-----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, CW/sn0546JFJej2Kh+rGMMXhFpghahmuMm0i5F0rrDvxpNcOpBlT1H1rCH7TA2C1 h8nJax7O0ilSeNWs0yLg7Q== 0000950148-96-002183.txt : 19961007 0000950148-96-002183.hdr.sgml : 19961007 ACCESSION NUMBER: 0000950148-96-002183 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19961004 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/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-26956 FILM NUMBER: 96639677 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/A 1 AMENDMENT NO. 1 TO FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 AMENDED 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, 1996 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 July 31, 1996, outstanding common shares totaled 10,386,250. 2 This Form 10-Q amends Form 10-Q filed on August 14, 1996, by the registrant, Jerry's Famous Deli, Inc. and is in response to comment nos. 4, 5 and 6 in the Staff's comment letter, dated September 20, 1996. As required under Item 7, the amended sections are found in the Pro Forma Financial Statements for the acquired business, Solley's, Inc., and in the Liquidity and Capital Resources portion of Management's Discussion and Analysis of Financial Condition and Results of Operations. 1 3 JERRY'S FAMOUS DELI, INC. AND SUBSIDIARIES INDEX Page Number PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Consolidated Balance Sheets as of June 30, 1996 and December 31, 1995.............................................................. 3 Consolidated Statements of Operations for the Three Months and Six Months Ended June 30, 1996 and June 30, 1995.................. 4 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1996 and June 30, 1995................................... 5 Notes to Consolidated Financial Statements........................................................ 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations............................................. 10 Liquidity and Capital Resources................................... 12 PART II - OTHER INFORMATION Items 1. through 6......................................................... 14 Signatures........................................................ 15 2 4 JERRY'S FAMOUS DELI, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31, 1996 1995 -------------- --------------- ASSETS Current assets Cash and cash equivalents $ 1,462,362 $ 7,214,412 Accounts receivable, net 284,349 215,925 Accounts receivable - related party - 16,020 Inventory 177,379 118,382 Prepaid expenses 382,741 222,650 Preopening costs 375,702 83,025 Income taxes receivable 103,360 - Deferred income taxes 22,265 44,531 -------------- --------------- Total current assets 2,808,158 7,914,945 Property and equipment, net 18,006,933 10,417,601 Organization costs 95,834 68,174 Deferred income taxes 103,466 103,466 Acquisition price in escrow 2,543,500 - Other assets 208,607 278,126 -------------- --------------- Total assets $ 23,766,498 $ 18,782,312 ============== =============== LIABILITIES AND EQUITY Current liabilities Accounts payable $ 1,549,161 $ 1,678,421 Accrued expenses 790,303 756,997 Sales tax payable 143,079 232,050 Income taxes payable - 79,906 Short-term bank borrowings 300,000 - Note payable to related party - 1,154,036 Current portion of long-term debt 124,188 125,137 Current portion of obligations under capital leases 36,620 43,140 -------------- --------------- Total current liabilities 2,943,351 4,069,687 Long-term debt 6,767,057 1,086,813 Obligations under capital leases 3,843 20,722 Deferred credits 545,952 575,653 -------------- --------------- Total liabilities 10,260,203 5,752,875 Minority interest 342,162 263,212 Equity Preferred stock, 5,000,000 shares authorized, none issued or outstanding - - Common stock, no par value, 60,000,000 shares authorized, 10,386,250 issued and outstanding 12,664,752 12,664,752 Equity 499,381 101,473 -------------- --------------- Total equity 13,164,133 12,766,225 -------------- --------------- Total liabilities and equity $ 23,766,498 $ 18,782,312 ============== ===============
The accompanying notes are an integral part of these consolidated financial statements 3 5 JERRY'S FAMOUS DELI, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, 1996 1995 1996 1995 ---- ---- ---- ---- Revenues $ 8,001,601 $ 6,832,633 $ 15,736,129 $ 14,026,407 Cost of sales 2,536,996 2,274,597 4,883,169 4,671,032 ----------- ----------- ------------ ------------ oss profit 5,464,605 4,558,036 10,852,960 9,355,375 Operating expenses Labor 2,711,068 2,296,000 5,380,268 4,725,604 Occupancy and other 1,005,290 925,138 2,029,029 1,992,664 Occupancy - related party 45,000 45,000 90,000 90,000 General and administrative expenses 1,082,782 390,243 1,852,409 990,615 General and administrative expenses - related party - 346,343 - 569,182 Depreciation and amortization expenses 370,777 256,092 652,067 519,683 Restaurant concept discontinuation costs - - - 137,396 ----------- ----------- ------------ ------------ Total expenses 5,214, 917 4,258,816 10,003,773 9,025,144 ----------- ----------- ------------ ------------ Income from operations 249,688 299,220 849,187 330,231 Other income (expense) Interest income 30,739 102 108,513 1,130 Interest expense (116,491) (56,499) (155,576) (106,225) Other income, net 7,534 - 14,068 - ----------- ----------- ------------ ------------ Income before provision for income taxes and minority interest 171,470 242,823 816,192 225,136 Provision (benefit) for income taxes 60,000 (931) 274,000 (149,603) Minority interest 20,676 44,005 131,216 58,782 ----------- ----------- ------------ ------------ Net income $ 90,794 $ 199,749 $ 410,976 $ 315,957 =========== =========== ============ ============ Net income per common share $ 0.01 $ 0.04 ============ ============ Weighted average shares outstanding 10,481,244 10,476,241 ============ ============ Pro forma data for 1995 Pro forma net income per common share $ 0.02 $ 0.03 =========== ============ Pro forma common shares outstanding 10,386,250 10,386,250 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements 4 6 JERRY'S FAMOUS DELI, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 1995 ------------ ----------- Cash flows from operating activities: Net income $ 410,976 $ 315,957 Adjustments to reconcile net income to net cash used in operating activities Depreciation and amortization 652,067 519,683 Minority interest 131,216 58,782 Deferred income taxes 22,266 (240,676) Changes in assets and liabilities Accounts receivable - related party 16,020 14,160 Accounts receivable (94,010) (130,061) Inventory (58,997) 3,146 Prepaid expenses (160,091) (263) Preopening costs (332,677) (8,602) Other assets 1,627 (42,152) Organization costs (3,826) (7,853) Accounts payable (129,260) (1,434,544) Accrued expenses 33,306 (794,262) Sales tax payable (88,971) (129,900) Income taxes payable (183,266) (26,762) Deferred credits (7,657) (43,153) ------------ ----------- Total adjustments (202,253) (2,262,457) ------------ ----------- Net cash provided by (used in) operating activities 208,723 (1,946,500) ------------ ----------- Cash flows from investing activities: Purchases of equipment and leasehold improvements (2,043,158) (1,049,716) Additions to construction-in-progress (2,119,678) (207,941) Funds in escrow for purchase of Solley's, Inc. assets (2,543,500) - Purchase of land (2,477) - Purchase of building and related purchase option payments (764,068) (7,000) ------------ ----------- Net cash used in investing activities (7,472,881) (1,264,657) ------------ ----------- Cash flows from financing activities: Borrowings from credit facility 303,165 400,000 Payments on credit facility (70,000) (100,000) Borrowings on long-term debt 2,500,000 625,000 Payments on long-term debt (3,044) (1,380,818) Advances to related parties (1,128,450) (22,215) Capital lease payments (24,229) (24,227) Distribution paid to shareholder (13,068) (13,068) Dividends paid to minority shareholders (52,266) 52,266 Proceeds from stock issuance, net - 3,419,852 ------------ ----------- Net cash provided by financing activities 1,512,108 2,956,790 ------------ ----------- Net decrease in cash and cash equivalents (5,752,050) (254,367) Cash and cash equivalents, beginning of period 7,214,412 290,425 ------------ ----------- Cash and cash equivalents, end of period $ 1,462,362 $ 36,058 ============ ===========
The accompanying notes are an integral part of these consolidated financial statements 5 7 JERRY'S FAMOUS DELI, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION AND ORGANIZATION: Basis of Presentation The accompanying consolidated financial statements of Jerry's Famous Deli, Inc. and its subsidiaries ("the Company") for the three and six months ended June 30, 1996 and June 30, 1995 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, 1995 balance sheet financial statement is derived from audited financial statements included in the Company's December 31, 1995 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 financial statements are comprised of the consolidated (1996) and combined (1995) financial statements ("consolidated statements"), which consist of Jerry's Famous Deli, Inc. ("JFD--Inc."), a California corporation; JFD-Encino ("JFD--Encino"), a California limited partnership; and Pizza By The Pound, dba Jerry's Famous Pizza, a California corporation, which ceased operations in June 1995. JFD--Inc., JFD--Encino and Jerry's Famous Pizza operate or operated family oriented, full-service restaurants. These entities are collectively referred to as "Jerry's Famous Deli, Inc." or the "Company". The 1995 financial statements have been presented on a combined basis, similar to a pooling of interests, due to common ownership and business. All significant intercompany transactions and balances have been eliminated. The combination excludes certain other entities under common ownership or control of the shareholders, since these entities engage in unrelated business lines and, in certain instances, have ceased operations. JFD--Inc. and JFD--Encino include the operations of Southern California restaurants located in Studio City, Encino, Marina del Rey, West Hollywood, Pasadena, which opened February 20, 1996, and Westwood, which opened June 18, 1996. A tender offer by Jerry's Deli, L.A., Incorporated, a subsidiary of JFD--Inc. and the co-general partner of JFD--Encino, to purchase up to 100% of the outstanding limited partnership units of JFD--Encino, expired April 13, 1996. One of the limited partners, Isaac Starkman, who is also the Chief Executive Officer and the beneficial controlling shareholder of the Company, submitted his interest in JFD--Encino which was purchased on May 1, 1996 for approximately $158,000. This resulted in a change in minority interest to 72.45% from 80.0%. The lease agreement the Company entered into with the lessor/purchaser of 3.5 acres in Las Vegas, Nevada, , expired on June 11, 1996 due to the purchaser's inability to obtain financing to complete the acquisition of the property. Nevertheless, the Company continues to search for a property suitable for development of a new restaurant in Las Vegas, Nevada. Reclassifications Certain amounts presented in prior periods financial statements have been reclassified to conform with the current presentation. 2. INCOME TAXES Upon termination of the subchapter S election by the Company on January 11, 1995, deferred income taxes became an asset of the Company and was recorded in the balance sheet with a corresponding credit to the combined statement of operations. The estimated deferred tax asset, principally resulting from temporary differences in the 2. 6 8 2. INCOME TAXES (CONTINUED) recognition of depreciation expense for financial statement and tax reporting purposes, as of June 30, 1996, was approximately $126,000. 3. SUPPLEMENTAL CASH FLOW INFORMATION
Six Months Ended June 30, 1996 1995 ------------ ------------ Supplemental cash flow information: Cash paid for: Interest............................................................ $ 188,000 $ 120,000 Income taxes........................................................ $ 435,000 $ 161,000 Supplemental information on noncash investing and financing activities: Increase in loan payable--related party as a result of distributions - $ 795,000 (Decrease) increase in deferred costs capitalized to construction-in-progress........................................ (22,000) $ 41,000 Issuance of common stock for services rendered........................ - $ 130,000 Increase in long-term debt on purchase of restaurant site............. $ 3,250,000 -
4. NET INCOME PER SHARE AND PRO FORMA DATA Net income per common share for the 1996 three- and six-month periods are based on the weighted average number of common shares outstanding. Pro forma net income per common share for the 1995 three- and six-month periods was calculated using net income and based on, as if, 10,386,250 shares of common stock were outstanding for all of fiscal year 1995. The pro forma shares outstanding are based on (i) 7,460,000 shares outstanding for the Company at December 31, 1994, (ii) 40,000 shares issued on January 9, 1995, per the terms of a consulting agreement, (iii) 931,250 shares sold through a private placement which was completed in March 1995 and (iv) an additional 1,955,000 shares sold through an initial public offering in October 1995. 5. SUBSEQUENT EVENTS On July 1, 1996, the Company completed the purchase of two delicatessen restaurants operated under the name "Solley's" and located in Woodland Hills and Sherman Oaks, California. For $2,325,000 the Company purchased certain assets along with the operation of the restaurants. Also included in the purchase was a limited five-year covenant not to compete of Sol Zide, one of the sellers and owner of Solley's Inc. The Woodland Hills restaurant consists of approximately 330 seats and 7,000 square feet of leased space with three options to extend the lease for approximately 1,625 square feet, 800 square feet and 1,200 square feet. The Company exercised the option to acquire an additional 1,625 square feet concurrently with the acquisition closing. The Sherman Oaks restaurant consists of approximately 160 seats and 8,700 square feet of leased restaurant and bakery space. The Company intends to continue to operate the acquired restaurants as delicatessen-style restaurants. On August 5, 1996, the Company signed an agreement to acquire a delicatessen in Florida, which has had annual revenues of approximately $7,800,000. The purchase includes real estate, fixtures and other assets. This transaction is subject to governmental approvals, financing, environmental and title clearances as preconditions to closing, which is not expected before September 9, 1996. This is a forward-looking statement. There are significant risks that the required approvals, financing and clearances cannot be obtained. In August 1996, Congress passed the Small Business Job Protection Act of 1996, which contains provisions increasing the minimum wage from $4.25 to $5.15 per hour. The legislation is now awaiting the signature of President Clinton. The increase in the minimum wage will likely lead to a significant increase in labor costs, since many of the Company's restaurant employees are paid the minimum wage. 7 9 6. PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND CONSOLIDATED BALANCE SHEET These unaudited Pro Forma Consolidated Statements of Operations are presented as if the purchase of assets of Solley's, Inc. ("Solley's") had occurred as of January 1, 1995 and the unaudited Pro Forma Consolidated Balance Sheet is presented as if the purchase of assets had occurred on June 30, 1996, and should be read in conjunction with the Consolidated Financial Statements of Jerry's Famous Deli, Inc. ("JFD") and the Notes thereto, included in the Company's Form 10-K for the year ended December 31, 1995. In management's opinion, all adjustments necessary to reflect the purchase of substantially all of the assets of Solley's, Inc. with JFD have been made. The unaudited Pro Forma Combined Statements of Operations are not necessarily indicative of what the actual results of operations of Jerry's Famous Deli, Inc. and Solley's, Inc. would have been for the periods ended, nor do they purport to represent the results of operations for future periods.
Year Ended December 31, 1995 Six Months Ended June 30, 1996 ----------------------------------- ----------------------------------- JFD Solley's Pro Forma JFD Solley's Pro Forma --------- ---------- --------- ---------- ---------- --------- (in thousands, except per share data) Revenues $ 28,030 $ 7,460 $35,490 $ 15,736 $ 3,537 $ 19,273 Cost of goods sold 9,168 2,523 11,691 4,883 1,219 6,102 -------- -------- ------- -------- -------- --------- Gross profit 18,862 4,937 23,799 10,853 2,318 13,171 Operating expenses 13,634 4,195 17,829 7,499 2,115 9,614 General and administrative expenses 2,924 294(a) 3,218 1,853 160(a) 2,013 Depreciation and amortization expenses 977 328(c) 1,305 652 164(c) 816 Restaurant concept discontinuation costs 137 - 137 - - - -------- -------- ------- -------- -------- --------- Total expenses 17,672 4,817 22,489 10,004 2,439 12,443 -------- -------- ------- -------- -------- --------- Income (loss) from operations 1,190 120 1,310 849 (121) 728 Interest income 72 3 75 109 2 111 Interest expense (182) -(b) (182) (156) -(b) (156) Other income, net 69 21 90 14 1 15 -------- -------- ------- -------- -------- --------- Income (loss) before income provision for taxes and minority interest 1,149 144 1,293 816 (118) 698 Provision for income taxes 187 1 188 274 1 275 Minority interest 180 - 180 131 - 131 -------- -------- ------- -------- -------- --------- Net income (loss) $ 782 $ 143 $ 925 $ 411 $ (119) $ 292 ======== ======== ======= ======== ======== ========= Net income per share $ 0.09 $ 0.03 ======= ========= Weighted average shares outstanding 10,476,241 10,481,244
(a) Total compensation and benefits for the prior owner of Solley's in the amounts of approximately $118,000 and $233,000 for the six and twelve months, respectively, have been eliminated. (b) Since no debt or other liabilities of Solley's were assumed by the Company, interest expense of $41,000 and $91,000 for the six and twelve months, respectively, have been eliminated. (c) Includes amortization of goodwill of $37,000 and $73,000 and of the covenant not to compete of $40,000 and $80,000 for the six and twelve months, respectively. 8 10 6. PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND CONSOLIDATED BALANCE SHEET (CONTINUED)
June 30, 1996 ----------------------------------------------------- Solley's --------------------------- JFD Historical Adjustments(1) Pro Forma --------- ----------- ---------------- ----------- (in thousands) ASSETS Current assets Cash and cash equivalents $ 1,462 $ - $ - $ 1,462 Accounts receivable, net 284 - - 284 Inventory 178 79 (54) 203 Prepaid expenses 383 - - 383 Other current assets 501 - - 501 ----------- --------- ------------ ------------ Total current assets 2,808 25 (54) 2,833 Property and equipment, net 18,007 605 62 18,674 Acquisition deposit in escrow 2,543 - (2,543) - Organization costs, deferred taxes and other assets 408 - 110 518 Goodwill - - 1,341 1,341 Covenant not to compete - - 400 400 ----------- --------- ------------ ------------ Total assets $ 23,766 $ 684 $ (684) $ 23,766 =========== ========= ============ ============ LIABILITIES AND EQUITY Current liabilities $ 2,943 $ - $ - $ 2,943 Long-term debt and other liabilities 7,317 - - 7,317 Minority interest 342 - - 342 Equity 13,164 - - 13,164 ----------- --------- ------------ ------------ Total liabilities and equity $ 23,766 $ - $ - $ 23,766 =========== ========= ============ ============
(1) The cash purchase price of $2,543,000 reflected under the JFD long-term debt caption "Acquisition deposit in escrow", was allocated to the following based on their fair value on the date of acquisition: $25,000 to inventory: $667,000 to property and equipment; $400,000 for a covenant not to compete which will be amortized on a straight-line basis over 5 years; $110,000 for deposits to the landlords; and the balance to goodwill which will be amortized on a straight-line basis over 18 years. Other than the inventory and property and equipment, no other assets were acquired. In addition, no debt or other liabilities were assumed from Solley's. Since funding for the purchase came from the proceeds of JFD's October 1995 Initial Public Offering and earlier bank borrowings, reflected under the JFD "Long-term debt and other liabilities" caption, no additional debt was incurred. 9 11 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, 1996 and 1995, the Consolidated Statements of Operations of the Company expressed as percentages of total revenue. The results of operations for the first six months of 1996 are not necessarily indicative of the results to be expected for the full year ending December 31, 1996.
PERCENTAGE OF TOTAL REVENUE --------------------------- THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, -------------------------- ------------------------- 1996 1995 1996 1995 ------ ------ ------ ------ Revenues 100.0% 100.0% 100.0% 100.0% Cost of sales Food 28.7 30.9 28.2 30.7 Other 3.0 2.4 2.8 2.6 ------ ------ ------ ------ Total cost of sales 31.7 33.3 31.0 33.3 ------ ------ ------ ------ Gross profit 68.3 66.7 69.0 66.7 Operating expenses Labor 33.9 33.6 34.2 33.7 Occupancy and other 13.2 14.2 13.5 14.8 ------ ------ ------ ------ Total operating expenses 47.1 47.8 47.7 48.5 General and administrative expenses 13.5 10.8 11.7 11.1 Depreciation and amortization expenses 4.6 3.7 4.2 3.7 Restaurant concept discontinuation costs -- -- -- 1.0 ------ ------ ------ ------ Total expenses 65.2 62.3 63.6 64.3 ------ ------ ------ ------ Income from operations 3.1 4.4 5.4 2.4 Interest income 0.4 0.0 0.7 0.0 Interest expense (1.5) (0.8) (1.0) (0.8) Other income (loss), net 0.1 0.0 0.1 - ------ ------ ------ ------ Income before provision for income taxes and minority interest 2.1 3.6 5.2 1.6 Provision (benefit) for income taxes 0.7 0.0 1.8 (1.1) Minority interest 0.3 0.7 0.8 0.4 ------ ------ ------ ------ Net income 1.1% 2.9% 2.6% 2.3% ====== ====== ===== =====
RESULTS OF OPERATIONS Three Months Ended June 30, 1996 Compared to Three Months Ended June 30, 1995 Revenues for the three months ended June 30, 1996 increased $1,169,000, or 17.1%, to $8,002,000 for the 1996 quarter from $6,833,000 for the 1995 quarter. Included in this increase are revenues of over $1,332,000 from the Pasadena and Westwood restaurants, opened in February and June 1996, respectively. Offsetting part of this increase 10 12 were 1995 revenues of $124,000 from Jerry's Famous Pizza restaurant ("JFD Pizza"), which closed in June 1995. Revenue for the same four restaurants operated during both periods decreased slightly, approximately $70,000 or 1.0%. Cost of sales, as a percentage of revenues, decreased 1.6 percentage points to 31.7% from 33.3%. The cost of food, which comprises over 90% of cost of sales, decreased 2.2 percentage points, as a percentage of revenues, to 28.7% in the 1996 quarter from 30.9% in the 1995 quarter. Management attributes this decrease primarily to its continuing program of more effective buying, improved cost control and better financial liquidity since the Company's October 1995 Public Offering, which has allowed the Company to take advantage of vendor discounts for prompt or early payments. The 1996 second quarter cost of food 2.2 percentage points decrease declined from the reported 1996 first quarter 2.8 percentage point decrease. A major factor for this decrease was a 45% overall increase in prices of dairy products which comprise approximately 7% of total food costs. Other cost of sales increased by 0.6 percentage point, as a percentage of revenues, in the 1996 second quarter over the 1995 second quarter. A significant factor in this increase was a 10% increase in liquor prices. As a result of the net decreased cost of sales, gross profit improved as a percentage of revenues to 68.3% for 1996 from 66.7% for 1995. Total expenses, as a percentage of revenues, increased 2.9 percentage points to 65.2 % for the 1996 quarter from 62.3% for the 1995 quarter. Major changes occurred in occupancy and other expenses, general and administrative expenses and depreciation expenses. 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 0.7 percentage points to 47.1% in the 1996 quarter from 47.8% in the 1995 quarter. Labor increased slightly to 33.9% from 33.6%. Occupancy expenses decreased 1.0 percentage point to 13.2% for 1996 from 14.2% for 1995 which resulted principally from a $94,000 decline in rent expense due to the March 1996 purchase of the Company's Marina del Rey restaurant site and additional revenues in the 1996 quarter from the Pasadena restaurant which, as an owned property, incurs no rent expense. General and administrative expenses, as a percentage of revenues, increased 2.7 percentage points to 13.5% in 1996 from 10.8% in 1995. Contributing 1.9 percentage points of the increase are added costs from becoming a public company as reflected in total additional expenses of approximately $163,000 for the services of two public relations companies, preparation of fiscal yearend reports, audit fees, legal fees and premiums for a new life insurance policy on the chief executive officer. Also part of the increase was a performance incentive bonus accrual of $68,000 for three executive officers. Depreciation expense increased approximately $115,000, or 0.9 percentage points as a percentage of revenues to 4.6% for the 1996 quarter from 3.7% for the 1995 quarter. Included in the increase is additional depreciation expense of approximately $75,000 for the Pasadena restaurant, which opened in February 1996, and $22,000 for Marina del Rey restaurant site, which was purchased in March 1996. The increase in interest income of approximately $31,000 in 1996 primarily represents earnings on the investment of funds received from the October 1995 Public Offering. Interest expense increased approximately $60,000 principally due to the financing of the Marina del Rey real property purchase in the 1996 quarter over the 1995 quarter. Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995 Revenues increased $1,709,722, or 12.2%, to $15,736,000 for the 1996 period from $14,026,000 for the 1995 period. The Pasadena and Westwood restaurants, opened in 1996, contributed approximately $1,970,000 in 1996. Offsetting part of this increase were 1995 revenues of $236,000 from JFD Pizza, which closed in June 1995. Revenues for the same four restaurants operated during both six-month periods decreased approximately $50,000, or 0.4%. Income from operations increased approximately $519,000, or 157.2%, to $849,000 for the 1996 period from $330,000 for the 1995 period, due primarily to the decrease in food costs, for the reasons described above in the quarter-to-quarter comparison, and the restaurant discontinuation costs of $137,000 incurred during the 1995 period. Labor expense, as a percentage of revenues, increased to 34.2% for 1996 from 33.7% for 1995 primarily due to higher labor costs for the Pasadena and Westwood restaurants, which is common to new restaurants during the first few weeks after opening. General and administrative expenses increased approximately $292,000, or 0.5% percentage point as a percentage of revenues. This increase includes over $210,000 of added costs related to the Company's change from a privately held to a public company, including the expenses of the Company's first annual report on Form 10-K, first Annual Report to Shareholders, first Proxy Statement and first annual meeting and the attendant audit fees, legal fees and 11 13 other costs. Further, the Company has incurred approximately $189,000 in additional labor expense due to the addition of several new positions necessary to support the Company's expanded restaurant operations, which have grown from four to eight restaurant since February 1996. The new positions include restaurant payroll clerks, centralized food procurement personnel, trainers for new restaurant staff, restaurant start-up and quality control personnel, catering service personnel and financial reporting personnel. Of the $189,000 increase for the 1996 six months, approximately $57,000 was 1996 first quarter payroll expense transferred from operating labor. Interest income increased approximately $107,000 to $109,000 for the 1996 period from $1,000 for the 1995 period. This increase is primarily due to earnings on the investment of funds received from the October 1995 Public Offering. LIQUIDITY AND CAPITAL RESOURCES The Company's capital requirements are primarily for the development, construction and equiping of new restaurants. Generally, the Company leases the property and extensively remodels the existing building. Each new restaurant requires between $2,000,000 and $2,500,000 for remodeling and purchasing of equipment. The Company has continued its current plans for expansion with the acquisition of the two Solley's restaurants and its plans to open its ninth restaurant, located in Costa Mesa, California, in the first quarter of 1997. During the six months ended June 30, 1996 the Company used additional bank borrowings of $2,800,000 and proceeds from its public offering to fund the $2,543,000 cash purchase of the two Solley's restaurants, the approximately $3,600,000 for construction of and purchase of equipment for the Pasadena and Westwood restaurants, the $764,000 cash portion of the purchase of the Marina del Rey restaurant property and $108,000 for the development of future projects. The cash and cash equivalents decrease since December 31, 1995 of approximately $5,752,000 comprises $209,000 provided by operations, $7,473,000 used to purchase property and equipment and other investments and $1,512,000 provided by bank borrowings less other financing activities. The increase in net property and equipment since December 31, 1995, of approximately $7,589,000 resulted from purchases of equipment and leasehold improvements for $2,043,000, additions to construction-in-progress for $2,120,000, the purchase of leased restaurant real property for $4,069,000, less an increase in accumulated depreciation of $608,000 and other net deductions of $35,000. During the same six-month period long-term debt increased by approximately $5,680,000, from an additional long-term bank borrowing of $2,500,000 and from a $3,250,000 collateralized promissory note arising from the purchase of leased restaurant real property, net of principal payments of approximately $70,000. Management believes that cash on hand, cash flow from operations and drawings on its bank lines of credit will be sufficient to finance the completion of the Costa Mesa restaurant and the remodeling of the Woodland Hills restaurant. In planning for future expansion, primarily the Florida acquisition, management is investigating other sources of financing, including equity and/or debt financing. The acquisition in Miami and future growth is dependent on the Company obtaining additional capital. RECENT ACQUISITION On July 1, 1996, the Company completed the purchase of two delicatessen restaurants operated under the name "Solley's" and located in Woodland Hills and Sherman Oaks, California. For $2,325,000 the Company purchased certain assets along with the operation of the restaurants. Also included in the purchase was a limited five-year covenant not to compete of Sol Zide, one of the sellers and owner of Solley's Inc. The Woodland Hills restaurant consists of approximately 330 seats and 7,000 square feet of leased space with three options to extend the lease for approximately 1,625 square feet, 800 square feet and 1,200 square feet. The Company exercised the option to acquire an additional 1,625 square feet concurrently with the acquisition closing. The Sherman Oaks restaurant consists of approximately 160 seats and 8,700 square feet of leased restaurant and bakery space. The Company intends to continue to operate the acquired restaurants as delicatessen-style restaurants. On a pro forma combined basis, the two Solley's restaurants would have increased total revenues for the year ended December 31, 1995 by $7,460,000, or 27%, to $35,490,000 and increased net income by $296,000, or 38%, to $1,078,000, which would have resulted in a 25% increase in net income per share, to $0.10 per share from $0.08 per share. 12 14 However, for the six months ended June 30, 1996, revenues for the two Solley's restaurants were down approximately $500,000 from the same period in 1995, which management believes may have been due in part to Solley's management's focus on the pending sale of the restaurants during that period. As a result of the decline in revenues for the six month period ended June 30, 1996, the Solley's restaurants reported a net loss from operations of $121,000 (after adjustment for certain expenses which will not be incurred in the future by the Company), which reduced the pro forma consolidated net income reported to $290,000 and reduced net income per share to $0.03 per share from $0.04 per share. The pro forma consolidated statements of operations of the Company and Solley's are not necessarily indicative of what the actual results of operations of the Company would have been, had the acquisition been completed as of January 1, 1995, nor are they necessarily indicative of what the actual results of operations of the Company will be in future periods. The Company has applied for the permits necessary to change the Woodland Hills restaurant to a Jerry's Famous Deli. Once those permits are obtained, that restaurant will be closed for approximately two months for refurbishment, which management expects will have a negative impact on total revenues for the fourth quarter of 1996. When the restaurant is reopened, however, it will have increased seating capacity and longer hours of operation, which management anticipates will increase revenues from the Woodland Hills restaurant from its historical revenues as a Solley's restaurant. The Company has no current plans to change the format or operating hours of the Sherman Oaks Solley's restaurant, which historically has had higher revenues than the Woodland Hills Solley's restaurant, even though the seating capacity of the Sherman Oaks restaurant is smaller than the Woodland Hills restaurant. The Company has already begun to use the bakery acquired from Solley's to supply freshly baked bread to all of the Jerry's Famous Deli restaurants. In addition, the Company has hired the former owner and chief baker of the popular Weby's Bakery in Studio City, as head baker for the Jerry's bakery. Management believes that the implementation of its plans for the expansion of the Woodland Hills restaurant and the change in the format of that restaurant to a Jerry's Famous Deli, as well as the expansion and improvement of the bakery acquired from Solley's, will result in an increase in revenues at both facilities. However, these are forward looking statements and there are significant risks that revenues of the acquired restaurants and bakery will not increase as management anticipates due to a number of factors, including all of the risks generally attendant to the restaurant business. 13 15 PART II - OTHER INFORMATION Items 1. through 3. are not applicable. Item 4. Submission of Matters to a Vote of Security Holders. On May 28, 1996, the Company held its first Annual Meeting of Shareholders as a public company. 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, 1996. Isaac Starkman, Guy Starkman, Jason Starkman, Paul Gray and Stanley Schneider, 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:
Authority Name For Withheld ---- --- --------- Isaac Starkman 10,290,511 30,200 Guy Starkman 10,285,961 34,750 Jason Starkman 10,285,761 34,950 Paul Gray 10,291,411 29,300 Stanley Schneider 10,292,011 28,700
The following votes were cast for the ratification of Coopers & Lybrand, L.L.P., as the Company's independent public accountants for the fiscal year ending December 31, 1996: For: 10,309,756; Against: 4,500; Abstain: 6,455. Item 5. is not applicable. Item 6. Exhibits and Reports on Form 8-K. No reports on Form 8-K were filed during the quarter for which this report is filed. However, on July 12, 1996 a Form 8-K was filed regarding the purchase of two delicatessen restaurants operated under the name of "Solley's" and located in Woodland Hills and Sherman Oaks, California. 14 16 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: October 4, 1996 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 15 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS THE CONSOLIDATED STATEMENTS OF OPERATIONS AND THE CONSOLIDATED STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH. 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 1,462,362 0 292,874 8,525 177,379 2,808,158 22,718,949 4,712,016 23,766,498 2,943,351 0 0 0 12,664,752 499,381 23,766,498 15,736,129 15,736,129 4,883,169 4,883,169 10,003,773 0 155,576 684,976 274,000 410,976 0 0 0 410,976 0.04 0.04
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