<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
Commission File No. 33-94724
JERRY'S FAMOUS DELI, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
California 95-3302338
------------------------------- -------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
</TABLE>
12711 Ventura Boulevard, Suite 400, Studio City, California 91604
(Address of Principal Executive Offices)
(818) 766-8311
(Registrant's Telephone Number, Including Area Code)
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO ___
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. As of April 30, 1996,
outstanding common shares totaled 10,386,250.
<PAGE> 2
JERRY'S FAMOUS DELI, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
Number
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of March 31, 1996 and December 31, 1995 . . 2
Consolidated Statements of Operations for the Three Months Ended
March 31, 1996 and March 31, 1995 . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 1996 and March 31, 1995 . . . . . . . . . . . . . . . . . . . . 4
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . 7
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . . 8
PART II - OTHER INFORMATION
Items 1. through 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
1
<PAGE> 3
JERRY'S FAMOUS DELI, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 3,163,910 $ 7,214,412
Accounts receivable, net 338,921 215,925
Accounts receivable - related party - 16,020
Inventory 147,879 118,382
Prepaid expenses 381,634 222,650
Preopening costs 183,806 83,025
Deferred income taxes 33,398 44,531
------------- -------------
Total current assets 4,249,548 7,914,945
Property and equipment, net 15,843,133 10,417,601
Organization costs 97,671 68,174
Deferred income taxes 103,466 103,466
Other assets 189,926 278,126
------------- -------------
Total assets $ 20,483,744 $ 18,782,312
============= =============
LIABILITIES AND EQUITY
Current liabilities
Accounts payable $ 885,823 $ 1,678,421
Accrued expenses 707,623 756,997
Sales tax payable 263,773 232,050
Income taxes payable 137,773 79,906
Note payable to related party 25,586 1,154,036
Current portion of long-term debt 124,188 125,137
Current portion of obligations under capital leases 39,881 43,140
------------- -------------
Total current liabilities 2,184,647 4,069,687
Long-term debt 4,298,104 1,086,813
Obligations under capital leases 12,697 20,722
Deferred credits 560,803 575,653
------------- -------------
Total liabilities 7,056,251 5,752,875
Minority interest 347,619 263,212
Equity
Preferred stock, 5,000,000 shares authorized, none
issued or outstanding - -
Common stock, no par value, 60,000,000 shares authorized,
10,386,250 issued and outstanding 12,664,752 12,664,752
Equity 415,122 101,473
------------- -------------
Total equity 13,079,874 12,766,225
------------- -------------
Total liabilities and equity $ 20,483,744 $ 18,782,312
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements
2
<PAGE> 4
JERRY'S FAMOUS DELI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended March 31,
1996 1995
------------ -----------
<S> <C> <C>
Revenues $ 7,734,528 $ 7,193,774
Cost of sales 2,346,173 2,396,435
------------ -----------
Gross profit 5,388,355 4,797,339
Operating expenses
Labor 2,669,200 2,429,604
Occupancy and other 1,023,739 1,067,526
Occupancy - related party 45,000 45,000
General and administrative expenses 769,627 600,372
General and administrative expenses - related party - 222,839
Depreciation and amortization expenses 281,290 263,591
Restaurant concept discontinuation costs - 137,396
------------ -----------
Total expenses 4,788,856 4,766,328
------------ -----------
Income from operations 599,499 31,011
Other income (expense)
Interest income 77,774 1,028
Interest expense (39,085) (49,726)
Other income, net 6,534 -
------------ -----------
Income (loss) before provision for income taxes and
minority interest 644,722 (17,687)
Provision (benefit) for income taxes 214,000 (148,672)
Minority interest 110,540 14,777
------------ -----------
Net income $ 320,182 $ 116,208
============ ===========
Net income per common share $ 0.03
============
Weighted average shares outstanding 10,386,250
==========
Pro forma data for 1995
Pro forma net income per common share $ 0.01
============
Pro forma common shares outstanding 10,386,250
============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
3
<PAGE> 5
JERRY'S FAMOUS DELI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended March 31,
1996 1995
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 320,182 $ 116,208
Adjustments to reconcile net income to net cash used in
operating activities
Depreciation and amortization 281,290 263,591
Minority interest 110,540 14,777
Deferred income taxes 11,133 (233,597)
Shares issued for services provided - 17,500
Changes in assets and liabilities
Accounts receivable - related party 16,020 (1,923)
Accounts receivable (122,996) (51,915)
Inventory (29,497) -
Prepaid expenses (158,984) (80,089)
Preopening costs (110,781) -
Other assets 5,695 85,074
Organization costs (3,826) (8,725)
Accounts payable (792,598) (692,115)
Accrued expenses (49,374) (531,404)
Sales tax payable 31,723 (11,176)
Income taxes payable 57,867 84,925
Deferred credits (2,968) 909
----------- -----------
Total adjustments (756,756) (1,144,168)
----------- -----------
Net cash used in operating activities (436,574) (1,027,960)
----------- -----------
Cash flows from investing activities:
Purchases of equipment and leasehold improvements (383,969) (149,978)
Additions to construction-in-progress (1,270,913) (214,255)
Purchase of land (2,477) -
Purchase of building and related purchase option payments (744,510) (3,000)
----------- -----------
Net cash used in investing activities (2,401,869) (367,233)
----------- -----------
Cash flows from financing activities:
Borrowings from credit facility 3,165 100,000
Payments on credit facility (40,000) (100,000)
Borrowings on long-term debt - 30,000
Payments on long-term debt (1,997) (1,367,319)
Advances to related parties (1,128,450) -
Payments from related parties - 119,950
Capital lease payments (12,110) (12,114)
Distribution paid to shareholder (6,534) (6,534)
Dividends paid to minority shareholders (26,133) (26,133)
Proceeds from stock issuance, net - 3,368,452
----------- -----------
Net cash (used) provided by financing activities (1,212,059) 2,106,302
----------- -----------
Net (decrease) increase in cash and cash equivalents (4,050,502) 711,109
Cash and cash equivalents, beginning of period 7,214,412 290,425
----------- -----------
Cash and cash equivalents, end of period $ 3,163,910 $ 1,001,534
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
4
<PAGE> 6
JERRY'S FAMOUS DELI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND ORGANIZATION:
Basis of Presentation
The accompanying consolidated financial statements of Jerry's Famous
Deli, Incorporated and its subsidiaries ("the Company") for the three months
ended March 31, 1996 and March 31, 1995 have been prepared in accordance with
generally accepted accounting principles and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. These financial statements have not been
audited by independent accountants, but include all adjustments (consisting of
normal recurring adjustments) which are, in Management's opinion, necessary for
a fair presentation of the financial condition, results of operations and cash
flows for such periods. However, these results are not necessarily indicative
of results for any other interim period or for the full year. The December 31,
1995 balance sheet financial statement is derived from audited financial
statements included in the Company's December 31, 1995 Form 10-K.
Certain information and footnote disclosures normally included in
financial statements in accordance with generally accepted accounting
principles have been omitted pursuant to requirements of the Securities and
Exchange Commission. Management believes that the disclosures included in the
accompanying interim financial statements and footnotes are adequate to make
the information not misleading, but should be read in conjunction with the
consolidated financial statements and notes thereto included in the Form 10-K
for the preceding fiscal year.
Organization
The accompanying financial statements are comprised of the
consolidated (1996) and combined (1995) financial statements ("consolidated
statements"), which consist of Jerry's Famous Deli, Incorporated ("JFD--Inc."),
a California corporation; JFD-Encino ("JFD--Encino"), a California limited
partnership; and Pizza By The Pound, dba Jerry's Famous Pizza, a California
corporation ceased operations in June 1995. JFD--Inc., JFD--Encino and Jerry's
Famous Pizza operate or operated family oriented, full-service restaurants.
These entities are collectively referred to as "Jerry's Famous Deli, Inc." or
the "Company".
The 1995 financial statements have been presented on a combined basis,
similar to a pooling of interests, due to common ownership and business. All
significant intercompany transactions and balances have been eliminated. The
combination excludes certain other entities under common ownership or control
of the shareholders, since these entities engage in unrelated business lines
and, in certain instances, have ceased operations.
JFD--Inc. and JFD--Encino include the operations of Southern
California restaurants located in Studio City, Encino, Marina del Rey, West
Hollywood and Pasadena, which opened February 20, 1996. A sixth restaurant in
Westwood is scheduled to open in the second quarter of 1996.
On March 13, 1996, Jerry's Deli, L.A., Incorporated ("JFDLA"), a
subsidiary of JFD--Inc. and the co-general partner of JFD- -Encino, made a
tender offer to purchase up to 100% of the outstanding limited partnership
units of JFD--Encino. Through April 13, 1996, the expiration date of the
tender offer, one of the limited partners submitted his interest in JFD--Encino
for approximately $158,000. This resulted in a change in minority interest to
72.45% from 80%.
On March 16, 1996, the Company entered a lease agreement with the
purchaser in escrow of 3.5 acres in Las Vegas, Nevada, which is contingent upon
the closing of the purchase of the property. As of the date hereof, management
has reason to believe that the purchaser will not be able to obtain financing
for the purchase. The lease will terminate if the purchaser cannot obtain
financing necessary to close the purchase.
On March 27, 1996, the Company purchased the site of its existing
Marina del Rey restaurant from its landlord, for a purchase price of
$3,964,000, paid $714,000 in cash and financed the remaining $3,250,000 in the
form of a collateralized promissory note with monthly interest only payments at
9% per annum until March 26, 2001, when the entire balance is due.
On March 28, 1996, the Company entered into a lease agreement for a
new 9,400 square foot restaurant to be located in Costa Mesa, California. The
Company plans to renovate the building at an estimated cost of approximately
$2,500,000 and open it in late 1996.
5
<PAGE> 7
2. INCOME TAXES
Upon termination of the subchapter S election on January 11, 1995,
deferred income taxes became an asset of the Company and was recorded in the
balance sheet with a corresponding credit to the combined statement of
operations. The estimated deferred tax asset, principally resulting from
temporary differences in the recognition of depreciation expense for financial
statement and tax reporting purposes, as of March 31, 1995, was approximately
$137,000.
3. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Three Months Ended March 31,
1996 1995
----------- ----------
<S> <C> <C>
Supplemental cash flow information:
Cash paid for:
Interest...................................................................... $ 41,564 $ 42,328
Income taxes.................................................................. $ 145,000 -
Supplelmental information on noncash investing and financing activities:
Increase in loan payable--related party as a result of distributions.. - $ 795,054
(Decrease) increase in deferred costs capitalized to
construction-in-progress................................................ $ (11,882) $ 20,634
Issuance of common stock for services rendered................................ - $ 130,000
Purchase of restaurant......................................................... $ 3,250,000 -
</TABLE>
4. NET INCOME PER SHARE AND PRO FORMA DATA
Net income per common share for the 1996 three-month period are based
on the weighted average number of common shares outstanding.
Pro forma net income per common share for the 1995 three-month period
was calculated using net income and based on, as if, 10,386,250 shares of
common stock were outstanding for all of fiscal year 1995. The pro forma
shares outstanding are based on (i) 7,460,000 shares outstanding for the
Company at December 31, 1994, (ii) 40,000 shares issued on January 9, 1995,
per the terms of a consulting agreement, (iii) 931,250 shares sold through a
private placement which was completed in March 1995 and (iv) and additional
1,955,000 shares sold through an initial public offering in October 1995.
5. SUBSEQUENT EVENTS
On May 7, 1996, the Company signed a letter of intent to acquire two
Solley's Delicatessen restaurants in Woodland Hills and Sherman Oaks,
California, with combined annual revenues of approximately $7,500,000. These
two restaurants are in close proximity to the Company's Encino and Studio City
restaurants, all located in the San Fernando Valley. The transaction requires
certain landlord consents, governmental approvals and negotiation of a
definitive acquisition agreement, as preconditions to closing which is not
expected before July 1, 1996. This is a forward-looking statement. There are
significant risks that the required consents and approvals cannot be obtained
or a definitive acquisition agreement cannot be negotiated which would preclude
the closing of this acquisition.
6
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The following table presents for the three months ending March 31,
1996 and 1995, the Consolidated Statements of Operations of the Company
expressed as percentages of total revenue. The results of operations for the
first three months of 1996 are not necessarily indicative of the results to be
expected for the full year ending December 31, 1996.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUE
---------------------------
THREE MONTHS ENDED MARCH 31,
----------------------------
1996 1995
---- ----
<S> <C> <C>
Revenues 100.0% 100.0%
Cost of sales
Food 27.7 30.5
Other 2.6 2.8
----- -----
Total cost of sales 30.3 33.3
----- -----
Gross profit 69.7 66.7
Operating expenses
Labor 34.5 33.8
Occupancy and other 13.8 15.4
----- -----
Total operating expenses 48.3 49.2
General and administrative expenses 10.0 11.5
Depreciation and amortization expenses 3.7 3.7
Restaurant concept discontinuation costs - 1.9
----- -----
Total expenses 62.0 66.3
----- -----
Income from operations 7.7 0.4
Interest income 1.0 -
Interest expense (0.5) (0.7)
Other income (loss), net 0.1 -
----- -----
Income before provision for income taxes and
minority interest 8.3 (0.3)
Provision (benefit) for income taxes 2.9 (2.7)
Minority interest 1.4 0.2
----- -----
Net income 4.0% 2.2%
===== =====
</TABLE>
RESULTS OF OPERATIONS
Income before income taxes for the three months ended March 31, 1996
increased $566,000 to $534,000 from a $32,000 loss for the three months ended
March 31, 1995. The Company converted from an S corporation to a C corporation
in January 1995, resulting in an income tax benefit of $149,000 in the 1995
period and an income tax provision of $214,000 in the 1996 period. In spite of
the change in the income tax provision, net income for the 1996 period
increased $204,000, or 175.5%, to $320,000 from $116,000 for the 1995 period.
Total revenues increased $541,000, or 7.5%, to $7,735,000 for the 1996
three-month period from $7,194,000 for the 1995 three-month period. The two
major factors contributing to this net increase were the additional sales of
$645,000 from the Pasadena restaurant, which opened in February 1996, and
reduced by the closure of Jerry's Famous Pizza restaurant ("JFD Pizza") in June
1995, which contributed $124,000 of revenue in 1995.
7
<PAGE> 9
Although total revenues increased in 1996, cost of sales declined
$50,000, or 2.1%, to $2,346,000 for the 1996 period from $2,396,000 for the
comparable 1995 period. The cost of food, which comprises over 90% of cost of
sales, decreased as a percentage of revenues to 27.7% in 1996 from 30.5% in
1995. Management attributes this decrease primarily to its continuing program
of more effective buying, improved cost control and better financial liquidity
since the Company's October 1995 Public Offering, which has allowed the Company
to take advantage of vendor discounts for prompt or early payments. As a
result of decreased cost of sales, gross profit improved as a percentage of
revenues to 69.7% for 1996 from 66.7% for 1995.
Total expenses, as a a percentage of revenues, decreased 4.3
percentage points to 62.0% for the three months ended March 31, 1996 from 66.3%
for the three months ended March 31, 1995. A major factor for the decrease was
the 1995 restaurant concept discontinuation costs of $137, 000, which were due
to the closing of JFD Pizza in June 1995.
Total operating expenses, which include all restaurant level
operating costs, including, but not limited to, labor, rent, laundry,
maintenance, utilities and repairs, increased $196,000, or 5.5%, to $3,738,000
for the 1996 three-month period from $3,542,000 for the 1995 three-month
period. The $240,000 increase in labor expense included $266,000 for the
Pasadena restaurant, which opened in February 20, 1996. Labor expense, as a
percentage of revenues, increased to 34.5% for 1996 from 33.8% for 1995. Two
primary reasons for this increase were the addition in the last seven months of
five personnel for the centralization of the purchase of food products and of
the training of new restaurant personnel, and due to a higher labor costs for
the Pasadena restaurant, which is common to new restaurants the first few weeks
after opening.
General and administrative expenses decreased $53,000, or 6.5%, to
$770,000 for the 1996 period from $823,000 for the comparable 1995 period. A
major factor for this change relates to a $103,000 decrease in officers
salaries which resulted from a reduction in Mr. Isaac Starkman's base salary in
October 1995.
Interest income increased $77,000 to $78,000 for the 1996 period from
$1,000 for the 1995 period. This increase is primarily due to earnings on the
investment of funds received from the October 1995 Public Offering.
LIQUIDITY AND CAPITAL RESOURCES
The Company is continuing its current plans for expansion and plans to
open its sixth restaurant in Westwood, California in the second quarter of 1996
and its seventh restaurant in Costa Mesa, California in the fourth quarter of
1996. Even if the purchase of the two Solley's Delicatessen restaurants should
close in the third quarter of 1996 and Westwood and Costa Mesa proceed as
planned, management believes that the cash on hand, cash flow from operations
and drawings on its bank lines of credit will be sufficient to finance the
Company's immediate expansion.
In planning for future expansion beyond that mentioned above,
management is currently seeking to increase the Company's bank line of credit.
No assurances can be given that such an increase can be obtained.
8
<PAGE> 10
PART II - OTHER INFORMATION
Items 1 through 6 are not applicable.
9
<PAGE> 11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C> <C>
JERRY'S FAMOUS DELI, INC.
Date: May 14, 1996 By: /s/ Isaac Starkman
-----------------------------------------------
Isaac Starlkam
Chief Executive Officer and Chairman
of the Board of Directors
By: /s/ Christina Sterling
-----------------------------------------------
Christina Sterling
Chief Financial Officer
</TABLE>
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS, THE CONSOLIDATED STATEMENTS OF OPERATIONS AND THE
CONSOLIDATED STATEMENTS OF CASH FLOWS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 3,163,910
<SECURITIES> 0
<RECEIVABLES> 348,922
<ALLOWANCES> 10,001
<INVENTORY> 147,879
<CURRENT-ASSETS> 4,249,548
<PP&E> 20,216,208
<DEPRECIATION> 4,373,075
<TOTAL-ASSETS> 20,483,744
<CURRENT-LIABILITIES> 2,184,647
<BONDS> 4,474,870
0
0
<COMMON> 12,664,752
<OTHER-SE> 415,122
<TOTAL-LIABILITY-AND-EQUITY> 20,483,744
<SALES> 7,734,528
<TOTAL-REVENUES> 7,734,528
<CGS> 2,346,173
<TOTAL-COSTS> 2,346,173
<OTHER-EXPENSES> 4,788,856
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,085
<INCOME-PRETAX> 534,182
<INCOME-TAX> 214,000
<INCOME-CONTINUING> 320,182
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 320,182
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
