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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
Commission File No. 33-94724
JERRY'S FAMOUS DELI, INC.
(Exact name of registrant as specified in its charter)
California 95-3302338
- ------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
12711 Ventura Boulevard, Suite 400, Studio City, California 91604
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(Address of Principal Executive Offices)
(818) 766-8311
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(Registrant's Telephone Number, Including Area Code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. As of May 1, 2001, outstanding
common shares totaled 4,673,041.
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JERRY'S FAMOUS DELI, INC.
INDEX
Page
Number
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PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of March 31, 2001 (unaudited) and December 31, 2000... 2
Consolidated Statements of Operations (unaudited) for the Three Months
Ended March 31, 2001 and March 31, 2000.............................................. 3
Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended
March 31, 2001 and March 31, 2000.................................................... 4
Notes to Consolidated Financial Statements........................................... 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations................................................................ 7
Liquidity and Capital Resources...................................................... 8
Item 3. Quantitative and Qualitative Disclosure About Market Risk............................ 9
PART II - OTHER INFORMATION
Items 1. through 6. ........................................................................... 9
Signatures............................................................................ 9
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JERRY'S FAMOUS DELI, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
2001 2000
----------- -----------
(unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 468,543 $ 1,833,686
Accounts receivable, net 394,400 601,733
Inventory 1,310,884 1,298,418
Prepaid expenses 747,095 421,241
Deferred income taxes 285,511 285,511
----------- -----------
Total current assets 3,206,433 4,440,589
Property and equipment, net 31,359,032 31,673,889
Deferred income taxes 96,183 96,183
Goodwill and covenants not to compete 8,589,444 8,720,620
Other assets 1,488,243 1,479,907
----------- -----------
Total assets $44,739,335 $46,411,188
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 3,429,002 $ 3,136,596
Accrued expenses 1,083,809 1,563,454
Sales tax payable 366,956 354,813
Income taxes payable 240,516 31,826
Deferred income 20,320 --
Current portion of capital lease obligation 49,210 46,337
Current portion of long-term debt 1,712,260 1,712,260
----------- -----------
Total current liabilities 6,902,073 6,845,286
Long-term debt 8,599,317 11,007,256
Capital lease obligation 104,534 119,710
Deferred rent 423,246 430,683
----------- -----------
Total liabilities 16,029,170 18,402,935
Minority interest 532,399 504,098
Shareholders' equity
Preferred stock Series A, no par, 5,000,000 shares authorized;
no shares issued or outstanding at March 31, 2001 or
December 31, 2000 -- --
Common stock, no par value, 60,000,000 shares authorized,
4,673,042 issued and outstanding at March 31, 2001 and
December 31, 2000 24,575,522 24,575,522
Retained earnings 3,602,244 2,928,633
----------- -----------
Total shareholders' equity 28,177,766 27,504,155
----------- -----------
Total liabilities and shareholders' equity $44,739,335 $46,411,188
=========== ===========
The accompanying notes are an integral part of
these consolidated financial statements.
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JERRY'S FAMOUS DELI, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
THREE MONTHS ENDED MARCH 31,
2001 2000
------------ ------------
Revenues $ 18,867,731 $ 18,820,317
Cost of sales 6,414,845 6,325,905
------------ ------------
Gross profit 12,452,886 12,494,412
Operating expenses
Labor 6,523,210 6,376,278
Occupancy and other 2,433,932 2,283,925
Occupancy - related party 234,251 278,765
General and administrative expenses 1,115,317 1,231,863
Depreciation and amortization expenses 924,300 866,891
------------ ------------
Total expenses 11,231,010 11,037,722
------------ ------------
Income from operations 1,221,876 1,456,690
Other income (expense)
Interest income 5,773 10,370
Interest expense (237,635) (263,227)
Licensing income 11,111 --
Other income (expense), net 5,709 --
------------ ------------
Income before income tax provision and
minority interest 1,006,834 1,203,833
Provision for income taxes 288,690 328,028
Minority interest 44,533 72,702
------------ ------------
Net income $ 673,611 $ 803,103
============ ============
Net income per share
Basic $ 0.14 $ 0.17
============ ============
Diluted $ 0.14 $ 0.17
============ ============
Weighted average common shares outstanding - Basic 4,673,042 4,673,068
============ ============
Weighted average common shares outstanding - Diluted 4,682,755 4,673,068
============ ============
The accompanying notes are an integral part of
these consolidated financial statements.
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JERRY'S FAMOUS DELI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
THREE MONTHS ENDED MARCH 31,
2001 2000
----------- -----------
Cash flows from operating activities:
Net income $ 673,611 $ 803,103
----------- -----------
Adjustments to reconcile net income to net cash provided
by (used in) operating activities
Depreciation and amortization 924,300 866,891
Minority interest 44,533 72,702
Gain on sale of assets (5,709) --
Changes in assets and liabilities
Accounts receivable 207,333 162,582
Inventory (12,466) 29,399
Prepaid expenses (325,854) (251,573)
Income taxes receivable -- 201,700
Other assets (67,134) (52,296)
Accounts payable 292,406 (173,739)
Accrued expenses (479,645) (341,273)
Sales tax payable 12,143 (38,791)
Income taxes payable 208,690 216,328
Deferred credits 12,883 --
----------- -----------
Total adjustments 811,480 691,930
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Net cash provided by operating activities 1,485,091 1,495,033
----------- -----------
Cash flows from investing activities:
Additions to equipment (257,408) (181,469)
Proceeds from sale of assets 16,858 --
Additions to improvements - land, building and leasehold (173,210) (285,560)
----------- -----------
Net cash used in investing activities (413,760) (467,029)
----------- -----------
Cash flows from financing activities:
Payments on long-term debt (2,407,939) (1,475,080)
Distributions paid to minority shareholders -- (166,683)
Capital lease payments (12,303) --
Dividends paid to minority shareholders (16,232) (22,816)
----------- -----------
Net cash used in financing activities (2,436,474) (1,664,579)
----------- -----------
Net decrease in cash and cash equivalents (1,365,143) (636,575)
Cash and cash equivalents, beginning of period 1,833,686 1,184,329
----------- -----------
Cash and cash equivalents, end of period $ 468,543 $ 547,754
=========== ===========
The accompanying notes are an integral part of
these consolidated financial statements.
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JERRY'S FAMOUS DELI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION AND ORGANIZATION
Basis of Presentation
The accompanying consolidated financial statements of Jerry's Famous
Deli, Incorporated and its subsidiaries ("the Company") for the three months
ended March 31, 2001 and March 31, 2000 have been prepared in accordance with
generally accepted accounting principles and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. These financial statements have not been
audited by independent accountants, but include all adjustments (consisting of
normal recurring adjustments) which are, in Management's opinion, necessary for
a fair presentation of the financial condition, results of operations and cash
flows for such periods. However, these results are not necessarily indicative of
results for any other interim period or for the full year. The December 31, 2000
consolidated balance sheet financial statement is derived from audited
consolidated financial statements included in the Company's December 31, 2000
Form 10-K.
Certain information and footnote disclosures normally included in
financial statements in accordance with generally accepted accounting principles
have been omitted pursuant to requirements of the Securities and Exchange
Commission. Management believes that the disclosures included in the
accompanying interim financial statements and footnotes are adequate to make the
information not misleading, but should be read in conjunction with the
consolidated financial statements and notes thereto included in the Form 10-K
for the preceding fiscal year.
Organization
The accompanying consolidated financial statements consist of Jerry's
Famous Deli, Incorporated ("JFD--Inc."), a California corporation and
JFD--Encino ("JFD--Encino"), a California limited partnership, and National Deli
Corporation ("NDC"), a Florida corporation and wholly-owned subsidiary of
JFD--Inc. JFD--Inc. and JFD--Encino operate family oriented, full-service
restaurants. NDC operates The Epicure Market, ("Epicure"), a specialty gourmet
market located in Miami Beach, Florida. These entities are collectively referred
to as "Jerry's Famous Deli, Inc." or the "Company."
JFD--Inc. and JFD--Encino include the operations of the Southern
California restaurants located in Studio City, Encino, Marina del Rey, West
Hollywood, Westwood, Sherman Oaks, Woodland Hills, and Costa Mesa. JFD--Inc.
also includes the two Rascal House restaurants, located in Miami Beach and Boca
Raton, Florida.
2. SUPPLEMENTAL CASH FLOW INFORMATION
Three Months Ended March 31,
2001 2000
-------- --------
Supplemental cash flow information:
Cash paid for:
Interest ................................ $242,000 $274,000
Income taxes ............................ $ 80,000 $ --
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JERRY'S FAMOUS DELI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
3. NET INCOME PER SHARE
In accordance with Statement of Financial Accounting Standard ("SFAS")
No. 128, "Earnings Per Share," basic net income per share is computed by
dividing the net income attributable to common shareholders by the weighted
average number of common shares outstanding during the period. Diluted net
income per common share is computed by dividing the net income attributable to
common shareholders by the weighted average number of common and common share
equivalents outstanding during the period. Common share equivalents included in
the diluted computation represent shares issuable upon assumed exercise of stock
options using the treasury stock method.
4. SHAREHOLDERS' EQUITY
As of February 3, 2000, the Company's stock is being traded over the
Nasdaq SmallCap Market.
On February 9, 2000, the Company completed a one-for-three reverse stock
split of its Common Stock applicable to the shareholders of record on February
9, 2000. The reverse stock split reduced the Company's outstanding shares from
14,019,203 to approximately 4,673,068. All common share and per share amounts
have been adjusted to give retroactive effect to the one-for-three reverse stock
split for the periods presented.
5. SUBSEQUENT EVENTS
On April 27, 2001, the Company mailed to all of its shareholders of
record as of April 6, 2001, an Offer to Purchase up to 600,000 share of its
Common Stock, at a purchase price of $5.30 per share. The Offer to Purchase will
remain open until June 29, 2001, and is subject to certain conditions, as
described in the Offer to Purchase.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The following table presents for the three months ending March 31, 2001
and 2000, the Consolidated Statements of Operations of the Company expressed as
percentages of total revenue. The results of operations for the first three
months of 2001 are not necessarily indicative of the results to be expected for
the full year ending December 31, 2001.
PERCENTAGE OF TOTAL REVENUE
THREE MONTHS ENDED MARCH 31,
----------------------------
2001 2000
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Revenues 100.0% 100.0%
Cost of sales 34.0 33.6
----- -----
Gross profit 66.0 66.4
Operating expenses
Labor 34.6 33.9
Occupancy and other 14.1 13.6
----- -----
Total operating expenses 48.7 47.5
General and administrative expenses 5.9 6.6
Depreciation and amortization expenses 4.9 4.6
----- -----
Total expenses 59.5 58.7
----- -----
Income from operations 6.5 7.7
Interest income 0.0 0.1
Interest expense (1.3) (1.4)
Licensing income 0.1 --
Other income (expense) 0.0 --
----- -----
Income before income tax provision and
minority interest 5.3 6.4
Provision for income taxes 1.5 1.7
Minority interest 0.2 0.4
----- -----
Net income 3.6% 4.3%
===== =====
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RESULTS OF OPERATIONS
Revenues increased approximately $48,000, or 0.3%, to approximately
$18,868,000 for the 2001 three-month period from approximately $18,820,000 for
the 2000 three-month period. The increase in revenues was primarily due to the
increase of approximately $131,000 or 1.2% in same store sales for the eight
Southern California stores in operation since January 1, 2000 for the three
months ended March 31, 2001 as compared to the same period for 2000. Also
contributing to the overall increase was an increase in revenues of
approximately $60,000 or 1.5% for The Epicure Market in Florida. The overall
increase in revenues was offset by the decrease in sales of approximately
$143,000 or 1.0% for the Rascal House restaurants located in Florida. Management
believes this decrease in the Florida area is primarily attributable to the
area's increasing restaurant competition.
As a percentage of revenues, cost of sales, which consists primarily of
food costs, increased 0.4 percentage point to 34.0% in 2001 from 33.6% for the
same three-month period in 2000. This increase is in part due to slightly higher
food costs but offset by the Company's continued focus on more efficient buying
and increased management monitoring of purchase costs at both the restaurants
and Epicure.
Total expenses, as a percentage of revenues, increased slightly by 0.8
percentage point to 59.5% for the three months ended March 31, 2001 from 58.7%
for the three months ended March 31, 2000. The overall increase in total
expenses is primarily attributable to an increase in labor expense of 0.7
percentage points to 34.6% for the 2001 quarter from 33.9% for the 2000 quarter.
Labor costs for Epicure also increased 0.8 percentage point to 27.5% of Epicure
revenues for the 2001 quarter from 26.7% as compared to the same 2000 quarter.
Occupancy and other expenses also increased slightly by 0.5 percentage point to
14.1% for the 2001 period as compared to 13.6% for the same 2000 period. The
increase in these operating expenses is primarily due to increasing labor and
utility costs. The increase in operating expenses was partially offset by a
decrease of 0.7 percentage point in general and administrative expenses to 5.9%
for the 2001 quarter from 6.6% for the 2000 quarter. This decrease is mostly a
function of certain costs remaining unchanged despite a slight increase in
revenues. Depreciation and amortization expenses increased slightly by 0.3
percentage point to 4.9% for the 2001 period as compared to 4.6% for the same
2000 period.
The decrease in interest expense of $25,000 to $238,000 for the 2001
three-month period from $263,000 for the same 2000 period, resulted primarily
from the continued reduction in the Company's debt.
LIQUIDITY AND CAPITAL RESOURCES
The Company paid approximately $2,408,000 of debt during the first
quarter of 2000. The Company's capital requirements are primarily for the
development, construction and equipping of new restaurants. Generally, the
Company leases the property and extensively remodels the existing building.
Additional capital expenditures will be required if new locations are added. The
cost of renovation will depend upon the style of restaurant being converted.
Renovation of Jerry's Famous Deli restaurants have cost between $2.0 million and
$3.0 million per location, or $267 to $400 per square foot. Cost of development
of the new Jerry's Famous Deli in South Miami, Florida, which is leased, is
anticipated to be approximately $3.0 million.
In September 1998, the Company entered into a $15,000,000 credit
facility with BankBoston, N.A. in the form of a $9,000,000 term loan and
$6,000,000 revolving line of credit. In conjunction with the agreement, the
Company repaid certain existing debt with proceeds from the term loan. The term
loan and revolver mature five years from inception and bear interest at the
Eurodollar rate plus a variable percentage margin totaling approximately 8.21%
at March 31, 2001. The debt is collateralized by assets of the Company and
includes certain financial covenants. As of March 31, 2001, the amount of
borrowings available under the revolving line of credit was approximately
$4,720,000.
Management believes that cash on hand, cash flow from operations and its
available line of credit will be sufficient to finance the operation of the
Company's existing restaurants and market, as well as the Offer to Purchase.
Future anticipated capital needs cannot be projected with certainty. Additional
capital expenditures will be required if new locations are added.
The Company continues to search for prime locations appropriate for its
customer base and to develop them into restaurants, both in the Southern
California and Southern Florida areas, as well as new areas, while continuing to
provide quality food and service in its existing restaurants. However, the issue
of whether or not to aggressively expand is still under review. The Company
seeks to exploit its brand names for ancillary income from licensing and
possibly third party retail sales. This is a new initiative and the outlook is
not yet clear.
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Statements made herein that are not historical facts are forward looking
statements and are subject to a number of risk factors, including the public's
acceptance of the Jerry's Famous Deli format in each new location, consumer
trends in the restaurant industry, competition from other restaurants, the costs
and delays experienced in the course of remodeling or building new restaurants,
the amount and rate of growth of administrative expenses associated with
building the infrastructure needed for future growth, the availability, amount,
type and cost of financing for the Company and general economic conditions and
other factors. Further information on these and other factors is contained in
the Company's Annual Report on Form 10-K for the year ended December 31, 2000
and its other reports filed with the Securities and Exchange Commission.
Item 3. Quantitative and Qualitative Disclosure About Market Risk.
The Company is exposed to market risk from changes in interest rates on
debt. The Company's exposure to interest rate risk relates to its $9,000,000
term loan and $6,000,000 revolving line of credit. Borrowings under the
agreements bear interest at the Eurodollar rate plus a variable margin.
Borrowings outstanding under the agreements were $5,060,000 at March 31, 2001.
Consequently, a hypothetical 1% interest rate change could have a material
impact on the Company's results of operations.
PART II - OTHER INFORMATION
Items 1. through 6. Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JERRY'S FAMOUS DELI, INC.
Date: May 11, 2001 By: /s/ Isaac Starkman
--------------------------------
Isaac Starkman
Chief Executive Officer and Chairman
of the Board of Directors
By: /s/ Christina Sterling
--------------------------------
Christina Sterling
Chief Financial Officer
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