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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
---------------------
AMENDED FORM 8-K
CURRENT REPORT
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Date of Report (Date of earliest event reported) June 30, 1996
JERRY'S FAMOUS DELI, INC.
(Exact name of registrant as specified in its charter)
California 0-26956 95-3302338
(State or Other (Commission File Number) (I.R.S. Employer
Jurisdiction of 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)
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This Form 8-K amends Form 8-K filed on September 13, 1996, by the
registrant, Jerry's Famous Deli, Inc. and is in response to comment no. 7 in the
Staff's comment letter, dated September 20, 1996. As required under Item 7, the
amended section is found in the Pro Forma Financial Statements for the acquired
business, Solley's, Inc.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired
Pursuant to Regulation S-X 210.3-05 audited financial
statements for the year ended December 31, 1995 and unaudited
financial statements for the six-month periods ended June 30,
1996 and 1995 are provided. Jerry's Famous Deli, Inc.
effectively acquired substantially all of the assets and
operations of Solley's, Inc. on July 1, 1996.
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder
Solley's, Inc.
We have audited the accompanying balance sheet of Solley's, Inc. as of December
31, 1995, and the related statements of operations, changes in shareholder's
deficit, and cash flows for the year ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Solley's, Inc. as of December
31, 1995, and the results of its operations and its cash flows for the year
ended December 31, 1995, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND, L.L.P.
Los Angeles, California
May 17, 1996, except as to the information
presented in Note 7, for which the date
is June 30, 1996.
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SOLLEY'S, INC.
BALANCE SHEETS
DECEMBER 31, JUNE 30,
1995 1996
----------- -----------
(UNAUDITED)
ASSETS
Current assets
Cash and cash equivalents $ 239,636 $ 163,168
Accounts receivable 11,706 9,328
Due from employee 7,339 5,839
Inventories 87,385 78,657
Prepaid expenses 38,869 469
----------- -----------
Total current assets 384,935 257,461
Property and equipment, net 691,510 604,754
Deposits 75,000 75,000
----------- -----------
Total assets $ 1,151,445 $ 937,215
=========== ===========
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities
Accounts payable $ 146,840 $ 144,123
Accrued expenses 254,394 299,051
Sales tax payable 53,105 40,845
Due to officer - 1,017,000
Current portion of long-term debt 64,756 90,673
----------- -----------
Total current liabilities 519,095 1,591,692
Due to officer 1,017,000 -
Long-term debt 67,971 -
----------- -----------
Total liabilities 1,604,066 1,591,692
Commitments (Note 4)
Shareholder's deficit
Common stock, no par value, 100,000 shares
authorized, 10,000 shares issued and outstanding 11,389 11,389
Accumulated deficit (464,010) (665,866)
----------- -----------
Total shareholder's deficit (452,621) (654,477)
Total liabilities and shareholder's deficit $ 1,151,445 $ 937,215
=========== ===========
The accompanying notes are an integral part of these financial statements
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SOLLEY'S, INC.
STATEMENTS OF OPERATIONS
YEAR SIX MONTHS SIX MONTHS
ENDED ENDED ENDED
DECEMBER 31, 1995 JUNE 30, 1996 JUNE 30, 1995
----------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
Sales $ 7,459,530 $ 3,537,215 $ 3,775,854
Cost of sales 2,522,518 1,219,419 1,257,171
----------- ----------- -----------
Gross profit 4,937,012 2,317,796 2,518,683
Labor 2,905,115 1,469,669 1,446,458
Occupancy and other 1,289,482 645,347 626,718
General and administrative expenses 527,202 278,738 323,952
Depreciation expense 175,422 86,757 84,752
----------- ----------- -----------
Income (loss) from operations 39,791 (162,715) 36,803
Interest income 3,202 2,016 1,137
Interest expense (91,747) (40,786) (47,548)
Other income, net 21,314 429 20,616
----------- ----------- -----------
Income (loss) before income taxes (27,440) (201,056) 11,008
Income tax provision (800) (800) (800)
----------- ----------- -----------
Net income (loss) $ (28,240) $ (201,856) $ 10,208
=========== =========== ===========
The accompanying notes are an integral part of these financial statements
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SOLLEY'S, INC.
STATEMENTS OF CHANGES IN SHAREHOLDER'S DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1995
` Common Stock .
------------------------------------------
Shares Shares Issued Accumulated
Authorized and Outstanding Amount Deficit . Total
---------- --------------- ------- ----------- ---------
Balance, December 31, 1994 100,000 10,000 $11,389 $(435,770) $(424,381)
Net loss -- -- -- (28,240) (28,240)
------- ------ ------- --------- ---------
Balance, December 31, 1995 100,000 10,000 11,389 (464,010) (452,621)
------- ------ ------- --------- ---------
Net loss (unaudited) -- -- -- (201,856) (201,856)
------- ------ ------- --------- ---------
Balance, June 30, 1996 (unaudited) 100,000 10,000 $11,389 $(665,866) $(654,477)
======= ====== ======= ========= =========
The accompanying notes are an integral part of these financial statements
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SOLLEY'S, INC.
STATEMENTS OF CASH FLOWS
YEAR SIX MONTHS SIX MONTHS
ENDED ENDED ENDED
DECEMBER 31, 1995 JUNE 30, 1996 JUNE 30, 1995
----------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
Cash flows from operating activities:
Net income (loss) $ (28,240) $(201,856) $ 10,208
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation 175,422 86,756 84,752
Changes in assets and liabilities
Accounts receivable 16,866 2,378 17,616
Due from employee 3,202 1,500 1,450
Inventories (11,790) 8,728 (4,510)
Prepaid expenses 2,703 38,400 26,871
Accounts payable 330 (2,717) 16,983
Accrued expenses and sales tax payable 35,619 32,397 (62,442)
--------- --------- ---------
Net cash provided by (used in)
operating activities 194,112 (34,414) 90,928
--------- --------- ---------
Cash flows from investing activities:
Purchases of equipment (49,922) -- (21,124)
--------- --------- ---------
Net cash used in investing
activities (49,922) -- (21,124)
--------- --------- ---------
Cash flows from financing activities:
Payments on long-term debt (74,203) (42,054) (34,628)
--------- --------- ---------
Net cash used in financing activities (74,203) (42,054) (34,628)
--------- --------- ---------
Net increase (decrease) in cash and
cash equivalents 69,987 (76,468) 35,176
Cash and cash equivalents, beginning of year 169,649 239,636 169,649
--------- --------- ---------
Cash and cash equivalents, end of year $ 239,636 $ 163,168 $ 204,825
========= ========= =========
Supplemental cash flow disclosures :
Interest paid $ 60,728 $ 5,851 $ 45,867
========= ========= =========
Income taxes paid $ 1,658 $ -- $ --
========= ========= =========
The accompanying notes are an integral part of these financial statements
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SOLLEY'S, INC.
NOTES TO FINANCIAL STATEMENTS
1. Summary Of Significant Accounting Policies:
Organization and Basis Of Presentation
Solley's, Inc. ("Solley's" or the "Company") was established in 1977 as a
C corporation. Solley's owns and operates two deli-style restaurants located in
Woodland Hills and Sherman Oaks, California. The Sherman Oaks location also
operates a bakery, supplying its restaurants with bagels and other baked goods.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments with an original
maturity of three months or less when purchased, and are carried at cost, which
approximates fair value. The Company currently maintains substantially all of
its operating cash balances with a single financial institution. At times, these
cash balances may be in excess of Federal Deposit Insurance Corporation
insurance limits.
Inventories
Inventories consist primarily of food products and are stated at the lower
of cost (first-in, first-out) or market.
Property and Equipment
Property and equipment are recorded at cost. Improvements are capitalized
while repair and maintenance costs are expensed as incurred. When an item is
sold or retired, the accounts are relieved of both the cost and the related
accumulated depreciation and the resulting gain or loss, if any, is included in
earnings. Depreciation is provided using the straight-line method over the
estimated useful lives of the assets or the primary terms of the respective
leases. Depreciation periods are as follows:
Fixtures and equipment 5 years
Transportation equipment 5 years
Leasehold improvements Primary term of lease
Income Taxes
Income taxes are recorded in accordance with Statement of Accounting
Standards ("SFAS") No. 109, which requires recognition of deferred tax assets
and liabilities for temporary differences and net operating losses ("NOL") and
tax credit carryforwards. Under SFAS No. 109, deferred income taxes are
established based on enacted tax rates expected to be in effect when temporary
differences are scheduled to reverse and NOL and tax credit carryforwards are
expected to be utilized.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions for the reporting period and as of the financial statement date.
These estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent liabilities and the reported amounts
of revenues and expenses. Actual results could differ from these estimates.
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SOLLEY'S, INC.
NOTES TO FINANCIAL STATEMENTS
Unaudited Interim Financial Information
The unaudited balance sheet as of June 30, 1996 and the unaudited
statements of operations and cash flows for the six-month periods ended
June 30, 1996 and 1995 and the unaudited statement of changes in
shareholders' deficit for the six months ended June 30, 1996
(collectively, "interim financial information"), have been prepared on the
same basis as the audited financial statements included herein. In the
opinion of the Company's management, the interim financial information
includes all adjustments, consisting of only normal recurring adjustments
necessary for a fair statement of the results of the interim periods.
The results of operations for the six months ended June 30, 1996, may not
be indicative of the operating results to be achieved for the full year or
any other interim period.
2. Property and Equipment:
Property and equipment consist of the following as of:
December 31, 1995 June 30, 1996
----------------- -------------
(Unaudited)
Fixtures and equipment $ 1,007,882 $ 1,007,882
Transportation equipment 157,692 157,692
Leasehold improvements 689,793 689,793
----------- -----------
1,855,367 1,855,367
Less: Accumulated depreciation (1,163,857) (1,250,613)
----------- -----------
$ 691,510 $ 604,754
=========== ===========
3. Long-Term Debt:
Long-term debt consists of the following as of:
December 31, 1995 June 30, 1996
----------------- -------------
(Unaudited)
Note payable to a bank; interest is payable monthly
at the bank's reference rate (8.25% at December 31,
1995 and June 30, 1996) plus 2.25%; due
December 1, 1997 $95,834 $70,883
Note payable to a bank; interest is payable monthly at the
bank's reference rate (8.25% at December 31, 1995)
plus 3.25%; paid off June 1, 1996 11,795 --
Note payable to a bank; collateralized by transportation
equipment; interest rate at 9.5%; due December 15, 1997 15,979 12,518
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SOLLEY'S, INC.
NOTES TO FINANCIAL STATEMENT
3. Long-Term Debt (continued):
December 31, 1995 June 30, 1996
----------------- -------------
(Unaudited)
Note payable to a bank; collateralized by transportation
equipment; interest rate at 9.25%; due December 1, 1997 9,119 7,272
-------- -------
132,727 90,673
Less: Current maturities 64,756 90,673
-------- -------
Total long-term debt $ 67,971 $ --
======== =======
The following are future maturities of long-term debt for each
of the remaining two years ending December 31:
1996 $ 64,756 $22,702
1997 67,971 67,971
-------- -------
Total $132,727 $90,673
======== =======
4. Commitments:
The Company leases its restaurant facilities under noncancellable
operating leases, with terms ranging from 8 to 13 years plus certain
renewal options. These leases generally include land and building, and
require contingent rent above the minimum lease payments based on a
percentage of sales ranging from 6.5% to 8%. Expenses incidental to the
use of the property in excess of specified minimums are also required.
The following are the future minimum base rental payments under operating
leases for each of the next five years ending December 31 and in total
thereafter:
1996 $ 537,120
1997 531,520
1998 528,720
1999 528,720
2000 528,720
Thereafter 3,196,760
----------
$5,851,560
==========
Rent expense for the periods ending are as follows:
December 31, 1995 June 30, 1996
----------------- -------------
(Unaudited)
Base rent $579,807 $297,420
Contingent rent 34,511 17,882
Other rental charges 56,034 52,878
-------- --------
Total $670,352 $368,180
======== ========
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SOLLEY'S, INC.
NOTES TO FINANCIAL STATEMENTS
5. Provision for Income Taxes:
The major components of the net deferred tax assets and liabilities as of
December 31, 1995 are as follows:
Deferred tax assets:
Net operating loss carryforward $ 133,518
Interest expense 61,202
FICA tip credit 49,233
Fixed assets and depreciation 42,802
Valuation allowance (276,799)
---------
Total deferred tax assets 9,956
---------
Deferred tax liabilities:
State taxes (9,956)
---------
Total deferred tax liabilities (9,956)
---------
Net deferred tax assets $ --
=========
Due to the uncertainty surrounding the realization of net operating loss
carryovers and other net deferred tax assets for the year ended December
31, 1995, the Company has provided a full valuation reserve against the
net federal deferred tax asset position.
The Company has approximately $372,000 in federal net operating losses to
be carried forward to future years. There are also approximately $75,000
in California net operating losses to be carried forward to future years.
The losses will start to expire in December 2003 and December 1997,
respectively.
6. Related-Party Transactions:
The Company maintains a note payable to its sole shareholder for
$1,017,000 as of December 31, 1995. Interest only is payable monthly at 7%
until December 31, 1995, at which time the principal plus 7% interest is
due in monthly installments of $7,500 until its maturity on April 1, 2008.
Interest paid to related parties for the year ending December 31, 1995 is
$41,528 and for the six months ending June 30, 1996 is $176,257
(unaudited).
The Company purchased seafood and other related inventory totalling
approximately $190,000 and $110,000 (unaudited) for the periods ended
December 31, 1995 and June 30, 1996, respectively, from Jenny Ann Foods,
an affiliated company. Jenny Ann Foods is 100% owned by the Company's sole
shareholder.
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SOLLEY'S, INC.
NOTES TO FINANCIAL STATEMENTS
7. Subsequent Event:
On June 30, 1996, the Company completed the sale of substantially all of
its assets and operations to Jerry's Famous Deli, Inc. for approximately
$2,543,000.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(b) Pro Forma Financial Statements
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 Consolidated 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
------------------------------------------------
JFD Solley's Pro Forma
------------ ----------- -----------
(in thousands, except per share data)
Revenues $ 28,030 $ 7,460 $ 35,490
Cost of goods sold 9,168 2,523 11,691
------------ ----------- -----------
Gross profit 18,862 4,937 23,799
Operating expenses 13,634 4,195 17,829
General and administrative expenses 2,924 294(a) 3,218
Depreciation and amortization expenses 977 328(c) 1,305
Restaurant concept discontinuation costs 137 -- 137
------------ ----------- -----------
Total expenses 17,672 4,817 22,489
------------ ----------- -----------
Income (loss) from operations 1,190 120 1,310
Interest income 72 3 75
Interest expense (182) --(b) (182)
Other income, net 69 21 90
------------ ----------- -----------
Income (loss) before income provision
for taxes and minority interest 1,149 144 1,293
Provision for income taxes 187 1 188
Minority interest 180 -- 180
------------ ----------- -----------
Net income (loss) $ 782 $ 143 $ 925
============ =========== ===========
Net income per share $ 0.09
===========
Weighted average shares outstanding 10,476,241
Six Months Ended June 30, 1996
---------------------------------------
JFD Solley's Pro Forma
-------- -------- -----------
(in thousands, except per share data)
Revenues $ 15,736 $ 3,537 $ 19,273
Cost of goods sold 4,883 1,219 6,102
-------- ------- -----------
Gross profit 10,853 2,318 13,171
Operating expenses 7,499 2,115 9,614
General and administrative expenses 1,853 160(a) 2,013
Depreciation and amortization expenses 652 164(c) 816
Restaurant concept discontinuation costs -- -- --
-------- ------- -----------
Total expenses 10,004 2,439 12,443
-------- ------- -----------
Income (loss) from operations 849 (121) 728
Interest income 109 2 111
Interest expense (156) --(b) (156)
Other income, net 14 1 15
-------- ------- -----------
Income (loss) before income provision
for taxes and minority interest 816 (118) 698
Provision for income taxes 274 1 275
Minority interest 131 -- 131
-------- ------- -----------
Net income (loss) $ 411 $ (119) $ 292
======== ======= ===========
Net income per share $ 0.03
===========
Weighted average shares outstanding 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.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(b) Pro Forma Financial Statements (continued)
Pro Forma Condensed Consolidated Statements of Operations and
Consolidated Balance Sheet
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 79 (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.
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