10-Q 1 v72595e10-q.txt 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 March 31, 2001 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 Identification No.) Incorporation or Organization) 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 May 1, 2001, outstanding common shares totaled 4,673,041. 2 JERRY'S FAMOUS DELI, INC. INDEX
Page Number ------ PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Consolidated Balance Sheets as of March 31, 2001 (unaudited) and December 31, 2000... 2 Consolidated Statements of Operations (unaudited) for the Three Months Ended March 31, 2001 and March 31, 2000.............................................. 3 Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended March 31, 2001 and March 31, 2000.................................................... 4 Notes to Consolidated Financial Statements........................................... 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations................................................................ 7 Liquidity and Capital Resources...................................................... 8 Item 3. Quantitative and Qualitative Disclosure About Market Risk............................ 9 PART II - OTHER INFORMATION Items 1. through 6. ........................................................................... 9 Signatures............................................................................ 9
1 3 JERRY'S FAMOUS DELI, INC. CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31, 2001 2000 ----------- ----------- (unaudited) ASSETS Current assets Cash and cash equivalents $ 468,543 $ 1,833,686 Accounts receivable, net 394,400 601,733 Inventory 1,310,884 1,298,418 Prepaid expenses 747,095 421,241 Deferred income taxes 285,511 285,511 ----------- ----------- Total current assets 3,206,433 4,440,589 Property and equipment, net 31,359,032 31,673,889 Deferred income taxes 96,183 96,183 Goodwill and covenants not to compete 8,589,444 8,720,620 Other assets 1,488,243 1,479,907 ----------- ----------- Total assets $44,739,335 $46,411,188 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 3,429,002 $ 3,136,596 Accrued expenses 1,083,809 1,563,454 Sales tax payable 366,956 354,813 Income taxes payable 240,516 31,826 Deferred income 20,320 -- Current portion of capital lease obligation 49,210 46,337 Current portion of long-term debt 1,712,260 1,712,260 ----------- ----------- Total current liabilities 6,902,073 6,845,286 Long-term debt 8,599,317 11,007,256 Capital lease obligation 104,534 119,710 Deferred rent 423,246 430,683 ----------- ----------- Total liabilities 16,029,170 18,402,935 Minority interest 532,399 504,098 Shareholders' equity Preferred stock Series A, no par, 5,000,000 shares authorized; no shares issued or outstanding at March 31, 2001 or December 31, 2000 -- -- Common stock, no par value, 60,000,000 shares authorized, 4,673,042 issued and outstanding at March 31, 2001 and December 31, 2000 24,575,522 24,575,522 Retained earnings 3,602,244 2,928,633 ----------- ----------- Total shareholders' equity 28,177,766 27,504,155 ----------- ----------- Total liabilities and shareholders' equity $44,739,335 $46,411,188 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 2 4 JERRY'S FAMOUS DELI, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
THREE MONTHS ENDED MARCH 31, 2001 2000 ------------ ------------ Revenues $ 18,867,731 $ 18,820,317 Cost of sales 6,414,845 6,325,905 ------------ ------------ Gross profit 12,452,886 12,494,412 Operating expenses Labor 6,523,210 6,376,278 Occupancy and other 2,433,932 2,283,925 Occupancy - related party 234,251 278,765 General and administrative expenses 1,115,317 1,231,863 Depreciation and amortization expenses 924,300 866,891 ------------ ------------ Total expenses 11,231,010 11,037,722 ------------ ------------ Income from operations 1,221,876 1,456,690 Other income (expense) Interest income 5,773 10,370 Interest expense (237,635) (263,227) Licensing income 11,111 -- Other income (expense), net 5,709 -- ------------ ------------ Income before income tax provision and minority interest 1,006,834 1,203,833 Provision for income taxes 288,690 328,028 Minority interest 44,533 72,702 ------------ ------------ Net income $ 673,611 $ 803,103 ============ ============ Net income per share Basic $ 0.14 $ 0.17 ============ ============ Diluted $ 0.14 $ 0.17 ============ ============ Weighted average common shares outstanding - Basic 4,673,042 4,673,068 ============ ============ Weighted average common shares outstanding - Diluted 4,682,755 4,673,068 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 3 5 JERRY'S FAMOUS DELI, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
THREE MONTHS ENDED MARCH 31, 2001 2000 ----------- ----------- Cash flows from operating activities: Net income $ 673,611 $ 803,103 ----------- ----------- Adjustments to reconcile net income to net cash provided by (used in) operating activities Depreciation and amortization 924,300 866,891 Minority interest 44,533 72,702 Gain on sale of assets (5,709) -- Changes in assets and liabilities Accounts receivable 207,333 162,582 Inventory (12,466) 29,399 Prepaid expenses (325,854) (251,573) Income taxes receivable -- 201,700 Other assets (67,134) (52,296) Accounts payable 292,406 (173,739) Accrued expenses (479,645) (341,273) Sales tax payable 12,143 (38,791) Income taxes payable 208,690 216,328 Deferred credits 12,883 -- ----------- ----------- Total adjustments 811,480 691,930 ----------- ----------- Net cash provided by operating activities 1,485,091 1,495,033 ----------- ----------- Cash flows from investing activities: Additions to equipment (257,408) (181,469) Proceeds from sale of assets 16,858 -- Additions to improvements - land, building and leasehold (173,210) (285,560) ----------- ----------- Net cash used in investing activities (413,760) (467,029) ----------- ----------- Cash flows from financing activities: Payments on long-term debt (2,407,939) (1,475,080) Distributions paid to minority shareholders -- (166,683) Capital lease payments (12,303) -- Dividends paid to minority shareholders (16,232) (22,816) ----------- ----------- Net cash used in financing activities (2,436,474) (1,664,579) ----------- ----------- Net decrease in cash and cash equivalents (1,365,143) (636,575) Cash and cash equivalents, beginning of period 1,833,686 1,184,329 ----------- ----------- Cash and cash equivalents, end of period $ 468,543 $ 547,754 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 4 6 JERRY'S FAMOUS DELI, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 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 months ended March 31, 2001 and March 31, 2000 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, 2000 consolidated balance sheet financial statement is derived from audited consolidated financial statements included in the Company's December 31, 2000 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 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 and 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 market located in Miami Beach, Florida. 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, Westwood, Sherman Oaks, Woodland Hills, and Costa Mesa. JFD--Inc. also includes the two Rascal House restaurants, located in Miami Beach and Boca Raton, Florida. 2. SUPPLEMENTAL CASH FLOW INFORMATION
Three Months Ended March 31, 2001 2000 -------- -------- Supplemental cash flow information: Cash paid for: Interest ................................ $242,000 $274,000 Income taxes ............................ $ 80,000 $ --
5 7 JERRY'S FAMOUS DELI, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 3. NET INCOME PER SHARE In accordance with Statement of Financial Accounting Standard ("SFAS") No. 128, "Earnings Per Share," 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. 4. SHAREHOLDERS' EQUITY As of February 3, 2000, the Company's stock is being traded over the Nasdaq SmallCap Market. On February 9, 2000, the Company completed a one-for-three reverse stock split of its Common Stock applicable to the shareholders of record on February 9, 2000. The reverse stock split reduced the Company's outstanding shares from 14,019,203 to approximately 4,673,068. All common share and per share amounts have been adjusted to give retroactive effect to the one-for-three reverse stock split for the periods presented. 5. SUBSEQUENT EVENTS On April 27, 2001, the Company mailed to all of its shareholders of record as of April 6, 2001, an Offer to Purchase up to 600,000 share of its Common Stock, at a purchase price of $5.30 per share. The Offer to Purchase will remain open until June 29, 2001, and is subject to certain conditions, as described in the Offer to Purchase. 6 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The following table presents for the three months ending March 31, 2001 and 2000, the Consolidated Statements of Operations of the Company expressed as percentages of total revenue. The results of operations for the first three months of 2001 are not necessarily indicative of the results to be expected for the full year ending December 31, 2001.
PERCENTAGE OF TOTAL REVENUE THREE MONTHS ENDED MARCH 31, ---------------------------- 2001 2000 ----- ----- Revenues 100.0% 100.0% Cost of sales 34.0 33.6 ----- ----- Gross profit 66.0 66.4 Operating expenses Labor 34.6 33.9 Occupancy and other 14.1 13.6 ----- ----- Total operating expenses 48.7 47.5 General and administrative expenses 5.9 6.6 Depreciation and amortization expenses 4.9 4.6 ----- ----- Total expenses 59.5 58.7 ----- ----- Income from operations 6.5 7.7 Interest income 0.0 0.1 Interest expense (1.3) (1.4) Licensing income 0.1 -- Other income (expense) 0.0 -- ----- ----- Income before income tax provision and minority interest 5.3 6.4 Provision for income taxes 1.5 1.7 Minority interest 0.2 0.4 ----- ----- Net income 3.6% 4.3% ===== =====
7 9 RESULTS OF OPERATIONS Revenues increased approximately $48,000, or 0.3%, to approximately $18,868,000 for the 2001 three-month period from approximately $18,820,000 for the 2000 three-month period. The increase in revenues was primarily due to the increase of approximately $131,000 or 1.2% in same store sales for the eight Southern California stores in operation since January 1, 2000 for the three months ended March 31, 2001 as compared to the same period for 2000. Also contributing to the overall increase was an increase in revenues of approximately $60,000 or 1.5% for The Epicure Market in Florida. The overall increase in revenues was offset by the decrease in sales of approximately $143,000 or 1.0% for the Rascal House restaurants located in Florida. Management believes this decrease in the Florida area is primarily attributable to the area's increasing restaurant competition. As a percentage of revenues, cost of sales, which consists primarily of food costs, increased 0.4 percentage point to 34.0% in 2001 from 33.6% for the same three-month period in 2000. This increase is in part due to slightly higher food costs but offset by the Company's continued focus on more efficient buying and increased management monitoring of purchase costs at both the restaurants and Epicure. Total expenses, as a percentage of revenues, increased slightly by 0.8 percentage point to 59.5% for the three months ended March 31, 2001 from 58.7% for the three months ended March 31, 2000. The overall increase in total expenses is primarily attributable to an increase in labor expense of 0.7 percentage points to 34.6% for the 2001 quarter from 33.9% for the 2000 quarter. Labor costs for Epicure also increased 0.8 percentage point to 27.5% of Epicure revenues for the 2001 quarter from 26.7% as compared to the same 2000 quarter. Occupancy and other expenses also increased slightly by 0.5 percentage point to 14.1% for the 2001 period as compared to 13.6% for the same 2000 period. The increase in these operating expenses is primarily due to increasing labor and utility costs. The increase in operating expenses was partially offset by a decrease of 0.7 percentage point in general and administrative expenses to 5.9% for the 2001 quarter from 6.6% for the 2000 quarter. This decrease is mostly a function of certain costs remaining unchanged despite a slight increase in revenues. Depreciation and amortization expenses increased slightly by 0.3 percentage point to 4.9% for the 2001 period as compared to 4.6% for the same 2000 period. The decrease in interest expense of $25,000 to $238,000 for the 2001 three-month period from $263,000 for the same 2000 period, resulted primarily from the continued reduction in the Company's debt. LIQUIDITY AND CAPITAL RESOURCES The Company paid approximately $2,408,000 of debt during the first quarter of 2000. The Company's capital requirements are primarily for the development, construction and equipping of new restaurants. Generally, the Company leases the property and extensively remodels the existing building. Additional capital expenditures will be required if new locations are added. The cost of renovation will depend upon the style of restaurant being converted. Renovation of Jerry's Famous Deli restaurants have cost between $2.0 million and $3.0 million per location, or $267 to $400 per square foot. Cost of development of the new Jerry's Famous Deli in South Miami, Florida, which is leased, is anticipated to be approximately $3.0 million. In September 1998, the Company entered into a $15,000,000 credit facility with BankBoston, N.A. in the form of a $9,000,000 term loan and $6,000,000 revolving line of credit. In conjunction with the agreement, the Company repaid certain existing debt with proceeds from the term loan. The term loan and revolver mature five years from inception and bear interest at the Eurodollar rate plus a variable percentage margin totaling approximately 8.21% at March 31, 2001. The debt is collateralized by assets of the Company and includes certain financial covenants. As of March 31, 2001, the amount of borrowings available under the revolving line of credit was approximately $4,720,000. Management believes that cash on hand, cash flow from operations and its available line of credit will be sufficient to finance the operation of the Company's existing restaurants and market, as well as the Offer to Purchase. Future anticipated capital needs cannot be projected with certainty. Additional capital expenditures will be required if new locations are added. The Company continues to search for prime locations appropriate for its customer base and to develop them into restaurants, both in the Southern California and Southern Florida areas, as well as new areas, while continuing to provide quality food and service in its existing restaurants. However, the issue of whether or not to aggressively expand is still under review. The Company seeks to exploit its brand names for ancillary income from licensing and possibly third party retail sales. This is a new initiative and the outlook is not yet clear. 8 10 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. Further information on these and other factors is contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2000 and its other reports filed with the Securities and Exchange Commission. Item 3. Quantitative and Qualitative Disclosure About Market Risk. The Company is exposed to market risk from changes in interest rates on debt. The Company's exposure to interest rate risk relates to its $9,000,000 term loan and $6,000,000 revolving line of credit. Borrowings under the agreements bear interest at the Eurodollar rate plus a variable margin. Borrowings outstanding under the agreements were $5,060,000 at March 31, 2001. Consequently, a hypothetical 1% interest rate change could have a material impact on the Company's results of operations. PART II - OTHER INFORMATION Items 1. through 6. Not applicable. 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: May 11, 2001 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 9