10-Q 1 v65853e10-q.txt FORM 10-Q 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 September 30, 2000 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 October 15, 2000, outstanding common shares totaled 4,673,043. 2 JERRY'S FAMOUS DELI, INC. INDEX

1 3 JERRY'S FAMOUS DELI, INC. CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these consolidated financial statements. 2 4 JERRY'S FAMOUS DELI, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

The accompanying notes are an integral part of these consolidated financial statements. 3 5 JERRY'S FAMOUS DELI, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

The accompanying notes are an integral part of these consolidated financial statements. 4 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 and nine months ended September 30, 2000 and September 30, 1999 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, 1999 consolidated balance sheet is derived from the audited consolidated financial statements included in the Company's December 31, 1999 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 Company's 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, JFD--Encino ("JFD--Encino"), a California limited partnership, and National Deli Corporation, ("NDC"), a Florida corporation and wholly-owned subsidiary of JFD--Inc. JFD--Inc. and JFD--Encino operate family oriented, full-service restaurants. NDC operates The Epicure Market ("Epicure"), a specialty gourmet food store located in Miami Beach, Florida. 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, Westwood, Sherman Oaks, Woodland Hills, and Costa Mesa. JFD--Inc. also includes the two Rascal House restaurants located in Miami Beach and Boca Raton, Florida. 2. SUPPLEMENTAL CASH FLOW INFORMATION

5 7 JERRY'S FAMOUS DELI, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. NET INCOME PER SHARE In accordance with Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share," basic net income per share is computed by dividing the net income attributable to common shareholders by the weighted average number of common shares outstanding during the period. Diluted net income per common share is computed by dividing the net income attributable to common shareholders by the weighted average number of common and common share equivalents outstanding during the period. Common share equivalents included in the diluted computation represent shares issuable upon assumed exercise of stock options using the treasury stock method. 4. SHAREHOLDERS' EQUITY As of February 3, 2000, the Company's stock is being traded over the Nasdaq SmallCap Market. On February 9, 2000, the Company completed a one-for-three reverse stock split of its Common Stock applicable to the shareholders of record on February 9, 2000. The reverse stock split reduced the Company's outstanding shares from 14,019,203 to approximately 4,673,068. All common share and per share amounts have been adjusted to give retroactive effect to the one-for-three reverse stock split for the periods presented. 5. PROPERTY AND EQUIPMENT The Company closed escrow on the sale of its Pasadena facility at the close of business on May 2, 1999. The gross proceeds from the sale were $4,120,000. Of these proceeds, approximately $3,750,000 was used to reduce the Company's debt and the remaining proceeds were applied to other related costs of the sale. No significant gain or loss resulted from the sale. On August 10, 2000, the Starkman Family Partnership (an affiliate of the Company) and the Company finalized the sale of two parcels of land constituting the primary parking facility for the West Hollywood restaurant. The Company previously leased these two parcels from the Starkman Family Partnership on terms arranged before the Company's initial public offering. The Company had no option or right of first refusal in relation to the parcels. The West Hollywood restaurant facility is still leased by the Company from a third party landlord. The parcels are required for use of the restaurant facility. The independent Directors of the Company determined that control of the parking lots was strategically important to the Company, especially in future lease negotiations with the landlord of the restaurant facility. In addition, with the rent projected to be equivalent to the carrying cost of the funds to purchase the property, the Directors believed that the future appreciation in value would be a valuable asset to the Company. The Starkman Family Partnership sold the parcels to the Company for a set price of $1,420,000, which was determined by an independent third party appraiser. The Board of Directors approved the purchase of the parcels in July 2000. The purchase price was financed through funds available on the Company's line of credit. 6 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The following table presents for the three and nine months ending September 30, 2000 and 1999, the Consolidated Statements of Operations of the Company expressed as percentages of total revenue. The results of operations for the first nine months of 2000 are not necessarily indicative of the results to be expected for the full year ending December 31, 2000.

7 9 RESULTS OF OPERATIONS Three Months Ended September 30, 2000 Compared to Three Months Ended September 30, 1999 Revenues for the three months ended September 30, 2000 increased approximately $55,000, or 0.4%, to approximately $15,634,000 for the 2000 quarter from approximately $15,579,000 for the 1999 quarter. The overall increase in revenues was primarily the net effect of an increase in revenues for The Epicure Market of approximately $231,000 or 7.2%, coupled with an increase in revenues for the Rascal House restaurant, in Boca Raton, of approximately $41,000 or 4.6% and an increase in revenues of approximately $73,000 or 0.7% in same store sales for the eight Southern California stores in operation since January 1, 1999. However, the overall increase in revenues was primarily offset by the decrease in sales of approximately $290,000 or 22.4% for the Rascal House restaurant in Miami. The decrease in revenues for the Rascal House restaurant in Miami was in part due to the closure of the restaurant for 36 days beginning August 6, 2000 for repairs as a result of a grease fire in the kitchen, as compared to the closure of the same restaurant for about 26 days during the same quarter in 1999. The expenses incurred for the repairs related to the grease fire in the kitchen were adequately covered by general liability and business interruption insurance. During the same quarter in 1999, the Miami restaurant was closed for remodeling. Management also believes that the increase in competition in the Miami and Boca Raton areas has impacted revenues in these areas. Cost of sales, as a percentage of revenues, increased 0.5 percentage point to 34.9% for the 2000 quarter from 34.4% for the 1999 quarter. Total expenses, as a percentage of revenues, decreased slightly by 0.1 percentage point to 63.5% for the three months ended September 30, 2000 from 63.6% for the three months ended September 30, 1999. While total operating expenses remained comparable at 51.3% of total revenues for the quarter ended September 30, 2000 as compared to the same quarter for 1999, the overall decrease in total expenses is primarily attributable to the decrease in general and administrative expenses, which as a percentage of revenues, decreased 0.6 percentage point to 6.4% for the 2000 quarter from 7.0% for the same 1999 quarter. The overall decrease was offset by the increase in depreciation and amortization expense of 0.5 percentage point to 5.8% for the 2000 quarter from 5.3% for the same 1999 quarter. The increase in interest expense of approximately $20,000 to approximately $295,000 for the 2000 third quarter from approximately $275,000 for the same 1999 quarter, primarily resulted from the increase in the Company's debt for the purchase of the parcels of land adjacent to the West Hollywood restaurant. The increase in other income to approximately $29,000 for the 2000 third quarter is primarily due to the net gain recognized from the insurance settlement received related to the Rascal House restaurant in Miami, Florida. Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 30, 1999 Revenues decreased approximately $1,209,000, or 2.3%, to approximately $50,718,000 for the 2000 nine-month period from approximately $51,927,000 for the 1999 nine-month period. The overall decrease in revenues was in part due to the sale of the Pasadena restaurant, which had revenues of approximately $977,000 for the nine months ended September 30, 1999. Also contributing to the overall decrease was a decrease in revenues of approximately $942,000 or 9.9% for the Florida restaurants, coupled with a decrease in revenues of approximately $63,000 or 0.2% for same store sales for the eight Southern California stores in operation since January 1, 1999. Same store sales for the eight Southern California stores were approximately $30,851,000 for the nine months ended September 30, 2000 as compared to approximately $30,914,000 for the same period for 1999. The combined decrease in revenues was offset by an increase in sales of approximately $773,000 or 7.4% for The Epicure Market. The reason for this overall decrease is discussed in the above quarter-to-quarter comparison. Cost of sales, as a percentage of revenues, decreased 0.5 percentage point, to 34.2% for the 2000 period from 34.7% for the 1999 period. This decrease is primarily the result of the Company's continued focus on more efficient buying and increased management monitoring of purchase costs at the restaurants and Epicure. Total expenses, as a percentage of revenues, decreased slightly by 0.7 percentage point to 61.6% for the nine months ended September 30, 2000 from 62.3% for the nine months ended September 30, 1999. The overall decrease in total expenses is primarily attributable to the overall decrease in operating expenses, which as a percentage of revenues, 8 10 decreased 0.9 percentage point to 49.8% for 2000 from 50.7% for the same nine month 1999 period. The overall decrease in operating expenses is primarily attributable to a decrease in labor expense of 0.8 percentage point to 35.3% for the 2000 nine month period from 36.1% for the same 1999 period. In addition, while general and administrative expenses, as a percentage of revenues, decreased to 6.5% as of September 30, 2000 compared to 6.7% of revenues for the same 1999 nine month period, the decrease in operating expenses was partially offset by a slight increase in depreciation and amortization expense, as a percentage of revenues, of 0.4 percentage point to 5.3% for the 2000 nine month period from 4.9% for the same 1999 period. The aforementioned changes are mostly due to the same factors as those discussed above with respect to the quarter-to-quarter comparison. Interest expense decreased approximately $112,000 to approximately $829,000 for the period ended September 30, 2000 as compared to $941,000 for the same 1999 period mostly due to the reduction in the Company's debt during the first six months of the current fiscal year. LIQUIDITY AND CAPITAL RESOURCES The Company paid down approximately $2,300,000 of debt and used approximately $1,400,000 for the purchase of the parcels adjacent to the West Hollywood restaurant, approximately $300,000 for future development of the Jerry's Famous Deli restaurant concept in the South Beach area of Miami, and approximately $169,000 for the distribution of capital to minority shareholders during the nine months ended September 30, 2000. 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. Additional capital expenditures will be required for new locations. The cost of renovation will depend upon the style of restaurant being converted. Renovation of Jerry's Famous Deli restaurants have cost between $2.0 million and $3.0 million per location, or $267 to $400 per square foot. In September 1998, the Company entered into a $15,000,000 credit facility with BankBoston, N.A. in the form of a $9,000,000 term loan and $6,000,000 revolving line of credit. In conjunction with the agreement, the Company repaid certain existing debt with the proceeds from the term loan. The term loan and the revolver mature five years from inception and bear interest at the Eurodollar rate plus a variable percentage margin totaling approximately 8.5% at September 30, 2000. The debt is collateralized by assets of the Company and includes certain financial covenants. Management believes that cash on hand, including cash available on the line of credit and cash flows from operations will be sufficient for operation of the Company's existing restaurants and market. Future anticipated capital needs cannot be projected with certainty. Additional capital expenditures will be required for new locations. The Company continues to search for prime locations appropriate for its customer base and to develop them into restaurants, both in the Southern California and Southern Florida areas, as well as new areas, while continuing to provide quality food and service in its existing restaurants. However, the issue of whether or not to aggressively expand, in light of stock market conditions, is currently under review. The Company seeks to exploit its brand names for ancillary income from licensing and possibly third party retail sales. This is a new initiative and the outlook is not yet clear. 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 availability, amount, type and cost of financing for the Company and general economic conditions and other factors. Further information on these and other factors is contained in the Company's Annual Report on Form 10-K for the year ended December 31, 1999 and its other reports filed with the Securities and Exchange Commission. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Not applicable. 9 11 PART II - OTHER INFORMATION ITEMS 1. THROUGH 4. Not applicable. ITEM 5. OTHER INFORMATION In September 2000, the Company entered into an operating lease agreement with an individual for property located at 1450 South Collins Avenue in South Miami Beach, Florida for development as a Jerry's Famous Deli. The lease agreement has an initial term of 15 years from the restaurants opening date, which is currently scheduled for the second or third quarter of 2001, and required a non-refundable deposit of $300,000. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Exhibit Number 10.47 Net Lease Agreement, dated September 12, 2000, between Jerry's Famous Deli, Inc. and Zori Hayon for property located at 1450 South Collins Avenue in South Miami Beach, Florida. 10 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: November 9, 2000 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 11

JERRYS FAMOUS DELI INC 10-Q