-----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, K6Iw3InCTsxfn8BHEQPPpSB2MAMtcv0hLol3KGHqbXzFyg14FN+WxtMRaFZ/70n7 j/fLD+waAcP6KNpiPNRyQA== 0000950148-97-002752.txt : 19971117 0000950148-97-002752.hdr.sgml : 19971117 ACCESSION NUMBER: 0000950148-97-002752 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971112 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: JERRYS FAMOUS DELI INC CENTRAL INDEX KEY: 0000948308 STANDARD INDUSTRIAL CLASSIFICATION: 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: 97713454 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 September 30, 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 October 17, 1997, outstanding common shares totaled 14,210,155. 2 JERRY'S FAMOUS DELI, INC. INDEX
Page Number PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Consolidated Balance Sheets as of September 30, 1997 and December 31, 1996............. 2 Consolidated Statements of Operations for the Three Months and Nine Months Ended September 30, 1997 and September 30, 1996........................................ 3 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1997 and September 30, 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.................................................................. 8 Liquidity and Capital Resources........................................................ 10 PART II - OTHER INFORMATION Items 1. through 6................................................................................ 12 Signatures............................................................................. 13
1 3 JERRY'S FAMOUS DELI, INC. CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31, 1997 1996 ----------- ----------- ASSETS Current assets Cash and cash equivalents $ 1,593,636 $ 4,145,265 Accounts receivable, net 302,680 347,148 Inventory 437,600 420,819 Prepaid expenses 2,372,842 471,202 Preopening costs 219,920 549,607 Income taxes receivable 282,225 210,153 ----------- ----------- Total current assets 5,208,903 6,144,194 Property and equipment, net 30,045,583 25,694,476 Organization costs, net 82,978 104,483 Deferred income taxes 322,056 322,056 Goodwill and covenants not to compete, net 1,854,702 3,868,909 Other assets 549,672 428,867 ----------- ----------- Total assets $38,063,894 $36,562,985 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 2,251,504 $ 3,350,099 Accrued expenses 920,360 1,641,784 Sales tax payable 380,830 434,379 Deferred income and income taxes 20,594 15,699 Current portion of long-term debt 745,057 578,739 Current portion of obligations under capital leases 3,020 20,722 ----------- ----------- Total current liabilities 4,321,365 6,041,422 Long-term debt 7,835,348 5,959,959 Deferred credits 448,650 496,578 ----------- ----------- Total liabilities 12,605,363 12,497,959 Minority interest 481,766 440,998 Shareholders' equity Preferred stock Series A, no par, 5,000,000 shares authorized, no shares issued or outstanding at September 30, 1997 and 10,000 issued and outstanding at December 31, 1996 -- 9,153,078 Common stock, no par value, 60,000,000 shares authorized, 14,210,155 and 10,838,062 issued and outstanding at September 30, 1997 and December 31, 1996, respectively 24,016,532 14,175,109 Retained earnings 960,233 295,841 ----------- ----------- Total shareholders' equity 24,976,765 23,624,028 ----------- ----------- Total liabilities and shareholders' equity $38,063,894 $36,562,985 =========== ===========
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 NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, 1997 1996 1997 1996 ------------ ------------ ------------ ------------ Revenues $ 13,796,924 $ 10,922,635 $ 41,634,802 $ 26,658,764 Cost of sales 4,402,824 3,408,452 12,817,241 8,291,621 ------------ ------------ ------------ ------------ Gross profit 9,394,100 7,514,183 28,817,561 18,367,143 Operating expenses Labor 5,024,774 4,029,901 15,279,096 9,410,169 Occupancy and other 1,843,148 1,430,727 5,322,354 3,444,589 Occupancy - related party 155,807 150,000 494,465 255,167 General and administrative expenses 1,117,740 952,023 3,411,661 2,804,432 Depreciation expense 755,286 573,420 2,158,073 1,181,815 Amortization expense 195,995 145,387 656,215 189,059 ------------ ------------ ------------ ------------ Total expenses 9,092,750 7,281,458 27,321,864 17,285,231 ------------ ------------ ------------ ------------ Income from operations 301,350 232,725 1,495,697 1,081,912 Other income (expense) Interest income 24,047 11,215 64,947 119,728 Interest expense (150,690) (199,550) (456,308) (355,126) Other income (expense), net 2 9,441 (1,359) 23,509 ------------ ------------ ------------ ------------ Income before provision for income taxes and minority interest 174,709 53,831 1,102,977 870,023 Provision for income taxes 51,300 5,900 327,300 279,900 Minority interest 19,364 39,056 111,285 170,272 ------------ ------------ ------------ ------------ Net income $ 104,045 $ 8,875 $ 664,392 $ 419,851 ============ ------------ ============ ------------ Preferred stock: Cash dividends paid 42,082 42,082 Accounting deemed dividends 1,165,500 1,165,500 ------------ ------------ Net loss applicable to common stock $ (1,198,707) $ (787,731) ============ ============ Net income (loss) per common share: Primary $ 0.01 $ (0.11) $ 0.05 $ (0.08) ============ ============ ============ ============ Fully diluted $ 0.01 $ (0.11) $ 0.05 $ (0.08) ============ ============ ============ ============ Weighted average common shares outstanding - primary 14,240,688 10,485,472 13,122,769 10,479,317 ============ ============ ============ ============ Weighted average common shares outstanding - fully diluted 14,242,092 10,948,990 14,112,267 10,642,494 ============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements 3 5 JERRY'S FAMOUS DELI, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997 1996 ------------ ------------ Cash flows from operating activities: Net income $ 664,392 $ 419,851 ------------ ------------ Adjustments to reconcile net income to net cash provided by operating activities Depreciation 2,158,073 1,181,815 Amortization 656,215 189,059 Gain on sale of assets (2,756) (1,262) Minority interest 111,285 170,272 Deferred income taxes (11,774) 33,398 Deferred income 16,669 -- Changes in assets and liabilities Accounts receivable 44,468 (51,311) Inventory (16,781) (67,397) Prepaid expenses (1,151,640) (256,671) Preopening costs (140,816) (421,504) Other assets (120,805) (177,613) Organization costs -- (22,971) Accounts payable (1,098,595) (56,681) Accrued expenses (721,424) 206,479 Sales tax payable (53,549) 93,270 Deferred credits and income taxes receivable (120,000) (374,398) ------------ ------------ Total adjustments (451,430) 444,485 ------------ ------------ Net cash provided by operating activities 212,962 864,336 ------------ ------------ Cash flows from investing activities: Acquisition of restaurants -- (7,605,392) Additions to equipment (1,970,978) (2,998,919) Additions to improvements - land, building and leasehold (2,692,446) (1,264,923) Additions to construction-in-progress -- (2,015,201) Disposal of transportation equipment -- 20,150 Purchase of building and related purchase option payments -- (764,068) Proceeds from sale of fixed assets 7,000 -- ------------ ------------ Net cash used in investing activities (4,656,424) (14,628,353) ------------ ------------ Cash flows from financing activities: Borrowings from credit facility -- 703,165 Payments on credit facility -- (400,000) Borrowings on long-term debt 2,500,000 2,500,000 Payments on long-term debt (458,293) (4,093) Payments and advances to related parties -- (1,128,450) Capital lease payments (17,702) (34,585) Cash distributions paid to shareholders -- (21,728) Dividends paid to minority shareholders (70,517) (76,273) Proceeds from preferred stock issuance, net -- 5,537,441 Preferred stock dividends paid -- (42,082) Purchase of limited partner interest -- (157,696) Proceeds from exercise of 65,000 warrants, net of related costs 57,048 -- Registrations costs of the Company's common stock (15,500) -- Purchase of the Company's common stock (103,203) -- ------------ ------------ Net cash provided by financing activities 1,891,833 6,875,699 ------------ ------------ Net decrease in cash and cash equivalents (2,551,629) (6,888,318) Cash and cash equivalents, beginning of period 4,145,265 7,214,412 ------------ ------------ Cash and cash equivalents, end of period $ 1,593,636 $ 326,094 ============ ============
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 nine months ended September 30, 1997 and September 30, 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 is derived from the 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 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."), Jerry's Famous Deli, L.A., Inc., and JFD, Inc., California corporations 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, Woodland Hills and Costa Mesa, as well as Rascal House, which is located in Florida. On March 28, 1997, the Company announced that Kenneth Abdalla had assumed the office of President on an interim basis with the specific objective of assisting in the execution of the Company's acquisition and expansion strategy. In connection therewith, the Company entered into a consulting agreement with Kenneth Abdalla and a company affiliated with him for services to be provided to the Company through December 1998 in consideration of 200,000 shares of common stock to Kenneth Abdalla and $600,000 to his affiliated company. Management Employment Agreement Effective July 1, 1997, the employment agreements for the three executive officers were amended and extended. The terms of the amended agreement reduced the base salaries, effective October 1, 1997, and changed the formula for calculating the performance incentive bonus while limiting the bonus to the two top executive officers, effective July 1, 1997. Reclassification Certain amounts in the previously presented financial statements have been reclassified to conform with current period presentation. 2. INCOME TAXES The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards ("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 September 30, 1997, was approximately $4,000. 5 7 3. SUPPLEMENTAL CASH FLOW INFORMATION
Nine Months Ended September 30, 1997 1996 ----------- ----------- Supplemental cash flow information: Cash paid for: Interest ................................................... $ 475,000 $ 365,000 Income taxes ............................................... $ 413,000 $ 595,000 Supplemental information on noncash investing and financing activities: Preferred stock converted into common stock ................ $ 9,153,000 -- Decrease in deferred costs capitalized to construction-in-progress ............................. -- $ (22,000) Purchase of restaurant ..................................... $ -- $ 3,250,000 Write off of fully depreciated capital leases, equipment and leasehold improvements ............................... $ 169,000 -- Issuance of 200,000 common shares in connection with a consulting agreement .......................... $ 750,000 -- Based on independent appraisal of owned property, reclassification from: Goodwill to land .............. $ 1,850,000 -- Building to land .............. $ 100,000 -- Construction-in-progress balance on January 1; transferred to leasehold improvements or equipment ............... $ 244,000 $ 4,267,000
4. NET INCOME PER SHARE Net income per common share for the 1997 and 1996 three-month and nine-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. In accordance with the recent Securities and Exchange Commission position regarding accounting for Preferred Stock which is convertible at a discount from market price for Common Stock, the Company in its December 31, 1996 Form 10-K reflected an accounting "deemed dividend" for its third and fourth quarters. Accordingly, the Company has restated its 1996 third quarter net income (loss) applicable to common stock for this accounting "deemed dividend," which is a non-cash, non-recurring accounting entry for determining net income (loss) applicable to common stock. This deemed dividend decreased the previously presented net income per common share from $0.00 to $(0.11) and from $0.04 to $(0.08) for the three and nine months ended September 30, 1996, respectively. 5. IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS In February 1997, the Financial Accounting Standards Board ("FASB") 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 for the year ended December 31, 1997 will have a material impact on the earnings per share results reported by the Company under the Company's current capital structure. Other recently issued standards of the FASB are not expected to affect the Company as conditions to which those standards apply are absent. 6. APPRAISAL OF OWNED PROPERTY IN FLORIDA In September 1996, the Company acquired Wolfie Cohen's Rascal House restaurant, located in Miami Beach, Florida. The acquisition was recorded as a purchase whereby the purchase price, based on available data at the time of acquisition, was allocated first to the acquired tangible assets--land, building, inventory, fixtures and equipment--with the balance recorded as "goodwill." Subsequent to the acquisition and upon completion (in May 1997) of the related 6 8 appraisal of the land and building, a purchase price reallocation was recorded. The purchase price reallocation resulted in an increase of $1,950,000 to the value of the land and a decrease of $100,000 to the value of the building, with a corresponding decrease of $1,850,000 to goodwill. The cumulative financial statement impact of this purchase price reallocation reflected in the 1997 third quarter Consolidated Statement of Operations resulted with a decrease in amortization and depreciation expense of approximately $30,000. 7. SUBSEQUENT EVENTS In October 1997, the Company received verbal commitments for new lines of credit of $4,000,000 from Bank of Leumi and $2,000,000 from Bank of America. The Company currently has a term loan with Bank of America. 7 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The following table presents for the three and nine months ending September 30, 1997 and 1996, the Consolidated Statements of Operations of the Company expressed as percentages of total revenue. The results of operations for the first nine 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 NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, ------------------- ------------------- 1997 1996 1997 1996 ----- ----- ----- ----- Revenues 100.0% 100.0% 100.0% 100.0% Cost of sales Food 29.3 28.2 28.2 28.2 Other 2.6 3.0 2.6 2.9 ----- ----- ----- ----- Total cost of sales 31.9 31.2 30.8 31.1 ----- ----- ----- ----- Gross profit 68.1 68.8 69.2 68.9 Operating expenses Labor 36.4 36.9 36.7 35.3 Occupancy and other 14.5 14.5 14.0 13.9 ----- ----- ----- ----- Total operating expenses 50.9 51.4 50.7 49.2 General and administrative expenses 8.1 8.7 8.2 10.5 Depreciation and amortization expenses 6.9 6.6 6.7 5.1 ----- ----- ----- ----- Total expenses 65.9 66.7 65.6 64.8 ----- ----- ----- ----- Income from operations 2.2 2.1 3.6 4.1 Interest income 0.2 0.1 0.2 0.4 Interest expense (1.1) (1.8) (1.1) (1.3) Other income, net 0.0 0.1 0.0 0.1 ----- ----- ----- ----- Income before provision for income taxes and minority interest 1.3 0.5 2.7 3.3 Provision for income taxes 0.4 0.0 0.8 1.0 Minority interest 0.1 0.4 0.3 0.7 ----- ----- ----- ----- Net income 0.8% 0.1% 1.6% 1.6% ===== ===== ===== =====
RESULTS OF OPERATIONS Three Months Ended September 30, 1997 Compared to Three Months Ended September 30, 1996 Revenues for the three months ended September 30, 1997 increased $2,874,000, or 26.3%, to approximately $13,797,000 for the 1997 quarter from $10,923,000 for the 1996 quarter. This increase includes revenues of approximately $2,701,000 from the two restaurants acquired or opened since September 9, 1996. Revenue for the same eight restaurants and the bakery operated during both the 1997 and 1996 quarters increased approximately $76,000 or 0.7%. Included therein was an increase of $649,000 at the Woodland Hills restaurant netted against decreases of $331,000, $184,000 and $113,000 at the Westwood, Pasadena, and Encino 8 10 restaurants. A 1996 fourth quarter remodeling of Woodland Hills, which added 155 seats and 1,600 square feet of space, contributed significantly to increased revenues in 1997. As common among many newly-opened restaurants, Westwood has experienced a decrease in revenues following the initial months after opening. Although Encino's revenues decreased from the prior year quarter, they improved 1.9% over the 1997 second quarter, indicating that management's corrective actions, described in the June 30, 1997 Form 10-Q, may be beginning to take effect. The Pasadena restaurant continues to experience decreasing revenues while corrective actions appear not as yet to have arrested this slide in revenues. Also, the June 1997 introduction of "Early Bird Specials" dinners to the remaining Southern California restaurants, in addition to the Sherman Oaks restaurant which had previously offered them, has had some impact on revenues. Management continues to monitor the direction of this restaurant and will implement additional corrective actions as deemed necessary. Cost of sales, as a percentage of revenues, increased 0.7 percentage point to 31.9% for the 1997 quarter from 31.2% for the 1996 quarter. The cost of food, which comprises over 90% of cost of sales, increased 1.1 percentage points to 29.3% for 1997 from 28.2% for 1996. The California restaurants have experienced overall rises in the cost of food products. Also, management believes that another factor relates to the "Early Bird Specials" dinners, which are offered daily prior to 6:00 pm at approximately 40% discount from the retail price. They generate less revenue for the same cost of sales. Part of this cost of food increase should be mitigated in the next quarter by a general menu price increase, including the "Early Bird Specials," in mid November. As a result of higher cost of sales, gross profit decreased as a percentage of revenues to 68.1% for 1997 from 68.8% for 1996. 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 0.5 percentage point to 50.9% for the 1997 quarter from 51.4% for the 1996 quarter. Labor decreased 0.5 percentage point to 36.4% for 1997 from 36.9% for 1996. After Rascal House restaurant experienced a 1997 second quarter seasonal decline in revenue without a comparable decrease in labor costs, management's corrective action in June 1997, as discussed in the Company's June 30, 1997 Form 10-Q, brought about, as a percentage of revenues for that restaurant, a 1.5% decrease in labor expense for the 1997 third quarter. Management believes that the minimum wage increases on October 1, 1996, March 1, 1997 (California only) and September 1, 1997 to $5.15 from $4.25 an hour, which affected approximately 50% of the employees in each restaurant, have not had a significant impact on labor expense for the 1997 quarter. General and administrative expenses, as a percentage of revenue, decreased 0.6 percentage point to 8.1% for the 1997 quarter from 8.7% for the 1996 quarter due mostly to increases in many general and administrative expenses at rates less than the growth of revenues. For both the 1997 and 1996 quarters the performance incentive bonuses of approximately $12,000 and $67,000, respectively, have been waived by the applicable executive officers. Depreciation and amortization expense, as a percentage of revenue, increased 0.3 percentage point or approximately $232,000, to 6.9% for the 1997 period from 6.6% for the 1996 period. This increase primarily includes additional depreciation expense from the remodeling of the Woodland Hills restaurant, completed in December 1996, and the September 1996 acquisition of the Rascal House restaurant, and an increase in the amortization expense of preopening costs. Interest expense, as a percentage of revenue, decreased 0.7 percentage point or approximately $49,000, to 1.1% for the 1997 quarter from 1.8% for the 1996 quarter. This decrease primarily reflects more debt outstanding during the 1996 quarter. Nine Months Ended September 30, 1997 Compared to Nine Months Ended September 30, 1996 Revenues increased $14,976,000, or 56.2%, to $41,635,000 for the 1997 nine-month period from $26,659,000 for the 1996 nine-month period. The two restaurants, opened or acquired since September 9, 1996, contributed revenues of approximately $7,700,000 in 1997. The three restaurants and the bakery, opened or acquired in or at the end of the 1996 second quarter, contributed an increase in revenues of $8,110,000 in 1997. Revenues for the five same restaurants operated for both nine-month periods, except Pasadena which opened in February 1996, decreased $809,000, or 3.5%. Most of this decrease is attributable to the Encino and Pasadena restaurants for the reasons noted in the quarter-to-quarter comparison. Seasonality in certain of the restaurants continues to be evident, especially with Rascal House in Florida where the first and fourth quarters appear to be the stronger periods arising from the winter tourist season. Cost of sales, as a percentage of revenues, decreased 0.3 percentage point, to 30.8% for the 1997 period from 31.1% for the 1996 period. The cost of food remained the same for both periods at 28.2%. As discussed above, management believes that an overall rise in food costs in Southern California, coupled with the introduction of "Early Bird Specials" dinners contributed toward offsetting earlier quarter cost reductions. 9 11 Income from operations, as a percentage of revenues, decreased 0.5 percentage points to 3.6% for 1997 from 4.1% for 1996. Percentage increases in labor and depreciation and amortization expense were mostly offset by a percentage decrease in general and administrative expenses. Labor expense, as a percentage of revenues, increased 1.4 percentage points due to the same factors as those discussed above with respect to the third quarter. Newly-opened restaurants, including the remodeled Woodland Hills restaurant in December 1996 and the Costs Mesa restaurant in September 1997, commonly incur relatively higher labor costs during the first several months after opening until predictable customer patterns are developed. Over the next several months, the labor costs of the new store restaurants are expected to decrease. As stated in the quarterly comparison, management believes that the minimum wage increases since September 30, 1996, which affected approximately 50% of the employees in each restaurant, have had an impact on the 1997 nine month period. General and administrative expenses, as a percentage of revenues, decreased 2.3 percentage points to 8.2% for 1997 from 10.5% for 1996 due mostly to increases in many general and administrative expenses at rates less than the growth of revenues. Also, increases in insurance and legal expenses resulted from the five new restaurants opened or acquired since June 1996 as well as from increased premiums in directors and officers insurance; and from legal fees pertaining to litigation in the normal course of business and to contractual agreements entered into or amended during 1997. Further, the replacement of two public relations firms with one approximately six months later resulted in an approximate $63,000 reduction in public relations expense. 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 revenue, increased 1.6 percentage points or approximately $1,443,000, to 6.7% for the 1997 period from 5.1% for the 1996 period. The increase primarily resulted from the July and September 1996 acquisitions, and related agreements, of the Solley's restaurants and the Rascal House restaurant, respectively, additional amortization of preopening costs and the remodeling of the Westwood restaurant. 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 for each new restaurant. Based on historic experience, each new restaurant requires between $2,500,000 and $3,500,000 for remodeling and purchasing of equipment. On August 19, 1997 the Company opened its tenth restaurant in Costa Mesa, California. Funds to complete the renovation of the Costa Mesa building have come primarily from the remaining proceeds from the August and November 1996 issuance of 12,000 shares of preferred stock. Such shares were subsequently converted on March 27, 1997 into common stock. On July 24, 1997, the Company obtained a $2,500,000 term loan collateralized by certain real and personal property of Rascal House restaurant. The loan bears interest at the LIBOR rate for one-, two- or three-month periods plus 2.5%, up to a maximum rate of 11.0% and will mature on August 1, 2004. The proceeds of approximately $2,455,000 will primarily be used for the development or acquisition of new restaurants. The Company has a revolving line of credit in the aggregate amount of $965,000 from United Mizrahi Bank, which expires in April 1998. As of September 30, 1997, the Company had no amounts outstanding under this revolving line of credit. In October 1997, the Company received verbal commitments aggregating $6,000,000 from two other banks. Management believes that cash on hand, cash flows from operations and its available credit lines will be sufficient to finance the 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 the resulting capital needs of the Company, management is evaluating other sources of financing, including equity and/or debt financing. Future growth could be 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 10 12 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. 11 13 PART II - OTHER INFORMATION Items 1. through 6. Not applicable. 12 14 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: November 10, 1997 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 13 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 FINANCIAL STATEMENTS. 3-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 1,593,636 0 311,205 8,525 437,600 5,208,903 37,843,733 7,798,150 38,063,894 4,321,365 7,835,348 0 0 24,016,532 960,233 38,063,894 41,634,802 41,634,802 12,817,241 12,817,241 27,321,864 0 456,308 991,692 327,300 664,392 0 0 0 664,392 0.05 0.05
-----END PRIVACY-ENHANCED MESSAGE-----