<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
_________________________
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES ACT OF 1934
For the fiscal year ended July 1, 1995 Commission File No. 0-11271
WALL STREET DELI, INC.
(exact name of registrant as specified in its charter)
DELAWARE 63-0514240
(State of Incorporation) (IRS Employer I.D. No.)
3514 LORNARIDGE DRIVE
BIRMINGHAM, ALABAMA 35216
(Address of principal executive offices)
(205) 822-3960
(Registrant's Telephone Number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of each exchange
Title of each class on which registered
------------------- ------------------------
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT
Common Stock, $.05 par value
----------------------------
(Title of Class)
Indicate whether the registrant 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, and 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 registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X ]
The aggregate market value of the registrant's voting Common Stock held by
non-affiliates of the registrant was approximately $21,899,842 on September 21,
1995 based on the NASDAQ National Market System closing price on that date.
As of September 21, 1995 there were 3,549,792 shares of the registrant's Common
Stock, $.05 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement for the Registrant's 1995 Annual Meeting of
Shareholders are incorporated by reference into Part III of this Form 10-K.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item No. Page
-------- ----
<S> <C> <C> <C>
PART I
1. Business 1
2. Properties 6
3. Legal Proceedings 7
4. Submission of Matters to a Vote of Security Holders 8
4.1 Executive Officers 8
PART II
5. Market For the Registrant's Common Equity and Related Stockholder
Matters 8
6. Selected Financial Data 9
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
8. Financial Statements and Supplementary Data 16
9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure 34
PART III
10. Directors and Executive Officers *
11. Executive Compensation *
12. Security Ownership of Certain Beneficial Owners and Management *
13. Certain Relationships and Related Transactions *
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 34
Index to Schedules and Exhibits 35
Signatures 37
Report of Independent Certified Public Accountants on
Financial Statement Schedule 38
Financial Statement Schedule 39
</TABLE>
* Portions of the Proxy Statement for the Registrant's 1995 Annual
Meeting of Shareholders are incorporated by reference in Part III of
this Form 10-K.
<PAGE> 3
WALL STREET DELI, INC.
PART I
ITEM 1: BUSINESS
GENERAL
The executive headquarters and principal office of Wall Street Deli,
Inc. (the "Company") are located at 3514 Lornaridge Drive, Birmingham, Alabama
35216, telephone (205)822-3960. The Company's financial and accounting
operations, as well as its central purchasing office, are located at 5683 South
Rex Road, Memphis, Tennessee 38119, telephone (901)684-1020.
The Company operates a chain of quick service, delicatessen style
restaurants, located in eighteen cities: Atlanta, Birmingham, Chicago,
Cincinnati, Cleveland, Dallas, Denver, Houston, Indianapolis, Los Angeles,
Louisville, Memphis, Minneapolis, Newark, New York, Philadelphia, St. Louis,
and Washington, D.C. Most of the Company's 128 units are located in large
suburban and downtown office buildings and are designed to serve the population
in and around those buildings. Management believes the Company is one of the
nation's largest restaurant chains specializing in downtown and office
locations. All the existing restaurants are company-owned, and there are no
plans to franchise any of the Company's restaurant concepts.
The Company was organized in 1966. Originally an Alabama corporation,
it was reorganized as a Delaware corporation in 1986. The name of the Company
was changed from Sandwich Chef, Inc. to Wall Street Deli, Inc. in 1992.
OVERVIEW OF 1995 OPERATING RESULTS
For fiscal 1995, Wall Street Deli reported a 16% increase in sales to
$68.2 million. Profitability was below last year's record levels due to higher
costs, lower restaurant operating margins and a $3.2 million pre-tax charge
recorded in the fourth quarter related to the planned closing of eleven
underperforming stores and the closing of the Company's remaining commissaries.
As a result of the $3.2 million pre-tax charge, the Company reported a net loss
of $0.9 million in fiscal 1995.
Management believes the future operating results of Wall Street Deli
will be enhanced by eliminating underperforming stores and converting to
direct-vendor delivery of food and supplies to units in the seven cities where
the Company has operated commissaries.
Net sales increased during fiscal 1995 primarily due to the
contribution of new restaurants opened since last year. The Wall Street Deli
concept experienced solid growth during the year, rising over 25% to $54.1
million, or 79.3% of total revenues. Fourteen new units were opened during
fiscal 1995 and eight units that did not meet the Company's earnings
expectations were sold or closed. At the end of the year, 97 Wall Street
Delis and 31 R.C. Coopers were in operation. Same store sales were down 3.2%
for the year, reflecting increased competition in the Company's markets.
Management is reviewing marketing, promotional and store-level operations for
ways to improve same store sales.
Wall Street Deli recorded a net loss of $0.9 million in fiscal 1995 as
a result of the special charges outlined above compared with net income of $2.0
million the prior year. In addition to the $3.2 million pre-
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tax charge taken at year-end for store and commissary closings, results
included a charge of $0.5 million for insurance reserves related to workers'
compensation and general liability coverage. Without the two special charges
in 1995, pre-tax income for fiscal 1995 would have been $2.2 million compared
with $2.8 million in fiscal 1994.
Management believes the strong actions taken during fiscal 1995 will
have a positive effect on future operations. The store closings should
eliminate both a fiscal and management strain on the Company. The 11 stores
designated for closing incurred $0.4 million in pre-tax operating losses during
fiscal 1995 and accounted for a disproportionate amount of management's time
and energies. Finally, the closing of the remaining commissaries will allow
the Company to standardize direct store distribution across the system, and
management anticipates that this will reduce future costs.
During fiscal 1995, the Company opened its first units in Los Angeles,
California, and Minneapolis, Minnesota. Current plans are to open an
additional 10 to 12 units during fiscal 1996.
Management believes the elimination of underperforming stores will
allow concentration on enhancing the performance of existing units. The
Company recently introduced specially priced combos and has expanded its
marketing efforts to counter intensified competition. The Company also
instituted a new compensation package to attract and retain top store-level
managers.
During the year, the Company upgraded its financial software as the
first step in linking all units to a centralized computer to improve controls.
The new system, when fully implemented, is expected to help reduce regional
administrative costs, streamline food distribution, and provide management with
timely information to support future growth.
After the close of the fiscal year, Robert G. Barrow was promoted to
President and Chief Executive Officer. Mr. Barrow is a co-founder of the
Company with Alan V. Kaufman, who continues as Chairman of the Board. Jeffrey
Kaufman, formerly Senior Vice President and National Operations Manager, was
promoted to Executive Vice President and Chief Operating Officer.
THE "FLAGSHIP" WALL STREET DELI
The typical flagship Wall Street Deli contains approximately 2,000 to
3,000 square feet and is decorated with a combination of black and white tile
and hardwood flooring, mahogany paneling and cabinetry, brass railing and
fixtures and vintage, black and white photographs of New York City. Outside
tables with umbrellas are included where possible.
The 41 flagship Wall Street Deli units open a full twelve months as of
year end generated average annual sales of $707,463. This compares to average
annual sales of $187,000 per unit for all restaurants the Company operated in
fiscal 1988, the first year the Wall Street Deli concept was launched. Because
of the customer acceptance of the flagship Wall Street Deli concept and its
historically higher volume relative to the Company's other concepts, the
Company plans to continue its focus for future development on the flagship Wall
Street Deli concept.
The focal point of a typical Wall Street Deli is the 70-item,
self-serve food bar, an island in the center of the restaurant with salad
items, several types of fresh pasta with sauces, a baked potato bar and
numerous fresh fruit and vegetable items.
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At the cafeteria-style soup and sandwich counter, employees serve a
variety of fresh soups and prepare fresh deli-style sandwiches to order from
the extensive Wall Street Deli menu. In addition to traditional deli sandwich
items, the sandwich counter offers a light fare, such as the Vegetarian
sandwich, all served on fresh-baked french, whole-wheat or rye bread. The
restaurants also feature daily and seasonal specials, and most of the Wall
Street Delis offer a frozen yogurt bar located strategically near the check-out
counter.
The Wall Street Deli breakfast menu features freshly baked muffins,
bagels, pastries and biscuits, fruit juices and seasonal fruits. A gourmet
coffee section featuring flavored and specialty coffees such as espresso and
cappuccino recently has been added to selected locations and is planned for
inclusion in all new locations. The Company believes the high quality of its
fresh baked products, including sandwich rolls, muffins, cookies and biscuits,
distinguishes the Wall Street Deli from its competitors.
OTHER RESTAURANT CONCEPTS
As of July 1, 1995, the Company owned and operated 128 quick service,
delicatessen style restaurants located primarily in major metropolitan markets
in the South, Northeast and Midwest. The Company's premier concept is its
flagship Wall Street Deli. The Company also operates restaurants under the
name R.C. Cooper's. During the 1994 fiscal year, the Company completed the
process of closing the last remaining Sandwich Chef units.
The Company launched the R.C. Cooper's Deli in 1984 as an upscale
version of the old Sandwich Chef restaurants to more closely match the
restaurant's layout and decor with that of the newer, larger commercial office
complexes toward which the concept was targeted. R.C. Cooper's units are
larger than their Sandwich Chef counterparts and generate correspondingly
higher sales volumes. Originally featuring a service island in the middle of
the store, the design of these units evolved to a straight-line,
cafeteria-style layout. These restaurants are less expensive to develop and
maintain than the Company's Wall Street Deli restaurants, feature a smaller
menu, usually not including fresh-baked foods, and are generally aimed at the
captive office market. There are presently 31 R.C. Cooper's units in
operation, down from 44 in fiscal 1994. The Company plans to continue focusing
its expansion on the flagship Wall Street Deli concept and limiting R.C.
Cooper's expansion to selected situations. In addition, the Company
anticipates conversion of R.C. Cooper's units, where appropriate, to Wall
Street Delis.
CATERING
The Company has an ongoing program to develop catering and delivery
sales. In Memphis and Washington, D.C., the Company operates full service
off-premise catering businesses. In Houston, Washington, D.C. and Chicago, a
sales department actively markets the Company's catering business in
conjunction with its restaurants, with food deliveries coordinated among the
individual restaurants in those markets. In the remaining cities, Wall Street
Deli restaurant managers are responsible for building each restaurant's
catering sales.
SITE SELECTION CRITERIA AND LEASING
The first Wall Street Deli units were opened in food courts in large
retail malls. Today, the Company's primary target market focuses on high
pedestrian traffic, prime downtown locations in large cities. The most
desirable location for these restaurants is on the ground floor of a large
office building with both a lobby entrance and a street entrance.
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The Company believes the site selection process is critical in
determining the potential success of a restaurant. Senior management devotes
significant time and resources to analyzing each prospective site. A variety
of factors are considered in the site selection process for Wall Street Delis,
including local market demographics, site visibility and accessibility and
proximity to significant generators of potential customers in a two block
radius. The Company also reviews competition and attempts to analyze the sales
of other restaurants operating in the area.
The Company leases all of its restaurant locations. The leases vary
significantly in their terms and provisions. Annual rents generally are based
on the greater of a fixed rate or a percentage of gross revenues and generally
provide for escalation of rents based on increases in the lessor's annual
operating expenses. The terms of the leases vary from five to ten years, with
most of the more recent ones being ten years, typically with one five-year
renewal option. Also see "Properties."
RESTAURANT OPERATIONS AND MANAGEMENT
The Company believes that consistent high quality is a hallmark of its
operations. The Company's restaurants attract customers on the basis of their
ambiance, convenience, rapid service, and quality deli food at a reasonable
price. In order to maintain the Company's standards for freshness, quality,
and employee friendliness and salesmanship, the Company has for a number of
years employed a "mystery shopper" program which utilizes third parties to
visit and evaluate each store's operations from the customer perspective on a
regular basis.
The Company has historically done virtually no advertising, relying
instead upon site selection, customer satisfaction, special promotions of daily
and seasonal specials, and new products to attract customers and encourage
their return.
Retail prices vary among the different markets in which the units are
located, with average lunch tickets ranging from $4.00 to $6.00, depending on
location, and breakfast tickets averaging approximately one-third of that
amount. Operating hours for the Company's restaurants are tailored to the
location, with most units open from seven a.m. until four p.m. to serve office
worker customers.
Typical staffing for a flagship Wall Street Deli includes a manager
and assistant manager, and 12 to 18 other employees. In R.C. Cooper's units,
typical staffing consists of a manager and approximately four other employees.
Most restaurant employees work at least 35 hours each week, which the Company
considers full-time, but some part-time employees are used as appropriate.
Unit managers, as well as district and regional managers, are
compensated on a salary-plus-bonus basis, with bonuses based on sales and gross
profits. The Company believes this incentive structure directly enhances
restaurant quality and service. Since most of the restaurants are primarily
geared to office environments, and thus to office working hours, the Company
also believes that it enjoys a competitive advantage by its ability to attract
and recruit employees, especially as unit managers and manager trainees,
because of the absence of night and weekend restaurant hours.
The Company prepares a weekly food and labor cost analysis and report
for each unit. These analyses are completed each Wednesday afternoon and
transmitted overnight to local and district managers so that local management
may examine each unit's weekly productivity, affording management the ability
quickly to recognize and address trends in same-store sales and profitability.
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As a result of the evaluation of its commissary operation undertaken
by the Company during the past year, the Company has determined to close its
remaining commissaries and convert to standardized direct store vendor
distribution delivery of food and non-food items. At year end, the Memphis and
Houston commissaries had been closed, the remaining ones in Birmingham, Dallas,
Denver, Washington, D.C., and Chicago will be closed during fiscal 1996. These
leased facilities, each encompassing 6,000 to 8,000 square feet, contain small
kitchen and food preparation areas as well as storage space, and have served as
distribution points for the restaurants in the cities served by commissaries.
The Company maintains general liability, casualty and workers
compensation insurance in types and coverage amounts believed by management to
be reasonable in light of the Company's prior loss experience and in relation
to premium costs. The Company maintains casualty insurance on its office and
commissary facilities, but not on its restaurants. To date, the Company has
not experienced any material uninsured casualty or liability claims or losses.
The Company's workers compensation coverage is provided under a retroactive
plan in which premiums consist of an annual base premium of approximately
$137,000 plus actual claim costs for the prior year and subject to certain
adjustments. For fiscal year 1995, the minimum premium possible was
approximately $335,000 and the maximum possible was approximately $5.36 million.
The Company's actual claim costs for 1995 were approximately $382,000 and for
fiscal 1994 and 1993 were approximately $367,000 and $221,000, respectively.
COMPETITION
The Company must compete both for restaurant locations and for
customers against a substantial number of franchised and independent restaurant
operators. The quick service restaurant business is highly competitive and is
often affected by changes in local demographics, local and national economic
conditions, and the tastes and eating habits of the public. The principal
bases of competition in the industry are the location and attractiveness of
facilities and the quality and price of the products offered.
The Company's restaurants are in competition with restaurants operated
or franchised by national, regional and local companies, many of which are well
established and have substantially greater financial resources and experience
than the Company. The Company competes for its locations on the basis of
design, flexibility and space utilization, and the quality of food and overall
attractiveness of its restaurants. The Company competes for customers
primarily on the basis of restaurant locations, ambiance, price-value
relationship, unique menu and menu variety, and food product quality. While
the Company believes that its delicatessen-style restaurants are distinctive in
design and operating concept, it is aware of other restaurants that operate
with similar concepts.
GOVERNMENT REGULATION
Each of the Company's restaurants is subject to inspection and
regulation by public health authorities. Most leasehold improvements made to
the Company's restaurants are subject to local and state building code
requirements. The Company is subject to the Fair Labor Standards Act which
governs such matters as minimum age requirements, overtime and other working
conditions. A large number of the Company's restaurant personnel are paid at
or based upon the federal minimum wage level. Accordingly, changes in such
minimum wage affect the Company's labor costs. The Company believes that its
conduct of business is in substantial compliance with these and other
applicable government regulations.
A significant number of the Company's employees are not covered by
health insurance. The Company is unable to predict the scope or effect, if
any, of any future government regulation or legislation
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affecting employee health care benefits.
SERVICE MARKS
The Company's trade name "WALL STREET DELI" was registered as a
service mark on the Principal Register of the United States Patent and
Trademark Office in 1991. Application for registration of the Wall Street Deli
design is pending. In 1990, the Company's trade name "R. C. COOPER'S" was
registered as a service mark. The service mark "SANDWICH CHEF" and design was
registered on the Principal Register of the United States Patent and Trademark
Office in 1974.
EMPLOYEES
As of July 1, 1995, the Company employed approximately 1,476 persons,
including 49 managerial, 27 administrative and 1,400 restaurant employees. No
labor unions represent any of the Company's employees. The Company considers
its relationship with employees to be good.
INFORMATION AS TO CLASSES OF SIMILAR PRODUCTS OR SERVICES
The Company operates in only one industry segment. All significant
revenues and pre-tax earnings relate to retail sales of food to the general
public through company-owned and company-operated restaurants. The Company has
no operations outside the continental United States.
ITEM 2. PROPERTIES
RESTAURANT LOCATIONS
The Company leases all of its division offices, commissaries and restaurants.
The following table shows the locations of the Company's restaurants
by city at July 1, 1995:
<TABLE>
<CAPTION>
Wall Street Deli Wall Street Deli
City Flagships Other R.C. Cooper's Total
- ------------------------ --------- ---------------- ------------- -----
<S> <C> <C> <C> <C>
Birmingham 4 4 2 10
Memphis 1 2 9 12
Houston 7 6 -- 13
Dallas 5 3 11 19
Denver 5 1 3 9
Washington 16 1 5 22
Chicago 12 1 1 14
Cincinnati 3 -- -- 3
St. Louis 3 -- -- 3
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C>
Philadelphia 7 -- -- 7
Atlanta 4 1 -- 5
Louisville 1 -- -- 1
Cleveland 2 1 -- 3
New York 2 -- -- 2
Indianapolis 1 -- -- 1
Los Angeles 3 -- -- 3
Minneapolis 1 -- -- 1
--- ---- ---- ----
Totals 77 20 31 128
=== ==== ==== ====
</TABLE>
While the general economy in the various cities is an important
element, the Company's experience is that careful placement of restaurant units
in office buildings and regional malls is in many respects unique to each
situation. The locations and character of the restaurants, and the effect of
those elements on their suitability, adequacy, productive capacity and
utilization is integral to the Company's business, and is discussed in detail
in Item 1 of this Report, particularly under the caption "Site Selection
Criteria and Leasing."
Mr. Alan Kaufman and Mr. Barrow, together with a former executive
officer are general partners of WESCO Associates, which leases to the Company
its executive offices and commissary at Birmingham, Alabama, and of CBK
Associates, which leases to the Company its catering offices and commissary in
Memphis, Tennessee. The leases were entered into in April 1979 and February
1981, respectively, for terms of 10 years, and subsequently extended for five
year terms ending in 1994 and 1996, respectively, and both provide for annual
escalation of rents based on the consumer price index. In August, 1994 the
term of the WESCO Associates lease was extended for an additional five years,
to June 30, 1999. The space leased from CBK Associates was increased by
approximately 40% in 1990, and in April 1995, this lease was extended four
additional years to June, 2000. During the Company's 1993, 1994 and 1995
fiscal years, rents paid to WESCO Associates were $31,428, $32,400 and $33,204,
respectively, and rents paid to CBK Associates were $74,808, $77,124 and
$79,056, respectively.
Mr. Alan Kaufman, Mr. Robert Barrow, Mr. Jeffrey Kaufman and Mr. Steve
Barrow (Mr. Robert Barrow's son and an employee of the Company since 1988) are
general partners in Rex Associates, which leases to the Company its
administrative offices in Memphis, Tennessee. The administrative office lease
was entered into effective as of May 1994 for a term of 10 years beginning
September 1, 1994, and provides for an annual escalation of rents based on the
consumer price index. During the Company's fiscal year 1995, rent paid to Rex
Associates totalled $25,875.
ITEM 3: LEGAL PROCEEDINGS
The Company is party to several pending legal proceedings, all of
which are deemed by the management of the Company to be ordinary routine
litigation incidental to the business, and none of which is believed likely to
have a material adverse effect on the Company, its financial position or
operations.
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ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the Company's fiscal year covered by this
report, no matter has been submitted to a vote of security holders, through the
solicitation of proxies or otherwise.
ITEM 4.1: EXECUTIVE OFFICERS
The executive officers of the Company as of the end of fiscal 1995
were as follows:
<TABLE>
<S> <C>
Alan V. Kaufman Chairman of the Board, President and Chief Executive Officer
Robert G. Barrow Executive Vice President and Director
James P. Going, Jr. Controller and Secretary
Jeffrey V. Kaufman Senior Vice President - National Operations Manager
</TABLE>
Mr. Alan Kaufman, age 58, has been Chairman of the Board, Chief
Executive Officer and President of the Company since its formation in November,
1966. After the close of the 1995 fiscal year, Mr. Kaufman stepped down as
President and Chief Executive Officer, and continues as its Chairman. Mr.
Kaufman is the father of Jeffrey V. Kaufman.
Mr. Barrow, age 59, has been Executive Vice President and Chief
Financial Officer since July 1981 and a Director of the Company since its
formation in November, 1966. After the close of the 1995 fiscal year, Mr.
Barrow became President and Chief Executive Officer.
Mr. Going, age 34, is a certified public accountant and served as
Controller and Secretary of the Company from August, 1994 until September,
1995. Before joining the Company, Mr. Going was employed by Thomas & Betts, a
manufacturing company, in 1994, and from 1991 until 1994 with Coopers &
Lybrand. Mr. Going resigned his position with the Company effective September
1, 1995, and Mr. Arnold McGruder became Treasurer and Chief Accounting Officer
of the Company on September 5, 1995.
Mr. Jeffrey Kaufman, age 33, has been employed by the Company since
1985. He served as Vice President, Central Region, from 1989 until his
promotion to Senior Vice President - National Operations Manager in August
1992. After the close of the 1995 fiscal year, Mr. Kaufman was named Executive
Vice President and Chief Operating Officer. Mr. Kaufman is the son of Alan V.
Kaufman.
PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock is traded in the over-the-counter market
and is quoted in the NASDAQ National Market System under the symbol WSDI. The
following table sets forth, for the fiscal periods indicated, the high and low
sales prices as reported on the NASDAQ National Market System.
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<TABLE>
<S> <C> <C>
FISCAL 1994 High Low
---- ---
Quarter Ended October 2, 1993 12 1/4 10
Quarter Ended January 1, 1994 14 1/2 10 3/4
Quarter Ended April 2, 1994 14 1/4 12 1/2
Quarter Ended July 2, 1994 13 1/2 12 1/4
FISCAL 1995
Quarter Ended October 1, 1994 14 1/4 11 1/2
Quarter Ended December 31, 1994 14 1/4 9 1/4
Quarter Ended April 1, 1995 10 8
Quarter Ended July 1, 1995 9 3/4 7
</TABLE>
On September 21, 1995, there were approximately 448 record holders of
the Company's Common Stock, including shares held in "street name" by nominees
who are record holders.
The Company has never declared or paid a cash dividend, and it is the
present policy of the Board of Directors to retain all earnings for the
development of the Company's business. Any payment of dividends in the future
will depend upon the Company's earnings, capital requirements, financial
condition and such other factors as the Board of Directors may deem relevant.
In the past, the Company from time to time has effected stock splits in the
form of stock dividends, resulting in the issuance of additional shares of
Common Stock to the shareholders of the Company. No assurances are made that
the Company will effect any stock splits or declare any stock dividends in the
future.
ITEM 6: SELECTED FINANCIAL DATA
This information is contained at Note 8 of the Notes to Consolidated
Financial Statements, at page 33 of this report.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors that have affected the Company's financial condition and
earnings during the periods included in the accompanying consolidated balance
sheets and statements of operations.
Results of Operations
The following table sets forth, for the periods indicated, the
percentages of net sales represented by certain items in the Company's
consolidated statements of income.
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<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------------------
July 3, July 2, July 1,
1993 1994 1995
------- ------- ------
<S> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0%
Cost of Sales 85.3 84.9 86.7
---- ---- ----
Gross Profit 14.7 15.1 13.3
Administrative and General 10.2 10.8 10.9
Provision for Estimated Loss on Disposal
of Assets Held for Sale .0 .0 4.8
---- ---- ----
Operating Income 4.5 4.3 (2.4)
Other Income (Expenses):
(Interest expense) and other income, net (.1) .4 .1
---- ---- ----
Income (Loss) Before Taxes on Income (Benefit) 4.4 4.7 (2.3)
Taxes on Income (Benefit) 1.5 1.4 (.9)
---- ---- ----
Net Income (Loss) 2.9% 3.3% (1.4)%
==== ==== ====
</TABLE>
FISCAL 1995 COMPARED TO FISCAL 1994
Net Sales
Net sales increased $9,370,076 or 15.9 percent over the prior year.
During the 1995 fiscal year, the Company opened fourteen new stores and sold or
closed eight of its units which no longer met corporate cash flow goals. The
increase in sales in 1995 over 1994 came from the fourteen new stores,
including new markets in Los Angeles, California and Minneapolis, Minnesota,
which had much higher sales than the eight stores closed during the year. The
Company's sales by concept for each of the last two fiscal years and the
percent of total sales are shown in the schedule below:
<TABLE>
<CAPTION>
Total Sales Total Sales
Concept Fiscal 1994 % of Total Fiscal 1995 % of Total
-------------- -------------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
Wall Street Deli $43,202,935 73.4% $54,117,297 79.3%
R. C. Cooper's 12,227,441 20.7 10,392,019 15.2
Catering 2,572,184 4.4 3,718,803 5.5
Other 855,483 1.5 -- --
----------- ------ ----------- ------
Total $58,858,043 100.0% $68,228,119 100.0%
=========== ====== =========== ======
</TABLE>
The sales information shown above for Wall Street Deli units and
R.C. Cooper's units both include catering sales made from the stores. The
catering sales shown as a line item above consists only of off premises sales
from the Memphis division, which has a substantial off premises catering
business, and the Washington, D.C. division.
The Company expects that the Wall Street Deli portion of its sales
will continue to grow in relation to the other components, both in absolute
terms and as a percentage of the Company's total sales. Present plans are to
open only Wall Street Delis in the immediate future and to continue converting
certain R.C.
10
<PAGE> 13
Cooper's units into Wall Street Delis, and to sell or close others. The
Company also tracks sales data for the Wall Street Deli concept by two groups,
flagship and other. The Company's annual average sales per unit by concept and
group for all units, and the same store sales comparisons for units open the
entire twelve months of the respective periods, for each of the last two fiscal
years are set forth below.
<TABLE>
<CAPTION>
Average Annual Same Store Sales
Sales per Unit over prior year
------------------------ -----------------------------
1994 1995 1994 1995
---------- --------- ------ -------
<S> <C> <C> <C> <C>
Wall Street Deli Flagships $740,794 $680,601 6.6% (4.7)%
Wall Street Deli Other 365,184 370,553 6.6 .6
R.C. Cooper's Deli 263,752 273,795 (.6) .3
All Stores $481,224 $528,160 4.3% (3.2)%
</TABLE>
During fiscal 1995, the Company implemented only insignificant price
changes, and therefore considers price changes in products sold to have had an
immaterial effect on sales in the current year. The Company's pricing of its
food items varies slightly from store to store and city to city and among the
different concepts. Pricing in the quick-service food business is highly
competitive, and minor adjustments in pricing from time to time, while not
believed material to sales increases or decreases, are believed to be necessary
to remain competitive.
The Company's business, particularly the sales component, is subject
to both general economic conditions and competition in the market place. Same
store sales in fiscal 1995 declined 3.2 percent as compared to 1994; management
believes both economic uncertainties and aggressive expansion and marketing by
competitors had a negative impact on same store sales. Local and national
economic uncertainties, as well as actual downturns, have in the past adversely
affected sales and profitability, and should be expected to have similar
effects in the future. Increased competition in both established markets and
new markets is also believed to be reflective of an overall trend in the
industry, and the Company expects that trend will continue for the foreseeable
future.
The only seasonal effect the Company historically has experienced is
that sales are usually lower in the second fiscal quarter of each year due to
the number of holidays in the months of October, November and December. This
affects sales because most of the Company's restaurants are located in or near
office buildings.
Costs of Sales
The cost of sales as a percentage of net sales increased in fiscal
1995 to 86.7 percent from 84.9 percent last year. The major components of cost
of sales for the last two years is set out below:
<TABLE>
<CAPTION>
Percentage
of Dollar
Fiscal 1994 % of Sales Fiscal 1995 % of Sales Change
------------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Food/Paper $19,917,598 33.8% $22,947,346 33.7% 15.2%
Labor 12,192,468 20.7 14,279,940 20.9 17.1
Store Expenses 16,056,012 27.3 20,045,438 29.4 24.8
Commissary Expenses 1,827,911 3.1 1,876,244 2.7 2.6
----------- -------- ----------- -------
Total Cost of Sales $49,993,989 84.9% $59,148,968 86.7% 18.3
=========== ======== =========== =======
</TABLE>
11
<PAGE> 14
The 2.1 percent increase in store expenses is the primary cause of
the 1995 increase in cost of sales. The increase in store expenses resulted
from a decline in same store sales and lower than expected sales from certain
new stores opened in 1995, both of which cause fixed store expenses to be
higher as a percentage of sales. The increase in store expenses was partially
offset by a decrease of .4 percent in commissary expenses.
Administrative and General Expenses
Administrative and general expenses increased $1,149,595, or 18.2
percent, to $7,461,855 for 1995 from $6,312,260 in 1994. Included in the 1995
expenses is a fourth quarter addition of $500,000 to the Company's workers
compensation insurance reserves as a result of some unfavorable claims ratios
that became apparent in the fourth quarter. The Company's workers compensation
coverage is provided under a retroactive plan in which premiums consist of a
base premium plus actual claim costs for the prior year and subject to certain
adjustments. This increase in reserves accounts for nearly half the increase
over 1994 administrative and general expenses. Increased staff at the
corporate level and increased computer equipment and programming charges also
contributed to the increase for 1995 over 1994. The Company has made
substantial commitments to new management information systems and believes
these systems will help slow the growth in administrative and general expenses
in the future.
Provision for Estimated Loss on Disposal of Assets Held for Sale
The Company recorded a pre-tax charge of $3.2 million in the fourth
quarter of 1995 in connection with the adoption and implementation of a plan
for disposal of certain assets. This plan includes closing 11 non-performing
stores located in Birmingham, Memphis, Dallas, Washington, D.C., St. Louis,
Indianapolis, and Minneapolis. Management believes these store closings will
eliminate both a fiscal and management strain on the Company. The 11 stores
designated for closing incurred $0.4 million in pre-tax operating losses during
fiscal 1995. The plan also includes closing all of the Company's remaining
commissary locations in Birmingham, Memphis, Houston, Dallas, Denver,
Washington, D.C., and Chicago. By closing these commissaries and converting to
direct vendor delivery of food and supplies to the stores, the Company expects
that it will be able to standardize its direct store distribution system and
reduce costs. The Company will either sell to third parties or close the
designated stores and the commissary locations at various times throughout
fiscal 1996.
The charge included approximately $2.4 million to close the 11
non-performing stores and $0.8 million to provide for closing all of the
Company's remaining commissaries. Of the total $3.2 million charge recognized
as an operating expense, $2.1 million is related to the write-down of equipment
and fixtures and leasehold improvements, $1.0 million is a provision for
anticipated lease cancellation payments and $0.1 million consists of severance
payments to notified employees related to the pending commissary closings.
Interest Expense (Income), Net
In fiscal 1995, the Company had net interest expense of $121,442
compared to interest income of $92,819 in 1994. Interest expense is related
solely to the Company's $7,500,000 unsecured line of credit which bears
interest at the lower of the 30 day LIBOR rate plus 150 basis points or the
bank's prime rate. The Company had $3,150,000 outstanding against this line at
July 1, 1995, up from $1,500,000 at July 2, 1994. The interest expense for
fiscal 1995 of $195,834 was offset by $74,392 interest earned by the Company on
notes receivable from prior sales of fixtures and equipment in various stores.
12
<PAGE> 15
Taxes on Income (Benefit)
As a result of the pre-tax charge taken in the fourth quarter, the
Company experienced a tax benefit for fiscal 1995 of $635,600 compared to a tax
expense last year of $805,000. The effective tax rate on income was 29.1
percent in fiscal 1994, which was below the statutory rate mainly as a
consequence of the availability of jobs tax credits. The Targeted Jobs Tax
Credit law expired in December 1994.
FISCAL 1994 COMPARED TO FISCAL 1993
Net Sales
Net sales increased $11,107,940 or 23.3 percent over the prior year.
During the 1994 fiscal year, the Company opened nineteen new stores and sold or
closed sixteen of its units which no longer met corporate cash flow goals. The
increase in sales in 1994 over 1993 came from the new stores, which had higher
sales than the stores closed during the year, and from an overall 4.3 percent
increase in same store sales. The Company's sales by concept for the last two
fiscal years and the percent of total sales are shown in the schedule below:
<TABLE>
<CAPTION>
Total Sales Total Sales
Concept Fiscal 1993 % Total Fiscal 1994 % Total
-------------- -------------- ------- ------------- -------
<S> <C> <C> <C> <C>
Wall Street Deli $29,193,554 61.2% $43,202,935 73.4%
R. C. Cooper's 15,582,712 32.6 12,227,441 20.7
Catering 1,503,750 3.1 2,572,184 4.4
Other 1,470,087 3.1 855,483 1.5
----------- ----- ----------- ------
Total $47,750,103 100.0% $58,858,043 100.0%
=========== ===== =========== ======
</TABLE>
The Company expects the Wall Street Deli component of its sales to
continue growing, both in absolute terms and as a percentage of the Company's
total sales, as management expects to open only Wall Street Delis in the
immediate future and to continue disposing of the R. C. Cooper's units. The
Company presently separates its sales records for the Wall Street Deli concepts
into two groups, flagship and other. The Company's annual average sales per
unit by concept and the same store sales comparisons for the last two fiscal
years are set out below:
<TABLE>
<CAPTION>
Average Annual Same Store Sales
Sales per Unit over prior year
------------------------ -----------------------------
1993 1994 1993 1994
---------- --------- ------- -------
<S> <C> <C> <C> <C>
Wall Street Deli Flagships $700,256 $740,794 9.0% 6.6%
Wall Street Deli Other 314,345 365,184 (2.4) 6.6
R.C. Cooper's Deli 260,517 263,752 (2.2) (.6)
Other 139,298 --- (9.6) ---
All Stores $362,309 $481,224 2.0% 4.3%
</TABLE>
During the third quarter of fiscal 1994, the Company increased sales
prices overall approximately 1.5 percent to 2.0 percent. The Company does not
consider price changes in the products sold in the restaurants to have had a
material effect on sales in the current year or prior periods. The Company's
pricing of its food items varies slightly from store to store and city to city
and among the different concepts. Pricing
13
<PAGE> 16
in the quick-service food business is highly competitive, and minor adjustments
in pricing from time to time, while not believed material to sales increases or
decreases, are believed to be necessary to remain competitive.
The Company's business, particularly the sales component, is dependent
on general economic conditions. Economic uncertainties as well as actual
downturns, locally and nationally, have in the past adversely affected sales
and/or profitability, and should be expected to have similar effects in the
future. The Company is also subject to some trends associated with
seasonality. Since most of the Company's restaurants are located in or near
office buildings, quarterly sales have historically been affected by the number
of holidays in each period; second quarter sales on a per unit basis are
usually lower because of the larger number of holidays in October, November and
December, while fourth quarter sales have historically been higher because of
the fewer number of holidays in that period.
Costs of Sales
The cost of sales as a percentage of net sales decreased in fiscal
1994 to 84.9 percent from 85.3 percent last year. The major components of cost
of sales for the last two years are as follows:
<TABLE>
<CAPTION>
Percentage
of Dollar
Fiscal 1993 % of Sales Fiscal 1994 % of Sales Change
------------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Food/Paper $16,358,695 34.2% $19,917,598 33.8% 21.6%
Labor 9,915,982 20.8 12,192,468 20.7 22.6
Store Expenses 12,864,500 27.0 16,056,012 27.3 24.8
Commissary Expenses 1,596,870 3.3 1,827,911 3.1 14.5
----------- -------- ----------- -------
Total Cost of Sales $40,736,047 85.3% $49,993,989 84.9% 22.7
=========== ======== =========== =======
</TABLE>
The .4 percent improvement in cost of sales resulted primarily from a
.5 percent improvement in food, paper and labor, offset by a .1 percent
increase in store expenses and commissary expenses. The restaurant business is
very competitive and the Company's cost of sales is affected by sales volumes,
product mix and variation in costs from food and paper suppliers, as well as
labor costs. The Company has systems in place to track its costs, but sudden
changes in sales volumes or other costs can adversely affect its cost of sales
and ultimate profitability.
Administrative and General Expenses
Administrative and general expenses increased $1,436,296 to $6,312,260
for fiscal 1994 compared to $4,875,964 last year. In fiscal 1994, these
expenses were 10.8 percent of sales versus 10.2 percent in fiscal 1993. A
significant portion of the increase in costs came from the addition of a new
construction department to oversee the increased level of new store openings.
Additional staff was added in the accounting and operations departments, as the
Company prepared for a higher level of growth in the subsequent quarters.
Interest Expense (Income), Net
In fiscal 1994, the Company had net interest income of $92,819
compared to net interest expense of $73,522 in 1993. The interest income
resulted from the investment of the net proceeds after paying off the bank debt
from the May 1993 stock offering and from interest earned on notes receivable
on fixtures and equipment the Company had sold. By the fourth quarter of
fiscal 1994, the Company had used the remaining
14
<PAGE> 17
proceeds from the May 1993 offering and had again commenced using its bank line
of credit. The bank loan balance as of July 2, 1994 was $1,500,000. The
Company has a $5,500,000 unsecured bank line of credit, bearing interest at the
bank's prime rate, which was 7.25 percent at July 2, 1994. The maximum amounts
borrowed in the 1994, 1993 and 1992 fiscal years were $1,500,000, $4,000,000
and $3,300,000 respectively.
Taxes on Income
The effective tax rates in fiscal 1994 were 29.1 percent and 33.5
percent in fiscal 1993. These rates are below the statutory rates due to the
availability of significant tax credits. The Targeted Jobs Tax Credit law
expired in December 1994.
Effective July 4, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS 109"). The
adoption of FAS 109 changed the Company's method of accounting for income taxes
from the deferred method previously used under APB Opinion No. 11 to an asset
and liability approach. This approach requires the recognition of deferred tax
assets and liabilities with respect to the expected future tax consequences of
events that have been recognized in the Company's financial statements and
income tax returns. As permitted by FAS 109, the Company has elected not to
restate prior periods' consolidated financial statements. The effect of the
accounting change from the adoption of this statement did not have a material
effect on the results of operations in fiscal year 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's ability to obtain the cash required for the conduct of
its business depends upon cash from operations and, to a lesser extent, bank
borrowings. Historically, cash flow from operations and periodic bank
borrowings generally have been sufficient to finance the expansion of the
Company's business. Such cash flows were supplemented in May 1993, by proceeds
of $7,829,016, net of expenses, from a public offering of stock. The Company
does not maintain significant receivables or inventory and it receives trade
credit in purchasing food and supplies. Since funds are available from cash
sales, but are not required immediately to pay for food and supplies or to
finance receivables or inventory, such funds may be used for non-current
capital expenditures. In the process of reconfiguring the Company's production
units, stores not meeting the Company's performance criteria are closed and the
furniture and equipment sold. The terms of some such sales require the Company
to take back notes, which are contained in the notes receivable, for all or a
portion of the sale price.
The Company's principal capital requirement is for new equipment and
leasehold improvements for new and existing restaurants. Capital expenditures
for these purposes were $6,729,196, $10,278,019 and $6,680,019 for fiscal years
1993, 1994, and 1995, respectively. The Company has historically met its
capital needs from short term bank borrowings and internally generated funds.
The funds received from the 1993 public offering had been used by the fourth
quarter of fiscal 1994, and the Company then resumed borrowing under its bank
line of credit. It is presently anticipated that the Company's net capital
expenditures for fiscal 1996 will be approximately $6,000,000. Cash generated
from operations totaled $4,238,247, $5,026,503, and $4,337,320, for fiscal
years, 1993, 1994, and 1995, respectively. The Company expects its future
capital needs will be met primarily by internally generated funds and
supplemented, as needed, by additional bank borrowings.
15
<PAGE> 18
NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of," which establishes accounting standards for the impairment
of long-lived assets, certain identifiable intangibles, and goodwill related to
those assets to be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed of. The Statement requires that
long-lived assets and certain identifiable intangibles to be held and used by
an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Statement No. 121 is effective for fiscal years beginning after
December 15, 1995. Management of the Company is currently evaluating the
impact of the adoption of this accounting standard on the Company's operating
results and financial condition. Adoption of the new rules is to be
accomplished by including the effect of the accounting change, if material, in
the income statement of the year of initial application. It is expected that
the Company will first apply the Statement in its fiscal 1997 financial
statements.
IMPACT OF INFLATION
Many of the Company's employees are paid hourly rates related to the
federal minimum wage. Accordingly, inflation-related annual increases in the
minimum wage have historically increased the Company's labor costs.
Construction costs have also increased to developers who lease space to the
Company. Developers have in turn increased and may continue to increase rents
for Company restaurants. In addition, most of the leases for Company
restaurants contain rent escalation clauses based upon cost increases incurred
by lessors. In most cases, the Company has been able to increase prices
sufficiently to match increases in its operating costs, but there is no
assurance that it will be able to do so in the future.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements and supplementary data are
contained at pages 16 through 33 of this report:
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Report of Independent Certified Public Accountants 17
Consolidated Financial Statements for Years ended July 1, 1995,
July 2, 1994 and July 3, 1993:
Consolidated Balance Sheets - July 1, 1995 and July 2, 1994 18
Consolidated Statements of Operations 20
Consolidated Statements of Stockholders' Equity 21
Consolidated Statements of Cash Flows 22
Summary of Accounting Policies 24
Notes to Consolidated Financial Statements 26
Selected Quarterly Financial Data (unaudited) (appearing at Note 8 33
of the Notes to Consolidated Financial Statements)
</TABLE>
16
<PAGE> 19
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Wall Street Deli, Inc.
Memphis, Tennessee
We have audited the accompanying consolidated balance sheets of Wall Street
Deli, Inc. and subsidiaries as of July 1, 1995 and July 2, 1994, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended July 1, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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.
In our opinion, the financial statements referred to above, present fairly, in
all material respects, the financial position of Wall Street Deli, Inc. and
subsidiaries at July 1, 1995 and July 2, 1994, and the results of its
operations and its cash flows for each of the three years in the period ended
July 1, 1995, in conformity with generally accepted accounting principles.
BDO Seidman, LLP
/s/ BDO Seidman, LLP
Memphis, Tennessee
August 15, 1995
17
<PAGE> 20
<TABLE>
<CAPTION>
WALL STREET DELI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
July 1, 1995 July 2, 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT
Cash and cash equivalents $ 921,616 $ 1,042,353
Accounts and notes receivable (Note 1) 2,104,109 1,192,046
Inventories 1,060,503 1,673,458
Prepaid expenses 926,594 322,833
Refundable income taxes 120,729 137,205
Deferred tax benefit (Note 5) 1,594,400 102,000
Assets held for sale (Note 2) 384,750 -
- -------------------------------------------------------------------------------------------------------------
Total current assets 7,112,701 4,469,895
- -------------------------------------------------------------------------------------------------------------
EQUIPMENT AND IMPROVEMENTS
Equipment and fixtures 18,399,808 17,543,531
Leasehold improvements 15,463,074 13,818,569
- -------------------------------------------------------------------------------------------------------------
33,862,882 31,362,100
Less accumulated depreciation and
amortization (12,898,679) (10,547,112)
- -------------------------------------------------------------------------------------------------------------
Net equipment and improvements 20,964,203 20,814,988
- -------------------------------------------------------------------------------------------------------------
OTHER
Cash surrender value of insurance ($2,191,010
and $2,866,010 face amount) on officers' lives 595,554 509,029
Long-term portion of notes receivable (Note 1) 431,151 807,695
Deferred tax benefit (Note 5) 60,100 68,200
- -------------------------------------------------------------------------------------------------------------
Total other assets 1,086,805 1,384,924
- -------------------------------------------------------------------------------------------------------------
$ 29,163,709 $ 26,669,807
=============================================================================================================
</TABLE>
18
<PAGE> 21
<TABLE>
<CAPTION>
WALL STREET DELI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
July 1, 1995 July 2, 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable to bank (Note 3) $ 3,150,000 $ 1,500,000
Accounts payable 1,873,429 1,498,110
Accruals
Taxes other than income 722,083 891,974
Compensation (Note 2) 591,334 437,540
Rent (Note 2) 1,265,933 399,908
Workers' compensation 314,861 250,000
Miscellaneous 592,912 206,818
- -------------------------------------------------------------------------------------------------------------
Total current liabilities 8,510,552 5,184,350
- -------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTE 7)
STOCKHOLDERS' EQUITY (NOTE 4)
Common stock, $.05 par - shares authorized 20,000,000;
issued 3,403,354 and 3,391,247 170,168 169,562
Additional paid-in capital 10,733,141 10,720,999
Retained earnings 9,760,396 10,681,407
- -------------------------------------------------------------------------------------------------------------
20,663,705 21,571,968
Treasury stock, at cost, 1,075 and 7,248 shares (10,548) (86,511)
- -------------------------------------------------------------------------------------------------------------
Total stockholders' equity 20,653,157 21,485,457
- -------------------------------------------------------------------------------------------------------------
$ 29,163,709 $ 26,669,807
=============================================================================================================
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
19
<PAGE> 22
<TABLE>
<CAPTION>
WALL STREET DELI, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended
July 1, 1995 July 2, 1994 July 3, 1993
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $ 68,228,119 $ 58,858,043 $ 47,750,103
- -------------------------------------------------------------------------------------------------------------
COST OF SALES
Food and paper costs 22,947,346 19,917,598 16,358,695
Direct labor 14,279,940 12,192,468 9,915,982
Other operating expenses 21,921,682 17,883,923 14,461,370
- -------------------------------------------------------------------------------------------------------------
TOTAL COST OF SALES 59,148,968 49,993,989 40,736,047
- -------------------------------------------------------------------------------------------------------------
GROSS PROFIT 9,079,151 8,864,054 7,014,056
Administrative and general 7,461,855 6,312,260 4,875,964
Provision for estimated loss on
disposal of assets held for sale (Note 2) 3,234,187 - -
- -------------------------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS) (1,616,891) 2,551,794 2,138,092
- -------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSES)
Interest income 74,392 116,564 94,535
Interest expense (195,834) (23,745) (168,057)
Gain (loss) on disposal of leasehold
improvements and equipment 113,710 34,374 (20,418)
Other income - net 68,012 82,820 74,320
- -------------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME (EXPENSES) 60,280 210,013 (19,620)
- -------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE TAXES ON
INCOME (BENEFIT) (1,556,611) 2,761,807 2,118,472
TAXES ON INCOME (BENEFIT) (Note 5) (635,600) 805,000 710,000
- -------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (921,011) $ 1,956,807 $ 1,408,472
=============================================================================================================
EARNINGS (LOSS) PER SHARE OF
COMMON STOCK (Note 4) $ (.27) $ .58 $ .53
=============================================================================================================
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES
OUTSTANDING (Note 4) 3,422,701 3,381,892 2,668,975
=============================================================================================================
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
20
<PAGE> 23
WALL STREET DELI, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common stock Treasury stock
----------------------- Additional --------------
Number paid-in Retained Number
of shares Amount capital earnings of shares Amount
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 27, 1992 2,918,110 $ 145,906 $ 4,028,585 $ 7,317,229 438,296 $ 1,299,461
Net income for the year - - - 1,408,472 - -
Proceeds from issuance of common stock 399,476 19,974 6,576,291 - (405,524) (1,232,751)
Exercise of stock options 11,025 551 85,826 - (32,772) (66,710)
Cost of fractional shares purchased as the
result of the three-for-two stock split
(Note 4) - - - (1,101) - -
Purchase of treasury stock - - - - 10,000 120,000
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, JULY 3, 1993 3,328,611 166,431 10,690,702 8,724,600 10,000 120,000
Net income for the year - - - 1,956,807 - -
Exercise of stock options 62,636 3,131 30,297 - (2,752) (33,489)
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, JULY 2, 1994 3,391,247 169,562 10,720,999 0,681,407 7,248 86,511
Net loss for the year - - - (921,011) - -
Exercise of stock options 12,107 606 12,142 - (16,173) (174,088)
Purchase of treasury stock - - - - 10,000 98,125
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, JULY 1, 1995 3,403,354 $ 170,168 $ 10,733,141 $ 9,760,396 1,075 $ 10,548
=================================================================================================================================
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
21
<PAGE> 24
WALL STREET DELI, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended
-----------------------------------------------------------
July 1, 1995 July 2, 1994 July 3, 1993
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (921,011) $ 1,956,807 $ 1,408,472
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities:
Depreciation 3,888,278 3,115,378 2,476,931
Provision for estimated loss on dis-
posal of assets held for sale 3,234,187 - -
Loss (gain) on sale of property and
equipment (113,710) (34,374) 20,418
Deferred income taxes (1,484,300) - (76,000)
Provision for loss on notes receivable 58,328 132,587 109,923
Decrease (increase) in operating assets:
Accounts receivable (878,373) (254,450) 241,547
Inventories 612,955 (282,314) (77,321)
Prepaid expenses (603,761) (165,292) (108,426)
Refundable income taxes 16,476 (137,205) -
Increase (decrease) in operating liabilities:
Accounts payable 375,319 119,812 415,599
Accruals 152,932 575,554 (172,896)
- -------------------------------------------------------------------------------------------------------------
Cash provided by operating activities 4,337,320 5,026,503 4,238,247
- -------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Payments for purchase of property and
equipment (6,680,019) (10,278,019) (6,729,196)
Proceeds from sale of property and
equipment 234,250 160,290 227,293
Payments received on notes receivable 335,526 330,835 275,912
Increase in cash surrender value of
insurance on officers' lives (86,525) (83,374) (37,526)
- -------------------------------------------------------------------------------------------------------------
Cash used by investing activities (6,196,768) (9,870,268) (6,263,517)
=============================================================================================================
</TABLE>
22
<PAGE> 25
WALL STREET DELI, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended
-----------------------------------------------------------
July 1, 1995 July 2, 1994 July 3, 1993
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Net borrowings (payments) under line
of credit $ 1,650,000 $ 1,500,000 $ (2,000,000)
Proceeds from exercise of stock options 186,836 66,917 153,087
Purchase of treasury stock (98,125) - (120,000)
Net proceeds from stock offering - - 7,829,016
Purchase of fractional shares as a
result of the three-for-two stock split - - (1,101)
- -------------------------------------------------------------------------------------------------------------
Cash provided by financing activities 1,738,711 1,566,917 5,861,002
- -------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH FOR
THE PERIOD (Note 6) (120,737) (3,276,848) 3,835,732
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 1,042,353 4,319,201 483,469
- -------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END
OF PERIOD $ 921,616 $ 1,042,353 $ 4,319,201
=============================================================================================================
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
23
<PAGE> 26
<TABLE>
<CAPTION>
WALL STREET DELI, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
=================================================================================================================================
<S> <C>
INDUSTRY SEGMENT The Company operates in the quick service restaurant business.
INFORMATION
PRINCIPLES OF The consolidated financial statements include the accounts of the Company and its
CONSOLIDATION wholly-owned subsidiaries. All material intercompany accounts and transactions
are eliminated.
INVENTORIES Inventories of food and restaurant supplies are valued at the lower of cost
(first-in, first-out) or market. Maintenance and office supplies are not
inventoried.
EQUIPMENT, Equipment and improvements are stated at cost. Depreciation of equipment is
IMPROVEMENTS, computed using the straight-line method for financial reporting purposes over a
DEPRECIATION AND seven year estimated useful life. For income tax purposes, equipment depre-
AMORTIZATION ciation is computed using accelerated methods.
Leasehold improvements are amortized using the straight-line method for financial
reporting purposes over the lesser of the useful life of the improvements or the
term of the applicable lease. For income tax purposes, leasehold improvements
acquired prior to January 1, 1987 are amortized using the straight-line method
over the term of the respective lease and improvements acquired after December
31, 1986 are amortized in accordance with the modified accelerated cost recovery
system.
TAXES ON INCOME Effective July 4, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes" ("FAS 109").
Under FAS 109, the Company provides for estimated income taxes payable or
refundable on current year income tax returns as well as the estimated future tax
effects attributable to temporary differences and carryforwards. Measurement of
deferred income taxes is based upon enacted tax laws and tax rates, with the
measurement of deferred income tax assets reduced by estimated amounts of tax
benefits not likely to be realized. In accordance with FAS 109, the Company has
elected not to restate prior periods' consolidated financial statements.
</TABLE>
24
<PAGE> 27
<TABLE>
WALL STREET DELI, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
===============================================================================================================================
<S> <C>
STOCK OPTIONS Stock options are granted, under the Company's Incentive Stock Option Plan, to
AND STOCK certain officers and key employees at the prevailing market price on the date of
APPRECIATION the grant. Proceeds from the sale of common stock issued under these options are
RIGHTS credited to common stock or treasury stock and additional paid-in capital at the
time the options are exercised. The Company makes no charge to earnings with
respect to these options.
The Company maintains an Employee Stock Purchase Plan, which allows eligible
employees to receive grants of stock purchase rights at generally 85% of the
prevailing market rate on the offering date.
EARNINGS PER Earnings per share are based on the weighted average number of common shares
SHARE outstanding during each year. Common stock equivalents in the form of stock
options and stock purchase rights are also considered in the computation.
FISCAL YEAR The Company operates on a 52-53 week fiscal year ending on the Saturday closest
to June 30 of each year. Fiscal year 1993 was a 53-week year. The other fiscal
year periods presented were 52 weeks.
</TABLE>
25
<PAGE> 28
<TABLE>
<CAPTION>
WALL STREET DELI, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================================================================
1. ACCOUNTS AND Accounts and notes receivable consist of the following:
NOTES
RECEIVABLE July 1, July 2,
1995 1994
---------------------------------------------------------------------------------
<S> <C> <C>
Notes receivable $ 807,697 $ 1,005,750
Accounts receivable 1,552,644 1,068,377
Due from landlord 414,883 -
Allowance for doubtful accounts (244,801) (100,000)
Miscellaneous 4,837 25,614
---------------------------------------------------------------------------------
2,535,260 1,999,741
Less long-term portion of notes
receivable (431,151) (807,695)
---------------------------------------------------------------------------------
$ 2,104,109 $ 1,192,046
=================================================================================
</TABLE>
<TABLE>
<S> <C>
The Company's notes receivable generally arise from sales of equipment in
connection with store closings, bear interest at rates ranging from 6 percent to
12 percent, are repayable monthly and are due at various dates through July 2001.
The notes are collateralized by store equipment.
2. ASSETS HELD During the fourth quarter, the Company adopted a plan designed to dispose of its
FOR SALE remaining commissary locations and eleven non-performing stores. In connection
therewith a charge of $3,234,187 to implement the plan was recognized as an
operating expense and included severance payments related to the commissary
closings ($75,630), provision for lease cancellation payments ($1,072,320), and
the write-down of equipment and fixtures and leasehold improvements to the
expected net realizable value of $384,750 ($2,086,237).
3. NOTES PAYABLE In March 1995 the Company increased its $5,000,000 unsecured line-of-credit
TO BANK agreement with a bank to $7,500,000. Borrowings under the line are payable on
demand and bear interest at the lower of (i) either the 30 day LIBOR rate plus
150 basis points (7-1/2%) or (ii) the bank's prime rate (9%). Borrowings
outstanding at July 1, 1995 and July 2, 1994 were $3,150,000 and $1,500,000,
respectively.
</TABLE>
26
<PAGE> 29
<TABLE>
WALL STREET DELI, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
============================================================================================================================
<S> <C>
The maximum amount of short-term borrowings outstanding during the years ended
July 1, 1995, July 2, 1994 and July 3, 1993 were $3,150,000, $1,500,000 and
$4,000,000, respectively. Such borrowings averaged approximately $2,274,000 in
1995, $84,000 in 1994 and $2,269,000 in 1993, with a weighted average interest
rate of 7.9%, 8.1% and 6.3%, respectively, for such periods. The interest rate
was calculated by dividing the related interest expense by the average short-term
borrowings outstanding during the respective periods.
4. STOCKHOLDERS' The Company has an incentive stock option plan in effect under which options may be
EQUITY granted to officers, directors and employees to purchase shares of the Company's
common stock at fair market value at the grant dates. Options are exercisable upon
issuance and expire up to five years from the date granted. Changes in options
outstanding are summarized as follows:
</TABLE>
<TABLE>
<CAPTION>
Option
Price
Shares Per Share
-----------------------------------------------------------------------------------
<S> <C> <C>
BALANCE, JUNE 27, 1992 159,975 $ 3.00-6.22
Granted 71,250 6.33-10.50
Exercised (32,089) 3.00-6.33
Cancelled or expired (2,561) 4.67-6.33
-----------------------------------------------------------------------------------
BALANCE, JULY 3, 1993 196,575 3.00-10.50
Granted 46,900 10.00-12.75
Exercised (84,575) 3.00-11.50
Cancelled or expired (225) 6.22
-----------------------------------------------------------------------------------
BALANCE, JULY 2, 1994 158,675 3.00-12.75
Granted 42,000 11.88-13.06
Exercised (14,275) 6.00-11.88
Cancelled or expired (7,550) 3.00-12.75
-----------------------------------------------------------------------------------
BALANCE, JULY 1, 1995 178,850 $ 6.00-13.06
===================================================================================
</TABLE>
27
<PAGE> 30
<TABLE>
WALL STREET DELI, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
========================================================================================================================
<S> <C>
At July 1, 1995, 373,150 shares, which reflects an additional 150,000
shares which were approved as reserved at the annual shareholders meeting
on November 3, 1994, were reserved for granting options under the plan, of
which 194,300 shares remain available for issuance.
The Company has an Employee Stock Purchase Plan which covers full-time
employees meeting the employment requirements, as defined. A maximum of
142,500 shares may be issued under the plan and the employees' purchase
price is the greater of 85 percent of the fair market value of the stock
on the date of grant or 85 percent of the Company's cost to acquire stock
for issuance under the plan. Rights to acquire shares expire within 12
months from date of grant if not exercised. Rights to acquire 12,985,
7,248 and 10,000 shares remained outstanding as of July 1, 1995, July 2,
1994 and July 3, 1993, respectively. A total of 69,628 shares were
reserved under this plan as of July 1, 1995.
The Company's Board of Directors declared a three-for-two stock split,
effected in the form of a 50 percent stock dividend to shareholders of
record on February 12, 1993. Share, per share amounts, and stock option
and rights information have been restated to reflect the stock split. Par
value of the common stock remained $.05 per share after the split. As a
result of the splits, $48,633, representing the aggregate par value of the
additional shares, was transferred from retained earnings.
In May 1993, the Company sold 399,476 shares of new common stock and
405,524 shares of treasury stock in a public stock offering. Total
proceeds, net of expenses, aggregated $7,829,016.
5. TAXES ON Effective July 4, 1993, the Company adopted Statement of Financial Accounting
INCOME Standards No. 109, "Accounting for Income Taxes" ("FAS 109"). As permitted by
(BENEFIT) FAS 109, the Company has elected not to restate prior periods' consolidated
financial statements. The effect of the accounting change from the adoption of
this statement did not have a material effect on the results of operations in
fiscal year 1994.
</TABLE>
28
<PAGE> 31
<TABLE>
<CAPTION>
WALL STREET DELI, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
==========================================================================================================================
The components of taxes on income are as follows:
Year ended
-----------------------------------------------------------------
July 1, July 2, July 3,
1995 1994 1993
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 670,700 $ 625,000 $ 641,000
State 178,000 180,000 145,000
-----------------------------------------------------------------------------------------------
Total current 848,700 805,000 786,000
-----------------------------------------------------------------------------------------------
Deferred:
Federal (1,248,000) - (76,000)
State (236,300) - -
-----------------------------------------------------------------------------------------------
Total deferred (1,484,300) - (76,000)
-----------------------------------------------------------------------------------------------
Taxes on income (benefit) $ (635,600) $ 805,000 $ 710,000
===============================================================================================
</TABLE>
Significant components of the Company's deferred tax assets are comprised of
the following at:
<TABLE>
<CAPTION>
July 1, July 2,
1995 1994
----------------------------------------------------------------------------------
<S> <C> <C>
Provision for loss on disposal of
assets held for sale $ 1,184,900 $ -
Accrual for contingent losses 267,500 -
Bad debt allowance 93,000 41,500
Depreciation 60,100 68,200
Inventory overhead (UCR adjustment) 41,800 53,500
Accrued vacation 7,200 7,000
----------------------------------------------------------------------------------
Total deferred tax assets $ 1,654,500 $ 170,200
==================================================================================
</TABLE>
29
<PAGE> 32
<TABLE>
WALL STREET DELI, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
==============================================================================================================
The deferred tax asset should be realized
through future operating results. Under the
provisions of the income tax accounting method
previously used by the Company, APB Opinion No.
11, deferred taxes result from timing
differences in the recognition of revenue and
expenses for tax and financial statement
purposes. The sources of these differences and
the tax effect of each at July 3, 1993 are as
follows:
<S> <C>
--------------------------------------------------------------------------------
Timing differences
Depreciation $ (62,000)
Gain on sale of assets 7,000
Other (21,000)
--------------------------------------------------------------------------------
Deferred tax benefit $ (76,000)
================================================================================
</TABLE>
The effective tax rate on income before taxes on
income was different from the maximum federal
statutory tax rate. The following summary
reconciles taxes at the maximum federal
statutory tax rate with actual taxes and the
effective rate:
<TABLE>
<CAPTION>
Year ended
---------------------------------------------------------
July 1, 1995 July 2, 1994 July 3, 1993
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ % $ % $ %
Income taxes (benefit) at
maximum statutory
rate (529,000) (34.0) 939,000 34.0 720,000 34.0
Increase (decrease) in
taxes resulting from:
State income taxes,
net of federal
tax benefit (39,000) (2.5) 119,000 4.3 96,000 4.5
Jobs tax credit and
other (67,600) (4.3) (253,000) (9.2) (106,000) (5.0)
--------------------------------------------------------------------------------
Taxes on income (benefit)
at effective rate (635,600) (40.8) 805,000 29.1 710,000 33.5
================================================================================
</TABLE>
30
<PAGE> 33
<TABLE>
WALL STREET DELI, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================================================================
<S> <C>
6. SUPPLEMENTAL For purposes of the statements of cash flows, the Company classifies cash on hand
CASH FLOW and in savings and checking accounts and short-term investments with a maturity
INFORMATION of three months or less as cash equivalents.
</TABLE>
<TABLE>
<CAPTION>
Supplemental cash flow information:
Year ended
--------------------------------------
July 1, July 2, July 3,
1995 1994 1993
---------------------------------------------------------------------
<S> <C> <C> <C>
Cash paid for:
Interest $192,671 $ 13,745 $170,057
Income taxes 787,367 1,065,146 820,880
Non-cash financing and
investing activities:
Notes received from sale of
property and equipment 165,000 251,500 716,255
Exercise of stock options
using company stock - 3,131 551
====================================================================
</TABLE>
<TABLE>
<S> <C>
7. COMMITMENTS A. Leases
AND
CONTINGENCIES The Company and its subsidiaries lease, under noncancellable operating leases,
various restaurant and commissary facilities and computer equipment. At July 1,
1995, future minimum lease payments required under leases that have initial
noncancellable terms in excess of one year are as follows:
</TABLE>
<TABLE>
<CAPTION>
Fiscal year Minimum
ending lease payments
------------------------------------------------------------------------------
<S> <C>
1996 $ 6,569,356
1997 6,022,359
1998 5,528,465
1999 5,399,113
2000 5,197,078
After 2000 17,432,204
------------------------------------------------------------------------------
Total $ 46,148,575
==============================================================================
</TABLE>
31
<PAGE> 34
<TABLE>
<CAPTION>
WALL STREET DELI, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===========================================================================================
Rent expense for each of the three years in the period ended July 1, 1995 is as
follows:
Year ended
--------------------------------------------
July 1, July 2, July 3,
1995 1994 1993
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic rentals:
Noncancellable leases (net of
subleases) $ 6,756,539 $ 5,588,381 $ 4,649,096
Cancellable equipment leases 206,953 221,739 194,064
- -------------------------------------------------------------------------------------------
6,963,492 5,810,120 4,843,160
Contingent rentals based on sales
under noncancellable leases 593,964 459,367 378,948
- -------------------------------------------------------------------------------------------
Total rent expense $ 7,557,456 $ 6,269,487 $ 5,222,108
===========================================================================================
</TABLE>
The Company leases certain properties from three partnerships in which certain
officers of the Company are partners. Rents paid to these partnerships for the
fiscal years ended 1995, 1994 and 1993 were approximately $138,100, $109,500
and $106,200, respectively.
B. Letters of Credit
The Company has outstanding letters of credit totalling $926,000 which are
primarily being used as collateral for the Company's workman's compensation
insurance plan.
C. Litigation
The Company is involved in various legal matters in the ordinary course of its
business. None of these matters are expected to have a material adverse effect
on the Company's consolidated financial statements.
32
<PAGE> 35
<TABLE>
<CAPTION>
WALL STREET DELI, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
==============================================================================================================================
8. SELECTED
QUARTERLY Thousands of dollars,
FINANCIAL DATA except per share data
(UNAUDITED) --------------------------------------------------
1st 2nd 3rd 4th
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended July 1, 1995:
Net sales $ 16,834 $ 16,763 $ 17,153 $ 17,478
Gross profit 2,429 2,276 2,549 1,825
Income (loss) before
taxes on income (benefit) 702 557 712 (3,528)*
Net income (loss) 472 367 427 (2,187)
Earnings (loss) per
common and common
equivalent share .14 .11 .12 (.64)
Year ended July 2, 1994:
Net sales $ 13,293 $ 13,715 $ 15,419 $ 16,431
Gross profit 1,968 1,800 2,513 2,583
Income before taxes on
income 640 501 707 914
Net income 415 336 472 734
Earnings per common and
common equivalent
share .12 .10 .14 .22
================================================================================
* See Note 2 for discussion of provision for loss on disposal of assets held for
sale. In addition, the Company recorded a $500,000 increase to its workers'
compensation insurance reserves as a result of some unfavorable claims ratios that
became apparent in the fourth quarter.
</TABLE>
33
<PAGE> 36
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
During the fiscal years 1994 and 1995 and through the date of this
report, there has been no change in the Company's independent accountants, nor
have any disagreements with such accountants or reportable events occurred.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS
Information required by this item is incorporated by reference from
the sections entitled "Election of Directors" and "Compliance with Section
16(a) of the Securities Exchange Act of 1934" in the Proxy Statement for the
Annual Meeting of Shareholders to be held November 2, 1995, as filed with the
Securities and Exchange Commission.
ITEM 11: EXECUTIVE COMPENSATION
Information required by this item is incorporated by reference from
the section entitled "Executive Compensation" in the Proxy Statement for the
Annual Meeting of Shareholders to be held November 2, 1995, as filed with the
Securities and Exchange Commission.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information required by this item is incorporated by reference from
the sections entitled "Security Ownership of Management and Certain Beneficial
Owners" and "Election of Directors" in the Proxy Statement for the Annual
Meeting of Shareholders to be held November 2, 1995, as filed with the
Securities and Exchange Commission.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is incorporated by reference from
the section entitled "Executive Compensation" in the Proxy Statement for the
Annual Meeting of Shareholders to be held November 2, 1995, as filed with the
Securities and Exchange Commission.
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
FINANCIAL STATEMENTS
The following financial statements are included in Part II of this
report (index at page 16):
34
<PAGE> 37
Report of Independent Certified Public Accountants
Consolidated Financial Statements for Years ended July 1, 1995, July
2, 1994 and July 3, 1993:
Consolidated Balance Sheets - July 1, 1995 and July 2, 1994
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Summary of Accounting Policies
Notes to Consolidated Financial Statements
Selected Quarterly Financial Data (unaudited)
FINANCIAL STATEMENT SCHEDULES
The following financial statement schedule for the years ended July 1,
1995, July 2, 1994 and July 3, 1993 is filed as a part of this report:
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants on Financial Statement Schedule page 38
Schedule II Valuation and Qualifying Accounts page 39
</TABLE>
All other schedules have been omitted since the required
information is not applicable or the information required is included in the
financial statements or the notes thereto.
EXHIBITS
The exhibits set forth in the following Index of Exhibits are filed as
a part of this report:
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- ------- ----------- ----
<S> <C> <C>
3.1 Certificate of Incorporation (1)
3.1(a) Amendment to Certificate of Incorporation
effective November 10, 1992 (2)
3.2 Bylaws (1)
4.3 Master Note, dated March 3, 1995, payable to 42
AmSouth Bank of Alabama by the Company
10.1 Commercial Lease dated April 16, 1979, between
the Company and WESCO Associates, as amended effective
July 1, 1989 (3)
10.1(a) Extension to Commercial Lease between the Company and
WESCO Associates, effective June 30, 1994 (4)
10.2 Lease dated February 20, 1981, between the
Company and CBK Associates, as amended by
Amendment Numbers 1, 2 and 3 (3)
</TABLE>
35
<PAGE> 38
<TABLE>
<S> <C> <C>
10.3 Commercial Lease dated May 31, 1994, between
the Company and Rex Associates 47
10.6 1977 Stock Option Plan (as amended to be
incentive stock option plan) (5)
10.7 Extract of Minutes of the Board of Directors (5)
10.8 1983 Incentive Stock Option Plan (6)
10.9 1989 Incentive Stock Option Plan, as amended (7)
11 Computation of Per Share Earnings 51
21 Subsidiaries of the Registrant 52
27 Financial Data Schedule (for SEC use only)
</TABLE>
(1) The indicated items have been previously filed as part of, and are
incorporated herein by reference to, the Company's Proxy Statement
relating to the Special Shareholders Meeting held on September 25,
1986.
(2) The indicated item has been previously filed as, and is incorporated
herein by reference to, the Company's Annual Report on Form 10-K for
the year ended July 3, 1993. The exhibit number listed above
corresponds to the exhibit number in that Form 10-K.
(3) The indicated items have been previously filed as, and are
incorporated herein by reference to, exhibits to the Company's
Registration Statement on Form S-2 under the Securities Act of 1933
(Registration No. 33-61700, as filed on April 27, 1993.) The exhibit
numbers listed above correspond to the exhibit numbers in the Form
S-2.
(4) The indicated item has been previously filed as, and is incorporated
herein by reference to, the Company's Annual Report on Form 10-K for
the year ended July 2, 1994.
(5) The indicated items have been previously filed as, and are
incorporated herein by reference to, exhibits to the Company's
Registration Statement on Form S-l under the Securities Act of 1933
(Registration No. 2-78902, as filed on September 28, 1982.) The
exhibit numbers listed above correspond to the exhibit numbers in the
Form S- 1.
(6) The indicated item has been previously filed as, and is incorporated
herein by reference to, an exhibit to the Company's Annual Report on
Form 10-K for the year ended June 30, 1984. The exhibit number listed
above corresponds to the exhibit number in that Form 10-K.
(7) The indicated item has been previously filed as a part of, and is
incorporated herein by reference to, the Company's Proxy Statement
relating to the Annual Meeting of Shareholders held on November 4,
1992.
REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the quarter
ended July 1, 1995.
36
<PAGE> 39
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
WALL STREET DELI, INC.
/s/ Robert G. Barrow
--------------------
By: ROBERT G. BARROW
President
September 28, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ Robert G. Barrow President, Principal Executive September 28, 1995
- -------------------------------- Officer, Principal Financial Officer
ROBERT G. BARROW and Director
/s/ Arnold McGruder Treasurer and Principal September 28, 1995
- -------------------------------- Accounting Officer
ARNOLD MCGRUDER
/s/ Alan V. Kaufman Chairman of the Board September 28, 1995
- --------------------------------
ALAN V. KAUFMAN
/s/ William S. Atherton Director September 28, 1995
- ---------------------------------
WILLIAM S. ATHERTON
/s/ Joe Lee Griffin Director September 28, 1995
- -----------------------------------
JOE LEE GRIFFIN
/s/ Louis C. Henderson, Jr. Director September 28, 1995
- --------------------------------
LOUIS C. HENDERSON, JR.
/s/ Jake L. Netterville Director September 28, 1995
- ----------------------------------
JAKE L. NETTERVILLE
</TABLE>
37
<PAGE> 40
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
Wall Street Deli, Inc.
Memphis, Tennessee
The audits referred to in our report dated August 15, 1995, relating to the
consolidated financial statements of Wall Street Deli, Inc. and Subsidiaries,
which are contained in Item 8 of this form 10-K, included the audits of the
financial statement schedule listed in the accompanying index. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement schedule
based upon our audits.
In our opinion, such financial statement schedule presents fairly, in all
material respects, the information set forth therein.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Memphis, Tennessee
August 15, 1995
38
<PAGE> 41
SCHEDULE II
WALL STREET DELI, INC.
AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
-------------
Balance Charged
at begin- to costs Charged (1) Balance
ning of and to other Deduc- at end
Description period expenses accounts tions of period
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for possible losses on
notes receivable:
Year ended July 1, 1995 $ 100,000 $188,960 $ - $44,159 $ 244,801
Year ended July 2, 1994 $ 102,000 $ 50,588 $ - $52,588 $ 100,000
Year ended July 3, 1993 $ 57,000 $ 45,000 $ - $ - $ 102,000
</TABLE>
- ----------
(1) Amounts charged off during the year
39
<PAGE> 42
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
_________________________
EXHIBITS
AND
FINANCIAL STATEMENT SCHEDULES
TO
FORM 10-K
WALL STREET DELI, INC.
For the fiscal year ended July 1, 1995 Commission File No. 0-11271
40
<PAGE> 43
TABLE OF CONTENTS
FOR EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- ------- ----------- ----
<S> <C> <C>
4.3 Master Note, dated March 3, 1995, payable to 41
AmSouth Bank of Alabama by the Company
10.3 Commercial Lease dated May 31, 1994, between
the Company and Rex Associates 46
11 Computation of Per Share Earnings 50
21 Subsidiaries of the Registrant 51
27 Financial Data Schedule (for SEC use only)
</TABLE>
41
<PAGE> 1
EXHIBIT 4.3
$7,500,000.00 Birmingham, Alabama
March 3, 1995
MASTER NOTE FOR BUSINESS
AND COMMERCIAL LOANS
FOR VALUE RECEIVED, the undersigned (hereinafter called, whether one
or more, the "Borrower"), jointly and severally (if more than one) promises to
pay to the order of AmSouth Bank N.A., its successors and assigns (hereinafter
sometimes called the "Bank" and sometimes, together with any other holder of
this note, called "Holder"), at any office of Holder or at such other place as
Holder may from time to time designate, the sum of Seven Million, Five Hundred
Thousand and 00/100 Dollars ($7,500,000.00), or so much thereof as the Bank has
advanced to the Borrower hereunder (the "Loan"), plus interest from the date
hereof until maturity (whether by acceleration or otherwise) on the outstanding
unpaid principal balance of the Loan, at the rate of [check (1), (2) or (3)]:
[ ] (1) ________________________% per annum.
[ ] (2) ________________________% per annum in excess of the
prime rate of the Bank in effect from time to time as
designated by the Bank (the "Prime Rate"), with changes in the
interest rate on this note caused by changes in the Prime Rate
to take effect on the date the Prime Rate changes without
notice to the Borrower or any other action by Holder:
[X] (3) 30 day LIBOR plus 150-200 basis points or AmSouth
Prime, whichever is lower.
Interest will be computed on the basis of the actual number of days
elapsed over (check one) [X] an assumed 360-day year, [ ] a 365-(or 366-, if
leap year) day year.
If none of the foregoing provisions for a rate of interest is checked,
the rate of interest payable on the Loan until maturity (whether by
acceleration or otherwise) shall be the Prime Rate of the Bank in effect from
time to time, or such lesser rate as shall be the maximum permitted by law,
computed on the basis of the actual number of days elapsed over an assumed
360-day year.
Notwithstanding anything to the contrary contained in this note, the
amount paid or agreed to be paid as interest on the principal amount of the
Loan shall never exceed the highest lawful rate allowed under applicable law.
If at any time, interest is due to be paid in an amount that exceeds the
highest lawful rate, then the obligation to pay interest hereunder shall be
reduced to the highest lawful rate. If at any time, interest is paid in an
amount that is greater than the highest lawful rate, then the amount that
exceeds the highest lawful rate shall be deemed to have been a prepayment of
principal of the Loan and applied to principal in the manner hereinafter
provided, or if the excessive amount of interest exceeds the unpaid principal
balance, the excess shall be refunded to the Borrower.
The Borrower hereby agrees to repay principal and interest as follows:
The Borrower will pay the principal amount of the Loan (check one and
complete if applicable): [X] on demand, [ ] days after date, or
[ ] _______________________________________________________________
______________________________________________________________,
and will pay the interest on the Loan (check one and complete
if applicable):
[ ] at maturity, [X] in monthly installments on the first
day of each month, and at
42
<PAGE> 2
maturity
[ ] in quarterly installments on the _______ day of each
__________________________________, and_______________
and at maturity, or
[ ] ______________________________________________________
_____________________________________________________.
For purposes of sending periodic billing statements in advance of each
interest payment date, at the Holder's option, the Prime Rate in effect 15 days
prior to each interest payment date shall be deemed to be the Prime Rate that
continues in effect until the date prior to such interest payment date for
purposes of computing the amount of interest payable on such interest payment
date. If the Prime Rate changes during such 15-day period, the difference
between the amount of interest that in fact accrues during such period and the
amount of interest actually paid will be added to or subtracted from, as the
case may be, the interest otherwise payable in preparing the periodic billing
statement for the next succeeding interest payment date. In determining the
amount of interest payable at the final maturity or upon full prepayment of
this Master Note, all changes in the Prime Rate occurring on or prior to the
day before the final maturity date or the date of such full prepayment shall be
taken into account.
If none of the foregoing provisions for the repayment of principal
and/or interest is checked, the principal, if not checked, and interest, if not
checked, due hereunder shall be payable on demand of Holder.
[ ] Unless this block is checked, the Borrower agrees to pay to Holder, on
demand, a late charge computed as follows to cover the extra expense involved
in handing late payments:
If interest or principal and interest are payable in installments, the
late charge will be equal to 5/o of the interest portion of the payment that is
not paid within 12 days after it is due.
If principal and interest are payable at maturity, the late charge
will be equal to 5% of the interest portion of the payment that is not paid
within 12 days after it is due.
This late charge will never be less than $10 nor more than $250 on
each payment. This provision shall not be deemed to excuse a late payment or
be deemed a waiver of any other right Holder may have, including, without
limitation, the right to declare the entire unpaid principal and interest
immediately due and payable.
All payments coming due on this Master Note shall be made in cash or
immediately available funds at the Holder's office at which the payment is
made. At its option, the Holder may elect to give the Borrower credit for any
payment made by check or other instrument in accordance with the Holder's
availability schedule in effect from time to time for such items and
instruments, which the Holder will make available to the Borrower on request.
Each payment on the indebtedness evidenced hereby will first reduce charges
owed by the Borrower that are neither principal nor interest. The remainder of
each payment will be applied first to accrued but unpaid interest and then to
unpaid principal. Any partial prepayments of principal will be applied to
installments due in the inverse order of their maturity and no such partial
prepayment of principal will have the effect of postponing, satisfying,
reducing, or otherwise affecting any scheduled installment before the principal
of and interest on the Loan is, and all other charges due hereunder are, paid
in full.
This note is a master note, and ft is contemplated that the proceeds
of the Loan evidenced hereby
43
<PAGE> 3
will be advanced from time to time to the Borrower by Holder in installments,
as requested by the Borrower and agreed to by Holder. It is further
contemplated that any amounts advanced under this note may be prepaid from time
to time by the Borrower and subsequently re-advanced by Holder, so long as the
principal amount outstanding does not exceed the face amount of this note. By
reason of prepayments hereon there may be times when no indebtedness is owing
hereunder, and notwithstanding any such occurrence, this note shall remain
valid and shall be in full force and effect as to each subsequent principal
advance made hereunder. The Holder shall maintain a record (by computer or
otherwise) of all principal advances and repayments under this Master Note and
that record shall be presumed to be correct in the absence of clear and
convincing evidence to the contrary.
Unless the Holder has otherwise agreed in writing, the Holder is not
obligated to make any advances or re-advances hereunder, and all advances and
re-advances shall be made at the option of Holder. This note shall be valid
and enforceable as to the aggregate amount advanced at any time hereunder,
whether or not the full face amount hereof is advanced.
If the Loan is payable on demand, this paragraph is inoperative and is
not applicable; otherwise, this paragraph is operative and applies to the Loan
in accordance with its terms. In the event of default in the payment of any
one or more installments of principal or interest which may become due
hereunder, when and as the same fall due, or in the payment of all of principal
and interest due hereunder at maturity, or the failure of any maker, endorser,
surety or Guarantor hereof (hereinafter called the "Obligors") to pay when due
or perform any of the Obligations (meaning thereby this note and any and all
renewals and extensions thereof and all other liabilities and indebtedness of
the Borrower to Holder, now existing or hereafter incurred or arising, direct
or indirect, and however incurred) or any part thereof or the failure of any
Obligor to pay when due any other liability to Holder, in the event a default
occurs under the terms of any loan agreement or other instrument (other than
this note), document or paper evidencing, securing, guaranteeing, or executed
in connection with all or any part of the Obligations (hereinafter, together
with this note, collectively called the "Loan Documents"), or in the event
Holder shall in good faith deem itself insecure for any reason, or on the
happening of any one or more of said events, Holder shall have the right at its
election and without notice to any Obligor to declare the Obligations
immediately due and payable with interest to date. No delay in making such
election shall be construed to waive the right to make such election. Holder
may note the fact of acceleration hereon without stating the ground therefor,
and whether or not noted hereon such election to accelerate shall be effective.
In the event of death of, insolvency of, general assignment by,
judgment against, filing of a petition in bankruptcy by or against, filing a
petition for the reorganization of, filing of application in any court for
receiver for, or issuance of a writ of garnishment or attachment in a suit or
action against any Obligor or against any of the assets of any Obligor, or on
the happening of any one or more of said events, the Obligations shall, without
notice to or demand upon any Obligor, immediately become due and payable with
interest to date unless Holder shall on notice of such event elect to waive
such acceleration by written notation hereon.
Each of the Obligors hereby severally (a) waives as to this debt or
any renewal or extension thereof all rights of exemption under the Constitution
or laws of Alabama or any other state as to personal property; (b) waives
demand (unless this note is payable on demand), presentment, protest, notice of
protest, notice of dishonor, suit against any party and all other requirements
necessary to hold any Obligor liable; (c) agrees that time of payment may be
extended one or more times for any period of time (whether such period is
shorter or longer than the initial term of this note) or renewal notes taken or
other indulgence granted without notice of or consent to such action and
without release of liability as to any Obligor; (d) as to all or any part of
the Obligations, consents to Holder's releasing, agreeing not to sue,
suspending the right to enforce this instrument against or otherwise
discharging or compromising any
44
<PAGE> 4
Obligation of any Obligor or other person against whom any Obligor has to the
knowledge of Holder a right of recourse, all without notice to or further
reservations of rights against any Obligor, and all without in any way
affecting or releasing the liability of any Obligor; (e) consents to Holder's
releasing, exchanging or otherwise dealing in any manner with all or any
portion of any collateral, lien, or right of set-off which may now or hereafter
secure this note, all without notice to or further reservations of rights
against any Obligor, and all without in any way affecting or releasing the
liability of any Obligor, even though such release, exchange or other dealing
may in any manner and to any extent impair any such collateral, lien or right
of set-off; (f) agrees to pay all costs of collecting or securing or attempting
to collect or secure this note or defending any unsuccessful claim asserted
against the Holder in connection with this note, including reasonable
attorneys' fees; and (g) warrants that this Loan is for business, commercial or
agricultural purposes.
In addition to all liens upon, and rights of set-off against, any
monies, securities, or other property of any of the Obligors given to Holder by
law, Holder shall have a lien upon and a right of set-off against all monies,
securities and other property of any of the Obligors now or hereafter in the
possession of, or on deposit with, Holder, whether held in a general or special
account or deposit, for safekeeping, or otherwise; and every such lien and
right of set-off may be exercised without demand upon or notice to any Obligor,
and the Bank shall have no liability with respect to any of Obligor's checks or
other items which may be returned or other funds transfers which may not be
made due to insufficient funds thereafter.
The Borrower understands that the Bank may from time to time enter
into a participation agreement or agreements with one or more participants
pursuant to which such participant or participants shall be given participation
in the Loan and that such participants may from time to time similarly grant to
other participants sub-participation in the Loan. The Borrower agrees that any
participant may exercise any and all rights of banker's lien or set-off,
whether arising by operation of law or given to Holder by the provisions of
this note, with respect to the Borrower as fully as if such participant had
made the Loan directly to the Borrower For the purposes of this Paragraph only,
the Borrower shall be deemed to be directly obligated to each participant or
subparticipant in the amount of its participating interest in the principal of,
and interest on, the Loan.
Neither any failure nor any delay on the part of Holder in exercising
any right, power or privilege under this note shall operate as a waiver
thereof, nor shall a single or partial exercise thereof preclude any other or
further exercise or the exercise of any other right, power or privilege. No
modification, amendment or waiver of any provisions of this note shall be
effective unless in writing and signed by a duly authorized officer of Holder,
and then the same shall be effective only in the specific instance and for the
purpose for which given. No notice to or demand on any Obligor in any case
shall entitle any Obligor to any other or further notice or demand in the same,
similar or other circumstances,
Any provision of this note which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof or affecting the validity or enforceability of, such
provision in any other jurisdiction.
The provisions of this note shall inure to the benefit of the Holder,
its successors and assigns and shall be binding upon the heirs, successors and
assigns of each Obligor, except that no Obligor may assign or transfer his, her
or its obligation hereunder without the written consent of Holder.
All rights, powers and remedies of Holder under this note and now or
hereafter existing at law, in equity or otherwise shall be cumulative and may
be exercised successively or concurrently.
The Loan Documents contain the entire understanding and agreement
between the Borrower and the Holder with respect to the Loan and supersede any
and all prior agreements, understandings, promises, and statements with respect
to the Loan. This Master Note may not be modified, amended,
45
<PAGE> 5
or supplemented in any manner except by a written agreement executed by both
the Borrower and the Holder.
This note shall be construed in accordance with and governed by the
laws of the State of Alabama.
This agreement is executed under seal by the Borrower or each of them.
CAUTION
IT IS IMPORTANT THAT YOU THOROUGHLY READ THIS CONTRACT
BEFORE YOU SIGN IT
No. 7500 5462584-1 WALL STREET DELI, INC.[SEAL]
Due On Demand By: /s/ Robert G. Barrow [SEAL]
---------------------------
Its: Executive Vice President [SEAL]
--------------------------
Tax ID: [SEAL]
-----------------------
46
<PAGE> 1
EXHIBIT 10.3
COMMERCIAL LEASE
This lease is made between REX ASSOCIATES, 8306 DOGWOOD RD.,
GERMANTOWN, TN 38139, HEREIN CALLED LESSOR, AND WALL STREET DELI, INC., 2310
AIRPORT INTERCHANGE, MEMPHIS, TN 38132, HEREIN CALLED LESSEE.
Lessee hereby offers to lease from Lessor the premises situated in the
City of MEMPHIS, County of SHELBY, State of TENNESSEE, described as 6,000 FT.
OFFICE BUILDING LOCATED AT 5683 S. REX RD., MEMPHIS, TN 38119, upon the
following TERMS and CONDITIONS:
1. Term and Rent. Lessor demises the above premises for a term of TEN
(10) years, commencing SEPTEMBER 1, 1994 and terminating on AUGUST 31,
2004 or sooner as provided herein at the annual rental of FIFTY FOUR
THOUSAND & 00/100 DOLLARS ($54,000.00), payable in equal installments
in advance on the first day of each month for that month's rental,
during the term of this lease. * All rental payments shall be made to
Lessor, at the address specified above:
* COMMENCING JULY 1, 1995 BASE RENT SHALL INCREASE BY THE AMOUNT
THE CPI INCREASES FROM THE BASE MONTH, APRIL 1, 1994.
2. Use. Lessee shall use and occupy the premises for OFFICES. The
premises shall be used for no other purpose. Lessor represents that
the premises may lawfully be used for such purpose.
3. Care and Maintenance of Premises. Lessee acknowledges that the
premises are in good order and repair, unless otherwise indicated
herein. Lessee shall, at his own expense and at all times, maintain
the premises in good and safe condition, including plate glass,
electrical wiring, plumbing and heating installations and any other
system or equipment upon the premises and shall surrender the same, at
termination hereof, in as good condition as received, normal wear and
tear excepted. Lessee shall be responsible for all repairs required,
excepting the roof, exterior walls, structural foundations, and: NONE,
which shall be maintained by Lessor. Lessee shall also maintain in
good condition such portions adjacent to the premises, such as
sidewalks, driveways, lawns and shrubbery, which would otherwise be
required to be maintained by Lessor.
4. Alterations. Lessee shall not, without first obtaining the written
consent of Lessor, make any alterations, additions, or improvements,
in, to or about the premises.
5. Ordinances and Statutes. Lessee shall comply with all statutes,
ordinances and requirements of all municipal, state and federal
authorities now in force, or which may hereafter be in force,
pertaining to the premises, occasioned by or affecting the use thereof
by Lessee.
6. Assignment and Subletting. Lessee shall not assign this lease or
sublet any portion of the premises without prior written consent of
the Lessor, which shall not be unreasonably withheld. Any such
assignment or subletting without consent shall be void and, at the
option of the Lessor, may terminate this lease.
47
<PAGE> 2
7. Utilities. All applications and connections for necessary utility
services on the demised premises shall be made in the name of Lessee
only, and Lessee shall be solely liable for utility charges as they
become due, including those for sewer, water, gas, electricity, and
telephone services.
8. Entry and Inspection. Lessee shall permit Lessor or Lessor's agents
to enter upon the premises at reasonable times and upon reasonable
notice, for the purpose of inspecting the same, and will permit Lessor
at any time within sixty (60) days prior to the expiration of this
lease, to place upon the premises any usual "To Let" or "For Lease"
signs, and permit persons desiring to lease the same to inspect the
premises thereafter.
9. Possession. If Lessor is unable to deliver possession of the premises
at the commencement hereof, Lessor shall not be liable for any damage
caused thereby, nor shall this lease be void or voidable, but Lessee
shall not be liable for any rent until possession is delivered.
Lessee may terminate this lease if possession is not delivered within
365 days of the commencement of the term hereof.
10. Indemnification for Lessor. Lessor shall not be liable for any damage
or injury to Lessee, or any other person, or to any property,
occurring on the demised premises or any part thereof, and Lessee
agrees to hold Lessor harmless from any claims for damages, no matter
how caused.
11. Insurance. Lessee, at his expense, shall maintain CASUALTY INSURANCE
and public liability insurance including bodily injury and property
damage insuring Lessee and Lessor with minimum coverage as follows:
THREE HUNDRED FIFTY THOUSAND & 00/100 DOLLARS ($350,000.00)
Lessee shall provide Lessor with a Certificate of Insurance
showing Lessor as additional insured. The Certificate shall provide
for a ten-day written notice to Lessor in the event of cancellation or
material change of coverage. To the maximum extent permitted by
insurance policies which may be owned by Lessor or Lessee, Lessee and
Lessor, for the benefit of each other, waive any and all rights of
subrogation which might otherwise exist.
12. Eminent Domain. If the premises or any part thereof or any estate
therein, or any other part of the building materially affecting
Lessee's use of the premises, shall be taken by eminent domain, this
lease shall terminate on the date when title vests pursuant to such
taking. The rent, and any additional rent, shall be apportioned as of
the termination date, and any rent paid for any period beyond that
date shall be repaid to Lessee. Lessee shall not be entitled to any
part of the award for such taking or any payment in lieu thereof, but
Lessee may file a claim for any taking of fixtures and improvements
owned by Lessee, and for moving expenses.
13. Destruction of Premises. In the event of a partial destruction of the
premises during the term hereof, from any cause, Lessor shall
forthwith repair the same, provided that such repairs can be made
within sixty (60) days under existing governmental laws and
regulations, but such partial destruction shall not terminate this
lease, except that Lessee shall be entitled to a proportionate
reduction of rent while such repairs are being made, based upon the
extent to which the making of such repairs shall interfere with the
business of Lessee on the premises. If such repairs cannot be made
within said sixty (60) days, Lessor, at his option, may make the same
within a reasonable time, this lease continuing in effect with the
rent proportionately abated as aforesaid,
48
<PAGE> 3
and in the event that Lessor shall not elect to make such repairs
which cannot be made within sixty (60) days, this lease may be
terminated at the option of either party. In the event that the
building in which the demised premises may be situated is destroyed to
an extent of not less than one-third of the replacement costs thereof,
Lessor may elect to terminate this lease whether the demised premises
be injured or not. A total destruction of the building in which the
premises may be situated shall terminate this lease.
14. Lessor's Remedies on Default. If Lessee defaults in the payment of
rent, or any additional rent, or defaults in the performance of any of
the other covenants or conditions hereof, lessor may give Lessee
notice of such default and if Lessee does not cure any such default
within ___________ days, after the giving of such notice (or if such
other default is of such nature that it cannot be completely cured
within such period, if Lessee does not commence such curing within
such ________________ days and thereafter proceed with reasonable
diligence and in good faith to cure such default), then Lessor may
terminate this lease on not less than _________ days' notice to
Lessee. On the date specified in such notice the term of this
lease shall terminate, and Lessee shall then quit and surrender the
premises to Lessor, but Lessee shall remain liable as hereinafter
provided. If this lease shall have been so terminated by Lessor,
Lessor may at any time thereafter resume possession of the premises by
any lawful means and remove Lessee or other occupants and their
effects. No failure to enforce any term shall be deemed a waiver.
15. Security Deposit. Lessee shall deposit with Lessor on the signing of
this lease the sum of FOUR THOUSAND FIVE HUNDRED & 00/100 DOLLARS
($4,500.00) as security for the performance of Lessee's obligations
under this lease, including without limitation the surrender of
possession of the premises to Lessor as herein provided. If Lessor
applies any part of the deposit to cure any default of Lessee, Lessee
shall on demand deposit with Lessor the amount so applied so that
Lessor shall have the full deposit on hand at all times during the
term of this lease.
16. Tax Increase. In the event there is any increase during any year of
the term of this lease in the City, County or State real estate taxes
over and above the STIPULATED TAX BASE OF $0 PER YEAR, whether because
of increased rate or valuation, Lessee shall pay to Lessor upon
presentation of paid tax bills an amount equal to 100% of the increase
in taxes upon the land and building in which the leased premises are
situated. In the event that such taxes are assessed for a tax year
extending beyond the term of the lease, the obligation of Lessee shall
be proportionate to the portion of the lease term included in such
year.
17. Common Area Expenses. In the event the demised premises are situated
in a shopping center or in a commercial building in which there are
common areas, Lessee agrees to pay his pro-rata share of maintenance,
taxes, and insurance for the common area.
18. Attorney's Fees. In case suit should be brought for recovery of the
premises, or for any sum due hereunder, or because of any act which
may arise out of the possession of the premises, by either party, the
prevailing party shall be entitled to all costs incurred in connection
with such action, including a reasonable attorney's fee.
19. Notices. Any notice which either party may or is required to give,
shall be given by mailing the same, postage prepaid, to Lessee at the
premises, or Lessor at the address shown below, or at
49
<PAGE> 4
such other places as may be designated by the parties from time to
time.
20. Heirs, Assigns, Successors. This lease is binding upon and inures to
the benefit of the heirs, assigns and successors in interest to the
parties.
21. Option to Renew. Provided that Lessee is not in default in the
performance of this lease, Lessee shall have the option to renew the
lease for an additional term of 60 months commencing at the expiration
of the initial lease term. All of the terms and conditions of the
lease shall apply during the renewal term except that the monthly rent
shall be the sum of $ AS MUTUALLY AGREED. The option shall be
exercised by written notice given to Lessor not less than 270 days
prior to the expiration of the initial lease term. If notice is not
given in the manner provided herein within the time specified, this
option shall expire.
22. Subordination. This lease is and shall be subordinated to all
existing and future liens and encumbrances against the property.
23. Entire Agreement. The foregoing constitutes the entire agreement
between the parties and may be modified only by a writing signed by
both parties. The following Exhibits, if any, have been made a part
of this lease before the parties' execution hereof:
Signed this 31ST day of MAY, 1994
WALL STREET DELI, INC. REX ASSOCIATES
By: /S/ ALAN V. KAUFMAN By: /S/ ROBERT G. BARROW
--------------------- ----------------------
Lessee Lessor
50
<PAGE> 1
EXHIBIT (11)
WALL STREET DELI, INC.
AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
For the Year Ended
-------------------------------------------------
July 1, 1995 July 2, 1994 July 3, 1993
------------ ------------ ------------
<S> <C> <C> <C>
Shares:
Weighted average number of common
shares outstanding (1) 3,388,559 3,333,132 2,594,112
Effect of shares issuable under stock option
and stock purchase plans as determined by
the treasury stock method 34,142 48,760 74,863
------------- ------------- -------------
Weighted average number of common
shares outstanding as adjusted (1) 3,422,701 3,381,892 2,668,975
============= ============= =============
Per common share computations:
Net income (loss) $ (921,011) $ 1,956,807 $ 1,408,472
============= ============= =============
Per common share (1) $ (.27) $ .58 $ .53
============= ============= =============
</TABLE>
____________
(1) Weighted average number of shares and per common share data has been
restated to reflect three-for-two stock splits effected in the form of
50% stock dividends to shareholders of record on February 12, 1993.
51
<PAGE> 1
EXHIBIT (21)
WALL STREET DELI, INC.
AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Percentage
State of of Voting
Incorporation Securities
Owned
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sandwich Chef of Alabama, Inc. Alabama 100%
Downtown Food Service, Inc. Tennessee 100%
Sandwich Chef of Colorado, Inc. Colorado 100%
Sandwich Chef of Texas, Inc. Texas 100% (a)
Sandwich Chef of D.C., Inc. Delaware 100%
Sandwich Chef of Illinois, Inc. Illinois 100%
Sandwich Chef of Louisiana, Inc. Louisiana 100%
</TABLE>
_____________
(a) Wholly-owned subsidiary of Sandwich Chef of Colorado, Inc.
52
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSOLIDATED FINANCIAL STATEMENTS OF WALLSTREET DELI, INC. FOR THE YEAR ENDED
JULY 1, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-01-1995
<PERIOD-START> JUL-03-1994
<PERIOD-END> JUL-01-1995
<EXCHANGE-RATE> 1
<CASH> 921,616
<SECURITIES> 0
<RECEIVABLES> 2,348,910
<ALLOWANCES> 244,801
<INVENTORY> 1,060,503
<CURRENT-ASSETS> 7,112,701
<PP&E> 33,862,882
<DEPRECIATION> 12,898,679
<TOTAL-ASSETS> 29,163,709
<CURRENT-LIABILITIES> 8,510,552
<BONDS> 0
<COMMON> 170,168
0
0
<OTHER-SE> 20,482,989
<TOTAL-LIABILITY-AND-EQUITY> 29,163,709
<SALES> 68,228,119
<TOTAL-REVENUES> 68,228,119
<CGS> 59,148,968
<TOTAL-COSTS> 59,148,968
<OTHER-EXPENSES> 10,696,042
<LOSS-PROVISION> 58,328
<INTEREST-EXPENSE> 195,834
<INCOME-PRETAX> (1,556,611)
<INCOME-TAX> (635,600)
<INCOME-CONTINUING> (921,011)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (921,011)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> 0
</TABLE>
