<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
AMENDED 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 June 30, 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)
California 95-3302338
______________________________ _________________________________
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
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 July 31, 1996,
outstanding common shares totaled 10,386,250.
<PAGE> 2
This Form 10-Q amends Form 10-Q filed on August 14, 1996, by the
registrant, Jerry's Famous Deli, Inc. and is in response to comment nos. 4, 5
and 6 in the Staff's comment letter, dated September 20, 1996. As required under
Item 7, the amended sections are found in the Pro Forma Financial Statements for
the acquired business, Solley's, Inc., and in the Liquidity and Capital
Resources portion of Management's Discussion and Analysis of Financial Condition
and Results of Operations.
1
<PAGE> 3
JERRY'S FAMOUS DELI, INC. AND SUBSIDIARIES
INDEX
Page
Number
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of June 30, 1996 and December 31,
1995.............................................................. 3
Consolidated Statements of Operations for the Three Months and
Six Months Ended June 30, 1996 and June 30, 1995.................. 4
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 1996 and June 30, 1995................................... 5
Notes to Consolidated Financial
Statements........................................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations............................................. 10
Liquidity and Capital Resources................................... 12
PART II - OTHER INFORMATION
Items 1. through 6......................................................... 14
Signatures........................................................ 15
2
<PAGE> 4
JERRY'S FAMOUS DELI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
-------------- ---------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 1,462,362 $ 7,214,412
Accounts receivable, net 284,349 215,925
Accounts receivable - related party - 16,020
Inventory 177,379 118,382
Prepaid expenses 382,741 222,650
Preopening costs 375,702 83,025
Income taxes receivable 103,360 -
Deferred income taxes 22,265 44,531
-------------- ---------------
Total current assets 2,808,158 7,914,945
Property and equipment, net 18,006,933 10,417,601
Organization costs 95,834 68,174
Deferred income taxes 103,466 103,466
Acquisition price in escrow 2,543,500 -
Other assets 208,607 278,126
-------------- ---------------
Total assets $ 23,766,498 $ 18,782,312
============== ===============
LIABILITIES AND EQUITY
Current liabilities
Accounts payable $ 1,549,161 $ 1,678,421
Accrued expenses 790,303 756,997
Sales tax payable 143,079 232,050
Income taxes payable - 79,906
Short-term bank borrowings 300,000 -
Note payable to related party - 1,154,036
Current portion of long-term debt 124,188 125,137
Current portion of obligations under capital leases 36,620 43,140
-------------- ---------------
Total current liabilities 2,943,351 4,069,687
Long-term debt 6,767,057 1,086,813
Obligations under capital leases 3,843 20,722
Deferred credits 545,952 575,653
-------------- ---------------
Total liabilities 10,260,203 5,752,875
Minority interest 342,162 263,212
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 499,381 101,473
-------------- ---------------
Total equity 13,164,133 12,766,225
-------------- ---------------
Total liabilities and equity $ 23,766,498 $ 18,782,312
============== ===============
</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 OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 8,001,601 $ 6,832,633 $ 15,736,129 $ 14,026,407
Cost of sales 2,536,996 2,274,597 4,883,169 4,671,032
----------- ----------- ------------ ------------
oss profit 5,464,605 4,558,036 10,852,960 9,355,375
Operating expenses
Labor 2,711,068 2,296,000 5,380,268 4,725,604
Occupancy and other 1,005,290 925,138 2,029,029 1,992,664
Occupancy - related party 45,000 45,000 90,000 90,000
General and administrative expenses 1,082,782 390,243 1,852,409 990,615
General and administrative expenses -
related party - 346,343 - 569,182
Depreciation and amortization expenses 370,777 256,092 652,067 519,683
Restaurant concept discontinuation costs - - - 137,396
----------- ----------- ------------ ------------
Total expenses 5,214, 917 4,258,816 10,003,773 9,025,144
----------- ----------- ------------ ------------
Income from operations 249,688 299,220 849,187 330,231
Other income (expense)
Interest income 30,739 102 108,513 1,130
Interest expense (116,491) (56,499) (155,576) (106,225)
Other income, net 7,534 - 14,068 -
----------- ----------- ------------ ------------
Income before provision for income
taxes and minority interest 171,470 242,823 816,192 225,136
Provision (benefit) for income taxes 60,000 (931) 274,000 (149,603)
Minority interest 20,676 44,005 131,216 58,782
----------- ----------- ------------ ------------
Net income $ 90,794 $ 199,749 $ 410,976 $ 315,957
=========== =========== ============ ============
Net income per common share $ 0.01 $ 0.04
============ ============
Weighted average shares outstanding 10,481,244 10,476,241
============ ============
Pro forma data for 1995
Pro forma net income per common share $ 0.02 $ 0.03
=========== ============
Pro forma common shares outstanding 10,386,250 10,386,250
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
4
<PAGE> 6
JERRY'S FAMOUS DELI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1996 1995
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 410,976 $ 315,957
Adjustments to reconcile net income to net cash used in
operating activities
Depreciation and amortization 652,067 519,683
Minority interest 131,216 58,782
Deferred income taxes 22,266 (240,676)
Changes in assets and liabilities
Accounts receivable - related party 16,020 14,160
Accounts receivable (94,010) (130,061)
Inventory (58,997) 3,146
Prepaid expenses (160,091) (263)
Preopening costs (332,677) (8,602)
Other assets 1,627 (42,152)
Organization costs (3,826) (7,853)
Accounts payable (129,260) (1,434,544)
Accrued expenses 33,306 (794,262)
Sales tax payable (88,971) (129,900)
Income taxes payable (183,266) (26,762)
Deferred credits (7,657) (43,153)
------------ -----------
Total adjustments (202,253) (2,262,457)
------------ -----------
Net cash provided by (used in) operating activities 208,723 (1,946,500)
------------ -----------
Cash flows from investing activities:
Purchases of equipment and leasehold improvements (2,043,158) (1,049,716)
Additions to construction-in-progress (2,119,678) (207,941)
Funds in escrow for purchase of Solley's, Inc. assets (2,543,500) -
Purchase of land (2,477) -
Purchase of building and related purchase option payments (764,068) (7,000)
------------ -----------
Net cash used in investing activities (7,472,881) (1,264,657)
------------ -----------
Cash flows from financing activities:
Borrowings from credit facility 303,165 400,000
Payments on credit facility (70,000) (100,000)
Borrowings on long-term debt 2,500,000 625,000
Payments on long-term debt (3,044) (1,380,818)
Advances to related parties (1,128,450) (22,215)
Capital lease payments (24,229) (24,227)
Distribution paid to shareholder (13,068) (13,068)
Dividends paid to minority shareholders (52,266) 52,266
Proceeds from stock issuance, net - 3,419,852
------------ -----------
Net cash provided by financing activities 1,512,108 2,956,790
------------ -----------
Net decrease in cash and cash equivalents (5,752,050) (254,367)
Cash and cash equivalents, beginning of period 7,214,412 290,425
------------ -----------
Cash and cash equivalents, end of period $ 1,462,362 $ 36,058
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
5
<PAGE> 7
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, Inc. and its subsidiaries ("the Company") for the three and six months
ended June 30, 1996 and June 30, 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, Inc. ("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, which
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,
Pasadena, which opened February 20, 1996, and Westwood, which opened June 18,
1996.
A tender offer by Jerry's Deli, L.A., Incorporated, a subsidiary of
JFD--Inc. and the co-general partner of JFD--Encino, to purchase up to 100% of
the outstanding limited partnership units of JFD--Encino, expired April 13,
1996. One of the limited partners, Isaac Starkman, who is also the Chief
Executive Officer and the beneficial controlling shareholder of the Company,
submitted his interest in JFD--Encino which was purchased on May 1, 1996 for
approximately $158,000. This resulted in a change in minority interest to 72.45%
from 80.0%.
The lease agreement the Company entered into with the lessor/purchaser
of 3.5 acres in Las Vegas, Nevada, , expired on June 11, 1996 due to the
purchaser's inability to obtain financing to complete the acquisition of the
property. Nevertheless, the Company continues to search for a property suitable
for development of a new restaurant in Las Vegas, Nevada.
Reclassifications
Certain amounts presented in prior periods financial statements have
been reclassified to conform with the current presentation.
2. INCOME TAXES
Upon termination of the subchapter S election by the Company 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 2.
6
<PAGE> 8
2. INCOME TAXES (CONTINUED)
recognition of depreciation expense for financial statement and tax reporting
purposes, as of June 30, 1996, was approximately $126,000.
3. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Six Months Ended June 30,
1996 1995
------------ ------------
<S> <C> <C>
Supplemental cash flow information:
Cash paid for:
Interest............................................................ $ 188,000 $ 120,000
Income taxes........................................................ $ 435,000 $ 161,000
Supplemental information on noncash investing and financing activities:
Increase in loan payable--related party as a result of distributions - $ 795,000
(Decrease) increase in deferred costs capitalized to
construction-in-progress........................................ (22,000) $ 41,000
Issuance of common stock for services rendered........................ - $ 130,000
Increase in long-term debt on purchase of restaurant site............. $ 3,250,000 -
</TABLE>
4. NET INCOME PER SHARE AND PRO FORMA DATA
Net income per common share for the 1996 three- and six-month periods
are based on the weighted average number of common shares outstanding.
Pro forma net income per common share for the 1995 three- and six-month
periods 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) an additional 1,955,000
shares sold through an initial public offering in October 1995.
5. SUBSEQUENT EVENTS
On July 1, 1996, the Company completed the purchase of two delicatessen
restaurants operated under the name "Solley's" and located in Woodland Hills and
Sherman Oaks, California. For $2,325,000 the Company purchased certain assets
along with the operation of the restaurants. Also included in the purchase was a
limited five-year covenant not to compete of Sol Zide, one of the sellers and
owner of Solley's Inc.
The Woodland Hills restaurant consists of approximately 330 seats and
7,000 square feet of leased space with three options to extend the lease for
approximately 1,625 square feet, 800 square feet and 1,200 square feet. The
Company exercised the option to acquire an additional 1,625 square feet
concurrently with the acquisition closing. The Sherman Oaks restaurant consists
of approximately 160 seats and 8,700 square feet of leased restaurant and bakery
space. The Company intends to continue to operate the acquired restaurants as
delicatessen-style restaurants.
On August 5, 1996, the Company signed an agreement to acquire a
delicatessen in Florida, which has had annual revenues of approximately
$7,800,000. The purchase includes real estate, fixtures and other assets. This
transaction is subject to governmental approvals, financing, environmental and
title clearances as preconditions to closing, which is not expected before
September 9, 1996. This is a forward-looking statement. There are significant
risks that the required approvals, financing and clearances cannot be obtained.
In August 1996, Congress passed the Small Business Job Protection Act
of 1996, which contains provisions increasing the minimum wage from $4.25 to
$5.15 per hour. The legislation is now awaiting the signature of President
Clinton. The increase in the minimum wage will likely lead to a significant
increase in labor costs, since many of the Company's restaurant employees are
paid the minimum wage.
7
<PAGE> 9
6. PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
CONSOLIDATED BALANCE SHEET
These unaudited Pro Forma Consolidated Statements of Operations are
presented as if the purchase of assets of Solley's, Inc. ("Solley's") had
occurred as of January 1, 1995 and the unaudited Pro Forma Consolidated Balance
Sheet is presented as if the purchase of assets had occurred on June 30, 1996,
and should be read in conjunction with the Consolidated Financial Statements of
Jerry's Famous Deli, Inc. ("JFD") and the Notes thereto, included in the
Company's Form 10-K for the year ended December 31, 1995. In management's
opinion, all adjustments necessary to reflect the purchase of substantially all
of the assets of Solley's, Inc. with JFD have been made.
The unaudited Pro Forma Combined Statements of Operations are not
necessarily indicative of what the actual results of operations of Jerry's
Famous Deli, Inc. and Solley's, Inc. would have been for the periods ended, nor
do they purport to represent the results of operations for future periods.
<TABLE>
<CAPTION>
Year Ended December 31, 1995 Six Months Ended June 30, 1996
----------------------------------- -----------------------------------
JFD Solley's Pro Forma JFD Solley's Pro Forma
--------- ---------- --------- ---------- ---------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 28,030 $ 7,460 $35,490 $ 15,736 $ 3,537 $ 19,273
Cost of goods sold 9,168 2,523 11,691 4,883 1,219 6,102
-------- -------- ------- -------- -------- ---------
Gross profit 18,862 4,937 23,799 10,853 2,318 13,171
Operating expenses 13,634 4,195 17,829 7,499 2,115 9,614
General and administrative expenses 2,924 294(a) 3,218 1,853 160(a) 2,013
Depreciation and amortization expenses 977 328(c) 1,305 652 164(c) 816
Restaurant concept discontinuation costs 137 - 137 - - -
-------- -------- ------- -------- -------- ---------
Total expenses 17,672 4,817 22,489 10,004 2,439 12,443
-------- -------- ------- -------- -------- ---------
Income (loss) from operations 1,190 120 1,310 849 (121) 728
Interest income 72 3 75 109 2 111
Interest expense (182) -(b) (182) (156) -(b) (156)
Other income, net 69 21 90 14 1 15
-------- -------- ------- -------- -------- ---------
Income (loss) before income provision
for taxes and minority interest 1,149 144 1,293 816 (118) 698
Provision for income taxes 187 1 188 274 1 275
Minority interest 180 - 180 131 - 131
-------- -------- ------- -------- -------- ---------
Net income (loss) $ 782 $ 143 $ 925 $ 411 $ (119) $ 292
======== ======== ======= ======== ======== =========
Net income per share $ 0.09 $ 0.03
======= =========
Weighted average shares outstanding 10,476,241 10,481,244
</TABLE>
(a) Total compensation and benefits for the prior owner of Solley's in the
amounts of approximately $118,000 and $233,000 for the six and twelve
months, respectively, have been eliminated.
(b) Since no debt or other liabilities of Solley's were assumed by the
Company, interest expense of $41,000 and $91,000 for the six and
twelve months, respectively, have been eliminated.
(c) Includes amortization of goodwill of $37,000 and $73,000 and of the
covenant not to compete of $40,000 and $80,000 for the six and twelve
months, respectively.
8
<PAGE> 10
6. PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
CONSOLIDATED BALANCE SHEET (CONTINUED)
<TABLE>
<CAPTION>
June 30, 1996
-----------------------------------------------------
Solley's
---------------------------
JFD Historical Adjustments(1) Pro Forma
--------- ----------- ---------------- -----------
(in thousands)
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 1,462 $ - $ - $ 1,462
Accounts receivable, net 284 - - 284
Inventory 178 79 (54) 203
Prepaid expenses 383 - - 383
Other current assets 501 - - 501
----------- --------- ------------ ------------
Total current assets 2,808 25 (54) 2,833
Property and equipment, net 18,007 605 62 18,674
Acquisition deposit in escrow 2,543 - (2,543) -
Organization costs, deferred taxes and other assets 408 - 110 518
Goodwill - - 1,341 1,341
Covenant not to compete - - 400 400
----------- --------- ------------ ------------
Total assets $ 23,766 $ 684 $ (684) $ 23,766
=========== ========= ============ ============
LIABILITIES AND EQUITY
Current liabilities $ 2,943 $ - $ - $ 2,943
Long-term debt and other liabilities 7,317 - - 7,317
Minority interest 342 - - 342
Equity 13,164 - - 13,164
----------- --------- ------------ ------------
Total liabilities and equity $ 23,766 $ - $ - $ 23,766
=========== ========= ============ ============
</TABLE>
(1) The cash purchase price of $2,543,000 reflected under the JFD long-term
debt caption "Acquisition deposit in escrow", was allocated to the
following based on their fair value on the date of acquisition: $25,000
to inventory: $667,000 to property and equipment; $400,000 for a
covenant not to compete which will be amortized on a straight-line
basis over 5 years; $110,000 for deposits to the landlords; and the
balance to goodwill which will be amortized on a straight-line basis
over 18 years. Other than the inventory and property and equipment, no
other assets were acquired. In addition, no debt or other liabilities
were assumed from Solley's. Since funding for the purchase came from
the proceeds of JFD's October 1995 Initial Public Offering and earlier
bank borrowings, reflected under the JFD "Long-term debt and other
liabilities" caption, no additional debt was incurred.
9
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The following table presents for the three and six months ending June
30, 1996 and 1995, the Consolidated Statements of Operations of the Company
expressed as percentages of total revenue. The results of operations for the
first six 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 JUNE 30, SIX MONTHS ENDED JUNE 30,
-------------------------- -------------------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of sales
Food 28.7 30.9 28.2 30.7
Other 3.0 2.4 2.8 2.6
------ ------ ------ ------
Total cost of sales 31.7 33.3 31.0 33.3
------ ------ ------ ------
Gross profit 68.3 66.7 69.0 66.7
Operating expenses
Labor 33.9 33.6 34.2 33.7
Occupancy and other 13.2 14.2 13.5 14.8
------ ------ ------ ------
Total operating expenses 47.1 47.8 47.7 48.5
General and administrative expenses 13.5 10.8 11.7 11.1
Depreciation and amortization expenses 4.6 3.7 4.2 3.7
Restaurant concept discontinuation costs -- -- -- 1.0
------ ------ ------ ------
Total expenses 65.2 62.3 63.6 64.3
------ ------ ------ ------
Income from operations 3.1 4.4 5.4 2.4
Interest income 0.4 0.0 0.7 0.0
Interest expense (1.5) (0.8) (1.0) (0.8)
Other income (loss), net 0.1 0.0 0.1 -
------ ------ ------ ------
Income before provision for income
taxes and minority interest 2.1 3.6 5.2 1.6
Provision (benefit) for income taxes 0.7 0.0 1.8 (1.1)
Minority interest 0.3 0.7 0.8 0.4
------ ------ ------ ------
Net income 1.1% 2.9% 2.6% 2.3%
====== ====== ===== =====
</TABLE>
RESULTS OF OPERATIONS
Three Months Ended June 30, 1996 Compared to Three Months Ended June 30, 1995
Revenues for the three months ended June 30, 1996 increased $1,169,000,
or 17.1%, to $8,002,000 for the 1996 quarter from $6,833,000 for the 1995
quarter. Included in this increase are revenues of over $1,332,000 from the
Pasadena and Westwood restaurants, opened in February and June 1996,
respectively. Offsetting part of this increase
10
<PAGE> 12
were 1995 revenues of $124,000 from Jerry's Famous Pizza restaurant ("JFD
Pizza"), which closed in June 1995. Revenue for the same four restaurants
operated during both periods decreased slightly, approximately $70,000 or 1.0%.
Cost of sales, as a percentage of revenues, decreased 1.6 percentage
points to 31.7% from 33.3%. The cost of food, which comprises over 90% of cost
of sales, decreased 2.2 percentage points, as a percentage of revenues, to 28.7%
in the 1996 quarter from 30.9% in the 1995 quarter. 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. The 1996 second quarter cost of food 2.2
percentage points decrease declined from the reported 1996 first quarter 2.8
percentage point decrease. A major factor for this decrease was a 45% overall
increase in prices of dairy products which comprise approximately 7% of total
food costs. Other cost of sales increased by 0.6 percentage point, as a
percentage of revenues, in the 1996 second quarter over the 1995 second quarter.
A significant factor in this increase was a 10% increase in liquor prices. As a
result of the net decreased cost of sales, gross profit improved as a percentage
of revenues to 68.3% for 1996 from 66.7% for 1995.
Total expenses, as a percentage of revenues, increased 2.9 percentage
points to 65.2 % for the 1996 quarter from 62.3% for the 1995 quarter. Major
changes occurred in occupancy and other expenses, general and administrative
expenses and depreciation expenses.
Operating expenses, which include all restaurant level operating costs,
including, but not limited to, labor, rent, laundry, maintenance, utilities and
repairs, as a percentage of revenues, decreased 0.7 percentage points to 47.1%
in the 1996 quarter from 47.8% in the 1995 quarter. Labor increased slightly to
33.9% from 33.6%. Occupancy expenses decreased 1.0 percentage point to 13.2% for
1996 from 14.2% for 1995 which resulted principally from a $94,000 decline in
rent expense due to the March 1996 purchase of the Company's Marina del Rey
restaurant site and additional revenues in the 1996 quarter from the Pasadena
restaurant which, as an owned property, incurs no rent expense.
General and administrative expenses, as a percentage of revenues,
increased 2.7 percentage points to 13.5% in 1996 from 10.8% in 1995.
Contributing 1.9 percentage points of the increase are added costs from becoming
a public company as reflected in total additional expenses of approximately
$163,000 for the services of two public relations companies, preparation of
fiscal yearend reports, audit fees, legal fees and premiums for a new life
insurance policy on the chief executive officer. Also part of the increase was a
performance incentive bonus accrual of $68,000 for three executive officers.
Depreciation expense increased approximately $115,000, or 0.9
percentage points as a percentage of revenues to 4.6% for the 1996 quarter from
3.7% for the 1995 quarter. Included in the increase is additional depreciation
expense of approximately $75,000 for the Pasadena restaurant, which opened in
February 1996, and $22,000 for Marina del Rey restaurant site, which was
purchased in March 1996.
The increase in interest income of approximately $31,000 in 1996
primarily represents earnings on the investment of funds received from the
October 1995 Public Offering. Interest expense increased approximately $60,000
principally due to the financing of the Marina del Rey real property purchase in
the 1996 quarter over the 1995 quarter.
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
Revenues increased $1,709,722, or 12.2%, to $15,736,000 for the 1996
period from $14,026,000 for the 1995 period. The Pasadena and Westwood
restaurants, opened in 1996, contributed approximately $1,970,000 in 1996.
Offsetting part of this increase were 1995 revenues of $236,000 from JFD Pizza,
which closed in June 1995. Revenues for the same four restaurants operated
during both six-month periods decreased approximately $50,000, or 0.4%.
Income from operations increased approximately $519,000, or 157.2%, to
$849,000 for the 1996 period from $330,000 for the 1995 period, due primarily to
the decrease in food costs, for the reasons described above in the
quarter-to-quarter comparison, and the restaurant discontinuation costs of
$137,000 incurred during the 1995 period. Labor expense, as a percentage of
revenues, increased to 34.2% for 1996 from 33.7% for 1995 primarily due to
higher labor costs for the Pasadena and Westwood restaurants, which is common to
new restaurants during the first few weeks after opening.
General and administrative expenses increased approximately $292,000,
or 0.5% percentage point as a percentage of revenues. This increase includes
over $210,000 of added costs related to the Company's change from a privately
held to a public company, including the expenses of the Company's first annual
report on Form 10-K, first Annual Report to Shareholders, first Proxy Statement
and first annual meeting and the attendant audit fees, legal fees and
11
<PAGE> 13
other costs. Further, the Company has incurred approximately $189,000 in
additional labor expense due to the addition of several new positions necessary
to support the Company's expanded restaurant operations, which have grown from
four to eight restaurant since February 1996. The new positions include
restaurant payroll clerks, centralized food procurement personnel, trainers for
new restaurant staff, restaurant start-up and quality control personnel,
catering service personnel and financial reporting personnel. Of the $189,000
increase for the 1996 six months, approximately $57,000 was 1996 first quarter
payroll expense transferred from operating labor.
Interest income increased approximately $107,000 to $109,000 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's capital requirements are primarily for the development,
construction and equiping of new restaurants. Generally, the Company leases the
property and extensively remodels the existing building. Each new restaurant
requires between $2,000,000 and $2,500,000 for remodeling and purchasing of
equipment.
The Company has continued its current plans for expansion with the
acquisition of the two Solley's restaurants and its plans to open its ninth
restaurant, located in Costa Mesa, California, in the first quarter of 1997.
During the six months ended June 30, 1996 the Company used additional bank
borrowings of $2,800,000 and proceeds from its public offering to fund the
$2,543,000 cash purchase of the two Solley's restaurants, the approximately
$3,600,000 for construction of and purchase of equipment for the Pasadena and
Westwood restaurants, the $764,000 cash portion of the purchase of the Marina
del Rey restaurant property and $108,000 for the development of future projects.
The cash and cash equivalents decrease since December 31, 1995 of
approximately $5,752,000 comprises $209,000 provided by operations, $7,473,000
used to purchase property and equipment and other investments and $1,512,000
provided by bank borrowings less other financing activities. The increase in net
property and equipment since December 31, 1995, of approximately $7,589,000
resulted from purchases of equipment and leasehold improvements for $2,043,000,
additions to construction-in-progress for $2,120,000, the purchase of leased
restaurant real property for $4,069,000, less an increase in accumulated
depreciation of $608,000 and other net deductions of $35,000. During the same
six-month period long-term debt increased by approximately $5,680,000, from an
additional long-term bank borrowing of $2,500,000 and from a $3,250,000
collateralized promissory note arising from the purchase of leased restaurant
real property, net of principal payments of approximately $70,000.
Management believes that cash on hand, cash flow from operations and
drawings on its bank lines of credit will be sufficient to finance the
completion of the Costa Mesa restaurant and the remodeling of the Woodland Hills
restaurant. In planning for future expansion, primarily the Florida acquisition,
management is investigating other sources of financing, including equity and/or
debt financing. The acquisition in Miami and future growth is dependent on the
Company obtaining additional capital.
RECENT ACQUISITION
On July 1, 1996, the Company completed the purchase of two delicatessen
restaurants operated under the name "Solley's" and located in Woodland Hills and
Sherman Oaks, California. For $2,325,000 the Company purchased certain assets
along with the operation of the restaurants. Also included in the purchase was a
limited five-year covenant not to compete of Sol Zide, one of the sellers and
owner of Solley's Inc.
The Woodland Hills restaurant consists of approximately 330 seats and
7,000 square feet of leased space with three options to extend the lease for
approximately 1,625 square feet, 800 square feet and 1,200 square feet. The
Company exercised the option to acquire an additional 1,625 square feet
concurrently with the acquisition closing. The Sherman Oaks restaurant consists
of approximately 160 seats and 8,700 square feet of leased restaurant and bakery
space. The Company intends to continue to operate the acquired restaurants as
delicatessen-style restaurants.
On a pro forma combined basis, the two Solley's restaurants would have
increased total revenues for the year ended December 31, 1995 by $7,460,000, or
27%, to $35,490,000 and increased net income by $296,000, or 38%, to $1,078,000,
which would have resulted in a 25% increase in net income per share, to $0.10
per share from $0.08 per share.
12
<PAGE> 14
However, for the six months ended June 30, 1996, revenues for the two
Solley's restaurants were down approximately $500,000 from the same period in
1995, which management believes may have been due in part to Solley's
management's focus on the pending sale of the restaurants during that period. As
a result of the decline in revenues for the six month period ended June 30,
1996, the Solley's restaurants reported a net loss from operations of $121,000
(after adjustment for certain expenses which will not be incurred in the future
by the Company), which reduced the pro forma consolidated net income reported to
$290,000 and reduced net income per share to $0.03 per share from $0.04 per
share. The pro forma consolidated statements of operations of the Company and
Solley's are not necessarily indicative of what the actual results of operations
of the Company would have been, had the acquisition been completed as of January
1, 1995, nor are they necessarily indicative of what the actual results of
operations of the Company will be in future periods.
The Company has applied for the permits necessary to change the
Woodland Hills restaurant to a Jerry's Famous Deli. Once those permits are
obtained, that restaurant will be closed for approximately two months for
refurbishment, which management expects will have a negative impact on total
revenues for the fourth quarter of 1996. When the restaurant is reopened,
however, it will have increased seating capacity and longer hours of operation,
which management anticipates will increase revenues from the Woodland Hills
restaurant from its historical revenues as a Solley's restaurant.
The Company has no current plans to change the format or operating
hours of the Sherman Oaks Solley's restaurant, which historically has had higher
revenues than the Woodland Hills Solley's restaurant, even though the seating
capacity of the Sherman Oaks restaurant is smaller than the Woodland Hills
restaurant.
The Company has already begun to use the bakery acquired from Solley's
to supply freshly baked bread to all of the Jerry's Famous Deli restaurants. In
addition, the Company has hired the former owner and chief baker of the popular
Weby's Bakery in Studio City, as head baker for the Jerry's bakery.
Management believes that the implementation of its plans for the
expansion of the Woodland Hills restaurant and the change in the format of that
restaurant to a Jerry's Famous Deli, as well as the expansion and improvement of
the bakery acquired from Solley's, will result in an increase in revenues at
both facilities. However, these are forward looking statements and there are
significant risks that revenues of the acquired restaurants and bakery will not
increase as management anticipates due to a number of factors, including all of
the risks generally attendant to the restaurant business.
13
<PAGE> 15
PART II - OTHER INFORMATION
Items 1. through 3. are not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
On May 28, 1996, the Company held its first Annual Meeting of
Shareholders as a public company. Shareholders voted upon the election
of directors and upon the ratification of Coopers & Lybrand, L.L.P., as
the Company's independent public accountants for the fiscal year ending
December 31, 1996. Isaac Starkman, Guy Starkman, Jason Starkman, Paul
Gray and Stanley Schneider, all of whom were directors prior to the
Annual Meeting and were nominated by management for re-election, were
re-elected at the meeting. The following votes were cast for each
nominees:
<TABLE>
<CAPTION>
Authority
Name For Withheld
---- --- ---------
<S> <C> <C>
Isaac Starkman 10,290,511 30,200
Guy Starkman 10,285,961 34,750
Jason Starkman 10,285,761 34,950
Paul Gray 10,291,411 29,300
Stanley Schneider 10,292,011 28,700
</TABLE>
The following votes were cast for the ratification of Coopers &
Lybrand, L.L.P., as the Company's independent public accountants for
the fiscal year ending December 31, 1996: For: 10,309,756; Against:
4,500; Abstain: 6,455.
Item 5. is not applicable.
Item 6. Exhibits and Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter for which this
report is filed. However, on July 12, 1996 a Form 8-K was filed
regarding the purchase of two delicatessen restaurants operated under
the name of "Solley's" and located in Woodland Hills and Sherman Oaks,
California.
14
<PAGE> 16
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.
JERRY'S FAMOUS DELI, INC.
Date: October 4, 1996 By: /s/ Isaac Starkman
-------------------------
Isaac Starkman
Chief Executive Officer and Chairman
of the Board of Directors
By: /s/ Christina Sterling
--------------------------
Christina Sterling
Chief Financial Officer
15
<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 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,462,362
<SECURITIES> 0
<RECEIVABLES> 292,874
<ALLOWANCES> 8,525
<INVENTORY> 177,379
<CURRENT-ASSETS> 2,808,158
<PP&E> 22,718,949
<DEPRECIATION> 4,712,016
<TOTAL-ASSETS> 23,766,498
<CURRENT-LIABILITIES> 2,943,351
<BONDS> 0
0
0
<COMMON> 12,664,752
<OTHER-SE> 499,381
<TOTAL-LIABILITY-AND-EQUITY> 23,766,498
<SALES> 15,736,129
<TOTAL-REVENUES> 15,736,129
<CGS> 4,883,169
<TOTAL-COSTS> 4,883,169
<OTHER-EXPENSES> 10,003,773
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 155,576
<INCOME-PRETAX> 684,976
<INCOME-TAX> 274,000
<INCOME-CONTINUING> 410,976
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 410,976
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
