656 31 21,342 Income from operations 981 747 (31) 1,697 Interest income 36 17 -- 53 Interest expense (563) -- (170)(d) (733) Other income, net -- -- -- -- ------------ ------------ ------------ ------------ Income before provision for income taxes and minority interest 454 764 (201) 1,017 Provision for income taxes (108) -- (191)(e) (299) Minority interest (53) -- -- (53) ------------ ------------ ------------ ------------ Net income $ 293 $ 764 $ (392) $ 665 ============ ============ ============ ============ Pro forma net income per share - Basic $ 0.02 $ 0.04 ------------ ------------ Pro forma net income per share - Diluted $ 0.02 $ 0.04 ------------ ------------ Pro forma weighted average shares outstanding - Basic 15,144,644(f) 15,144,664(g) Pro forma weighted average shares outstanding - Diluted 15,246,076(f) 15,246,076(g)
(a) Compensation to the owners of Epicure and certain other persons in the amount of $19,000 has been eliminated. (b) Removal of former officer's consulting fees, elimination of 401(k) plan expenses and reduction of certain other expenses related to Epicure of approximately $55,000. (c) Includes amortization of goodwill of $71,762, amortization expense of the covenants not to compete of $4,500, and depreciation and amortization expense of the assets acquired (property and equipment) of approximately $57,500. Depreciation and amortization expense of approximately $29,000 taken by Epicure has been eliminated. (d) Assumes utilization of lines of credit amounting to $6,965,000 occurred as of January 1, 1998, resulting in interest expense of approximately $170,000. (e) Assumes the provision for income taxes is based on a 34% effective income tax rate based on adjusted Epicure income. (f) Amount equals applicable outstanding shares as disclosed on the Company's June 30, 1998 Form 10-Q. (g) Includes 934,509 common shares issued in the purchase of Epicure which are treated as outstanding for the entire six months ended June 30, 1998. 6. SUBSEQUENT EVENTS On July 1, 1998, the Company opened its eleventh restaurant, a Rascal House, in Boca Raton, Florida. The Company is currently in negotiations for a new credit facility with a bank. No assurance can be given that the Company will obtain the new credit facility. 7 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The following table presents for the three and six months ending June 30, 1998 and 1997, the Consolidated Statements of Operations of the Company expressed as percentages of total revenue. The results of operations for the first six months of 1998 are not necessarily indicative of the results to be expected for the full year ending December 31, 1998.
PERCENTAGE OF TOTAL REVENUE --------------------------- THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, --------------------------- ------------------------- 1998 1997 1998 1997 ------ ------ ------ ------ Revenues 100.0% 100.0% 100.0% 100.0% Cost of sales Food 31.2 28.3 30.1 27.6 Other 2.0 2.7 1.9 2.6 ------ ------ ------ ------ Total cost of sales 33.2 31.0 32.0 30.2 ------ ------ ------ ------ Gross profit 66.8 69.0 68.0 69.8 Operating expenses Labor 32.5 36.4 34.2 36.8 Occupancy and other 15.0 14.1 15.3 13.7 ------ ------ ------ ------ Total operating expenses 47.5 50.5 49.5 50.5 General and administrative expenses 9.0 8.4 8.4 8.3 Depreciation and amortization expenses 7.0 6.9 6.9 6.7 ------ ------ ------ ------ Total expenses 63.5 65.8 64.8 65.5 ------ ------ ------ ------ Income from operations 3.3 3.2 3.2 4.3 Interest income 0.1 0.1 0.1 0.1 Interest expense (2.3) (1.2) (1.8) (1.1) Other income, net 0.0 0.0 0.0 0.0 ------ ------ ------ ------ Income before provision for income taxes and minority interest 1.1 2.1 1.5 3.3 Provision for income taxes 0.3 0.6 0.3 1.0 Minority interest 0.1 0.3 0.2 0.3 ------ ------ ------ ------ Net income 0.7% 1.2% 1.0% 2.0% ====== ====== ====== ======
8 10 RESULTS OF OPERATIONS Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997 Revenues for the three months ended June 30, 1998 increased approximately $3,069,000, or 23.6%, to approximately $16,095,000 for the 1998 quarter from approximately $13,026,000 for the 1997 quarter. The Epicure Market, acquired on April 1, 1998, contributed revenues of approximately $3,550,000 for the 1998 period. In addition, the Costa Mesa restaurant, which opened in August 1997, had revenues of approximately $825,000 for the 1998 period. The Rascal House restaurant in Miami Beach, Florida, had decreased revenues of approximately $49,000 for the 1998 period. Same store sales for the other eight Southern California stores in operation since April 1, 1997 decreased approximately $1,239,000, or 11.4% for the 1998 period. Management attributes a portion of this decrease to the continuing adverse weather condition, causing abnormally high rainfall, which lasted until the middle of the second quarter. Also, the Company believes the negative publicity surrounding the cleanliness of many Southern California eating establishments, which included one of the Company's restaurants, has impacted its restaurants' sales. In addition, management also attributes a portion of the revenue decrease to the reduction in hours of operation from 24 hours a day in several locations beginning in the fourth quarter of 1997, which are still in effect. Furthermore, significant road construction adjacent to the Company's West Hollywood restaurant has caused an estimated loss of sales of $90,000 for the months of May and June. To address the above decreases, the Company believes additional marketing of its restaurants and specific products, consistent with other casual dining and fast food restaurants, will enhance same store sales. Cost of sales, as a percentage of revenues, increased 2.2 percentage points to 33.2% for the 1998 quarter from 31.0% for the 1997 quarter. Total food cost including Epicure increased 2.9 percentage points to 31.2% for 1998 from 28.3% for 1997. The majority of this increase is due to the differing margins from the Company's core restaurants and the market, which typically has a higher food cost as a component of sales. Without Epicure, food costs increased .2 percentage point to 28.5% in 1998 from 28.3% for the same 1997 quarter. The Company was successful in limiting its food cost increase on the core products as compared to the first quarter. Management is planning to take advantage of volume purchasing discounts at its Florida locations, which now includes two restaurants and Epicure. Furthermore, the Company will take advantage of additional future reductions in food costs in Florida, as Epicure will also be supplying certain food products to the two Florida restaurants. Operating expenses, which include all restaurant level operating costs, including, but not limited to, labor, rent, laundry, maintenance, utilities and repairs, as a percentage of revenues, decreased 3.0 percentage points to 47.5% for the 1998 quarter from 50.5% for the 1997 quarter. Labor decreased 3.9 percentage points to 32.5% for 1998 from 36.4% for 1997. The decrease in labor expense reflects the improved staff efficiencies in the five restaurants opened in 1996 and one new restaurant in 1997, as predictable customer patterns have developed. The decrease in hours of operation from 24 hours for several of the restaurants also contributed to the decrease. Management believes the minimum wage increase on March 1, 1998 in California to $5.75 from $5.15 an hour, which affected approximately 33% of the employees in each California restaurant, did not have a significant impact on labor costs. Offsetting the large decrease in labor, was an increase in occupancy expenses of 0.9 percentage point to 15.0% for 1998 from 14.1% for 1997. Most of the increase was due to the decline in sales, as many of the Company's occupancy expenses are fixed costs. Also contributing to the increase was a net increase of approximately $118,000 in supplies expense, of which $135,000 relates to Epicure, which was offset by decreases based on significant purchases incurred in the first quarter. Rent expense also increased approximately $162,000, primarily as a result of Epicure, which added $106,000, and the Costa Mesa restaurant, which contributed $52,000. General and administrative expenses, as a percentage of revenues, increased 0.6 percentage point, to 9.0% for the 1998 quarter from 8.4% in the 1997 quarter. The net increase was predominantly due to Epicure and the Costa Mesa restaurant, which contributed approximately $405,000 and $22,000, respectively. The increase was offset by a decrease in management labor expense in the 1998 quarter due to the reduction in salaries for three executive officers in October 1997, and a change in the bonus calculation for those officers, which resulted in a reduction of bonus, accounting for a decrease of approximately $45,000. General and administrative expenses which relate directly to restaurant operations, including insurance, employee benefits and other expenses are expected to continue to increase as new restaurants are opened and/or acquired. Depreciation and amortization expense, as a percentage of revenue, increased 0.1 percentage point to 7.0% for 1998 from 6.9% for the 1997 quarter. Depreciation expense increased approximately $190,000 for the 1998 quarter as compared to the 1997 quarter, of which approximately $99,000 was due to the Costa Mesa restaurant which opened in August 1997. In addition, Epicure contributed approximately $60,000 to the increase. Amortization expense increased 9 11 approximately $23,000 for the 1998 quarter as compared to the 1997 quarter. Amortization expense of approximately $81,000 relates directly to the Epicure acquisition, and approximately $40,000 for the Costa Mesa restaurant preopening expenses. These increases were offset by a decrease in amortization expense incurred in 1997 related to preopening costs arising from the five restaurants opened in 1996. Preopening costs for the Costa Mesa restaurant opened in August 1997 and the five restaurants opened in 1996 are or were amortized over the twelve month period following their openings. The increase in interest expense of approximately $218,000 to approximately $370,000 for the 1998 second quarter from approximately $152,000 for the same 1997 period, resulted primarily from approximately $180,000 in interest expense on the credit facilities utilized in the purchase of Epicure on April 1, 1998. The interest expense on the Rascal House mortgage also contributed to the increase. Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997 Revenues increased approximately $2,522,000, or 9.1%, to approximately $30,360,000 for the 1998 six-month period from approximately $27,838,000 for the 1997 six-month period. Epicure acquired on April 1, 1998, contributed revenues of approximately $3,550,000 in 1998. The Costa Mesa restaurant, which opened in August 1997, contributed revenues of approximately $1,782,000 to the 1998 period. The Rascal House restaurant in Miami Beach, Florida had increased revenues of approximately $9,000, or .2% for the 1998 period. Revenues for the same eight Southern California restaurants operated during both six-month periods, decreased approximately $2,762,000, or 12.2%. Most of this decrease is attributable to the reasons discussed in the quarter-to-quarter comparison. Cost of sales, as a percentage of revenues, increased 1.8 percentage points, to 32.0% for the 1998 period from 30.2% for the 1997 period. As discussed above, Epicure accounted for the majority of the increase. Without Epicure, cost of sales increased 0.7 percentage point to 30.9% for the 1998 period as compared to 30.2% for the same 1997 period. Labor expense, as a percentage of revenues, decreased 2.6 percentage points, to 34.2% in 1998 from 36.8% for 1997, primarily due to the same factors as those discussed above with respect to the second quarter. General and administrative expenses, as a percentage of revenues, increased .1 percentage point to 8.4% for 1998 from 8.3% for 1997 due to increases in many general and administrative expenses at rates greater than the growth of revenues. As new restaurants are opened and/or acquired, certain general and administrative expenses, relating directly to restaurant operations including insurance, employee benefits and others, are expected to increase. Depreciation and amortization expense, as a percentage of revenues, increased .2 percentage point to 6.9% in 1998 from 6.7% in the 1997 period, mostly due to the same factors as those discussed above with respect to the second quarter. Income from operations, as a percentage of revenues, decreased 1.1 percentage points to 3.2% for 1998 from 4.3% for 1997. As discussed above in the quarter to quarter comparison, most of this increase is due to increases in rent and supplies. Interest expense as a percentage of revenues, increased approximately 0.7 percentage point to 1.8% for 1998 from 1.1% for 1997, primarily due to the factors as discussed above with respect to the second quarter. LIQUIDITY AND CAPITAL RESOURCES The Company's capital requirements are primarily for the development, construction and equipping of new restaurants and specialty markets. Generally, the Company seeks leased locations and extensively remodels the existing building for each new restaurant. Based on historic experience, each new restaurant requires between $2,000,000 and $3,000,000 for remodeling and purchasing of equipment. The Company is continuing its current plans for expansion and recently opened its eleventh restaurant, a second Rascal House, in Boca Raton, Florida, on July 1, 1998. The Company is additionally seeking to acquire well established deli-style restaurants in markets conducive to its customer base. 10 12 The Company has utilized all lines of credit in the purchase of Epicure and has completed renovating the newly opened Rascal House restaurant in Boca Raton. The Company is currently in negotiations with a bank for a new credit facility. There is no assurance that the Company will obtain the credit facility. The Company used cash on hand and cash flows from operations to pay for certain costs related to the acquisition of Epicure and purchase of the Boca Raton facility, which reduced its cash position and resulted in an increase in accounts payable compared to historical levels. Management believes that cash on hand, cash flows from operations and future debt or equity financing will be sufficient to finance prospective acquisitions and operation of the Company's existing restaurants. Management is currently seeking new locations for development or acquisition of restaurants in Chicago and Florida. In planning for future expansion and the resulting capital needs of the Company, management is evaluating other sources of financing, including equity and/or debt financing. Future growth is dependent upon the Company obtaining additional capital. Statements made herein that are not historical facts are forward looking statements and are subject to a number of risk factors, including the public's acceptance of the Jerry's Famous Deli format in each new location, consumer trends in the restaurant industry, competition from other restaurants, the costs and delays experienced in the course of remodeling or building new restaurants, the amount and rate of growth of administrative expenses associated with building the infrastructure needed for future growth, the availability, amount, type and cost of financing for the Company and general economic conditions and other factors. Item 3. Quantitative and Qualitative Disclosure About Market Risk. Not applicable. PART II - OTHER INFORMATION Items 1. through 3. Not applicable. Item 4. Submission of Matters to a Vote of Security Holders. On May 27, 1998, the Company held its Annual Meeting of Shareholders. Shareholders voted upon the election of directors and upon the ratification of Coopers & Lybrand, L.L.P., as the Company's independent public accountants for the fiscal year ending December 31, 1998. Isaac Starkman, Guy Starkman, Jason Starkman, Paul Gray, Stanley Schneider and Kenneth Abdalla, all of whom were directors prior to the Annual Meeting and were nominated by management for re-election, were re-elected at the meeting. The following votes were cast for each nominees:
Name For Authority ---- --- Withheld ---------- Isaac Starkman 12,398,951 32,002 Guy Starkman 12,396,941 34,012 Jason Starkman 12,396,741 34,212 Paul Gray 12,398,884 32,069 Stanley Schneider 12,399,934 31,019 Kenneth Abdalla 12,400,534 30,419
The following votes were cast for the ratification of Coopers & Lybrand, L.L.P. (as of July 1, 1998, PricewaterhouseCoopers LLP), as the Company's independent public accountants for the fiscal year ending December 31, 1998: For: 10,526,011; Against: 1,903,742; Abstain: 1,200. Shareholders who wish to submit proposals to be included in the Company's proxy materials for the 1999 annual meeting may do so in accordance with Securities and Exchange Commission Rule 14a-8. For those shareholder proposals which are not submitted in accordance with Rule 14a-8, the Company's management proxies may exercise their discretionary voting authority, without any discussion of the proposal in the Company's proxy materials, for any proposal which is received by the Company after March 16, 1999. Items 5 and 6. Not applicable. 11 13 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. JERRY'S FAMOUS DELI, INC. Date: August 11, 1998 By: /s/ Isaac Starkman ------------------------------------ Isaac Starkman Chief Executive Officer and Chairman of the Board of Directors By: /s/ Christina Sterling ------------------------------------ Christina Sterling Chief Financial Officer 12 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS, THE CONSOLIDATED STATEMENT OF OPERATIONS AND THE CONSOLIDATED STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q. 3-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 754,509 0 325,806 8,525 1,054,151 3,068,220 44,009,394 10,318,036 48,271,900 7,193,098 12,875,116 0 0 26,119,630 1,139,711 48,271,900 30,359,516 30,359,516 9,723,981 9,723,981 19,654,595 0 562,728 401,756 108,474 293,282 0 0 0 293,282 0.02 0.02
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