<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 April 1, 2000
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 May 9, 2000
- --------------------------- ---------------------------
Common Stock, $.05 Par Value 2,908,477
<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................................9
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 April 1, 2000 (unaudited) and July
3, 1999.
Consolidated Statements of Operations (unaudited) for the
thirteen week and thirty-nine week periods ended April 1, 2000
and March 27, 1999.
Consolidated Statements of Stockholders' Equity (unaudited) for
the thirteen week and thirty-nine week periods ended April 1,
2000 and March 27, 1999.
Consolidated Statements of Cash Flows (unaudited) for the
thirty-nine week periods ended April 1, 2000 and March 27, 1999.
Notes to Consolidated Financial Statements (unaudited).
[The remainder of this page intentionally left blank]
1
<PAGE> 4
WALL STREET DELI, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 1, 2000 July 3, 1999
------------- ------------
ASSETS (unaudited)
<S> <C> <C>
Current
Cash and cash equivalents $ 1,304,333 $ 1,305,652
Accounts and notes receivable, net 1,317,236 982,975
Inventories 551,730 564,061
Refundable income taxes -- 346,140
Deferred tax assets 495,000 495,000
Prepaid rent 29,548 676,166
Other 309,162 202,557
------------ ------------
Total current assets 4,007,009 4,572,551
------------ ------------
Equipment and improvements
Equipment and fixtures 15,432,905 15,554,760
Leasehold improvements 12,894,230 12,793,819
------------ ------------
28,327,135 28,348,579
Less accumulated depreciation and amortization (20,519,008) (19,132,868)
------------ ------------
Net equipment and improvements 7,808,127 9,215,711
------------ ------------
Other assets
Long-term portion of notes receivable 870,717 1,004,196
Deferred tax assets 2,381,000 2,381,000
------------ ------------
Total other assets 3,251,717 3,385,196
------------ ------------
$ 15,066,853 $ 17,173,458
============ ============
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
2
<PAGE> 5
WALL STREET DELI, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 1, 2000 July 3, 1999
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (unaudited)
<S> <C> <C>
Current liabilities
Bank overdrafts $ 1,261,107 $ 1,441,444
Notes payable 363,874 398,004
Accounts payable 637,119 1,509,329
Accruals:
Taxes other than income 1,986,015 592,053
Compensation 561,875 798,868
Rent 688,162 925,072
Workers' compensation 264,379 972,101
Other insurance 375,000 459,079
Miscellaneous 9,985 176,550
------------ ------------
Total current liabilities 6,147,516 7,272,500
------------ ------------
Deferred revenue 43,085 --
Stockholders' equity
Common stock, $.05 par - shares authorized
20,000,000; issued 3,426,802 and 3,414,802, 171,341 170,740
respectively
Additional paid-in capital 10,805,322 10,787,369
Retained earnings 146,680 1,189,940
------------ ------------
11,123,343 12,148,049
Treasury stock, at cost, 518,325 shares (2,247,091) (2,247,091)
------------ ------------
Total stockholders' equity 8,876,252 9,900,958
------------ ------------
$ 15,066,853 $ 17,173,458
============ ============
</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 thirteen week For the thirty-nine week
periods ended periods ended
----------------------------------- -----------------------------------
April 1, March 27, April 1, March 27,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues
Net sales $ 12,557,332 $ 13,689,189 $ 37,583,673 $ 43,379,888
Franchise revenues 42,633 116,319 210,534 210,363
------------ ------------ ------------ ------------
Total revenues 12,599,965 13,805,508 37,794,207 43,590,251
------------ ------------ ------------ ------------
Costs of restaurant operations
Food and paper costs 4,178,310 4,727,957 13,136,330 15,586,001
Labor 3,269,509 3,149,630 9,587,078 9,894,958
Store expenses 3,782,136 3,866,262 10,688,283 11,649,071
Restaurant depreciation 561,837 712,191 1,813,176 2,249,158
Franchise expenses 35,960 76,481 113,928 245,449
------------ ------------ ------------ ------------
Total cost of restaurant operations 11,827,752 12,532,521 35,338,795 39,624,637
------------ ------------ ------------ ------------
Restaurant operating income 772,213 1,272,987 2,455,412 3,965,614
------------ ------------ ------------ ------------
Administrative expenses
Division level 323,575 383,279 994,724 1,135,869
Catering sales 137,240 209,449 471,566 585,783
Corporate 680,701 1,038,408 1,943,733 2,709,275
------------ ------------ ------------ ------------
Total general and administrative 1,141,516 1,631,136 3,410,023 4,430,927
------------ ------------ ------------ ------------
Other income (expense)
Interest (expense) (19,464) (60,345) (55,173) (124,432)
Gain (loss) from sale of assets (3,164) (81,223) (33,476) (43,401)
------------ ------------ ------------ ------------
Total other income (expense) (22,628) (141,568) (88,649) (167,833)
------------ ------------ ------------ ------------
Income (loss) before taxes (391,931) (499,717) (1,043,260) (633,146)
Tax benefit -- (60,500) -- (114,659)
------------ ------------ ------------ ------------
Net (loss) $ (391,931) $ (439,217) $ (1,043,260) $ (518,487)
============ ============ ============ ============
Basic and diluted (loss)
per share $ (0.14) $ (0.15) $ (0.36) $ (0.18)
============ ============ ============ ============
Weighted average number of common
shares outstanding 2,902,770 2,896,477 2,898,598 2,951,481
------------ ------------ ------------ ------------
</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 27, 1998 3,414,802 $ 170,740 $10,787,369 $3,523,082 368,325 $(1,764,467)
Net income for the quarter 36,358
Treasury stock acquired 80,000 (253,124)
-----------------------------------------------------------------------------
Balance, September 26, 1998 3,414,802 170,740 10,787,369 3,559,440 448,325 (2,017,591)
Net loss for the quarter (115,628)
Treasury stock acquired 70,000 (229,500)
-----------------------------------------------------------------------------
Balance, December 26, 1998 3,414,802 170,740 10,787,369 3,443,812 518,325 (2,247,091)
Net loss for the quarter (439,217)
-----------------------------------------------------------------------------
Balance, March 27, 1999 3,414,802 170,740 10,787,369 3,004,595 518,325 (2,247,091)
=============================================================================
Balance, July 3, 1999 3,414,802 170,740 10,787,369 1,189,940 518,325 (2,247,091)
Net loss for the quarter (201,228)
-----------------------------------------------------------------------------
Balance, October 2, 1999 3,414,802 170,740 10,787,369 988,712 518,325 (2,247,091)
Net loss for the quarter (450,101)
-----------------------------------------------------------------------------
Balance, January 1, 2000 3,414,802 170,740 10,787,369 538,611 518,325 (2,247,091)
Options exercised 8,750 438 9,362
Shares issued under Stock
Purchase Plan 3,250 163 8,591
Net loss for the quarter (391,931)
-----------------------------------------------------------------------------
Balance, April 1, 2000 3,426,802 $ 171,341 $10,805,322 $ 146,680 518,325 $(2,247,091)
=============================================================================
</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 thirty-nine week
periods ended
---------------------------------
April 1, March 27,
2000 1999
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(1,043,260) $ (518,487)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 1,890,471 2,320,164
Loss (gain) on sale of leasehold improvements and equipment 33,476 81,223
Deferred income taxes (benefits) -- (114,548)
Changes in operating assets and liabilities:
Receivables - net (11,879) 654,028
Inventories 12,331 26,845
Prepaid expenses and other 540,013 (333,462)
Accounts payable and bank overdraft (1,052,547) (94,247)
Deferred revenue 43,085 --
Accruals (38,307) (391,847)
----------- -----------
Cash provided by operating activities 373,383 1,629,669
----------- -----------
INVESTING ACTIVITIES
Payments for purchase of equipment and improvements (424,186) (749,164)
Proceeds from sale of equipment and improvements 1,571 62,627
Net collections on long-term notes receivable 133,479 41,632
Decrease (increase) in cash surrender value of insurance on
officers' lives (70,000) 479,753
----------- -----------
Cash provided (used) by investing activities (359,136) (165,152)
----------- -----------
FINANCING ACTIVITIES
Net borrowings (payments) under line of credit (34,130) (235,019)
Proceeds from exercise of stock options and employee stock
purchase plan 18,554 --
Acquisition of treasury stock -- (482,624)
----------- -----------
Cash provided (used) by financing activities (15,576) (717,643)
----------- -----------
NET INCREASE (DECREASE) IN CASH FOR THE PERIOD (1,329) 746,874
Cash and cash equivalents, beginning of period 1,305,662 409,044
----------- -----------
Cash and cash equivalents, end of period $ 1,304,333 $ 1,155,918
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the period for:
Interest $ 55,173 $ 94,430
Income taxes $ -- $ 221,364
Notes received from sale of leasehold improvements and
equipment and assets of business transferred under
contractual arrangement, net $ -- $ 1,222,620
</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 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 April 1, 2000 and the results of operations
and changes in stockholders' equity for the thirteen week and
thirty-nine week periods ended April 1, 2000 and March 27, 1999, and
cash flows for the thirty-nine week periods ended April 1, 2000 and
March 27, 1999.
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 thirty-nine week periods ended April
1, 2000 and March 27, 1999 are not necessarily indicative of the
results to be expected for the full year. Certain amounts during the
comparable quarters of fiscal 1999 have been reclassified to conform to
the current period presentation.
3. Accounts and notes receivable consists of:
<TABLE>
<CAPTION>
April 1, July 3,
2000 1999
----------- -----------
<S> <C> <C>
Accounts and royalties receivable $ 613,765 $ 637,496
Notes receivable 416,043 461,242
Assets of business transferred under
contractual arrangement 704,000 791,000
Other receivables 828,804 758,804
----------- -----------
2,562,612 2,648,542
Less allowance for doubtful accounts (374,659) (661,371)
----------- -----------
2,187,953 1,987,171
Less long-term portion of notes receivable (870,717) (1,004,196)
----------- -----------
$ 1,317,236 $ 982,975
=========== ===========
</TABLE>
4. Inventories are valued at the lower of cost (first-in, first-out) or
market.
5. Earnings per share ("EPS") 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 EPS reflects the potential dilution that could occur if
securities or other
7
<PAGE> 10
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.
The effect of shares issuable under the Company's stock option plan are
excluded for the thirty-nine week periods ended April 1, 2000 and March
27, 1999 and the thirteen week period ended April 1, 2000 as the effect
would be anti-dilutive. The assumed exercise of the common stock
options is not included in the computation of common stock equivalents
for the thirteen week period ended March 27, 1999 because the
significant majority of common options outstanding were at prices which
exceed the common stock market price.
Earnings per share has been calculated using the following:
<TABLE>
<CAPTION>
For the thirteen For the thirty-nine
week periods ended week periods ended
---------------------------- ---------------------------
April 1, March 27, April 1, March 27,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Weighted average number of common
shares used for basic EPS 2,902,770 2,896,477 2,848,598 2,951,481
Effect of dilutive stock options -- -- -- --
--------- --------- --------- ---------
Weighted average number of common
shares and dilutive potential common
stock used in diluted EPS 2,902,770 2,896,477 2,898,598 2,951,481
========= ========= ========= =========
</TABLE>
6. Effective December 31, 1998, the Company transferred leasehold
improvements and equipment and subleased five stores in the Los
Angeles, California area to California Fresh Deli, Inc. ("CFD"). CFD
entered into a franchise agreement with the Company to operate the five
stores.
The Company received a $800,000 non-interest bearing note, payable in
monthly installments of $12,000 from June 1999 through November 2000,
and at the greater of $13,333 or eight percent of monthly revenues
thereafter until the note is repaid. The realization of the note is
dependent on future operations of the five stores and has been reported
as "Assets of business transferred under contractual arrangement" net
of a valuation allowance of $142,560. Franchise fees payable by CFD
under the franchise agreement have been deferred until the note has
been paid in full.
7. The effective tax rate for the thirteen week period and for the
thirty-nine week period ended April 1, 2000 was -0- percent.
8. At July 3, 1999, the Company was not in compliance with the debt
service coverage ratio covenant and the tangible net worth ratio under
its existing short-term bank line of credit (the "Credit Agreement")
and accordingly, had requested and was granted waivers and amendments
to such covenants from its lender for periods up to and including
October 31, 1999. Additionally, on February 1, 1999, the lender had
lowered the available line from
8
<PAGE> 11
$7,500,000 to $4,000,000 and changed the interest rate from a LIBOR
denominated rate to prime. On September 20, 1999, the lender again
lowered the available line from $4,000,000 to $1,750,000 and increased
the interest rate from prime to prime plus 2%. On March 3, 2000 a
modification of the agreement was then entered into extending the
agreement to October 31, 2000 at the same interest rate of prime plus
2.0% and subject to certain modified covenants. There can be no
assurance that the Company will not require additional waivers in the
future or if required, that the lender will grant them. However, if
negotiations with the lender should not proceed as expected, management
believes there are a number of viable refinancing alternatives, though
there can be no assurance that any such alternatives would be on terms
as favorable as the present arrangements.
9. 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, as amended, is effective for financial statements for fiscal
years 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 materially affect its financial
statements.
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 presented herein.
Forward Looking Statements. The statements in this Form 10-Q that are
not historical fact are forward looking statements. Such statements appear in a
number of places in this report and include statements regarding the intent,
belief or expectations of the Company and its management with respect to, among
other things, the Company's operating performance, anticipated growth
strategies, trends in the food service industry and other trends that may affect
the Company's financial condition or results of operations. Such statements are
subject to numerous risks and uncertainties which could cause actual results to
differ materially from those anticipated or projected, including, among others,
recent changes in management, the availability of financing, new franchising
programs and other new products and programs, competition for customers, labor
force and store sites, the effects of changes in the economy such as inflation
and unemployment rates, and weather conditions and seasonal effects.
9
c:
<PAGE> 12
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 revenues represented by certain items in the Company's
consolidated statements of operations.
<TABLE>
<CAPTION>
Thirteen week periods ended Thirty-nine week periods ended
---------------------------- ------------------------------
April 1, March 27, April 1, March 27,
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales 99.7% 99.1% 99.4% 99.5%
Franchise revenues 0.3 0.9 0.6 0.5
------ ------ ------ ------
Total revenues 100.0 100.0 100.0 100.0
Cost of restaurant operations 93.9 90.9 93.5 90.8
------ ------ ------ ------
Restaurant operating income 6.1 9.1 6.5 9.2
General and administrative 9.0 11.7 8.9 10.3
------ ------ ------ ------
Operating income (loss) (2.9) (2.6) (2.4) (1.1)
Other income (expense) (0.2) (1.0) (0.3) (0.3)
------ ------ ------ ------
Income (loss) before taxes (3.1) (3.6) (2.7) (1.4)
------ ------ ------ ------
Taxes (benefit) -- (0.5) -- (0.3)
------ ------ ------ ------
Net income (loss) (3.1)% (3.1)% (2.7)% (1.1)%
====== ====== ====== ======
</TABLE>
NET SALES
Net sales for company-owned restaurants for the thirteen weeks ended
April 1, 2000 declined 8.3% to $12,557,332 from $13,689,189 recorded during the
comparable prior year period. Comparable sales per restaurant declined by 6.4%
due to increased competition and lower catering sales. In addition, the number
of company-owned restaurants declined from 104 at the end of the third quarter
of fiscal 1999 to 100 at the end of the third quarter of fiscal 2000. During the
quarter, one restaurant was opened and one was closed in Texas. It is the
intention of management to close or sell two additional underperforming
restaurants during the fourth quarter.
Net sales for company-owned restaurants for the thirty-nine weeks ended
April 1, 2000 declined by 13.4% to $37,583,675 from $43,379,888 recorded during
the thirty-nine weeks ended
10
<PAGE> 13
March 27, 1999. On a year to year basis comparable sales per restaurant have
declined by 8.9% with the balance of the decline due to a decrease in the number
of company operated restaurants. As discussed in Note 6, five Los Angeles
restaurants that were open in the first half of fiscal 1999 were sold to a
franchisee on December 31, 1998. See "Franchise Operations" later in this report
for additional details concerning franchised operations.
COST OF RESTAURANT OPERATIONS
The components of cost of restaurant operations as a percentage of net
sales for the thirteen week periods ended April 1, 2000 and March 27, 1999,
respectively, are shown in the following table:
<TABLE>
<CAPTION>
For the thirteen week periods ended
-------------------------------------------------------
April 1, 2000 March 27, 1999
------------------------- ------------------------
% of Net % of Net
Amount Sales Amount Sales
----------- ---- ----------- ----
<S> <C> <C> <C> <C>
Food and Paper $ 4,178,310 33.2% $ 4,727,957 34.5%
Labor 3,269,509 26.0 3,149,630 23.0
Store Expenses 3,782,136 30.1 3,866,262 28.2
Restaurant Depreciation 561,837 4.6 712,191 5.2
----------- ---- ----------- ----
Total $11,791,792 93.9% $12,456,040 90.9%
=========== ==== =========== ====
</TABLE>
Cost of restaurant operations declined 5.3% to $11,791,792 from
$12,456,040 incurred during the comparable prior year quarter. Cost of food and
paper as a percent of net sales declined from 34.5% to 33.2% due to improved
buying practices, new efficiency measures and a small price increase. Labor as a
percent of net sales increased as a percent of net sales to 26.0% from 23.0%
primarily due to increased staffing to enhance customer service. Store expenses,
which include mostly fixed expenses such as rent, taxes and insurance, declined
by 2.1% but increased as a percent of sales to 30.1% compared to 28.2% during
the comparable period. Depreciation and amortization declined 21.1% to $561,837
from $712,191 primarily due to impairment adjustments recorded in fiscal 1999
and four fewer company-owned restaurants in operation at the end of the third
quarter of fiscal 2000 compared to the same time in fiscal 1999. All of these
factors resulted in an increase in the cost of restaurant operations as a
percent of net sales to 93.9% for the third quarter of fiscal 2000 compared to
90.9% for the third quarter of fiscal 1999.
11
<PAGE> 14
The components of cost of restaurant operations as a percentage of
net sales for the thirty-nine week periods ended April 1, 2000 and March 27,
1999, respectively, are shown in the following table.
<TABLE>
<CAPTION>
For the thirty-nine week periods ended
----------------------------------------------------
April 1, 2000 March 27, 1999
------------------------ ------------------------
% of Net % of Net
Amount Sales Amount Sales
----------- ---- ----------- ----
<S> <C> <C> <C> <C>
Food and Paper $13,136,330 34.9% $15,586,001 35.9%
Labor 9,587,078 25.5 9,894,958 22.8
Store Expenses 10,688,283 28.4 11,649,071 27.0
Restaurant Depreciation 1,813,176 4.9 2,249,158 5.1
----------- ---- ----------- ----
Total $35,224,867 93.7% $39,379,188 90.8%
=========== ==== =========== ====
</TABLE>
The cost trends previously discussed for the thirteen weeks ended April
1, 2000, and March 27, 1999 are also applicable to results for the three
quarters ending on the same dates. See "General and Administrative" for
discussion of management changes and new personnel.
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist of overhead expenses
associated with each of the Company's operating divisions, expenses associated
with catering operations and corporate administration. Total general and
administrative expenses declined 30.0% and 23.0% for the third quarter and first
three quarters, respectively, compared to the comparable prior period.
Management expects general and administrative expenses to continue to decrease
but at a lesser rate in future quarters due to the filling of several key
officer positions during the second quarter of fiscal 2000. During the second
quarter Howard Cannon and Thomas J. Sandeman joined the Company as
Vice-President-Operations and Chief Financial Officer, respectively. These
industry veterans have initiated change in both restaurant operations, financial
controls and asset management in addition to bringing in three new regional
vice-presidents and a new controller to assist in achieving increased sales and
a return to profitability.
12
<PAGE> 15
FRANCHISE OPERATIONS
The following information summarizes franchise operations for the third
quarter and first three quarters of fiscal 2000 compared to the comparable prior
year period:
<TABLE>
<CAPTION>
For the thirteen week
periods ended
---------------------
April 1, March 27,
2000 1999
------- --------
<S> <C> <C>
Royalty income $40,133 $ 46,319
Initial franchise fees 2,500 70,000
------- --------
Total franchise revenues 42,633 116,319
Franchise expenses 35,960 76,481
------- --------
Franchise income $ 6,673 $ 39,838
======= ========
</TABLE>
<TABLE>
<CAPTION>
For the thirty-nine week
periods ended
------------------------
April 1, March 27,
2000 1999
-------- ---------
<S> <C> <C>
Royalty income $158,034 $ 130,363
Initial franchise fees 52,500 80,000
-------- --------
Total franchise revenues 210,534 210,363
Franchise expenses 113,928 245,449
-------- ---------
Franchise income (loss) $ 96,606 $ (35,086)
======== =========
</TABLE>
At the end of the third quarter of fiscal 2000 there were 19 franchised
restaurants in operation compared to 15 at the end of the third quarter of
fiscal 1999. During the third quarter of fiscal 2000, one franchised restaurant
opened, resulting in $2,500 of fees, compared to eight openings and $70,000 of
fees in the prior year quarter. Comparable sales per store for franchisees
continued to increase during the third quarter. Franchise expenses were higher
in the prior year primarily due to a higher level of franchise administration
costs. Management expects franchise expenses to increase due to additional store
openings and the probable addition of a yet to be hired director of franchising
and real estate.
On a year to date basis increases in royalty income from more
restaurants is offset by lower initial fees from fewer openings. Franchise
expenses dropped by $131,521 between periods resulting in a $96,606 profit for
the first three quarters of fiscal 2000 compared to a loss in the first three
quarters of fiscal 1999.
13
<PAGE> 16
TAXES ON INCOME
The effective tax rate for the third quarter and for the thirty-nine
weeks ended April 1, 2000 was -0- percent, compared to 12.1% and 18.1% for the
thirteen weeks and thirty-nine weeks ended March 27, 1999, respectively.
INTEREST EXPENSE
Interest expense declined 67.7% to $19,464 compared to $60,345 for the
third quarter of fiscal 1999, primarily due to significantly lower average daily
balances on the line of credit. For the first three quarters of fiscal 2000
interest expense declined 55.7% to $55,173 compared to $124,432 during the first
three quarters of fiscal 1999 due to lower average balances on the line of
credit but partially offset by higher interest rates. See Note 8 to the
Consolidated Financial Statements in this report for additional details about
the line of credit.
IMPACT OF INFLATION
In most cases, management has been able to pass on the impact of wage
and food inflation through modest price increases, but there is no assurance
that it will be able to do so in the future. Congress is currently considering
an increase in the minimum wage but it is unknown whether or when such
legislation will be enacted.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has generated most of its cash from
operations, and from bank borrowings on the Company's short-term line of credit.
Cash flow from operations, equity financings and bank borrowings have
historically funded expansion. The Company currently has no long-term debt. In
the future the Company anticipates that it may rely on long-term debt or lease
financing to fund the purchase of a point-of-sale management information system,
remodeling and Company expansion.
At the end of the third quarter liquidity was stable. The current ratio
was .65 to 1.00, compared to .63 to 1.00 at the end of fiscal 1999 and .63 to
1.00 at the end of the third quarter of fiscal 1999.
The Company's principal capital expenditures are for the remodeling of
Company stores and to a lesser degree new restaurants. Capital expenditures for
these purposes through the first three quarters of fiscal 2000 were $424,186
compared to $749,164 expended during the comparable first three quarters of the
prior year. The Company opened one company-owned restaurant during the third
quarter and closed one restaurant during the third quarter. No additional
company-owned restaurants are scheduled to open during the balance of fiscal
2000.
14
<PAGE> 17
The Company has historically met its capital needs by utilizing
short-term bank borrowings and internally generated funds. Cash generated from
operations for the first three quarters of fiscal 2000 was $373,383 compared to
a positive $1,629,669 recorded for the comparable period in the prior year. The
primary use of funds for the first three quarters was the reduction in bank
overdrafts and accounts payable of $1,052,547. In addition, the Company paid
prior year accrued workers compensation claims of approximately $600,000 during
the first quarter. The balance on the line of credit of $363,874 was seasonally
down versus the previous quarter, and substantially down from the balance at the
end of the third quarter of fiscal 1999 of $1,769,791. See Note 8 to the
Consolidated Financial Statements in this report for additional details about
the line of credit.
-----------------------------------------------
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:
During the quarter ended April 1, 2000, the
Company filed one report on Form 8-K dated March 1, 2000,
announcing the Company's adoption of a Shareholder Rights
Plan
-----------------------------------------------
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.
May 11, 2000 /s/ Jeffrey V. Kaufman
--------------------------------------------
JEFFREY V. KAUFMAN
President and Chief Executive Officer
May11, 2000 /s/ Thomas J. Sandeman
--------------------------------------------
THOMAS J. SANDEMAN
Chief Financial Officer
16
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-03-1999
<PERIOD-START> JUL-04-1999
<PERIOD-END> APR-01-2000
<CASH> 1,304,333
<SECURITIES> 0
<RECEIVABLES> 1,641,895
<ALLOWANCES> 374,659
<INVENTORY> 551,730
<CURRENT-ASSETS> 4,007,009
<PP&E> 28,327,135
<DEPRECIATION> 20,519,008
<TOTAL-ASSETS> 15,066,853
<CURRENT-LIABILITIES> 6,147,516
<BONDS> 0
0
0
<COMMON> 171,341
<OTHER-SE> 8,704,911
<TOTAL-LIABILITY-AND-EQUITY> 15,066,853
<SALES> 37,583,673
<TOTAL-REVENUES> 37,794,207
<CGS> 13,136,330
<TOTAL-COSTS> 35,338,795
<OTHER-EXPENSES> 3,443,499
<LOSS-PROVISION> (127,235)
<INTEREST-EXPENSE> 55,173
<INCOME-PRETAX> (1,043,260)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,043,260)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 1,043,260
<EPS-BASIC> .36
<EPS-DILUTED> .36
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