UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 1, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ........ to ........
Commission File Number 1-7013
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GRISTEDE'S FOODS, INC.
----------------------
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 13-1829183
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
823 ELEVENTH AVENUE, NEW YORK, NEW YORK 10019
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(Address of Principal Executive Offices)
(212) 956-5803
--------------
(Registrant's Telephone Number, Including Area Code)
N/A
---
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15 (d) of the Securities Exchange Act 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
--- ---
At October 14, 2002, registrant had issued and outstanding 19,636,574 shares of
common stock.
GRISTEDE'S FOODS, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of
September 1, 2002 and December 2, 2001 Page 3
Consolidated Statements of Operations for
the 13 weeks and the 39 weeks ended
September 1, 2002 and September 2, 2001 Page 4
Consolidated Statements of Stockholders'
Equity for the 52 weeks ended
December 2, 2001 and the
39 weeks ended September 1, 2002 Page 5
Consolidated Statements of Cash Flows for
the 39 weeks ended September 1, 2002
and September 2, 2001 Page 6
Notes to Consolidated Financial Statements Page 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS Page 11
PART II - OTHER INFORMATION Page 17
2
ITEM 1
FINANCIAL STATEMENTS
GRISTEDE'S FOODS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 1, December 2,
2002 2001
-------------- -------------
ASSETS
CURRENT ASSETS:
Cash $ 559,830 $ 475,873
Accounts receivable - net of allowance for doubtful accounts
of $464,975 at September 1, 2002 and $413,000 at December 2, 2001 7,723,792 6,702,715
Inventory 34,897,641 32,378,606
Due from related parties - trade 1,476,665 1,092,571
Prepaid expenses and other current assets 2,648,032 2,233,876
-------------- -------------
Total current assets 47,305,960 42,883,641
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PROPERTY AND EQUIPMENT:
Furniture, fixtures and equipment 19,577,751 18,067,058
Capitalized equipment leases 27,580,242 23,970,127
Leaseholds and leasehold improvements 57,018,719 52,901,265
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104,176,712 94,938,450
Less accumulated depreciation and amortization 46,585,210 41,193,533
-------------- -------------
Net property and equipment 57,591,502 53,744,917
Deposits and other assets 1,094,546 1,044,141
Other assets 3,634,576 3,458,662
-------------- -------------
TOTAL $ 109,626,584 $101,131,361
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 29,426,992 $ 26,978,700
Accrued payroll, vacation and withholdings 3,284,700 2,435,312
Accrued expenses and other current liabilities 1,795,149 2,067,031
Due to related parties - trade 297,599 --
Capitalized lease obligations - current portion 4,511,395 3,950,221
Current portion of long term debt 3,066,723 2,378,262
-------------- -------------
Total current liabilities 42,382,558 37,809,526
Long-term debt - noncurrent portion 27,027,564 23,108,333
Due to affiliates 14,480,217 15,318,843
Capitalized lease obligations - noncurrent portion 9,156,750 9,048,692
Deferred rent 4,797,749 4,253,466
-------------- -------------
Total liabilities 97,844,838 89,538,860
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $50 Par, -share authorized 500,000; none issued -- --
Common stock, $0.02 par value - shares authorized 25,000,000; outstanding
19,636,574 shares at September 1, 2002 and December 2, 2001 392,732 392,732
Additional paid-in capital 14,136,674 14,136,674
Retained earnings / (deficit) (2,747,660) (2,936,905)
-------------- -------------
Total stockholders' equity 11,781,746 11,592,501
-------------- -------------
TOTAL $ 109,626,584 $101,131,361
============== =============
See notes to consolidated financial statements (unaudited).
3
GRISTEDE'S FOODS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE 39 WEEKS AND 13 WEEKS ENDED SEPTEMBER 1, 2002 AND SEPTEMBER 2, 2001
39 weeks 13 weeks 39 weeks 13 weeks
ended ended ended ended
September 1, September 1, September 2, September 2,
2002 2002 2001 2001
-------------- -------------- -------------- ------------
Sales $ 182,175,544 $ 60,505,818 $ 170,403,587 $53,569,511
Cost of sales 109,285,337 36,284,585 103,035,801 32,030,281
-------------- -------------- -------------- ------------
Gross profit 72,890,207 24,221,233 67,367,786 21,539,230
Store operating, general and administrative expenses 57,764,780 20,170,495 53,014,750 17,270,249
Pre-store opening startup costs 312,040 130,041 165,000 33,000
Depreciation and amortization 5,902,418 2,032,828 5,085,861 1,762,393
Insurance and grant proceeds (587,300) (487,300) -- --
Non-store operating expenses:
Administrative payroll and fringes 5,088,713 1,765,317 3,916,850 1,407,421
General office expense 1,550,335 516,601 1,789,646 606,691
Professional fees 352,881 86,345 474,044 119,817
Corporate expense 159,799 54,284 110,303 21,270
-------------- -------------- -------------- ------------
Total non-store operating expenses 7,151,728 2,422,547 6,290,843 2,155,199
-------------- -------------- -------------- ------------
Operating income (loss) 2,346,541 (47,378) 2,811,332 318,389
-------------- -------------- -------------- ------------
Other income (expense):
Interest expense (2,136,709) (730,555) (2,656,687) (786,894)
Interest income 4,413 669 8,566 1,261
Other income -- -- 177,329 (3,811)
-------------- -------------- -------------- ------------
Total other income (expense) - net (2,132,296) (729,886) (2,470,792) (789,444)
-------------- -------------- -------------- ------------
Income (loss) before income taxes 214,245 (777,264) 340,540 (471,055)
Provision for income taxes 25,000 -- 21,840 1,840
-------------- -------------- -------------- ------------
Net income (loss) $ 189,245 $ (777,264) $ 318,700 $ (472,895)
============== ============== ============== ============
Income (loss) per share, basic and diluted $ 0.01 ($0.04) $ 0.02 ($0.02)
============== ============== ============== ============
Weighted average number of shares and
equivalents outstanding 19,636,574 19,636,574 19,636,574 19,636,574
============== ============== ============== ============
See notes to consolidated financial statements (unaudited).
4
GRISTEDE'S FOODS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE 52 WEEKS ENDED DECEMBER 2, 2001
AND FOR THE 39 WEEKS ENDED SEPTEMBER 1, 2002
Additional Retained Total
Common stock Paid-In earnings Stockholders'
Shares Amount Capital (Deficit) Equity
---------- -------- ----------- ------------ -----------
Balance at December 3, 2000 19,636,574 $392,732 $14,136,674 $(3,211,962) $11,317,444
Net income for the 52 weeks ended
December 2, 2001 - - - 275,057 275,057
---------- -------- ----------- ------------ -----------
Balance at December 2, 2001 19,636,574 $392,732 $14,136,674 $(2,936,905) $11,592,501
Net Income for the 39 weeks
ended September 1, 2002 - - - 189,245 189,245
---------- -------- ----------- ------------ -----------
Balance at September 1, 2002 19,636,574 $392,732 $14,136,674 $(2,747,660) $11,781,746
========== ======== =========== ============ ===========
See notes to consolidated financial statements (unaudited).
5
GRISTEDE'S FOODS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTY NINE WEEKS ENDED SEPTEMBER 1, 2002 AND SEPTEMBER 2, 2001
39 weeks 39 weeks
ended ended
September 1, September 2,
2002 2001
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Cash flows from operating activities:
Net income $ 189,245 $ 318,700
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,902,418 5,085,861
Change in allowance for doubtful accounts 52,169 54,162
Gain on sale of store -- (192,177)
Changes in operating assets and liabilities:
Accounts receivable (1,073,246) 493,684
Inventory (2,519,035) (1,980,093)
Due from related parties - trade (384,094) 879,000
Prepaid expenses and other current assets (414,156) 774,790
Other assets (737,061) (827,300)
Accounts payable - trade 2,448,292 (848,219)
Accrued payroll, vacation and withholdings 849,390 (722,864)
Accrued expenses and other current liabilities (271,881) (818,285)
Due to related parties - trade 297,599 --
Deferred rent 544,283 445,479
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Net cash provided by operating activities 4,883,923 2,662,738
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Cash flows from investing activities:
Proceeds from sale of store -- 225,000
Capital expenditures (5,639,418) (3,746,230)
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Net cash used in investing activities (5,639,418) (3,521,230)
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Cash flows from financing activities:
Repayments of bank loan (692,308) (2,452,381)
Proceeds from bank loans 5,300,000 --
Repayment of capitalized lease obligations (2,929,614) (1,950,925)
Advances from (repayments to) affiliates (838,626) 5,203,619
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Net cash provided by financing activities 839,452 800,313
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Net increase (decrease) in cash 83,957 (58,179)
Cash, begining of period 475,873 412,408
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Cash, end of period $ 559,830 $ 354,229
============== ============
Supplemental disclosures of cash flow information:
Cash paid for interest $ 2,175,792 $ 2,871,482
Cash paid (refunded) for taxes $ (79,516) $ 107,142
Supplemental schedule of non cash financing activity:
Assets acquired under capitalized lease obligations $ 3,598,845 $ 2,595,099
See notes to consolidated financial statements (unaudited).
6
GRISTEDE'S FOODS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business -
--------
The Company's corporate predecessor was originally incorporated in 1956 in New
York under the name Designcraft Industries, Inc., and was engaged in the jewelry
business until 1992, when the Company commenced its supermarket operations. The
Company became a public company in 1968, listed its common stock on the American
Stock Exchange in 1972, and reincorporated in Delaware in 1985. The Company
changed its name to Sloan's Supermarkets, Inc. in September 1993 and to
Gristede's Sloans, Inc. in November 1997. The Company changed its name to
Gristede's Foods, Inc. in August 1999 to reflect its strategy of changing its
"Sloan's" banner locations to "Gristede's" subsequent to a store remodeling.
On November 10, 1997, 29 supermarkets that were owned by John A. Catsimatidis,
the Company's majority stockholder, Chairman of the Board and CEO (such 29
supermarkets hereinafter referred to as the "Food Group") were merged into the
Company's existing 15 supermarkets. The transaction was accounted for as an
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. The assets and liabilities of the Food Group were recorded at
their historical cost. The Company'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 Company operates 38 supermarkets and two free-standing pharmacies in
Manhattan, New York, three supermarkets in Westchester County, New York, one
supermarket in each of Brooklyn, New York and Long Island, New York. All of the
supermarkets and pharmacies are leased and operated under the "Gristede's"
banner. (See subsequent events note).
The Company also owns City Produce Operating Corp., a company which operates a
warehouse and distribution facility primarily for fresh produce on leased
premises in the Bronx, New York.
Basis of presentation - The unaudited consolidated financial statements included
---------------------
herein have been prepared by the Company pursuant to the rules and regulations
of the Securities and Exchange Commission ("SEC"). In the opinion of management,
the information furnished reflects all adjustments (consisting of normal
recurring adjustments), which are necessary for a fair statement of the results
of operations and financial position of the Company for the interim period. The
interim figures are not necessarily indicative of the results to be expected for
the fiscal year.
Principles of Consolidation - The consolidated financial statements include the
----------------------------
accounts of the Company and its wholly owned subsidiaries. All material
intercompany accounts and transactions have been eliminated in consolidation.
Quarter End - The Company operates using the conventional retail 52/53-week
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fiscal year. The fiscal quarter ends on the Sunday closest to the end of the
quarter. The Company's fiscal year ends on the Sunday closest to November 30.
Inventory - Store inventories are valued principally at the lower of cost or
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market with cost determined under the retail first in, first out (FIFO) method.
Property and Equipment and Depreciation - Property and equipment is stated at
------------------------------------------
cost. Depreciation of furniture, fixtures and equipment is computed by the
straight-line method over the estimated useful lives of the assets.
7
Leases and Amortization - The Company charges the cost of noncancelable
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operating lease payments and beneficial leaseholds to operations on a
straight-line basis over the lives of the leases.
Provision for income taxes - Income taxes reflect Federal and State alternative
---------------------------
minimum tax only, as all regular income taxes have been offset by utilization of
the Company's net operating loss carry forward.
Income per share - Per share data are based on the weighted average number of
------------------
shares of common stock and equivalents outstanding during each quarter. Income
per share is computed by the treasury stock method; basic and diluted income per
share are the same.
The Company's Annual Report on Form 10-K for the 12 month period ended December
2, 2001 contains information which should be read in conjunction herewith.
2. RELATED PARTY TRANSACTIONS
Under a management agreement dated November 10, 1997, Namdor Inc., one of the
Company's subsidiaries, performs consulting and managerial services for a
supermarket owned by a corporation controlled by John A. Catsimatidis. In
consideration of such services, Namdor Inc. is entitled to receive, on a
quarterly basis, a cash payment of one and one-quarter percent (1.25%) of all
sales of inventory and merchandise made at, in or from the managed supermarket.
The Company leases the following locations from affiliates: a portion of its
warehouse and distribution facility comprising 25,000 square feet, its office
facilities and seven store locations. During the 39 weeks and the 13 weeks
ended September 1, 2002 the Company paid $1,729,539 and $646,550, respectively,
to these affiliates for rent and real estate taxes under such leases. The leases
are triple net whereby the tenant pays all real estate taxes, insurance and
maintenance.
Certain of the Company's supermarkets have entered into capital and operating
leases with Red Apple Lease Corporation. (formerly Red Apple Leasing, Inc.).
These leases are primarily for store operating equipment. Obligations under
these leases at September 1, 2002 were $3,647,543. These leases require that
monthly payments of $76,790 be made to Red Apple Lease Corp. through March 2007.
In January 2002, these leases were amended, which resulted in additional capital
lease availability of $2,750,000. This additional availability was drawn upon
during the 13 weeks ended June 2, 2002. The monthly payments required by these
leases has been extended through March 2007 and will constitute the debt service
on the new financing.
Certain of the Company's supermarkets have entered into capital leases with
United Acquisition Leasing Corp., a company wholly owned by John A.
Catsimatidis. These leases are primarily for store equipment. Obligations
under these leases at September 1, 2002 were $1,893,346. These leases require
that monthly payments of $46,574 be made to United Acquisition Leasing Corp.
through June 2007.
Amounts due to United Acquisition Corp., a corporation wholly owned by John A.
Catsimatidis represent liabilities in connection with the 1997 merger and
additional advances made to the Company by United Acquisition Corp. since the
merger. United Acquisition Corp. has agreed not to demand payment of these
liabilities in fiscal 2003. Accordingly, the liability has been classified as
noncurrent. As part of post-closing adjustments in connection with the 1997
merger, approximately $3,600,000 that is due from certain of the Company's
affiliates has been offset against the amounts due to United Acquisition Corp.
The net amount due to United Acquisition Corp. at September 1, 2002 was
$14,480,217, $12,800,000 of which was subordinated to the Company's banks. The
liability presently does not bear interest. However, the Company's credit
agreement with its banks permits the Company to pay interest on such
subordinated debt provided the Company has a positive net income.
8
Due from related parties trade, represents amounts due from affiliated companies
for merchandise shipped to it from the Company's subsidiary City Produce
Operating Corp. in the ordinary course of business and for which payments are
made to City Produce on a continuous basis under extended terms, as well as
management fees receivable for administrative and managerial services performed
by the Company for an affiliate. During the 39 weeks and the 13 weeks ended
September 1, 2002, merchandise sales to the affiliate were approximately
$777,913 and $291,979, respectively.
On February 6, 1998, the Company agreed to purchase substantially all of the
assets and assumed certain of the liabilities of a supermarket located at 1644
York Avenue, New York City, that was owned by an affiliate. On March 1, 2000,
the Company and the affiliate restructured the transaction by rescinding the
purchase effective as as of February 6, 1998, and entering into an operating
agreement which gives the Company full control of the supermarket and the right
to operate the supermarket for its account. The operating agreement presently
terminates on December 1, 2003, but the term will be extended for additional one
year periods unless either party shall give notice of termination not later than
90 days prior to the end of the then current term of the agreement. Under the
operating agreement, the Company is obligated to pay the affiliate $1.00 per
annum, plus such other consideration as may be approved by the Company's
directors (excluding John A. Catsimatidis). Pursuant to the operating agreement
the Company or any of its designees, also has the option until December 31, 2005
to purchase the supermarket for $2,778,175, which price is the fair market price
of the supermarket established on October 11, 1999 by the Company's directors
(excluding John A. Catsimatidis).
In May 2000, the Company entered into a similar operating agreement with another
affiliate, for a store owned by such affiliate. The operating agreement
presently terminates on May 10, 2003, but the term will be extended for
additional one year periods unless either party shall give notice of termination
not later than 90 days prior to the end of the then current term of the
agreement. Under the operating agreement, the Company is obligated to pay the
affiliate $1.00 per annum, plus such other consideration as may be approved by
the Company's directors (excluding John A. Catsimatidis). Pursuant to the
operating agreement, the Company, or any designee of the Company, also has the
option until December 31, 2005 to purchase the supermarket for the fair market
price of the supermarket as established by the Company's directors (excluding
John A. Catsimatidis) using a valuation criterion similar to that issued for
valuing the store at 1644 York Avenue, New York City.
The intention of the affiliates in entering into these two operating agreements
with the Company, where the Company enjoys full benefits of ownership for the
nominal consideration of $1.00 per annum per store, was to effect post closing
adjustments in connection with the 1997 reorganization. If the option to
purchase the supermarkets is exercised, the excess of the purchase price over
the net book value of the assets will be shown as a charge to equity.
3. LITIGATION
Reference is made to Item 3 contained in the Company's Annual Report on Form
10-K for the year ended December 2, 2001 to the matter captioned: Ansoumana v.
Great Atlantic & Pacific Tea Company, Inc. d/b/a A&P, Shopwell Inc. d/b/a Food
Emporium, Gristede's Operating Corp., Duane Reade, Inc., Charlie Baur,
individually and d/b/a B&B Delivery Service a/k/a Citi Express, Scott Weinstein
and Steven Pilavan, individually and d/b/a Hudson Delivery Service Inc., Chelsea
Trucking, Inc. a/k/a Hudson York (hereinafter referred to as the "Federal Court
Action"). The Company has entered into an agreement in principle on the
parameters of a possible settlement ("Settlement") with delivery workers of The
Great American Delivery Service Company and predecessor companies operated by
Charles Baur ("Great American / Baur"). The Company estimates that such a
possible settlement could result in potential payments of $2,750,000, payable
over a number of years, without interest, which amount would be shared
approximately 50-50 by the Company with its predecessor private companies, and
with the private companies also paying plaintiff's legal expenses. Additionally,
recoveries from a $400,000 security bond posted by Great American / Baur shall
be solely for the Company's benefit. However, any final settlement must be
approved by the Company's banks, the state, the courts, and the plaintiffs. The
Company and its legal counsel are not presently able to predict whether the
settlement will be implemented. Accordingly, the Company has not recorded any
contingent liability in its consolidated financial statements related to this
matter.
Reference is also made to Item 3 contained in the Company's Annual Report on
Form 10-K for the year ended December 2, 2001 to the matter captioned: RMED
International Inc. v. Sloan's Supermarkets Inc. and John A. Catsimatidis. The
defendants filed a motion to reargue the court's decision not to dismiss certain
of the plaintiff's claims on summary judgment, including the plaintiff's claim
under Section 10(b) of the Securities Exchange Act of 1934, as amended, and Rule
9
10b-5 thereunder, as well as the plaintiff's claim of fraud under state common
law. This motion has been denied. The case is scheduled to go to trial in
2003.
4. IMPACT OF THE TERRORIST ATTACKS OF SEPTEMBER 11, 2001
The Company has two stores in the World Trade Center area of Manhattan, which
were forced to close as a result of the terrorist attacks of September 11, 2001.
One store reopened for business on October 1, 2001, the other has been renovated
and re-opened in May 2002. The Company has suffered property damage losses,
including inventory, costs to repair and clean fixtures and facilities and loss
of revenue. Management has filed claims for the above losses with its insurance
carriers, including business interruption. The Company has reached a negotiated
settlement of all its claims in September 2002 and has collected these in full
in October 2002. The Company has applied for certain grants for which it is
eligible under various programs.
5. DEFERRED ACQUISITION COSTS
In connection with the Company's proposed $175 million Senior Note Offering
and its proposed acquisition of Kings Supermarkets, Inc., a chain of 29 stores,
mainly located in Northern New Jersey, the Company incurred certain costs
(principally professional fees) in the amount of $1,153,380 (included in other
assets on the accompanying balance sheet). $708,175 of such costs are
reimbursable to the Company by United Acquisition Corp. The Company intends to
exhaust all efforts to acquire this company unless and until it is acquired by
someone else. The deferred costs will be amortized over the term of the note
pending the completion of the offering. Should the proposed offering prove to be
unsuccessful, the deferred costs will be charged to operations.
6. SUBSEQUENT EVENT
In October 2002, the company and an affiliate of the Company acquired the
fixtures, equipment, leasehold improvements and store leases of three stores
from The Great Atlantic & Pacific Tea Company for a total purchase price of
$5,500,000. The affiliate has leased the acquired fixed assets to the Company.
Such stores had been closed for more than six months prior to this transaction.
10
GRISTEDE'S FOODS, INC. AND SUBSIDIARIES
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE NINE MONTHS AND THE QUARTERS ENDED
SEPTEMBER 1, 2002 AND SEPTEMBER 2, 2001
CRITICAL ACCOUNTING POLICIES
-------- ---------- --------
Financial Reporting Release No. 60, which was recently released by the
Securities and Exchange Commission, requires all companies to include a
discussion of critical accounting policies or methods used in the preparation of
financial statements. Note 1 of the notes to our consolidated financial
statements includes a summary of the significant accounting policies and methods
used in the preparation of our consolidated financial statements. The following
is a brief discussion of the more significant accounting policies and methods we
use. In addition, Financial Reporting Release No. 61 was recently released by
the Securities and Exchange Commission to require all companies to include a
discussion to address, among other things, liquidity, off-balance sheet
arrangements, contractual obligations and commercial commitments.
General. The preparation of financial statements in conformity with
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generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the dates of the
financial statements and the reported amounts of revenues and expenses during
the reported periods. The most significant estimates and assumptions relate to
the recoverability of internally developed software costs, fixed assets and
other intangibles, inventories, realization of deferred income taxes and the
adequacy of allowances for doubtful accounts. Actual amounts could differ
significantly from these estimates.
Accounts Receivable. We continuously monitor collections and payments from
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our customers, third party and vendor receivables and maintain a provision for
estimated credit losses based upon our historical experience and any specific
collection issues that we have identified. While such credit losses have
historically been within our expectations and the provisions established, we
cannot guarantee that we will continue to experience the same credit loss rates
that we have in the past.
Inventories. We value our inventory at the lower of cost or market with
-----------
cost determined under the retail method. We regularly review inventory
quantities on hand and record a provision for excess and obsolete inventory
where appropriate based primarily on our historical shrink and spoilage rates.
Deferred Taxes. We recognize deferred tax assets and liabilities based on
-------- -----
the differences between the financial statement carrying amounts and the tax
bases of assets and liabilities. We regularly review our deferred tax assets for
recoverability and establish a valuation allowance based on historical taxable
income, projected future taxable income, and the expected timing of the
reversals of existing temporary differences. If we are unable to generate
sufficient future taxable income, or if there is a material change in the actual
effective tax rates or time period within which the underlying temporary
differences become taxable or deductible, we would be required to continue to
recognize a valuation allowance against all or a significant portion of our
deferred tax assets resulting in a material adverse impact on our operating
results.
11
Intangibles and Other Long-Lived Assets. Intangible and other long-lived
------------------------------------------
assets are amortized over their useful lives. Useful lives are based on
management's estimates of the period that the assets will generate revenue.
Intangible assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.
RESULTS OF OPERATIONS
-----------------------
The following table sets forth, as a percentage of sales, components of our
Results of Operations:
39 weeks 13 weeks 39 weeks 13 weeks
ended ended ended ended
9/1/02 9/1/02 9/2/01 9/2/01
----------- ----------- ----------- -----------
Sales 100.0 100.0 100.0 100.0
Cost of sales 60.0 60.0 60.5 59.8
----------- ----------- ----------- -----------
Gross profit 40.0 40.0 39.5 40.2
Store operating, general and
administrative expenses 31.7 33.3 31.1 32.2
Pre-store opening startup costs 0.2 0.2 0.1 0.1
Depreciation and amortization 3.2 3.4 3.0 3.3
Insurance and grant proceeds -0.3 -0.8 -- --
Non-store operating expense 3.9 4.0 3.7 4.0
----------- ----------- ----------- -----------
Operating income (loss) 1.3 -0.1 1.6 0.6
Other income (expense) -1.2 -1.2 -1.4 -1.5
----------- ----------- ----------- -----------
Income (loss) from operations before
income taxes 0.1 -1.3 0.2 -0.9
Provisions for income taxes 0.0 0.0 0.0 0.0
----------- ----------- ----------- -----------
Net income (loss) 0.1 -1.3 0.2 -0.9
----------- ----------- ----------- -----------
Sales were $182,175,544 and $60,505,818 for the 39 weeks and for the 13 weeks
ended September 1, 2002, respectively, as compared to $170,403,587 and
$53,569,511 for the 39 weeks and for the 13 weeks ended September 2, 2001,
respectively. We temporarily closed four stores during the 13 weeks ended March
3, 2002. During the 13 weeks ended June 2, 2002, we re-opened three stores that
were closed for remodeling; the fourth store was closed for the entire 39 weeks
ended September 1, 2002 and is expected to re-open later in 2002.
Same store sales increased 8.7% and 11.8% for the 39 weeks and for the 13 weeks
ended September 1, 2002, respectively, as compared to the 39 weeks and 13 weeks
ended September 2, 2001. Same store sales are calculated using stores that were
open for business both in the current period and in the same period last year.
Gross profit was $72,890,207 or 40.0% of sales and $24,221,233 or 40.0% of sales
for the 39 weeks and for the 13 weeks ended September 1, 2002, respectively, as
compared to $67,367,786 or 39.5% of sales and $21,539,230 or 40.2% of sales for
the 39 weeks and for the 13 weeks ended September 1, 2001, respectively. The
increase in gross profit as a percentage of sales during the 2002 year to date
12
period was primarily due to increased sales of perishables, which have higher
gross margins.
Store operating, general and administrative expenses were $57,764,780 or 31.7%
of sales and $20,170,495 or 33.3% of sales for the 39 weeks and for the 13 weeks
ended September 1, 2002, respectively, as compared to $53,014,750 or 31.1% of
sales and $17,270,249 or 32.2% of sales for the 39 weeks and for the 13 weeks
ended September 2, 2001, respectively. Store operating, general and
administrative expenses increased as a percentage of sales during the 13 weeks
ended September 1, 2002 mainly due to higher labor costs resulting from the
three remodeled stores which reopened during the second quarter and in
anticipation of several new stores opening during the fourth quarter.
Pre-store opening startup costs were $312,040 and $130,041 for the 39 weeks and
for the 13 weeks ended September 1, 2002, respectively as compared to $165,000
and $33,000 for the 39 weeks and for the 13 weeks ended September 2, 2001,
respectively. Four remodeled stores were opened during the 13 weeks ended
September 1, 2002 and the Company prepared for a new store which opened
September 6, 2002, compared to one store during the 13 weeks ended September 2,
2001.
Non-store operating expenses were $7,151,728 or 3.9% of sales and $2,422,547 or
4.0% of sales for the 39 weeks and for the 13 weeks ended September 1, 2002,
respectively, as compared with $6,290,843 or 3.7% of sales and $2,155,199 or
4.0% of sales for the 39 weeks and for the 13 weeks ended September 2, 2001,
respectively. Administrative payroll and fringes were 2.8% and 2.9% of sales for
the 39 weeks and for the 13 weeks ended September 1, 2002, respectively as
compared to 2.3% and 2.6% of sales for the 39 weeks and for the 13 weeks ended
September 2, 2001, respectively. The increase in the 2002 periods primarily
reflects the addition of supervisory personnel as a result of additional
business generated by the store remodeling program. We incurred higher costs of
fringe benefits during the 2002 periods due to higher administrative salaries
and higher costs of health care benefits. General office expenses were 0.9% of
sales for both the 39 weeks and for the 13 weeks ended September 1, 2002,
respectively as compared to 1.1% of sales for both the 39 weeks and for the 13
weeks ended September 2, 2001, respectively. Professional fees were 0.2% and
0.1% of sales for the 39 weeks and for the 13 weeks ended September 1, 2002,
respectively as compared to 0.3% and 0.2% of sales for the 39 weeks and for the
13 weeks ended September 2, 2001, respectively. Corporate expenses were 0.1% of
sales for each of the 39 weeks and for the 13 weeks ended September 1, 2002 and
the 39 weeks and for the 13 weeks ended September 2, 2001, respectively.
Depreciation and amortization expense was $5,902,418 or 3.2% of sales and
$2,032,828 or 3.4% of sales for the 39 weeks and for the 13 weeks ended
September 1, 2002, respectively, as compared to $5,085,861 or 3.0% of sales and
$1,762,393 or 3.3% of sales for the 39 weeks and for the 13 weeks ended
September 2, 2001, respectively. The increase in depreciation and amortization
expense was primarily the result of significant capital expenditures incurred in
connection with our store remodeling and expansion program.
Interest expense was $2,136,709 or 1.2% of sales and $730,555 or 1.2% of sales
for the 39 weeks and for the 13 weeks ended September 1, 2002, respectively, as
compared to $2,656,687 or 1.6% of sales and $786,894 or 1.5% of sales for the 39
weeks and for the 13 weeks ended September 2, 2001, respectively. The decreases
in the 2002 periods were primarily attributable to lower interest rates,
partially offset by increased borrowings under the bank line and capital leases
for equipment financing.
Other income (expense) was $0 for both the 39 weeks and for the 13 weeks ended
September 1, 2002 as compared to $177,329 and ($3,811) for the 39 weeks and for
the 13 weeks ended September 2, 2001, respectively (which was attributable to
the closure of a store and the sale of its lease in January 2001).
As a result of the items reviewed above, net income (loss) before provision for
income taxes were $189,245 and ($777,264) for the 39 weeks and for the 13 weeks
ended September 1, 2002, respectively, as compared to $318,700 and ($472,895)
for the 39 weeks and for the 13 weeks ended September 2, 2001, respectively.
13
LIQUIDITY AND CAPITAL RESOURCES
Liquidity:
----------
Our consolidated financial statements indicate that at September 1, 2002
current assets exceed current liabilities by $4,923,402 and stockholders' equity
was $11,781,746. Management believes that cash flows generated from operations,
supplemented by financing from our bank facility and third party leasing
companies, will be sufficient to pay our debts as they may come due, provide for
our capital expenditure program and meet our other cash requirements.
Debt and Debt Service:
-------------------------
Effective October 2001, our credit agreement with a group of banks was
amended and increased to an aggregate total of $32,500,000, consisting of a
$15,500,000 term loan and a $17,000,000 revolving line of credit. As of
September 1, 2002, our credit facility, as amended, provides for (i) a maturity
date of November 28, 2004 for the revolving line of credit, and December 3, 2006
for the term loan, at which time all amounts outstanding thereunder are due,
(ii) certain financial covenants, and (iii) amortization of the term loan in
monthly amortizations totaling $2,000,000, $2,300,000, $2,600,000, $2,900,000
and $3,200,000, respectively, in each year during its term, and a $2,500,000
balloon payment at maturity.
Borrowings under our credit 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 our funded debt to EBITDA ratio,
as defined in our credit facility. The average interest rate on amounts
outstanding under our credit facility during the quarter ended September 1, 2002
was 5.05% per annum.
Our credit facility contains covenants, representations and events of
default typical of credit agreements, including financial covenants which
require us 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. Our credit facility is secured by equipment,
inventories and accounts receivable.
As of September 1, 2002, John A. Catsimatidis, through affiliates, has
contributed approximately $14.5 million to us in the form of unsecured
non-interest bearing loans, with $12.8 million subordinated to our bank lenders.
The liability presently does not bear interest. However, our credit facility
permits us to pay interest on such subordinated debt provided we have positive
net income.
Capital Expenditures:
----------------------
Capital expenditures were $9.2 million for the 39 weeks ended September 1,
2002, including property acquired under capital leases, as compared to $6.3
million for the 39 weeks ended September 2, 2001.
We have not incurred any material commitments for capital expenditures,
although we anticipate spending approximately $8 million to $10 million
exclusive of new capital leases on our store remodeling and expansion program
in fiscal 2002. Such amount is subject to adjustment based on the availability
of funds.
Cash Flow:
-----------
Cash provided by operating activities amounted to $4,883,923 for the 39
weeks ended September 1, 2002 as compared to $2,662,738 for the 39 weeks ended
September 2, 2001. The change in cash flow from operating activities was
primarily due to cash used in reducing accounts payable and provided by
operating assets and liabilities. Net cash used for investing activities was
$5,639,418 in 2002 as compared to $3,521,230 in 2001 (net of proceeds from a
store closed in January 2001). Cash provided by financing activities was
$839,452 for the 39 weeks ended September 1, 2002 as compared to $800,313 for
14
the 39 weeks ended September 2, 2001 reflecting the bank financing drawn upon in
2002 and the additional proceeds provided by an affiliate of the Company, offset
by repayments of bank loans and capital leases.
Recent Accounting Pronouncements:
-----------------------------------
In June 2001, the Financial Accounting Standards Board finalized FASB Statements
No. 141, "Business Combinations" (SFAS 141), and No. 142, "Goodwill and Other
Intangible Assets" (SFAS 142). SFAS 141 requires the use of the purchase method
of accounting and prohibits the use of the pooling-of-interests method of
accounting for business combinations initiated after June 30, 2001. SFAS 141
also requires that the Company recognize acquired intangible assets apart from
goodwill if they meet certain criteria. SFAS 141 applies to all business
combinations initiated after June 30, 2001 and for purchase business
combinations completed on or after July 1, 2001. It also requires, upon
adoption of SFAS 142 that we reclassify the carrying amounts of intangible
assets and goodwill based on the criteria in SFAS 141. We adopted SFAS 141 in
the first quarter of fiscal 2002 with no material effect on our financial
statements.
SFAS 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS 142 requires that the Company identify reporting units for the
purposes of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. An intangible
asset with an indefinite useful life should be tested for impairment in
accordance with the guidelines in SFAS 142. SFAS 142 is required to be applied
in fiscal years beginning after December 15, 2001 to all goodwill and other
intangible assets recognized at that date, regardless of when those assets were
initially recognized. It also requires us to complete a transitional goodwill
impairment test within six months from the date of adoption. We are also
required to reassess the useful lives of other intangible assets within the
first interim quarter after adoption of SFAS 142. We adopted SFAS 142 in the
first quarter of fiscal 2002 with no material effect on our financial
statements.
In August 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets." SFAS 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets to
be held and used, to be disposed of other than by sale and to be disposed of by
sale. Although SFAS 144 retains certain of the provisions of SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," it superceded SFAS No. 121. SFAS 144 is effective for
financial statements issued for fiscal years beginning after December 15, 2001
and interim periods within those fiscal years. We adopted SFAS 144 as of March
4, 2002 with no material effect on our financial statements.
15
ITEM 4. CONTROLS AND PROCEDURES
a. Evaluation of disclosure controls and procedures: The Company's Chief
Executive Officer and its Chief Financial Officer, after evaluating
the effectiveness of the Company's disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 (c) and 15-d-14 (c)) as of a
date within 90 days of the filing date of the quarterly report (the
"Evaluation Date"), have concluded that as of the Evaluation Date, the
Company's disclosure controls and procedures were adequate and
effective to ensure that material information relating to the Company
would be made known to them by others within the Company.
b. Changes in internal controls: There were no significant changes in the
Company's internal controls or in other factors that could
significantly affect the Company's internal controls and procedures
subsequent to the Evaluation Date, nor any significant deficiencies or
material weaknesses in such internal controls and procedures requiring
corrective actions.
16
GRISTEDE'S FOODS INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
------------------
Reference is made to Item 3 contained in the Company's Annual Report on
Form 10-K for the year ended December 2, 2001 to the matter captioned: Ansoumana
v. Great Atlantic & Pacific Tea Company, Inc. d/b/a A&P, Shopwell Inc. d/b/a
Food Emporium, Gristede's Operating Corp., Duane Reade, Inc., Charlie Baur,
individually and d/b/a B&B Delivery Service a/k/a Citi Express, Scott Weinstein
and Steven Pilavan, individually and d/b/a Hudson Delivery Service Inc., Chelsea
Trucking, Inc. a/k/a Hudson York (hereinafter referred to as the "Federal Court
Action"). The Company has entered into an agreement in principle on the
parameters of a possible settlement ("settlement") with delivery workers of The
Great American Delivery Service Company and predecessor companies operated by
Charles Baur ("Great American / Baur). The Company estimates that such a
possible settlement could result in potential payments of $2,750,000, payable
over a number of years, without interest, which amount would be shared
approximately 50-50 by the Company with its predecessor private companies, and
with the private companies also paying plaintiff's legal expenses. Additionally,
recoveries from a $400,000 security bond posted by Great American / Baur shall
be solely for the Company's benefit. However, any final settlement must be
approved by the Company's banks, the state, the courts, and the plaintiffs. The
Company and its legal counsel are not presently able to predict whether the
settlement will be implemented. Accordingly, the Company has not recorded any
contingent liability in its consolidated financial statements related to this
matter.
Reference is also made to Item 3 contained in the Company's Annual Report on
Form 10-K for the year ended December 2, 2001 to the matter captioned: RMED
International Inc. v. Sloan's Supermarkets Inc. and John A. Catsimatidis. The
defendants filed a motion to reargue the court's decision not to dismiss certain
of the plaintiff's claims on summary judgment, including the plaintiff's claim
under Section 10(b) of the Securities Exchange Act of 1934, as amended, and Rule
10b-5 thereunder, as well as the plaintiff's claim of fraud under state common
law. This motion has been denied. The case is scheduled to go to trial after
the new year.
ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS
----------------------------------------------
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
----------------------------------
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
-----------------------------------------------------------
None.
ITEM 5. OTHER INFORMATION
------------------
Forward-looking information:
----------------------------
This report and documents incorporated by reference contain 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. A more detailed description
of some of the risk factors is set forth in the Company's Annual Report on Form
10-K, dated December 2, 2001.
17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
-------------------------------------
(a) Exhibits
None.
(b) There were two Current Reports on Form 8-K filed during the
13 weeks ended September 1, 2002, on June 4 and June 18,
2002.
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Gristede's Foods, Inc.
By: /s/ John A. Catsimatidis
----------------------------------
John A. Catsimatidis
Chairman of the Board and
Chief Executive Officer
Dated: October 21, 2002
By: /s/ Gary Pokrassa
----------------------------------
Gary Pokrassa
Chief Financial Officer
Dated: October 21, 2002
19
ANNUAL AND QUARTERLY CERTIFICATIONS
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, John A. Catsimatidis, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Gristede's Foods, Inc.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
/s/ John A. Catsimatidis
Date: October 21, 2002
Title: Chief Executive Officer
20
ANNUAL AND QUARTERLY CERTIFICATIONS
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Gary Pokrassa, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Gristede's Foods, Inc.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
/s/ Gary Pokrassa
Date: October 21, 2002
Title: Chief Financial Officer
21
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States
Code)
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a)
and (b) of Section 1350, Chapter 63 of Title 18, United States Code), each of
the undersigned officers of Gristede's Foods, Inc., a Delaware corporation (the
"Company"), does hereby certify, to such officer's knowledge, that:
The Quarterly Report of Form 10-Q for the quarter ended September 1, 2002
(the "Form 10-Q") of the Company fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained
in the Form 10-Q fairly presents, in all material respects, the financial
condition and results of operations of the Company.
Dated:
/s/ John A. Catsimatidis
Name: John A. Catsimatidis
Chief Executive Officer
Dated:
/s/ Gary Pokrassa
Name: Gary Pokrassa
Chief Financial Officer
The foregoing certification is being furnished solely pursuant to
section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of
Section 1350, Chapter 63 of Title 18, United States Code) and is not being
furnished as part of Form 10-Q or as a separate disclosure document.
22