SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For fiscal year ended November 28, 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 No. 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 10019-3535
(Address of Principal Executive Offices) (Zip Code)
(212) 956-5803
(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 |X| No |_|
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. |_|
As of March 16, 2000, 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 $3,347,255 computed at the closing price on that date.
<PAGE>
Documents Incorporated by Reference: None
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 Foods, Inc. (which is a holding corporation) and its wholly
owned subsidiaries.
As of November 28, 1999 the Company owned and operated 42 supermarkets,
and one free standing pharmacy offering health and beauty aids and general
merchandise (the "Supermarkets"). Thirty-eight Supermarkets are located in
Manhattan, New York, three Supermarkets are located in Westchester County, New
York, one Supermarket is located in Brooklyn, New York and one Supermarket is
located in Long Island, New York. 31 of the Supermarkets are operated under the
"Gristede's" name and 12 are operated under the "Sloan's" name. The Company
leases all of its Supermarket locations. During fiscal 1999 the Company embarked
on a plan to open in-store pharmacies in select Supermarket locations. The
Company is currently operating four in-store pharmacies and one free standing
pharmacy.
During fiscal 1999 the Company acquired two new Supermarkets and opened
one new free standing Gristede's pharmacy.
The Company also owns City Produce Operating Corp.("City Produce"), a
corporation that operates a warehouse used as an internal distribution center,
on leased premises in Bronx County, New York. The warehouse operation supplies
the Company's Supermarkets with groceries and fresh produce. The warehouse also
sells wholesale fresh produce to third parties. During fiscal 1999 the warehouse
operation leased an additional 20,000 square feet next to its current premises
in order to meet increasing demands for its merchandise.
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
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(supermarkets, are smaller than their suburban counterparts, ranging in size
from approximately 3,200 to 23,000 square feet of selling space and averaging
9,000 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, and 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 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 November 1997. The Company
changed its name to Gristede's Foods, Inc. in August 12, 1999 to reflect its
strategy of changing its existing "Sloan's" banner locations to "Gristede's"
subsequent to a store remodeling.
Growth Strategy
On November 10, 1997, a Merger Agreement was consummated pursuant to which
29 Supermarkets directly or indirectly owned by Mr. Catsimatidis, merged into
wholly owned subsidiaries of the Company (the "Merger"). The Company believes
that the Merger has allowed it to realize synergies and increased 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.
Subsequent to the Merger, the Company embarked on a capital expenditure
program for its Supermarkets that includes extensive remodelings, the
introduction of a centralized point-of- sale information system and the opening
of in-store pharmacies in select Supermarket locations. The Company has a
$34,000,000 revolving credit and term loan facility from certain banks maturing
November 30, 2003 and lease finance facilities from third party leasing
companies to finance such capital improvements. The Company is negotiating an
increase in its bank facilities (see Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operation-Liquidity and Capital
Resources").
During the fiscal year ended November 28, 1999, seven stores were
remodeled, with four stores having new in-store pharmacies. Two new Supermarkets
and one free standing pharmacy featuring health and beauty aids were also opened
during fiscal 1999. The aggregate capital expenditures on such remodelings and
new store openings was approximately $12,360,000.
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Subject to the availability of financing, during the fiscal year ending December
3, 2000, the Company anticipates it will spend approximately $10,000,000 to
$12,000,000 in aggregate capital expenditures on additional remodelings and new
store and pharmacy openings. The Company is currently negotiating an increase in
its credit facility. If the terms of such agreement are not satisfactory to the
Company, the Company will seek increased financing from third party leasing
companies and/or additional financing from the Company's principal shareholder
and other sources. The Company anticipates that it will continue opening new
stores and pharmacies in future years. The modernized smaller Supermarkets are
being re-named "Gristede's 2001", and the larger Supermarkets are being 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 the acquisitions of
supermarkets and/or the acquisition of businesses that 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
(in such designated area) 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. There are no restrictions on the Company
acquiring supermarkets that are located outside the designated area. For further
information concerning the Settlement Agreement and proceeding brought by the
FTC against the companies that 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
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which are larger and have substantially greater resources than the Company. The
Supermarkets also compete with other outlets that 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.
Sources of Supply; Inventory Policy
During fiscal 1999 the Company obtained approximately 40% 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 times. 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" tradename. Such name has 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.
Labor Contracts
All of the employees of the Company other than 147 administrative
employees and executives and 75 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.
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Name of Union Expiration Date
Retail, Wholesale & Chain Store October 5, 2002
Food Employees Union, Local 338
Amalgamated Meat Cutters and Retail Food Local 342 October 5, 2003
Store Employees Union, Local 342-50
United Food and Commercial Workers Union December 21, 2002
("UFCW"), Local 174
UFCW, Local 1500 June 23, 2002
UFCW, Local 464A May 1, 2003
International Brotherhood of Teamsters June 30, 2002
("Teamsters"), Local 803
Teamsters, Local 202 December 31, 2003
Governmental Approvals
All of the Supermarkets have obtained all necessary governmental
approvals, licenses and operating permits to operate the stores.
Employees
At February 15, 2000, the Company had approximately 1,528 employees, 1,381
of which are employed at the Supermarkets or the City Produce warehouse, and 147
of which are employed at the Company's executive offices. Approximately 583 of
the employees were employed on a full-time basis of which 412 work in the
Supermarkets.
Seasonality
The Company's Supermarkets are predominantly located in the borough of
Manhattan in New York City and serve a more affluent clientele often referred to
as the "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.
Environmental Compliance
Compliance by the Company with Federal, State and local provisions that
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.
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ITEM 2. PROPERTIES.
The Company leases all 43 Supermarket locations and the warehouse and
distribution center operated by City Produce. Five of such leases expire prior
to 2002, 18 of such leases expire on dates from 2002 through 2011 and 20 of such
leases expire on dates from 2012 through 2019. The Supermarkets range in size
from approximately 3,200 to 23,000 square feet of selling space, averaging 9,000
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 non-disclosures 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 non-disclosures 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 that 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 which motion was granted in March 1996. Fact discovery
was completed by the end June 1998. Expert discovery was completed by the end of
1998. Plaintiff's expert prepared a report claiming that plaintiffs have
suffered damages in an amount in excess of $3,000,000. In August 1999,
defendants moved to exclude plaintiff's expert report. That motion was denied.
The defendants intend to file a motion for summary judgment.
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.
None
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Market Information
The Company's Common Stock is listed 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 years ended November
28, 1999 and November 29, 1998, the quarterly high and low price range for such
common stock is shown in the following tabulation.
Fiscal Year Ended Fiscal Year Ended
November 28, 1999 November 29, 1998
--------------------------------------------------------------------------------
Quarter High Low High Low
--------------------------------------------------------------------------------
First 2-1/4 1-3/4 2-3/8 1-11/16
Second 2-1/2 1-3/4 4-1/2 1-7/8
Third 3-15/16 1-3/4 3-13/16 2-7/8
Fourth 3-1/4 2 2-13/16 2-3/16
--------------------------------------------------------------------------------
The approximate number of holders of record of the Company's Common Stock
on February 18, 2000 was 277. 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.
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended Year Ended 39 Weeks Ended Year Ended
----------------------------------------------------------------------------------------------------
November 28, November 29, November 30, March 2, March 3,
1999 1998 1997(1) 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Sales $ 181,980,204 $ 157,462,869 $ 77,908,693 $ 104,168,864 $ 116,866,063
Cost of sales 112,565,940 94,282,306 48,591,721 63,932,541 72,351,240
Gross profit 69,414,264 63,180,563 29,316,972 40,236,323 44,514,823
Direct operating
expenses 57,632,921 53,490,803 27,462,628 33,821,475 37,566,143
Corporate
overhead 5,917,305 4,742,810 3,983,280 6,207,930 6,405,593
Depreciation and
amortization 4,668,645 3,948,000 1,585,486 2,092,403 2,257,714
Bad debt expense 500,000 -- -- 113,242 222,878
Interest expense 2,528,677 1,832,036 N/A N/A N/A
Net loss (2,873,331) (288,339) (3,714,422) (1,998,727) (1,937,505)
Loss per share (.12) (.01) -- -- --
before
cumulative effect
of change in
accounting
principle
Cumulative (.03) -- -- -- --
effect of change
in accounting
principles
Loss per share - (.15) (.01) N/A N/A N/A
basic and diluted
At End of Period
----------------
Total assets 78,030,171 60,706,509 52,705,555 23,119,000 20,152,454
Long-term debt 32,686,550 21,649,942 12,662,910 -- --
Total liabilities 66,521,819 46,324,826 38,035,533 20,014,000 17,620,539
</TABLE>
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The periods prior to the fiscal year ended November 29, 1998 include only
the sales and expenses directly attributable to stores owned and operated by
John Catsimatidis which were transferred to the public company (the "Food
Group") and do not include all items necessary for the statement of operations.
(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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Company Background
The fiscal year ended November 28, 1999 and the fiscal year ended November
29, 1998 consisted of 52 weeks each. The transition period from March 3, 1997
until November 30, 1997 (the "Transition Period") consisted of 39 weeks.
Results of Operation (1999 Compared to 1998)
The following table sets forth, as a percentage of sales, components of
the Results of Operations:
52 weeks ended 52 Weeks ended
November 28, 1999 November 29, 1998
----------------------------------------------
Sales 100.0% 100.0%
Cost of sales 61.9% 59.9%
----------------------------------------------
Gross profit 38.1% 40.1%
Store operating, general and 31.7% 34.0%
Administrative expense
Pre-store opening startup costs 0.4% --
Bad debt expense 0.3% --
Depreciation and amortization 2.5% 2.5%
Non-store operating expense 3.3% 3.0%
----------------------------------------------
Operating (loss)/profit (0.1%) 0.6%
Other income (expense) (1.2%) (0.8%)
----------------------------------------------
Loss from operations (1.3%) (0.2%)
before income taxes and
cumulative effect of change
in accounting principles
Cumulative effect of change in (0.3%) --
accounting principle
Net loss (1.6%) (0.2%)
==============================================
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Sales for the 52 weeks ended November 28, 1999 were $181,980,204 as
compared to sales for the 52 weeks ended November 29, 1998 of $157,462,869. The
increase in sales during the 1999 period was primarily the result of the
Company's remodeling program, which is continuing and two new stores, one of
which opened in May 1999 and one of which opened in November 1999.
Gross profit was $69,414,264 or 38.14% of sales for the 52 week period
ended November 28, 1999 as compared with $63,180,563 or 40.12% of sales for the
52 week period ended November 29, 1998. The decrease in gross profit as a
percentage of sales, during the 1999 period, was primarily due to selected
promotional price reductions in connection with the grand reopening periods of
the newly remodeled stores and the grand opening periods of the new stores and
certain stores having unusually low gross margins during the fourth quarter of
fiscal 1999 (which were recovered in the subsequent first quarter of fiscal
2000).
Store operating, general and administrative expenses were $57,632,921 or
31.67% of sales for the 52 week period ended November 28, 1999 as compared to
$53,490,803 or 33.97% of sales for the 52 week period ended November 29, 1998.
The $4,142,108 increase in store operating, general and administrative expenses
in the 1999 period was primarily the result of increased salaries, fringe
benefits and supplies costs as a result of the increased sales in such period.
The decrease in store operating, general and administrative expenses as a
percentage of sales in the 1999 period was mainly due to better cost controls in
relation to the increased sales notwithstanding the increase in opening period
advertising. Advertising expenses included in store operating, general and
administrative expense were $1,290,121, $1,206,926 and $66,625 for the 52 weeks
ended November 28, 1999 and November 29, 1998 and the three weeks ended November
30, 1997, respectively.
Pre-store opening startup costs were $799,529 or 0.44% of sales for the 52
weeks ended November 29, 1999 as compared to $610,428 which was previously
deferred and reflected as a cumulative effect adjustment in the current period.
The pre-store opening startup costs during the 1999 period was primarily due to
the fact that, in addition to the remodeling of eight existing stores, two new
stores were opened, requiring increased pre- opening startup labor and
promotional advertising.
Non-store operating expenses were $5,917,305 or 3.25% of sales for the 52
weeks ended November 28, 1999 as compared to $4,742,810 or 3.01% of sales for
the 52 week period ended November 29, 1998. Administrative payroll and fringes
were 2.23% of sales for the 1999 period as compared with 2.06% of sales for the
1998 period. The increase in the 1999 period reflects the addition of
supervisory and data processing personnel to handle the additional business
generated by the store remodeling program and the conversion and updating of our
information technology systems. General office expenses as a percentage of sales
were 0.60% for the 1999 period as compared to 0.70% for the 1998 period. The
decrease during the 1999 period was primarily due to better cost controls in
relation to the increased sales. Professional fees were 0.30% of sales for the
1999 period as compared to 0.15% of sales for the 1998 period. The increase in
the 1999 period was due to the additional need for outside accounting, legal and
consulting services. Corporate expenses as a percentage of sales were 0.12% for
the 1999 period as compared to 0.10% for the 1998 period. The increase was
primarily due to increased American Stock Exchange fees and shareholder
expenses.
Depreciation expense for the 52 weeks ended November 28, 1999 was
$4,668,645 as compared to $3,948,000 for the 52 weeks ended November 29, 1998.
The increase was the result of additional capital expenditures made in
accordance with management's store renovation and expansion program.
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Interest expense for the 52 weeks ended November 28, 1999 was $2,528,677
as compared to $1,832,036 for the 52 weeks ended November 29, 1998. The increase
in the 1999 period was primarily attributable to increased borrowings under the
Company's bank credit facility and increased capitalized equipment leasing.
Interest income for the 52 weeks ended November 28, 1999 was $82,865 as
compared with $177,430 for the 52 weeks ended November 29, 1998. The decrease in
the 1999 period was due to the reduction in outstanding notes receivable as
compared to the 1998 period.
Other income for the 52 Weeks ended November 28, 1999 was $308,773 as
compared to $384,541 for the 52 weeks ended November 29, 1998. Other income for
both periods represents net income from the buyout of leases on non-productive
stores.
Bad debt expense was $500,000 for the 52 weeks ended November 28, 1999 as
compared to no expense for the 52 week period ended November 29, 1998. As a
result of the increased age of certain of the Company's receivables and the
increase in the amount of the Company's receivables, in the 1999 period Company
management deemed it prudent to set up an allowance for doubtful accounts in the
amount of $500,000.
Cumulative effect of change in accounting principle was $610,428 for the
52 week period ended November 28, 1999. There was no cumulative effect change in
the 52 week period ended November 29, 1998. The $610,428 reflects pre-opening
startup costs for the remodeled stores for the 1998 period which were previously
capitalized (see Note 2 of Notes to Consolidated Financial Statements).
As a result of the items described above the net loss before provision for
income taxes and the cumulative change in accounting principle for the 52 weeks
ended November 28, 1999 was $2,241,175 as compared to a net loss of $271,115 for
the 52 week period ended November 29, 1998.
Results of Operations (1998 Compared to Transition Period)
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 Merger being accounted for as a reverse acquisition,
the Transition Period referred to in the following summary of the Results of
Operation for the 39 week period encompasses the operation of the Food Group for
36 weeks, and the operations of the new combined companies for the 3 week
post-Merger period November 10, 1997 to November 30, 1997. Therefore, the 15
stores owned by the Company prior to the Merger 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:
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52 weeks ended 39 weeks ended
November 29, 1998 November 30, 1997
------------------------------------------
Sales 100.0% 100.0%
Cost of sales 59.9% 62.4%
------------------------------------------
Gross profit 40.1% 37.6%
Store operating, general and
administrative expense 34.0% 35.3%
Depreciation and amortization 2.5% 2.0%
Non-store operating expense 3.0% 5.1%
------------------------------------------
Operating profit/(loss) 0.6% (4.8%)
==========================================
Sales for the 52 weeks ended November 29, 1998 were $ 157,462,869 as
compared to sales for the 39 weeks ended November 30, 1997, on an annualized
basis, of $103,878,260. The sales increase was mainly attributable to the 15
additional stores included in the entire 1998 period, one acquired that which
opened in February 1998 and the results of the Company's remodeling program,
which is continuing. Sales for the same 29 stores were $100,797,076 for the 52
weeks ended November 29, 1998 as compared with annualized sales of $ 95,173,192
for the 39 weeks ended November 30, 1997, an increase of 5.6 %.
Gross profit as a percentage of sales was 40.12 % for the 52 week period
ended November 29, 1998 as compared to 37.63 % for the 39 week period ended
November 30, 1997. The 1998 period includes the results of the additional 15
Sloan's stores which traditionally achieved higher gross margins.
Store operating, general and administrative expenses as a percentage of
sales were 33.97 % for the 52 weeks ended November 29, 1998 as compared with
35.25 % for the 39 weeks ended November 30, 1997. The decrease in the 1998
period was mainly due to better cost controls resulting from the combining of
the operations in the Merger.
Non-store operating expenses as a percentage of sales were 3.01 % for the
52 week period ended November 29, 1998 as compared to 5.11 % of sales for the 39
week period ended November 30, 1997. Administrative payroll and fringes were
2.06 % of sales for the 1998 period as compared with 3.15 % of sales for the
1997 period. The decrease was the result of a reduction in administrative
personnel. General office expense as a percentage of sales decreased to 0.70 %
for the 1998 period as compared to 1.59 % of sales for the 1997 period as a
result of the continuing efficiencies from the combining of the operations.
Professional fees were 0.15 % of sales for the 1998 period as compared to 0.36 %
of sales for the 1997 period. The decrease was due to the reduced need for
outside legal counsel in connection with litigation, real estate and general
corporate matters. Corporate expenses were 0.10% of sales for the 52 week period
ended November 29, 1998. Corporate expenses are those expenses attributable only
to a public company and as such were only applicable to the last 3 weeks of the
1997 period.
13
<PAGE>
Results of Operation (Transition Period Compared to 1997)
The following table sets forth, as a percentage of sales, components of the
Results of Operation:
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 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 weeks 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.
14
<PAGE>
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.
Liquidity and Capital Resources
Liquidity: The consolidated financial statements of the Company indicate
that at November 28, 1999 current assets exceeded current liabilities by
$13,700,000 and stockholders' equity was $11,500,000. Management believes that
cash flows generated from operations, supplemented by financing from third party
leasing companies and/or additional financing from the Company's principal
shareholder, will be sufficient to pay the Company's debts as they may come due,
provide for its capital expenditure program and meet its other cash
requirements.
Capital Expenditures: Capital expenditures for fiscal 1999, including
equipment acquired under capital leases, were $12,360,000 compared to
$10,000,000 for fiscal 1998 and $400,000 for fiscal 1997. During fiscal 1999 two
new Supermarkets were opened, one new freestanding pharmacy was opened and seven
renovations and enlargements to existing stores were completed. Of the renovated
stores, four were outfitted with in-store pharmacies. During fiscal 2000 the
Company plans to open up two new stores and complete an aggregate of eight store
renovations, four of which will include in-store pharmacies. Capital
expenditures for fiscal 2000, including property to be acquired under capital
leases, are estimated to be $10,000,000 to $12,000,000. Management believes that
cash flows generated from operations supplemented by the availability of
additional bank financing, third party capital leases and shareholder loans will
be sufficient to provide for the Company's capital expenditure program.
Cash Flows: Cash used by operating activities amounted to $3,200,000 in
fiscal 1999 compared to cash used by operating activities of $1,300,000 in the
prior fiscal year. The increase in cash flows used by operating activities was
primarily due to an increase in inventory. Cash used in investing activities of
$12,360,000 was invested to acquire and or renovate existing supermarket
locations. The $2,800,000 increase over fiscal 1998 reflects additional cost
associated with the acquisition of two new supermarket locations and the
acquisition of four privately held neighborhood drug store operations which were
then incorporated into the renovated stores. Cash flows from financing
activities increased by $4,233,000 during
15
<PAGE>
fiscal 1999 from fiscal 1998 primarily due to additional loans from an affiliate
of the Company's principal shareholder.
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 revolving line of credit was increased to
$14,000,000 effective as of May 29, 1999. As of November 27, 1999, the credit
facility, as amended, provided for (i) a maturity date of November 30, 2003, at
which time all amounts outstanding thereunder are due, (ii) certain financial
covenants, (iii) amortization of the term loan by $100,000 per month through and
including June 1, 2000, and thereafter $142,857 per month; (iv) amortization of
the improvement term loan by $50,000 per month commencing July 1, 2000 through
and including June 1, 2001 and $133,333 per month thereafter and (v) a reduction
in the revolving credit commitment by $466,667 per month commencing July 1,
2001.
Presently, the bank facilities are fully utilized and the Company is
negotiating an increase in the credit facilities with its banks. There is no
assurance that the Company will be able to negotiate such an increase on terms
satisfactory to the Company. If the Company is unable to obtain its desired
financing from its banks, the Company will seek increased financing from third
party leasing companies and/or additional financing from the Company's principal
shareholder and other sources.
The Company has not incurred any material commitments for capital
expenditures, although it anticipates spending approximately $10,000,000 to
$12,000,000 on its store remodeling and expansion program in fiscal 2000. Such
amount is subject to adjustment based on the availability of funds.
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 during the 52 weeks ended November 28, 1999 was
8.0% 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.
The Company has available approximately $1.0 million in third party
leasing lines of credit to lease finance equipment for its store remodeling and
expansion program.
Year 2000 Issue
The Company had all of its facilities and major systems up and running on
January 1, 2000. Subsequent to this date the Company has experienced no year
2000 related events of any significance. The Company is in the process of
completing an $850,000 capital expenditure program to substantially expand and
enhance its information technology systems. These enhanced systems were all
certified Year 2000 compliant and the Company successfully implemented needed
components of these systems as required for Year 2000 readiness purposes.
16
<PAGE>
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 has not experienced any significant Year 2000 related issues with
its vendors to date. There still is risk of possible failure by vendors to
respond to Year 2000 issues. 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 supplied generally.
17
<PAGE>
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 Sheets of Gristede's Foods, Inc.
and its subsidiaries F-2
Consolidated Statement of Operations of Gristede's Foods, Inc. F-4
and its subsidiaries
Consolidated Statements of Sales and Expenses of Gristede's Foods, Inc. F-5
and its subsidiaries
Consolidated Statement of Stockholders' Equity of Gristede's Foods, Inc. F-6
and its subsidiaries
Consolidated Statement of Cash Flows of Gristede's Foods, Inc. F-7
and its subsidiaries
Notes to Financial Statements F-8
18
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors of
Gristede's Foods, Inc.
New York, New York
We have audited the accompanying consolidated balance sheets of Gristede's
Foods, Inc. and subsidiaries as of November 28, 1999 and November 29, 1998, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for the fifty-two weeks then ended and the three weeks ended November
30, 1997, respectively, and the related statement of sales and expenses for the
thirty-six weeks ended November 9, 1997 (see Note 1).
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 statements of sales and expenses was prepared for the purpose
of complying with the rules and regulations of the Securities and Exchange
Commission, and is not intended to be a complete presentation of Gristede's
Foods, Inc.'s results of operations for the period noted above.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, (i) the financial position of Gristede's
Foods, Inc. and subsidiaries as of November 28, 1999 and November 29, 1998, and
the results of their operations and their cash flows for the fifty-two weeks
then ended and the three weeks ended November 30, 1997, and (ii) the sales and
expenses for the thirty-six weeks ended November 9, 1997, respectively, in
conformity with generally accepted accounting principles.
As discussed in Note 1 to the Consolidated Financial Statements, effective
November 30, 1998, the Company changed its method of accounting for pre-store
opening startup costs.
New York, NY /s/ BDO Seidman, LLP
March 10, 2000, except --------------------
for Note 9 as to which BDO Seidman, LLP
the date is June 9, 2000
F-1
<PAGE>
Gristede's Foods, Inc.
and Subsidiaries
Consolidated Balance Sheets
================================================================================
<TABLE>
<CAPTION>
November 28, November 29,
1999 1998
=======================================================================================
<S> <C> <C>
Assets
Current:
Cash $ 298,582 $ 53,794
Accounts receivable - net of allowance for doubtful
accounts of $500,000 and $0 6,797,401 5,091,174
Inventories 25,241,677 18,425,802
Prepaid expenses and other current assets 1,761,378 1,320,931
Notes receivable - current portion 306,337 1,032,203
---------------------------------------------------------------------------------------
Total current assets 34,405,375 25,923,904
---------------------------------------------------------------------------------------
Property and equipment:
Furniture, fixtures and equipment 15,334,522 14,610,788
Capitalized equipment leases 13,072,200 8,267,999
Leasehold interests and improvements 40,773,458 34,388,652
---------------------------------------------------------------------------------------
69,180,180 57,267,439
Less: Accumulated depreciation and amortization 29,576,085 25,716,915
---------------------------------------------------------------------------------------
Net property and equipment 39,604,095 31,550,524
---------------------------------------------------------------------------------------
Deposits and other assets 769,221 719,429
---------------------------------------------------------------------------------------
Deferred costs 2,994,991 1,968,859
---------------------------------------------------------------------------------------
Notes receivable - noncurrent portion 256,489 543,793
---------------------------------------------------------------------------------------
$78,030,171 $60,706,509
=======================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
Gristede's Foods, Inc.
and Subsidiaries
Consolidated Balance Sheets
================================================================================
<TABLE>
<CAPTION>
November 28, November 29,
1999 1998
===========================================================================================
<S> <C> <C>
Liabilities and Stockholders' Equity
Current:
Accounts payable, trade $ 14,800,350 $ 11,951,436
Accrued payroll, vacation and withholdings 1,052,150 1,543,748
Accrued expenses and other current liabilities 1,510,690 896,716
Note payable -- 319,138
Capitalized lease obligation - current portion 1,570,553 695,665
Current portion of long-term debt 1,797,619 3,314,283
-------------------------------------------------------------------------------------------
Total current liabilities 20,731,362 18,720,986
Long-term debt-noncurrent portion 27,035,125 18,663,935
Due to affiliate 9,113,500 4,031,394
Deferred income 1,597,654 248,654
Capitalized lease obligation - noncurrent portion 5,651,425 2,986,007
Deferred rent 2,392,753 1,673,850
-------------------------------------------------------------------------------------------
Total liabilities 66,521,819 46,324,826
-------------------------------------------------------------------------------------------
Commitments and contingencies
Stockholders' equity:
Common stock, $0.02 par value - shares authorized
25,000,000; outstanding 19,636,574 392,732 392,732
Additional paid-in capital 14,136,674 14,136,674
Retained earnings (deficit) (3,021,054) (147,723)
-------------------------------------------------------------------------------------------
Total stockholders' equity 11,508,352 14,381,683
-------------------------------------------------------------------------------------------
$ 78,030,171 $ 60,706,509
===========================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
Gristede's Foods, Inc.
and Subsidiaries
Consolidated Statements of Operations
================================================================================
<TABLE>
<CAPTION>
52 weeks 52 weeks 3 weeks
ended ended ended
November 28, November 29, November 30,
1999 1998 1997
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $ 181,980,204 $ 157,462,869 $ 9,225,123
Cost of sales 112,565,940 94,282,306 5,731,065
--------------------------------------------------------------------------------------------------------
Gross profit 69,414,264 63,180,563 3,494,058
Store operating, general and administrative
expenses 57,632,921 53,490,803 2,754,563
Pre-store opening startup costs 799,529 -- --
Bad debt expense 500,000
4,668,645 3,948,000 219,813
Depreciation and amortization
Nonstore operating expenses:
Administrative payroll and fringes 4,059,856 3,249,306 166,539
General office expense 1,083,721 1,103,005 86,588
Professional fees 558,124 229,646 7,975
Corporate expense 215,604 160,853 5,378
--------------------------------------------------------------------------------------------------------
Total non store operating expenses 5,917,305 4,742,810 266,480
--------------------------------------------------------------------------------------------------------
Operating (loss)/income (104,136) 998,950 253,202
--------------------------------------------------------------------------------------------------------
Other income (expenses):
Interest expense (2,528,677) (1,832,036) (82,586)
Interest income 82,865 177,430
Other income 308,773 384,541 --
========================================================================================================
Total other expenses (2,137,039) (1,270,065) (82,586)
========================================================================================================
(Loss)/income before provision
for income taxes and cumulative effect of (2,241,175) (271,115) 170,616
change in accounting principle
Provision for income taxes 21,728 17,224 30,000
--------------------------------------------------------------------------------------------------------
Net(loss)/income before cumulative effect of $ (2,262,903) $ (288,339) $ 140,616
change in accounting principle
Cumulative effect of change in accounting (610,428) -- --
principle
========================================================================================================
Net (loss)/income $ (2,873,331) $ (288,339) $ 140,616
========================================================================================================
Net(loss)/income per share of common stock
basic and diluted
========================================================================================================
</TABLE>
F-4
<PAGE>
Gristede's Foods, Inc.
and Subsidiaries
Consolidated Statements of Operations
================================================================================
<TABLE>
========================================================================================================
<S> <C> <C> <C>
Loss before cumulative effect of change in
accounting principle $ (.12) $ (.01) $ .01
========================================================================================================
Cumulative effect of change in accounting
principle $ (.03) _ _
========================================================================================================
Net loss $ (.15) $ (.01) $ .01
========================================================================================================
Weighted average common shares outstanding 19,636,574 19,636,574 19,636,574
========================================================================================================
</TABLE>
F-5
<PAGE>
Gristede's Foods, Inc.
and Subsidiaries
Consolidated Statement of Sales and Expenses
================================================================================
36 weeks ended
November 9, 1997
--------------------------------------------------------------------------------
Sales $ 68,683,570
Cost of sales 42,860,656
--------------------------------------------------------------------------------
Gross profit 25,822,914
Direct operating expenses 24,708,065
--------------------------------------------------------------------------------
1,114,849
Corporate overhead 3,716,800
--------------------------------------------------------------------------------
(2,601,951)
Depreciation and amortization 1,365,673
--------------------------------------------------------------------------------
Excess of expenses over sales $ (3,967,624)
================================================================================
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
Gristede's Foods, Inc.
and Subsidiaries
Consolidated Statements of Stockholders' Equity
================================================================================
Fifty-two weeks ended November 28, 1999 and November 29, 1998 and three weeks
ended November 30, 1997
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common stock
-------------------------
Additional Retained Total
Number of paid-in earnings stockholders'
shares Amount capital (deficit) equity
==============================================================================================================
<S> <C> <C> <C> <C> <C>
Balance, November 10, 1997 -- $ -- $ -- $ -- $ --
To reflect acquisition of Sloan's
Supermarket, Inc. -
recapitalization (Note 1) 19,636,574 392,732 14,136,674 -- 14,529,406
Net income -- -- -- 140,616 140,616
--------------------------------------------------------------------------------------------------------------
Balance, November 30, 1997 19,636,574 392,732 14,136,674 140,616 14,670,022
Net loss -- -- -- (288,339) (288,339)
--------------------------------------------------------------------------------------------------------------
Balance, November 29, 1998 19,636,574 392,732 14,136,674 (147,723) 14,381,683
Net loss -- -- -- (2,873,331) (2,873,331)
--------------------------------------------------------------------------------------------------------------
Balance, November 28, 1999 19,636,574 $ 392,732 $ 14,136,674 $ (3,021,054) $ 11,508,352
==============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
Gristede's Foods, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
<TABLE>
<CAPTION>
52 weeks ended 52 weeks ended 3 weeks ended
November 28, November 29, November 30,
1999 1998 1997
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income/(loss) $ (2,873,331) $ (288,339) $ 140,616
Adjustments to reconcile net income/(loss) to net cash
provided by (used) in operating activities:
Depreciation and amortization 4,668,645 3,948,000 219,813
Allowance for doubtful amounts 500,000 -- --
Gain on sale of store (279,163) -- --
Changes in operating assets and liabilities, net of
effect from acquisition of supermarkets:
Accounts receivable (2,206,227) 18,852 (421,106)
Inventories (6,815,875) (2,204,337) (209,130)
Prepaid expenses and other current assets (440,447) (406,387) 442,666
Notes receivable 1,013,170 513,647 23,433
Receivable from officer -- 351,778 (1,113)
Other assets (1,559,166) (455,855) (399,092)
Accounts payable, trade 2,848,914 (3,720,527) (6,529,099)
Accrued payroll, vacation and withholdings (491,597) 267,213 397,894
Accrued expenses and other current liabilities 294,836 (50,679) 270,334
Deferred rent 718,902 679,866 34,503
Other credits 1,349,000 (130,000) 378,654
Closed stores income /expense -- 164,958 --
---------------------------------------------------------------------------------------------------------------------
Net cash provided by (used/in) operating activities (3,272,341) (1,311,810) (5,651,627)
---------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures - net (12,359,810) (9,966,786) (362,987)
Proceeds from the sale of store 400,000 -- --
---------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (11,959,810) (9,966,786) (362,987)
---------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Repayments of bank loans (2,564,611) (2,290,388) (7,100,000)
Repayments capitalized lease obligations (1,103,137) (581,043) (7,665)
Proceeds from bank loans 9,419,138 11,619,138 13,000,000
Proceeds from capitalized lease obligation 4,643,443 2,495,713 --
Proceeds from affiliate 5,082,106 -- --
---------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 15,476,939 11,243,420 5,892,335
---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 244,788 (35,176) (122,279)
Cash, beginning of period 53,794 88,970 211,249
---------------------------------------------------------------------------------------------------------------------
Cash, end of period $ 298,582 $ 53,794 $ 88,970
=====================================================================================================================
Supplemental disclosures of cash flow information:
Cash paid for interest $ 2,241,019 $ 1,757,036 $ 21,792
Cash paid for income taxes 59,928 85,056 1,500
=====================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
Gristede's Foods, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
1. Business and Basis As of November 28, 1999 Gristedes Foods, Inc. (the
of Presentation "Company") owns and operates 42 supermarkets, one
pharmacy and a distribution facility in the New York
Metropolitan Area.
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 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 12,
1999, the Company changed its name to Gristede's Foods,
Inc. to reflect its strategy of changing its existing
"Sloans" banner location to "Gristede's" subsequent to
a store remodeling.
The accompanying consolidated statements of operations
for the 52 weeks ended November 28, 1999, the 52 weeks
ended November 29, 1998, and the three weeks ended
November 30, 1997 represent 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-9
<PAGE>
Gristede's Foods, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
The Food Group's financial statements, rather than
complete financial statements, are presented for
periods prior to November 9, 1997 because the
business acquired consisted 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 sales and expenses
directly attributable to The Food Group. The
financial statements consist of a historically
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 statement 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 Significant
Accounting Policies Principles of Consolidation
The consolidated financial statements include the
accounts of Gristede's Foods, Inc. and its
wholly-owned subsidiaries. All material intercompany
accounts and transactions have been eliminated in
consolidation.
Fiscal Year
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-10
<PAGE>
Gristede's Foods, Inc.
and Subsidiaries
Notes to Consolidated 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.
As of November 30, 1997 the Company recorded
approximately $4.3 million of leasehold rights on
the consummation of the acquisition discussed in
Note 1 due to favorable leasing terms. The leasehold
rights are amortized over the ten-year life of the
individual store leases by the straight-line method.
Leases
The Company charges the cost of operating lease
payments and beneficial leaseholds to operations on
a straight-line basis over the lives of the leases.
Deferred Income
Advertising rebates and space allocation allowances
are deferred and recognized in income over the
period of the agreement, generally up to three
years.
F-11
<PAGE>
Gristede's Foods, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Advertising Expense
The Company expenses advertisement costs when the
advertisement is first shown.
Deferred Costs
Deferred costs consist of acquisition and financing
costs and are amortized on a straight-line basis
over five to ten years. Non-compete agreements are
amortized over the life of the agreement up to five
years.
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 bases. 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.
F-12
<PAGE>
Gristede's Foods, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
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
underwent an "Ownership Change" within the meaning
of Section 382 of the Internal Revenue Code of 1986,
as amended, as a future consequence of the
transaction. As a result, the Company's ability to
offset its net operating loss carryforwards against
income earned after the transaction will be limited.
(As of November 28, 1999, the Company had net
operating loss carryforwards of approximately
$6,240,000). Thus, the transaction could result in
taxation of some future 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 expenses and
disclosures of contingencies. Future events could
alter such estimates.
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.
F-13
<PAGE>
Gristede's Foods, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
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 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 loans and revolving loan payable as of November
28, 1999 and November 29, 1998, approximates the
recorded book value 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.
F-14
<PAGE>
Gristede's Foods, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
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 No. 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 28, 1999.
Income/(Loss) per Share
The Company follows SFAS No. 128, "Earnings Per
Share," ("EPS") which requires a presentation of
basic EPS and diluted EPS. 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. Diluted EPS assumes conversion of
convertible debt and the issuance of common stock
for all other potentially dilutive equivalent shares
outstanding. Diluted EPS is not shown since it is
anti-dilutive.
F-15
<PAGE>
Gristede's Foods, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards
Board issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No.
133"). SFAS No. 133 represents a comprehensive
framework of accounting rules that standardizes the
accounting for all derivatives. SFAS No. 133 applies
to all entities and to all types of derivatives, and
is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. The adoption of SFAS
133 is not expected to materially affect the
financial statements of the Company.
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 and to write down the
unamortized portion of such costs previously
capitalized. In accordance with SOP 98-5, the
Company has elected to take a one-time, non-cash
charge reflecting the cumulative effect of a change
in an accounting principle in the amount of
$610,428, representing such costs capitalized as of
the beginning of fiscal year 1999. For the fiscal
year ended November 28, 1999, $799,529 of pre-store
opening startup costs were expensed during the
period.
3. Acquisition of The As discussed in Note 1, the following table reflects
Food Group unaudited pro forma combined results of operations
of the Company and The Food Group on the basis that
the acquisition had taken place at the beginning of
the 1997 fiscal year.
F-16
<PAGE>
Gristede's Foods, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
36 weeks ended November 9, 1997
---------------------------------------------------------
Revenues $101,157,570
Operating income 1,679,004
=========================================================
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 3, 1997 or of
future operations of the combined companies under
the ownership and management of GRI.
4. Related Party (a) On February 6, 1998, the Company purchased
Transactions substantially all of the assets and assumed certain
of the liabilities of a supermarket located at 1644
York Avenue, New York, NY, that was owned by a
corporation controlled by John Catsimatidis. On
March 1, 2000, effective as of February 6, 1998, the
transaction was reversed and restructured as an
operating agreement between the Company and the
affiliate owning the store. The operating agreement
expires December 3, 2000 and gives the Company full
operating control of all aspects of the store. The
store's assets and liabilities at their net book
values, and sales and results of operations have
been consolidated with the financial statements of
the Company. Under the operating agreement the
Company shall pay to the affiliate $1 per annum,
plus such other consideration as may be approved by
the Company's directors (excluding John
Catsimatidis).
F-17
<PAGE>
Gristede's Foods, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
(b) Prior to the merger, the Company and The Food
Group allocated volume, advertising and other
rebates. Rebates, whether allocated or directly
attributed to the Company, were recorded as
reductions to cost of sales or advertising expense
over the life of the related agreement. Rebates were
recorded as reductions to expenses of approximately
$1.5 million for the thirty-six weeks ended November
9, 1997. This practice ended November 9, 1997.
(c) 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 included accounting, merchandising,
human resources, maintenance, executive salaries and
employee benefits. During the thirty-six weeks ended
November 9, 1997, the Company incurred approximately
$2.7 million in expenses for such services. These
services ended on November 9, 1997.
(d) Prior to the merger, newspaper advertising for
the Company was frequently pooled with advertising
for other supermarkets that were not owned by the
Company. In such cases, the Company paid a
proportionate share of such advertising expenses
based upon the number of supermarkets covered in the
advertisements. Such amounts allocated to the
Company approximated $388,000 for the thirty-six
weeks ended November 9, 1997. These services ended
on November 9, 1997.
F-18
<PAGE>
Gristede's Foods, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
(e) Under a management agreement, dated November 10,
1997 (the "Management Agreement"), 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 one and one-quarter (1.25%) percent of
all sales of inventory and merchandise made at or
from the managed supermarkets. During the fifty-two
weeks ended November 28, 1999, November 29, 1998 and
the three weeks ended November 30, 1997, management
fee income was $99,732, $119,000, and $6,346,
respectively.
(f) MCV Advertising Associates Inc., a company 85%
owned by John Catsimatidis provides advertising
services to the Company. During the fifty-two weeks
ended November 28, 1999 and November 29, 1998, costs
incurred were, $1,191,957 and, $1,072,544,
respectively.
(g) Wolf, Block, Schorr and Solis Cohen, LLP, a law
firm of which a director of the Company is a member,
charged the Company $235,260, $219,035, and $-0- in
fees for rendering legal services to the Company
during the fifty-two weeks ended November 28, 1999
and November 29, 1998 and three weeks ended November
30, 1997 respectively.
F-19
<PAGE>
Gristede's Foods, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
(h) During fiscal 1998 Mr. John Catisimatidis issued
a limited $1,000,000 guarantee of the collection of
all accounts receivable acquired pursuant to the
Food Group acquisition and 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 the fiscal year ended November 28, 1999
audited financial statements. In fiscal 1999 such
limited guarantee and commitment regarding the level
of the Company's liability to the affiliate prior to
the issuance of the fiscal year ending December 3,
2000 audited financial statements were reduced to
$600,000.
Capitalized Lease Obligations Due to Affiliate
(i) Certain stores have entered into capital and
operating leases with an affiliate, C & S
Acquisition Corp. (formerly 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 28,
1999 and November 29, 1998 were $459,152 and
$821,305, respectively and require monthly payments
of $35,114 through March 1, 2001.
F-20
<PAGE>
Gristede's Foods, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Notes Receivable
During 1994, the Company sold two stores. Pursuant
to the United States Federal Trade Commission
settlement agreement (see Note 12), 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.
F-21
<PAGE>
Gristede's Foods, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
5. Deferred Costs At November 28, 1999 and November 29, 1998, deferred
costs consisted of:
Amortization
1999 1998 period
--------------------------------------------------------------------------------
Acquisition costs $ 1,455,699 $ 1,315,119 5-10 years
Non-compete covenants 1,268,041 790,316 5 years
Debt costs 766,478 559,215 5-10 years
Other 863,547 129,848 5-10 years
Accumulated amortization (1,358,774) (825,639)
--------------------------------------------------------------------------------
Net deferred costs $ 2,994,991 $ 1,968,859
================================================================================
F-22
<PAGE>
Gristede's Foods, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
6. Due to Affiliate Amounts due to affiliate, United Acquisition Corp.,
a corporation wholly owned by John Catsimatidis,
represent liabilities in connection with the
consummation of the merger as discussed in Note 1
and advances received during Fiscal 1999. 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
amount due to affiliate at November 28, 1999 and
November 29, 1998 was $9,113,500 and $4,031,394,
respectively. $9,000,000 and $3,000,000 of the
amounts due to affiliates were subordinated to the
banks as of November 28, 1999 and November 29, 1998
respectively. The liability is non-interest bearing.
F-23
<PAGE>
Gristede's Foods Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
7. Commitments and The Company operates primarily in leased facilities
Contingencies under noncancellable 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 noncancellable operating leases,
including leases with related parties for the fiscal
periods ended November 28, 1999, November 29, 1998,
November 30, 1997 and November 9, 1997, respectively, is
as follows:
52 weeks 52 weeks 3 weeks 36 weeks
ended ended ended ended
November November November November 9,
28, 1999 29, 1998 30, 1997 1997
--------------------------------------------------------------------------------
Base rents $11,913,291 $ 9,108,164 $ 450,460 $ 4,026,056
Contingent rent 20,000 -- -- (18,169)
--------------------------------------------------------------------------------
Rent expense $11,933,291 $ 9,108,164 $ 450,460 $ 4,007,887
================================================================================
F-24
<PAGE>
Gristede's Foods Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Related party rent expense was $636,059, $675,750,
$51,823 and $446,760 for the fifty-two weeks ended
November 28, 1999 and November 29, 1998, three weeks
ended November 30, 1997 and thirty-six weeks ended
November 9, 1997, respectively.
Future minimum lease commitments under noncancellable
operating leases as of November 28, 1999 are:
Fiscal year ending
--------------------------------------------------------
2000 $ 10,662,554
2001 10,338,954
2002 9,912,282
2003 9,258,272
2004 7,806,482
Thereafter 71,085,046
--------------------------------------------------------
$119,063,590
=======================================================
In addition to related party capital leases (Note 4(i)),
the Company has other capital equipment leases. The net
book value of all assets under capital leases at
November 28, 1999 is approximately $7.7 million.
F-25
<PAGE>
Gristede's Foods Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
The future net minimum lease payments under capital
leases are as follows:
Fiscal year ending
2000 $2,172,426
2001 1,809,840
2002 1,751,046
2003 1,829,822
2004 1,228,166
Thereafter 145,429
--------------------------------------------------------
8,936,729
Less: Amount representing interest 1,714,751
--------------------------------------------------------
Present value of net minimum lease payments $7,221,978
========================================================
F-26
<PAGE>
Gristede's Foods Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
8. Income Taxes Deferred tax expense or benefit is the change in the
computed tax asset or liability balance. As of November
28, 1999, the Company had a net operating loss
carryforward of approximately $7,500,000, such losses
expire between 2005 and 2020. Total net deferred tax
assets of $3,000,000 result from the net operating
losses. The net deferred tax asset at November 28, 1999
was offset by valuation allowances of an equal amount.
Accordingly, no deferred income taxes were recognized in
any of the periods. The Company underwent an "Ownership
change" within the meaning of Section 382 of the
Internal Revenue Code of 1986 and, as a future
consequence of the transaction, the Company's ability to
utilize its net operating loss carryforwards against
taxable income earned after the transaction may be
limited.
9. Debt 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
revolving line of credit was increased to $14,000,000
effective as of May 29, 1999. As of November 27, 1999,
the credit facility, as amended, provides for (i) a
maturity date of November 30, 2003, at which time all
amounts outstanding thereunder are due, (ii) certain
financial covenants, (iii) amortization of the term loan
by $100,000 per month through and including June 1, 2000
and thereafter $142,857 per month, (iv) amortization of
the improvement term loan by $50,000 per month
commencing July 1, 2000 through and including June 1,
2001 and $133,333 per month thereafter and (v) a
reduction in the revolving credit commitment by $466,667
per month commencing July 1, 2001.
F-27
<PAGE>
Gristede's Foods Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Long-term debt at November 28, 1999 and November 29, 1998 consists
of the following:
<TABLE>
<CAPTION>
1999 1998
-------------------------------------------------------------------------
<S> <C> <C>
Term loan payable in annual installments of
$66,667 plus accrued interest commencing
September 30, 2000 at an interest rate of
9% $ 200,000 --
Term loan payable to banks due November 30,
2003; payable in monthly installments of
$100,000 through and including June 1, 2000
and $142,857 thereafter, with the last
installment being the outstanding principal
amount at maturity $ 8,828,574 $10,285,716
Improvement term loan payable to bank due
November 30, 2003; payable in monthly
installments of $50,000 commencing July 1,
2000 through and including June 1, 2001,
and $133,333 thereafter with the last
installment being the outstanding principal
amount at maturity 6,604,170 6,692,502
Revolving loan payable to bank due November
30, 2003; the revolving credit commitment
reduces by $466,667 monthly commencing July
1, 2001 13,200,000 5,000,000
-------------------------------------------------------------------------
28,832,744 21,978,218
Less: Current portion 1,797,619 3,314,283
-------------------------------------------------------------------------
$27,035,125 $18,663,935
=========================================================================
</TABLE>
Interest on prime-based loans under the credit facility is payable
monthly in arrears; interest on LIBOR-based loans under the credit
facility is payable at the end of the applicable interest period.
F-28
<PAGE>
Gristede's Foods Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
During the year ended November 28, 1999 the interest rates ranged
from 7.46% to 9.10% on the LIBOR-based loans and from 8.50% to 9.25%
on the prime-based loans.
The loans are collateralized by certain assets of the Company,
including receivables, inventory and store equipment.
Principal maturities of long-term debt as of November 28, 1999 are as follows:
Fiscal year ending
-----------------------------------------
2000 $ 1,797,619
2001 4,875,429
2002 8,914,288
2003 13,245,408
-----------------------------------------
$28,832,744
=========================================
F-29
<PAGE>
Gristede's Foods Inc.
and Subsidiaries
Notes to Consolidated 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 $740,000, $786,000 and
$153,000 for the fifty-two weeks ended November 28,
1999 and November 29, 1998 and the three weeks ended
November 30, 1997, 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.
F-30
<PAGE>
Gristede's Foods Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
The Company currently has one incentive grant and five
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 "Director's Grant"), the 1994 Nonqualified
Recruitment Grant (the "1994 Recruitment Grant") and
the 1998 stock option plan ("the 1998 Plan"). The
options to purchase shares of common stock 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.
Under the 1994 Grant, the 1994 NQ Grant and the 1998
plan, the Company granted options to purchase up to
100,000, 35,000 and 792,500 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 three 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.
F-31
<PAGE>
Gristede's Foods Inc.
and Subsidiaries
Notes to Consolidate Financial Statements
================================================================================
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.
F-32
<PAGE>
Gristede's Foods Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
SFAS No. 123 requires the Company to provide pro forma
information regarding net loss and earnings per share
as if compensation cost of the Company's stock option
plans had been determined in accordance with the fair
value based method prescribed in SFAS No. 123. The
Company estimates the fair value of each stock option
at the grant date by using the Black Scholes
option-pricing model with the following weighted
average assumptions used for grants.
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Dividend yield 0% 0% 0%
Risk free interest rate 5% 5% 5%
Expected lives 10 years 10 years 10 years
Expected volatility 48.6% 48.6% 48.6%
</TABLE>
Under the accounting provisions of SFAS No. 123, the
Company's net loss and earnings per share would have
been adjusted to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Net (loss) /income -- -- --
As reported $ (2,262,903) $ (288,339) $ 140,616
Pro forma (2,540,778) (763,339) 122,804
Basic earnings/(loss) per share:
As reported $ (.12) $ (.01) $ .01
Pro forma (.13) (.04) .01
</TABLE>
F-33
<PAGE>
Gristede's Foods Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
A summary of the status of the Company's stock option
plans is presented below:
<TABLE>
<CAPTION>
Weighted Average
Shares Exercise Price
====================================================================
<S> <C> <C>
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
Granted 500,000 2.63
Exercised -- --
Forfeited (20,000) 2.63
--------------------------------------------------------------------
Balance, November 29, 1998 1,260,000 3.37
Granted 292,500 2.37
Exercised -- --
Forfeited (130,000) 2.90
--------------------------------------------------------------------
Balance, November 28, 1999 1,422,500 3.21
====================================================================
</TABLE>
F-34
<PAGE>
Gristede's Foods Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Options exercisable as of November 28, 1999 and
November 29, 1998 were 927,500 and 760,000,
respectively.
All options prior to November 10, 1997 were assumed
from Sloan's by the Company.
The following table summarizes information as of
November 28, 1999 concerning outstanding and
exercisable options:
<TABLE>
<CAPTION>
------------------------------------------------------------------------
Options Outstanding Options Exercisable
------------------------------------- --------------------------------
Weighted
Average Weighted
Remaining Average
Range of Number Contractual Exercise Number Weighted Average
exercise prices Outstanding Life Price Exercisable Exercise Price
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$3.75 275,000 3.94 $3.75 275,000 $3.75
5.63 26,000 4.06 5.63 26,000 5.63
5.63 82,000 4.06 5.63 82,000 5.63
3.81 22,000 0 3.81 22,000 3.81
2.87 250,000 7.75 2.87 250,000 2.87
5.00 75,000 2.75 5.00 75,000 5.00
2.63 410,000 8.5 2.63 136,667 2.63
2.63 182,500 8.5 2.63 60,833 2.63
1.88 100,000 10.0 1.88 0 1.88
--------------------------------------------------------------------------------------------
$1.88-5.63 1,422,500 6.03 $3.21 927,500 $3.60
============================================================================================
</TABLE>
F-35
<PAGE>
Gristede's Foods Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
12. Litigation 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 that 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 which motion was
granted in March 1996. Fact discovery was completed by
the end June 1998. Expert discovery was completed by
the end of 1998. Plaintiff's expert prepared a report
claiming that plaintiffs have suffered damages in an
amount in excess of $3,000,000. In August 1999,
defendants moved to exclude plaintiff's expert report.
That motion was denied. The defendants intend to file a
motion for summary judgment.
Management believes that the lawsuit is without merit
and intends to defend the action vigorously; however,
the outcome cannot be determined.
F-36
<PAGE>
Gristede's Foods Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
In addition to the above actions, various claims and
lawsuits arising in the ordinary course of business are
pending against the Company. The subject matter of
these proceedings primarily includes customer accident
claims and commercial disputes. The results of these
proceedings are not expected to have a material adverse
effect on the Company's consolidated financial position
or results of operations.
F-37
<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 February 25, 2000 with respect to
all directors and executive officers of the Company.
<TABLE>
<CAPTION>
Position with the Company or
Director Other Principal Occupation
Name and Age Since for the Past Five Years
------------ ----- -----------------------
<S> <C> <C>
John A. Catsimatidis 1988(1) Chairman of the Board, President and Chief Executive
(51) Officer of the Company since July 28, 1988; Treasurer of
the Company from July 28, 1988 to March 17, 1998 and
since November 15, 1999; 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, Schorr and
(57) Solis-Cohen LLP, New York, N.Y. and predecessor firm for
more than five years.
Frederick Selby 1978 Managing Director of The Chart Group, L.P., an investment
banking firm, since January 2000; Chairman of Selby
Capital Partners (acquisition and sale of privately owned
firms and divisions of public companies) for more than
five years. Managing Director and senior officer of
mergers and (62) acquisitions division of Bankers Trust
Company; Senior Vice President of Corporate Finance of
B.A.I.I. Banking (Paris) and Director of Corporate Finance
of Legg Mason Wood Walker prior thereto.
</TABLE>
--------
1Mr. Catsimatidis also served as a director of the Company from November
4, 1986 to November 27, 1987.
19
<PAGE>
<TABLE>
<CAPTION>
Position with the Company or
Director Other Principal Occupation
Name and Age Since for the Past Five Years
------------ ----- -----------------------
<S> <C> <C>
Kishore Lall 1997 Director of the Company since October, 1997; consultant
(52) 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 ABN
AMRO Bank, New York branch from January 1991 until May
1994.
Dennis E. Berberich 1998 Independent consultant since January, 1999; President of
(61) Canada Dry Bottling Company of New York, a privately
held soft drink distributor, for more than ten years
prior thereto.
Martin Steinberg 1998 Independent consultant. Mr. Steinberg also served as a
(66) director of the Company from May 1974 to January 1991.
Edward P. Salzano 1999 Executive Vice President and Director of Cantisano
(52) Foods, Inc., a privately held sauce and salsa
manufacturing company, for more than 15 years.
Stuart Spivak -- Executive Vice President and Chief Financial Officer of
(63) the Company since March 17, 1998; Secretary of the
Company since November 15, 1999; Chief Financial Officer
of the Food Group for more than ten years prior to 1998.
</TABLE>
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.
Each of Messrs. Spivak, Lall, Steinberg, Berberich and Bring did not
timely file a Form 5 to report the grant to him of options to purchase Common
Stock, but all of such persons subsequently filed a Form 5. 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 fiscal 1999, all other Section 16(a) filings applicable to its directors,
officers and more than 10 percent beneficial owners were timely filed.
20
<PAGE>
Item 11. EXECUTIVE COMPENSATION.
The following table sets forth for the fiscal years ended November 28, 1999,
November 29, 1998 and the Transition Period from March 3, 1997 to November 30,
1997, certain information concerning the compensation paid or accrued to
Officers of the Company.
<TABLE>
<CAPTION>
Long-term compensation
---------------------------------
Annual Compensation Awards Payouts
---------------------------------------------------------------------------- All
Other annual Restricted other
Name and compen- stock Options LTIP compen-
principal Bonus sation award(s) /Sar's payouts sation
position Year Salary ($) ($) ($) ($) (#) ($) ($)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John Catsimatidis, Fiscal 1999 $100,000 $-- $-- $-- -- $-- $ 0
Chairman of the Fiscal 1998 0 -- -- -- -- -- --
Board, President Transition Period 0 -- -- -- -- -- --
and Chief
Executive Officer
Stuart Spivak Fiscal 1999 $132,000 -- -- -- 40,000 -- $10,000*
Executive Vice Fiscal 1998 0 -- -- -- -- -- --
President and Transition Period 0 -- -- -- -- -- --
Chief Financial
Officer
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Represents the personal use of a Company vehicle
Options Granted in Last Fiscal Year
The following table sets forth certain information concerning options
granted during fiscal 1999 to the executive officers named in the Summary
Compensation Table.
<TABLE>
<CAPTION>
Market Potential Realizable Value
Price of At Assumed Annual Rates
Number of Percentage of Common of Stock Price
Securities Total Options Stock on Appreciation for
Underlying Granted to Exercise Date of Option Term
Name Options Employees in Price Grant Expiration -----------
Granted (#) 1999 ($/Share) ($/Share) Date 5% ($) 10%($)
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
John Catsimatidis 0 -- -- -- -- -- --
Stuart Spivak 40,000 14.2% $2.625 $2.625 3/16/08 $65,708 $166,824
</TABLE>
21
<PAGE>
Aggregate Options Exercised in Last Fiscal Year and Fiscal Year End Option
Values
During fiscal 1999, no stock options were exercised by either of the
executive officers named in the Summary Compensation Table. The following table
sets forth the number and value of options outstanding at November 28, 1999 held
by the executive officers named in the Summary Compensation Table:
Number of Unexercised Value of Unexercised
Options Held on in-the-Money Options on
November 28, 1999 November 28, 1999
----------------- -----------------
Name Exercisable/Unexercisable Exercisable/Unexercisable
--------------------------------------------------------------------------------
John Catsimatidis 525,000/0 0/0
Stuart Spivak 23,333/26,667 0/0
The closing sales price of the Common Stock on the American Stock Exchange
on November 26, 1999 (the last trading day before November 28, 1999) was $2.375.
On November 28, 1999 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. Mr. Spivak held options to purchase 10,000 shares at $5.625 per share
and 40,000 shares at $2.625 per share.
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 $500 for each
meeting attended.
Compensation Committee Interlocks and Insider Participation
The Board of Directors has a Compensation Committee consisting of
Frederick Selby, Dennis Berberich and Martin Steinberg. During fiscal 1999, none
of the Directors on the Compensation Committee were employees or officers of the
Company nor had a relationship with the Company requiring disclosure under Item
13, "Certain Relationships and Related Transactions."
22
<PAGE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding ownership of
Common Stock on March 10, 2000 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. Except as otherwise indicated, the address of each person is
c/o Gristede's Foods, 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
Beneficial Owner Number of Shares Percent of Class
--------------------------------------------------------------------------------
John Catsimatidis 18,561,350(1) 92.1%
Martin Steinberg 117,642(2) *
2042 Whalen Ave
Merrick, NY 11566
Kishore Lall 33,333(3) *
Dennis Berberich 25,000(2) *
128 Montery Ave
Pelham, NY 10803
Martin Bring 16,000(4) *
Frederick Selby 13,110(5) *
Edward P. Salzano 3,000 *
197 Graney Drive
River Vale, New Jersey 07675
All officers and directors as a group 18,806,112(6) 92.9%
(8 persons)
* Less than 1%.
----------
(1) Includes an aggregate of 12,473,974 shares held by corporations controlled
by Mr. Catsimatidis, 81,900 shares held by Mr. Catsimatidis as custodian,
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 an aggregate of 5,000 shares of Common Stock which may be
purchased upon the exercise of currently exercisable stock options.
(3) Includes an aggregate of 18,333 shares of Common Stock which may be
purchased upon the exercise of currently exercisable options.
23
<PAGE>
(4) Includes an aggregate of 16,000 shares of Common Stock which may be
purchased upon the exercise of currently exercisable stock options.
(5) Includes an aggregate of 11,000 shares of Common Stock which may be
purchased upon the exercise of currently exercisable options.
(6) Includes an aggregate of 617,000 shares of Common Stock which may be
purchased upon the exercise of currently exercisable stock options.
24
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Under a Management Agreement, dated November 10, 1997 (the "Management
Agreement"), 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 one and one-quarter (1.25%)
percent of all sales of inventory and merchandise made at or from the managed
supermarkets. During the fiscal year ended November 28, 1999 management fee
income was $99,732.
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
Stuart Spivak and a former officer effective March 17, 1998, Martin Steinberg
effective July 21, 1998, Dennis Berberich effective August 18, 1998 and Edward
Salzano effective August 12, 1999. 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.
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
November 28, 1999 were $459,152 and require monthly payments of $35,114 through
March 1, 2001. Obligations under operating leases were $41,676 per month during
fiscal 1999.
Advertising services are provided to the company by an affiliated company,
MCV Advertising Associates Inc. a Company 85% owned by John Catsimatidis. For
the year ended November 28, 1999 the costs incurred were $1,191,957.
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.
The Company leases four locations from Red Apple Real Estate, Inc., a
company solely owned by John Catsimatidis. During the 52 weeks ended November
28, 1999 the Company paid to Red Apple Real Estate, Inc. $636,059 for rent and
real estate taxes under such leases.
Wolf, Block, Schorr and Solis-Cohen LLP, a law firm of which Martin Bring,
a director of the Company, is a member, charged fees of approximately $235,260
for rendering legal services to the Company during the 52 weeks ended November
28, 1999.
On February 6, 1998, the Company agreed to purchase substantially all of
the assets and assume 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 upon criteria set forth in the purchase agreement. On March 1, 2000 the
Company and the affiliate determined to restructure the transaction by
rescinding the purchase effective as of
25
<PAGE>
February 6, 1998 and entering into an operating agreement which gives the
Company full control of the supermarket and the right to operate the supermarket
for the account of the Company. The operating agreement terminates on December
3, 2000, but the term shall be extended for additional one year periods unless
either party shall give notice of termination not later than 90 days prior to
the end of the then current term of the agreement. Under the operating agreement
the Company shall pay to the affiliate $1.00 per annum, plus such other
consideration as may be approved by the Company's directors (excluding John
Catsimatidis). Pursuant to the operating agreement the Company, or any designee
of the Company, also has the option until December 31, 2005 to purchase the
supermarket for $2,778,175, which price is the fair market price of the
supermarket established on October 11, 1999 by the Company's directors
(excluding John Catsimatidis).
Amounts due to affiliate, United Acquisition Corp., a corporation wholly
owned by John Catsimatidis, represent liabilities in connection with the
consummation of the Merger. The affiliate has agreed not to demand payment of
these liabilities in the next fiscal year. Accordingly, the liability has been
classified as noncurrent. Amount due to affiliate at November 28, 1999 and
November 29, 1998 was $9,113,500 and $4,031,394, respectively; of these amounts
$9,000,000 and $3,000,000, respectively, was subordinated to the Company's
banks. The liability does not bear interest. The $5,082,106 increase in due to
affiliate represents advances made during fiscal 1999 by such affiliate, the
proceeds of which were primarily used to partially fund the Company's store
renovation and expansion program.
On March 10, 1999 Mr. John Catisimatidis issued a limited $600,000
guarantee of the collection of all accounts receivable acquired pursuant to the
Food Group acquisition. Furthermore, Mr. Catsimatidis has agreed not to permit
the level of the Company's liability due to the affiliate to fall below
$600,000, prior to the issuance of the fiscal year ended December 3, 2000
audited financial statements.
The Company leases one 25,000 square foot warehouse and three supermarkets
locations from entities owned by the Company's Chairman. The lease terms provide
for an aggregate of $1,100,100 per year in lease payments. The lease are triple
net whereby the tenant pays all real estate taxes and maintenance. The lease
expire March 1, 2006 through March 1, 2009.
26
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES 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
Valuation and Qualifying Accounts
(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").
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. Incorporated by reference to Exhibit
3.4 to the Registrant's Annual Report on Form 10-K for the transition
period ended November 30, 1997 (the "Transition Period 10-K").
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").
27
<PAGE>
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"). Incorporated by reference to
Exhibit 10.6 to the Transition Period 10-K. 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. Incorporated by reference to
Exhibit 10.7 to the Transition Period 10-K.
10.8 Agreement dated as of March 1, 2000 between G Remainder Corp. and
Gristede's Operating Corp.*
10.9 First Amendment and Waiver to Loan Agreement dated April 30, 1998
between the Company, IDBNY, Keybank and Bank Leumi. Incorporated by
reference to Exhibit 10.9 to the Transition Period 10-K.
10.10 1998 Stock Option Plan. Incorporated by reference to Exhibit 10.10 to
the Transition Period 10.K.
10.11 Agreement dated March 10, 2000 between John Catsimatidis and the
Company.*
10.12 Second Amendment to Loan Agreement dated as of August 29, 1998 between
the Company, European American Bank, Israel Discount Bank of New York,
Keybank and Bank Leumi. Incorporated by reference to Exhibit 10.12 to
the Company's Annual Report on Form 10-K for the fiscal year ended
November 29, 1998 (the "1998 10-K").
10.13 Third Amendment to Loan Agreement dated as of November 28, 1998
between the Company, European American Bank, Israel Discount Bank of
New York, Keybank and Bank Leumi. Incorporated by reference to Exhibit
10.13 to the 1998 10-K.
10.14 Fourth Amendment to Loan Agreement dated as of February 27, 1999
between the Company, EAB, IDNY, Keybank and Bank Leumi. Incorporated
by reference to Exhibit 10 the Company's Quarterly Report on Form 10-Q
for the quarter ended February 28, 1999.
28
<PAGE>
10.15 Fifth Amendment to Loan Agreement dated as of May 29, 1999 between the
Company, EAB, IDNY, Keybank and Bank Leumi. Incorporated by reference
to Exhibit 99 to the Company's Current Report on Form 8-K dated June
15, 1999.
10.16 Sixth Amendment to Loan Agreement dated as of November 27, 1999 among
the Company, EAB, IDNY, Dime Savings Bank of New York, FSB (as
successor to Keybank) and Bank Leumi.*
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 February 25, 2000 it did not
constitute a significant subsidiary.
23. Consent of BDO Seidman, LLP Independent Certified Public Accountants.*
27. Financial Data Schedule. *
----------
* Filed herewith.
(b) The Company did not file any Current Reports on Form 8-K during the last
quarter of the period covered by this report.
29
<PAGE>
Article 12 - Schedules
Valuation and Qualifying Accounts
Reg. 210.12-09
--------------------------------------------------------------------------------
Column C-Additions
<TABLE>
<CAPTION>
(2)--
Column A-- Column B-- (1)-- Charged to
Description (1) Balance at charged to other Column D-- Column E--
beginning of costs and accounts-- Deductions-- Balance at
period expenses describe describe end of period
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Accounts Reserved for
Receivable 0 $500,000 Bad debt bad debt $500,000
expense allowance
------------------------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
(1) List, by major classes, all valuation and balance sheet caption, Reserves.
qualifying accounts and reserves not included in specific schedules. Identify
Valuation and qualifying accounts and each class of valuation and qualifying
reserves as to which the additions, accounts and reserves by description title.
deductions, and balances were not Group (a) those valuation and qualifying
individually significant may be grouped in accounts which are deducted in the
balance one total and in such case the information sheet from the assets to
which they apply called for under columns C and D need not and (b) those
reserves which support the be given.
--------------------------------------------------------------------------------
{As last amended in Release No. AS-280, September 2, 1980, 45 F. R. 63660.}
<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 FOODS, INC.
Dated: June 12, 2000 By: /s/ John A. Catsimatidis
------------------------------------
John A. Catsimatidis
Chairman of the Board
Signature Title Date
--------- ----- ----
/s/ John A. Catsimatidis Chairman of Board, President June 12, 2000
------------------------ and Chief Executive Officer
John A. Catsimatidis (Chief Executive Officer and
Chief Operating Officer)
/s/ Martin Bring Director June 12, 2000
----------------
Martin Bring
/s/ Frederick Selby Director June 12, 2000
-------------------
Frederick Selby
/s/ Kishore Lall Director June 12, 2000
----------------
Kishore Lall
/s/ Stuart Spivak Executive Vice President and June 12, 2000
----------------- Chief Financial Officer (Chief
Stuart Spivak Financial Officer and Chief
Accounting Officer through
April 30, 2000)
/s/ Martin Steinberg Director June 12, 2000
--------------------
Martin Steinberg
/s/ Dennis Berberich Director June 12, 2000
--------------------
Dennis Berberich
/s/ Edward Salzano Director June 12, 2000
------------------
Edward Salzano
30
<PAGE>
GRISTEDE'S FOODS, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR
ENDED NOVEMBER 28, 1999
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").
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. Incorporated by reference to Exhibit
3.4 to the Registrant's Annual Report on Form 10-K for the transition
period ended November 30, 1997 (the "Transition Period 10-K").
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"). Incorporated by reference to
Exhibit 10.6 to the Transition Period 10- K. 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.
31
<PAGE>
10.7 Management Agreement dated November 10, 1997 between Namdor Inc., G
Remainder Corp. and S Remainder Corp. Incorporated by reference to
Exhibit 10.7 to the Transition Period 10-K.
10.8 Agreement dated as of March 1, 2000 between G Remainder Corp. and
Gristede's Operating Corp.*
10.9 First Amendment and Waiver to Loan Agreement dated April 30, 1998
between the Company, IDBNY, Keybank and Bank Leumi. Incorporated by
reference to Exhibit 10.9 to the Transition Period 10-K.
10.10 1998 Stock Option Plan. Incorporated by reference to Exhibit 10.10 to
the Transition Period 10.K.
10.11 Agreement dated March 10, 2000 between John Catsimatidis and the
Company.*
10.12 Second Amendment to Loan Agreement dated as of August 29, 1998 between
the Company, European American Bank, Israel Discount Bank of New York,
Keybank and Bank Leumi. Incorporated by reference to Exhibit 10.12 to
the Company's Annual Report on Form 10-K for the fiscal year ended
November 29, 1998 (the "1998 10-K").
10.13 Third Amendment to Loan Agreement dated as of November 28, 1998
between the Company, European American Bank, Israel Discount Bank of
New York, Keybank and Bank Leumi. Incorporated by reference to Exhibit
10.13 to the 1998 10-K.
10.14 Fourth Amendment to Loan Agreement dated as of February 27, 1999
between the Company, EAB, IDNY, Keybank and Bank Leumi. Incorporated
by reference to Exhibit 10 the Company's Quarterly Report on Form 10-Q
for the quarter ended February 28, 1999.
10.15 Fifth Amendment to Loan Agreement dated as of May 29, 1999 between the
Company, EAB, IDNY, Keybank and Bank Leumi. Incorporated by reference
to Exhibit 99 to the Company's Current Report on Form 8-K dated June
15, 1999.
10.16 Sixth Amendment to Loan Agreement dated as of November 27, 1999 among
the Company, EAB, IDNY, Dime Savings Bank of New York, FSB (as
successor to Keybank) and Bank Leumi.*
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.
32
<PAGE>
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 February 25, 2000 it did not
constitute a significant subsidiary.
23. Consent of BDO Seidman, LLP Independent Certified Public Accountants.*
27. Financial Data Schedule. *
----------
* Filed herewith.
33
