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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For fiscal year ended November 29, 1998
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 1-7013
GRISTEDE'S SLOAN'S, INC.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 13-1829183
------------------------------- ----------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
823 Eleventh Avenue, New York, New York 10019-3535
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(Address of Principal Executive Offices) (Zip Code)
(212) 956-5803
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(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class Name of each exchange on which registered
- ----------------------------- -----------------------------------------
Common Stock, $0.02 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of February 25, 1998, 19,636,574 shares of the registrant's common stock,
$0.02 par value, were outstanding. The aggregate market value of the common
stock held by nonaffiliates of the registrant (i.e., excluding shares held by
executive officers, directors, and control persons as defined in Rule 405) on
that date was $3,464,144 computed at the closing price on that date.
Documents Incorporated by Reference: None
1
This annual report on Form 10-K contains both historical and
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Words such as "anticipates", "believes",
"expects", "intends", "future", and similar expressions identify forward-looking
statements. Any such "forward-looking" statements in this report reflect the
Company's current views with respect to future events and financial performance,
and are subject to a variety of factors that could cause the actual results or
performance to differ materially from historical results or from the anticipated
results or performance expressed or implied by such forward-looking statements.
Because of such factors, there can be no assurance that the actual results or
developments anticipated by the Company will be realized or, even if
substantially realized, that they will have the anticipated results. The risks
and uncertainties that may affect the Company's business include, but are not
limited to: economic conditions, governmental regulations, technological
advances, pricing and competition, acceptance by the marketplace of new
products, retention of key personnel, the sufficiency of financial resources to
sustain and expand the Company's operations, and other factors described in this
report and in prior filings with the Securities and Exchange Commission. Readers
should not place undue reliance on such forward-looking statements, which speak
only as of the date hereof, and should be aware that except as may be otherwise
legally required of the Company, the Company undertakes no obligation to
publicly revise any such forward-looking statements to reflect events or
circumstances that may arise after the date hereof.
ITEM 1. BUSINESS.
General
The Company is a Delaware corporation whose principal executive offices
are located at 823 Eleventh Avenue, New York, New York 10019-3535. Unless the
context otherwise requires, the terms "Company" or "Registrant" as used herein
refer to Gristede's Sloan's, Inc. (which is a holding corporation) and its
wholly-owned subsidiaries.
The Company owns and operates 40 supermarkets, (the "Supermarkets").
Thirty-five Supermarkets are located in Manhattan, New York, three Supermarkets
are located in Westchester County, New York, one Supermarket is located in
Brooklyn, New York and one Supermarket is located in Long Island, New York. 11
of the Supermarkets are operated under the "Sloan's" name and 29 are operated
under the "Gristede's" name. The Company leases all of its Supermarket
locations.
During fiscal year 1998, the Company acquired one Supermarket, closed
two Supermarkets for business consolidation, and closed two Supermarkets because
their leases expired and were not renewed. Additionally the Company combined two
physically adjacent Supermarkets into one Supermarket during the remodeling of
the two stores.
The Company also owns City Produce Operating Corp. ("City Produce"), a
corporation which operates a warehouse used as an internal distribution center,
on leased premises in Bronx County, New York. The warehouse operation supplies
the Company's Supermarkets with groceries and fresh produce. The warehouse also
sells wholesale fresh produce to third parties.
The Company competes on the basis of providing customer convenience,
service and a wide assortment of food products, including those that are
appealing to the clientele in the neighborhoods where its Supermarkets are
located. The Supermarkets, like most Manhattan supermarkets, are smaller than
their suburban counterparts, ranging in size from approximately 3,200 to 23,000
square feet of selling space and averaging 9,000 square feet of selling space.
The Supermarkets offer, at competitive prices, broad lines of
merchandise, including nationally and regionally advertised brands, private
label and generic brands. Merchandise sold
2
includes food items such as fresh meats, produce, dry groceries, dairy products,
baked goods, poultry and fish, fresh fruits and vegetables, frozen foods,
delicatessen and gourmet foods, as well as many non-food items such as
cigarettes, soaps, paper products, and health and beauty aids. The Company also
operates an in-store pharmacy dispensing prescription drugs in one of its
Supermarkets. Check-cashing services are available to qualified customers
holding check-cashing cards and, for a small fee, the Company will deliver
groceries to a customer's apartment door. The Supermarkets accept payment by
Mastercard, Visa, American Express and Discover credit cards. Most of the
Supermarkets are open sixteen hours per day, seven days a week and on holidays,
including Christmas, New Year's and Thanksgiving. Most of the Supermarkets close
two hours earlier on Sundays.
The Company's predecessor was incorporated in 1956 in New York. In
1985, the Company's domicile was changed to Delaware by merging the predecessor
corporation into a newly formed Delaware corporation, incorporated for such
purpose. The Company became a public company in 1968 and listed its Common Stock
on the American Stock Exchange in 1972. Until 1992, the Company engaged in the
jewelry business, operating under the name Designcraft Industries, Inc. for most
of such time. The Company changed its name to Sloan's Supermarkets, Inc. in
September 1993 and to Gristede's Sloan's, Inc. in November 1997 to reflect its
current business.
Recent Developments
In January, 1999, the Company commenced operating an in-store pharmacy
dispensing prescription drugs in one of its Supermarkets.
In February 1998, the Company acquired from an affiliate of John
Catsimatidis, the Chairman of the Board and Chief Executive Officer of the
Company, the assets of a Supermarket located at 1644 York Avenue, New York, New
York. For information concerning the terms of such acquisition see Item 13.
"Certain Relationships and Related Transactions." The acquisition did not have a
material effect on the Company's revenues or expenses.
On November 10, 1997 a Merger Agreement was consummated pursuant to
which four corporations directly or indirectly owned by Mr. Catsimatidis merged
into four newly formed wholly owned subsidiaries of the Company. As a result of
the mergers (collectively, the "Merger"), the Company acquired the assets and
business of 29 operating supermarkets. Pursuant to the Merger Agreement, John
Catsimatidis and Red Apple Group Inc. ("Group"), a corporation wholly owned by
John Catsimatidis, as the sole stockholders of the four corporations acquired in
the Merger, became entitled to receive an aggregate of $ 40,000,000 in market
value of the Company's Common Stock. The aggregate market value of the shares of
the Company's Common Stock issued in the Merger was reduced by an amount equal
to the amount of certain liabilities of the acquired companies to John
Catsimatidis and entities controlled by him which were assumed by the surviving
corporations in the Merger. The aggregate amount of such liabilities was
$4,000,000.
Growth Strategy
The Company believes that the Merger has allowed it to realize
synergies and increased operating leverage while providing management with the
necessary resources and focus to streamline operations, automate facilities and
capitalize on strategic opportunities. The Company also believes that the Merger
has enabled it to achieve the critical mass necessary to execute its future
growth strategy.
3
The Company has embarked on a capital expenditure program for its
Supermarkets that includes extensive remodelings, the introduction of a
centralized point-of-sale information system and the opening of in-store
pharmacies dispensing drugs in its Supermarkets. The Company has obtained an
$8,000,000 five year term loan from certain banks to partly finance such capital
improvements and is currently negotiating an increase in its bank facilities
(see Item 7. "Management's Discussion and Analysis of Financial Condition and
Results of Operation-Liquidity and Capital Resources").
During the fiscal year ended November 29, 1998, 10 stores were
remodeled for an aggregate capital expenditure of approximately $10,000,000.
During the fiscal year ending November 28, 1999, the Company anticipates it will
spend approximately $10,000,000 in aggregate capital expenditures to complete
the remodeling of 12 additional stores, open two new stores and open four
in-store pharmacies. The Company anticipates that it will continue opening new
stores, and pharmacies in future years. The modernized smaller Supermarkets are
being re-named "Gristede's 2001", and the larger Supermarkets are being re-named
"Gristede's Mega Stores".
The largest of the remodeled stores is located in Roosevelt Island, in
New York City and has been expanded in size to 23,000 square feet of selling
space from the previous 8,000 square feet.
Average sales increases at the remodeled stores have exceeded 50%.
Modernization has resulted in a more enjoyable shopping atmosphere with more
rapid check-out lines due to scanners and improved lighting facilities.
The Company may also expand its operations through the acquisition of
supermarkets and/or acquisition of businesses which the Company believes would
complement its core supermarket business. However, pursuant to an order
embodying a Settlement Agreement between the Federal Trade Commission (the
"FTC"), John Catsimatidis, the Company and certain other companies controlled by
Mr. Catsimatidis (collectively, the "companies"), for a period of ten years from
March 6, 1995, the Company cannot, without prior FTC approval, acquire any
interest in any existing supermarket in a designated area in Manhattan. The
order does not restrict the Company from acquiring an interest in a supermarket
(in such designated area) by leasing or purchasing a new location that at the
time of acquisition (and for six months prior to the acquisition) is not (or was
not) being operated as a supermarket. There are no restrictions on the Company
acquiring supermarkets that are located outside the designated area. For further
information concerning the Settlement Agreement and proceeding brought by the
FTC against the companies which prompted the Settlement Agreement, see Note 12
of Notes to the Financial Statements of the Company.
Marketing
The Company advertises in local newspapers on a weekly basis. The
Company's advertising emphasizes competitive prices and variety of merchandise.
Some of the Company's vendors offer cooperative advertising allowances, which
the Company receives for advertising particular products in its newspaper
advertisements.
4
Competition
The Company's retail business is subject to intense competition,
characterized by low profit margins and requiring regular advertising. All of
the Supermarkets are in direct competition with Food Emporium, D'Agostino, A&P,
Pathmark and independent supermarket/grocery operators which do business under
the names "Pioneer", "Key Food" and "Associated", many of which are larger and
have substantially greater resources than the Company. The Supermarkets also
compete with other outlets which sell products sold by supermarkets in New York
City. Those outlets include gourmet food stores, health and beauty aid stores,
drug stores, produce stores, bodegas, delicatessens and other retail food
establishments. In addition, several of the Company's competitors have announced
plans to open larger stores.
Sources of Supply; Inventory Policy
During fiscal 1998 the Company obtained approximately 45% of the
merchandise sold in its stores from one principal merchandise supplier, White
Rose Foods, and the balance from other vendors, none of which accounted for more
than 10% of merchandise purchased by the Company. The Company believes that its
supplier relationships are currently satisfactory. The Company is not dependent
on these supplier relationships since merchandise is readily available from
numerous sources under different brand names, subject to conditions affecting
food supplies generally.
The Company's policy is to have its Supermarkets fully stocked with
merchandise at all times. This policy requires the Company to carry significant
amounts of inventory. As stated above, replenishment merchandise is readily
available from the Company's suppliers and, on average, approximately 76% of the
Company's inventory is sold before the Company is required to pay its suppliers.
Tradenames
The Company owns the "Gristede's" and "Sloan's" tradenames. Such names
have an established reputation in the areas served by the Supermarkets for
convenience, competitive prices, service and a wide variety of quality produce
and merchandise.
Gristede's is a federally registered trademark. While the Company is
not aware that its use of the tradename infringes upon the rights of any
persons, it has not obtained any federal or state trademark registration for the
tradename "Sloan's." The assertion by a third party of superior rights in the
tradename "Sloan's" or the loss of the Company's right to use either tradename
could have a material adverse effect on the Company.
Labor Contracts
All of the employees of the Company other than 98 administrative
employees and executives and 56 store managers and co-managers are represented
by unions. The table below sets forth the name of each union with which the
Company has a collective bargaining agreement and the expiration date of such
agreement.
5
Name of Union Expiration Date
- ---------------------------------------- ---------------
Retail, Wholesale & Chain Store October 5, 2002
Food Employees Union, Local 338
Amalgamated Meat Cutters and Retail Food October 23, 1999
Store Employees Union, Local 342-50
United Food and Commercial Workers Union December 21, 2002
("UFCW"), Local 174
UFCW, Local 1500 June 23, 2002
UFCW, Local 464A May 1, 2003
International Brotherhood of Teamsters June 30, 1999
("Teamsters"), Local 803
Teamsters, Local 202 December 31, 2003
Governmental Approvals
All of the Supermarkets have obtained all necessary governmental
approvals, licenses and operating permits.
Employees
At February 14, 1999, the Company had approximately 1,323 employees,
1,207 of which are employed at the Supermarkets or the City Produce warehouse,
and 116 of which are employed at the Company's executive offices. Approximately
390 of the employees were employed on a full-time basis.
Seasonality
The Company's Supermarkets are predominantly located in the borough of
Manhattan in New York City and serve the more affluent carriage trade. Owing to
the significant exodus of such customers during the summer months for vacation
and holiday, together with an increased propensity by resident customers for out
of home dining during such period, the Company traditionally incurs up to a 20%
seasonal drop in sales during the months of July and August each year. The
seasonal decline in sales does not have a material impact on the level of
inventories carried by the Company.
Environmental Compliance
Compliance by the Company with Federal, State and local provisions
which have been enacted or adopted regarding the discharge of materials into the
environment, or otherwise relating to the protection of the environment, does
not have a material financial impact on the Company.
6
ITEM 2. PROPERTIES.
The Company leases all 40 Supermarket locations and the warehouse and
distribution center operated by City Produce. Five of such leases expire prior
to 2001, 22 of such leases expire on dates from 2001 through 2010 and 13 of such
leases expire on dates from 2011 through 2018. The Supermarkets range in size
from approximately 3,200 to 23,000 square feet of selling space, averaging 9,000
square feet of selling space. All of the stores are air-conditioned, have all
necessary fixtures and equipment and are suitable for the retail operations
conducted thereat.
ITEM 3. LEGAL PROCEEDINGS.
On August 8, 1994, a lawsuit against the Company and Mr. Catsimatidis
was instituted in the United States District Court for the Southern District of
New York by RMED International, Inc. ("RMED"), a former stockholder of the
Company.
The complaint alleges, among other things, that RMED and a purported
class consisting of persons who purchased the Company's common stock on or after
March 19, 1993 were damaged by alleged nondisclosures in certain filings made by
the Company with the Securities and Exchange Commission between January 1993 and
June 1994 relating to an investigation by the FTC. The complaint alleges that
such nondisclosures constituted violations of Federal and New York State
securities laws, as well as common law fraud and seeks damages (including
punitive damages) in an unspecified amount, as well as costs and disbursements
of the action. On June 2, 1994, the Company issued a press release which
disclosed the FTC action.
On September 30, 1994, the defendants filed a motion to dismiss for
failure to state a cause of action and for lack of subject matter jurisdiction
over the state claims. The motion was denied. In June 1995, RMED filed a motion
for class certification, and discovery was held in abeyance pending disposition
of that motion. The motion was granted in March 1996. Fast discovery was
completed by the end June 1998. Expert discovery was completed by the end of
1998.
Management believes that the lawsuit is without merit and intends to
defend the action vigorously; however, the outcome cannot be determined.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.
None.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Market Information
The Company's Common Stock is listed and traded on the American Stock
Exchange. Since November 12, 1997 the Common Stock has been quoted under stock
symbol "GRI." Prior thereto it was quoted under the symbol "SLO." For the year
ended November 29, 1998 and for the
7
Transition Period from March 3, 1997 to November 30, 1997, the quarterly high
and low price range for such common stock is shown in the following tabulation.
Fiscal Year Ended Transition Period from March 3,
November 29, 1998 1997 to November 30, 1997
--------------------- --------------------------
Quarter High Low High Low
- ----- ----- ------- ----- -----
First 2-3/8 1-11/16 3-1/8 2-1/4
Second 4-1/2 1-7/8 2-5/8 1-7/8
Third 3-13/16 2-7/8 2-11/16 2
Fourth 2-13/16 2-3/16 Not applicable Not applicable
The approximate number of holders of record of the Company's Common
Stock on February 25,1999 was 218. The Company believes that there are a
significant number of shares of the Company's Common Stock held in street name
and, consequently, the Company is unable to determine the actual number of
beneficial owners.
Dividends
The Company has never paid a cash dividend on its Common Stock and does
not expect to pay a cash dividend in the near future.
8
ITEM 6. SELECTED FINANCIAL DATA
39 Weeks
Year Ended Ended Years Ended
------------ ------------ --------------------------------------------------------
November 29, November 30, March 2, March 3, February 26,
1998 1997(1) 1997 1996 1995
------------- ------------- ------------- ------------- -------------
Sales ..................... $ 157,462,869 $ 77,908,693 $ 104,168,864 $ 116,866,063 $ 116,862,727
Cost of sales ............. 94,282,306 48,591,721 63,932,541 72,351,240 72,893,642
Gross profit .............. 63,180,563 29,316,972 40,236,323 44,514,823 43,969,085
Direct operating ..........
expenses ............... 53,146,632 27,462,628 33,821,475 37,566,143 36,738,453
Corporate
overhead .............. 4,742,810 3,983,280 6,207,930 6,405,593 8,269,408
Depreciation and
amortization ........... 3,948,000 1,585,486 2,092,403 2,257,714 2,747,641
Bad debt expense .......... -- -- 113,242 222,878 277,952
(Net loss)/excess
of expenses ........... (288,339) (3,714,422) (1,998,727) (1,937,505) (4,064,369)
over sales(2)
At End of Period
- ----------------
Total assets .............. 60,706,509 52,705,555 23,119,000 20,152,454 18,281,000
Long-term debt ............ 21,649,942 12,662,910 -- -- --
Total liabilities ......... 46,293,432 38,035,533 20,014,000 17,620,539 16,822,000
- --------
(1) Includes the operations of the Food Group only for the 36 week period
from March 3, 1997 to November 9, 1997 and the operations of the combined
Company from November 10, 1997 to November 30, 1997.
(2) The periods prior to the fiscal year ended November 29, 1998 include only
the sales and expenses directly attributable to the Food Group for those stores
transferred to the public company and do not include all items necessary for a
statement of operations.
9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Company Background
The transition period from March 3, 1997 to November 30, 1997 (the
"Transition Period") consisted of 39 weeks. The fiscal year ended November 29,
1998 consisted of 52 weeks.
Results of Operations (1998 Compared to Transition Period)
During the 36 week period from March 3, 1997 until November 9, 1997 the
Company consisted of 15 stores and filed Quarterly Reports on Form 10-Q for the
quarters ended June 1, 1997 and August 31, 1997.
On November 10, 1997, as a result of the Merger, the Company acquired
certain assets net of liabilities of 29 selected supermarkets and a wholesale
distribution business (the "Food Group") controlled by John Catsimatidis, the
principal stockholder of the Company. The transaction was accounted for as the
acquisition of the Company by the Food Group pursuant to Emerging Issues Task
Force 90-13 as a result of the Food Group obtaining control of the Company after
the transaction.
As a result of the Merger being accounted for as a reverse acquisition,
the Transition Period referred to in the following summary of the Results of
Operation for the 39 week period encompasses the operation of the Food Group for
36 weeks, and the operations of the new combined companies for the 3 week post-
Merger period November 10, 1997 - November 30, 1997. Therefore, the 15 stores
owned by the Company prior to the Merger contributed to sales, gross margin and
overhead for only 3 weeks.
The following table sets forth, as a percentage of sales, components of the
Results of Operations:
52 weeks ended 39 weeks ended
November 29, 1998 November 30, 1997
----------------- -----------------
Sales ................................ 100.0 % 100.0 %
Cost of sales ........................ 59.9 % 62.4 %
------- -------
Gross profit ......................... 40.1 % 37.6 %
Store operating, general and ......... 34.0 % 35.3 %
administrative expense
Depreciation and amortization ........ 2.5 % 2.0 %
Non-store operating expense .......... 3.0 % 5.1 %
------- -------
Operating profit/ (loss) ............. 0.6 % (4.8 %)
======= =======
Sales for the 52 weeks ended November 29, 1998 were $157,462,869 as
compared to sales for the 39 weeks ended November 30, 1997, on an annualized
basis, of $103,878,260. The sales increase was mainly attributable to the 15
additional stores included in the entire 1998 period, one acquired store which
opened in February 1998 and the results of the Company's remodeling program,
which is continuing. Sales for the same 29 stores were
10
$100,797,076 for the 52 weeks ended November 29, 1998 as compared with
annualized sales of $95,173,192 for the 39 weeks ended November 30, 1997, an
increase of 5.6%.
Gross profit as a percentage of sales was 40.12 % for the 52 week
period ended November 29, 1998 as compared to 37.63 % for the 39 week period
ended November 30, 1997. The 1998 period includes the results of the additional
15 Sloan's stores which traditionally achieved higher gross margins.
Store operating, general and administrative expenses as a percentage of
sales were 33.97 % for the 52 weeks ended November 29, 1998 as compared with
35.25 % for the 39 weeks ended November 30, 1997. The decrease in the 1998
period was mainly due to better cost controls resulting from the combining of
the operations in the Merger.
Nonstore operating expenses as a percentage of sales were 3.01 % for
the 52 week period ended November 29, 1998 as compared to 5.11 % of sales for
the 39 week period ended November 30, 1997. Administrative payroll and fringes
were 2.06 % of sales for the 1998 period as compared with 3.15 % of sales for
the 1997 period. The decrease was the result of a reduction in administrative
personnel. General office expense as a percentage of sales decreased to 0.70 %
for the 1998 period as compared to 1.59 % of sales for the 1997 period as a
result of the continuing efficiencies from the combining of the operations.
Professional fees were 0.15 % of sales for the 1998 period as compared to 0.36 %
of sales for the 1997 period. The decrease was due to the reduced need for
outside legal counsel in connection with litigation, real estate and general
corporate matters. Corporate expenses were 0.10 % of sales for the 52 week
period ended November 29, 1998. Corporate expenses are those expenses
attributable only to a public company and as such were only applicable to the
last 3 weeks of the 1997 period.
Results of Operation (Transition Period Compared to 1997)
The following table sets forth, as a percentage of sales, components of the
Results of Operation:
39 weeks ended 52 weeks ended
November 30, 1997 March 2, 1997
----------------- --------------
Sales ..................................... 100.0 % 100.0 %
Cost of sales ............................. 62.4 % 61.4 %
------- -------
Gross profit .............................. 37.6 % 38.6 %
Store operating, general and .............. 35.3 % 32.5 %
administrative expense
Depreciation and amortization ............. 2.0 % 2.0 %
Non-store operating expense ............... 5.1 % 6.1 %
------- -------
Operating loss ............................ (4.8 %) (2.0 %)
======= =======
Sales for the 39 weeks ended November 30, 1997, on an annualized basis,
were $103,878,260 as compared to $104,168,864 for the 52 weeks ended March 2,
1997. The net sales decrease was the result of several factors. Sales for the 39
week period did not include the busy Christmas and New Year's holiday sales
periods. The favorable summer weather in the New York City area during 1997
resulting in prolonged vacations, as well as
11
continuing deflationary pressures in food prices also contributed to the
decrease in sales. The decreases were partially offset by increases in sales
attributable to the fact that 15 stores not included as part of the prior year's
numbers were included for 3 weeks in the November 30, 1997 period. The sales of
the 15 stores amounted to $3,870,221 of the annualized 39 week's sales. In
addition, the remodeling of 4 stores during the 39 week period resulted in
substantial sales increases. Sales for the same 29 stores were $71,379,894 for
the 39 weeks ended November 30, 1997 as compared with $74,119,743 for the 39
weeks ended December 1, 1996, a decrease of 3.70%. The sales decline in the 1997
period was due to the same favorable weather conditions during such period and
continuing deflationary pressures in food prices previously noted.
Gross profit as a percentage of sales was 37.63% for the 39 week period
ended November 30, 1997 as compared to 38.63% for the 52 week period ended March
2, 1997. The decreases in gross profit margin was mainly due to the curtailment
of our long-term forward buying program in the November period as compared to
the March period. In addition, construction activity taking place during the
store remodelings and grand opening promotions for the remodeled stores affected
overall gross profit margins during the November period.
Store operating, general and administrative expenses as a percentage of
sales were 35.25% for the 39 week period ended November 30, 1997 as compared to
32.47% of sales for the 52 week period ended March 2, 1997. Operating expenses
as a percentage of sales increased in the November period due to increases in
occupancy cost, labor costs associated with the store remodels and advertising
costs.
Non-store operating expenses, including bad debt expense, as a
percentage of sales were 5.11% for the 39 week period ended November 30, 1997 as
compared to 6.07% of sales for the 52 week period ended March 2, 1997.
Administrative payroll and fringes were 3.15% of sales for the 39 week period
ended November 30, 1997 as compared with 4.06% of sales for the 52 week period
ended March 2, 1997. The decrease was the result of a reduction in
administrative personnel. General office expense, including bad debt expense, as
a percentage of sales was 1.59% for the 39 week period ended November 30, 1997
as compared with 1.46% for the 52 week period ended March 2, 1997. The
percentage increase is attributable to additional travel and related costs
incurred to monitor the newly remodeled stores during the 39 week period which
were magnified as a percentage of sales by the fact that the sales for the 39
week period did not include the busy Christmas and New Year's holiday sales
periods. Professional fees were 0.36% of sales for the 39 week period ended
November 30, 1997 as compared with 0.55% of sales for the 52 week period ended
March 2, 1997. The decrease was due to the reduced need for the services of
outside legal counsel in connection with litigation, real estate and general
corporate matters. The subcategory "corporate expenses" are those expenses
attributable only to a public company and are thus solely applicable to the 3
week period ended November 30, 1997.
Liquidity and Capital Resources
On November 10, 1997, the Company completed its financial arrangements
with a group of banks for a credit facility in the aggregate amount of
$25,000,000. Under the credit agreement the Company obtained a term loan in the
amount of $12,000,000 to refinance prior bank debt, an improvement term loan
line of credit in the amount of $8,000,000 to finance capital improvements to
its Supermarkets and a revolving line of credit in the amount of $5,000,000 to
provide working capital. The $12,000,000 term loan matures on October 31, 2002.
The improvement term loan line of credit and the revolving line of credit mature
on October 31, 2002 and November 29, 1999, respectively, at which times all
amounts outstanding thereunder are payable.
Presently, the bank facilities are fully utilized and the Company is
negotiating an increase in the credit facilities with its banks. There is no
assurance that the Company will be able to negotiate such an increase on terms
satisfactory to the Company. If the Company is unable to obtain its desired
financing from its bank, the Company will seek increased financing from third
party leasing companies and/or additional financing from the Company's
principal shareholder and other sources.
The Company has not incurred any material commitments for capital
expenditures, although it anticipates spending approximately $10,000,000 on its
store remodeling and expansion program in fiscal 1999. Such amount is subject to
adjustment based on the availability of funds.
12
Borrowings under the facility bear interest at a spread over either the
prime rate of the bank acting as agent for the group of banks or a LIBOR rate,
with the spread dependent on the ratio of the Company's funded debt to EBITDA
ratio, as defined in the credit agreement. The average interest rate on amounts
outstanding under the facility during the 52 weeks ended November 29, 1998 was
8.0 % per annum.
The credit facility contains covenants, representations and events of
default typical of credit facility agreements, including financial covenants
which require the Company to meet, among other things, a minimum tangible net
worth, debt service coverage ratios and fixed charge coverage ratios, and which
limit transactions with affiliates. The facility is secured by equipment,
inventories and accounts receivable. During fiscal 1998 the Company and the
banks amended the credit facility to, among other things, modify certain of the
financial covenants and extend the term of the revolving line of credit by one
month until November 29, 1999.
The Company has available approximately $4.0 million in third party
leasing lines of credit to lease finance equipment for its store remodeling and
expansion program.
Year 2000 Issue
The Company has assesed its information technology ("IT") systems for
the Year 2000 readiness and has given the highest priority to those IT systems
it considers mission critical. The systems the Company considers mission
critical are its store automation systems (including point of sale systems) and
its computer systems at its main office which support these store systems.
Management expects all in-store IT systems as well as the host support
system located in the Company's main office will be certified by the original
vendor as Year 2000 compliant by May 31, 1999. These systems were either Year
2000 compliant as installed or are being upgraded by the original vendors to a
Year 2000 compliant status under the existing maintenance programs. No
additional expense has or will be incurred by the Company to bring these systems
in to Year 2000 compliance since any necessary changes are provided by the
vendors under software maintenance programs.
The Company has assessed its other IT systems, including accounting and
payroll systems, deployed at its main office and its City Produce warehouse
facility for Year 2000 compliance and has identified the steps necessary to
ensure systems will be Year 2000 Compliant.
The Company has developed and tested a methodology that will allow its
existing software programs to be Year 2000 compliant by making minor changes to
some of the existing programs. The existing data files need not be altered. The
Company will perform application level review to identify processes that involve
the input of output of a date. That program will require a minor modification
(utilizing the already tested code), to make it Year 2000 compliant. These
systems will then be tested to confirm that they function as expected. Some of
the Company's hardware is not now Year 2000 compliant and the Company has
budgeted for the replacement or modification of such hardware as necessary in
the first half of 1999.
The Company expects to spend $70,000 for hardware and will spend an
additional $30,000 for software modifications and related expenses to ensure
that these systems are compliant. The Company expects that the necessary funds
for these expenditures will come from cash flow generated from its operations.
All testing on these systems in expected to be completed by June 30, 1999 at
which time it is expected that these systems will be Year 2000 compliant.
13
The Company does not currently intend to hire an outside firm to
independently verify that its systems are Year 2000 compliant.
The Company has assessed the majority of its non-IT systems for Year
2000 readiness and has identified a small number of systems, including certain
equipment at store level, which may not be Year 2000 ready. The Company is
working with the vendor of these systems of identify the best approach. While
these systems have an internal clock and date, the date is not necessary for the
systems to be productive. Such systems could therefore continue to function as
need and management does not anticipate that these systems will pose any
significant Year 2000 problem or expense.
The Company has begun to review the Year 2000 readiness plans of its
major vendors in an effort to ensure that operations remain unaffected by Year
2000 related failures. The company will place preset orders with certain major
vendors to help ensure product deliveries in the event that the vendor is
affected by failures at some level of its operations but is still able to
deliver merchandise. In the event a major vendor is unable to provide products
the Company will increase its purchases from other vendors from which it
currently buys.
The Company purchases merchandise sold in its stores from multiple
vendors and is not reliant on any one vendor for the normal conduct of its
operations. The Company is not dependant on these supplier relationships since
merchandise is readily available from numerous sources under different brand
names, subject to conditions affecting food supplies generally.
The Company believes that its efforts will result in Year 2000
compliance. However, the impact on business operations of failure by the Company
to achieve compliance of failure by external entities which the Company cannot
control, such as vendors, to achieve compliance, could be material to the
Company's consolidated results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
Not applicable.
14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Page No.
--------
Report of independent certified public accountants F-1
Consolidated balance sheets of Gristede's Sloan's, Inc.
and its subsidiaries as of November 29, 1998
and November 30, 1997 F-2
Consolidated Statements of Operations of Gristede's Sloans, Inc.
and its subsidiaries for the fifty-two weeks ended
November 29, 1998 and three weeks ended November 30, 1997 F-4
Consolidated Statements of Sales and Expenses of Gristede's Sloan's, Inc.
and its subsidiaries for the 36 weeks ended November 9, 1997,
the 53 weeks ended March 2, 1997 F-5
Consolidated Statement of Stockholders' Equity of Gristede's Sloan's,
Inc. and its subsidiaries for the fifty-two weeks ended
November 29, 1998 and three weeks ended November 30, 1997 F-6
Consolidated Statement of Cash Flows of Gristede's Sloan's, Inc.
and its subsidiaries for the fifty-two weeks ended
November 29, 1998 and three weeks ended November 30, 1997 F-7
Notes to Financial Statements F-8
15
Report of Independent Certified Public Accountants
Board of Directors of
Gristede's Sloan's, Inc.
New York, New York
We have audited the accompanying consolidated balance sheets of Gristede's
Sloan's, Inc. and subsidiaries as of November 29, 1998 and November 30, 1997,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for the fifty two weeks and three weeks then ended respectively and
the related statements of sales and expenses for the thirty six weeks ended
November 9, 1997 and the fifty two weeks ended March 2, 1997 (see Note 1).
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The accompanying statements of sales and expenses were prepared for the purpose
of complying with the rules and regulations of the Securities and Exchange
Commission, and are not intended to be a complete presentation of Gristede's
Sloan's, Inc.'s results of operations for the period noted above.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, (i) the financial position of Gristede's
Sloan's, Inc. and subsidiaries as of November 29, 1998 and November 30, 1997,
and the results of their operations and their cash flows for the fifty two weeks
and three weeks then ended, and (ii) the sales and expenses for the thirty six
weeks and fifty two weeks ended November 9, 1997 and March 2, 1997, in
conformity with generally accepted accounting principles.
/s/ BDO Seidman, LLP
- --------------------
BDO Seidman, LLP
New York, NY
February 27, 1999
F-1
Gristede's Sloan's, Inc.
and Subsidiaries
Consolidated Balance Sheets
November 29, November 30,
1998 1997
---------- ----------
Assets
Current:
Cash .................................................................. $ 53,794 $ 88,970
Accounts receivable - net of allowance for doubtful
accounts of $ 0 and $300,000 .......................................... 5,091,174 5,110,026
Inventories ........................................................... 18,425,802 16,221,465
Prepaid expenses and other current assets ............................. 1,320,931 914,544
Notes receivable - current portion .................................... 1,032,203 584,912
---------- ----------
Total current assets ............................................. 25,923,904 22,919,917
---------- ----------
Property and equipment:
Furniture, fixtures and equipment ..................................... 14,610,788 13,393,803
Capitalized equipment leases .......................................... 8,267,999 5,574,369
Leasehold interests and improvements .................................. 34,388,652 30,296,510
---------- ----------
57,267,439 49,264,682
Less: Accumulated depreciation and amortization ...................... 25,716,915 23,567,986
---------- ----------
Net property and equipment ....................................... 31,550,524 25,696,696
---------- ----------
Due from affiliate ....................................................... -- 351,778
---------- ----------
Deposits and other assets ................................................ 719,429 717,429
---------- ----------
Deferred costs ........................................................... 1,968,859 1,515,004
---------- ----------
Notes receivable - noncurrent portion .................................... 543,793 1,504,731
---------- ----------
$60,706,509 $52,705,555
========== ==========
See accompanying notes to consolidated financial statements.
F-2
Gristede's Sloan's, Inc.
and Subsidiaries
Consolidated Balance Sheets
November 29, November 30,
1998 1997
Liabilities and Stockholders' Equity
Current:
Accounts payable, trade ......................................... $ 11,951,436 $ 15,671,962
Accrued payroll, vacation and withholdings ...................... 1,543,748 1,276,535
Accrued expenses and other current liabilities .................. 896,716 947,395
Note payable .................................................... 319,138 --
Capitalized lease obligation - current portion .................. 695,665 389,809
Current portion of long-term debt ............................... 3,314,283 1,714,284
---------- ----------
Total current liabilities .................................. 18,720,986 19,999,985
Long-term debt - noncurrent portion ................................ 18,663,935 11,285,716
Due to affiliate ................................................... 4,031,394 4,000,000
Deferred advertising ............................................... 248,654 378,654
Capitalized lease obligation - noncurrent portion .................. 2,986,007 1,377,194
Deferred rent ...................................................... 1,673,850 993,984
---------- ----------
Total liabilities .......................................... 46,324,826 38,035,533
---------- ----------
Commitments and contingencies
Stockholders' equity:
Common stock, $0.02 par value - shares authorized
25,000,000; outstanding 19,636,574 .............................. 392,732 392,732
Additional paid-in capital ...................................... 14,136,674 14,136,674
Retained earnings (deficit) ..................................... (147,723) 140,616
---------- ----------
Total stockholders' equity ................................. 14,381,683 14,670,022
---------- ----------
$ 60,706,509 $ 52,705,555
========== ==========
See accompanying notes to consolidated financial statements.
F-3
Gristede's Sloan's, Inc.
and Subsidiaries
Consolidated Statements of Operations
52 weeks
ended 3 weeks ended
November 29, November 30,
1998 1997
------------- -------------
Sales .................................................................... $ 157,462,869 $ 9,225,123
Cost of sales ............................................................ 94,282,306 5,731,065
------------- -------------
Gross profit ..................................................... 63,180,563 3,494,058
------------- -------------
Store operating, general and administrative expenses ..................... 53,490,803 2,754,563
------------- -------------
Depreciation and amortization 3,948,000 219,813
Nonstore operating expenses:
Adminstrative payroll and fringes ................................ 3,249,306 166,539
General office expense ........................................... 1,103,005 86,588
Professional fees ................................................ 229,646 7,975
Corporate expense ................................................ 160,853 5,378
------------- -------------
Total non-store operating expenses ....................................... 4,742,810 266,480
------------- -------------
Operating profit 998,950 253,202
Other income (expenses):
Interest expense ...................................................... (1,832,036) (82,586)
Interest income ....................................................... 177,430 --
Other income .......................................................... 384,541 --
------------- -------------
Total other expenses ............................................. (1,270,065) (82,586)
------------- -------------
Loss/Income before provision
for income taxes ......................................................... (271,115) 170,616
Provision for income taxes ............................................... 17,224 30,000
------------- -------------
Net (loss) income ........................................................ $ (288,339) $ 140,616
============= =============
(Loss) Income per share of common stock basic and diluted ................ $ (.01) $ .01
Weighted average common shares outstanding ............................... 19,636,574 19,636,574
========================================================================== ============= =============
See accompanying notes to consolidated financial statements.
F-4
Gristede's Sloan's, Inc.
and Subsidiaries
Consolidated Statements of Sales and Expenses
36 weeks ended 52 weeks ended
November 9, 1997 March 2, 1997
========================================== ============= =============
Sales ................................. $ 68,683,570 $ 104,168,864
Cost of sales ......................... 42,860,656 63,932,541
========================================== ============= =============
Gross profit ..................... 25,822,914 40,236,323
Direct operating expenses ............. 24,708,065 33,821,475
------------- -------------
1,114,849 6,414,848
Corporate overhead .................... 3,716,800 6,207,930
------------- -------------
(2,601,951) 206,918
Depreciation and amortization ......... 1,365,673 2,092,403
Bad debt expense ...................... -- 113,242
------------- -------------
Excess of expenses over sales ......... $ (3,967,624) $ (1,998,727)
========================================== ============= =============
See accompanying notes to consolidated financial statements.
F-5
Gristede's Sloan's, Inc.
and Subsidiaries
Consolidated Statements of Stockholders' Equity
Fifty two weeks ended November 29, 1998 and three weeks ended November 30, 1997
Common stock
----------------------------- Additional Retained Total
Number of paid-in earnings Stockholders'
shares Amount capital (Deficit) equity
================================================= ============ ============ ============ ============ ============
Balance, November 10, 1997 ................... -- $ -- $ -- $ -- $ --
To reflect acquisition of Sloan's
Supermarket, Inc. -
Recapitalization (Note 1) .................... 19,636,574 392,732 14,136,674 14,529,406
Net Income ................................... 140,616 140,616
------------ ------------ ------------ ------------ ------------
Balance, November 30, 1997 ................... 19,636,574 392,732 14,136,674 140,616 14,670,022
Net Loss ........................................ (288,339) (288,339)
------------ ------------ ------------ ------------ ------------
Balance November 29, 1998 ....................... 19,636,574 $ 392,732 $ 14,136,674 $ (147,723) $ 14,381,683
================================================= ============ ============ ============ ============ ============
See accompanying notes to consolidated financial statements.
F-6
Gristede's Sloans, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
52 weeks ended 3 weeks ended
November 29, 1998 November 30, 1999
======================================================================== ================= =================
Cash flows from operating activities:
Net income/(loss) ................................................... $ (288,339) $ 140,616
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization .................................. 3,948,000 219,813
Changes in operating assets and liabilities, net of
effect from acquisition of supermarkets:
Accounts receivable ....................................... 18,852 (421,106)
Inventories ............................................... (2,204,337) (209,130)
Prepaid expenses and other current assets ................. (406,387) 442,666
Notes receivable .......................................... 513,647 23,433
Receivable from officer ................................... 351,778 (1,113)
Other assets .............................................. (455,855) (399,092)
Accounts payable, trade ................................... (3,720,527) (6,529,099)
Accrued payroll, vacation and withholdings ................ 267,213 397,894
Accrued expenses and other current liabilities ............ (50,679) 270,334
Deferred rent ............................................. 678,866 34,503
Other credits ............................................. (130,000) 378,654
Closed stores expense .................................... 165,958 --
Net cash used in operating activities .................. (1,311,810) (5,651,627)
------------ ------------
Cash flows from investing activities:
Capital expenditures - net .......................................... (9,966,786) (362,987)
------------ ------------
Net cash used in investing activities .................. (9,966,786) (362,987)
------------ ------------
Cash flows from financing activities:
Repayments of bank loans ............................................ (2,290,388) (7,100,000)
Repayments Capitalized lease obligations ............................ (581,043) (7,665)
Proceeds from bank loans ............................................ 11,619,138 13,000,000
Proceeds from Capitalized lease obligations ......................... 2,495,713 --
------------ ------------
Net cash provided by financing activities ............... 11,243,420 5,892,335
------------ ------------
Net decrease in cash .................................... (35,176) (122,279)
Cash, beginning of period .............................................. 88,970 211,249
------------ ------------
Cash, end of period .................................................... $ 53,794 $ 88,970
======================================================================== ============ ============
Supplemental disclosures of cash flow information:
Cash paid for interest .............................................. $ 1,757,036 $ 21,792
Cash paid for taxes ................................................. 85,056 1,500
======================================================================== ============ ============
See accompanying notes to consolidated financial statements.
F-7
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
1. Business and Basis of On November 4, 1997, Sloan's Supermarkets, Inc.
Presentation ("Sloan's") changed its name to Gristede's
Sloan's, Inc. ("GRI" or the "Company"). On
November 10, 1997, GRI acquired certain assets,
net of liabilities of 29 selected supermarkets and
a wholesale distribution business ("The Food
Group") controlled by Mr. John Catsimatidis, a 37%
shareholder of GRI. The transaction was accounted
for as the acquisition of Sloan's by The Food
Group pursuant to Emerging Issues Task Force 90-13
as a result of The Food Group obtaining control of
Sloan's after the transaction. The assets and
liabilities of The Food Group (the "Acquiror") are
recorded at their historical cost. Sloan's assets
and liabilities were recorded at their fair value
to the extent acquired. Consideration for the
transaction was based on an aggregate of
$36,000,000 in market value of the Company's
common stock and the assumption of $4,000,000 of
liabilities. 16,504,298 shares of common stock
were issued on the date of the acquisition based
on a market price of $2.18 per share.
The accompanying statement of operations for the
52 weeks ended November 29, 1998 and for the three
weeks ended November 30, 1997 represents the
consolidated operations of The Food Group and GRI.
Retained earnings at November 30, 1997 represent
the cumulative net operating results for both The
Food Group and GRI from November 10, 1997 (the
date the acquisition was consummated) to November
30, 1997.
F-8
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
The Food Group's financial statements, rather than
complete financial statements, are presented for
periods prior to November 9, 1997 because the
business acquired consisted of only certain net
assets of the stores and there are certain assets
of The Food Group that were not acquired.
Accordingly, the statements present only the the
sales and expenses directly attributable to The
Food Group. The financial statements consist of a
historical consistent comparison of the operating
results only of those stores transferred to the
public company. The entities owning The Food Group
(the "Group"), in addition to owning the above
stores, also have other operations included within
its consolidated group. Corporate overhead costs
for the entire Group are allocated to the Group's
respective operations, including The Food Group.
Corporate overhead included in the accompanying
statements of sales and expenses include
identified overhead costs for payroll and other
directly attributable overhead costs pertaining to
the retail stores owned by the Group which also
includes costs incurred for selected stores not
being sold. No tax benefit has been recognized due
to the fact that the losses remain with the
corporate parent of The Food Group.
2. Summary of Significant
Accounting Policies PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the
accounts of Gristede's Sloan's, Inc. and its
wholly-owned subsidiaries. All material
intercompany accounts and transactions have been
eliminated in consolidation.
FISCAL YEAR
On January 13, 1998, the Company's Board of
Directors elected to change the Company's fiscal
year-end from the Sunday closest to the last day
of February to the Sunday closest to the last day
of November.
INVENTORIES
Store inventories are valued principally at the
lower of cost or market with cost determined under
the retail method.
F-9
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
PROPERTY AND EQUIPMENT
Depreciation of furniture, fixtures and equipment
is computed by the straight-line method over the
estimated useful lives of the assets, with lives
ranging from seven to ten years. Leasehold
improvements are amortized over the shorter of
their estimated useful lives or the lease term by
the straight-line method.
As of November 30, 1997 the Company recorded
approximately $4.3 million to leasehold rights on
the consummation of the acquisition discussed in
Note 1 due to favorable leasing terms. The
leasehold rights are amortized over the ten year
life of the individual store leases by the
straight-line method.
LEASES
The Company charges the cost of operating lease
payments and beneficial leaseholds to operations
on a straight-line basis over the lives of the
leases.
DEFERRED ADVERTISING
Advertising rebates and space allocation
allowances are deferred and recognized in income
over the period of the agreement, generally up to
three years.
ADVERTISING EXPENSE
The Company expenses advertisement costs when the
advertisement is first shown.
DEFERRED COSTS
Deferred costs consist of a noncompete agreement,
acquisition and financing costs; and are amortized
on a straight-line basis over five to ten years.
F-10
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
INCOME TAX
Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to
differences between the financial statement
carrying amounts of existing assets and
liabilities and their respective tax basis.
Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to
taxable income in the years in which those
temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized
in income in the period that includes the
enactment date.
The Company will not recognize gain or loss as a
result of the completion of the transactions set
forth in the merger agreement between The Food
Group and the Company. The Company believes that
it underwent an "Ownership Change" within the
meaning of Section 382 of the Internal Revenue
Code of 1986, as amended, as a future consequence
of the transaction. As a result, the Company's
ability to offset its net operating loss
carryforwards against income earned after the
transaction will be limited. (As of November 29,
1998, the Company had net operating loss
carryforwards of approximately $3,000,000). Thus,
the transaction could result in taxation of some
future Company income that, absent the
transaction, might have been offset by net
operating loss carryforwards.
USE OF ESTIMATES
The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make estimates
and assumptions that affect certain reported
amounts of assets, liabilities, income and expense
and disclosures of contingencies. Future events
could alter such estimates.
F-11
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
STOCK-BASED COMPENSATION PLANS
Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based
Compensation" allows either adoption of a fair
value method of accounting for stock-based
compensation plans or continuation of accounting
under Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to
Employees," and related interpretations with
supplemental disclosures.
The Company has chosen to account for all
stock-based compensation arrangements under APB
Opinion No. 25 with related disclosures under SFAS
No. 123. Pro forma net earnings (loss) per common
share amounts as if the fair value method had been
adopted are presented in Note 11.
FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosure About Instruments"
requires companies to disclose the fair value of
financial instruments. The carrying values of cash
and cash equivalents, accounts receivable and
accounts payable reported in the accompanying
consolidated balance sheets approximate fair value
due to the short-term maturities of these assets.
The fair value of long-term debt, consisting of
the term loans and revolving loan payable as of
November 29, 1998 and November 30, 1997,
approximates the recorded book values because of
the fluctuating interest rates. It was not
practical to determine the fair value of the
amount due to affiliate, because of the uncertain
repayment terms.
F-12
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
LONG-LIVED ASSETS
During 1995, SFAS No. 121, "Accounting for the
Impairment of Long-lived Assets and for Long-lived
Assets to Be Disposed Of", was issued. SFAS 121
requires the Company to review long-lived assets
and certain identifiable assets related to those
assets for impairment whenever circumstances and
situations change such that there is an indication
that the carrying amounts may not be recoverable.
If the undiscounted future cash flows of the
enterprise are less than their carrying amounts,
their carrying amounts are reduced to fair value
and an impairment loss is recognized. No
impairment losses have been necessary through
November 29, 1998.
INCOME/(LOSS) PER SHARE
The Company adopted SFAS No. 128, "Earnings Per
Share," ("EPS") which requires a presentation of
basic EPS and diluted EPS. Basic EPS excludes
dilution and is computed by dividing earning
available to common stockholders by the
weighted-average number of common shares
outstanding for the period. Diluted EPS assumes
conversion of convertible debt and the issuance of
common stock for all other potentially dilutive
equivalent shares outstanding. Diluted EPS is not
shown since it is anti-dilutive.
RECENT ACCOUNTING PRONOUNCEMENTS
SFAS No. 130, "Reporting Comprehensive Income",
requires an entity to report comprehensive income
and its components for fiscal years beginning
after December 15, 1997. The Company believes SFAS
No. 130 will have little, if any, effect on the
information already disclosed in the Company's
financial statements.
F-13
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information" requires an
entity to report financial and descriptive
information about its reportable operating
segments for fiscal years beginning after December
15, 1997. The Company believes SFAS No. 131 will
have little, if any, effect on the information
already disclosed in the Company's financial
statements.
SFAS No. 133 "Accounting for Derivatives
Instrument and Hedging Activities" establishes
accounting and reporting standards for derivative
instruments. The Company has not in the past nor
does it anticipant, that it will engage in
transactions involving derivative instruments
which will impact the financial statements.
Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained
for Internal Use", requires an entity to expense
all software development costs incurred in the
preliminary project stage, training costs and data
conversion costs for fiscal years beginning after
December 15, 1998. The Company believes that this
statement will not have a material effect on the
Company's accounting for computer software
acquisitions.
Statement of Position 98-5, "Accounting for
Start-up Costs", requires an entity to expense all
start-up related costs as incurred for fiscal
years beginning after December 15, 1998. The
Company believes that this statement will not have
a material effect on the Company's accounting for
start-up costs.
F-14
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
3. Acquisition of The Food
Group
As discussed in Note 1, the following table
reflects unaudited pro forma combined results of
operations of Sloan's and The Food Group on the
basis that the acquisition had taken place at the
beginning of the 1997 fiscal year for each of the
periods presented.
36 weeks ended 52 weeks ended
November 9, 1997 March 2, 1997
======================== ========================= ==========================
Revenues $101,157,570 $150,721,403
Operating income 1,679,004 11,085,809
======================== ========================= ==========================
In management's opinion, the unaudited pro forma
combined results of operations are not indicative
of the actual results that would have occurred had
the acquisition been consummated on March 4, 1996
or of future operations of the combined companies
under the ownership and management of GRI.
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
4. Related Party
Transactions (a) On February 6, 1998 the Company purchased
substantially all of the assets and assumed
certain of the liabilities of a supermarket
located at 1644 York Avenue, New York, New York
owned by a corporation controlled by John
Catsimatidis. The acquisition was recorded at its
book value of approximately $31,000, subject to an
appraisal. The purchase price is to be the value
of the supermarket based upon an appraisal to be
conducted by a firm selected by a committee of
independent directors of the Company less the
amount of certain liabilities assumed by the
Company. The appraisal will be based on, among
other things, a review of the operating statement
of the supermarket for the period from February 6,
1998 to a date no earlier than January 31, 1999.
The purchase price will be subject to adjustment
to the extent that the acquired inventory is
greater or less than the sum of trade payable and
liabilities for employee vacation and sick pay
that have been assumed by the Company. The
purchase price will be paid at such time and by
such method as shall be recommended by a committee
of the independent directors of the Company and
approved by the Board of Directors of the Company,
John Catsimatidis abstaining.
(b) The Company had advanced funds to a company
owned by the Chairman of the Board who is also the
principal stockholder of the Company. As of
November 30, 1997, the Company was owed
approximately $352,000, including $148,000 of
accrued interest. Such advances bear interest at
prime plus 1.25% per annum (9.75% at November 30,
1997). During the 1998 fiscal year these advances
were fully repaid.
(c) The Company and The Food Group allocate
volume, advertising and other rebates. Rebates,
whether allocated or directly attributed to the
Company, are recorded as reductions to cost of
sales or advertising expense over the life of the
related agreement. Rebates recorded as reductions
to expenses approximated $ 4.8 million, $0.4
million, $1.5 million and $3.2 million for the 52
weeks ended November 29, 1998, the 3 weeks ended
November 30, 1997 the 36 weeks ended November 9,
1997 and the fiscal ended March 2, 1997,
respectively.
F-15
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(d) Prior to the merger, Red Apple Management
Inc., a company wholly owned by John Catsimatidis,
provided certain payroll, related employee benefit
services and office services for The Food Group.
Such services included accounting, merchandising,
human resources, maintenance, executive salaries
and employee benefits. During the 36 weeks ended
November 9, 1997 and the fiscal year ended 1997,
the Company incurred approximately, $2.7 million
and $3.8 million, respectively. These services
ended on November 9, 1997.
(e) Newspaper advertising for the Company is
frequently pooled with advertising for other
supermarkets which are not owned by the Company.
In such cases, the Company pays a proportionate
share of such advertising expenses based upon its
number of Supermarkets covered in the
advertisements. Such amounts allocated to the
Company approximated, $388,000 and $319,000 during
the 36 weeks ended November 9, 1997 and the fiscal
years ended March 2, 1997, respectively. These
services ended on November 9, 1997.
(f) Under a Management Agreement, dated November
10, 1997 (the "Management Agreement"), Namdor
Inc., a subsidiary of the Company, performs
consulting and managerial services for three
supermarkets owned by corporations controlled by
John Catsimatidis. In consideration of such
services, Namdor Inc. is entitled to receive on a
quarterly basis a cash payment of one and
one-quarter (1.25%) percent of all sales of
inventory and merchandise made at or from the
managed supermarkets. During the fiscal year ended
November 29, 1998 management fee income was $
119,000.
(g) MCV Advertising Associates Inc. a company 85%
owned by John Catsimatidis provides advertising
services to the Company. For the year ended
November 29, 1998 the costs incurred were $
1,072,544.
F-16
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(h) Mr. John Catsimatidis issued each year a
limited $ 1,000,000 guarantee of the collection of
all accounts receivable. Futhermore, Mr.
Catsimatidis has agreed not to permit the level of
the Company's liability due to the affiliate to
fall below $ 1,000,000, prior to the issuance of
the fiscal year ended November 29, 1999 audited
financial statements.
(i) Wolf, Block, Schorr and Solis Cohen, LLP,. a
law firm of which a director of the Company is a
member, charged the Company $219,035, $-0-,
$341,000 and, $194,000 in fees for rendering legal
services to the Company during the 52 weeks ended
November 29, 1998, 3 weeks ended November 30,
1997, 36 weeks ended November 9, 1997 and the
fiscal year ended March 2, 1997, respectively.
Capitalized Lease Obligations Due to Affiliate
(j) Certain stores have entered into capital and
operating leases with an affiliate, C & S
Acquisition Corp, (formerly Red Apple Leasing,
Inc). (a company wholly owned by John
Catsimatidis). Such leases are primarily for store
operating equipment. Obligations under capital
leases at November 29, 1998 and November 30, 1997
were $821,305 and $1,206,932 respectively and
require monthly payments of $35,114 through March
1, 2001. Obligations under operating leases at
March 2, 1997 require 84 payments of $14,594.
Obligations under operating leases at June 2, 1997
and September 1, 1997 require 60 monthly payments
of $10,783 and $16,297, respectively.
Notes Receivable
During 1994, the Company sold two stores. Pursuant
to the United States Federal Trade Commission
settlement agreement (see Note 12), the Company
also sold four stores during 1996 and 1997. At the
time of the sale, the Company accepted a note
receivable on each store. These notes bear
interest at rates of 8.5% to 10% and have terms of
4 to 6 years.
F-17
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
5. Deferred Costs At November 29, 1998 and November 30, 1997
Amortization
1998 1997 period
----------- ----------- -----------
Acquisition costs ................ $ 1,315,119 $ 834,316 5 years
Non-compete covenants ............ 790,316 790,316 10 years
Debt costs ....................... 559,215 254,528 5-10 years
Other ............................ 129,848 122,263 5-11 years
Accumulated amortization ......... (825,639) (486,419)
------------------------------------ ----------- ----------- -----------
Net deferred costs ................. $ 1,968,859 1,515,004
==================================== =========== =========== ===========
6. Due to Affiliate Amounts due to affiliate, United Acquisition
Corp., a corporation wholly owned by John
Catsimatidis, represent liabilities in connection
with the consummation of the merger as discussed
in Note 1. The affiliate has agreed not to demand
payment of these liabilities in the next fiscal
year. Accordingly, the liability has been
classified as noncurrent. As of November 29, 1998,
$ 3 million of the amount due to affiliate was
subordinated to the Company's banks. The
Subordination Agreement expired on November 30,
1998. The liability does not bear interest.
7. Commitments and
Contingencies The Company operates primarily in leased
facilities, under noncancelable operating leases
expiring at various dates through 2018. Certain
leases provide for contingent rents (based upon
store sales exceeding stipulated amounts or on the
Consumer Price Index), escalation clauses and
renewal options ranging from five to fifteen
years. The Company is obligated under all leases
to pay for taxes, insurance and common area
maintenance expenses.
Rent expense under noncancelable operating leases,
including leases with related parties for the
fiscal periods ended November 29, 1998, November
30, 1997, November 9, 1997 and March 2, 1997,
respectively, is as follows:
F-18
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
36 weeks
52 weeks ended 3 weeks ended ended
November November 30, November 9, 52 weeks ended
29, 1998 1997 1997 March 2, 1997
============== ========== ========== ========== ==========
Base rents $9,108,164 $ 450,460 $4,026,056 $4,952,840
Contingent rents -- -- (18,169) 21,461
---------- ---------- ---------- ----------
Rent expense $9,108,164 $ 450,460 $4,007,887 $4,974,301
============== ========== ========== ========== ==========
Related party rent expense was $675,750, $51,823,
$446,760 and $267,000 for the 52 weeks ended
November 29, 1998, 3 weeks ended November 30,
1997, 36 weeks ended November 9, 1997 and the
fiscal year ended March 2, 1997, respectively.
Future minimum lease commitments under
noncancelable leases as of November 29, 1998 are:
Fiscal year ending
=========================================
1999 $ 9,218,000
2000 9,411,000
2001 8,635,000
2002 8,077,000
2003 7,332,000
Thereafter 53,629,000
----------
$ 96,302,000
=========================================
In addition to related party capital leases (Note
4(f)), the Company has other capital equipment
leases. The net book value of all assets under
capital leases at November 29, 1998 is
approximately $3.8 million.
F-19
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
The Future net minimum lease payments under
capital leases are as follows:
Fiscal year ending
=================================================
1999 $ 1,044,414
2000 1,044,415
2001 728,385
2002 623,042
2003 605,329
Thereafter 504,086
---------
4,549,671
Less: Amount representing interest 868,000
---------
Present value of
net minimum lease payments 3,681,671
Due within one year 695,664
---------
Total $ 2,986,007
=================================================
8. Income Taxes Deferred tax expense or benefit is the change in
the computed tax asset or liability balance. As of
November 29, 1998, the Company had total deferred
tax assets of approximately $3,200,000 of which
approximately $1,200,000 is related to net
operating loss carryforwards which are available
to offset income earned in future years, and
approximately $2,000,000 relates to the different
tax and book bases of leasehold rights. The net
deferred tax assets at November 29, 1998 were
offset by valuation allowances of an equal amount.
Accordingly, no deferred income taxes were
recognized in any of the periods. The Company
believes that it underwent an "Ownership change"
within the meaning of section 382 of the Internal
Revenue Code of 1986 and as a future consequence
of the transaction the company's ability to offset
its net operating loss carryforwards against
income earned after the transaction may be
limited. If any of the net operating loss
carryforwards, is realized any tax benefit will be
credited to additional paid-in-capital.
F-20
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
9. Debt (a) Credit Facility and Term Loan Agreement
On November 10, 1997, the Company entered into an
aggregate $25,000,000 five-year credit facility
with European American Bank, as agent, and certain
other participating banks. The credit facility is
comprised of a $12,000,000 five-year term loan, a
$8,000,000 five-year term loan line for remodeling
and capital improvements to the Company's stores
and a $5,000,000 two-year revolving credit
facility for general working capital purposes.
Borrowings under the facility bear interest at a
"spread" over either the bank's prime rate or
LIBOR rates, with the spread dependent on the
ratio of the Company's funded debt to EBITDA
ratio, as defined in the credit agreement. The
credit facility contains covenants,
representations and events of default typical of
credit facility agreements, including financial
covenants which require the Company to meet, among
other things, a minimum tangible net worth, debt
service coverage ratios and fixed charge coverage
ratios, and which limit transactions with
affiliates. The facility is secured by equipment,
inventories and accounts receivable.
F-21
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Long-term debt at November 29, 1998 and November
30, 1997 consists of the following:
November 29, 1998 Nov. 29, 1998 Nov. 30, 1997
================================================================================== ============= =============
Term loan payable to banks due October 31, 2002
Interest on prime-based loans is payable monthly
in arears and interest on LIBOR-based loans is
payable at the end applicable interest period;
payable in 59 monthly installments of $142,857
beginning December 1, 1997 with the 60th such
installment being the then outstanding principal amount ....................... $10,285,716 $12,000,000
Revolving loan payable to bank, due November 29,
1999. Interest on prime-based loans is payable monthly
in arears and interest on LIBOR-based loans is
payable at the end applicable interest period ................................. 5,000,000 1,000,000
Improvement term loan payable to banks due
October 31, 2002. Interest on prime-based loans
is payable monthly in arears and interest on
LIBOR-based loans is payable at the end applicable
interest period; principal is payable in monthly
installments of $133,333 with the then out standing
principal amount payable as the last installment .............................. 6,692,502 1,000,000
---------- ----------
21,987,218 13,000,000
Less: Current portion ......................................................... 3,314,283 1,714,284
---------- ----------
$18,663,935 $11,285,716
=========== ===========
Interest on prime-based loans is payable monthly
in arrears and interest on LIBOR-based loans is
payable at the end of the applicable interest
period.
During the year ended November 29, 1998 the
interest rates ranged from 7.72% to 8.28% on the
LIBOR-based loans and from 8.50% to 9.25% on the
prime-based loans.
During the three weeks ended November 30, 1997,
the interest rate was 9.25% (collateralized by
certain assets of the Company, including
receivables, inventory, and store equipment)
The loans are collateralized by certain assets of
the Company, including receivables, inventory and
store equipment.
F-22
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Principal maturities of long-term debt as of
November 29, 1998:
Fiscal year ending
===========================================
1999 $ 3,314,283
2000 8,314,283
2001 3,314,283
2002 7,035,369
------------
$ 21,978,218
===========================================
10. Retirement Plans The Company participates in various defined
contribution multi- employer union pension plans
which are administered jointly by management and
union representatives and which sponsor most full-
time and certain part-time union employees. The
pension expense for these plans approximated
$786,000, $153,000, $369,000 and $697,000 in the
52 weeks ended November 29, 1998, the 3 weeks
ended November 30, 1997, 36 weeks ended November
9, 1997, and the fiscal year ended March 2, 1997,
respectively. The Company could, under certain
circumstances, be liable for unfunded vested
benefits or other expenses of jointly administered
union/management plans.
11. Stock Option Plans The following stock option plans were carried
forward by The Food Group from Sloan's:
On October 7, 1994, the Company granted the
Chairman a non-qualified stock option to purchase
an aggregate of 275,000 shares of common stock at
a price of $3.75 per share (the fair market value
at that date).
On August 12, 1996, the Company granted the
Chairman a non-qualified stock option to purchase
an aggregate of 250,000 shares of common stock at
a price of $2.875 per share.
F-23
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
The Company currently has one incentive grant and
five nonqualified grants under which stock options
may be granted to officers, directors and key
employees of the Company - the 1994 Employee
Incentive Grant (the "1994 Grant"), the 1994
Nonqualified Grant (the "1994 NQ Grant"), the 1995
Chairman's Nonqualified Options (the "Chairman's
Grant"), the 1994 Director's Nonqualified Grant
(the "Directors' Grant"), the 1994 Nonqualified
Recruitment Grant (the "1994 Recruitment Grant")
and the 1998 stock option plan("The 1998 Plan").
The options to purchase shares of common stock
generally are issued at fair market value on the
date of the grant, begin vesting on the date of
the grant, and expire ten years from issuance and
are conditioned upon continual employment during
the vesting period.
Under the 1994 Grant, the 1994 NQ Grant and The
1998 Plan, the Company granted options to purchase
up to 100,000, 35,000, and 500,000 shares of
common stock, respectively.
In addition to the one incentive grant, the
Company has granted stock options to certain key
executives and directors. The options vest over
five years and contractual lives of these grants
are similar to that of the incentive plan.
The Company applies APB Opinion No. 25,
"Accounting for Stock Issued to Employees," and
related interpretations for its stock option
grants. Generally, compensation expense is not
recognized for stock option grants.
In accordance with SFAS No. 123, "Accounting for
Stock-based Compensation", the Company discloses
the pro forma impact of recording compensation
expense utilizing the Black-Scholes model. The
Black-Scholes option valuation model was developed
for use in estimating the fair value of traded
options which have no vesting restrictions and are
fully transferable. In addition, option valuation
models require the input of highly subjective
assumptions including the expected stock price
volatility. Because the Company's stock options
have characteristics significantly different from
those of traded options, and because changes in
the subjective input assumptions can materially
affect the fair value estimate, in management's
opinion, the Black-Scholes model does not
necessarily provide a reliable measure of the fair
value of its stock options.
The accounting provisions of SFAS No. 123 did not
have an effect on the Company's earnings per share
and thus have not been presented.
F-24
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
A summary of the status of the Company's stock
option plans is presented below:
Weighted Average
Shares Exercise Price
=================================== ======== ================
Balance, March 3, 1996 464,000 4.27
Granted -- --
Exercised -- --
Forfeited (8,000) 5.63
Balance, March 2, 1997 456,000 4.24
Granted 325,000 3.36
Exercised -- --
Forfeited (1,000) 5.63
Balance, November 9, 1997 780,000 3.87
Granted -- --
Exercised -- --
Forfeited -- --
Balance, November 30, 1997 780,000 3.87
Granted 500,000 2.63
Exercised -- --
Forfeited 20,000 2.63
Balance, November 29, 1998 1,260,000 3.37
=================================== ======== ====
Options exercisable as of November 29, 1998 and
November 30, 1997 were 760,000 and 773,400,
respectively.
All options prior to November 10, 1997 were
assumed from Sloan's by the Company.
F-25
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
The following table summarizes information as of
November 29, 1998 concerning outstanding and
exercisable options:
Options Outstanding Options Exercisable
------------------------------------------ ----------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
exercise prices Outstanding Life Price Exercisable Price
=============== ============= ============ =========== ============= ============
$3.75 275,000 4.94 $3.75 275,000 $3.75
5.63 26,000 5.06 5.63 26,000 5.63
5.63 82,000 5.06 5.63 82,000 5.63
3.81 30,000 5.95 3.81 30,000 3.81
3.81 22,000 .94 3.81 26,400 3.81
2.87 250,000 8.75 2.87 250,000 2.87
5.00 75,000 3.75 5.00 75,000 5.00
2.63 500,000 9.5 2.63 0 2.63
--------------- ------------- ------------ ----------- ------------- ------------
2.87-5.63 1,260,000 7.40 3.37 760,000 3.84
=============== ============= ============ =========== ============= ============
12. Litigation In June 1994, the United States Federal Trade
Commission (the "FTC") commenced an action
alleging that certain acquisitions consummated by
Mr. John Catsimatidis, the Company and three other
entities (the "Red Apple entities") controlled by
Mr. Catsimatidis, including corporations which
presently own the acquisition stores
(collectively, the "companies") of 32 Sloan's
supermarkets between 1991 and 1993 violated
Federal antitrust laws because the effect of the
acquisitions might be substantially to lessen
competition among supermarkets within four
Manhattan residential neighborhoods. The complaint
indicated that the FTC could seek divestiture of
up to ten supermarkets owned by the companies.
F-26
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
In order to avoid the costs of protracted
litigation in the matter and without admitting
that any antitrust law was violated as alleged in
the complaint, on November 21, 1994, the companies
entered into a settlement agreement against them
(the "Settlement Agreement"). The companies agreed
in the Settlement Agreement that within twelve
months from the date of a final order in the
proceeding they would divest themselves of an
aggregate of six supermarkets in Manhattan, chosen
by them from a list of sixteen supermarkets
specifically designated in the Settlement
Agreement (none of which were owned by Sloan's)
and certain alternate supermarkets referenced in
the Settlement Agreement (five of which were then
owned by Sloan's). Nothing in the Settlement
Agreement required Sloan's to divest itself of any
of its supermarkets, but any supermarkets divested
by Sloan's counted towards satisfaction of the
divesture obligations.
An order embodying the Settlement Agreement was
made effective March 6, 1995 (the "Order").
Pursuant to that Order, for a period of ten years
from March 6, 1995, the companies cannot, without
prior FTC approval, acquire any interest in any
existing supermarket in a designated area. The
Order does not restrict the companies from
acquiring an interest in a supermarket by leasing
or purchasing a new location that at the time of
acquisition (and for six months prior to the
acquisition) is not being operated as a
supermarket.
In March 1996, an application (the "Application")
was made to modify the Order so as to lift the
divesture requirements other than with respect to
one store on the Upper West Side which was not
owned by Sloan's. The FTC approved the divesture
of that store and its divesture was completed on
May 9, 1996. On April 29, 1996, the Application
was revised; and it was further revised in August
and September so as to seek relief solely with
respect to the requirement of divesture of any
supermarkets in the Chelsea section of Manhattan.
On September 13, 1996, the FTC granted the
Application as modified, and deleted the
requirement of divestiture in Chelsea.
Simultaneously, the FTC appointed a trustee to
divest four supermarkets pursuant to the Order, as
modified. The trustee was not granted any
authority to divest until the FTC approved a
trustee agreement between the trustee and the
companies.
Subsequent to the modification of the Order, The
Food Group sold an aggregate of four stores in
compliance with the divestiture of the Order, as
modified. Based thereon, the trustee agreement did
not become effective.
F-27
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
A settlement of FTC claims based on the companies'
failure to divest supermarkets pursuant to the
Order was agreed to, pursuant to which $600,000
was paid to the FTC. The $600,000 payment was not
borne by The Food Group or Sloan's.
The companies may at times be involved in various
legal proceedings which are routine and incidental
to the conduct of its business. The companies do
not believe that any current litigation, either
individually or in the aggregate, could have a
material adverse effect on the financial condition
or results of operations of the companies.
On August 8, 1994, a lawsuit against the Company
and Mr. Catsimatidis was instituted in the United
States District Court for the Southern District of
New York by RMED International, Inc. ("RMED"), a
former stockholder of the Company.
The complaint alleges, among other things, that
RMED and a purported class consisting of persons
who purchased the Company's common stock on or
after March 19, 1993 were damaged by alleged
nondisclosures in certain filings made by the
Company with the Securities and Exchange
Commission between January 1993 and June 1994
relating to an investigation by the FTC. The
complaint alleges that such nondisclosures
constituted violations of Federal and New York
State securities laws, as well as common law
fraud, and seeks damages (including punitive
damages) in an unspecified amount (although in
discovery proceedings, the named plaintiff has
claimed that its damages were approximately
$800,000) as well as costs and disbursements of
the action. On June 2, 1994, the Company issued a
press release which disclosed the FTC action.
In June 1995, Plaintiff filed a motion for class
certification, and discovery was held in abeyance
pending disposition of that motion. The motion was
granted in March 1996. Discovery was completed in
December 1998. Management believes that the
lawsuit is without merit and intends to vigorously
defend the action; however, the outcome cannot be
determined.
F-28
PART III
Item 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Set forth below is certain information as of February 25, 1999 with respect to
all directors and executive officers of the Company.
Position with the Company or
Director Other Principal Occupation
Name and Age Since for the Past Five Years
- ------------ ----- -----------------------------
John A. Catsimatidis 1988(1) Chairman of the Board, President and Chief
(50) Executive Officer of the Company since July
28, 1988; Treasurer of the Company from July
28, 1988 to March 17, 1998; President and
Chief Executive Officer of Red Apple Group,
Inc. (holding company for supermarket
chains) and Chairman of the Board and Chief
Executive Officer and Director of United
Refining Company (a refiner and retailer of
petroleum products) for more than five
years; Director of News Communications Inc.,
a public company whose stock is traded
over-the-counter, since December 4, 1991.
Martin R. Bring 1988 Member of the law firm of Wolf, Block,
(56) Schorr and Solis-Cohen LLP, New York, N.Y.
and predecessor firm for more than five
years.
Frederick Selby 1978 Chairman of Selby Capital Partners
(61) (acquisition and sale of privately owned
firms and divisions of public companies) for
more than five years.
Kishore Lall 1997 Director of the Company since October, 1997;
(51) consultant to Red Apple Group, Inc. from
January 1997 to October 1997; private
investor from June 1994 to December 1996;
Senior Vice President and Head of Commercial
Banking ABN AMRO Bank, New York branch from
January 1991 until May 1994.
- --------
(1) Mr. Catsimatidis also served as a director of the Company from November
4, 1986 to November 27, 1987.
16
Position with the Company or
Director Other Principal Occupation
Name and Age Since for the Past Five Years
- ------------ ----- -----------------------------
Dennis E. Berberich 1998 Independent consultant. Prior to January,
(60) 1999, President of Canada Dry Bottling
Company of New York, a privately held soft
drink distributor, for more than ten years
prior thereto.
Martin Steinberg 1998 Independent consultant. Mr Steinberg also
(65) served as a director of the Company from May
1974 to January 1991.
Stuart Spivak -- Executive Vice President and Chief Financial
(62) Officer of the Company since March 17, 1998;
Chief Financial Officer of the Food Group
for more than ten years prior thereto.
Michael Seltzer -- Vice President and Secretary of the Company
(49) since March 17, 1998; Vice President and
Controller of the Food Group for more than
ten years prior thereto.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires directors and officers of the Company and persons who
own more than 10 percent of the Company's common stock to file with the
Securities and Exchange Commission (the "Commission") initial reports of
ownership and reports of changes in ownership of the common stock. Directors,
officers and more than 10 percent stockholders are required by the Exchange Act
to furnish the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and written representations that no other
reports were required during fiscal 1998, all Section 16(a) filings applicable
to its directors, officers and more than 10 percent beneficial owners were
timely filed.
Item 11. EXECUTIVE COMPENSATION.
The following table sets forth for the fiscal year ended November 29, 1998,
the Transition Period from March 3, 1997 to November 30, 1997 and the fiscal
year ended March 2, 1997 certain information concerning the compensation paid or
accrued to the Chief Executive Officer of the Company. During these periods,
there were no persons serving as executive officers of the Company whose total
salary and bonus exceeded $100,000.
17
Long-term Compensation
------------------------------------
Annual Compensation Awards Payouts
----------------------------------- ---------------------- -------
Other All
annual Restricted other
Name and compen- stock Options LTIP compen
principal Salary Bonus sation award(s) /Sar's payouts sation
position Year ($) ($) ($) ($) (#) ($)
- ------------------------------------------------------------------------------------------------------------------------------------
John Catsimatidis, 1998 $- $- $- $- - $- $-
Chairman of the
Board, President Transition - - - - - - -
and Chief Period from
Executive March 3, 1997
Officer to November
30, 1997
1997 - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Stock Options
No stock options were granted to or exercised by Mr. Catsimatidis during
the fiscal year ended November 29, 1998. The following table sets forth certain
information with respect to options to purchase Common Stock held by John
Catsimatidis on November 29, 1998.
Number of Unexercised Value of Unexercised
Options Held on in-the-Money Options on
November 29, 1998 November 29, 1998
Name Exercisable/Unexercisable Exercisable/Unexercisable
- --------------------------------------------------------------------------------
John Catsimatidis 525,000/0 0/0
- --------------------------------------------------------------------------------
The closing sales price of the Common Stock on the American Stock Exchange
on November 25, 1998 (the last trading day before November 29, 1998) was $2.31.
On November 29, 1998 Mr. Catsimatidis held options to purchase 275,000 shares of
Common Stock at $3.75 per share and options to purchase 250,000 shares at $2.875
per share.
Compensation of Directors
Non-officer directors receive a quarterly stipend of $1,500 and $500 for
each meeting attended. Directors who serve on committees receive $250 for each
meeting attended.
18
Compensation Committee Interlocks and Insider Participation
The Board of Directors has a Compensation Committee of which Frederick
Selby is currently the sole member. Mr. Selby is not and has never been an
employee or officer of the Company. During fiscal 1998 Mr. Selby has had no
relationship with the Company requiring disclosure under Item 13. "Certain
Relationships and Related Transactions."
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth certain information regarding ownership of
Common Stock on February 25, 1999 by: (i) each stockholder known to the Company
to own beneficially more than 5% of the outstanding shares of Common Stock; (ii)
each of the Company's directors; and (iii) all officers and directors of the
Company as a group. The number of shares listed in the table as beneficially
owned by John Catsimatidis includes all shares acquired in the Merger. Except as
otherwise indicated, the address of each person is c/o Gristede's Sloan's, Inc.,
823 Eleventh Avenue, New York, N.Y. 10019-3535. The Company believes that
ownership of the shares by the persons named below is both of record and
beneficial and such persons have sole voting and investment power with respect
to the shares indicated.
Name and Address of Number of
Beneficial Owner Shares Percent of Class
- ------------------------------------ ------------- ----------------
John Catsimatidis 18,279,750(1) 90.5%
Frederick Selby 13,110(2) *
Martin Bring 11,000(2) *
Kishore Lall 15,000 *
Martin Steinberg 112,642 *
2042 Whalen Ave
Merrick, NY 11566
Dennis Berberich 20,000 *
128 Montery Ave
Pelham, NY 10803
All officers and directors as a group 18,489,502(3) 90.6%
(8 persons)
- ---------
* Less than 1%.
(1) Includes an aggregate of 12,416,174 shares held by corporations controlled
by Mr. Catsimatidis, 13,000 shares held by Mr. Catsimatidis as custodian,
2,057 shares held by a profit sharing plan of which Mr. Catsimatidis is a
trustee, 605 shares held by Mr. Catsimatidis as a trustee of individual
retirement accounts and currently exercisable options to purchase an
aggregate of 525,000 shares of Common Stock.
(2) Includes for each of Messrs. Selby, and Bring an aggregate of 11,000 shares
of Common Stock which may be purchased upon the exercise of currently
exercisable stock options.
(3) Includes an aggregate of 563,000 shares of Common Stock which may be
purchased upon the exercise of currently exercisable stock options.
19
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Under a Management Agreement, dated November 10, 1997 (the "Management
Agreement"), Namdor Inc., a subsidiary of the Company, performs consulting and
managerial services for three supermarkets owned by corporations controlled by
John Catsimatidis. In consideration of such services, Namdor Inc. is entitled to
receive on a quarterly basis a cash payment of one and one-quarter (1.25%)
percent of all sales of inventory and merchandise made at or from the managed
supermarkets. During the fiscal year ended November 29, 1998 management fee
income was $ 119,000.
On February 6, 1998 the Company purchased substantially all of the assets
and assumed certain of the liabilities of a supermarket located at 1644 York
Avenue, New York, New York owned by a corporation controlled by John
Catsimatidis. The purchase price is to be the value of the supermarket based
upon an appraisal to be conducted by a firm selected by a committee of
independent directors of the Company less the amount of certain liabilities
assumed by the Company. The appraisal will be based on, among other things, a
review of the operating statement of the supermarket for the period from
February 6, 1998 to a date no earlier than January 31, 1999. The purchase price
will be subject to adjustment to the extent that the acquired inventory is
greater or less than the sum of trade payables and liabilities for employee
vacation and sick pay that have been assumed by the Company. The purchase price
will be paid at such time and by such method as shall be recommended by a
committee of the independent directors of the Company and approved by the Board
of Directors of the Company, John Catsimatidis abstaining.
In consideration of accommodations extended to the Company by H.S. Realty
Corp. ("H.S. Realty"), a corporation wholly owned by John Catsimatidis which
enabled the Company to consummate the sale of assets of the Company's Howard H.
Sweet & Son Inc. subsidiary ("Sweet") to Tiffco Jewelry and Chain Crafts, Inc.
("Tiffco"), on January 23, 1990, the Company, among other things, advanced to
H.S. Realty approximately $204,000.
The $204,000 advance was originally to be repayable on the earlier of
January 23, 1991 or five days after the sale by H.S. Realty to Tiffco of certain
real property leased to Tiffco by H.S. Realty after the sale of assets. Since
January 23, 1991, the Board of Directors has extended the repayment date of the
advance on an annual basis, the most recent extension being until January 23,
1999 or five days after the sale by H.S. Realty to Tiffco of the Sweet Property.
Such indebtedness was fully repaid during the fiscal year ended November 29,
1998.
Effective as of January 1, 1994, the Company entered into Indemnification
Agreements with each of its directors and officers other than Kishore Lall. The
Company entered into an Indemnification Agreement with Kishore Lall effective as
of October 30, 1997, and also entered into Indemnification Agreements with each
of Stuart Spivak, and Michael Seltzer effective March 17, 1998, Martin Steinberg
effective July 21, 1998 and Dennis Berberich effective August 18, 1998. Said
agreements supplement the indemnification provisions of the Company's By-laws
and the Delaware General Corporation Law. The stockholders of the Company
authorized the Company to enter into such agreements with each of its directors
at the Annual Meeting of Stockholders held on August 21, 1987. The Board of
Directors has authorized the Company to enter into such agreements with each of
its officers.
C & S Acquisition Corp. (formerly, Red Apple Leasing, Inc.,) a corporation
wholly owned by John Catsimatidis, leases equipment to the Company. Such leases
are primarily for store operating equipment. Obligations under capital leases at
November 29, 1998 were $821,305 and require monthly payments of $35,114 through
March 1, 2001. Obligations under operating leases were $41,676 per month during
fiscal 1998.
20
Advertising services are provided to the Company by MCV Advertising
Associates Inc., a company 85% owned by John Catsimatidis. For the year ended
November 29, 1998 the costs incurred were $1,072,544.
On February 27, 1999, John Catsimatidis issued a limited $1,000,000
guarantee of the collection of accounts receivable assigned to the Company as a
result of the Merger on November 10, 1997. In order to cover his contingent
liability, Mr. Catsimatidis agreed not to permit the liabilities to Mr.
Catsimatidis and certain of his affiliates which were assumed by the Company in
the Merger to fall below $1,000,000 prior to the issuance of the Company's
audited financial statements for the fiscal year ending November 28, 1999.
By virtue of his ownership of Common Stock (see Item 12. "Security
Ownership of Certain Beneficial Owners and Management") and his position as
Chairman of the Board of the Company, John Catsimatidis may be deemed to be a
"parent" of the Company under rules promulgated by the Commission.
The Company leases three locations from Red Apple Real Estate, Inc., a
company solely owned by John Catsimatidis. During the 52 weeks ended November
29, 1998 the Company paid to Red Apple Real Estate, Inc. $605,373 for rent and
real estate taxes under such leases.
Wolf, Block, Schorr and Solis-Cohen LLP, a law firm of which Martin Bring,
a director of the Company, is a member, received fees of approximately $219,035
for rendering legal services to the Company during the 52 weeks ended November
29, 1998.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K.
(a) (1) Financial Statements
A list of all financial statements filed as part of this report is
contained in the index to Item 8, which index is incorporated herein by
reference.
(2) Financial Statement Schedules
None.
(3) Exhibits
Number Description
- ------ -----------
3.1 Amended and Restated Certificate of Incorporation of the
Registrant. Incorporated by reference to Exhibit 3.1 to the
Registrant's Annual Report on Form 10-K of the fiscal year ended
February 28, 1990 (the "1990 10-K").
21
3.2 Certificate of Amendment to Amended and Restated Certificate of
Incorporation of the Registrant. Incorporated by reference to
Exhibit 3.2 to the Registrant's Annual Report on Form 10-KSB for
the fiscal year ended February 27, 1994 (the "1994 10-KSB").
3.3 Amended and Restated Bylaws of the Registrant. Incorporated by
reference to Exhibit 3.2 to the 1990 10-K.
3.4 Certificate of Amendment of Certificate of Incorporation of the
Company, dated November 4, 1997. Incorporated by reference to
Exhibit 3.4 to the Registrant's Annual Report on Form 10-K for the
transition period ended November 30, 1997 (the "Transition Period
10-K").
10.1 Form of Indemnification Agreement dated as of January 1, 1994
between the Registrant and each director of the Registrant.
Incorporated by reference to Exhibit 10.11 to the 1994 10-KSB.
10.2 Form of Indemnification Agreement dated as of January 1, 1994
between the Registrant and each officer of the Registrant.
Incorporated by reference to Exhibit 10.12 to the 1994 10-KSB.
10.3 1994 Stock Option Plan. Incorporated by reference to Exhibit 10.12
of the Company's Annual Report on Form 10-KSB for the fiscal year
ended February 26, 1995 ("1995 10-KSB").
10.4 Director Stock Option Plan. Incorporated by reference to Exhibit
10.13 of the Company's 1995 10- KSB.
10.5 Merger Agreement. Incorporated by reference to Exhibit A to the
Company's definitive Proxy Statement for the Special and Annual
Meeting of Stockholders of the Company held on October 31, 1997.
10.6 Loan Agreement dated as of November 7, 1997 between the Company,
European American Bank ("EAB"), Israel Discount Bank of New York
("IDBNY"), Keybank National Association ("Keybank") and Bank Leumi
Trust Company of New York ("Bank Leumi"). Incorporated by
reference to Exhibit 10.6 to the Transition Period 10-K. All
exhibits and schedules to the Loan Agreement are omitted, but the
Registrant undertakes to provide copies of any or all of the
foregoing exhibits and schedules to the Securities and Exchange
Commission upon its request.
10.7 Management Agreement dated November 10, 1997 between Namdor Inc.,
G Remainder Corp. and S Remainder Corp. Incorporated by reference
to Exhibit 10.7 to the Transition Period 10-K.
10.8 Asset Purchase Agreement between G Remainder Corp. and Gristede's
Operating Corp. Incorporated by reference to Exhibit 10.8 to the
Transition Period 10-K. All exhibits and schedules to the Asset
Purchase Agreement are omitted, but the Registrant undertakes to
provide copies of any or all of the foregoing exhibits and
schedules to the Securities and Exchange Commission upon its
request.
10.9 First Amendment and Waiver to Loan Agreement dated April 30, 1998
between the Company, IDBNY, Keybank and Bank Leumi. Incorporated
by reference to Exhibit 10.9 to the Transition Period 10-K.
10.10 1998 Stock Option Plan. Incorporated by reference to Exhibit 10.10
to the Transition Period 10-K.
22
10.11 Agreement dated February 27, 1999 between John Catsimatidis and
the Company.*
10.12 Second Amendment to Loan Agreement dated as of August 29, 1998
between the Company, European American Bank, Israel Discount Bank
of New York, Keybank and Bank Leumi.*
10.13 Third Amendment to Loan Agreement dated as of November 28, 1998
between the Company, European American Bank, Israel Discount Bank
of New York, Keybank and Bank Leumi.*
11. Statement re computation of per share income (loss). Not required.
21. Listing of the Company's subsidiaries all of which are wholly
owned by the Company.
Subsidiaries State of Incorporation
------------ ----------------------
Namdor Inc. New York
SAC Operating Corp. New York
Gristede's Operating Corp. New York
City Produce Operating Corp. New York
RAS Operating Corp. New York
The Registrant has one other wholly-owned subsidiary, the name of
which is omitted herein because as of February 25, 1999 it did not
constitute a significant subsidiary.
23. Consent of BDO Seidman, LLP Independent Certified Public
Accountants.*
27. Financial Data Schedule.
- ----------------------
* Filed herewith.
(b) The Company did not file any Current Reports on Form 8-K during the
last quarter of the period covered by this report.
23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
GRISTEDE'S SLOAN'S, INC.
Dated: March 1, 1999 By: /s/ John A. Catsimatidis
----------------------------------
John A. Catsimatidis
Chairman of the Board
Signature Title Date
- -------------------------- --------------------------------- -------------
/s/ John A. Catsimatidis Chairman of the Board, President March 1, 1999
- ------------------------- and Chief Executive Office (Chief
John A. Catsimatidis Executive Officer and Chief
Operating Officer)
/s/ Martin Bring Director March 1, 1999
- -------------------------
Martin Bring
/s/ Frederick Selby Director March 1, 1999
- -------------------------
Frederick Selby
/s/ Kishore Lall Director March 1, 1999
- -------------------------
Kishore Lall
/s/ Stuart Spivak Executive Vice President and Chief March 1, 1999
- ------------------------- Financial Officer (Chief Financial
Stuart Spivak Officer and Chief Accounting
Officer)
/s/ Martin Steinberg Director March 1, 1999
- -------------------------
Martin Steinberg
/s/Dennis Berberich Director March 1, 1999
- -------------------------
Dennis Berberich
24
GRISTEDE'S SLOAN'S, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR
ENDED NOVEMBER 29, 1998
Number Description
3.1 Amended and Restated Certificate of Incorporation of the
Registrant. Incorporated by reference to Exhibit 3.1 to the
Registrant's Annual Report on Form 10-K of the fiscal year ended
February 28, 1990 (the "1990 10-K").
3.2 Certificate of Amendment to Amended and Restated Certificate of
Incorporation of the Registrant. Incorporated by reference to
Exhibit 3.2 to the Registrant's Annual Report on Form 10-KSB for
the fiscal year ended February 27, 1994 (the "1994 10-KSB").
3.3 Amended and Restated Bylaws of the Registrant. Incorporated by
reference to Exhibit 3.2 to the 1990 10-K.
3.4 Certificate of Amendment of Certificate of Incorporation of the
Company, dated November 4, 1997. Incorporated by reference to
Exhibit 3.4 to the Registrant's Annual Report on Form 10-K for the
transition period ended November 30, 1997 (the "Transition Period
10-K").
10.1 Form of Indemnification Agreement dated as of January 1, 1994
between the Registrant and each director of the Registrant.
Incorporated by reference to Exhibit 10.11 to the 1994 10-KSB.
10.2 Form of Indemnification Agreement dated as of January 1, 1994
between the Registrant and each officer of the Registrant.
Incorporated by reference to Exhibit 10.12 to the 1994 10-KSB.
10.3 1994 Stock Option Plan. Incorporated by reference to Exhibit 10.12
of the Company's Annual Report on Form 10-KSB for the fiscal year
ended February 26, 1995 ("1995 10-KSB").
10.4 Director Stock Option Plan. Incorporated by reference to Exhibit
10.13 of the Company's 1995 10-KSB.
10.5 Merger Agreement. Incorporated by reference to Exhibit A to the
Company's definitive Proxy Statement for the Special and Annual
Meeting of Stockholders of the Company held on October 31, 1997.
10.6 Loan Agreement dated as of November 7, 1997 between the Company,
European American Bank ("EAB"), Israel Discount Bank of New York
("IDBNY"), Keybank National Association ("Keybank") and Bank Leumi
Trust Company of New York ("Bank Leumi"). Incorporated by
reference to Exhibit 10.6 to the Transition Period 10-K. All
exhibits and schedules to the Loan Agreement are omitted, but the
Registrant undertakes to provide copies of any or all of the
foregoing exhibits and schedules to the Securities and Exchange
Commission upon its request.
10.7 Management Agreement dated November 10, 1997 between Namdor Inc.,
G Remainder Corp. and S Remainder Corp. Incorporated by
reference to Exhibit 10.7 to the Transition Period 10-K.
25
10.8 Asset Purchase Agreement between G Remainder Corp. and Gristede's
Operating Corp. Incorporated by reference to Exhibit 10.8 to the
Transition Period 10-K. All exhibits and schedules to the Asset
Purchase Agreement are omitted, but the Registrant undertakes to
provide copies of any or all of the foregoing exhibits and
schedules to the Securities and Exchange Commission upon its
request.
10.9 First Amendment and Waiver to Loan Agreement dated April 30, 1998
between the Company, IDBNY, Keybank and Bank Leumi. Incorporated
by reference to Exhibit 10.9 to the Transition Period 10-K.
10.10 1998 Stock Option Plan. Incorporated by reference to Exhibit 10.10
to the Transition Period 10-K.
10.11 Agreement dated February 27, 1999 between John Catsimatidis and
the Company.*
10.12 Second Amendment to Loan Agreement dated as of August 29, 1998
between the Company, European American Bank, Israel Discount Bank
of New York, Keybank and Bank Leumi.*
10.13 Third Amendment to Loan Agreement dated as of November 28, 1998
between the Company, European American Bank, Israel Discount Bank
of New York, Keybank Bank and Bank Leumi.*
11. Statement re computation of per share income (loss). Not required.
21. Listing of the Company's subsidiaries all of which are wholly
owned by the Company.
Subsidiaries State of Incorporation
------------ ----------------------
Namdor Inc. New York
SAC Operating Corp. New York
Gristede's Operating Corp. New York
City Produce Operating Corp. New York
RAS Operating Corp. New York
The Registrant has one other wholly-owned subsidiary, the name of
which is omitted herein because as of February 25, 1999 it did not
constitute a significant subsidiary.
23. Consent of BDO Seidman, LLP Independent Certified Public
Accountants.*
27. Financial Data Schedule.
- ----------------------
* Filed herewith.
26