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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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AMENDED FORM 8-K/A
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) April 1, 1998
JERRY'S FAMOUS DELI, INC.
(Exact name of registrant as specified in its charter)
California 0-26956
(State or Other Jurisdiction of (Commission File Number)
Incorporation or Organization)
95-3302338
(I.R.S. Employer
Identification No.)
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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The purpose of this Amended Form 8-K is to provide the financial
statements and the pro forma financial information for the acquired business,
Epicure Market, Inc., required under Item 7.
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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 years ended September 27, 1997 and
September 28, 1996 and unaudited financial statements
for the three-month periods ended December 27, 1997 and
December 28, 1996, are provided. Jerry's Famous Deli,
Inc. acquired certain assets (inventory and property and
equipment) and the operations of Epicure Market, Inc.
(the "Company" or "Epicure"), on April 1, 1998.
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
Epicure Market, Inc.
Miami Beach, Florida
We have audited the accompanying balance sheets of Epicure Market, Inc. (the
"Company") as of September 27, 1997 and September 28, 1996, and the related
statements of income and retained earnings and cash flows for the years then
ended. 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 audits.
We conducted our audits 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 audits provide 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 Epicure Market, Inc. as of
September 27, 1997 and September 28, 1996, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Miami, Florida
March 20, 1998
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EPICURE MARKET, INC.
BALANCE SHEETS
SEPTEMBER 27, SEPTEMBER 28, DECEMBER 27,
1997 1996 1997
---------- ---------- ----------
(UNAUDITED)
ASSETS
Current assets
Cash and cash equivalents $ 811,093 $ 841,272 $1,397,625
Accounts receivable, trade 73,898 84,879 99,345
Inventory 471,958 362,701 410,469
Advances and prepayments 110,004 113,013 62,875
Current maturities of mortgage
receivable, related entity -- 26,443 --
Loans due from related party 510,445 -- 527,828
---------- ---------- ----------
Total current assets 1,977,398 1,428,308 2,498,142
---------- ---------- ----------
Property and equipment:
Parking lot 560,129 542,663 560,129
Leasehold improvements 500,067 434,208 511,520
Fixtures and equipment 903,030 887,487 855,974
Automotive equipment -- 43,377 --
---------- ---------- ----------
1,963,226 1,907,735 1,927,623
Less: accumulated depreciation 663,157 696,658 614,729
---------- ---------- ----------
Net property and equipment 1,300,069 1,211,077 1,312,894
---------- ---------- ----------
Investments at cost 13,257 13,162 13,489
Deposits 48,174 42,675 45,125
Federal income tax deposit 96,475 105,798 96,475
---------- ---------- ----------
Total assets $3,435,373 $2,801,020 $3,966,125
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 314,993 $ 305,646 $ 468,998
Accrued expenses 518,103 362,330 521,097
Loans payable-related parties 153,847 176,403 --
Accrued taxes, other than income taxes 23,355 26,587 33,484
Due to affiliated entity 126,388 126,388 126,388
---------- ---------- ----------
Total current liabilities 1,136,686 997,354 1,149,967
---------- ---------- ----------
Commitments
Stockholders' equity:
Common stock, no par value; 50 shares
authorized, issued and outstanding 22,000 22,000 22,000
Retained earnings 2,276,687 1,781,666 2,794,158
---------- ---------- ----------
Total stockholders' equity 2,298,687 1,803,666 2,816,158
---------- ---------- ----------
Total liabilities and stockholders' equity $3,435,373 $2,801,020 $3,966,125
========== ========== ==========
The accompanying notes are an integral part of these financial statements
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EPICURE MARKET, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
YEAR ENDED THREE MONTHS ENDED
--------------------------------- ---------------------------------
SEPTEMBER 27, SEPTEMBER 28, DECEMBER 27, DECEMBER 28,
1997 1996 1997 1996
------------ ------------ ------------ ------------
(UNAUDITED)
Sales $ 13,270,386 $ 13,328,417 $ 3,872,654 $ 3,543,789
Cost of sales 5,676,073 6,107,493 1,705,064 1,579,743
------------ ------------ ------------ ------------
Gross profit 7,594,313 7,220,924 2,167,590 1,964,046
------------ ------------ ------------ ------------
Operating expenses:
Salaries 3,645,827 3,661,144 944,459 873,249
General and administrative 1,454,664 1,544,684 356,402 355,413
Rent 450,712 395,995 123,195 88,237
Insurance 260,354 257,203 79,752 78,681
Payroll taxes 256,169 254,124 67,051 65,851
Utilities 239,399 224,445 62,144 59,844
Depreciation and amortization 149,525 131,543 35,508 31,224
------------ ------------ ------------ ------------
Total operating expenses 6,456,650 6,469,138 1,668,511 1,552,499
------------ ------------ ------------ ------------
Income from operations 1,137,663 751,786 499,079 411,547
------------ ------------ ------------ ------------
Other income (expense):
Interest income 63,246 28,423 18,842 9,225
Interest expense (12,464) (18,676) (450) (3,883)
Gain on sale of automotive
equipment 6,576 -- -- --
Abandonment loss -- (77,157) -- --
------------ ------------ ------------ ------------
Total other income (expense) 57,358 (67,410) 18,392 5,342
------------ ------------ ------------ ------------
Net income 1,195,021 684,376 517,471 416,889
Retained earnings, at beginning 1,781,666 1,697,290 2,276,687 1,781,666
of period
Dividends paid (700,000) (600,000) -- --
------------ ------------ ------------ ------------
Retained earnings, at end
of period $ 2,276,687 $ 1,781,666 $ 2,794,158 $ 2,198,555
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements
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EPICURE MARKET, INC.
STATEMENTS OF CASH FLOWS
YEAR ENDED THREE MONTHS ENDED
---------------------- ------ -----------------------------
SEPTEMBER 27, SEPTEMBER 28, DECEMBER 27, DECEMBER 28,
1997 1996 1997 1996
----------- ----------- ----------- -----------
(UNAUDITED)
Operating activities:
Net income $ 1,195,021 684,376 $ 517,471 $ 416,889
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 149,525 131,543 35,508 31,224
Gain on sale of automotive equipment (6,576) -- -- --
Loss from abandonment of leasehold
improvements -- 77,157 -- --
Decrease (increase) in accounts receivable 10,981 9,440 (25,447) (57,364)
(Increase) decrease in inventories (109,257) 94,686 61,489 (67,188)
Decrease (increase) in advances and prepayments 3,009 (7,614) 47,129 42,475
(Increase) decrease in deposits (5,499) (6,503) 3,049 (4,881)
Decrease (increase) in federal income tax deposit 9,323 (22,521) -- --
Increase (decrease) in accounts payable 9,347 (29,910) 154,005 111,295
Increase (decrease) in accrued expenses 155,773 107,223 2,993 (8,139)
(Decrease) increase in accrued taxes,
other than income taxes (3,232) 3,683 10,129 5,279
----------- ----------- ----------- -----------
Net cash provided by operating
activities 1,408,415 1,041,560 806,326 469,590
----------- ----------- ----------- -----------
Investing activities:
Expenditures for property and equipment (238,941) (158,593) (48,332) (45,893)
Proceeds from sale of automotive
equipment 7,000 -- -- --
Loans to related party (510,445) -- -- --
Purchases of investments (95) -- (232) (95)
----------- ----------- ----------- -----------
Net cash used in investing activities (742,481) (158,593) (48,564) (45,988)
----------- ----------- ----------- -----------
Financing activities:
Proceeds from principal reduction
of mortgage receivable 26,443 24,416 -- 6,415
Payment of cash dividends to stockholders (700,000) (600,000)
Repayment of loans from related parties -- -- 8,820 --
Repayment of loans to related parties (327,334) (522,492) (180.050) (15,908)
Borrowings from related parties 304,778 440,640 -- --
----------- ----------- ----------- -----------
Net cash used in financing
activities (696,113) (657,436) (171,230) (9,493)
----------- ----------- ----------- -----------
Net (decrease) increase in cash
and cash equivalents (30,179) 225,531 586,532 414,109
Cash and cash equivalents at beginning
of period 841,272 615,741 811,093 841,272
----------- ----------- ----------- -----------
Cash and cash equivalents at end of period $ 811,093 $ 841,272 $ 1,397,625 $ 1,255,381
=========== =========== =========== ===========
Supplemental disclosure:
Interest paid during the period $ 12,810 $ 21,551 $ 4,310 $ 5,789
----------- ----------- ----------- -----------
The accompanying notes are an integral part of these financial statements
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EPICURE MARKET, INC.
NOTES TO FINANCIAL STATEMENTS
1. Nature of Operations and Summary of Significant Accounting Policies
Epicure Market, Inc. (the "Company") was incorporated under the laws
of the state of Florida in September 1958. The Company is located in Miami
Beach, Florida and sells food products to local retail and wholesale customers.
Effective September 26, 1997, the stockholders of the Company signed
a letter of intent with Jerry's Famous Deli, Inc., a California corporation, to
sell the business of the Company for approximately $7,100,000 in cash and
934,509 shares of Jerry's Famous Deli, Inc. common stock. The closing is
expected to occur on April 1, 1998.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and credit card
receivables which are collected within seven days.
Inventories
Inventory is stated at the lower of cost (first-in, first-out method)
or market.
Property and Equipment
Property and equipment are recorded at cost. Depreciation and
amortization expense is computed using straight-line and declining methods over
the estimated useful lives of the assets or the lease term, whichever is
shorter, as follows:
Leasehold Improvements 7-20 years
Equipment 5-10 years
Vehicles 5 years
Costs of repairs and maintenance are charged to operating expense as
incurred; improvements and betterments are capitalized. When items are retired
or otherwise disposed of, the related costs and accumulated depreciation are
removed from the accounts and any resulting gains or losses are credited or
charged to income.
The Company periodically evaluates the carrying value of long-lived
assets for impairment in accordance with Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long Lived Assets and for
Long-Lived Assets to be Disposed Of" (SFAS No. 121). SFAS No. 121 requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount. Based
on present circumstances, management of the Company does not believe that any
impairment indicators are present.
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EPICURE MARKET, INC.
NOTES TO FINANCIAL STATEMENTS
1. Nature of Operations and Summary of Significant Accounting Policies,
Continued:
Advertising
Advertising costs are expensed as incurred and amounted to
approximately $103,300 and $133,200 for the years ended September 27, 1997 and
September 28, 1996, respectively.
Income Taxes
The Company, with the consent of its stockholders, has elected to be
taxed under the provisions of Subchapter S of the Internal Revenue Code, which
provides that, in lieu of corporate income taxes, the stockholders are taxed on
the Company's taxable income. Therefore, no provision or liability for income
taxes is reflected in the accompanying financial statements.
Concentration of Credit Risk
Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of cash and trade receivables.
At times, cash balances may be in excess of Federal Deposit Insurance
Corporation insurance limits. Management believes that receivables are well
diversified.
Fiscal Year
The Company's fiscal year ends on the last Saturday in September. The
fiscal years ended September 27, 1997 and September 28, 1996 each comprised
fifty-two weeks.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
2. Related Party Transactions
In September 1977, the Company sold land and building to its
principal stockholders for $550,000 and subsequently leased back a portion of
these facilities. The Company also took a purchase money mortgage of $275,000 to
facilitate the sale. The mortgage requires monthly payments of $2,300 including
interest at 8% through September 1997. The Company's lease expires in November
1998 and provides for annual rentals of $300,000 to December 31,1996, $350,000
to June 1997, and $400,000 thereafter. The Company is in negotiations to extend
the lease through November 2018 which would provide for annual rentals of
$400,000 through that date. In addition to the fixed rental, the Company is
required to pay real estate taxes. The Company also has a lease expiring in
November 2002 for parking spaces from an unrelated party.
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EPICURE MARKET, INC.
NOTES TO FINANCIAL STATEMENTS
2. Related Party Transactions, Continued
At September 27, 1997, the aggregate minimum rental payments under
operating leases are as follows:
1998 $ 433,600
1999 435,140
2000 435,280
2001 435,280
2002 435,280
Thereafter 7,267,667
----------
Total $9,442,247
==========
For the years ended September 27, 1997, and September 28, 1996, rent
expense aggregated $450,712 and $395,995, respectively, including $39,123 and
$36,692, respectively, of rentals paid to unrelated parties for parking
facilities.
In 1996, the Company's office and warehouse facilities were
demolished to facilitate reconstruction and expansion. Accordingly, the
remaining book value of the related leasehold improvements was written-off.
The loans due from related party are due on demand and bear interest
at the prime rate; 8.50% at September 27, 1997.
The loans payable to related parties are due on demand and bear
interest at the prime rate; 8.50% at September 27, 1997.
The amount due affiliate is due on demand and is not interest
bearing.
The Company has lifetime consulting agreements with two of its former
officers for $70,000 and $50,000 a year, respectively.
3. Deferred Compensation Plan:
The Company has adopted a participatory deferred compensation plan
(Section 401(k) of the Internal Revenue Code) wherein the Company matches
employee contributions up to 3% of an eligible employee's yearly compensation.
All employees are eligible to participate in the plan after one year of service
with the Company and a minimum 20.5 years of age. For the fifty-two weeks ended
September 27, 1997 and September 28, 1996, the Company matched and charged to
the statements of income $68,172 and $64,657, respectively.
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EPICURE MARKET, INC.
NOTES TO FINANCIAL STATEMENTS
4. Unaudited Interim Financial Information
The unaudited balance sheet as of December 27, 1997 and the unaudited
statements of income and retained earnings and cash flows for the three-month
periods ended December 27, 1997 and December 28, 1996 (collectively, "interim
financial information"), are unaudited and 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 three-months ended December 27,
1997 may not be indicative of the operating results to be achieved for the full
year or any other interim period.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(b) Unaudited Pro Forma Financial Statements
Pro Forma Consolidated Statement of Operations and Condensed
Consolidated Balance Sheet
On April 1, 1998, Jerry's Famous Deli, Inc. acquired certain assets
(inventory, property and equipment) and the operations of The Epicure Market,
Inc ("Epicure"). The purchase price was $7,100,000 in cash and 934,509 shares of
the Company's common stock (valued at approximately $2,500,000). The funding of
the purchase of Epicure came primarily from the utilization of available lines
of credit and issuance of 934,509 shares of the Company's common stock.
The acquisition has been accounted for as a purchase, and,
accordingly, the purchase price will be allocated to the assets acquired based
on their fair market values at the date of acquisition. The unaudited Pro Forma
Balance Sheet and Statement of Operations are based on available information and
certain assumptions regarding the allocation of purchase price, which could
change significantly based on the realization value of certain assets and
potential additional transaction costs, if any, and other analysis.
The unaudited Pro Forma Consolidated Statement of Operations is
presented as if the purchase of certain assets and market operations from
Epicure, had occurred as of January 1, 1997. The unaudited Pro Forma Condensed
Consolidated Balance Sheet is presented as if the purchase of certain assets and
market operations had occurred on December 31, 1997. These financial statements
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, 1997. In management's
opinion, all adjustments necessary to reflect the purchase of Epicure with JFD
have been made.
The unaudited Pro Forma Consolidated Statement of Operations is not
necessarily indicative of what the actual results of operations of JFD and
Epicure would have been had the acquisition actually occurred as of January 1,
1997, nor do they purport to represent the results of operations for future
periods.
Year Ended December 31, 1997
---------------------------------------------------------
JFD Epicure Adjustment Pro-Forma
-------- -------- --------- ---------
(in thousands, except per share data)
Revenues $ 56,418 $ 13,599 -- $ 70,017
Cost of goods sold 17,508 5,801 -- 23,309
-------- -------- -------- --------
Gross profit 38,910 7,798 -- 46,708
Operating expenses 28,769 4,819 (76)(a) 33,512
General and administrative expenses 4,839 1,600 (315)(b) 6,124
Depreciation and amortization expenses 3,870 154 381 (c) 4,405
-------- -------- -------- --------
Total expenses 37,478 6,573 (10) 44,041
-------- -------- -------- --------
Income from operations 1,432 1,225 10 2,667
Interest income 82 73 -- 155
Interest expense (682) (9) (682)(d) (1,373)
Other income, net (2) 7 -- 5
-------- -------- -------- --------
Income before provision for
income taxes and minority interest 830 1,296 (672) 1,454
Provision for income taxes (134) -- (212)(e) (346)
Minority interest (133) -- -- (133)
-------- -------- -------- --------
Net income $ 563 $ 1,296 $ (884) 975
======== ======== ======== ========
Pro forma net income per share - Basic $ 0.04 $ 0.07
======== ========
Pro forma net income per share - Diluted $ 0.04 $ 0.07
======== ========
Pro forma weighted average
shares outstanding - Basic 13,369,998 (f) 14,304,507 (g)
Pro forma weighted average
shares outstanding - Diluted 13,419,095 (f) 14,353,604 (g)
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(b) Pro Forma Financial Statements (continued)
(a) Compensation to the owners of Epicure and certain other persons in the
amount of $76,000 for the year has been eliminated.
(b) Elimination of certain sales tax expense, removal of former officer's
consulting fees, elimination of 401 (k) plan expenses, and reduction of
certain other expenses related to Epicure of $340,000. Rent expense for an
additional $25,000 for the year has been added.
(c) Includes amortization expense of goodwill of $287,048, amortization expense
of the covenants not to compete of $18,000 and depreciation and amortization
expense of the assets acquired (property and equipment) of $230,250 for the
year ended. Depreciation and amortization expense of approximately $153,808
taken by Epicure has been eliminated.
(d) Assumes utilization of lines of credit amounting to $6,965,000 occurred as
of January 1, 1997, resulting in interest expense of $681,500.
(e) Assumes the provision for income taxes is based on a 34% effective income
tax rate based on adjusted Epicure income.
(f) Amount equals applicable outstanding shares as disclosed on the Company's
December 31, 1997 Form 10-K.
(g) Includes 934,509 common shares issued in the purchase of Epicure which are
treated as outstanding for the entire year.
Pro Forma Condensed Consolidated Balance Sheet
December 31, 1997
-------------------------------------------------------
JFD Epicure Adjustments Pro Forma
------- ------------ ----------- ---------
(in thousands)
ASSETS
Current assets
Cash and cash equivalents $ 2,264 $ -- $ -- (1) $ 2,264
Inventory 525 -- 409(2) 934
Prepaid expenses 1,730 -- -- 1,730
Other current assets 466 -- -- 466
------- ------------ ------- -------
Total current assets 4,985 -- 409 5,394
Property, plant and equipment, net 29,836 -- 1,925(2) 31,761
Covenant not to compete 344 -- 90(2) 434
Goodwill 1,413 -- 7,176(2) 8,589
Other assets 1,400 -- -- 1,400
------- ------------ ------- -------
Total assets $37,978 $ -- $ 9,600 $47,578
======= ============ ======= =======
LIABILITIES AND EQUITY
Current liabilities $ 4,024 $ -- $ -- $ 4,024
Long-term debt and other liabilities 8,898 -- 7,100 15,998
Minority interest 480 -- -- 480
Equity:
Preferred stock -- -- -- --
Common stock 23,725 -- 2,500 26,225
Retained earnings 851 -- -- 851
------- ------------ ------- -------
Total liabilities and equity $37,978 $ -- $ 9,600 $47,578
======= ============ ======= =======
(1) Records the net change in cash and cash equivalents as a result of net
proceeds received from the utilization of lines of credit for $7,100,000
and subsequent payout of the funds to Epicure.
(2) The purchase price of $7,100,000 in cash and 934,509 shares of the
Company's common stock (valued at approximately $2,500,000) was
allocated to the following: $600,000 to land (parking lot); $500,000 for
leasehold improvements and $825,000 in fixtures and equipment which are
depreciated on a straight-line basis over 25 and 4 years, respectively;
$408,801 in inventory; $90,000 for covenants not to compete, which are
amortized on a straight-line basis over 5 years; and the balance of
approximately $7,176,200 to goodwill, which is amortized on a
straight-line basis over 25 years. Other than inventory, land and
fixtures and equipment, no other assets were acquired. In addition, no
debt or other liabilities were assumed from Epicure.
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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 hereunto duly authorized.
JERRY'S FAMOUS DELI, INC.
Date: April 23, 1998 By: /s/ Isaac Starkman
-------------------------------
Isaac Starkman
Chief Executive Officer
and Chairman of the
Board of Directors
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