UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 29, 1999.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from .............to ............
Commission File Number 1-7013
GRISTEDE'S FOODS, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-1829183
- ------------------------------- -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
823 Eleventh Avenue, New York, New York 10019
---------------------------------------------
(Address of Principal Executive Offices)
(212) 956-5803
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
GRISTEDE'S SLOAN'S, INC.
----------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15 (d) of the Securities Exchange Act during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes [X] No [ ]
At October 12, 1999, the registrant had issued and outstanding 19,636,574 shares
of common stock.
<PAGE>
GRISTEDE'S FOODS, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
August 29,1999 and November 29, 1998 Page 3
Consolidated Statements of Operations for
the quarters and nine months ended
August 29,1999 and August 30,1998 Page 4
Consolidated Statements of Stockholders' Equity for
the year ended November 29, 1998 and the
nine months ended August 29, 1999 Page 5
Consolidated Statements of Cash Flows for
the nine months ended
August 29,1999 and August 30,1998 Page 6
Notes to Consolidated Financial Statements Page 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations Page 9
- 2 -
<PAGE>
Item 1
Financial Statements
<TABLE>
<CAPTION>
GRISTEDE'S FOODS, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
August 29, November 29,
ASSETS 1999 1998
============ ============
CURRENT ASSETS:
<S> <C> <C>
Cash ........................................................................... $ 69,274 $ 53,794
Accounts receivable - net of allowance for
doubtful accounts
of $0 at August 29, 1999 and $0 November 29, 1998 ............................ 6,537,670 5,091,174
Inventory ...................................................................... 24,139,693 18,425,802
Prepaid expenses and other current assets ...................................... 1,928,698 1,320,931
Notes receivable - current portion ............................................. 309,745 1,032,203
------------ ------------
Total current assets ........................................................... 32,985,079 25,923,904
------------ ------------
PROPERTY AND EQUIPMENT:
Furniture, fixtures and equipment .............................................. 15,220,261 14,610,788
Capitalized equipment leases ................................................... 12,186,790 8,267,999
Leaseholds and leasehold improvements .......................................... 43,098,823 34,388,652
------------ ------------
70,505,873 57,267,439
Less accumulated depreciation and amortization ................................. 28,477,884 25,716,915
------------ ------------
Net property and equipment ..................................................... 42,027,989 31,550,524
Deposits and other assets ...................................................... 866,721 719,429
Deferred costs ................................................................. 2,291,559 1,968,859
Notes receivable - noncurrent portion .......................................... 330,708 543,793
------------ ------------
TOTAL ............................................................................... $ 78,502,056 $ 60,706,509
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, trade ........................................................ $ 14,422,287 $ 11,951,436
Accrued payroll, vacation and withholdings ..................................... 523,057 1,543,748
Accrued expenses and other current liabilities ................................. 1,204,327 896,716
Note payable ................................................................... 0 319,138
Capitalized lease obligation - current portion ................................. 1,362,544 695,665
Current portion of long term debt .............................................. 1,385,714 3,314,283
------------ ------------
Total current liabilities ...................................................... 18,897,930 18,720,986
Long-term debt - noncurrent portion ............................................ 26,197,031 18,663,935
Due to Affiliate ............................................................... 9,113,500 4,031,394
Deferred advertising ........................................................... 1,755,154 248,654
Capitalized lease obligation - noncurrent portion .............................. 5,455,415 2,986,007
Deferred rents ................................................................. 2,217,717 1,673,850
------------ ------------
Total liabilities ............................................................. 63,636,747 46,324,826
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, $50 Par, -shares authorized 500,000;
none issued
Common stock,$0.02 par value -
shares authorized 25,000,000; outstanding
19,636,574 shares at August 29, 1999 and November 29, 1998 ................... 392,732 392,732
Additional paid-in capital ..................................................... 14,136,674 14,136,674
Retained eanings/ (deficit) .................................................... 335,903 (147,723)
------------ ------------
Total stockholders' equity ..................................................... 14,865,309 14,381,683
------------ ------------
TOTAL ............................................................................... $ 78,502,056 $ 60,706,509
============ ============
</TABLE>
See accompanying notes.
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<PAGE>
<TABLE>
<CAPTION>
GRISTEDE'S FOODS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE 39 WEEKS AND 13 WEEKS ENDED AUGUST 29, 1999 AND AUGUST 30, 1998
39 weeks 13 weeks 39 weeks 13 weeks
ended ended ended ended
August 29, August 29, August 30, August 30,
1999 1999 1998 1998
============= ============= ============= =============
<S> <C> <C> <C> <C>
Sales ...................................................... $ 132,321,470 $ 43,778,204 $ 116,296,764 $ 37,631,409
Cost of sales .............................................. 80,855,046 27,171,491 70,211,045 23,006,331
------------- ------------- ------------- -------------
Gross profit ............................................... 51,466,424 16,606,713 46,085,719 14,625,078
Store operating, general and administrative expense ........ 41,932,689 14,142,298 39,167,716 13,164,251
Depreciation and amortization .............................. 3,366,818 1,058,839 2,973,525 862,422
Non-store operating expenses:
Administrative payroll and fringes ..................... 2,818,819 957,643 2,307,783 842,747
General office expense ................................. 905,259 299,888 871,630 344,019
Professional fees ...................................... 398,069 104,661 148,370 20,373
Corporate expense ...................................... 151,338 36,255 117,689 44,913
------------- ------------- ------------- -------------
Total non-store operating expense .......................... 4,273,485 1,398,447 3,445,472 1,252,052
------------- ------------- ------------- -------------
Operating profit/ (loss) ................................... 1,893,432 7,129 499,006 (653,647)
------------- ------------- ------------- -------------
Other income (expense):
Interest expense ....................................... (1,738,785) (676,284) (1,386,393) (533,453)
Interest income ........................................ 69,337 21,775 142,298 43,611
Other income ........................................... 307,098 307,098 0 0
------------- ------------- ------------- -------------
Total other expense - net .................................. (1,362,349) (347,410) (1,244,095) (489,842)
------------- ------------- ------------- -------------
Income/ (loss) before income taxes ......................... 531,083 (340,281) (745,089) (1,143,489)
Provision for income taxes ................................. 47,457 19,120 0 (42,500)
------------- ------------- ------------- -------------
Net income/ (loss) ......................................... $ 483,626 $ (359,401) $ (745,089) $ (1,100,989)
============= ============= ============= =============
Income/ (loss) per share ................................... $ 0.02 ($ 0.02) ($ 0.04) ($ 0.06)
============= ============= ============= =============
Weighted average number of shares and
equivalents outstanding .................................... 19,636,574 19,636,574 19,636,574 19,636,574
============= ============= ============= =============
</TABLE>
See accompanying notes
-4-
<PAGE>
<TABLE>
<CAPTION>
GRISTEDE'S FOODS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED AUGUST 29, 1999
Additional Retained Total
Common stock Paid-In earnings Stockholders'
Shares Amount Capital (Deficit) Equity
=========== =========== =========== =========== ===========
<S> <C> <C> <C> <C> <C>
Balance at November 30, 1997 .................... 19,636,574 $ 392,732 $14,136,674 140,616 14,670,022
Net loss for the year ended
Novemeber 29, 1998 ............................ (288,339) (288,339)
----------- ----------- ----------- ----------- -----------
Balance at November 29, 1998 .................... 19,636,574 $ 392,732 $14,136,674 (147,723) 14,381,683
Net income for the thirty nine weeks
ended August 29, 1999 ........................ 483,626 483,626
----------- ----------- ----------- ----------- -----------
Balance at August 29, 1999 ...................... 19,636,574 $ 392,732 $14,136,674 335,903 14,865,309
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
-5-
<PAGE>
<TABLE>
<CAPTION>
GRISTEDE'S FOODS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED AUGUST 29, 1999 AND AUGUST 30, 1998
39 weeks 39 weeks
ended ended
August 29, August 30,
1999 1998
============ ============
<S> <C> <C>
Cash flows from operating activities:
Net income/ (loss) .................................................. $ 483,626 $ (745,089)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization ..................................... 3,366,818 2,973,252
Changes in operating assets and liabilities:
Accounts receivable - net ....................................... (1,446,495) (972,510)
Inventory ....................................................... (5,713,891) (1,652,663)
Prepaid expenses and other current assets ....................... (607,767) (298,687)
Notes receivable ................................................ 935,543 386,030
Receivable from officer ......................................... 0 351,778
Due to related party ............................................ 5,082,106
Other assets .................................................... (1,075,841) (451,862)
Accounts payable, trade ......................................... 2,470,852 (2,188,126)
Accrued payroll, vacation and withholdings ...................... (1,020,691) (711,765)
Accrued expenses and other current liabilities .................. 307,611 (11,017)
Deferred rents .................................................. 543,867 522,466
Other credits ................................................... 1,506,500 (97,500)
------------ ------------
Net cash provided by/(used)
in operating activities ...................................... 4,832,238 (2,895,693)
------------ ------------
Cash flows from investing activities:
Capital expenditures - net .......................................... (13,238,434) (7,036,763)
------------ ------------
Net cash used in investing activities ......................... (13,238,434) (7,036,763)
------------ ------------
Cash flows from financing activities:
Repayments of bank loan ............................................ (2,264,611) (1,546,545)
Repayment capitalized lease obligations ............................ (732,471) (403,749)
Proceeds from bank loans ........................................... 7,550,000 10,500,000
Proceeds from capitalized lease obligations ........................ 3,868,758 1,396,331
------------ ------------
Net cash provided by financing activities ..................... 8,421,676 9,946,037
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS ............................. 15,480 13,581
CASH AND CASH EQUIVALENTS, begining of period .......................... 53,794 88,970
------------ ------------
CASH AND CASH EQUIVALENTS, end of period ............................... $ 69,274 $ 102,551
============ ============
Supplemental disclosures of cash flow information:
Cash paid for interest ............................................. $ 1,464,021 $ 1,277,535
Cash paid for taxes ................................................ $ 55,808 $ 22,056
Noncash Transactions:
Acquisition of new store ........................................... 30,921
</TABLE>
See accompanying notes.
-6-
<PAGE>
GRISTEDE'S FOODS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS - On November 4, 1997, Sloan's Supermarkets, Inc. ("Sloan's") changed
its name to Gristede's Sloan's, Inc. ("GRI" or the "Company"). On November 10,
1997, GRI acquired certain assets, net of liabilities, of 29 selected
supermarkets and a wholesale distribution business ("The Food Group") controlled
by Mr. John Catsimatidis, Chairman and 37% stockholder of Sloan's. The
transaction was accounted for as the acquisition of Sloan's by The Food Group
pursuant to Emerging Issues Task Force 90-13 as a result of The Food Group
obtaining control of Sloan's after the transaction. The assets and liabilities
of The Food Group were recorded at their historical cost. Sloan's assets and
liabilities were recorded at their fair value to the extent acquired.
Consideration for the transaction was based on an aggregate of $36,000,000 in
market value of the Company's common stock and the assumption of $4,000,000 of
liabilities. 16,504,298 shares of common stock were issued on the date of the
acquisition based on a market price of $2.18 per share. On August 16, 1999 the
Company changed its name to Gristede's Foods, Inc.
The Company presently operates 41 supermarkets (the "Supermarkets") and one
pharmacy store. 36 Supermarkets are located in Manhattan, New York, three
Supermarkets are located in Westchester County, New York, one Supermarket is
located in Brooklyn, New York, one Supermarket is located in Long Island, New
York. The pharmacy store is located in Manhattan, New York. 10 of the
Supermarkets are operated under the "Sloan's" name and 31 are operated under the
"Gristede's" name. The Company leases all of its store locations.
The Company also owns City Produce Operating Corp., a corporation which operates
a warehouse and distribution center primarily for fresh produce on leased
premises in the Bronx, New York.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All material
intercompany accounts and transactions have been eliminated in consolidation.
QUARTER END - The Company operates using the conventional retail 52/53 week
fiscal year. The fiscal quarter ends on the Sunday closest to the end of the
quarter. The Company's fiscal year ends on the Sunday closest to November 30.
INVENTORY - Store inventories are valued principally at the lower of cost or
market with cost determined under the retail first in, first out (FIFO) method.
PROPERTY AND EQUIPMENT - Depreciation of furniture, fixtures and equipment is
computed by the straight-line method over the estimated useful lives of the
assets.
LEASES - The Company charges the cost of noncancelable operating lease payments
and beneficial leaseholds to operations on a straight-line basis over the lives
of the leases.
- 7 -
<PAGE>
GRISTEDE'S FOODS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
PROVISION FOR INCOME TAXES - Income taxes reflect Federal and State alternative
minimum tax only, as all regular income taxes have been offset by utilization of
the Company's net operating loss carry forward.
INCOME PER SHARE - Per share data are based on the weighted average number of
shares of common stock and equivalents outstanding during each quarter. Income
per share is computed by the treasury stock method; primary and fully diluted
income per share are the same.
In the opinion of management, the information furnished reflects all adjustments
(consisting of normal recurring adjustments) which are necessary for a fair
statement of the results of operations for the interim period. The interim
figures are not necessarily indicative of the results to be expected for the
fiscal year.
The Company's Annual Report on Form 10-K for the 12 month period ended November
29, 1998 contains information which should be read in conjunction herewith.
2. RELATED PARTY TRANSACTIONS
Under a management agreement dated November 10, 1997, Namdor Inc., a subsidiary
of the Company, performs consulting and managerial services for three
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 1.25% of all sales of merchandise made at the
managed supermarkets. During the quarter and nine months ended August 29, 1999
the management fee income was $23,250 and $76,231, respectively. For the quarter
and nine months ended August 30, 1998 the management fee income was $26,873 and
$85,664, respectively.
C&S Acquisition Corp. (formerly 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
August 29, 1999 were $552,757 and require monthly payments of $35,114 through
March 1, 2001. Obligations under operating leases were $41,676 per month during
the quarter ended August 29, 1999.
Advertising services are provided to the Company by an affiliated company, MCV
Advertising Associates Inc., a company owned by John Catsimatidis. For the
quarter and nine months ended August 29, 1999 the costs incurred were $211,179
and $830,428 respectively. For the quarter and nine months ended August 30,
1998, the costs incurred were $232,279 and $818,616, respectively.
- 8 -
<PAGE>
GRISTEDE'S FOODS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
2. RELATED PARTY TRANSACTIONS (Continued)
The Company leases three locations from Red Apple Real Estate, Inc., a company
solely owned by John Catsimatidis. During the quarter and nine months ended
August 29, 1999 the Company paid to Red Apple Real Estate, Inc. $158,361 and
$788,227, respectively. During the quarter and nine months ended August 30,1998
the Company paid $301,852 and $675,971, respectively.
Wolf, Block, Schorr and Solis-Cohen LLP, a law firm of which Martin Bring, a
director of the Company is a partner, received fees of $89,574 and $183,738
during the quarter and nine months ended August 29, 1999, respectively. During
the quarter and nine months ended August 30, 1998, they received fees of $75,252
and $157,047, respectively.
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 City, that was owned by a corporation controlled by John Catsimatidis.
The purchase price was to be determined at a subsequent date based on, among
other things, a review of the operating statement of the supermarket from
February 6, 1998 to a date no earlier than January 31, 1999. During the quarter,
and using a valuation methodology similar to that used in the October, 1997
valuation of the Food Group, the supermarket was valued at $3,389,000. The
excess over the $30,921 book value of the fixed assets acquired was credited to
fixed assets. The Company paid for the supermarket by recording an affiliate
liability.
GRISTEDE'S FOODS, INC. AND SUBSIDIARIES
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS FOR THE QUARTERS AND NINE MONTHS
ENDED AUGUST 29, 1999 AND AUGUST 30, 1998
RESULTS OF OPERATIONS
The following table sets forth items from the Company's Consolidated Statements
of Operations as a percentage on sales.
39 weeks 13 weeks 39 weeks 13 weeks
ended ended ended ended
8/29/99 8/29/99 8/30/98 8/30/98
======= ======= ======= =======
Sales .............................. 100.0 100.0 100.0 100.0
Cost of sales ...................... 61.1 62.1 60.4 61.1
----- ----- ----- -----
Gross profit ....................... 38.9 37.9 39.6 38.9
Store operating, general and
administrative expense ......... 31.7 32.3 33.7 35.0
Depreciation and amortization ...... 2.5 2.4 2.5 2.3
Non-store operating expense ........ 3.2 3.2 3.0 3.3
----- ----- ----- -----
Operating profit ................... 1.5 0.0 0.4 (1.7)
Other income (expense) ............. (1.0) (0.8) (1.0) (1.3)
----- ----- ----- -----
Income from operations
before income taxes ............ 0.5 (0.8) (0.6) (3.0)
Provisions for income taxes ........ 0.1 -- -- 0.1
----- ----- ----- -----
Net income ......................... 0.4 (0.8) (0.6) (2.9)
===== ===== ===== =====
- 9 -
<PAGE>
Sales for the quarter and nine months ended August 29, 1999 were $43,778,204 and
$132,321,470, respectively. Sales for the quarter and nine months ended August
30, 1998 were $37,631,409 and $116,296,764, respectively. The increase in sales
during the 1999 periods were primarily the result of the Company's remodeling
program, which is continuing and a new store which was in operation during the
entire third quarter of 1999.
Gross profit was $16,606,713 or 37.93% of sales and $51,466,424 or 38.89% of
sales for the quarter and nine months ended August 29, 1999, respectively as
compared with $14,625,078 or 38.86% of sales and $46,085,719 or 39.63% of sales
for the quarter and nine months ended August 30, 1998, respectively. The
decrease in gross profit as a percentage of sales during the 1999 periods was
primarily due to selected promotional price reductions in connection with the
grand reopening periods of the newly remodeled stores.
Store operating, general and administrative expenses were $14,142,298 or 32.30%
of sales and $41,932,689 or 31.69% of sales for the quarter and nine months
ended August 29, 1999, respectively as compared to $ 13,164,251 or 34.98% of
sales and $39,167,716 or 33.68% of sales for the quarter and nine months ended
August 30, 1998, respectively. The decrease in store operating, general and
administrative expense as a percentage of sales in the 1999 periods was mainly
due to better cost controls in relation to the increased sales.
Non-store operating expenses were $1,398,447 or 3.19% of sales and $4,273,485 or
3.23% of sales for the quarter and nine months ended August 29, 1999,
respectively as compared to $1,252,052 or 3.33% of sales and $3,445,472 or 2.96%
of sales for the quarter and nine months ended August 30,1998, respectively.
Administrative payroll and fringes were 2.19% of sales and 2.13% of sales for
the quarter and nine months ended August 29, 1999, respectively as compared with
2.24% and 1.98% of sales for the quarter and nine months ended August 30, 1998,
respectively. The increase in the 1999 nine month period reflects the addition
of supervisory and data processing personnel to handle the additional business
generated by the store remodeling program. General office expenses as a
percentage of sales were 0.68% and 0.69% for the quarter and nine months ended
August 29, 1999, respectively as compared to 0.91% and 0.75% for the quarter and
nine months ended August 30, 1998, respectively. The decrease during the 1999
periods was primarily due to better cost controls in relation to the increased
sales. Professional fees were 0.24% and 0.30% of sales for the quarter and nine
months ended August 29, 1999 as compared to 0.06% and 0.13% of sales for the
quarter and nine months ended August 30, 1998, respectively. The increase in the
1999 periods was due to the additional need for outside accounting and legal
services. Corporate expenses as a percentage of sales were 0.08% and 0.11% for
the quarter and nine months ended August 29, 1999, respectively as compared to
0.12% and 0.10% of sales for the quarter and nine months ended August 30, 1998,
respectively. The decrease during the quarter was primarily due to decreased
shareholder expenses.
Interest expense for the quarter and nine months ended August 29, 1999 was
$676,284 and $1,738,785, respectively as compared to $533,453 and $1,386,393 for
the quarter and nine months ended August 30, 1998, respectively. The increase in
the 1999 periods was primarily attributable to increased borrowings under the
Company's bank credit facility and increased capitalized equipment leasing.
- 10 -
<PAGE>
Interest income for the quarter and nine months ended August 29, 1999 was
$21,775 and $69,337, respectively as compared with $43,611 and $142,298 for the
quarter and nine months ended August 30, 1998, respectively. The decrease in the
1999 periods was due to the reduction in outstanding notes receivable as
compared to the 1998 periods.
Other income for the quarter and nine months ended August 29, 1999 was
$307,098,and $307,098, respectively and represents net income from the buyout of
a lease on a non- productive store.
As a result of the items reviewed above the net loss and net income before
provision for income taxes for the quarter and nine months ended August 29,
1999, respectively was $340,281 and $531,083, respectively as compared to a net
loss of $1,143,489 and $745,089, 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. Effective May 29, 1999, the banks executed an amendment
to the credit facility that (i) extended its maturity date until November 30,
2003, at which time all amounts outstanding thereunder are due, (ii) amended
certain financial covenants and (iii) reduced the amortization of the term loan
and improvement term loan facilities and increased the revolving line of credit
to $14,000,000, all as follows: the term loan amortization was reduced to
$100,000 per month until June 2000, and thereafter is $142,857 per month;
amortization on the improvement term loan is $50,000 per month commencing July
2000 until June 2001 and $133,333 per month thereafter; the revolving credit
commitment reduces by $466,667 per month commencing July 1,2001. Presently
$1,400,000 is available under the revolving line of credit; the term loan
facility and the improvement term loan facility are fully utilized.
Borrowing under the credit facility bear interest at a spread over either the
prime rate of the agent bank 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
during the 13 weeks ended August 29, 1999 was 7.9 % 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.
- 11 -
<PAGE>
The Company has not incurred any material commitments for capital expenditures,
although it anticipates spending approximately $10,000,000 on its store
remodeling and expansion program in fiscal 1999.
The Company has available approximately $1.2 million in third party leasing
lines of credit to lease finance equipment for its store remodeling and
expansion program.
YEAR 2000 ISSUE
The Company has assessed it's information technology ("IT") systems for Year
2000 readiness and has given the highest priority to those IT systems it
considers mission critical. The systems the Company considers mission critical
are its store automation systems (including point of sale systems) and its
computer systems at its main office which support these store systems.
The Company, working with the original vendor, successfully tested and
implemented the Year 2000 compliant version of the systems at its main office,
which support the in store automation systems. During March 1999, the Company,
working with the original vendor, successfully tested and implemented the Year
2000 complaint version of its store automation system in one of its automated
stores. This Year 2000 compliant version of the in store automation system is
currently being implemented in the remaining stores, as required.
No additional expense has or will be incurred by the Company to bring these
systems into Year 2000 compliance as any necessary changes are provided by the
vendors under software maintenance programs in place.
The Company has assessed the other IT systems, including accounting and payroll
systems, deployed at its main office and its City Produce warehouse facility for
Year 2000 compliance and has identified the steps necessary to ensure that these
systems will be Year 2000 compliant.
The Company has decided to substantially expand and enhance its information
technology systems to further leverage the investment the Company has made on
in-store automation and networking in the last few years. The Company will be
implementing state of the art client server systems on Microsoft Windows NT
platforms, using best of breed applications from selected vendors, for time and
attendance, payroll, inventory control and distribution, and financial
applications. The Company switched all payroll processing to the new system
during June 1999. These systems will allow for better decision tools and quicker
information flows between the stores, the main office, and the Company owned
distribution facility.
The cost of this program, including new network enabled time clocks, computer
hardware, software, and implementation services is budgeted to be approximately
$850,000 and will be completed by the end of fiscal 1999 (11/28/99). The Company
had previously expected to spend $100,000 out of cash flow generated from its
operations to modify its existing systems to be Year 2000 compliant. The Company
will redirect those resources towards this new effort and plans on leasing the
systems, where appropriate, in a manner similar to the way the
- 12 -
<PAGE>
Company currently leases its store automation systems. The new systems will be
Year 2000 compliant.
The Company does not currently intend to hire an outside firm to independently
verify that its systems are Year 2000 compliant.
The Company has assessed the majority of its non-IT systems for Year 2000
readiness and has identified a small number of systems, including certain
equipment at store level, which may not be Year 2000 ready. The Company is
working with the vendor of these systems to identify the best approach. While
these systems have an internal clock and date, the date is not necessary for the
systems to be productive. Such systems could therefore continue to function as
needed and management does not anticipate that these systems will pose any
significant Year 2000 problem or expense.
The Company is continuing to review the Year 2000 readiness plans of its major
vendors in an effort to ensure that operations remain unaffected by Year 2000
related failures. The Company will place preset orders with certain major
vendors to help ensure product deliveries in the event that the vendor is
affected by failures at some level of its operations but is still able to
deliver merchandise. In the event a major vendor is unable to provide products
the Company will increase purchases from other vendors from which it currently
buys.
The Company purchases merchandise sold in its stores from multiple vendors and
is not reliant on any one vendor for the normal conduct of its operations. 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 believes that its efforts will result in year 2000 compliance.
However, the impact on business operations of failure by the Company to achieve
compliance or failure by external entities which the Company cannot control,
such as vendors, to achieve compliance, could be material to the Company's
consolidated results of operations.
- 13 -
<PAGE>
GRISTEDE'S FOODS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
An Annual Meeting of Stockholders of the Company was held on
August 12, 1999. The stockholders approved an amendment to the Company's
Certificate of Incorporation to change the name of the Company to Gristede's
Foods, Inc. The number of votes cast in favor of the amendment was 17,869,670.
There were no votes cast against and no abstentions. In addition, each of
Kishore Lall, Martin Steinberg and Edward Salzano was elected as a Class 1
director to serve for a term expiring at the 2002 Meeting of Stockholders
(17,869,670 shares voted in favor of the election of each of Kishore Lall,
Martin Steinberg and Edward Salzano with no votes cast against or abstaining).
The stockholders also approved a proposal to amend the 1998 Stock
Option Plan of the Company to increase the number of shares of Common Stock
reserved for issuance upon exercise of options granted under the Plan from
500,000 to 1,500,000. The number of votes cast in favor was 17,869,670 with no
votes cast against or abstaining.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule (filed herewith)
(b) On June 15, 1999 the Company filed a Current Report on Form 8-K
reporting certain amendments to its Credit Facility with a group of banks.
- 14 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Gristede's Foods, Inc.
By: /s/ John A. Catsimatidis
------------------------
John A. Catsimatidis
Chairman of the Board and
Chief Executive Officer
Dated: October 12, 1999
By: /s/ Stuart Spivak
------------------------
Stuart Spivak
Executive Vice President and
Chief Financial Officer
Dated: October 12, 1999
- 15 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-Q FOR THE PERIOD ENDED AUGUST 29, 1999 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-28-1999
<PERIOD-START> NOV-30-1998
<PERIOD-END> AUG-29-1999
<CASH> $69,274
<SECURITIES> $0
<RECEIVABLES> $6,537,670
<ALLOWANCES> $0
<INVENTORY> $24,139,693
<CURRENT-ASSETS> $32,985,079
<PP&E> $70,505,873
<DEPRECIATION> $28,477,884
<TOTAL-ASSETS> $78,502,056
<CURRENT-LIABILITIES> $18,897,930
<BONDS> $0
$0
$0
<COMMON> $392,732
<OTHER-SE> $14,136,674
<TOTAL-LIABILITY-AND-EQUITY> $78,502,056
<SALES> $132,321,470
<TOTAL-REVENUES> $132,321,470
<CGS> $80,855,046
<TOTAL-COSTS> $80,855,046
<OTHER-EXPENSES> $4,273,485
<LOSS-PROVISION> $0
<INTEREST-EXPENSE> $1,738,785
<INCOME-PRETAX> $531,083
<INCOME-TAX> $47,457
<INCOME-CONTINUING> $531,083
<DISCONTINUED> $0
<EXTRAORDINARY> $0
<CHANGES> $0
<NET-INCOME> $483,626
<EPS-BASIC> 0.02
<EPS-DILUTED> 0.02
</TABLE>
