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 August 30, 1998.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from .............to ............
Commission File Number 1-7013
GRISTEDE'S SLOAN'S, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-1829183
------------------------------- ----------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
823 Eleventh Avenue, New York, New York 10019
----------------------------------------
(Address of Principal Executive Offices)
(212) 956-5803
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
N/A
-------------------------------------------------------
(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 to be
filed by Section 13 or 15 (d) of the Securities Exchange Act 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 [ ]
At October 13, 1998, the registrant had issued and outstanding 19,636,574 shares
of common stock.
<PAGE>
GRISTEDE'S SLOAN'S, INC. AND SUBSIDIARIES
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
August 30, 1998 and November 30, 1997 Page 3
Consolidated Statements of Operations for
the quarters and nine months ended
August 30, 1998 and August 31, 1997 Page 4
Consolidated Statements of Stockholders'
Equity for the nine months ended
August 30, 1998 Page 5
Consolidated Statements of Cash Flows for
the nine months ended
August 30, 1998 and August 31, 1997 Page 6
Notes to Consolidated Financial Statements Page 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations Page 9
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<TABLE>
<CAPTION>
Item 1
Financial Statements
GRISTEDE'S SLOAN'S, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
ASSETS August 30, November 30,
1998 1997
============ ============
<S> <C> <C>
CURRENT ASSETS:
Cash ......................................................................... $ 102,551 $ 88,970
Accounts receivable - net of allowance for doubtful accounts
of $0 at August 30, 1998 and $300,000 at November 30, 1997 ................. 6,082,536 5,110,026
Inventory .................................................................... 17,874,128 16,221,465
Prepaid expenses and other current assets .................................... 1,213,231 914,544
Notes receivable- current portion ............................................ 557,880 584,912
------------ ------------
Total current assets ......................................................... 25,830,326 22,919,917
------------ ------------
PROPERTY AND EQUIPMENT:
Furniture, fixtures and equipment ............................................ 15,433,155 13,393,803
Capitalized equipment leases ................................................. 6,970,706 5,574,369
Leaseholds and leasehold improvements ........................................ 33,928,505 30,296,510
------------ ------------
56,332,366 49,264,682
Less accumulated depreciation and amortization ............................... 26,500,091 23,567,986
------------ ------------
Net property and equipment ................................................... 29,832,275 25,696,696
Due from affiliate ........................................................... 0 351,778
Deposits and other assets .................................................... 719,429 717,429
Deferred costs ............................................................... 1,923,719 1,515,004
Notes receivable - noncurrent portion ........................................ 1,145,733 1,504,731
------------ ------------
$ 59,451,482 $ 52,705,555
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, trade ...................................................... $ 13,483,836 $ 15,671,962
Accrued payroll, vacation and withholdings ................................... 564,770 1,276,535
Accrued expenses and other current liabilities ............................... 936,378 947,395
Capitalized lease obligation - current portion ............................... 535,404 389,809
Current portion of long term debt ............................................ 3,014,284 1,714,284
------------ ------------
Total current liabilities .................................................... 18,534,672 19,999,985
Long-term debt ............................................................... 18,939,171 11,285,716
Due to affiliate ............................................................. 4,000,000 4,000,000
Deferred advertising ......................................................... 281,154 378,654
Capitalized lease obligation - non current portion ........................... 2,224,181 1,377,194
Deferred rent ................................................................ 1,516,450 993,984
------------ ------------
Total liabilities .......................................................... 45,495,628 38,035,533
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $50 par, - shares authorized 500,000; none issued
Common stock, $.02 par, - shares authorized 25,000,000; outstanding
19,636,574 shares issued at August 30, 1998 and November 30, 1997 .......... 392,732 392,732
Additional paid-in capital ................................................... 14,167,595 14,136,674
Retained earnings ............................................................ (604,473) 140,616
------------ ------------
Total stockholders' equity ................................................ 13,955,854 14,670,022
------------ ------------
$ 59,451,482 $ 52,705,555
============ ============
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
GRISTEDE'S SLOAN'S, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS AND QUARTER ENDED AUGUST 30, 1998 AND AUGUST 31, 1997
39 weeks 13 weeks 39 weeks 13 weeks
ended ended ended ended
August 30, August 30, August 31, August 31,
1998 1998 1997 1997
============= ============= ============= =============
<S> <C> <C> <C> <C>
Sales .......................................... $ 116,296,764 $ 37,631,409 $ 72,191,581 $ 22,248,918
Cost of sales .................................. 70,211,045 23,006,331 44,379,937 13,732,202
------------- ------------- ------------- -------------
Gross profit ................................... 46,085,719 14,625,078 27,811,644 8,516,716
Store operating, general and
administrative expenses ...................... 39,167,716 13,164,251 26,269,667 8,856,770
Depreciation and amortization .................. 2,973,525 862,422 1,612,803 571,739
------------- ------------- ------------- -------------
3,944,478 598,405 (70,826) (911,793)
Non-store operating expenses ................... 3,445,472 1,252,052 5,115,552 2,081,461
------------- ------------- ------------- -------------
Operating profit/(loss) ........................ 499,006 (653,647) (5,186,378) (2,993,254)
------------- ------------- ------------- -------------
Other income (expense)
Interest income ................................ 142,298 43,611 121,302 60,651
Interest expense ............................... (1,386,393) (533,453) (700,787) (328,744)
------------- ------------- ------------- -------------
(1,244,095) (489,842) (579,485) (268,093)
------------- ------------- ------------- -------------
Loss before provision for income taxes ......... (745,089) (1,143,489) (5,765,863) (3,261,347)
Provision for income taxes ..................... 0 (42,500) 0 0
------------- ------------- ------------- -------------
Net loss ...................................... $ (745,089) $ (1,100,989) $ (5,765,863) $ (3,261,347)
============= ============= ============= =============
Net loss per share ............................. ($0.04) ($0.06) N/A N/A
============= ============= ============= =============
Weighted average number of shares and
equivalents outstanding ........................ 19,636,574 19,636,574 N/A N/A
============= ============= ============= =============
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
GRISTEDE'S SLOAN'S , INC.
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED AUGUST 30, 1998
Additional Total
Common stock Paid-In Retained Stockholders'
Shares Amount Capital Earnings Equity
=========== =========== =========== =========== ===========
<S> <C> <C> <C> <C> <C>
Balance at November 30 , 1997 .............. 19,636,574 $ 392,732 $14,136,674 $ 140,616 $14,670,022
To reflect acquisition of new store
#53 on February 6, 1998 ................ 30,921 30,921
Net loss for the nine months
ended August 30, 1998 ................... (745,089) (745,089)
----------- ----------- ----------- ----------- -----------
Balance at August 30, 1998 ................. 19,636,574 $ 392,732 $14,167,595 $ (604,473) $13,955,854
=========== =========== =========== =========== ===========
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
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<TABLE>
<CAPTION>
GRISTEDE'S SLOAN'S, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED AUGUST 30, 1998 AND AUGUST 31, 1997
39 weeks 39 weeks
ended ended
August 30, August 31,
1998 1997
=========== ===========
<S> <C> <C>
Net loss ................................................................................. $ (745,089) $(5,765,863)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization ............................................................ 2,973,252 1,612,803
Changes in operating assets and liabilities:
Accounts receivable - net ................................................................ (972,510) (2,341,213)
Inventory ...................................................................... (1,652,663) 694,404
Prepaid expenses and other current assets ................................................ (298,687)
Notes receivable ...................................................................... 386,030
Receivable from officer .................................................................. 351,778
Other assets ...................................................................... (451,862)
Accounts payable, trade .................................................................. (2,188,126) 3,055,444
Accrued payroll, vacation and withholdings ............................................... (711,765)
Accrued expenses and other current liabilities ........................................... (11,017)
Accrued rent leveling .................................................................... 522,466
Capitalized lease obligations ............................................................ 992,582
Other credits ...................................................................... (97,500)
----------- -----------
Net cash (used) / provided by operating activities ....................................... (1,903,111) (2,744,425)
----------- -----------
Capital expenditures - net ............................................................... (7,036,763) (1,501,893)
----------- -----------
Net cash used in investing activities .................................................... (7,036,763) (1,501,893)
----------- -----------
Proceeds from bank loan .................................................................. 8,953,455
Repayments of bank loan .................................................................. 0
----------- -----------
Net cash provided / (used) in financing activities ....................................... 8,953,455 0
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS ............................................... 13,581 0
CASH AND CASH EQUIVALENTS, beginning of period ........................................... 88,970 0
----------- -----------
CASH AND CASH EQUIVALENTS, end of period ................................................. $ 102,551 $ 0
=========== ===========
INCREASE IN NET ASSETS PURCHASED ......................................................... $ 93,258*
* The Unaudited Consolidated Statement of Cash Flows for the Nine
Months Ended August 31, 1997 reflects the difference between the
Statement of Assets to be Purchased and Liabilities to be Assumed
at August 31, 1997 as compared to December 1, 1996. No cash was
transferred as part of the acquisition. The increase in Net Assets
Purchased was $ 93,258
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
- -------------------------------------------------
Cash paid for interest ................................................................... $ 1,277,535 $ 590,518
Cash paid for taxes ...................................................................... $ 22,056 $ 20,951
NONCASH TRANSACTIONS
- --------------------
Acquisition of new store ................................................................. $ 30,921 --
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
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<PAGE>
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GRISTEDE'S SLOAN'S, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS - On November 4, 1997, Sloan's Supermarkets, Inc. ("Sloan's") changed
its name to Gristede's Sloan's, Inc. ("GRI" or the "Company"). On November 10,
1997, GRI acquired certain assets, net of liabilities, of 29 selected
supermarkets and a wholesale distribution business ("The Food Group") controlled
by Mr. John Catsimatidis, Chairman and 37% stockholder of Sloan's. The
transaction was accounted for as the acquisition of Sloan's by The Food Group
pursuant to Emerging Issues Task Force 90-13 as a result of The Food Group
obtaining control of Sloan's after the transaction. The assets and liabilities
of The Food Group were recorded at their historical cost. Sloan's assets and
liabilities were recorded at their fair value to the extent acquired.
Consideration for the transaction was based on an aggregate of $36,000,000 in
market value of the Company's common stock and the assumption of $4,000,000 of
liabilities. 16,504,298 shares of common stock were issued on the date of the
acquisition based on a market price of $2.18 per share.
The Company presently operates 41 supermarkets and one health and beauty aids
store (the "Supermarkets"). 36 Supermarkets are located in Manhattan, New York,
three Supermarkets are located in Westchester County, New York, two
Supermarkets, are located in Brooklyn, New York and one Supermarket is located
in Long Island, New York. 23 of the Supermarkets are operated under the
"Sloan's" name and 19 are operated under the "Gristede's" name. The Company
leases all of its Supermarket locations.
The Company also owns City Produce Operating Corp., a corporation which operates
a warehouse and distribution center primarily for fresh produce on leased
premises in the Bronx, New York.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All material
intercompany accounts and transactions have been eliminated in consolidation.
QUARTER END - The Company operates using the conventional retail 52/53 week
fiscal year. The fiscal quarter ends on the Sunday closest to the end of the
quarter. The Company's fiscal year ends on the Sunday closest to November 30.
INVENTORY - Store inventories are valued principally at the lower of cost or
market with cost determined under the retail first in, first out (FIFO) method.
PROPERTY AND EQUIPMENT - Depreciation of furniture, fixtures and equipment is
computed by the straight-line method over the estimated useful lives of the
assets.
LEASES - The Company charges the cost of noncancelable operating lease payments
and beneficial leaseholds to operations on a straight-line basis over the lives
of the leases.
-7-
<PAGE>
GRISTEDE'S SLOAN'S, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
PROVISION FOR INCOME TAXES - Income taxes reflect Federal and State alternative
minimum tax only, as all regular income taxes have been offset by utilization of
the Company's net operating loss carry forward.
INCOME PER SHARE - Per share data are based on the weighted average number of
shares of common stock and equivalents outstanding during each quarter. Income
per share is computed by the treasury stock method; primary and fully diluted
income per share are the same.
In the opinion of management, the information furnished reflects all adjustments
(consisting of normal recurring adjustments) which are necessary for a fair
statement of the results of operations for the interim period. The interim
figures are not necessarily indicative of the results to be expected for the
fiscal year.
The Company's Annual Report on Form 10-K for the transition 9 month period ended
November 30, 1997 contains information which should be read in conjunction
herewith.
2. RELATED PARTY TRANSACTIONS
As of November 30, 1997, the Company had advanced an aggregate $351,778 in
principal and accrued interest to a company owned by the Chairman of the
Company. These advances were fully repaid during the quarter ended August 30,
1998.
Advertising services are provided to the Company by an affiliated company, MCV
Advertising Associates, Inc. For the quarter and nine months ended August 30,
1998 the costs incurred were $232,279 and $818,616, respectively. For the
quarter and nine months ended August 31, 1997 the costs incurred were $290,315
and $697,339, respectively.
Legal fees incurred by the Company to a law firm, of which a director of the
Company is a member, were $75,252 and $157,047 for the quarter and nine months
ended August 30, 1998, respectively. For the quarter and nine months ended
August 31, 1997 these legal fees were $71,957 and $125,807, respectively.
- 8 -
<PAGE>
GRISTEDE'S SLOAN'S, INC. AND SUBSIDIARIES
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE QUARTERS AND NINE MONTHS ENDED AUGUST
30, 1998 AND AUGUST 31, 1997
RESULTS OF OPERATIONS
As a result of the reverse acquisition which occurred on November 10, 1997 the
following discussion of the Results of Operations encompasses the operations of
29 Supermarkets plus the City Produce operation for the quarter and nine months
ended August 31, 1997 and the operations of such 29 Supermarkets and the City
Produce operation combined with the operations of an additional 15 Supermarkets
for the quarter and nine months ended August 30, 1998.
Sales for the quarter and nine months ended August 30, 1998 were $37,631,409 and
$116,296,764, respectively. Sales for the quarter and nine months ended August
31, 1997 were $22,248,918 and $72,191,581, respectively. The sales increase was
mainly attributable to the 15 additional stores included in the 1998 periods.
Sales for the same 29 stores were $23,441,819 and $75,072,497 for the quarter
and nine months ended August 30, 1998 as compared with $21,864,336 and
$70,334,002 for the quarter and nine months ended August 31, 1997, an increase
of 7.21% and 6.74%, respectively. The increase in sales in the 1998 periods was
primarily the result of the Company's remodeling program, which is continuing.
Gross profit as a percentage of sales was 38.86% and 39.63% for the quarter and
nine months ended August 30, 1998 as compared with 38.28% and 38.52% for the
quarter and nine months ended August 31, 1997. The 1998 periods include the
results of the additional 15 Sloan's stores which traditionally achieved higher
gross margins.
Store operating, general and administrative expenses as a percentage of sales
were 34.98% and 33.68% for the quarter and nine months ended August 30, 1998 as
compared with 39.81% and 36.39% for the quarter and nine months ended August 31,
1997. The decrease in the 1998 period was mainly due to better cost controls
resulting from the combining of the operations in the reverse acquisition.
Nonstore operating expenses as a percentage of sales were 3.33% and 2.96% for
the quarter and nine months ended August 30, 1998 as compared with 9.36% and
7.09% for the quarter and nine months ended August 31, 1997. The decrease in
nonstore operating expenses were mainly the result of a reduction in
administrative personnel and the reduced need for outside professional services.
Interest income was $43,611 and $142,298 for the quarter and nine months ended
August 30, 1998 as compared to $ 60,651 and $121,302 for the quarter and nine
months ended August 31, 1997. The increase during the 1998 nine month period
reflects interest on the notes received for the sale of various stores.
- 9 -
<PAGE>
Interest expense for the quarter and nine months ended August 30, 1998 was
$533,453 and $1,386,393, respectively. Interest expense for the quarter and nine
months ended August 31, 1997 was $328,744 and $700,787, respectively. The
increase in the 1998 periods were primarily attributable to the borrowings under
the new bank credit facility which became effective November 10, 1997.
As a result of the items reviewed above the net loss for the quarter and nine
months ended August 30, 1998 were $1,100,989 and $745,089, respectively as
compared to a net loss of $3,261,347 and $5,765,863 for the quarter and nine
months ended August 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
On November 10, 1997, the Company entered into an aggregate $25,000,000 five
year credit facility with a group of banks. The Company believes that this
facility, together with commitments it has obtained from third party leasing
companies, is sufficient to finance the Company's store remodeling program
through the next fiscal year. It is anticipated that the Company will generate
sufficient cash flow to finance its future working capital needs.
YEAR 2000 ISSUE
The Company has initiated an automation program to install state of the art
computerized point-of-sale terminals ("POS") which are year 2000 compliant, in
all its supermarkets. Approximately one-third of the supermarkets already have
POS systems installed. The Company anticipates that all supermarkets will have
POS systems installed by the year 2000.
Corporate level systems are being developed and implemented using client server
technology to make efficient and timely use of the data supplied by store
automation systems for management, marketing and general corporate purposes.
Management believes that all such systems will be in place so as to ensure
corporate wide year 2000 functionality from its systems. The Company estimates
that the cost to implement corporate level systems that are year 2000 compliant
will not exceed $100,000.
The Company purchases merchandise sold in its stores from multiple vendors. The
Company is not dependent on these supplier relationships since merchandise is
readily available from numerous sources under different brand names, subject to
conditions affecting food supplies generally. The Company has requested its
primary vendors to confirm in writing that they are Year 2000 compliant.
- 10 -
<PAGE>
GRISTEDE'S SLOAN=S, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule
(b) No Current Reports on Form 8-K were filed for the quarter for
which this report is being filed.
- 11 -
<PAGE>
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.
Gristede's Sloan's, Inc.
By: /s/ John A. Catsimatidis
John A. Catsimatidis
Chairman of the Board and
Chief Executive Officer
Dated: October 14, 1998
By: /s/ Stuart Spivak
Stuart Spivak
Executive Vice President and
Chief Financial Officer
Dated: October 14, 1998
- 12 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-Q FOR THE NINE MONTH PERIOD ENDED AUGUST 30, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Nov-29-1998
<PERIOD-START> Dec-01-1997
<PERIOD-END> Aug-30-1998
<CASH> $102,551
<SECURITIES> $0
<RECEIVABLES> $6,082,536
<ALLOWANCES> $0
<INVENTORY> $17,874,128
<CURRENT-ASSETS> $25,830,326
<PP&E> $56,332,366
<DEPRECIATION> $26,500,091
<TOTAL-ASSETS> $59,451,482
<CURRENT-LIABILITIES> $18,534,672
<BONDS> $0
$0
$0
<COMMON> $392,732
<OTHER-SE> $14,167,595
<TOTAL-LIABILITY-AND-EQUITY> $59,451,482
<SALES> $116,296,764
<TOTAL-REVENUES> $116,296,764
<CGS> $70,211,045
<TOTAL-COSTS> $70,211,045
<OTHER-EXPENSES> $3,445,472
<LOSS-PROVISION> $0
<INTEREST-EXPENSE> $1,386,393
<INCOME-PRETAX> $(745,089)
<INCOME-TAX> $0
<INCOME-CONTINUING> $(745,089)
<DISCONTINUED> $0
<EXTRAORDINARY> $0
<CHANGES> $0
<NET-INCOME> $(745,089)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
