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 May 31, 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 July 14, 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
May 31, 1998 and November 30, 1997 Page 3
Consolidated Statements of Operations for the
quarters and six months ended May 31,
1998 and June 1, 1997 Page 4
Consolidated Statements of Stockholders'
Equity for the six months ended
May 31, 1998 Page 5
Consolidated Statements of Cash Flows for the
six months ended May 31, 1998 and June
1, 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
- 2 -
<PAGE>
Item 1
Financial Statements
<TABLE>
<CAPTION>
GRISTEDE'S SLOAN'S, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
ASSETS May 31, November 30,
1998 1997
=========== ===========
<S> <C> <C>
CURRENT ASSETS:
Cash ............................................................................. $ 127,199 $ 88,970
Accounts receivable - net of allowance for doubtful accounts
of $300,000 at May 31, 1998 and November 30, 1997 ............................. 5,679,991 5,110,026
Inventory ........................................................................ 17,427,855 16,221,465
Prepaid expenses and other current assets ........................................ 1,162,558 914,544
Notes receivable- current portion ................................................ 583,288 584,912
----------- -----------
Total current assets .................................................... 24,980,891 22,919,917
----------- -----------
PROPERTY AND EQUIPMENT:
Furniture, fixtures and equipment ................................................ 14,956,707 13,393,803
Capitalized equipment leases ..................................................... 6,516,812 5,574,369
Leaseholds and leasehold improvements ............................................ 32,606,226 30,296,510
----------- -----------
54,079,745 49,264,682
Less accumulated depreciation and amortization ................................... 25,679,089 23,567,986
----------- -----------
Net property and equipment .............................................. 28,400,656 25,696,696
Due from affiliate ............................................................... 361,428 351,778
Deposits and other assets ........................................................ 719,430 717,429
Deferred costs ................................................................... 2,013,658 1,515,004
Notes receivable - noncurrent portion ............................................ 1,247,093 1,504,731
----------- -----------
$57,723,156 $52,705,555
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, trade .......................................................... $12,916,718 $15,671,962
Accrued payroll, vacation and withholdings ....................................... 569,755 1,276,535
Accrued expenses and other current liabilities ................................... 1,596,441 947,395
Capitalized lease obligation - current portion ................................... 459,891 389,809
Current portion of long term debt ................................................ 2,384,280 1,714,284
----------- -----------
Total current liabilities ............................................... 17,927,085 19,999,985
Long-term debt ................................................................... 17,058,578 11,285,716
Due to affiliate ................................................................. 4,000,000 4,000,000
Deferred advertising ............................................................. 313,654 378,654
Capitalized lease obligation - non current portion ............................... 1,980,675 1,377,194
Deferred rent .................................................................... 1,386,321 993,984
----------- -----------
Total liabilities ....................................................... 42,666,313 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 May 31, 1998 and November 30, 1997 .............. 392,732 392,732
Additional paid-in capital ....................................................... 14,167,595 14,136,674
Retained earnings ................................................................ 496,516 140,616
----------- -----------
Total stockholders' equity .............................................. 15,056,843 14,670,022
----------- -----------
$57,723,156 $52,705,555
=========== ===========
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
GRISTEDE'S SLOAN'S, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS AND QUARTER ENDED MAY 31, 1998 AND JUNE 1, 1997
26 weeks 13 weeks 26 weeks 13 weeks
ended ended ended ended
May 31, May 31, June 1, June 1,
1998 1998 1997 1997
============ ============ ============ ============
<S> <C> <C> <C> <C>
Sales .................................................. $ 78,665,355 $ 39,244,475 $ 49,942,663 $ 23,818,792
Cost of sales .......................................... 47,204,714 23,690,767 30,647,735 14,402,404
------------ ------------ ------------ ------------
Gross profit ........................................... 31,460,641 15,553,708 19,294,928 9,416,388
Store operating, general and
administrative expenses .............................. 26,003,465 12,712,514 17,412,897 8,632,311
Depreciation and amortization .......................... 2,111,103 1,057,143 1,041,064 589,981
------------ ------------ ------------ ------------
3,346,073 1,784,051 840,967 194,096
Non-store operating expenses ........................... 2,193,420 1,002,496 3,034,091 1,531,243
------------ ------------ ------------ ------------
Operating profit/(loss) ................................ 1,152,653 781,555 (2,193,124) (1,337,147)
------------ ------------ ------------ ------------
Other income (expense)
Interest income ........................................ 98,687 47,680 60,651 42,860
Interest expense ....................................... (852,940) (473,373) (372,043) (245,418)
------------ ------------ ------------ ------------
(754,253) (425,693) (311,392) (202,558)
------------ ------------ ------------ ------------
Income/(loss) before provision for income taxes ........ 398,400 355,862 (2,504,516) (1,539,705)
Provision for income taxes ............................. 42,500 30,000 0 0
------------ ------------ ------------ ------------
Net income/(loss) ..................................... $ 355,900 $ 325,862 $ (2,504,516) $ (1,539,705)
============ ============ ============ ============
Net income per share ................................... $ 0.02 $ 0.02 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>
-4-
<PAGE>
<TABLE>
<CAPTION>
GRISTEDE'S SLOAN'S , INC.
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED MAY 31, 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 income for the six months
ended May 31, 1998 ......................... 355,900 355,900
----------- ----------- ----------- ----------- -----------
Balance at May 31, 1998 ....................... 19,636,574 $ 392,732 $14,167,595 $ 496,516 $15,056,843
=========== =========== =========== =========== ===========
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
-5-
<PAGE>
<TABLE>
<CAPTION>
GRISTEDE'S SLOAN'S, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MAY 31, 1998 AND JUNE 1, 1997
26 weeks 26 weeks
ended ended
May 31, June 1,
1998 1997
=========== ===========
<S> <C> <C>
Net income/(loss) ....................................................................... $ 355,900 $(2,504,516)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization ............................................................ 2,111,103 1,041,064
Changes in operating assets and liabilities:
Accounts receivable - net ................................................................ (569,965) 64,416
Inventory ................................................................................ (1,206,390) 886,571
Prepaid expenses and other current assets ................................................ (248,014)
Notes receivable ......................................................................... 259,262
Receivable from officer .................................................................. (9,650)
Other assets ............................................................................. (500,655)
Accounts payable, trade .................................................................. (2,755,244) (2,385,297)
Accrued payroll, vacation and withholdings ............................................... (706,780)
Accrued expenses and other current liabilities ........................................... 649,046
Accrued rent leveling .................................................................... 392,337
Capitalized lease obligations ............................................................ 673,563
Other credits ............................................................................ (65,000)
----------- -----------
Net cash (used) / provided by operating activities ............................... (1,620,487) (2,897,762)
----------- -----------
Capital expenditures - net ............................................................... (4,784,142) 661,593
----------- -----------
Net cash used in investing activities ............................................ (4,784,142) 661,593
----------- -----------
Proceeds from bank loan .................................................................. 7,350,000
Repayments of bank loan .................................................................. (907,142)
----------- -----------
Net cash provided / (used) in financing activities .............................. 6,442,858 0
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS ............................................... 38,229 0
CASH AND CASH EQUIVALENTS, beginning of period ........................................... 88,970 0
----------- -----------
CASH AND CASH EQUIVALENTS, end of period ................................................. $ 127,199 $ 0
=========== ===========
INCREASE IN NET ASSETS PURCHASED ......................................................... * $ 772,717
* The Unaudited Consolidated Statement of Cash Flows for the Six
Months Ended June 1, 1997 reflects the difference between the
Statement of Assets to be Purchased and Liabilities to be Assumed at
June 1, 1997 as compared to December 1, 1996. No cash was transferred
as part of the acquisition. The increase in Net Assets Purchased was $
772,717.
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest ........................................................... $ 805,339 $ 492,906
Cash paid for taxes ............................................................... $ 18,180 $ 9,572
NONCASH TRANSACTIONS
Acquisition of new store .......................................................... $ 30,921 --
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
-6-
<PAGE>
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 42 supermarkets and one health and beauty aids
store (the "Supermarkets"). 37 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 20
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
The Company has advanced funds to a company owned by the Chairman of the Board
who is also the principal stockholder of the Company. As of May 31, 1998, the
Company is owed $361,428 including accrued interest. As of November 30, 1997,
advances and accrued interest totaled $351,778.
Advertising services are provided to the Company by an affiliated company, MCV
Advertising Associates, Inc. For the quarter and six months ended May 31, 1998
the costs incurred were $290,579 and $586,337, respectively. For the quarter and
six months ended June 1, 1997 the costs incurred were $232,903 and $407,024,
respectively.
The Company leases sundry operating equipment from C&S Acquisition Corp. ("C&S",
formerly Red Apple Leasing, Inc.), which is wholly owned by the Company's
Chairman. C&S recently refinanced its bank credit facility upon more favorable
terms. In conjunction with such refinancing C&S extended its operating lease
agreements with the Company by an average of 3 years, and passed through
benefits of its refinancing by lowering the average monthly payments on the
equipment leases for the six months ended May 31, 1998 to approximately $45,000.
Legal fees incurred by the Company to a law firm, of which a director of the
Company is a member, were $46,618 and $81,795 for the quarter and six months
ended May 31, 1998, respectively. For the quarter and six months ended June 1,
1997 these legal fees were $27,816 and $53,850, 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 SIX MONTHS ENDED MAY 31,
1998 AND JUNE 1, 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 six months
ended June 1, 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 six months ended May 31, 1998.
Sales for the quarter and six months ended May 31, 1998 were $39,244,475 and
$78,665,355, respectively. Sales for the quarter and six months ended June 1,
1997 were $23,818,792 and $49,942,663, respectively. The sales increase was
mainly attributable to the 15 additional stores included in the 1998 periods.
Sales for the same 29 stores were $25,408,371 and $51,630,678 for the quarter
and six months ended May 31, 1998 as compared with $23,574,699 and $48,469,666
for the quarter and six months ended June 1, 1997, an increase of 7.78% and
6.52%, 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 39.63% and 39.99% for the quarter and
six months ended May 31, 1998 as compared with 39.53% and 38.63% for the quarter
and six months ended June 1, 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 32.39% and 33.06% for the quarter and six months ended May 31, 1998 as
compared with 36.24% and 34.87% for the quarter and six months ended June 1,
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 2.55% and 2.79% for
the quarter and six months ended May 31, 1998 as compared with 6.39% and 6.08%
for the quarter and six months ended June 1, 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 $47,680 and $98,687 for the quarter and six months ended May
31, 1998 as compared to $42,860 and $60,651 for the quarter and six months ended
June 1, 1997. The increase during the 1998 period reflects interest on the notes
received for the sale of various stores.
- 9 -
<PAGE>
Interest expense for the quarter and six months ended May 31, 1998 was $473,373
and $852,940, respectively. Interest expense for the quarter and six months
ended June 1, 1997 was $245,418 and $372,043 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 income for the quarter and six
months ended May 31, 1998 were $325,862 and $355,900, respectively as compared
to a loss of $1,539,705 and $2,504,516 for the quarter and six months ended June
1, 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 credit facility is comprised of
(i) a $12,000,000 five year term loan to refinance debt and for general working
capital purposes, (ii) a $8,000,000 five year term loan to finance capital
improvements to the Company's supermarkets, and (iii) a $5,000,000 two year
revolving credit for general working capital purposes. As of May 31, 1998, the
Company had drawn down the $12,000,000 term loan and the $5,000,000 under the
revolving credit facility. As of May 31, 1998, the Company still had available
$4,650,000 under the capital improvements line to finance the continuing major
store remodeling program. It is anticipated that the Company will generate
sufficient cash flow to finance its future working capital needs.
- 10 -
<PAGE>
GRISTEDE'S SLOAN'S, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Change in Securities
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: July 15, 1998
By: /s/ Stuart Spivak
Stuart Spivak
Executive Vice President and
Chief Financial Officer
Dated: July 15, 1998
- 12 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-Q FOR THE SIX MONTH PERIOD ENDED MAY 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Nov-29-1998
<PERIOD-START> Dec-01-1997
<PERIOD-END> May-31-1998
<CASH> $127,199
<SECURITIES> $0
<RECEIVABLES> $5,679,991
<ALLOWANCES> $300,000
<INVENTORY> $17,427,855
<CURRENT-ASSETS> $24,980,891
<PP&E> $54,079,745
<DEPRECIATION> $25,679,089
<TOTAL-ASSETS> $57,723,156
<CURRENT-LIABILITIES> $17,927,085
<BONDS> $0
$0
$0
<COMMON> $392,732
<OTHER-SE> $14,167,595
<TOTAL-LIABILITY-AND-EQUITY> $57,723,156
<SALES> $78,665,355
<TOTAL-REVENUES> $78,665,355
<CGS> $47,363,286
<TOTAL-COSTS> $47,363,286
<OTHER-EXPENSES> $2,193,420
<LOSS-PROVISION> $0
<INTEREST-EXPENSE> $852,940
<INCOME-PRETAX> $398,400
<INCOME-TAX> $42,500
<INCOME-CONTINUING> $398,400
<DISCONTINUED> $0
<EXTRAORDINARY> $0
<CHANGES> $0
<NET-INCOME> $355,900
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
