SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
( ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For fiscal year ended ____________________
(X) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from March 3, 1997 to
November 30, 1997.
Commission File No. 1-7013
GRISTEDE'S SLOAN'S, INC.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 13-1829183
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
823 Eleventh Avenue, New York, New York 10019-3535
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(Address of Principal Executive Offices) (Zip Code)
(212) 956-5803
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(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class Name of each exchange on which registered
- ----------------------------- -----------------------------------------
Common Stock, $0.02 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13, or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ ] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of May 1, 1998, 19,636,574 shares of the registrant's common stock, $0.02 par
value, were outstanding. The aggregate market value of the common stock held by
nonaffiliates of the registrant (i.e., excluding shares held by executive
officers, directors, and control persons as defined in Rule 405) on that date
was $7,561,456 computed at the closing price on that date.
Documents Incorporated by Reference: None
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This annual report on Form 10-K contains both historical and
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Words such as "anticipates", "believes",
"expects", "intends", "future", and similar expressions identify forward-looking
statements. Any such "forward-looking" statements in this report reflect the
Company's current views with respect to future events and financial performance,
and are subject to a variety of factors that could cause the actual results or
performance to differ materially from historical results or from the anticipated
results or performance expressed or implied by such forward-looking statements.
Because of such factors, there can be no assurance that the actual results or
developments anticipated by the Company will be realized or, even if
substantially realized, that they will have the anticipated results. The risks
and uncertainties that may affect the Company's business include, but are not
limited to: economic conditions, governmental regulations, technological
advances, pricing and competition, acceptance by the marketplace of new
products, retention of key personnel, the sufficiency of financial resources to
sustain and expand the Company's operations, and other factors described in this
report and in prior filings with the Securities and Exchange Commission. Readers
should not place undue reliance on such forward-looking statements, which speak
only as of the date hereof, and should be aware that except as may be otherwise
legally required of the Company, the Company undertakes no obligation to
publicly revise any such forward-looking statements to reflect events or
circumstances that may arise after the date hereof.
ITEM 1. BUSINESS.
General
The Company is a Delaware corporation whose principal executive offices
are located at 823 Eleventh Avenue, New York, New York 10019-3535. Unless the
context otherwise requires, the terms "Company" or "Registrant" as used herein
refer to Gristede's Sloan's, Inc. (which is a holding corporation) and its
wholly-owned subsidiaries.
The Company owns and 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.
The Company competes on the basis of providing customer convenience,
service and a wide assortment of food products, including those that are
appealing to the clientele in the neighborhoods where its Supermarkets are
located. The Supermarkets, like most Manhattan supermarkets, are smaller than
their suburban counterparts, ranging in size from approximately 3,200 to 23,000
square feet of selling space and averaging 8,500 square feet of selling space.
The Supermarkets offer, at competitive prices, broad lines of
merchandise, including nationally and regionally advertised brands, private
label and generic brands. Merchandise sold includes food items such as fresh
meats, produce, dry groceries, dairy products, baked goods, poultry and fish,
fresh fruits and vegetables, frozen foods, delicatessen and gourmet foods, as
well as many non-food items such as cigarettes, soaps, paper products, and
health and beauty aids. Check-cashing services are available to qualified
customers holding check-cashing cards and, for a small fee, the Company will
deliver groceries to a customer's apartment door. The
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Supermarkets accept payment by Mastercard, Visa, American Express and Discover
credit cards. Most of the Supermarkets are open sixteen hours per day, seven
days a week and on holidays, including Christmas, New Year's and Thanksgiving.
Most of the Supermarkets close two hours earlier on Sundays.
The Company's predecessor was incorporated in 1956 in New York. In
1985, the Company's domicile was changed to Delaware by merging the predecessor
corporation into a newly formed Delaware corporation, incorporated for such
purpose. The Company became a public company in 1968 and listed its Common Stock
on the American Stock Exchange in 1972. Until 1992, the Company engaged in the
jewelry business, operating under the name Designcraft Industries, Inc. for most
of such time. The Company changed its name to Sloan's Supermarkets, Inc. in
September 1993 and to Gristede's Sloan's, Inc. in 1997 to reflect its current
business.
Recent Developments
On November 10, 1997 a Merger Agreement, dated as of July 14, 1997 (the "Merger
Agreement") among Red Apple Group, Inc. ("Group"), Red Apple Supermarkets, Inc.
("RAS"), Gristede's Supermarkets, Inc. ("Gristede's"), City Produce
Distributors, Inc., Supermarket Acquisition Corp. ("SAC"), John A. Catsimatidis,
the Company, RAS Operating Corp. ("RASOC"), Gristede's Operating Corp. ("GOC"),
SAC Operating Corp. ("SACOC") and City Produce Operating Corp. ("City Produce")
was consummated pursuant to which four corporations directly or indirectly owned
by Mr. Catsimatidis, the Chairman of the Board and Chief Executive Officer of
the Company, merged into four newly formed wholly owned subsidiaries of the
Company. As a result of the mergers (collectively, the "Merger"), the Company
acquired the assets and business of 29 operating supermarkets (including
accounts receivable, fixtures, leasehold improvements and inventories of
supplies and merchandise located at the supermarkets, certain leasehold rights
in real property and equipment and certain other contract rights in connection
with the operation of such supermarkets), ownership of the tradenames
"Gristede's" and "Sloan's" and the warehouse and distribution business now
operated by City Produce (collectively, the "Food Group").
Pursuant to the Merger Agreement, John Catsimatidis and Group (a
corporation wholly owned by John Catsimatidis), as the sole stockholders of the
four corporations acquired in the Merger, became entitled to receive an
aggregate of $40,000,000 in market value of the Company's Common Stock. The
aggregate market value of the shares of the Company's Common Stock issued in the
Merger was reduced by an amount equal to the amount of certain liabilities of
RAS, Gristede's and SAC to John Catsimatidis and entities controlled by him
which were assumed by the surviving corporations in the Merger ("Intercompany
Liabilities"). The aggregate amount of such Intercompany Liabilities was
$4,000,000. Based on a market value of $2.18125 per share (the average closing
sales price for the Common Stock as reported on the American Stock Exchange for
the sixty consecutive trading days ended on October 29, 1997, the day prior to
the date of a Special and Annual Meeting of Stockholders of the Company (the
"Stockholders Meeting") at which the Merger was approved) the aggregate number
of shares issued to Mr. Catsimatidis and Group was 4,173,754 and 12,330,544,
respectively. As of June 1, 1998 Mr. Catsimatidis beneficially owned 18,250,650
shares of Common Stock (approximately
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90.5% of the outstanding shares). By virtue of his stock ownership and positions
as an officer and director of the Company, Mr. Catsimatidis may be deemed to
control the Company.
Simultaneously with the consummation of the Merger, the Company entered
into agreements with European American Bank and certain other participating
lenders with respect to a $25,000,000 secured bank facility comprised of: (i) a
$12,000,000 five year term loan to refinance the Company's outstanding bank debt
and to provide working capital, (ii) an $8,000,000 five year term loan to
finance the remodelling of the Company's supermarkets and the installation of a
point-of-sale and management information system, and (iii) a $5,000,000 two year
revolving line of credit for additional working capital. For further information
concerning this bank facility see Item 7. "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Liquidity and Capital
Resources."
At the Stockholders Meeting held on October 30, 1997, the Company's
stockholders approved, among other things, amendments to the Certificate of
Incorporation of the Company to (a) increase the number of authorized shares of
Common Stock from 10,000,000 to 25,000,000 and (b) change the name of the
Company to Gristede's Sloan's, Inc. (see Item 4. "Submission of Matters to a
Vote of Securityholders"). On November 4, 1997 the Company filed with the
Delaware Secretary of State a Certificate of Amendment of its Certificate of
Incorporation to effectuate such amendments.
In February 1998, the Company acquired from an affiliate of John
Catsimatidis the assets of a Supermarket located at 1644 York Avenue, New York,
New York. For information concerning the terms of such acquisition see Item 13.
"Certain Relationships and Related Transactions." The Company does not believe
that the acquisition will have a material effect on the Company's revenues or
expenses.
Growth Strategy
The Company believes that the Merger will allow it to realize synergies
and increasing operating leverage while providing management with the necessary
resources and focus to streamline operations, automate facilities and capitalize
on strategic opportunities. The Company also believes that the Merger has
enabled it to achieve the critical mass necessary to execute its future growth
strategy.
The Company has embarked on a capital expenditure program for its
Supermarkets that includes extensive remodelings and the introduction of a
centralized point-of-sale information system. The Company has obtained an
$8,000,000 five year term loan from certain banks to provide financing for such
capital improvements (see "Recent Developments").
During the transition period ended November 30, 1997, 4 stores were
remodeled for an aggregate capital expenditure of approximately $3,200,000 (1
store was remodeled during the prior 12 month period for a capital expenditure
of $500,000). During the fiscal year ending November 30, 1998, the Company
anticipates it will spend approximately $11,000,000 in aggregate capital
expenditures to complete the remodeling of 12 additional stores. The Company
anticipates that it will continue its store remodeling program in fiscal 1999.
The modernized
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smaller Supermarkets are re-named "Gristede's 2001", and the larger Supermarkets
are re-named "Gristede's Mega Stores".
The largest of the remodeled stores is located in Roosevelt Island, in
New York City and has been expanded in size to 23,000 square feet of selling
space from the previous 8,000 square feet.
Average sales increases at the remodeled stores have exceeded 50%.
Modernization has resulted in a more enjoyable shopping atmosphere with more
rapid check-out lines due to scanners and improved lighting facilities.
The Company may also expand its operations through opening new
supermarkets, acquisitions of supermarkets and/or acquisitions of businesses
which the Company believes would complement its core supermarket business.
However, pursuant to an order embodying a Settlement Agreement between the
Federal Trade Commission (the "FTC"), John Catsimatidis, the Company and certain
other companies controlled by Mr. Catsimatidis (collectively, the "companies"),
for a period of ten years from March 6, 1995, the Company cannot, without prior
FTC approval, acquire any interest in any existing supermarket in a designated
area in Manhattan. The order does not restrict the Company from acquiring an
interest in a supermarket by leasing or purchasing a new location that at the
time of acquisition (and for six months prior to the acquisition) is not (or was
not) being operated as a supermarket. For further information concerning the
Settlement Agreement and proceeding brought by the FTC against the companies
which prompted the Settlement Agreement, see Note 12 of Notes to the Financial
Statements of the Company.
Marketing
The Company advertises in local newspapers on a weekly basis. The
Company's advertising emphasizes competitive prices and variety of merchandise.
Some of the Company's vendors offer cooperative advertising allowances, which
the Company receives for advertising particular products in its newspaper
advertisements.
Competition
The Company's retail business is subject to intense competition,
characterized by low profit margins and requiring regular advertising. All of
the Supermarkets are in direct competition with Food Emporium, D'Agostino, A&P,
Pathmark and independent supermarket/grocery operators which do business under
the names "Pioneer", "Key Food" and "Associated", many of which are larger and
have substantially greater resources than the Company. The Supermarkets also
compete with other outlets which sell products sold by supermarkets in New York
City. Those outlets include gourmet food stores, health and beauty aid stores,
drug stores, produce stores, bodegas, delicatessens and other retail food
establishments. In addition, several of the Company's competitors have announced
plans to open larger stores.
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Sources of Supply; Inventory Policy
During the period from March 3, 1997 to November 30, 1997 covered by
this report (the "Transition Period"), the Company obtained 45% of the
merchandise sold in its stores from one principal merchandise supplier, White
Rose Foods, and the balance from other vendors, none of which accounted for more
than 10% of merchandise purchased by the Company. The Company believes that its
supplier relationships are currently satisfactory. 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's policy is to have its Supermarkets fully stocked with
merchandise at all time. This policy requires the Company to carry significant
amounts of inventory. As stated above, replenishment merchandise is readily
available from the Company's suppliers and, on average, approximately 76% of the
Company's inventory is sold before the Company is required to pay its suppliers.
Tradenames
The Company owns the "Gristede's" and "Sloan's" tradenames. Such names
have an established reputation in the areas served by the Supermarkets for
convenience, competitive prices, service and a wide variety of quality produce
and merchandise.
Gristede's is a federally registered trademark. While the Company is
not aware that its use of the tradename infringes upon the rights of any
persons, it has not obtained any federal or state trademark registration for the
tradename "Sloan's." The assertion by a third party of superior rights in the
tradename "Sloan's" or the loss of the Company's right to use either tradename
could have a material adverse effect on the Company.
Labor Contracts
All of the employees of the Company other than 96 administrative
employees and executives and 58 store managers and co-managers are represented
by unions. The table below sets forth the name of each union with which the
Company has a collective bargaining agreement and the expiration date of such
agreement.
Name of Union Expiration Date
- -------------------------------------- ---------------
Retail, Wholesale & Chain Store October 3, 1998
Food Employees Union, Local 338
Amalgamated Meat Cutters and Retail Food October 23, 1999
Store Employees Union, Local 342-50
United Food and Commercial Workers Union December 19, 1998
("UFCW"), Local 174
UFCW, Local 1500 June 21, 1998
UFCW, Local 464A May 1, 2003
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Name of Union Expiration Date
- -------------------------------------- ---------------
International Brotherhood of Teamsters June 30, 1999
("Teamsters"), Local 803
Teamsters, Local 202 December 31, 2003
Governmental Approvals
All of the stores have obtained all necessary governmental approvals,
licenses and permits to operate the Supermarkets.
Employees
At June 1, 1998, the Company had approximately 1,123 employees, 1,022
of which are employed at the Supermarkets or the City Produce warehouse, and 101
of which are employed at the Company's executive offices. Approximately 390 of
the employees were employed on a full-time basis.
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.
Seasonality
The Company's Supermarkets are predominantly located in the borough of
Manhattan in New York City and serve the more affluent carriage trade. Owing to
the significant exodus of such customers during the summer months for vacation
and holiday, together with an increased propensity by resident customers for out
of home dining during such period, the Company traditionally incurs up to a 20%
seasonal drop in sales during the months of July and August each year. The
seasonal decline in sales does not have a material impact on the level of
inventories carried by the Company.
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Environmental Compliance
Compliance by the Company with Federal, State and local provisions
which have been enacted or adopted regarding the discharge of materials into the
environment, or otherwise relating to the protection of the environment, does
not have a material financial impact on the Company.
ITEM 2. PROPERTIES.
The Company leases all 43 Supermarket locations and the warehouse and
distribution center operated by City Produce. 11 of such leases expire prior to
2001, 23 of such leases expire on dates from 2001 through 2010 and 9 of such
leases expire on dates from 2011 through 2018. The Supermarkets range in size
from approximately 3,200 to 23,000 square feet of selling space, averaging 8,500
square feet of selling space. All of the stores are air-conditioned, have all
necessary fixtures and equipment and are suitable for the retail operations
conducted thereat.
ITEM 3. LEGAL PROCEEDINGS.
On August 8, 1994, a lawsuit against the Company and Mr. Catsimatidis
was instituted in the United States District Court for the Southern District of
New York by RMED International, Inc. ("RMED"), a former stockholder of the
Company.
The complaint alleges, among other things, that RMED and a purported
class consisting of persons who purchased the Company's common stock on or after
March 19, 1993 were damaged by alleged nondisclosures in certain filings made by
the Company with the Securities and Exchange Commission between January 1993 and
June 1994 relating to an investigation by the FTC. The complaint alleges that
such nondisclosures constituted violations of Federal and New York State
securities laws, as well as common law fraud and seeks damages (including
punitive damages) in an unspecified amount (although in discovery proceedings
the named plaintiff has claimed that its damages were approximately $800,000),
as well as costs and disbursements of the action. On June 2, 1994, the Company
issued a press release which disclosed the FTC action.
On September 30, 1994, the defendants filed a motion to dismiss for failure to
state a cause of action and for lack of subject matter jurisdiction over the
state claims. The motion was denied. In June 1995, RMED filed a motion for class
certification, and discovery was held in abeyance pending disposition of that
motion. The motion was granted in March 1996 and discovery is now proceeding and
is scheduled to be completed in June 1998. Management believes that the lawsuit
is without merit and intends to defend the action vigorously; however, the
outcome cannot be determined.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.
A Special and Annual meeting of stockholders of the Company was held on
October 30, 1997. At the meeting, John Catsimatidis was elected as the Class 3
director to serve for a one year term expiring at the annual meeting to be held
in 1998, and Leroy Hemingway II was reelected and Kishore Lall was elected as
Class 1 Directors for a two year term expiring at the annual meeting to be held
in 1999. The number of votes cast in favor of the election of Mr. Catsimatidis
was 2,587,693 and the number of votes cast against was 166,825. The number of
votes cast in favor of the election of Mr. Hemingway was 2,584,527 and the
number of votes cast against was 169,991. The number of votes cast in favor of
the election of Mr. Lall was 2,584,527 and the number of votes cast against was
169,991. The terms of Martin Bring and Frederick Selby as Directors of the
Company continued after the meeting.
In addition to the election of the directors, the stockholders approved
the Merger Agreement (see Item 1 "Business - Recent Developments"). The number
of votes cast in favor of the Merger Agreement was 1,765,609, the number of
votes cast against the Merger Agreement was 60,051 and the number of abstentions
was 1,486. The stockholders also approved a proposal to amend the Certificate of
Incorporation of the Company to increase from 10,000,000 to 25,000,000 the
authorized number of shares of Common Stock. The number of votes cast in favor
of the amendment was 1,627,166, the number of votes cast against was 196,766 and
the number of abstentions was 3,214. The stockholders also approved a proposal
to amend the Certificate of Incorporation to change the name of the Company to
Gristede's, Sloan's, Inc. The number of votes cast in favor of the amendment was
2,672,005, the number of votes cast against was 80,446 and the number of
abstentions was 2,067. The stockholders also ratified the grant to John
Catsimatidis of non-qualified options to purchase an aggregate of 250,000 shares
of Common Stock at $2.875 per share through the earlier of August 11, 2006 or 90
days after the termination of Mr. Catsimatidis' employment by the Company. The
number of votes cast in favor of the proposal was 1,633,157, the number of votes
cast against was 187,575 and the number of abstentions was 6,414.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Market Information
The Company's Common Stock is listed and traded on the American Stock
Exchange. Since November 12, 1997 the Common Stock has been quoted under stock
symbol "GRI." Prior thereto it was quoted under the symbol "SLO." For the
Transition Period from March 3, 1997 to November 30, 1997 and the fiscal year
ended March 2, 1997, the quarterly high and low price range for such common
stock is shown in the following tabulation:
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Transition Period from
March 3, 1997 to Fiscal Year Ended
November 30, 1997 March 2, 1997
---------------------- -------------------
Quarter High Low High Low
- ---------------------- ---- --- ---- ---
First ................ 3-1/8 2-1/4 3-3/4 2-7/8
Second ............... 2-5/8 1-7/8 3-1/2 2-1/2
Third ................ 2-11/16 2 3-3/8 2-1/4
Fourth Not applicable Not applicable 3-1/16 1-7/8
The approximate number of holders of record of the Company's Common
Stock on June 1, 1998 was 230. The Company believes that there are a significant
number of shares of the Company's Common Stock held in street name and,
consequently, the Company is unable to determine the actual number of beneficial
owners.
Dividends
The Company has never paid a cash dividend on its Common Stock and does
not expect to pay a cash dividend in the near future.
Sales of Unregistered Securities
Pursuant to the Merger Agreement described in Item 1. "Business -
Recent Developments," on November 10, 1997 the Company issued to John
Catsimatidis and Group 4,173,754 and 12,330,544 shares, respectively, of Commons
Stock. The shares were issued in consideration of the acquisition by the Company
in the merger of four corporations controlled by Mr. Catsimatidis or Group. The
issuance of such shares did not require registration under the Securities Act of
1933, as amended (the "Securities Act") by virtue of an exemption from the
registration requirements contained in Section 4(2) of the Securities Act. The
transaction qualified for such exemption because Mr. Catsimatidis and Group are
sophisticated investors, acquired the shares for investment and not with a view
to distribution of such shares and have full access to information concerning
the Company.
On July 30, 1997 the Company granted and issued to each of John Chatzky and
Frank Linde five year options to purchase an aggregate of 37,500 shares of
Common Stock for a price of $5.00 per share. The options were granted in
connection with the Company's acquisition of an option to purchase a commercial
condominium unit for use as a supermarket. The issuance of the options did not
require registration under the Securities Act by virtue of the exception
contained in Section 4(2) of the Securities Act.
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<TABLE>
<CAPTION>
ITEM 6. SELECTED FINANCIAL DATA
39 Weeks Ended Years Ended
---------------- --------------------------------------------------------------
November 30, March 2, March 3, February 26,
1997(1) 1997 1996 1995
<S> <C> <C> <C> <C>
Sales .............................. $ 77,908,693 $ 104,168,864 $ 116,866,063 $ 116,862,727
Cost of sales ...................... 48,591,721 63,932,541 72,351,240 72,893,642
Gross profit ....................... 29,316,972 40,236,323 44,514,823 43,969,085
Direct operating
expenses ........................ 27,462,628 33,821,475 37,566,143 36,738,453
Corporate overhead ................. 3,983,280 6,207,930 6,405,593 8,269,408
Depreciation and
amortization .................... 1,585,486 2,092,403 2,257,714 2,747,641
Bad debt expense ................... -- 113,242 222,878 277,952
Excess of expenses
over sales ...................... (3,714,422) (1,998,727) (1,937,505) (4,064,369)
At End of Period
Total assets ....................... 52,705,555 23,119,000 20,152,454 18,281,000
Long-term debt ..................... 12,662,910 -- -- --
Total liabilities .................. 38,035,533 20,014,000 17,620,539 16,822,000
<FN>
- --------
(1) Includes the operations of the Food Group only for the 36 week period from
March 3, 1997 to November 9, 1997 and the operations of the combined Company
from November 10, 1997 to November 30, 1997.
</FN>
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Company Background
The fiscal year ended March 3, 1996 consisted of 53 weeks. The fiscal
year ended March 2, 1997 consisted of 52 weeks. The transition period from March
3, 1997 to November 30, 1997 (the "Transition Period") consisted of 39 weeks.
Results of Operations (Transition Period Compared to 1997)
During the 36 week period from March 3, 1997 until November 9, 1997 the
Company consisted of 15 stores and filed Quarterly Reports on Form 10-Q for the
quarters ended June 1, 1997 and August 31, 1997.
On November 10, 1997, as a result of the Merger, the Company acquired
certain assets net of liabilities of 29 selected supermarkets and a wholesale
distribution business (the "Food Group") controlled by John Catsimatidis, the
principal stockholder of the Company. The transaction was accounted for as the
acquisition of the Company by the Food Group pursuant to Emerging Issues Task
Force 90-13 as a result of the Food Group obtaining control of the Company after
the transaction.
As a result of the reverse acquisition the following summary of the
Results of Operations for the 39 week period encompasses the operations of the
Food Group for 36 weeks, and the operations of the new combined companies for
only 3 weeks after the Merger. Therefore, the 15 stores owned by the Company
prior to the Merger have contributed to sales, gross margin and overhead for
only 3 weeks.
The following table sets forth, as a percentage of sales, components of the
Results of Operations:
39 weeks ended 52 weeks ended
November 30, 1997 March 2, 1997
------------------ --------------
Sales .................................. 100.0% 100.0%
Cost of sales .......................... 62.4% 61.4%
----- -----
Gross profit ........................... 37.6% 38.6%
Store operating, general and ........... 35.3% 32.5%
administrative expense
Depreciation and amortization .......... 2.0% 2.0%
Non-store operating expense ............ 5.1% 6.1%
----- -----
Operating loss ......................... (4.8%) (2.0%)
===== =====
Sales for the 39 weeks ended November 30, 1997, on an annualized basis,
were $103,878,260 as compared to $104,168,864 for the 52 weeks ended March 2,
1997. The net sales decrease was the result of several factors. Sales for the 39
week period did not include the busy Christmas and New Year's
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holiday sales periods. The favorable summer weather in the New York City area
during 1997 resulting in prolonged vacations, as well as continuing deflationary
pressures in food prices also contributed to the decrease in sales. The
decreases were partially offset by increases in sales attributable to the fact
that 15 stores not included as part of the prior year's numbers were included
for 3 weeks in the November 30, 1997 period. The sales of the 15 stores amounted
to $3,870,221 of the annualized 39 week's sales. In addition, the remodeling of
4 stores during the 39 week period resulted in substantial sales increases.
Sales for the same 29 stores were $71,379,894 for the 39 weeks ended November
30, 1997 as compared with $74,119,743 for the 39 weeks ended December 1, 1996, a
decrease of 3.70%. The sales decline in the 1997 period was due to the same
favorable weather conditions during such period and continuing deflationary
pressures in food prices previously noted.
Gross profit as a percentage of sales was 37.63% for the 39 week period
ended November 30, 1997 as compared to 38.63% for the 52 week period ended March
2, 1997. The decreases in gross profit margin was mainly due to the curtailment
of our long-term forward buying program in the November period as compared to
the March period. In addition, construction activity taking place during the
store remodelings and grand opening promotions for the remodeled stores affected
overall gross profit margins during the November period.
Store operating, general and administrative expenses as a percentage of
sales were 35.25% for the 39 week period ended November 30, 1997 as compared to
32.47% of sales for the 52 week period ended March 2, 1997. Operating expenses
as a percentage of sales increased in the November period due to increases in
occupancy cost, labor costs associated with the store remodels and advertising
costs.
Non-store operating expenses, including bad debt expense, as a
percentage of sales were 5.11% for the 39 week period ended November 30, 1997 as
compared to 6.07% of sales for the 52 week period ended March 2, 1997.
Administrative payroll and fringes were 3.15% of sales for the 39 week period
ended November 30, 1997 as compared with 4.06% of sales for the 52 week period
ended March 2, 1997. The decrease was the result of a reduction in
administrative personnel. General office expense, including bad debt expense, as
a percentage of sales was 1.59% for the 39 week period ended November 30, 1997
as compared with 1.46% for the 52 week period ended March 2, 1997. The
percentage increase is attributable to additional travel and related costs
incurred to monitor the newly remodeled stores during the 39 week period which
were magnified as a percentage of sales by the fact that the sales for the 39
week period did not include the busy Christmas and New Year's holiday sales
periods. Professional fees were 0.36% of sales for the 39 week period ended
November 30, 1997 as compared with 0.55% of sales for the 52 week period ended
March 2, 1997. The decrease was due to the reduced need for the services of
outside legal counsel in connection with litigation, real estate and general
corporate matters. The subcategory "corporate expenses" are those expenses
attributable only to a public company and are thus solely applicable to the 3
week period ended November 30, 1997.
13
<PAGE>
Results of Operations (1997 Compared to 1996)
The following table sets forth, as a percentage of sales, components of
the Results of Operations:
52 weeks ended 53 weeks ended
March 2, 1997 March 3, 1996
------------------ --------------
Sales .................................. 100.0% 100.0%
Cost of sales .......................... 61.4% 61.9%
----- -----
Gross profit ........................... 38.6% 38.1%
Store operating, general and ........... 32.5% 32.1%
administrative expense
Depreciation and amortization .......... 2.0% 1.9%
Non-store operating expense ............ 6.1% 5.7%
----- -----
Operating loss ......................... (2.0%) (1.6%)
===== =====
Sales for the fiscal year ended March 2, 1997 were $104,168,864 as
compared to $116,866,023 for the fiscal year ended March 3, 1996. The decrease
in sales was attributable to the following: (i) 1996 was comprised of 53 weeks
as compared with 52 weeks in 1997, (ii) one store that was open for all of 1996
was only open for a portion of 1997 due to a fire, as a result of which sales of
such store were approximately $3,270,000 less in 1997 as compared to 1996, (iii)
beverage sales, which ordinarily represent approximately 17.0% of summer sales,
were negatively impacted by the abnormally cool weather in the New York area in
1997 and (iv) the selling price of cereals, which typically represent
approximately 7.50% of grocery sales, decreased in 1997. Sales from the City
Produce distribution center to outside customers were approximately $1,525,000
less in 1997 as compared with 1996 mainly as a result of the increased
utilization of the facility as a distribution center for the Food Group's stores
under the better-buying program.
Gross profit as a percentage of sales was 38.6% for 1997 as compared to
38.1% for 1996. The improvement in 1997 primarily reflects the implementation of
the better-buying program utilizing the City Produce distribution center to make
bulk purchases, on a direct basis at better prices, as well as the expansion of
the sales of value-added, higher margin products. Additionally, prices were
selectively increased.
Direct operating expenses as a percent of sales were 32.5% for 1997 as
compared with 32.1% for 1996. The primary reasons for the increase in operating
expenses as a percent of sales in 1997 as compared with 1996 were increases in
utility costs, advertising costs and occupancy costs resulting from new leases
replacing expired ones. In addition, fixed monthly expenses such as occupancy
costs benefitted from 53 weeks of sales in 1996 as compared to 52 weeks of sales
in 1997.
Corporate overhead decreased to $6,207,930 in 1997 as compared to
$6,405,593 in 1996. Administrative payroll and fringes were $4,229,800 or 4.1%
of sales for the 1997 period as compared with $4,390,196 or 3.8% of sales for
the 1996 period. While administrative payroll and fringes as a dollar amount
were lower in 1997 as compared to 1996 they increased as a percentage of sales
due to the decrease in sales volume previously discussed. General office expense
was $1,405,381 or 1.4% of sales in the 1997
14
<PAGE>
period as compared with $1,585,819 or 1.4% of sales in the 1996 period.
Professional fees increased to $572,749 or 0.55% of sales in 1997 as compared to
$429,578 or 0.37% of sales in 1996 mainly as the result of the increased need
for outside legal counsel in connection with litigation, real estate and general
corporate matters.
Bad debt expense was $113,242 or 0.1% of sales in 1997 as compared with
$222,878 or 0.2% of sales in 1996. The higher level of bad debt expense in 1996
was primarily due to the establishment of additional reserves in such year for
the expanded use of credit cards in the Food Group's stores.
As a result of the above, the excess of expenses over sales was
$1,998,727 for 1997 as compared to $1,937,505 for 1996, after charges for
depreciation and amortization expenses of $2,092,403 and $2,257,714,
respectively.
Liquidity and Capital Resources
On November 10, 1997, the Company completed its financial arrangements
with a group of banks for a credit facility in the aggregate amount of
$25,000,000. Under the credit agreement the Company obtained a term loan in the
amount of $12,000,000 to refinance prior bank debt, an improvement term loan
line of credit in the amount of $8,000,000 to finance capital improvements to
its Supermarkets and a revolving line of credit in the amount of $5,000,000 to
provide working capital. The $12,000,000 term loan matures on October 31, 2002.
The improvement term loan line of credit and the revolving line of credit mature
on October 31, 2002 and October 31, 1999, respectively, at which times all
amounts outstanding thereunder are payable.
Borrowings under the facility bear interest at a spread over either the
prime rate of the bank acting as agent for the group of banks or a LIBOR rate
with the spread dependent on the ratio of the Company's funded debt to EBITDA
ratio, as defined in the credit agreement. The average interest rate on amounts
outstanding under the facility from November 10, 1997 to April 30, 1998 was
8.51% per annum.
The credit facility contains covenants, representations and events of
default typical of credit facility agreements, including financial covenants
which require the Company to meet, among other things, a minimum tangible net
worth, debt service coverage ratios and fixed charge coverage ratios, and which
limit transactions with affiliates. The facility is secured by equipment,
inventories and accounts receivable.
By agreements dated April 30, 1998 and June 9, 1998, the Company's
banks extended the dates by which the Company was required to deliver to them
the Company's Annual Report on Form 10-K for the Transition Period ended
November 30, 1997, and its Quarterly Report on Form 10-Q for the quarter ended
March 1, 1998. Such reports were thereafter delivered within the extended
deadline. The banks also consented to the change in the Company's fiscal year to
the Sunday nearest November 30 of each year and waived the Company's failure to
timely deliver certain financial statements and reports to the banks.
As of November 30, 1997, the Company had taken down the entire
$12,000,000 term loan and $1,000,000 was outstanding under the revolving line of
credit. As of May 11, 1998 the entire $5,000,000 of the revolving line of credit
was outstanding, but the Company still had available $5,350,000 under the
improvement term loan line of credit to finance the Company's continuing major
store remodeling program. Management of the Company anticipates that the Company
will generate sufficient cash flow to finance its future working capital needs
for the foreseeable future.
15
<PAGE>
The Company has not incurred any material commitments for capital
expenditures, although it anticipates spending approximately $11,000,000 on its
store remodeling program in fiscal 1998. Management believes that amounts
available under its $25,000,000 credit facility together with financing the
Company believes it can obtain, including loans from, and leasing arrangements
with, non-affiliated companies, will be sufficient to enable the Company to
complete its remodeling program.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page No.
--------
Report of independent certified public accountants F-1
Consolidated balance sheet of Gristede's Sloan's, Inc.
and its subsidiaries as of November 30, 1997 F-3
Statement of Assets to be Purchased and Liabilities to
be assumed as of March 2, 1997 F-5
Consolidated Statement of Operations of Gristede's Sloans, Inc.
and its subsidiaries for the three weeks ended November 30, 1997 F-6
Consolidated Statements of Sales and Expenses of Gristede's Sloan's, Inc.
and its subsidiaries for the 36 weeks ended November 9, 1997,
the 53 weeks ended March 2, 1997 and the 53 weeks ended March 3, 1996 F-7
Consolidated Statement of Stockholders' Equity of Gristede's Sloan's,
Inc. and its subsidiaries for the three weeks ended November 30, 1997 F-8
Consolidated Statement of Cash Flows of Gristede's Sloan's, Inc.
and its subsidiaries for the three weeks ended November 30, 1997 F-9
Notes to Financial Statements F-10
16
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors of
Gristede's Sloan's, Inc.
New York, New York
We have audited the accompanying consolidated balance sheet of Gristede's
Sloan's, Inc. and subsidiaries as of November 30, 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the three weeks then ended (see Note 1). We have also audited the accompanying
statement of assets to be purchased and liabilities to be assumed by Gristede's
Sloan's, Inc. as of March 2, 1997 and the related statements of sales and
expenses for the 36 weeks ended November 9, 1997 and each of the two years in
the period ended March 2, 1997. These financial statements are the
responsibility of Gristede's Sloan's, Inc.'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 audits 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.
The accompanying statement of assets to be purchased and liabilities to be
assumed and statements of sales and expenses were prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission, and are not intended to be a complete presentation of Gristede's
Sloan's, Inc.'s financial position or results of operations as of or for the
periods noted above.
F-1
<PAGE>
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, (i) the financial position of Gristede's
Sloan's, Inc. and subsidiaries as of November 30, 1997, and the results of their
operations and their cash flows for the three weeks then ended, and (ii) the
assets to be purchased and liabilities to be assumed by Gristede's Sloan's, Inc.
at March 2, 1997 and its sales and expenses for the 36 weeks ended November 9,
1997 and each of the two years in the period ended March 2, 1997, in conformity
with generally accepted accounting principles.
/s/ BDO Seidman, LLP
- --------------------
BDO Seidman, LLP
New York, New York
May 15, 1998, except for
Note 9a and Note 13b, as to
which the date is June 9, 1998
F-2
<PAGE>
Gristede's Sloan's, Inc.
and Subsidiaries
Balance Sheet
November 30, 1997
Assets
Current:
Cash ....................................................... $ 88,970
Accounts receivable - net of allowance for
doubtful accounts of $300,000 ............................ 5,110,026
Inventories ................................................ 16,221,465
Prepaid expenses and other current assets .................. 914,544
Notes receivable - current portion ......................... 584,912
-----------
Total current assets .................................. 22,919,917
-----------
Property and equipment:
Furniture, fixtures and equipment .......................... 13,393,803
Capitalized equipment leases ............................... 5,574,369
Leasehold interests and improvements ....................... 30,296,510
-----------
49,264,682
Less: Accumulated depreciation and amortization ........... 23,567,986
-----------
Net property and equipment ...................... 25,696,696
-----------
Due from affiliate ...................................... 351,778
-----------
Deposits and other assets ............................... 717,429
-----------
Deferred costs .......................................... 1,515,004
-----------
Notes receivable - noncurrent portion ................... 1,504,731
-----------
$52,705,555
-----------
See accompanying notes to financial statements.
F-3
<PAGE>
Gristede's Sloan's, Inc.
and Subsidiaries
Balance Sheet
November 30, 1997
Liabilities and Stockholders' Equity
Current:
Accounts payable, trade ....................................... $15,671,962
Accrued payroll, vacation and withholdings .................... 1,276,535
Accrued expenses and other current liabilities ................ 947,395
Capitalized lease obligation - current portion ................ 389,809
Current portion of long-term debt ............................. 1,714,284
-----------
Total current liabilities ................................ 19,999,985
Long-term debt - noncurrent portion .............................. 11,285,716
Due to affiliate ................................................. 4,000,000
Deferred advertising ............................................. 378,654
Capitalized lease obligation - noncurrent portion ................ 1,377,194
Deferred rent .................................................... 993,984
-----------
Total liabilities ........................................ 38,035,533
-----------
Commitments and contingencies
Stockholders' equity:
Common stock, $0.02 par value - shares authorized 25,000,000; 392,732
outstanding 19,636,574
Additional paid-in capital ............................... 14,136,674
Retained earnings ........................................ 140,616
-----------
Total stockholders' equity ......................... 14,670,022
-----------
$52,705,555
See accompanying notes to financial statements.
F-4
<PAGE>
Gristede's Sloan's, Inc.
and Subsidiaries
Statement of Assets to be Purchased
and Liabilities to be Assumed
March 2, 1997
Assets:
Accounts receivable ......................................... $ 2,999,000
Inventories ................................................. 9,457,000
Notes receivable ............................................ 1,634,000
Prepaid expenses and other current assets ................... 213,000
Security deposits ........................................... 300,000
Fixed assets, net ........................................... 7,187,000
Capital leases, net ......................................... 1,329,000
-----------
Assets purchased ...................................... 23,119,000
-----------
Liabilities:
Accounts payable ............................................ 11,192,000
Due to affiliate ............................................ 4,000,000
Accrued vacation and sick pay ............................... 993,000
Due to Sloan's Supermarkets, Inc. ........................... 1,154,000
Capitalized leased obligations to affiliate ................. 2,675,000
-----------
Total liabilities ..................................... 20,014,000
-----------
Net assets purchased ........................................ $ 3,105,000
-----------
See accompanying notes to financial statements.
F-5
<PAGE>
Gristede's Sloan's, Inc.
and Subsidiaries
Statement of Operations
Three weeks ended November 30, 1997
Sales ......................................................... $ 9,225,123
Cost of sales ................................................. 5,731,065
-----------
Gross profit .......................................... 3,494,058
Store operating, general and administrative expenses .......... 2,754,563
Depreciation and amortization .............................. 219,813
-----------
Nonstore operating expenses
Administrative payroll and fringes ...................... 166,539
General office expense .................................. 86,588
Professional fees ....................................... 7,975
Corporate expense ....................................... 5,378
-----------
Total nonstore operating expenses ..................... 266,480
-----------
Operating profit ................................... 253,202
-----------
Other income (expense):
Interest expense ........................................ 82,586
-----------
Total other expenses ............................... 82,586
-----------
Income before provision for income taxes ........... 170,616
Provision for income taxes ................................. 30,000
-----------
Net income ................................................. $ 140,616
-----------
Income per share of common stock ........................... $ .01
-----------
Weighted average common shares outstanding ................. 19,636,574
-----------
See accompanying notes to financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
Gristede's Sloan's, Inc.
and Subsidiaries
Statements of Sales and Expenses
36 weeks ended 52 weeks ended 53 weeks ended
November 9, March 2, March 3,
1997 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Sales ................................. $ 68,683,570 $ 104,168,864 $ 116,866,063
Cost of sales ......................... 42,860,656 63,932,541 72,351,240
------------ ------------ ------------
Gross profit .................... 25,822,914 40,236,323 44,514,823
Direct operating expenses ............. 24,708,065 33,821,475 37,566,143
------------ ------------ ------------
Corporate overhead
Administrative payroll and fringes . 2,288,915 4,229,800 4,390,196
General office expense ............. 1,150,962 1,405,381 1,585,819
Professional fees .................. 276,923 572,749 429,578
------------ ------------ ------------
Total corporate overhead ....... 3,716,800 6,207,930 6,405,593
------------ ------------ ------------
(2,601,951) 206,918 543,087
Depreciation and amortization ......... 1,365,673 2,092,403 2,257,714
Bad debt expense ...................... -- 113,242 222,878
------------ ------------ ------------
Excess of expenses over sales ......... $ (3,967,624) $ (1,998,727) $ (1,937,505)
------------ ------------ ------------
See accompanying notes to financial statements.
</TABLE>
F-7
<PAGE>
<TABLE>
<CAPTION>
Gristede's Sloan's, Inc.
and Subsidiaries
Statement of Stockholders' Equity
Three weeks ended November 30, 1997
Common stock
----------------------------- Additional Total
Number of Amount paid-in Retained stockholders'
shares capital earnings equity
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, November 10, 1997 ............... -- $ -- $ -- $ -- $ --
To reflect acquisition of ................ 19,636,574 392,732 14,136,674 -- 14,529,406
Sloan's Supermarkets, Inc. -
Recapitalization (Note 1)
Net income ............................... -- -- -- 140,616 140,616
---------- ----------- ----------- ----------- -----------
Balance, November 30, 1997 ............ 19,636,574 $ 392,732 $14,136,674 $ 140,616 $14,670,022
========== =========== =========== =========== ===========
See accompanying notes to financial statements.
</TABLE>
F-8
<PAGE>
<TABLE>
<CAPTION>
Gristede's Sloan's, Inc.
and Subsidiaries
Statement of Cash Flows
Three weeks ended November 30, 1997
<S> <C>
Cash flows from operating activities:
Net income .......................................................................... $ 140,616
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization .................................................... 219,813
Changes in operating assets and liabilities, net of effect from
acquisition of supermarkets:
Accounts receivable ................................................ (421,106)
Inventories ........................................................ (209,130)
Prepaid expenses and other current assets .......................... 442,666
Notes receivable ................................................... 23,433
Receivable from officer ............................................ (1,113)
Other assets ....................................................... (399,092)
Accounts payable, trade ............................................ (6,529,099)
Accrued payroll, vacation and withholdings ......................... 397,894
Accrued expenses and other current liabilities ..................... 270,334
Deferred rent ...................................................... 34,503
Other credits ...................................................... 378,654
------------
Net cash used in operating activities ....................... (5,651,627)
------------
Cash flows from investing activities:
Capital expenditures - net .................................................. (362,987)
------------
Net cash used in investing activities ....................... (362,987)
------------
Cash flows from financing activities:
Repayments of bank loan ..................................................... (7,100,000)
Capitalized lease obligations ............................................... (7,665)
Proceeds from bank loan ..................................................... 13,000,000
------------
Net cash provided by financing activities ................... 5,892,335
------------
Net decrease in cash ................................................................... (122,279)
Cash, beginning of period -- acquired from supermarkets ................................ 211,249
------------
Cash, end of period .................................................................... $ 88,970
============
Supplemental disclosures of cash flow information:
Cash paid for interest ...................................................... $ 21,792
Cash paid for taxes ......................................................... 1,500
------------
See accompanying notes to financial statements.
</TABLE>
F-9
<PAGE>
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Financial Statements
1. Business and Basis
of Presentation
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, a 37%
shareholder of GRI. 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 (the "Acquiror") are
recorded at their historical cost. Sloan's assets
and liabilities are being 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 accompanying statement of operations as of and
for the three weeks ended November 30, 1997
represents the consolidated operations of The Food
Group and GRI. Retained earnings at November 30,
1997 represent the cumulative net operating
results for both The Food Group and GRI from
November 10, 1997 (the date the acquisition was
consummated) to November 30, 1997.
F-10
<PAGE>
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Financial Statements
The Food Group's financial statements, rather than
complete financial statements, are presented as of
and for periods prior to November 9, 1997 because
the business acquired consists of only certain net
assets of the stores and there are certain assets
of The Food Group that were not acquired.
Accordingly, the statements present only the
assets acquired and the liabilities assumed and
the sales and expenses directly attributable to
The Food Group. The financial statements consist
of a historical consistent comparison of the
operating results only of those stores transferred
to the public company. The entities owning The
Food Group (the "Group"), in addition to owning
the above stores, also have other operations
included within its consolidated group. Corporate
overhead costs for the entire Group are allocated
to the Group's respective operations, including
The Food Group. Corporate overhead included in the
accompanying statements of sales and expenses
include identified overhead costs for payroll and
other directly attributable overhead costs
pertaining to the retail stores owned by the Group
which also includes costs incurred for selected
stores not being sold. No tax benefit has been
recognized due to the fact that the losses remain
with the corporate parent of The Food Group.
2. Summary of Fiscal Year
Significant
Accounting Policies On January 13, 1998, the Company's Board of
Directors elected to change the Company's fiscal
year-end from the Sunday closest to the last day
of February to the Sunday closest to the last day
of November.
F-11
<PAGE>
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Financial Statements
INVENTORIES
Store inventories are valued principally at the
lower of cost or market with cost determined under
the retail 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, with lives
ranging from seven to ten years. Leasehold
improvements are amortized over the shorter of
their estimated useful lives or the lease term by
the straight-line method.
The Company recorded approximately $4.4 million to
leasehold rights on the consummation of the
acquisition discussed in Note 1 due to favorable
leasing terms. The leasehold rights are amortized
over ten years by the straight-line method.
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.
DEFERRED ADVERTISING
Advertising rebates and space allocation
allowances are deferred and recognized in income
over the period of the agreement, generally one to
three years.
ADVERTISING EXPENSE
The Company expenses advertisement costs when the
advertisement is first shown.
DEFERRED COSTS
Deferred costs consist of noncompete agreement,
acquisition and financing costs. They are
amortized on a straight-line basis over five to
ten years.
F-12
<PAGE>
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Financial Statements
INCOME TAXES
Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to
differences between the financial statement
carrying amounts of existing assets and
liabilities and their respective tax basis.
Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to
taxable income in the years in which those
temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized
in income in the period that includes the
enactment date. No deferred tax assets or
liabilities from The Food Group have been
recognized since only the operating assets and
liabilities of the stores have been sold. The
losses incurred by these stores being sold remain
with the Red Apple Group, Inc.
The Company will not recognize gain or loss as a
result of the completion of the transactions set
forth in the merger agreement between The Food
Group and the Company. The Company believes that
it will undergo an "Ownership Change" within the
meaning of Section 382 of the Internal Revenue
Code of 1986, as amended, as a consequence of the
transaction. As a result, the Company's ability to
offset its net operating loss carryforwards
(including a portion of any net operating loss
incurred in the Company's current taxable year)
against income earned after the transaction will
be limited. (As of November 30, 1997, the Company
had net operating loss carryforwards of
approximately $3,000,000). Thus, the transaction
could result in taxation of some Company income
that, absent the transaction, might have been
offset by net operating loss carryforwards.
USE OF ESTIMATES
The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make estimates
and assumptions that affect certain reported
amounts of assets, liabilities, income and expense
and disclosures of contingencies. Future events
could alter such estimates in the near term.
F-13
<PAGE>
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Financial Statements
STOCK-BASED COMPENSATION PLANS
Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based
Compensation" allows either adoption of a fair
value method of accounting for stock-based
compensation plans or continuation of accounting
under Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to
Employees," and related interpretations with
supplemental disclosures.
The Company has chosen to account for all
stock-based compensation arrangements under APB
Opinion No. 25 with related disclosures under SFAS
No. 123. Pro forma net earnings (loss) per common
share amounts as if the fair value method had been
adopted are presented in Note 11.
FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosure About Fair Value of
Financial Instruments" requires companies to
disclose the fair value of financial instruments.
The carrying values of cash and cash equivalents,
accounts receivable and accounts payable reported
in the accompanying consolidated balance sheets
approximate fair value due to the short-term
maturities of these assets.
The fair value of long-term debt, consisting of
the term loan and revolving loan payable as of
November 30, 1997, approximates the recorded book
values because of the fluctuating interest rates.
It was not practical to determine the fair value
of the amount due to affiliate, because of the
uncertain repayment terms.
LONG-LIVED ASSETS
During 1995, SFAS No. 121, "Accounting for the
Impairment of Long-lived Assets and for Long-lived
Assets to Be Disposed Of", was issued. SFAS 121
requires the Company to review long-lived assets
and certain identifiable assets related to those
assets for impairment whenever circumstances and
situations change such that there is an indication
that the carrying amounts may not be recoverable.
If the undiscounted future cash flows of the
enterprise are less than their carrying amounts,
their carrying amounts are reduced to fair value
and an impairment loss is recognized. No
impairment losses have been necessary through
November 30, 1997.
F-14
<PAGE>
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Financial Statements
INCOME PER SHARE
Per share data are based on the weighted average
number of shares of common stock and common stock
equivalents outstanding during each year. Income
(loss) per share is computed by the treasury stock
method; primary and fully diluted income (loss)
per share are the same.
Recent Accounting Pronouncements
SFAS No. 128, "Earnings Per Share," requires a
presentation of basic EPS and diluted EPS for
fiscal years beginning after December 15, 1997.
Basic EPS excludes dilution and is computed by
dividing earnings available to common stockholders
by the weighted-average number of common shares
outstanding for the period. Similar to fully
diluted EPS, diluted EPS assumes conversion of
convertible debt and the issuance of common stock
for all other potentially dilutive equivalent
shares outstanding, unless the effect of issuance
would have an anti-dilutive effect. The Company
believes SFAS No. 128 will have little, if any,
effect on the information already disclosed in the
Company's financial statements.
SFAS No. 129, "Disclosure of Information About
Capital Structure" requires an entity to provide
certain disclosures within its financial
statements about the pertinent rights and
privileges of the various securities outstanding
for fiscal years beginning after December 15,
1997. The Company believes SFAS No. 129 will have
little, if any, effect on the information already
disclosed in the Company's financial statements.
SFAS No. 130, "Reporting Comprehensive Income",
requires an entity to report comprehensive income
and its components for fiscal years beginning
after December 15, 1997. The Company believes SFAS
No. 130 will have little, if any, effect on the
information already disclosed in the Company's
financial statements.
SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information" requires an
entity to report financial and descriptive
information about its reportable operating
segments for fiscal years beginning after December
15, 1997. The Company believes SFAS No. 131 will
have little, if any, effect on the information
already disclosed in the Company's financial
statements.
F-15
<PAGE>
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Financial Statements
Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained
for Internal Use", requires an entity to expense
all software development costs incurred in the
preliminary project stage, training costs and data
conversion costs for fiscal years beginning after
December 15, 1998. The Company believes that this
statement will not have a material effect on the
Company's accounting for computer software
acquisitions.
Statement of Position 98-5, "Accounting for
Start-up Costs", requires an entity to expense all
start-up related costs as incurred for fiscal
years beginning after December 15, 1998. The
Company believes that this statement will not have
a material effect on the Company's accounting for
start-up costs.
3. Acquisition of The As discussed in Note 1, the following table
Food Group reflects unaudited pro forma combined results of
operations of Sloan's and The Food Group on the
basis that the acquisition had taken place at the
beginning of the fiscal year for each of the
periods presented:
36 weeks 52 weeks
ended ended
November 9, March 2,
1997 1997
--------------------------------------------------
Revenues $101,157,570 $150,721,403
Operating income 1,679,004 11,085,809
--------------------------------------------------
In management's opinion, the unaudited pro forma
combined results of operations are not indicative
of the actual results that would have occurred had
the acquisition been consummated on March 4, 1996
or of future operations of the combined companies
under the ownership and management of GRI.
F-16
<PAGE>
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Financial Statements
4. Related Party The Company has advanced funds to a company owned
Transactions by the Chairman of the Board who is also the
principal stockholder of the Company. As of
November 30, 1997, the Company is owed
approximately $352,000, including $148,000 of
accrued interest. Such advance bears interest at
prime plus 1.25% per annum (9.75% at November 30,
1997 and 9.50% at March 2, 1997).
The Company and other affiliated supermarkets
allocate volume, advertising and other rebates.
Rebates, whether allocated or directly attributed
to the Company, are recorded as reductions to cost
of sales or advertising expense over the life of
the related agreement. Rebates recorded as
reductions to expenses approximated $0.4 million,
$1.5 million, $3.2 million and $2.2 million for
the 3 weeks ended November 30, 1997, 36 weeks
ended November 9, 1997 and the fiscal years ended
1997 and 1996, respectively.
Prior to the merger, Red Apple Management Inc., a
company wholly owned by John Catsimatidis,
provided certain payroll, related employee benefit
services and office services for The Food Group.
Such services include accounting, merchandising,
human resources, maintenance, executive salaries
and employee benefits. During the 3 weeks ended
November 30, 1997, 36 weeks ended November 9, 1997
and the fiscal years ended 1997 and 1996, the
Company incurred approximately $-0-, $2,748,000,
$3,755,000 and $3,761,000, respectively.
Newspaper advertising for the Company is
frequently pooled with advertising for other
supermarkets which are not owned by the Company.
In such cases, the Company pays a proportionate
share of such advertising expenses based upon its
number of Supermarkets covered in the
advertisements. Such amounts allocated to the
Company approximated $-0-, $388,000, $319,000 and
$317,000 during the 3 weeks ended November 30,
1997, 36 weeks ended November 9, 1997, and the
fiscal years ended 1997 and 1996, respectively.
F-17
<PAGE>
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Financial Statements
Lowenthal, Landau, Fischer & Bring, P.C., a law
firm of which a director of the Company is a
member, charged the Company $-0-, $341,000,
$194,000 and $487,000 in fees for rendering legal
services to the Company during the 3 weeks ended
November 30, 1997, 36 weeks ended November 9, 1997
and the fiscal years ended March 2, 1997 and March
3, 1996, respectively.
Capitalized Lease Obligations Due to Affiliate
Certain stores have entered into capital and
operating leases with an affiliate, Red Apple
Leasing, Inc. (a company wholly owned by John
Catsimatidis). Such leases are primarily for store
operating equipment. Obligations under capital
leases at November 30, 1997 were $1,206,932 and
require monthly payments of $35,114 through March
1, 2001. Obligations under operating leases at
March 2, 1997 require 84 payments of $14,594.
Obligations under operating leases at June 2, 1997
and September 1, 1997 require 60 monthly payments
of $10,783 and $16,297, respectively.
Notes Receivable
During 1994, the Company sold two stores. Pursuant
to the United States Federal Trade Commission
settlement agreement (see Note 11), the Company
also sold four stores during 1996 and 1997. At the
time of the sale, the Company accepted a note
receivable on each store. These notes bear
interest at rates of 8.5% to 10% and have terms of
4 to 6 years.
5. Deferred Costs At November 30, 1997, deferred costs consisted of:
<TABLE>
<CAPTION>
Amount
----------------------------------------------------------------------
<S> <C> <C>
Acquisition costs $ 834,316 5-10 years
Non-compete covenants 790,316 10 years
Debt costs 254,528 5-10 years
Other 122,263 5-11 years
Accumulated amortization (486,419)
----------------------------------------------------------------------
Net deferred costs $1,515,004
----------------------------------------------------------------------
</TABLE>
F-18
<PAGE>
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Financial Statements
6. Due to Affiliate Amounts due to affiliate represent liabilities in
connection with the consummation of the merger as
discussed in Note 1. The affiliate has agreed not
to demand payment of these liabilities in the next
fiscal year. Accordingly, the liability has been
classified as noncurrent. The liability does not
bear interest.
7. Commitments and The Company operates primarily in leased
Contingencies facilities, under noncancelable operating leases
expiring at various dates through 2018. Certain
leases provide for contingent rents (based upon
store sales exceeding stipulated amounts or on the
Consumer Price Index), escalation clauses and
renewal options ranging from five to fifteen
years. The Company is obligated under all leases
to pay for taxes, insurance and common area
maintenance expenses.
Rent expense under noncancelable operating leases,
including leases with related parties for the
fiscal periods ended November 30, 1997, November
9, 1997, March 2, 1997 and March 3, 1996,
respectively, is as follows:
<TABLE>
<CAPTION>
3 weeks ended 36 weeks ended 52 weeks ended 53 weeks ended
November 30, November 9, March 2, March 3,
1997 1997 1997 1996
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Base rents $ 450,460 $ 4,026,056 $ 4,952,840 $ 4,699,012
Contingent rents -- (18,169) 21,461 (27,951)
--------------------------------------------------------------------------------
Rent expense $ 450,460 $ 4,007,887 $ 4,974,301 $ 4,671,061
--------------------------------------------------------------------------------
</TABLE>
Related party rent expense was $51,823, $446,760,
$267,000 and $348,000 for the 3 weeks ended
November 30, 1997, 36 weeks ended November 9, 1997
and the fiscal years ended March 2, 1997 and March
3, 1996, respectively.
F-19
<PAGE>
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Financial Statements
Future minimum lease commitments under
noncancelable leases as of November 30, 1997 are:
Fiscal year ending
----------------------------------------------
1998 $ 8,653,000
1999 8,351,000
2000 8,109,000
2001 7,173,000
2002 6,600,000
Thereafter 47,155,000
----------------------------------------------
$86,041,000
----------------------------------------------
8. Income Taxes Deferred tax expense or benefit is the change in
the computed tax asset or liability balance. As of
November 30, 1997, the Company had total deferred
tax assets of approximately $2,400,000, of which
approximately $1,000,000 is related to net
operating loss carryforwards which are available
to offset income earned in future years, and
approximately $1,400,000 relates to the different
bases of leasehold rights. The net deferred tax
assets at November 30, 1997 and March 2, 1997 were
offset by valuation allowances of an equal amount.
Accordingly, no deferred income taxes were
recognized in any of the periods.
As of November 30, 1997, the Company had available
Federal net operating loss carryforwards of
approximately $3,000,000, of which the tax
benefits of $1,000,000 when and if realized, will
be credited directly to additional paid-in
capital.
F-20
<PAGE>
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Financial Statements
The income tax expense amounts in the consolidated
statements of operations consist of state income
taxes.
9. Debt (a) Credit Facility and Term Loan Agreement
On November 10, 1997, the Company entered into
an aggregate $25,000,000 five-year credit
facility with European American Bank, as
agent, and certain other participating banks.
The credit facility is comprised of a
$12,000,000 five-year term loan, a $8,000,000
five-year term loan line for remodeling and
capital improvements to the Company's stores
and a $5,000,000 two-year revolving credit
facility for general working capital purposes.
Borrowings under the facility bear interest at
a "spread" over either the bank's prime rate
or LIBOR rates, with the spread dependent on
the ratio of the Company's funded debt to
EBITDA ratio, as defined in the credit
agreement. The credit facility contains
covenants, representations and events of
default typical of credit facility agreements,
including financial covenants which require
the Company to meet, among other things, a
minimum tangible net worth, debt service
coverage ratios and fixed charge coverage
ratios, and which limit transactions with
affiliates. The facility is secured by
equipment, inventories and accounts
receivable.
On June 9, 1998, the Company's banks extended
the dates by which the Company was required to
deliver to them its Annual Report on SEC Form
10-K for the nine months ended November 30,
1997, and its quarterly report on SEC Form
10-Q for the quarter ended March 1, 1998.
F-21
<PAGE>
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Financial Statements
Long-term debt at November 30, 1997 consists
of the following:
<TABLE>
<CAPTION>
November 30, 1997
--------------------------------------------------------------------------------
<S> <C>
Term loan payable to banks due October 31, 2002.
Interest on prime-based loans is payable
monthly in arrears and interest on
LIBOR-based loans is payable at the end of
the applicable interest period; principal
payable in 59 monthly installments of
$142,857 beginning December 1, 1997 with the
60th such installment being the then
outstanding principal amount. During the
three weeks ended November 30, 1997 the
interest rates were 8.28% and 9.25% on the
LIBOR-based and prime-based loans,
respectively (collateralized by certain
assets of the Company, including
receivables, inventory, and
store equipment) $12,000,000
Revolving loan payable to bank, due October
31, 1999. Interest on prime-based loans is
payable monthly in arrears and interest on
LIBOR-based loans is payable at the end of
the applicable interest period. During the
three weeks ended November 30, 1997, the
interest rate was 9.25% (collateralized by
certain assets of the Company, including
receivables, inventory, and
store equipment) 1,000,000
--------------------------------------------------------------------------------
13,000,000
Less: Current portion 1,714,284
--------------------------------------------------------------------------------
$11,285,716
================================================================================
</TABLE>
F-22
<PAGE>
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Financial Statements
Principal maturities of long-term debt as of
November 30, 1997:
Fiscal year ending
--------------------------------------------------
1998 $ 1,714,284
1999 2,714,284
2000 1,714,284
2001 1,714,284
2002 5,142,864
--------------------------------------------------
$13,000,000
--------------------------------------------------
(b) In addition to related party capital leases
(Note 4), the Company has other capital
equipment leases. The net book value of all
assets under capital leases is approximately
$1.4 million.
Future net minimum lease payments under
capital leases are as follows:
Fiscal year ending
--------------------------------------------------
1998 $ 537,072
1999 537,072
2000 537,072
2001 256,160
2002 115,704
Thereafter 212,124
--------------------------------------------------
2,195,204
Less: Amount representing interest 428,201
--------------------------------------------------
Present value of net minimum
lease payments 1,767,003
Due within one year 389,809
--------------------------------------------------
Total $1,377,194
==================================================
F-23
<PAGE>
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Financial Statements
10. Retirement Plans The Company participates in various defined
contribution multi-employer union pension plans
which are administered jointly by management and
union representatives and which sponsor most full-
time and certain part-time union employees. The
pension expense for these plans approximated
$153,000, $369,000, $697,000 and $849,000 in the 3
weeks ended November 30, 1997, 36 weeks ended
November 9, 1997, and the fiscal years ended 1997
and 1996, respectively. The Company could, under
certain circumstances, be liable for unfunded
vested benefits or other expenses of jointly
administered union/management plans.
11. Stock Option Plans The following stock option plans were carried
forward by The Food Group from Sloan's:
On October 7, 1994, the Company granted the
Chairman a non-qualified stock option to purchase
an aggregate of 275,000 shares of common stock at
a price of $3.75 per share (the fair market value
at that date).
On August 12, 1996, the Company granted the
Chairman a non-qualified stock option to purchase
an aggregate of 250,000 shares of common stock at
a price of $2.875 per share, subject to the
ratification of the Company's stockholders. On
October 30, 1997, the Company's stockholders
ratified the grant.
The Company currently has one incentive grant and
four nonqualified grants under which stock options
may be granted to officers, directors and key
employees of the Company - the 1994 Employee
Incentive Grant (the "1994 Grant"), the 1994
Nonqualified Grant (the "1994 NQ Grant"), the 1995
Chairman's Nonqualified Options (the "Chairman's
Grant"), the 1994 Director's Nonqualified Grant
(the "Directors' Grant"), and the 1994
Nonqualified Recruitment Grant (the "1994
Recruitment Grant"). The options to purchase
common shares generally are issued at fair market
value on the date of the grant, begin vesting on
the date of the grant, and expire ten years from
issuance and are conditioned upon continual
employment during the vesting period.
F-24
<PAGE>
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Financial Statements
Under the 1994 Grant and the 1994 NQ Grant, the
Company granted options to purchase up to 100,000
and 35,000 shares of common stock, respectively.
In addition to the one incentive grant, the
Company has granted stock options to certain key
executives and directors. The options vest over
five years and contractual lives of these grants
are similar to that of the incentive plan.
The Company applies APB Opinion No. 25,
"Accounting for Stock Issued to Employees," and
related interpretations for its stock option
grants. Generally, compensation expense is not
recognized for stock option grants.
In accordance with SFAS No. 123, "Accounting for
Stock-based Compensation", the Company discloses
the pro forma impact of recording compensation
expense utilizing the Black-Scholes model. The
Black-Scholes option valuation model was developed
for use in estimating the fair value of traded
options which have no vesting restrictions and are
fully transferable. In addition, option valuation
models require the input of highly subjective
assumptions including the expected stock price
volatility. Because the Company's stock options
have characteristics significantly different from
those of traded options, and because changes in
the subjective input assumptions can materially
affect the fair value estimate, in management's
opinion, the Black-Scholes model does not
necessarily provide a reliable measure of the fair
value of its stock options.
The accounting provisions of SFAS No. 123 did not
have an effect on the Company's pro forma net
income and earnings per share and thus have not
been presented.
F-25
<PAGE>
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Financial Statements
A summary of the status of the Company's stock
options plans is presented below:
<TABLE>
<CAPTION>
Weighted Average
Shares Exercise Price
--------------------------------------------------------------------------------
<S> <C> <C>
Balance, February 26, 1995 473,000 4.29
Granted -- --
Exercised -- --
Forfeited (9,000) 5.63
--------- --------
Balance, March 3, 1996 464,000 4.27
Granted -- --
Exercised -- --
Forfeited (8,000) 5.63
--------- --------
Balance, March 2, 1997 456,000 4.24
Granted 325,000 3.36
Exercised -- --
Forfeited (1,000) 5.63
--------- --------
Balance, November 9, 1997 780,000 3.87
Granted -- --
Exercised -- --
Forfeited -- --
--------- --------
Balance, November 30, 1997 780,000 3.87
========= ========
</TABLE>
Options exercisable as of November 30, 1997 and
March 2, 1997 were 773,400 and 442,800,
respectively.
All options prior to November 10, 1997 were
assumed from Sloan's by the Company.
F-26
<PAGE>
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Financial Statements
The following table summarizes information as of
November 30, 1997 concerning outstanding and
exercisable options:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------- ---------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
3.75 275,000 5.94 3.75 275,000 3.75
5.63 33,000 6.06 5.63 33,000 5.63
5.63 84,000 6.06 5.63 84,000 5.63
3.81 30,000 6.94 3.81 30,000 3.81
3.81 33,000 1.94 3.81 26,400 3.81
2.87 250,000 9.75 2.87 250,000 2.87
5.00 75,000 4.75 5.00 75,000 5.00
--------------------------------------------------------------------------------
2.87-5.63 780,000 6.61 3.87 773,400 6.65
--------------------------------------------------------------------------------
</TABLE>
12. Litigation In June 1994, the United States Federal Trade
Commission (the "FTC") commenced an action
alleging that certain acquisitions consummated by
Mr. John Catsimatidis, Sloan's, and three other
entities (the "Red Apple entities") controlled by
Mr. Catsimatidis, including corporations which
presently own the acquisition stores
(collectively, the "companies") of 32 Sloan's
supermarkets between 1991 and 1993 violated
Federal antitrust laws because the effect of the
acquisitions might be substantially to lessen
competition among supermarkets within four
Manhattan residential neighborhoods. The complaint
indicated that the FTC could seek divestiture of
up to ten supermarkets owned by the companies.
F-27
<PAGE>
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Financial Statements
In order to avoid the costs of protracted
litigation in the matter and without admitting
that any antitrust law was violated as alleged in
the complaint, on November 21, 1994, the companies
entered into a settlement agreement against them
(the "Settlement Agreement"). The companies agreed
in the Settlement Agreement that within twelve
months from the date of a final order in the
proceeding they would divest themselves of an
aggregate of six supermarkets in Manhattan, chosen
by them from a list of sixteen supermarkets
specifically designated in the Settlement
Agreement (none of which were owned by Sloan's)
and certain alternate supermarkets referenced in
the Settlement Agreement (five of which were then
owned by Sloan's). Nothing in the Settlement
Agreement required Sloan's to divest itself of any
of its supermarkets, but any supermarkets divested
by Sloan's counted towards satisfaction of the
divesture obligations.
An order embodying the Settlement Agreement was
made effective March 6, 1995 (the "Order").
Pursuant to that Order, for a period of ten years
from March 6, 1995, the companies cannot, without
prior FTC approval, acquire any interest in any
existing supermarket in a designated area. The
Order does not restrict the companies from
acquiring an interest in a supermarket by leasing
or purchasing a new location that at the time of
acquisition (and for six months prior to the
acquisition) is not being operated as a
supermarket.
In March 1996, an application (the "Application")
was made to modify the Order so as to lift the
divesture requirements other than with respect to
one store on the Upper West Side which was not
owned by Sloan's. The FTC approved the divesture
of that store and its divesture was completed on
May 9, 1996. On April 29, 1996, the Application
was revised; and it was further revised in August
and September so as to seek relief solely with
respect to the requirement of divesture of any
supermarkets in the Chelsea section of Manhattan.
On September 13, 1996, the FTC granted the
Application as modified, and deleted the
requirement of divestiture in Chelsea.
Simultaneously, the FTC appointed a trustee to
divest four supermarkets pursuant to the Order, as
modified. The trustee was not granted any
authority to divest until the FTC approved a
trustee agreement between the trustee and the
companies.
F-28
<PAGE>
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Financial Statements
Subsequent to the modification of the Order, The
Food Group sold an aggregate of four stores in
compliance with the divestiture of the Order, as
modified. Based thereon, the trustee agreement did
not become effective.
A settlement of FTC claims based on the companies'
failure to divest supermarkets pursuant to the
Order was agreed to, pursuant to which $600,000
was paid to the FTC. The $600,000 payment was not
included in The Food Group or Sloan's.
The companies may at times be involved in various
legal proceedings which are routine and incidental
to the conduct of its business. The companies do
not believe that any of this litigation, either
individually or in the aggregate, could have a
material adverse effect on the financial condition
or results of operations of the companies.
On August 8, 1994, a lawsuit against the Company
and Mr. Catsimatidis was instituted in the United
States District Court for the Southern District of
New York by RMED International, Inc. ("RMED"), a
former stockholder of the Company.
The complaint alleges, among other things, that
RMED and a purported class consisting of persons
who purchased the Company's common stock on or
after March 19, 1993 were damaged by alleged
nondisclosures in certain filings made by the
Company with the Securities and Exchange
Commission between January 1993 and June 1994
relating to an investigation by the FTC. The
complaint alleges that such nondisclosures
constituted violations of Federal and New York
State securities laws, as well as common law
fraud, and seeks damages (including punitive
damages) in an unspecified amount (although in
discovery proceedings, the named plaintiff has
claimed that its damages were approximately
$800,000) as well as costs and disbursements of
the action. On June 2, 1994, the Company issued a
press release which disclosed the FTC action.
In June 1995, Plaintiff filed a motion for class
certification, and discovery was held in abeyance
pending disposition of that motion. The motion was
granted in March 1996. Discovery is now proceeding
and it is scheduled to be completed in June 1998.
Management believes that the lawsuit is without
merit and intends to vigorously defend the action;
however, the outcome cannot be determined.
F-29
<PAGE>
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Financial Statements
13. Subsequent Events (a) On March 17, 1998, the board of directors
approved an options program whereby key
employees and directors would be granted
options to acquire up to 500,000 shares of the
Company. The options vest ratably over three
years and are exercisable at $2.63.
(b) On June 9, 1998, Mr. John Catsimatidis issued
a limited $1 million guarantee of the
collection of all accounts receivable as of
November 10, 1997. Furthermore, Mr.
Catsimatidis has also agreed not to permit the
level of the Company's liability due to the
affiliate to fall below $1,000,000 prior to
the issuance of fiscal year ending November
29, 1998 audited financial statements.
(c) During 1998, three union contracts covering
approximately 900 employees will expire. The
Company expects to enter into similar
contracts with the unions as they expire.
(d) On February 6, 1998, the Company purchased
substantially all of the assets and assumed
certain of the liabilities of a supermarket
located at 1644 York Avenue, New York, New
York owned by a corporation controlled by Mr.
John Catsimatidis. The purchase price is to be
the value of the supermarket based upon an
appraisal to be conducted by a firm selected
by a committee of independent directors of the
Company less the amount of certain liabilities
assumed by the Company.
F-30
<PAGE>
PART III
Item 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Set forth below is certain information as of June 1, 1998 with respect to all
directors and executive officers of the Company.
Position with the Company or
Director Other Principal Occupation
Name and Age Since for the Past Five Years
- ------------ ----- -----------------------------
John A. Catsimatidis 1988(1) Chairman of the Board, President and Chief
(49) Executive Officer of the Company since July
28, 1988; Treasurer of the Company from
July 28, 1988 to March 17, 1998; President
and Chief Executive Officer of Red Apple
Group, Inc. (holding company for
supermarket chains) and Chairman of the
Board and Chief Executive Officer and
Director of United Refining Company (a
refiner and retailer of petroleum products)
for more than five years; Director of News
Communications Inc., a public company whose
stock is traded over-the-counter, since
December 4, 1991.
Martin R. Bring 1988 Member of the law firm of Wolf, Block,
(55) Schorr and Solis-Cohen LLP, New York, N.Y.
and predecessor firm for more than five
years.
Frederick Selby 1978 Chairman of Selby Capital Partners
(60) (acquisition and sale of privately owned
firms and divisions of public companies)
for more than five years.
Leroy Hemingway II 1991 Chairman of the Board of The Famous Carpet
(66) Barns of Florida, Inc. (a firm engaged in
retail sales of carpets) and Chairman of
the Board of Hemingway Properties, Inc. (an
owner and operator of shopping centers) for
more than five years.
- --------
(1) Mr. Catsimatidis also served as a director of the Company from November 4,
1986 to November 27, 1987.
17
<PAGE>
Kishore Lall 1997 Director of the Registrant since October,
(50) 1997; consultant to Red Apple Group, Inc.
from January 1997 to October 1997; private
investor from June 1994 to December 1996;
Senior Vice President and Head of Commercial
Banking of ABN AMRO Bank, New York branch
from January 1991 until May 1994.
Stuart Spivak -- Executive Vice President and Chief Financial
(61) Officer of the Company since March 17, 1998;
Chief Financial Officer of the Food Group
for more than ten years prior thereto.
Michael Seltzer -- Vice President and Secretary of the Company
(48) since March 17, 1998; Vice President and
Controller of the Food Group for more than
10 years prior thereto.
Franklin Georges -- Treasurer of the Company since March 17,
(43) 1998; Financial consultant to the Food Group
from May 1996 to March 17, 1998; Controller
of Telecom Satellite Systems, Inc., a
privately-held cable television company,
from February 1994 to May 1996; division
accounting manager for K. Hovnanian
Companies, a public real estate development
company, from February 1991 to February
1994.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires directors and officers of the Company and persons who
own more than 10 percent of the Company's common stock to file with the
Securities and Exchange Commission (the "Commission") initial reports of
ownership and reports of changes in ownership of the common stock. Directors,
officers and more than 10 percent stockholders are required by the Exchange Act
to furnish the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and written representations that no other
reports were required during the Transition Period ended November 30, 1997, all
Section 16(a) filings applicable to its directors, officers and more than 10
percent beneficial owners were timely filed.
18
<PAGE>
Item 11. EXECUTIVE COMPENSATION.
The following table sets forth for the two fiscal years ended March 2, 1997
and the Transition Period from March 3, 1997 to November 30, 1997 certain
information concerning the compensation paid or accrued to the Chief Executive
Officer of the Company. As of November 30, 1997 there were no persons serving as
executive officers of the Company whose total salary and bonus exceeded $100,000
for the transition period or who were being paid salary during such period at a
rate that would have exceeded $100,000 had the period been for a full year. The
table below does not include any information concerning any person in such
person's capacity as an executive officer of any entity comprising the Food
Group.
<TABLE>
<CAPTION>
Long-term Compensation
-------------------------------------
Annual Compensation Awards Payouts
---------------------------- ----------------------- -------
Other All
annual Restricted other
Name and compen- stock Options LTIP compen-
principal Salary Bonus sation award(s) /Sar's payouts sation
position Year ($) ($) ($) ($) (#) ($) ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
John Catsimatidis, Transition $- $- $- $- - $- $-
Chairman of the Period from
Board, President March 3, 1997
and Chief to November
Executive 30, 1997
Officer
1997 - - - - - - -
1996 - - - - 250,000 - -
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Stock Options
No stock options were granted to or exercised by Mr. Catsimatidis during
the Transition Period from March 3, 1997 to November 30, 1997. The following
table sets forth certain information with respect to options to purchase Common
Stock held by John Catsimatidis on November 30, 1997.
Number of Unexercised Value of Unexercised
Options Held on in-the-Money Options on
November 30, 1997 November 30, 1997
-------------------------- ---------------------------
Name Exercisable/Unexercisable Exercisable/Unexercisable
- --------------------------------------------------------------------------------
John Catsimatidis 525,000/0 0/0
- --------------------------------------------------------------------------------
The closing sales price of the Common Stock on the American Stock Exchange
on November 28, 1997 (the last trading day before November 30, 1997) was $2.25.
On November 30, 1997 Mr. Catsimatidis held options to purchase 275,000 shares of
Common Stock at $3.75 per share and options to purchase 250,000 shares at $2.875
per share.
19
<PAGE>
Compensation of Directors
Non-officer directors receive a quarterly stipend of $1,500 and $500 for
each meeting attended. Directors who serve on committees receive $250 for each
meeting attended.
Compensation Committee Interlocks and Insider Participation
The Board of Directors has a Compensation Committee of which Frederick
Selby is currently the sole member. Mr. Selby is not and has never been an
employee or officer of the Company. During and after the Transition Period Mr.
Selby has had no relationship with the Company requiring disclosure under Item
13. "Certain Relationships and Related Transactions."
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth certain information regarding ownership of
Common Stock on June 1, 1998 by: (i) each stockholder known to the Company to
own beneficially more than 5% of the outstanding shares of Common Stock; (ii)
each of the Company's directors; and (iii) all officers and directors of the
Company as a group. The number of shares listed in the table as beneficially
owned by John Catsimatidis includes all shares acquired in the Merger. Except as
otherwise indicated, the address of each person is c/o Gristede's Sloan's, Inc.,
823 Eleventh Avenue, New York, N.Y. 10019-3535. The Company believes that
ownership of the shares by the persons named below is both of record and
beneficial and such persons have sole voting and investment power with respect
to the shares indicated.
Name and Address of Number of
Beneficial Owner Shares Percent of Class
- ------------------------------- ------------- ----------------
John Catsimatidis 18,250,650(1) 90.5%
Leroy Hemingway II 18,150(2) *
Frederick Selby 10,910(2) *
Martin Bring 8,800(2) *
Kishore Lall 9,100 *
All officers and directors as a 18,297,610(3) 90.6%
group (8 persons)
- -----
* Less than 1%.
(1) Includes an aggregate of 12,391,574 shares held by corporations controlled
by Mr. Catsimatidis, 2,057 shares held by a profit sharing plan of which
Mr. Catsimatidis is a trustee, 605 shares held by Mr. Catsimatidis as a
trustee of individual retirement accounts and currently exercisable options
to purchase an aggregate of 525,000 shares of Common Stock.
(2) Includes for each of Messrs. Selby, Hemingway and Bring an aggregate of
8,800 shares of Common Stock which may be purchased upon the exercise of
currently exercisable stock options.
(3) Includes an aggregate of 551,400 shares of Common Stock which may be
purchased upon the exercise of currently exercisable stock options.
20
<PAGE>
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information concerning the Merger On November 10, 1997 whereby the
Company acquired from corporations directly or indirectly owned by John A.
Catsimatidis, 29 operating Supermarkets, ownership of the tradenames
"Gristede's" and "Sloan's" and the warehouse and distribution business now
operated by City Produce, see Item 1. Business - Recent Developments," which is
incorporated herein by reference.
From March 19, 1993 to November 10, 1997 the Company was a party to a
Management Agreement with Group pursuant to which Group supervised all
operations of the Supermarkets then owned by the Company subject to the policy
goals and decisions prescribed by a committee of the independent directors. Such
agreement required the Company to pay to Group a quarterly fee equal to 1.25% of
all sales made in or from the Supermarkets and to reimburse Group for all
expenses incurred by Group in the performance of its services under the
agreement. For the Transition Period Group earned a fee of $398,206 under the
agreement.
Under a Management Agreement, dated November 10, 1997 (the "Management
Agreement"), Namdor Inc., a subsidiary of the Company, performs consulting and
managerial services for two supermarkets owned by corporations controlled by
John Catsimatidis. In consideration of such services, Namdor Inc. is entitled to
receive on a quarterly basis a cash payment of one and one-quarter (1.25%)
percent of all sales of inventory and merchandise made at or from the managed
supermarkets.
On February 6, 1998 the Company purchased substantially all of the assets
and assumed certain of the liabilities of a supermarket located at 1644 York
Avenue, New York, New York owned by a corporation controlled by John
Catsimatidis. The purchase price is to be the value of the supermarket based
upon an appraisal to be conducted by a firm selected by a committee of
independent directors of the Company less the amount of certain liabilities
assumed by the Company. The appraisal will be based on, among other things, a
review of the operating statement of the supermarket for the period from
February 6, 1998 to a date no earlier than January 31, 1999. The purchase price
will be subject to adjustment to the extent that the acquired inventory is
greater or less than the sum of trade payables and liabilities for employee
vacation and sick pay that have been assumed by the Company. The purchase price
will be paid at such time and by such method as shall be recommended by a
committee of the independent directors of the Company and approved by the Board
of Directors of the Company, John Catsimatidis abstaining.
Group provides maintenance services to the Company, including supermarket
refrigeration, electrical and equipment maintenance. During the Transition
Period, the Company did not incur expenses for such services.
Prior to its acquisition by the Company in November 1997, City Produce
Distributors, Inc., a corporation indirectly wholly owned and controlled by John
Catsimatidis, sold produce and certain grocery items to the Company at prices
consistent with those obtainable from non-affiliated third parties. During the
Transition Period, such sales aggregated approximately $2,705,135.
Prior to the acquisition by the Company in November 1997 of the Food Group
from corporations controlled by Mr. Catsimatidis, newspaper advertising for the
Supermarkets was frequently pooled with advertising for the acquired
Supermarkets. In such cases, the Company paid a portion of such advertising
expenses based upon the number of Supermarkets and supermarkets of other
companies covered in the
21
<PAGE>
advertisements. Such amounts allocated to the Company approximated $130,321
during the Transition Period. The pooling arrangement ceased on the date the
Merger was consummated.
In consideration of accommodations extended to the Company by H.S. Realty
Corp. ("H.S. Realty"), a corporation wholly owned by John Catsimatidis which
enabled the Company to consummate the sale of assets of the Company's Howard H.
Sweet & Son Inc. subsidiary ("Sweet") to Tiffco Jewelry and Chain Crafts, Inc.
("Tiffco"), on January 23, 1990, the Company, among other things, advanced to
H.S. Realty approximately $204,000.
The $204,000 advance was originally to be repayable on the earlier of
January 23, 1991 or five days after the sale by H.S. Realty to Tiffco of certain
real property leased to Tiffco by H.S. Realty after the sale of assets. Since
January 23, 1991, the Board of Directors has extended the repayment date of the
advance on an annual basis, the most recent extension being until January 23,
1999 or five days after the sale by H.S. Realty to Tiffco of the Sweet Property.
As of November 30, 1997, H.S. Realty was indebted to the Company on account of
the advance in the amount of $351,776 and such indebtedness was accruing
interest at the rate of 9.75% per annum (1-1/4% per annum over the prime rate of
interest charged by Chemical Bank, N.A. as of November 30, 1997).
Effective as of January 1, 1994, the Company entered into Indemnification
Agreements with each of its directors and officers other than Kishore Lall. The
Company entered into an Indemnification Agreement with Kishore Lall effective as
of October 30, 1997, and also entered into Indemnification Agreements with each
of Stuart Spivak, Michael Seltzer and Franklin Georges effective March 17, 1998.
Said agreements supplement the indemnification provisions of the Company's
By-laws and the Delaware General Corporation Law. The stockholders of the
Company authorized the Company to enter into such agreements with each of its
directors at the Annual Meeting of Stockholders held on August 21, 1987. The
Board of Directors has authorized the Company to enter into such agreements with
each of its officers.
Red Apple Leasing, Inc., a corporation wholly owned by John Catsimatidis,
leases equipment to the Company. Such leases are primarily for store operating
equipment. Obligations under capital leases at November 30, 1997 were $1,206,932
and require monthly payments of $35,114 through March 1, 2001. Obligations under
operating leases at March 2, 1997 require 84 payments of $14,594. Obligations
under operating leases at June 2, 1997 and September 1, 1997 require 60 monthly
payments of $10,783 and $16,297, respectively.
On May 15, 1998, John Catsimatidis issued a limited $1,000,000 guarantee of
the collection of accounts receivable assigned to the Company as a result of the
Merger on November 10, 1997. In order to cover his contingent liability, Mr.
Catsimatidis agreed not to permit the liabilities to Mr. Catsimatidis and
certain of his affiliates which were assumed by the Company in the Merger to
fall below $1,000,000 prior to the issuance of the Company's audited financial
statements for the fiscal year ending November 29, 1998.
By virtue of his ownership of Common Stock (see Item 12. "Security
Ownership of Certain Beneficial Owners and Management") and his position as
Chairman of the Board of the Company, John Catsimatidis may be deemed to be a
"parent" of the Company under rules promulgated by the Commission.
22
<PAGE>
Lowenthal, Landau, Fischer & Bring, P.C., a law firm of which Martin Bring,
a director of the Company, was a member (until the firm merged with Wolf, Block,
Schorr and Solis-Cohen LLP in February 1998), received fees of approximately
$341,279 for rendering legal services to the Company during the Transition
Period.
The following four paragraphs set forth information concerning transactions
between John Catsimatidis and entities owned by him with entities comprising the
Food Group.
During the Transition Period, Red Apple Management, Inc., a company
wholly-owned by John Catsimatidis, provided certain payroll, related employee
benefit services and office services to the Food Group. Such services include
accounting, merchandising, human resources, maintenance, executive salaries and
employee benefits in the approximate aggregate amount of $3,755,000.
During the Transition Period advertising services were provided to the Food
Group by M.C.V. Advertising Associates, Inc., a company of which John
Catsimatidis is the Chairman of the Board. For the Transition Period the costs
incurred by the Food Group were $553,435.
The Food Group leased several locations from Red Apple Real Estate, Inc., a
company wholly-owned by John Catsimatidis. During the Transition Period, the
Food Group paid to Red Apple Real Estate, Inc. $241,716 for rent and real estate
taxes under such leases.
The Food Group has entered into capital and operating leases with Red Apple
Leasing, Inc., a company wholly-owned by John Catsimatidis. Such leases are
primarily for store operating equipment. During the Transition Period, the costs
recognized by the Food Group under capital leases were $291,693 and costs
recognized by the Food Group under operating leases were $212,393.
PART IV
Item 14. EXHIBITS AND REPORTS ON FORM 8-K.
(a) (1) Financial Statements
A list of all financial statements filed as part of this report is
contained in the index to Item 8, which index is incorporated herein by
reference.
(2) Financial Statement Schedules
None.
(3) Exhibits
Number Description
3.1 Amended and Restated Certificate of Incorporation of the
Registrant. Incorporated by reference to Exhibit 3.1 to the
Registrant's Annual Report on Form 10-K of the fiscal year ended
February 28, 1990 (the "1990 10-K").
23
<PAGE>
3.2 Certificate of Amendment to Amended and Restated Certificate of
Incorporation of the Registrant. Incorporated by reference to
Exhibit 3.2 to the Registrant's Annual Report on Form 10-KSB for
the fiscal year ended February 27, 1994 (the "1994 10-KSB").
3.3 Amended and Restated Bylaws of the Registrant. Incorporated by
reference to Exhibit 3.2 to the 1990 10-K.
3.4 Certificate of Amendment of Certificate of Incorporation of the
Company, dated November 4, 1997.*
10.1 Form of Indemnification Agreement dated as of January 1, 1994
between the Registrant and each director of the Registrant.
Incorporated by reference to Exhibit 10.11 to the 1994 10-KSB.
10.2 Form of Indemnification Agreement dated as of January 1, 1994
between the Registrant and each officer of the Registrant.
Incorporated by reference to Exhibit 10.12 to the 1994 10-KSB.
10.3 1994 Stock Option Plan. Incorporated by reference to Exhibit 10.12
of the Company's Annual Report on Form 10-KSB for the fiscal year
ended February 26, 1995 ("1995 10-KSB").
10.4 Director Stock Option Plan. Incorporated by reference to Exhibit
10.13 of the Company's 1995 10-KSB.
10.5 Merger Agreement. Incorporated by reference to Exhibit A to the
Company's definitive Proxy Statement for the Special and Annual
Meeting of Stockholders of the Company held on October 31, 1997.
10.6 Loan Agreement dated as of November 7, 1997 between the Company,
European American Bank ("EAB"), Israel Discount Bank of New York
("IDBNY"), Keybank National Association ("Keybank") and Bank Leumi
Trust Company of New York ("Bank Leumi"). All exhibits and
schedules to the Loan Agreement are omitted, but the Registrant
undertakes to provide copies of any or all of the foregoing
exhibits and schedules to the Securities and Exchange Commission
upon its request.
10.7 Management Agreement dated November 10, 1997 between Namdor Inc.,
G Remainder Corp. and S Remainder Corp.
10.8 Asset Purchase Agreement between G Remainder Corp. and Gristede's
Operating Corp. All exhibits and schedules to the Asset Purchase
Agreement are omitted, but the Registrant undertakes to provide
copies of any or all of the foregoing exhibits and schedules to
the Securities and Exchange Commission upon its request.
10.9 First Amendment and Waiver to Loan Agreement dated April 30, 1998
between the Company, IDBNY, Keybank and Bank Leumi.
10.10 1998 Stock Option Plan.
- -----------------------
* Filed herewith.
24
<PAGE>
10.11 Agreement dated May 15, 1998 between John Catsimatidis and the
Company.
11. Statement re computation of per share income (loss). Not required.
21. Listing of the Company's subsidiaries all of which are wholly
owned by the Company.
Subsidiaries State of Incorporation
------------ ----------------------
Namdor Inc. New York
SAC Operating Corp. New York
Gristede's Operating Corp. New York
City Produce Operating Corp. New York
RAS Operating Corp. New York
The Registrant has one other wholly-owned subsidiary, the name of which is
omitted herein because as of June 1, 1998 it did not constitute a significant
subsidiary.
23. Consent of BDO Seidman, LLP Independent Certified Public
Accountants.*
27. Financial Data Schedule.
- ----------------------
* Filed herewith.
(b) Reports on Form 8-K
The Company filed one Current Report on Form 8-K during the last
quarter of the Transition Period. Such Current Report on Form 8-K was filed on
November 12, 1998 to report the Merger and contained certain pro forma financial
information of the Company and the businesses acquired.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
GRISTEDE'S SLOAN'S, INC.
Dated: February 18, 1999 By: /s/ John A. Catsimatidis
------------------------
John A. Catsimatidis
Chairman of the Board
26
<PAGE>
Exhibit 3.4
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
SLOAN'S SUPERMARKETS, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the
"Corporation") is Sloan's Supermarkets, Inc.
2. Article 1 the Certificate of Incorporation of the Corporation
is hereby amended in its entirety to read as follows:
"1. The name of the Corporation is Gristede's Sloan's, Inc."
3. Section A. of Article 4 of the Certificate of Incorporation
is hereby amended in its entirety to read as follows:
"4.A. The total number of shares of stock which the Corporation
shall have authority to issue is 25,500,000 shares, of which
25,000,000 shall be Common Stock of the par value of $.02 per
share and 500,000 shall be Preferred Stock of the par value of
$50.00 per share, issuable in series."
4. The amendments of the Certificate of Incorporation herein
certified have been duly adopted in accordance with the provisions of Section
242 of the General Corporation Law of the State of Delaware.
Signed and attested to on /s/ John A. Catsimatidis
November 4, 1997 ------------------------
- ------------------------- John A. Catsimatidis,
Chairman of the Board
27
<PAGE>
Attest:
/s/ Mark Kassner
- -----------------------
Mark Kassner, Secretary
STATE OF NEW YORK )
) SS.:
COUNTY OF NEW YORK )
BE IT REMEMBERED that, on November 4, 1997, before me, a
Notary Public duly authorized by law to take acknowledgement of deeds,
personally came John A. Catsimatidis, Chairman of the Board of Sloan's
Supermarkets, Inc., who duly signed the foregoing instrument before me and
acknowledged that such signing is his act and deed, that such instrument as
executed is the act and deed of said corporation and that the facts stated
therein are true.
GIVEN under by hand on November 4, 1997.
/s/
-----------------------------------
Notary Public
28
<PAGE>
Exhibit 23
Consent of Independent Certified Public Accountants
Sloan's Supermarkets, Inc.
New York, New York
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 dated January 23, 1996, relating to the consolidated
financial statements appearing in Amendment No. 1 to the Company's Annual Report
on Form 10-K for the transition period from March 3, 1997 to November 30, 1997.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
New York, New York
February 11, 1999
29
