<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| Quarterly report pursuant to Section 13 or 15(d) of the Securities
and Exchange Act of 1934
For the quarterly period ended September 27, 1997
------------------
or
|_| Transition report pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934
For the transition period from to
-------- -------
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.)
One Independence Plaza, Suite 100
Birmingham, Alabama 35209
(Address of principal executive offices)
(205) 870-0020
(Registrant's telephone number)
--------------------------------------
Indicate by check mark whether the registrant has (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---- ----
Indicate the number of shares outstanding of the registrant's class of
common stock, as of the latest practicable date.
Class Outstanding at November 3, 1997
- ---------------------------- -------------------------------
Common Stock, $.05 Par Value 3,115,577
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
PART I: FINANCIAL INFORMATION
ITEM 1: Financial Statements..........................................................1
Consolidated Balance Sheets...........................................2
Consolidated Statements of Operations.................................4
Consolidated Statements of Stockholders' Equity.......................5
Consolidated Statements of Cash Flows.................................6
Notes to Consolidated Financial Statements....................................7
ITEM 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations..........................................10
PART II: OTHER INFORMATION
ITEM 6: Exhibits and Reports on Form 8-K ............................................15
SIGNATURES.....................................................................................16
EXHIBITS:
Exhibit 11: Computation of Earnings
Per Common Share.............................................................17
</TABLE>
<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM I: FINANCIAL STATEMENTS
The financial statements listed below are included on the following
pages of this Report on Form 10-Q:
Consolidated Balance Sheets at September 27, 1997 (unaudited)
and June 28, 1997.
Consolidated Statements of Operations (unaudited) for the
three month periods ended September 27, 1997 and September 28,
1996.
Consolidated Statements of Stockholders' Equity (unaudited)
for the three month periods ended September 27, 1997 and
September 28, 1996.
Consolidated Statements of Cash Flows (unaudited) for the
three month periods ended September 27, 1997 and September 28,
1996.
Notes to Consolidated Financial Statements (unaudited).
1
<PAGE> 4
WALL STREET DELI, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 27, 1997 JUNE 28, 1997
------------------ -------------
<S> <C> <C>
ASSETS
CURRENT
Cash and cash equivalents $ 106,088 $ 490,058
Accounts and notes receivable (Note 3) 1,292,430 1,055,924
Inventories (Note 4) 717,466 684,280
Prepaid expenses and other 241,837 263,129
Deferred tax benefit 624,000 624,000
------------ -----------
TOTAL CURRENT ASSETS 2,981,821 3,117,391
EQUIPMENT AND IMPROVEMENTS ------------ -----------
Equipment and fixtures 18,923,967 18,258,482
Leasehold improvements 16,202,891 15,905,021
------------ -----------
35,126,858 34,163,503
Less accumulated depreciation and amortization (18,791,371) (18,035,661)
------------ -----------
NET EQUIPMENT AND IMPROVEMENTS 16,335,487 16,127,842
OTHER ------------ -----------
Cash surrender value of insurance on officers' lives 729,162 718,165
Long-term portion of notes receivable (Note 3) 414,835 453,229
Deferred tax benefit 2,649,000 2,649,000
------------ -----------
TOTAL OTHER ASSETS 3,792,997 3,820,394
------------ -----------
$ 23,110,305 $23,065,627
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
2
<PAGE> 5
WALL STREET DELI, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 27, 1997 JUNE 28, 1997
------------------ -------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 1,692,497 $ 1,005,400
Accounts payable 1,275,588 1,267,758
Accruals:
Taxes other than income 703,618 546,073
Compensation 614,711 755,240
Rent 701,257 781,545
Workers' compensation 651,136 742,242
Corporate relocation 186,500 532,121
Miscellaneous 646,799 498,740
----------- -----------
TOTAL CURRENT LIABILITIES 6,472,106 6,129,119
STOCKHOLDERS' EQUITY ----------- -----------
Common stock, $.05 par - shares authorized
20,000,000; issued 3,414,402 and 3,413,777 170,720 170,689
Additional paid-in capital 10,785,604 10,782,448
Retained earnings 7,196,154 7,365,512
----------- -----------
18,152,478 18,318,649
Treasury stock, at cost, 298,825 and 263,825 shares (1,514,279) (1,382,141)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 16,638,199 16,936,508
----------- -----------
$23,110,305 $23,065,627
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
3
<PAGE> 6
WALL STREET DELI, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Month Periods Ended
SEPTEMBER 27, 1997 SEPTEMBER 28, 1996
------------------ ------------------
<S> <C> <C>
NET SALES (Note 6) $ 16,169,434 $ 17,327,832
Costs and expenses (income):
Costs of sales 14,719,767 15,432,961
Administrative and general expense 1,767,688 1,495,218
Interest expense - net 20,938 19,110
Gain on sale of equipment and improvements (56,696) --
--------------- ------------
TOTAL COSTS AND EXPENSES: 16,451,697 16,947,289
--------------- ------------
Income (loss) before taxes (benefit) on income (282,263) 380,543
Taxes (benefit) on income (112,905) 152,200
--------------- ------------
Net income (loss) $ (169,358) $ 228,343
=============== ============
Earnings (loss) per share (Note 6) $ (.05) $ .07
=============== ============
Weighted average number of common
and common equivalent shares
outstanding (Note 6) 3,133,523 3,413,779
=============== ============
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
4
<PAGE> 7
WALL STREET DELI, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Treasury Stock
------------ --------------
Additonal
Number paid-in Retained Number
of shares Amount capital earnings of shares Amount
--------- ------ ------- -------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 29, 1996 3,411,043 $170,552 $10,766,896 $7,302,690 1,075 $ 10,548
Net income for the quarter 228,347
Exercise of stock options 700 35 4,938
--------- -------- ----------- ---------- ------- ----------
Balance, September 28, 1996
(unaudited) 3,411,743 $170,587 $10,771,834 $7,531,037 1,075 $ 10,548
========= ======== =========== ========== ======= ==========
Balance, June 28, 1997 3,413,777 $170,689 $10,782,448 $7,365,512 263,825 $1,382,141
Net loss for the quarter (169,358)
Exercise of stock options 625 31 3,156
Purchase of treasury stock 35,000 132,138
--------- -------- ----------- ---------- ------- ----------
Balance, September 27, 1997
(unaudited) 3,414,402 $170,720 $10,785,604 $7,196,154 298,825 $1,514,279
========= ======== =========== ========== ======= ==========
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
5
<PAGE> 8
WALL STREET DELI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Month Periods Ended
SEPTEMBER 27, SEPTEMBER 28,
1997 1996
----------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (169,358) $ 228,343
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 860,977 860,292
Gain on sale of equipment and improvements (56,696) --
Deferred income taxes -- 95,000
Decrease (increase) in assets:
Accounts receivable - net (236,506) 295,553
Inventories (33,186) (40,048)
Prepaid expenses and other 59,686 (57,081)
Decrease in operating liabilities:
Accounts payable (308,133) (602,357)
Accruals (35,977) 232,261
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 80,807 1,011,963
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for purchase of equipment and improvements (1,148,042) (920,226)
Proceeds from sale of equipment and improvements 71,250 --
Payments received on notes receivable 42,872 108,047
Increase in cash surrender value of life insurance on officers' lives 10,997 18,270
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (1,022,923) (793,909)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (repayments) borrowings under line of credit 687,097 (1,170,372)
Purchase of treasury stock (132,138) --
Exercise of employee stock options 3,187 4,972
----------- -----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 558,146 (1,165,400)
----------- -----------
NET DECREASE IN CASH FOR THE PERIOD (383,970) (947,346)
CASH, beginning of period 490,058 1,882,844
----------- -----------
CASH, end of period $ 106,088 $ 935,498
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION =========== ===========
Cash paid during the period for:
Interest $ 28,660 $ 39,322
Income taxes $ 10,000 $ 26,000
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
6
<PAGE> 9
WALL STREET DELI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. In the opinion of management of Wall Street Deli, Inc. (the "Company"),
the accompanying unaudited consolidated financial statements contain
all adjustments (consisting of only normal recurring accruals)
necessary to present fairly the financial position as of September 27,
1997 and the results of operations, changes in stockholders' equity and
cash flows for the three month periods ended September 27, 1997 and
September 28, 1996.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements. Estimates also affect the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
2. The results of operations for the three month periods ended September
27, 1997 and September 28, 1996 are not necessarily indicative of the
results to be expected for the full year.
3. Accounts and notes receivable consists of:
<TABLE>
<CAPTION>
September 27, 1997 June 28, 1997
------------------ -------------
<S> <C> <C>
Accounts receivable $ 848,268 $ 749,625
Notes receivable 655,636 579,105
Other receivables 385,001 350,001
---------- ----------
1,888,905 1,678,731
Less allowance for doubtful accounts (181,640) (169,578)
---------- ----------
1,707,265 1,509,153
Less long-term portion of notes receivable (414,835) (453,229)
---------- ----------
$1,292,430 $1,055,924
========== ==========
</TABLE>
4. Inventories are valued at the lower of cost (first-in, first-out) or
market.
5. Effective October 27, 1996, the Company sold the operating assets of
its Memphis division, consisting of ten stores and related catering
operations, to Executive Chef Catering, L.L.C., of which Ms. Judy M.
Gupton, formerly manager of the Memphis division, and Mr. Robert G.
Barrow, former President and Chief Executive Officer and current Vice
Chairman of the Board of the Company, are the owners. Total sale price
for the assets was $1,017,000, consisting of $810,305 in cash and
short term notes, plus 25,000 shares of Company stock valued at $5.55
per share, with the balance of $68,739 payable in two years, with
interest at the prime rate, paid quarterly. Prior to the close of
7
<PAGE> 10
the 1997 fiscal year, one note in the amount of $47,990 was paid with
11,250 shares of Company stock valued at $4.125 per share, and $1,584 in
cash. The assets included in the sale had a book value of approximately
$867,000.
6. Earnings (loss) per common share and common share equivalent have been
computed based upon the weighted average number of shares outstanding
during the respective periods. Equivalent shares are those issuable upon
assumed exercise of stock options granted, net of shares which could have
been purchased from the proceeds based on the average market price. The
assumed exercise of stock options granted does not materially affect the
computation of earnings (loss) per common share and common share equivalent
for the three month period ended September 27, 1997.
7. In February 1997, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 128, "Earnings Per Share" ("FAS 128"). This
statement simplifies the standards for computing earnings per share ("EPS")
previously found in APB Opinion No. 15, "Earnings Per Share," as the
presentation of primary and fully-diluted EPS is replaced with Basic and
Diluted EPS. Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the entity.
FAS 128 is effective for financial statements issued for periods ending
after December 15, 1997. The Company will adopt FAS 128 in financial
statements issued for the quarter ending December 27, 1997. If the
provisions of FAS 128 had been applied to the quarter ended September 27,
1997, estimated Basic EPS and Diluted EPS would have been $(.05).
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130"), which establishes standards for reporting and display of
comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity except
those resulting from investments by owners and distributions to owners.
Among other disclosures, SFAS 130 requires that all items that are required
to be recognized under current accounting standards as components of
comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements.
SFAS 130 is effective for financial statements for periods beginning after
December 15, 1997 and requires comparative information for earlier years to
be restated. Because of the recent issuance of this standard, management
has been unable to fully evaluate the impact, if any, the standard may have
on future financial statement disclosures. Results of
8
<PAGE> 11
operations and financial position, however, will be unaffected by
implementation of this standard.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information,"
("SFAS 131") which supersedes SFAS No. 14, "Financial Reporting for
Segments of a Business Enterprise." SFAS 131 establishes standards for the
way that public companies report information about operating segments in
annual financial statements and requires reporting of selected information
about operating segments in interim financial statements issued to the
public. It also establishes standards for disclosures regarding products
and services, geographic areas and major customers. SFAS 131 defines
operating segments as components of a company about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in
assessing performance.
SFAS 131 is effective for financial statements for periods beginning after
December 15, 1997 and requires comparative information for earlier years to
be restated. Because of the recent issuance of this standard, management
has been unable to fully evaluate the impact, if any, it may have on future
financial statement disclosures. Results of operations and financial
position, however, will be unaffected by implementation of this standard.
------------------------------
9
<PAGE> 12
ITEM 2: 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.
Forward Looking Statements. The statements in this Form 10-Q that are not
historical fact are forward looking statements. Such statements are subject to
certain risks and uncertainties which could cause actual results to differ
materially from those projected, including, among others, competition for
customers, labor force and store sites, the effects of changes in the economy
such as inflation and unemployment rates, weather conditions and seasonal
effects, the uncertainties of new products and programs, and recent changes in
management. Readers are cautioned not to place undue reliance on these forward
looking statements which speak only as of the date hereof and reflect only
management's belief and expectations based upon presently available information.
Readers are also urged to carefully review and consider the various disclosures
made by the Company which attempt to advise interested parties of the factors
which affect the Company's business, including the disclosures made in other
periodic reports on Forms 10-K, 10-Q and 8-K filed with the Securities and
Exchange Commission.
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 operations.
<TABLE>
<CAPTION>
Three month periods ended
September 27 September 28
1997 1996
------------ ------------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 91.0 89.1
----- -----
Gross profit 9.0 10.9
Administrative and general 10.9 8.6
----- -----
Operating income (loss) (1.9) 2.3
Other income (expense), net .2 (.1)
----- -----
Income (loss) before taxes (benefit) on income (loss) (1.7) 2.2
Taxes (benefit) on income (loss) (.7) .9
----- -----
Net income (loss) (1.0)% 1.3%
===== =====
</TABLE>
10
<PAGE> 13
NET SALES
Net sales decreased by $1,158,398 or 6.7 percent over the corresponding
three month period last year primarily due to the sale of the Memphis division
and a 2.6 percent decline in same store sales. The sale of the Memphis division,
consisting of ten stores and related catering operations, which was effective
October 27, 1996, decreased net sales by approximately $1,084,000 as compared to
the first quarter of 1997, and accounted for 93.6 percent of the sales decrease.
Same store sales in the three month period ended September 27, 1997
declined 2.6 percent as compared to the three month period ended September 28,
1996. However, this is the fourth consecutive quarterly improvement in the rate
of same store sales decline, up from a low of a 6.3 percent decline in the
fiscal 1997 second quarter ended December 28, 1996. Management believes the
negative impact on same store sales is generally attributable to continually
more formidable competition in expansion and marketing by competitors, combined
with management and operational difficulties in several cities.
During the first quarter of 1998, the Company opened three new stores
and sold one store that no longer met performance goals.
Components of the Company's net sales and the percent of total sales
for the three month periods ended September 27, 1997 and September 28, 1996,
respectively, are presented in the following schedule.
<TABLE>
<CAPTION>
September 27, 1997 September 28, 1996
------------------ ------------------
Net Sales % of Total Net Sales % of Total
------------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
Wall Street Deli Flagship $ 14,489,739 89.6% $ 13,702,834 79.1%
Wall Street Deli Other 1,679,695 10.4 3,624,998 20.9
------------- ----- ------------ -----
Total $ 16,169,434 100.0% $ 17,327,832 100.0%
============= ===== ============ =====
</TABLE>
At September 27, 1997 there were 97 Wall Street Deli Flagship stores and 21
stores in the "Other" group. For some years the Company has recorded sales data
separately for these two types of groups, primarily because of the variation in
sales volume between them. As the store type mix continues to change so that
there are fewer stores in the Other group, and as the volume differences on a
group basis become less, the Company believes that the distinction between the
groups has and will continue to have declining significance.
The following table sets forth the Company's average sales per store by
current concept group and for all stores and the same store sales comparisons
for stores open the entire three month periods ended September 27, 1997 (fiscal
1998 first quarter) and September 28, 1996 (fiscal 1997 first quarter),
respectively.
11
<PAGE> 14
<TABLE>
<CAPTION>
Same Store Sales
Average Sales Per Store Change from Prior Year
----------------------- ----------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Wall Street Deli Flagships $150,619 $161,903 (2.7)% (5.4)%
Wall Street Deli Other $ 79,764 $ 77,296 (1.8)% (2.9)%
All Stores $137,567 $126,438 (2.6)% (4.9)%
</TABLE>
Average sales per store as shown above are computed retroactively on the
basis of current concept grouping, reflecting in some instances conversions of
Other stores to Wall Street Deli Flagship stores.
The Company launched its "Street Wrap" product line in 48 stores and
implemented a new sandwich marketing program during the three month period ended
September 27, 1997. Street Wraps are the Company's new line of flour tortilla
wrapped sandwiches, and the new sandwich program provides customers the
opportunity to choose between two sandwich sizes, regular or small.
During the three month period ended September 27, 1997 the Company
continued to market its franchise program for both stand-alone Wall Street Deli
stores and the Wall Street Deli stores co-branded with TCBY yogurt products. Six
franchise agreements have been signed since the program was launched in the
fourth quarter of fiscal 1997, and the first franchised free-standing Wall
Street Deli store co-branded with TCBY opened during this quarter. There have
not yet been any significant revenues from this early stage program.
The Company also implemented pricing adjustments and price changes that
were insignificant on an overall basis, and therefore considers price changes in
products sold to have had, in the aggregate, an immaterial effect on sales in
the current quarter.
COST OF SALES
Cost of sales as a percentage of net sales increased to 91.0% during the
three month period ended September 27, 1997 from 89.1% in the corresponding
three month period in the previous year.
The major components of cost of sales for the three month periods ended
September 27, 1997 and September 28, 1996, respectively, are shown in the
following table:
12
<PAGE> 15
<TABLE>
<CAPTION>
For the Three Month Periods Ended
September 27, 1997 September 28, 1996
------------------ -------------------
Amount % of Sales Amount % of Sales
----------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Food/Paper $ 5,671,441 35.1% $ 6,326,143 36.5%
Labor 3,750,519 23.2% 3,975,811 22.9%
Store Expenses 5,297,820 32.7% 5,131,007 29.6%
----------- ---- ----------- ----
$14,719,780 91.0% $15,432,961 89.1%
=========== ==== =========== ====
</TABLE>
The decrease in food/paper expenses of 1.4 percent as a percentage of sales
reflects the Company's delivery system conversion. While the single source
vendor system was fully implemented by June 1996 following completion of the
commissary system phase-out, the Company continued during this quarter to
experience the positive effects of the changeover, as indicated by this cost
reduction.
Labor costs as a percentage of net sales increased 0.3 percent. Aggregate
hourly wages increased 0.4 percent, mostly as a consequence of implementing the
Street Wrap program, which requires a minimum of one additional hourly employee
per store. Store manager salaries incurred a 0.3 percent increase, and contract
labor decreased 0.4 percent due to the sale of the Memphis division. The federal
minimum wage increase effective September 1, 1997 has not had a material effect
on labor costs.
Store expenses as a percentage of net sales increased 3.1 percent. The
implementation of the Street Wrap program contributed to an increase of 0.4
percent in miscellaneous restaurant services and supplies and 0.3 percent in
promotional expenses. Other store expenses that increased as compared to the
prior quarter included repairs and maintenance (0.4%), rent (0.2%),
rent-operating expense (0.2%), utilities (0.6%) and percentage rent (0.2%). In
addition, many store expenses are fixed and are therefore adversely affected by
a decrease in same store sales.
ADMINISTRATIVE AND GENERAL EXPENSES
Administrative and general expenses for the three month period ended
September 27, 1997 increased $272,470 to $1,767,688, or 18.2%, as compared to
the three month period ended September 28, 1996. The expenses generated by the
launch of the Street Wrap program in 48 stores accounted for approximately 6.8%
of this increase, and costs of management changes accounted for approximately
7.9%. Other significant elements of the increase included expenses resulting
from the addition of two new catering sales offices and franchise program
start-up costs. These cost increases were offset in part by approximately
$120,000 in cost reductions occasioned by the Memphis division sale.
13
<PAGE> 16
TAXES ON INCOME
The effective tax rate for each of the three month periods ended September
27, 1997 and September 28, 1996 was 40 percent.
INTEREST EXPENSE, NET
In the three month period ended September 27, 1997, the Company had net
interest expense of $20,938 compared to net interest expense of $19,110 for the
three month period ended September 28, 1996. Interest expense is related
primarily to the Company's $7,500,000 unsecured line of credit which bears
interest at the lower of the 30-day LIBOR rate plus 175 basis points (7.41
percent at September 27, 1997) or the bank's quoted cost of funds plus 175 basis
points (7.31 percent at September 27, 1997). The Company had $1,692,497
outstanding against this line at September 27, 1997 as compared to $1,329,628 at
September 28, 1996. The interest expense for the three month period ended
September 27, 1997 of $28,660 was offset by $7,722 of interest earned by the
Company on notes receivable from prior sales of fixtures and equipment in
various stores.
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. In August
1996, legislation was enacted to increase the minimum wage from $4.25 per hour
to $4.75 on October 1, 1996, and further to $5.15 effective September 1, 1997.
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 stores. In addition, most of the leases for Company stores contain
rent escalation clauses based upon cost increases incurred by lessors.
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. The Company does not maintain significant receivables or inventory and
it receives trade credit in purchasing food and supplies. Stores not meeting the
Company's performance criteria may be closed or sold. The terms of some such
sales require the Company to take back notes, which are contained in the
Company's notes receivable balance, for all or a portion of the sale price.
At September 27, 1997, the ratio of the Company's current assets to current
liabilities was .46 to 1.00, as compared to a current ratio of .51 to 1.00 at
June 28, 1997. This change reflects
14
<PAGE> 17
the Company's use in the first quarter of 1998 of available cash for acquisition
of treasury stock as well as for continued investment in store facilities. The
Company has no long term debt.
The Company's principal capital requirement is for new equipment and
leasehold improvements for new and existing stores. Capital expenditures for
these purposes were $1,148,011 and $920,226 for the three month periods ended
September 27, 1997 and September 28, 1996, respectively. Approximately $150,000
in capital costs during this quarter were incurred for the Street Wrap
implementation. It is presently anticipated that the Company's capital
expenditures for fiscal 1998 will be approximately $3,200,000. During the fourth
quarter of 1997, the Company's Board of Directors approved the repurchase of up
to 100,000 shares of the Company's common stock. During the three month period
ended September 27, 1997, a total of 35,000 shares were purchased at an
acquisition cost of $132,138.
The Company has historically met its capital needs from short term bank
borrowings and internally generated funds. Cash generated from operations
totaled $80,807 and $1,011,963 for the three month periods ended September 27,
1997 and September 28, 1996, respectively. The Company currently has in place a
line of credit which provides for borrowings up to $7,500,000 from AmSouth Bank
of Alabama pursuant to the terms of a Credit Agreement dated June 19, 1996 (the
"Credit Agreement"). The Credit Agreement contains certain covenants that
require, among other things, the Company to maintain a certain tangible net
worth and to limit the annual capital expenditures of the Company. The Company
is in compliance with these covenants. The Company expects its future capital
needs will be met primarily by internally generated funds and supplemented, as
needed, by additional bank borrowings.
-------------------------
PART II: OTHER INFORMATION
<TABLE>
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
<S> <C> <C>
(a) Exhibits
Exhibit 11 - Computation of Earnings Per Common Share.........................17
Exhibit 27 - Financial Data Schedule, (for SEC use only)
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the quarter
ended September 27, 1997.
</TABLE>
15
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
DATE: WALL STREET DELI, INC.
November 7, 1997 /s/ Louis C. Henderson, Jr.
----------------------------
LOUIS C. HENDERSON, JR.
President and Chief Executive Officer
November 7, 1997 /s/ Robert G. Barrow
---------------------
ROBERT G. BARROW
Chief Financial Officer
November 7, 1997 /s/ Kevin D. Conaway
-----------------------
KEVIN D. CONAWAY
Treasurer
(Principal Accounting Officer)
16
<PAGE> 1
Exhibit (11)
WALL STREET DELI, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
(unaudited)
<TABLE>
<CAPTION>
For the Three Month Periods Ended
SEPTEMBER 27, 1997 SEPTEMBER 28, 1996
------------------ ------------------
<S> <C> <C>
SHARES
Weighted average number of common
shares outstanding 3,133,523 3,410,368
Effect of shares issuable under stock
option plan as determined by the
treasury stock method -- 3,411
Weighted average number of common ------------- -------------
and common equivalent shares outstanding 3,133,523 3,413,779
============= =============
PER COMMON SHARE COMPUTATIONS
Net income (loss) $ (169,358) $ 228,343
============= =============
Earnings (loss) per share $ (0.5) $ .07
============= =============
</TABLE>
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF WALL STREET DELI, INC. FOR THE QUARTER ENDED SEPTEMBER
27, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-27-1998
<PERIOD-START> JUN-29-1997
<PERIOD-END> SEP-27-1997
<CASH> 106,088
<SECURITIES> 0
<RECEIVABLES> 1,474,070
<ALLOWANCES> 181,640
<INVENTORY> 717,466
<CURRENT-ASSETS> 2,981,821
<PP&E> 35,126,858
<DEPRECIATION> 18,791,371
<TOTAL-ASSETS> 23,110,305
<CURRENT-LIABILITIES> 6,472,106
<BONDS> 0
0
0
<COMMON> 170,720
<OTHER-SE> 16,808,919
<TOTAL-LIABILITY-AND-EQUITY> 23,110,305
<SALES> 16,169,434
<TOTAL-REVENUES> 16,169,434
<CGS> 14,719,767
<TOTAL-COSTS> 14,719,767
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 181,640
<INTEREST-EXPENSE> 28,660
<INCOME-PRETAX> (282,263)
<INCOME-TAX> (112,905)
<INCOME-CONTINUING> (169,358)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (169,358)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
