-----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, F8TH1M68EREEv6s1/cboAOR2TrQACqMntEpcit6kXrxFDfct2h84RvZmJOV9fHKj z2RoGhSHRT2veRH5/Fy2wg== 0000950148-97-001397.txt : 19970515 0000950148-97-001397.hdr.sgml : 19970515 ACCESSION NUMBER: 0000950148-97-001397 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970514 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: 1934 Act SEC FILE NUMBER: 000-26956 FILM NUMBER: 97604655 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 March 31, 1997 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 April 30, 1997, outstanding common shares totaled 14,010,155 . 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, 1997 and December 31, 1996................. 2 Consolidated Statements of Operations for the Three Months Ended March 31, 1997 and March 31, 1996...................................................... 3 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1997 and March 31, 1996...................................................... 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 PART II - OTHER INFORMATION Items 1. through 6.............................................................................. 10 Signatures............................................................................. 11
1 3 JERRY'S FAMOUS DELI, INC. CONSOLIDATED BALANCE SHEETS
March 31, December 31, 1997 1996 ---- ---- ASSETS Current assets Cash and cash equivalents $ 2,596,580 $ 4,145,265 Accounts receivable, net 488,907 347,148 Inventory 377,000 420,819 Prepaid expenses 675,387 471,202 Preopening costs 355,436 549,607 Income taxes receivable 8,174 210,153 ----------- ----------- Total current assets 4,501,484 6,144,194 Property and equipment, net 26,278,670 25,694,476 Organization costs 96,419 104,483 Deferred income taxes 322,056 322,056 Goodwill and covenants not to compete 3,791,277 3,868,909 Other assets 468,160 428,867 ----------- ----------- Total assets $35,458,066 $36,562,985 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 2,035,536 $ 3,350,099 Accrued expenses 1,494,988 1,641,784 Sales tax payable 387,408 434,379 Deferred income and income taxes 103,441 15,699 Current portion of long-term debt 578,739 578,739 Current portion of obligations under capital leases 11,250 20,722 ----------- ----------- Total current liabilities 4,611,362 6,041,422 Long-term debt 5,815,274 5,959,959 Deferred credits 480,602 496,578 ----------- ----------- Total liabilities 10,907,238 12,497,959 Minority interest 464,963 440,998 Shareholders' equity Preferred stock Series A, no par, 5,000,000 shares authorized; no shares issued or outstanding at March 31, 1997 and 10,000 issued or outstanding at December 31, 1996 -- 9,153,078 Common stock, no par value, 60,000,000 shares authorized, 14,042,655 and 10,838,062 issued and outstanding at March 31, 1997 and December 31, 1996, respectively 23,385,234 14,175,109 Retained earnings 700,631 295,841 ----------- ----------- Total shareholders' equity 24,085,865 23,624,028 ----------- ----------- Total liabilities and shareholders' equity $35,458,066 $36,562,985 =========== ===========
The accompanying notes are an integral part of these financial statements 2 4 JERRY'S FAMOUS DELI, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 1997 1996 ---- ---- Revenues $ 14,811,756 $ 7,734,528 Cost of sales 4,378,917 2,346,173 ------------ ------------ Gross profit 10,432,839 5,388,355 Operating expenses Labor 5,518,866 2,669,200 Occupancy and other 1,800,136 1,023,739 Occupancy - related party 178,224 45,000 General and administrative expenses 1,202,689 769,627 Depreciation and amortization expenses 957,624 281,290 ------------ ------------ Total expenses 9,657,539 4,788,856 ------------ ------------ Income from operations 775,300 599,499 Other income (expense) Interest income 31,860 77,774 Interest expense (153,741) (39,085) Other income, net 415 6,534 ------------ ------------ Income before provision for income taxes and minority interest 653,834 644,722 Provision for income taxes 200,200 214,000 Minority interest 47,150 110,540 ------------ ------------ Net income $ 406,484 $ 320,182 ============ ============ Net income per share: Primary $ 0.04 $ 0.03 ============ ============ Fully diluted $ 0.03 $ 0.03 ============ ============ Weighted average common shares outstanding - primary 11,048,864 10,386,250 ============ ============ Weighted average common shares outstanding - fully diluted 13,318,964 10,492,591 ============ ============
The accompanying notes are an integral part of these consolidated financial statements 3 5 JERRY'S FAMOUS DELI, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 1997 1996 ---- ---- Cash flows from operating activities: Net income $ 406,484 $ 320,182 ----------- ----------- Adjustments to reconcile net income to net cash used in operating activities Depreciation and amortization 957,624 281,290 Gain on sale of assets (631) -- Minority interest 47,150 110,540 Deferred income taxes (3,925) 11,133 Deferred income 91,667 -- Changes in assets and liabilities Accounts receivable - related party -- 16,020 Accounts receivable (141,759) (122,996) Inventory 43,819 (29,497) Prepaid expenses (204,185) (158,984) Preopening costs (4,230) (110,781) Other assets (40,986) 5,695 Organization costs -- (3,826) Accounts payable (1,314,563) (792,598) Accrued expenses (146,796) (49,374) Sales tax payable (46,971) 31,723 Income taxes payable 201,979 57,867 Deferred credits (15,976) (2,968) ----------- ----------- Total adjustments (577,783) (756,756) ----------- ----------- Net cash used in operating activities (171,299) (436,574) ----------- ----------- Cash flows from investing activities: Purchases of equipment and leasehold improvements (554,791) (89,003) Additions to improvements - land, building and leasehold (349,860) (294,966) Additions to construction-in-progress (356,440) (1,270,913) Purchase of land -- (2,477) Purchase of building and related purchase option payments -- (744,510) Proceeds from sale of fixed assets 4,000 -- ----------- ----------- Net cash used in investing activities (1,257,091) (2,401,869) ----------- ----------- Cash flows from financing activities: Borrowings from credit facility -- 3,165 Payments on credit facility -- (40,000) Borrowings on long-term debt -- -- Payments on long-term debt (144,685) (1,997) Advances to related parties -- (1,128,450) Capital lease payments (9,472) (12,110) Distribution paid to shareholder -- (6,534) Dividends paid to minority shareholders (23,185) (26,133) Proceeds from exercise of 65,000 warrants, net of related costs 57,047 -- ----------- ----------- Net cash used by financing activities (120,295) (1,212,059) ----------- ----------- Net decrease in cash and cash equivalents (1,548,685) (4,050,502) Cash and cash equivalents, beginning of period 4,145,265 7,214,412 ----------- ----------- Cash and cash equivalents, end of period $ 2,596,580 $ 3,163,910 =========== ===========
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 months ended March 31, 1997 and March 31, 1996 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, 1996 balance sheet financial statement is derived from audited financial statements included in the Company's December 31, 1996 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. JFD--Inc. and JFD--Encino operate family oriented, full-service restaurants. 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 and Woodland Hills and Rascal House, which is located in Florida. A tenth restaurant in Costa Mesa, California, is under renovation and is scheduled to open in the third quarter of 1997. In January 1997, the Company under its stock option plan cancelled 173,500 options previously issued at $9.00 and $8.50 per share and reissued replacement options exercisable at $4.50 and $4.95 per share. Also in January 1997, the Company converted all outstanding Series A Preferred Shares to Series B Preferred Shares, which are identical to Series A execpt for the added right of Series B holders to vote on all matters which may be presented to the shareholders. Each Series B Preferred Share equals a vote of 109 shares of common stock. On March 27, 1997, the holders of the Series B Preferred Shares converted all remaining 10,000 shares outstanding to 3,139,593 shares of common stock. 2. INCOME TAXES The Company accounts for income taxes in accordance with Statement of Financial Accounting Standard ("SFAS") No. 109 "Accounting for Income Taxes." SFAS No. 109 prescribes the use of the liability method to compute the differences between the tax bases of assets and liabilities and related financial reporting amounts using currently enacted future tax laws and rates. Under SFAS No. 109 the effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. The estimated deferred tax credit, principally resulting from temporary differences in the recognition of depreciation expense for financial statement and tax reporting purposes, as of March 31, 1997, was approximately $12,000. 5 7
3. Supplemental Cash Flow Information Three Months Ended March 31, 1997 1996 ---- ---- Supplemental cash flow information: Cash paid for: Interest $ 155,000 $ 41,564 Income taxes $ 3,500 $ 145,000 Supplemental information on noncash investing and financing activities: Preferred Stock converted into common stock $ 9,153,078 -- Decrease in deferred costs capitalized to construction-in-progress -- $ (11,882) Purchase of restaurant $ -- $ 3,250,000 Write off of fully depreciated capital leases $ 124,062 --
4. Net Income Per Share and Pro Forma Data Net income per common share for the 1997 and 1996 three-month periods are based on the weighted average number of common shares outstanding. Fully diluted shares outstanding include outstanding stock options utilizing the treasury stock method. 5. Impact of Recent Accounting Pronouncements: In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." SFAS No. 128 supersedes and simplifies the existing computational guidelines under Accounting Principles Board Opinion No. 15, "Earnings Per Share." It is effective for financial statements issued for periods ending after December 15, 1997. Among other changes, SFAS No. 128 eliminates the presentation of primary 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. It is not expected that the adoption of SFAS No. 128 will have a material impact on the earnings per share results reported by the Company under the Company's current capital structure. 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, 1997 and 1996, the Consolidated Statements of Operations of the Company expressed as percentages of total revenue. The results of operations for the first three months of 1997 are not necessarily indicative of the results to be expected for the full year ending December 31, 1997.
Percentage of Total Revenue --------------------------- Three Months Ended March 31, ---------------------------- 1997 1996 ---- ---- Revenues 100.0% 100.0% Cost of sales Food 27.1 27.7 Other 2.5 2.6 ----- ----- Total cost of sales 29.6 30.3 ----- ----- Gross profit 70.4 69.7 Operating expenses Labor 37.3 34.5 Occupancy and other 13.3 13.8 ----- ----- Total operating expenses 50.6 48.3 General and administrative expenses 8.1 10.0 Depreciation and amortization expenses 6.5 3.7 ----- ----- Total expenses 65.2 62.0 ----- ----- Income from operations 5.2 7.7 Interest income 0.2 1.0 Interest expense (1.0) (0.5) Other income (loss), net -- 0.1 ----- ----- Income before provision for income taxes and minority interest 4.4 8.3 Provision for income taxes 1.4 2.9 Minority interest 0.3 1.4 ----- ----- Net income 2.7% 4.0% ===== =====
RESULTS OF OPERATIONS Net income rose approximately $86,000 to approximately $406,000, or 27.0%, for the 1997 quarter from approximately $320,000 for the 1996 quarter. The increase in net income was primarily due to increased revenue from additional restaurants opened or acquired during 1996, partially offset by increases in expenses related to the openings and operations of the new restaurants. Revenues increased $7,077,000, or 91.5%, to $14,812,000 for the 1997 three-month period from $7,735,000 for the 1996 three-month period. The four restaurants opened or acquired since March 31, 1996, contributed revenues of $7,061,000 to the 1997 period. Management has noted that the Company may be experiencing a seasonal influence on revenues from its Southern California restaurants, as revenues in the fourth quarter of 1996 and first quarter of 1997 were higher than those of the second and third quarters of 1996. Management also expects to experience higher 7 9 revenues in the first and fourth quarters of 1997 from the Rascal House restaurant, consistent with the tourist season in Florida. As a percentage of revenues, cost of sales decreased 0.7 percentage point to 29.6% in 1997 from 30.3% in 1996. Of the 0.7 percentage point decrease, the cost of food, which comprises over 90% of cost of sales, contributed a 0.6 percentage point reduction. The major portion of this decrease results from lower costs of bakery goods, a substantial amount of which are now supplied to Jerry's Southern California restaurants by the Company's Sherman Oaks bakery. Also, as indicated in earlier reports, management attributes part of this decrease to its continuing program of more effective buying, improved cost control and better financial liquidity since the Company's October 1995 Public Offering. As a result of decreased cost of sales, gross profit improved as a percentage of revenues to 70.4% for 1997 from 69.7% for 1996. Total expenses, as a percentage of revenues, increased 3.2 percentage points to 65.2% for the three months ended March 31, 1997 from 62.0% for the three months ended March 31, 1996. The largest component of the increase was the $676,000 increase in amortization and depreciation expense, to $958,000 in 1997 from $281,000 in 1996. Since February 1996, depreciation expense has been recorded for three newly-opened or purchased buildings and amortization expense has been recorded for covenants not to compete and goodwill, arising from the July 1996 purchase of the two Solley's restaurants and the September 1996 purchase of the Rascal House restaurant. Partially offsetting the additional building depreciation expense is a 1.0 percentage point decrease in rental expense, as a result of the Company's purchase of the three restaurant properties. Labor expense, as a percentage of revenues, increased 2.8 percentage points to 37.3% for the 1997 quarter from 34.5 % for the 1996 quarter. Labor expense in 1997 was 38.2% for the five restaurants opened or acquired in 1996, compared to 33.9% for the four restaurants which have been in operation for more than two years. Newly-opened restaurants commonly incur relatively higher labor costs during the first several months after opening until predictable customer usage patterns are developed. Over the next several months, the labor costs of these new restaurants are expected to decrease into line with average labor costs for the more well established Jerry's restaurants. Also, the Sherman Oaks bakery, which was purchased in July 1996, contributed $142,000, or 1.0 percentage points, of the 1997 increase in labor costs. Since the bakery currently produces a substantial amount of baked goods for Jerry's restaurants in Southern California, the increase in labor costs from the operation of the bakery are offset by the decrease in food costs at the restaurants. General and administrative expenses, as a percentage of revenues, decreased 1.9 percentage points to 8.1% from 10.0% due to increases in many general and administrative expenses at rates less than the growth of revenues. General and administrative expenses of approximately $362,000, representing approximately 30.1% of total general and administrative expenses in the 1997 quarter, relate directly to restaurant operations, including insurance, employee benefits and other expenses. This portion of general and administrative expenses is expected to increase as new restaurants are opened and/or acquired. Management labor expense was reduced by $30,000 in the 1997 quarter, as a result of the partial waiver of the performance incentive bonus of executive officers. The increase in interest expense of $115,000 to $154,000 for the 1997 three-month period from $39,000 for the 1996 three-month period, resulted primarily from interest expense on the $3,250,000 Marina del Rey mortgage note and the $2,500,000 Bank of America term loan, which originated in March and May 1996, respectively. LIQUIDITY AND CAPITAL RESOURCES 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. 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 plans to open its tenth restaurant in Costa Mesa, California, in the third quarter of 1997. Funds to complete the renovation of the Costa Mesa building will come primarily from the remaining proceeds from the August and November 1996 issuance of 12,000 shares of preferred stock. The Company has a revolving line of credit in the aggregate amount of $965,000 from United Mizrahi Bank, which terminates in April 1998. As of March 31, 1997, the Company had no amounts outstanding under this revolving line of credit. 8 10 Management believes that cash on hand, cash flows from operations and its available credit line will be sufficient to finance the completion of the Costa Mesa restaurant and operation of the Company's existing restaurants. Management is currently seeking new locations for development or acquisition of restaurants in California, Las Vegas, Chicago and Florida. In planning for future expansion and its anticipated capital needs, management is investigating other sources of financing, including equity and/or debt financing. Future growth is dependent on 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 availablility, amount, type and cost of financing for the Company and general economic conditions and other factors. 9 11 PART II - OTHER INFORMATION Items 1 through 6. Not applicable. 10 12 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 12, 1997 By: ----------------------------------------------- Isaac Starkman Chief Executive Officer and Chairman of the Board of Directors By: ----------------------------------------------- Christina Sterling Chief Financial Officer 11 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. 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 2,596,580 0 497,432 8,525 377,000 4,501,484 32,639,599 6,360,929 35,458,066 4,611,362 5,815,274 0 0 28,385,234 (4,299,369) 35,458,066 14,811,756 14,811,756 4,378,917 4,378,917 9,657,539 0 153,741 606,684 200,200 406,484 0 0 0 406,484 0.04 0.03
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