<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, 1997
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 April 30, 1997,
outstanding common shares totaled 14,010,155 .
<PAGE> 2
JERRY'S FAMOUS DELI, INC.
INDEX
<TABLE>
<CAPTION>
Page
Number
PART I - FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of March 31, 1997 and December 31, 1996................. 2
Consolidated Statements of Operations for the Three Months Ended
March 31, 1997 and March 31, 1996...................................................... 3
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 1997 and March 31, 1996...................................................... 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.............................................................................. 10
Signatures............................................................................. 11
</TABLE>
1
<PAGE> 3
JERRY'S FAMOUS DELI, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---- ----
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $ 2,596,580 $ 4,145,265
Accounts receivable, net 488,907 347,148
Inventory 377,000 420,819
Prepaid expenses 675,387 471,202
Preopening costs 355,436 549,607
Income taxes receivable 8,174 210,153
----------- -----------
Total current assets 4,501,484 6,144,194
Property and equipment, net 26,278,670 25,694,476
Organization costs 96,419
104,483
Deferred income taxes 322,056 322,056
Goodwill and covenants not to compete 3,791,277 3,868,909
Other assets 468,160 428,867
----------- -----------
Total assets $35,458,066 $36,562,985
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 2,035,536 $ 3,350,099
Accrued expenses 1,494,988 1,641,784
Sales tax payable 387,408 434,379
Deferred income and income taxes 103,441 15,699
Current portion of long-term debt 578,739 578,739
Current portion of obligations under capital leases 11,250 20,722
----------- -----------
Total current liabilities 4,611,362 6,041,422
Long-term debt 5,815,274 5,959,959
Deferred credits 480,602 496,578
----------- -----------
Total liabilities 10,907,238 12,497,959
Minority interest 464,963 440,998
Shareholders' equity
Preferred stock Series A, no par, 5,000,000 shares authorized;
no shares issued or outstanding at March 31, 1997 and
10,000 issued or outstanding at December 31, 1996 -- 9,153,078
Common stock, no par value, 60,000,000 shares authorized,
14,042,655 and 10,838,062 issued and outstanding at
March 31, 1997 and December 31, 1996, respectively 23,385,234 14,175,109
Retained earnings 700,631 295,841
----------- -----------
Total shareholders' equity 24,085,865 23,624,028
----------- -----------
Total liabilities and shareholders' equity $35,458,066 $36,562,985
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
2
<PAGE> 4
JERRY'S FAMOUS DELI, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
---- ----
<S> <C> <C>
Revenues $ 14,811,756 $ 7,734,528
Cost of sales 4,378,917 2,346,173
------------ ------------
Gross profit 10,432,839 5,388,355
Operating expenses
Labor 5,518,866 2,669,200
Occupancy and other 1,800,136 1,023,739
Occupancy - related party 178,224 45,000
General and administrative expenses 1,202,689 769,627
Depreciation and amortization expenses 957,624 281,290
------------ ------------
Total expenses 9,657,539 4,788,856
------------ ------------
Income from operations 775,300 599,499
Other income (expense)
Interest income 31,860 77,774
Interest expense (153,741) (39,085)
Other income, net 415 6,534
------------ ------------
Income before provision for income taxes and
minority interest 653,834 644,722
Provision for income taxes 200,200 214,000
Minority interest 47,150 110,540
------------ ------------
Net income $ 406,484 $ 320,182
============ ============
Net income per share:
Primary $ 0.04 $ 0.03
============ ============
Fully diluted $ 0.03 $ 0.03
============ ============
Weighted average common shares outstanding - primary 11,048,864 10,386,250
============ ============
Weighted average common shares outstanding -
fully diluted 13,318,964 10,492,591
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
3
<PAGE> 5
JERRY'S FAMOUS DELI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 406,484 $ 320,182
----------- -----------
Adjustments to reconcile net income to net cash used in
operating activities
Depreciation and amortization 957,624 281,290
Gain on sale of assets (631) --
Minority interest 47,150 110,540
Deferred income taxes (3,925) 11,133
Deferred income 91,667 --
Changes in assets and liabilities
Accounts receivable - related party -- 16,020
Accounts receivable (141,759) (122,996)
Inventory 43,819 (29,497)
Prepaid expenses (204,185) (158,984)
Preopening costs (4,230) (110,781)
Other assets (40,986) 5,695
Organization costs -- (3,826)
Accounts payable (1,314,563) (792,598)
Accrued expenses (146,796) (49,374)
Sales tax payable (46,971) 31,723
Income taxes payable 201,979 57,867
Deferred credits (15,976) (2,968)
----------- -----------
Total adjustments (577,783) (756,756)
----------- -----------
Net cash used in operating activities (171,299) (436,574)
----------- -----------
Cash flows from investing activities:
Purchases of equipment and leasehold improvements (554,791) (89,003)
Additions to improvements - land, building and leasehold (349,860) (294,966)
Additions to construction-in-progress (356,440) (1,270,913)
Purchase of land -- (2,477)
Purchase of building and related purchase option payments -- (744,510)
Proceeds from sale of fixed assets 4,000 --
----------- -----------
Net cash used in investing activities (1,257,091) (2,401,869)
----------- -----------
Cash flows from financing activities:
Borrowings from credit facility -- 3,165
Payments on credit facility -- (40,000)
Borrowings on long-term debt -- --
Payments on long-term debt (144,685) (1,997)
Advances to related parties -- (1,128,450)
Capital lease payments (9,472) (12,110)
Distribution paid to shareholder -- (6,534)
Dividends paid to minority shareholders (23,185) (26,133)
Proceeds from exercise of 65,000 warrants, net of related costs 57,047 --
----------- -----------
Net cash used by financing activities (120,295) (1,212,059)
----------- -----------
Net decrease in cash and cash equivalents (1,548,685) (4,050,502)
Cash and cash equivalents, beginning of period 4,145,265 7,214,412
----------- -----------
Cash and cash equivalents, end of period $ 2,596,580 $ 3,163,910
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
4
<PAGE> 6
JERRY'S FAMOUS DELI, INC.
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, 1997 and March 31, 1996 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, 1996
balance sheet financial statement is derived from audited financial statements
included in the Company's December 31, 1996 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 consolidated financial statements consist of Jerry's
Famous Deli, Incorporated ("JFD--Inc."), a California corporation and JFD-Encino
("JFD--Encino"), a California limited partnership. JFD--Inc. and JFD--Encino
operate family oriented, full-service restaurants. These entities are
collectively referred to as "Jerry's Famous Deli, Inc." or the "Company."
JFD--Inc. and JFD--Encino include the operations of the Southern
California restaurants located in Studio City, Encino, Marina del Rey, West
Hollywood, Pasadena, Westwood, Sherman Oaks and Woodland Hills and Rascal House,
which is located in Florida. A tenth restaurant in Costa Mesa, California, is
under renovation and is scheduled to open in the third quarter of 1997.
In January 1997, the Company under its stock option plan cancelled
173,500 options previously issued at $9.00 and $8.50 per share and reissued
replacement options exercisable at $4.50 and $4.95 per share.
Also in January 1997, the Company converted all outstanding Series A
Preferred Shares to Series B Preferred Shares, which are identical to Series A
execpt for the added right of Series B holders to vote on all matters which may
be presented to the shareholders. Each Series B Preferred Share equals a vote of
109 shares of common stock.
On March 27, 1997, the holders of the Series B Preferred Shares
converted all remaining 10,000 shares outstanding to 3,139,593 shares of common
stock.
2. INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standard ("SFAS") No. 109 "Accounting for Income Taxes."
SFAS No. 109 prescribes the use of the liability method to compute the
differences between the tax bases of assets and liabilities and related
financial reporting amounts using currently enacted future tax laws and rates.
Under SFAS No. 109 the effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date. The
estimated deferred tax credit, principally resulting from temporary differences
in the recognition of depreciation expense for financial statement and tax
reporting purposes, as of March 31, 1997, was approximately $12,000.
5
<PAGE> 7
<TABLE>
<CAPTION>
3. Supplemental Cash Flow Information
Three Months Ended March 31,
1997 1996
---- ----
<S> <C> <C>
Supplemental cash flow information:
Cash paid for:
Interest $ 155,000 $ 41,564
Income taxes $ 3,500 $ 145,000
Supplemental information on noncash investing and financing activities:
Preferred Stock converted into common stock $ 9,153,078 --
Decrease in deferred costs capitalized to
construction-in-progress -- $ (11,882)
Purchase of restaurant $ -- $ 3,250,000
Write off of fully depreciated capital leases $ 124,062 --
</TABLE>
4. Net Income Per Share and Pro Forma Data
Net income per common share for the 1997 and 1996 three-month periods
are based on the weighted average number of common shares outstanding. Fully
diluted shares outstanding include outstanding stock options utilizing the
treasury stock method.
5. Impact of Recent Accounting Pronouncements:
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share." SFAS No. 128 supersedes and simplifies the existing computational
guidelines under Accounting Principles Board Opinion No. 15, "Earnings Per
Share." It is effective for financial statements issued for periods ending after
December 15, 1997. Among other changes, SFAS No. 128 eliminates the presentation
of primary EPS and replaces it with basic EPS for which common stock equivalents
are not considered in the computation. It also revises the computation of
diluted EPS. It is not expected that the adoption of SFAS No. 128 will have a
material impact on the earnings per share results reported by the Company under
the Company's current capital structure.
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, 1997
and 1996, the Consolidated Statements of Operations of the Company expressed as
percentages of total revenue. The results of operations for the first three
months of 1997 are not necessarily indicative of the results to be expected for
the full year ending December 31, 1997.
<TABLE>
<CAPTION>
Percentage of Total Revenue
---------------------------
Three Months Ended March 31,
----------------------------
1997 1996
---- ----
<S> <C> <C>
Revenues 100.0% 100.0%
Cost of sales
Food 27.1 27.7
Other 2.5 2.6
----- -----
Total cost of sales 29.6 30.3
----- -----
Gross profit 70.4 69.7
Operating expenses
Labor 37.3 34.5
Occupancy and other 13.3 13.8
----- -----
Total operating expenses 50.6 48.3
General and administrative expenses 8.1 10.0
Depreciation and amortization expenses 6.5 3.7
----- -----
Total expenses 65.2 62.0
----- -----
Income from operations 5.2 7.7
Interest income 0.2 1.0
Interest expense (1.0) (0.5)
Other income (loss), net -- 0.1
----- -----
Income before provision for income taxes and
minority interest 4.4 8.3
Provision for income taxes 1.4 2.9
Minority interest 0.3 1.4
----- -----
Net income 2.7% 4.0%
===== =====
</TABLE>
RESULTS OF OPERATIONS
Net income rose approximately $86,000 to approximately $406,000, or
27.0%, for the 1997 quarter from approximately $320,000 for the 1996 quarter.
The increase in net income was primarily due to increased revenue from
additional restaurants opened or acquired during 1996, partially offset by
increases in expenses related to the openings and operations of the new
restaurants.
Revenues increased $7,077,000, or 91.5%, to $14,812,000 for the 1997
three-month period from $7,735,000 for the 1996 three-month period. The four
restaurants opened or acquired since March 31, 1996, contributed revenues of
$7,061,000 to the 1997 period. Management has noted that the Company may be
experiencing a seasonal influence on revenues from its Southern California
restaurants, as revenues in the fourth quarter of 1996 and first quarter of 1997
were higher than those of the second and third quarters of 1996. Management also
expects to experience higher
7
<PAGE> 9
revenues in the first and fourth quarters of 1997 from the Rascal House
restaurant, consistent with the tourist season in Florida.
As a percentage of revenues, cost of sales decreased 0.7 percentage
point to 29.6% in 1997 from 30.3% in 1996. Of the 0.7 percentage point decrease,
the cost of food, which comprises over 90% of cost of sales, contributed a 0.6
percentage point reduction. The major portion of this decrease results from
lower costs of bakery goods, a substantial amount of which are now supplied to
Jerry's Southern California restaurants by the Company's Sherman Oaks bakery.
Also, as indicated in earlier reports, management attributes part of this
decrease to its continuing program of more effective buying, improved cost
control and better financial liquidity since the Company's October 1995 Public
Offering. As a result of decreased cost of sales, gross profit improved as a
percentage of revenues to 70.4% for 1997 from 69.7% for 1996.
Total expenses, as a percentage of revenues, increased 3.2 percentage
points to 65.2% for the three months ended March 31, 1997 from 62.0% for the
three months ended March 31, 1996. The largest component of the increase was the
$676,000 increase in amortization and depreciation expense, to $958,000 in 1997
from $281,000 in 1996. Since February 1996, depreciation expense has been
recorded for three newly-opened or purchased buildings and amortization expense
has been recorded for covenants not to compete and goodwill, arising from the
July 1996 purchase of the two Solley's restaurants and the September 1996
purchase of the Rascal House restaurant. Partially offsetting the additional
building depreciation expense is a 1.0 percentage point decrease in rental
expense, as a result of the Company's purchase of the three restaurant
properties.
Labor expense, as a percentage of revenues, increased 2.8 percentage
points to 37.3% for the 1997 quarter from 34.5 % for the 1996 quarter. Labor
expense in 1997 was 38.2% for the five restaurants opened or acquired in 1996,
compared to 33.9% for the four restaurants which have been in operation for more
than two years. Newly-opened restaurants commonly incur relatively higher labor
costs during the first several months after opening until predictable customer
usage patterns are developed. Over the next several months, the labor costs of
these new restaurants are expected to decrease into line with average labor
costs for the more well established Jerry's restaurants. Also, the Sherman Oaks
bakery, which was purchased in July 1996, contributed $142,000, or 1.0
percentage points, of the 1997 increase in labor costs. Since the bakery
currently produces a substantial amount of baked goods for Jerry's restaurants
in Southern California, the increase in labor costs from the operation of the
bakery are offset by the decrease in food costs at the restaurants.
General and administrative expenses, as a percentage of revenues,
decreased 1.9 percentage points to 8.1% from 10.0% due to increases in many
general and administrative expenses at rates less than the growth of revenues.
General and administrative expenses of approximately $362,000, representing
approximately 30.1% of total general and administrative expenses in the 1997
quarter, relate directly to restaurant operations, including insurance, employee
benefits and other expenses. This portion of general and administrative expenses
is expected to increase as new restaurants are opened and/or acquired.
Management labor expense was reduced by $30,000 in the 1997 quarter, as a result
of the partial waiver of the performance incentive bonus of executive officers.
The increase in interest expense of $115,000 to $154,000 for the 1997
three-month period from $39,000 for the 1996 three-month period, resulted
primarily from interest expense on the $3,250,000 Marina del Rey mortgage note
and the $2,500,000 Bank of America term loan, which originated in March and May
1996, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements are primarily for the development,
construction and equipping of new restaurants. Generally, the Company leases the
property and extensively remodels the existing building. Based on historic
experience each new restaurant requires between $2,000,000 and $3,000,000 for
remodeling and purchasing of equipment.
The Company is continuing its current plans for expansion and plans to
open its tenth restaurant in Costa Mesa, California, in the third quarter of
1997. Funds to complete the renovation of the Costa Mesa building will come
primarily from the remaining proceeds from the August and November 1996 issuance
of 12,000 shares of preferred stock.
The Company has a revolving line of credit in the aggregate amount of
$965,000 from United Mizrahi Bank, which terminates in April 1998. As of March
31, 1997, the Company had no amounts outstanding under this revolving line of
credit.
8
<PAGE> 10
Management believes that cash on hand, cash flows from operations and
its available credit line will be sufficient to finance the completion of the
Costa Mesa restaurant and operation of the Company's existing restaurants.
Management is currently seeking new locations for development or acquisition of
restaurants in California, Las Vegas, Chicago and Florida. In planning for
future expansion and its anticipated capital needs, management is investigating
other sources of financing, including equity and/or debt financing. Future
growth is dependent on the Company obtaining additional capital.
Statements made herein that are not historical facts are forward
looking statements and are subject to a number of risk factors, including the
public's acceptance of the Jerry's Famous Deli format in each new location,
consumer trends in the restaurant industry, competition from other restaurants,
the costs and delays experienced in the course of remodeling or building new
restaurants, the amount and rate of growth of administrative expenses associated
with building the infrastructure needed for future growth, the availablility,
amount, type and cost of financing for the Company and general economic
conditions and other factors.
9
<PAGE> 11
PART II - OTHER INFORMATION
Items 1 through 6. Not applicable.
10
<PAGE> 12
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: May 12, 1997 By:
-----------------------------------------------
Isaac Starkman
Chief Executive Officer and Chairman
of the Board of Directors
By:
-----------------------------------------------
Christina Sterling
Chief Financial Officer
11
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,596,580
<SECURITIES> 0
<RECEIVABLES> 497,432
<ALLOWANCES> 8,525
<INVENTORY> 377,000
<CURRENT-ASSETS> 4,501,484
<PP&E> 32,639,599
<DEPRECIATION> 6,360,929
<TOTAL-ASSETS> 35,458,066
<CURRENT-LIABILITIES> 4,611,362
<BONDS> 5,815,274
0
0
<COMMON> 28,385,234
<OTHER-SE> (4,299,369)
<TOTAL-LIABILITY-AND-EQUITY> 35,458,066
<SALES> 14,811,756
<TOTAL-REVENUES> 14,811,756
<CGS> 4,378,917
<TOTAL-COSTS> 4,378,917
<OTHER-EXPENSES> 9,657,539
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 153,741
<INCOME-PRETAX> 606,684
<INCOME-TAX> 200,200
<INCOME-CONTINUING> 406,484
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 406,484
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.03
</TABLE>
