<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 26, 1998
------------------
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)
<TABLE>
<S> <C>
DELAWARE 63-0514240
(State of Incorporation) (IRS Employer I.D. No.)
</TABLE>
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.
<TABLE>
<S> <C>
Class Outstanding at November 2, 1998
- ---------------------------------------------- -------------------------------
Common Stock, $.05 Par Value 2,946,077
</TABLE>
<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.......................................... 11
PART II: OTHER INFORMATION
ITEM 6: Exhibits and Reports on Form 8-K ............................................ 15
SIGNATURES..................................................................................... 16
</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 26, 1998 (unaudited)
and June 27, 1998.
Consolidated Statements of Operations (unaudited) for the
three month periods ended September 26, 1998 and September 27,
1997.
Consolidated Statements of Stockholders' Equity (unaudited)
for the three month periods ended September 26, 1998 and
September 27, 1997.
Consolidated Statements of Cash Flows (unaudited) for the
three month periods ended September 26, 1998 and September 27,
1997.
Notes to Consolidated Financial Statements (unaudited).
1
<PAGE> 4
WALL STREET DELI, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 26, 1998 JUNE 27, 1998
------------------ -------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT
Cash and cash equivalents $ 202,432 $ 409,044
Accounts and notes receivable (Note 3) 1,264,629 1,319,436
Inventories (Note 4) 554,818 583,405
Refundable income taxes 333,411 333,411
Deferred tax assets 547,074 570,000
Prepaid expenses and other 200,521 242,659
------------ ------------
TOTAL CURRENT ASSETS 3,102,885 3,457,955
------------ ------------
EQUIPMENT AND IMPROVEMENTS
Equipment and fixtures 19,705,658 19,674,714
Leasehold improvements 16,379,166 16,319,331
------------ ------------
36,084,824 35,994,045
Less accumulated depreciation and amortization (23,790,443) (22,973,956)
------------ ------------
NET EQUIPMENT AND IMPROVEMENTS 12,294,381 13,020,089
------------ ------------
OTHER
Cash surrender value of insurance on officers' lives 798,762 781,362
Long-term portion of notes receivable (Note 3) 350,862 211,402
Deferred tax assets 2,392,000 2,392,000
------------ ------------
TOTAL OTHER ASSETS 3,541,624 3,384,764
------------ ------------
$ 18,938,890 $ 19,862,808
============ ============
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
2
<PAGE> 5
WALL STREET DELI, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 26, 1998 JUNE 27, 1998
------------------ -------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (unaudited)
CURRENT LIABILITIES
Notes payable $ 1,846,932 $ 2,004,810
Accounts payable 1,370,037 1,582,901
Accruals:
Taxes other than income 509,915 572,800
Compensation 749,306 818,765
Rent 956,183 1,018,824
Workers' compensation 810,637 781,145
Miscellaneous 195,544 366,839
------------ ------------
TOTAL CURRENT LIABILITIES 6,438,554 7,146,084
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, $.05 par - shares authorized
20,000,000; issued 3,414,802 170,740 170,740
Additional paid-in capital 10,787,369 10,787,369
Retained earnings 3,559,818 3,523,082
------------ ------------
14,517,927 14,481,191
Treasury stock, at cost, 448,325 and 368,325 shares (2,017,591) (1,764,467)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 12,500,336 12,716,724
------------ ------------
$ 18,938,890 $ 19,862,808
============ ============
</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 Period Ended
-------------------------------------------
SEPTEMBER 26, 1998 SEPTEMBER 27, 1997
------------------ ------------------
<S> <C> <C>
NET SALES $ 15,253,413 $ 16,169,434
Costs and expenses (income):
Costs of sales 13,642,641 14,719,767
Administrative and general expense 1,551,184 1,767,688
Interest expense - net 37,834 20,938
(Gain)/loss on sale of equipment and
improvements (37,908) (56,696)
------------ ------------
TOTAL COSTS AND EXPENSES: 15,193,751 16,451,697
------------ ------------
Income (loss) before taxes (benefit) on income 59,662 (282,263)
Taxes (benefit) on income 22,926 (112,905)
------------ ------------
Net income (loss) $ 36,736 $ (169,358)
============ ============
Basic and diluted earnings (loss) per common share
(Note 5) $ .01 $ (.05)
============ ============
Weighted average number of common
shares outstanding (Note 5) 3,016,588 3,133,523
============ ============
</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
----------------------- Additional -------------------------
Number paid-in Retained Number
of shares Amount capital earnings of shares Amount
--------- ------ ------- -------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
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 3,414,402 $170,720 $10,785,604 $ 7,196,154 298,825 $ 1,514,279
(unaudited) ========= ======== =========== =========== ======= ===========
Balance, June 27, 1998 3,414,802 $170,740 $10,787,369 $ 3,523,082 368,325 $ 1,764,467
Net income for the quarter 36,736
Purchase of treasury stock 80,000 253,124
--------- -------- ----------- ----------- ------- -----------
Balance, September 26, 1998 3,414,802 $170,740 $10,787,369 $ 3,559,818 448,325 $ 2,017,591
(unaudited) ========= ======== =========== =========== ======= ===========
</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
Period Ended
-------------------------------
SEPTEMBER 26, SEPTEMBER 27,
1998 1997
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 36,736 $ (169,358)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 779,715 860,977
Gain on sale of property and equipment (37,908) (56,696)
Deferred income taxes 22,926 --
Changes in operating assets and liabilities:
Receivables - net (Note 3) (19,653) (236,506)
Inventories 28,587 (33,186)
Prepaid expenses and other 17,138 59,686
Accounts payable (212,864) (308,133)
Accruals (336,788) (35,977)
--------- -----------
CASH PROVIDED BY OPERATING ACTIVITIES 277,889 80,807
--------- -----------
INVESTING ACTIVITIES
Payments for purchase of equipment and improvements (67,116) (1,148,042)
Proceeds from sale of equipment and improvements 71,250
Net collections on notes receivable 11,017 42,872
Decrease (increase) in cash surrender value of
insurance on officers' lives (17,400) 10,997
--------- -----------
CASH USED BY INVESTING ACTIVITIES (73,499) (1,022,923)
--------- -----------
FINANCING ACTIVITIES
Net borrowings (payments) under line of credit (157,878) 687,097
Proceeds from exercise of stock options -- 3,187
Acquisition of treasury stock (253,124) (132,138)
--------- -----------
CASH PROVIDED (USED) BY FINANCING ACTIVITIES (411,002) 558,146
--------- -----------
NET INCREASE (DECREASE) IN CASH FOR THE PERIOD (206,612) (383,970)
Cash and cash equivalents, beginning of period 409,044 490,058
--------- -----------
Cash and cash equivalents, end of period $ 202,432 $ 106,088
========= ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the period for:
Interest $ 40,657 $ 28,660
Income taxes $ 19,600 $ 10,000
</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 26,
1998 and the results of operations, changes in stockholders' equity and
cash flows for the three month periods ended September 26, 1998 and
September 27, 1997.
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
26, 1998 and September 27, 1997 are not necessarily indicative of the
results to be expected for the full year.
3. Accounts and notes receivable consists of:
<TABLE>
<CAPTION>
September 26, 1998 June 27, 1998
------------------ -------------
<S> <C> <C>
Accounts receivable $ 1,264,810 $ 1,262,505
Notes receivable 494,512 333,530
Other receivables 420,001 420,001
----------- -----------
2,179,323 2,016,036
Less allowance for doubtful accounts (563,832) (485,198)
----------- -----------
1,615,491 1,530,838
Less long-term portion of notes receivable (350,862) (211,402)
----------- -----------
$ 1,264,629 $ 1,319,436
=========== ===========
</TABLE>
The Company has recorded a $65,000 note related to the sale of the
Minneapolis store.
4. Inventories are valued at the lower of cost (first-in, first-out) or
market.
5. Basic and diluted earnings (loss) per common share ("EPS") and common
share equivalent have been computed in accordance with the provisions
of SFAS 128. Basic EPS excludes dilution and is computed by dividing
income available to common stockholders by the weighted average number
of shares outstanding during the respective periods. Diluted
7
<PAGE> 10
EPS reflects the potential dilution that could occur if securities or
other contracts to issue common stock are exercised or converted into
common stock or result in the issuance of common stock that then shares
in the earnings of the Company.
Earnings per share has been calculated using the following:
<TABLE>
<CAPTION>
For the Three
Month Period Ended
------------------------------
September 26, September 27,
1998 1997
------------- -------------
<S> <C> <C>
Weighted average number of common
shares used for basic EPS 3,016,588 3,133,523
Effect of dilutive stock options -- --
--------- ---------
Weighted average number of common shares and
dilutive potential common stock used in diluted EPS 3,016,588 3,133,523
========= =========
</TABLE>
6. Impact of Year 2000. The Company is in the process of conducting a
comprehensive review of its computer systems to identify the systems
that could be affected by the Year 2000 issue. The problem is complex
as virtually every computer operation will be affected in some way by
the rollover of the two digit year value to 00. Systems that do not
properly recognize date sensitive information could generate erroneous
data or cause a system to fail. The Company is utilizing internal and
external resources in an attempt to identify and correct, or reprogram,
all systems for year 2000 compliance. It is anticipated that all
reprogramming efforts will be completed by mid-1999, allowing adequate
time for testing. The Company's sales reporting and inventory system
was developed internally, and will need modifications which are
scheduled for completion in January 1999. Management considers these
modifications to involve a moderate effort and expects to use internal
resources for completion. All computer hardware and other electronic
equipment is currently undergoing compliance testing. The Company has
budgeted $40,000 for installation and training of the upgraded systems.
Due to the fact that most of the Company's computer and
telecommunications equipment are relatively new, the costs to bring it
into compliance are not expected to result in material expenditures.
The Company believes its Year 2000 plans are sufficient, but will
develop contingency plans as needed in the future.
7. 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
8
<PAGE> 11
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, but not for interim periods in the initial
year of adoption, and requires comparative information for earlier
years to be restated. Management believes that adoption of this
statement will not have a significant impact on the Company's financial
statements.
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, but not for interim periods in the initial
year of adoption, 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.
In June 1998, the Financial Accounting Standards Board Issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities
("SFAS 133"). SFAS 133 requires companies to recognize all derivatives
contracts as either assets or liabilities in the balance sheet and to
measure them at fair value. If certain conditions are met, a derivative
may be specifically designated as a hedge, the objective of which is to
match the timing of gain or loss recognition on the hedging derivative
with the recognition of (i) the changes in the fair value of the hedged
asset or liability that are attributable to the hedged risk or (ii) the
earnings effect of the hedged forecasted transaction. For a derivative
not designated as a hedging instrument, the gain or loss is recognized
in income in the period of change. SFAS 133 amends the guidance in SFAS
No. 52, "Foreign Currency Translation," to permit special accounting
for a hedge of a foreign currency forecasted transaction with a
derivative. It also supersedes SFAS No. 80, "Accounting for Futures
Contracts," SFAS No. 105, "Disclosure of Information about Financial
Instruments with Off-Balance-Sheet Risk and Financial Instruments with
Concentrations of Credit Risk," and SFAS No. 119, "Disclosure about
Derivative Financial Instruments." In addition, it
9
<PAGE> 12
amends SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments," to include in SFAS No. 107 the disclosure provisions
about concentrations of credit risk from SFAS No. 105.
SFAS 133 is effective for financial statements for periods beginning
after June 15, 1999. Historically, the Company has not entered into
derivatives contracts either to hedge existing risk or for speculative
purposes. Accordingly, the Company does not expect adoption of the new
standard on July 2, 2000 to affect its financial statements.
10
<PAGE> 13
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 period ended
September 26, September 27,
1998 1997
------------- -------------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 89.4 91.0
------ ------
Gross profit 10.6 9.0
Administrative and general 10.2 10.9
------ ------
Operating income (loss) .4 (1.9)
Other income (expense), net -- .2
------ ------
Income (loss) before taxes (benefit) on income (loss) .4 (1.7)
Taxes (benefit) on income (loss) .2 (.7)
------ ------
Net income (loss) .2% (1.0)%
====== ======
</TABLE>
11
<PAGE> 14
NET SALES
For the first quarter of fiscal 1999, net sales decreased by $916,021
or 5.7 percent over the corresponding three month period last year primarily due
to a 4.0 percent decline in same store sales. Average sales per store for all
stores were approximately $135,000 and $138,000 in the first quarter of fiscal
years 1999 and 1998, respectively.
Management believes the negative impact on same store sales is
generally attributable to the continuing effect of competition. In addition,
management believes that slower sales from the Fourth of July through Labor Day
holidays reflects the effect of the vacation season on the Company's stores,
most of which are located in office building environments. Operational problems
in certain instances are also an element.
During the first quarter of fiscal 1999, the Company sold one store in
Minneapolis that no longer met performance goals. At September 26, 1998, 111
Wall Street Deli stores were in operation, as compared with 116 at September 27,
1997.
Wall Street Deli completed the rollout of its "Cool Wraps" menu group
during the quarter. A recent addition to the Company's Street Wraps line, the
Cool Wraps combine turkey, roast beef and chicken with bacon, cheese, lettuce,
corn, vegetables, salsa and dressing. Cool Wraps were introduced on a
promotional and test basis beginning in the fourth quarter of fiscal 1998, and
during this first quarter of 1999 were introduced in all stores. Following tests
of several versions, two of the Cool Wraps have been added permanently to the
menu.
During the three month period ended September 26, 1998 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. Two
franchised operations were opened, including four locations in the new Raymond
James Stadium in Tampa, Florida and the third franchised unit in Birmingham,
Alabama. There have not yet been any significant revenues from this program.
The Company also implemented pricing adjustments and price changes
during the first quarter. These were, however, insignificant on an overall
basis, and the Company 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 decreased to 89.4% during
the three month period ended September 26, 1998 from 91.0% in the corresponding
three month period in the previous year.
The major components of cost of sales for the three month periods ended
September 26, 1998 and September 27, 1997, respectively, are shown in the
following table:
12
<PAGE> 15
<TABLE>
<CAPTION>
For the Three Month Period Ended
September 26, 1998 September 27, 1997
------------------ ------------------
Amount % of Sales Amount % of Sales
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Food and Paper $ 5,559,706 36.5% $ 5,787,249 35.8%
Labor 3,406,188 22.3 3,750,519 23.2
Store Expenses 4,676,747 30.6 5,181,999 32.0
----------- ---- ----------- ----
$13,642,641 89.4% $14,719,767 91.0%
=========== ==== =========== ====
</TABLE>
The increase from the corresponding three month period last year in
food and paper expenses of 0.7 percent as a percentage of sales is mainly
attributable to increased costs for dairy products.
Labor costs as a percentage of net sales decreased 0.9 percent as
compared to the first quarter of fiscal 1998. The reduction was mostly due to
the implementation of new products and store systems that are somewhat less
labor intensive.
Store expenses as a percentage of net sales decreased 2.1 percent from
the same quarter last year. Costs occasioned by the implementation of the Street
Wraps program in the prior year first quarter contributed to a decrease this
quarter of 0.7 percent in miscellaneous restaurant supplies. Other store
expenses that decreased as compared to the same quarter last year included
repairs and maintenance (0.2 percent), and payroll related expenses (0.3
percent). In addition, depreciation was down 0.2 percent from the first quarter
of fiscal 1998, due to the SFAS No. 121 write-down recorded in the fourth
quarter of fiscal 1998.
ADMINISTRATIVE AND GENERAL EXPENSES
Administrative and general expenses for the three month period ended
September 26, 1998 decreased $216,504 to $1,551,184, or 12.2%, as compared to
the three month period ended September 27, 1997. In first quarter of last year
the Company experienced certain additional expenses at the corporate level
related to launching the Street Wraps program, and to management changes in
cities with operating difficulties, which accounted for a majority of the
decrease in the first quarter this year.
TAXES ON INCOME
The effective tax rate for each of the three month periods ended
September 26, 1998 and September 27, 1997 was 38.4 percent and 40.0 percent,
respectively.
13
<PAGE> 16
INTEREST EXPENSE, NET
In the three month period ended September 26, 1998, the Company had net
interest expense of $37,834 compared to net interest expense of $20,938 for the
three month period ended September 27, 1997. 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 (7.13676
percent at September 26, 1998) or the bank's quoted cost of funds plus 175 basis
points (7.125 percent at September 26, 1998). The Company had $1,846,932
outstanding against this line at September 26, 1998 as compared to $1,692,497 at
September 27, 1997. The interest expense for the three month period ended
September 26, 1998 of $40,537 was offset by $2,703 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.
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 26, 1998, the ratio of the Company's current assets to
current liabilities was .48 to 1.00, as compared to a current ratio of .48 to
1.00 at June 27, 1998. This reflects the Company's continued use of available
cash in the first quarter of 1999 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 $67,116 and $1,148,042 for the three month periods ended
September 26, 1998 and September 27, 1997, respectively. It is presently
anticipated that the Company's capital expenditures for fiscal 1999 will be
approximately $1,651,000. During the fourth quarter of 1998, the Company's Board
of
14
<PAGE> 17
Directors approved the repurchase of up to 100,000 shares of the Company's
common stock. During the three month period ended September 26, 1998, a total of
80,000 shares were purchased at an acquisition cost of $253,124.
The Company has historically met its capital needs from short term
bank borrowings and internally generated funds. Cash generated from operations
totaled $277,889 and $80,807 for the three month periods ended September 26,
1998 and September 27, 1997, 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
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule, submitted to the
Securities and Exchange Commission in
electronic format
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the quarter
ended September 26, 1998.
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 6, 1998 /s/ Jeffrey V. Kaufman
----------------------------------------
JEFFREY V. KAUFMAN
President and Chief Executive Officer
November 6, 1998 /s/ Robert G. Barrow
----------------------------------------
ROBERT G. BARROW
Chief Financial Officer
November 6, 1998 /s/ Julie J. Christian
----------------------------------------
JULIE J. CHRISTIAN
Vice President and Controller
(Principal Accounting Officer)
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF WALL STREET DELI FOR THE THREE MONTH PERIOD ENDED SEPTEMBER 26,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-03-1999
<PERIOD-START> JUN-28-1998
<PERIOD-END> SEP-26-1998
<CASH> 202,432
<SECURITIES> 0
<RECEIVABLES> 1,828,461
<ALLOWANCES> 563,832
<INVENTORY> 554,818
<CURRENT-ASSETS> 3,102,885
<PP&E> 36,084,824
<DEPRECIATION> 23,790,443
<TOTAL-ASSETS> 18,938,890
<CURRENT-LIABILITIES> 6,438,554
<BONDS> 0
0
0
<COMMON> 170,740
<OTHER-SE> 12,671,076
<TOTAL-LIABILITY-AND-EQUITY> 18,938,890
<SALES> 15,253,413
<TOTAL-REVENUES> 15,253,413
<CGS> 15,193,751
<TOTAL-COSTS> 15,193,751
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 563,832
<INTEREST-EXPENSE> 37,834
<INCOME-PRETAX> 59,662
<INCOME-TAX> 22,926
<INCOME-CONTINUING> 36,736
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,736
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
