SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JULY 30, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _______________
Commission file number 0-8513
CHEFS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-2058515
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
62 Broadway, Point Pleasant Beach, NJ 08742
(Address of principal executive offices)
(Registrant's telephone number, including area code) (908) 295-0350
(Former name, former address and former fiscal year, if changes since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements of the past 90 days.
Yes X . No .
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the
latest practicable date:
Class Outstanding Shares at September 8, 1995
Common Stock, $.01 par value 13,459,576
CHEFS INTERNATIONAL, INC.
I N D E X
PART I FINANCIAL INFORMATION PAGE NO.
Consolidated Balance Sheet - 1 - 2
July 30 , 1995
Consolidated Statements of Operations - 3
Six Months Ended July 30, 1995 and
July 31, 1994
Consolidated Statements of Cash Flows - 4 - 5
Six Months Ended July 30, 1995 and
July 31, 1994
Notes to Consolidated Financial Statements 6
Management's Analysis of Six Months' Income 7 - 9
Statement
PART II OTHER INFORMATION 10
PART I - FINANCIAL INFORMATION
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF JULY 30, 1995 (UNAUDITED)
Assets:
Current Assets:
Cash and Cash Equivalents $ 1,649,137
Investments 100,000
Accounts Receivable [Net of Allowance of $31,776] 1,238,372
Miscellaneous Receivables 192,649
Inventories 2,309,999
Prepaid Expenses 113,233
Total Current Assets $ 5,603,390
Property, Plant and Equipment - At Cost $ 19,609,268
Less: Accumulated Depreciation 6,683,163
Property, Plant and Equipment - Net $ 12,926,105
Other Assets:
Investments $ 606,000
Goodwill - Net 3,437,442
Liquor Licenses - Net 765,033
Due from Employees 26,340
Deposits and Other Assets 67,820
Total Other Assets $ 4,902,635
Total Assets $ 23,432,130
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts Payable $ 1,842,068
Accrued Expenses 1,063,304
Notes and Mortgages Payable to Banks 1,723,000
Other Liabilities 176,532
Due to Related Parties 120,000
Capital Lease Obligations - Current 95,897
Total Current Liabilities $ 5,020,801
Long-Term Debt:
Notes and Mortgages Payable to Banks $ 87,500
Capital Lease Obligations - Long-Term 226,363
Total Long-Term Debt $ 313,863
Other Liabilities $ 82,396
Commitments and Contingencies ---
Stockholders' Equity:
Capital Stock - Common, $.01 Par Value, Authorized
50,000,000 Shares; Issued and Outstanding 13,459,576 $ 134,595
Additional Paid-in Capital 32,212,586
Accumulated [Deficit] (14,332,111)
Total Stockholders' Equity $18,015,070
Total Liabilities and Stockholders' Equity $23,432,130
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Six Months Ended Three Months Ended
<S> <C> <C> <C> <C>
July 30, 1995 July 31, 1994 July 30, 1995 July 31, 1994
Sales $18,911,096 $19,196,822 $10,411,368 $11,641,315
Cost of Goods Sold 9,195,274 9,862,452 5,121,910 6,147,145
Gross Profit $ 9,715,822 $ 9,334,370 $ 5,289,458 $ 5,494,170
Operating Expenses:
Payroll and
Related Expenses $ 2,787,192 $ 2,462,038 $ 1,481,415 $ 1,317,617
Other Operating
Expenses 4,137,511 4,347,750 2,102,555 2,387,129
Depreciation and
Amortization 677,733 609,871 345,107 309,882
General and
Administrative Expenses 1,293,581 1,122,286 664,992 588,515
Total Operating
Expenses $ 8,896,017 $ 8,541,945 $ 4,594,069 $ 4,603,143
Income from Operations $ 819,805 $ 792,425 $ 695,389 $ 891,027
Other Income [Expense]:
Interest Expense $ (116,209) $ (98,495) $ (58,674) $ (57,342)
Interest Income 45,769 32,811 22,547 15,858
Total Other
[Expense] - Net $ (70,440) $ (65,684) $ (36,127) $ (41,484)
Income Before
Income Taxes $ 749,365 $ 726,741 $ 659,262 $ 849,543
Income Tax
Expense [Current] --- --- --- ---
Net Income $ 749,365 $ 726,741 $ 659,262 $ 849,543
Net Income Per Share $ .06 $ .05 $ .05 $ .06
Weighted Average Shares 13,459,576 13,459,502 13,459,576 13,459,502
</TABLE>
The accompanying notes are an integral part of these financial statements.
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended
July 30, 1995 July 31, 1994
Operating Activities:
Net Income $ 749,365 $ 726,741
Adjustments to Reconcile
Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization $ 677,733 $ 609,871
Allowance for Doubtful Accounts 27,898 105,861
Change in Assets and Liabilities:
[Increase] Decrease in:
Inventories (548,726) (904,521)
Prepaid Expenses (19,528) (104,242)
Other Assets (32,056) 84,543
Accounts Receivable (883,132) (1,495,711)
Miscellaneous Receivable (63,974) (47,949)
Increase [Decrease] in:
Accounts Payable 370,719 753,894
Accrued Expenses and
Other Liabilities 576,895 179,386
Total Adjustments $ 105,829 $ (818,868)
Net Cash - Operating Activities $ 855,194 $ (92,127)
Investing Activities:
Capital Expenditures $ (546,347) $ (566,978)
Sale or Redemption of Investments --- ---
Net Cash - Investing Activities $ (546,347) $ (566,978)
Financing Activities:
Repayment of Debt $ (968,667) $(1,119,346)
Proceeds from Debt 900,000 2,600,618
Net Cash - Financing Activities $ (68,667) $ 1,481,272
Net Increase [Decrease] in Cash and
Cash Equivalents $ 240,180 $ 822,167
Cash and Cash Equivalents -
Beginning of Years $ 1,408,957 $ 1,071,461
Cash and Cash Equivalents -
End of Quarter $ 1,649,137 $ 1,893,628
Supplemental Disclosures of Cash Flow Information:
Cash paid during the quarter for:
Interest $ 107,537 $ 88,149
The accompanying notes are an integral part of these financial statements.
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
The financial information included herein is unaudited, however,
such information reflects all adjustments(consisting solely of normal
recurring adjustments) which are, in the opinion of management, necessary for a
fair statement of results of the interim period.
The results of operations for the six month periods ended July 30, 1995
and July 31, 1994 are not necessarily indicative of the results to be expected
for the full year.
NOTE 2: EARNINGS PER SHARE
Earnings per share have been computed based on the weighted average of
outstanding common shares.
NOTE 3: INCOME TAXES
Effective January 1, 1993, the Company adopted FAS 109 "Accounting for
Income Taxes." The Company has a deferred tax asset of approximately $4,677,700
arising from net operating loss carry forwards. However, due to the uncertainty
that the Company will generate income in the future sufficient to fully or
partially utilize these carry forwards, an allowance of $4,677,700 has been
established to offset this asset. The effect of adoption on current and
prior financial statements is immaterial.
NOTE 4: ACQUISITION
On July 23, 1993 (as of June 30, 1993), the Company acquired Mister
Cookie Face ["MCF"] for 1,000,000 shares of its common stock in a business
combination accounted for as a purchase. The purchase price of $3,150,000
exceeded the fair value of the net assets acquired by $3,056,626. Such amount
is being amortized over 20 years under the straight-line method.
NOTE 5: PUBLIC OFFERING
In August 1993, the Company filed a registration statement for a public
offering of 1,000,000 units consisting of two shares of Common Stock and two
Warrants. (An additional 150,000 units were reserved for issuance pursuant to
the Underwriter's Overallotment Option). The Company's registration statement is
currently the subject of an investigation by the Staff of the SEC with regard
to, among other matters, trading in the Company's Common Stock in May and June,
1993 and the increase in the market price for the Common Stock during such
period. Management has informed the Staff that it is not aware of any violations
of applicable law or rules with respect to such trading or increase in market
price.
MANAGEMENT'S ANALYSIS OF SIX MONTH INCOME STATEMENT
RESULTS OF OPERATIONS
For the six months ended July 30, 1995, the Company had sales of $18,911,100
a decrease of $285,700 versus the same period in 1994. For the quarter ended
July 30, 1995, sales were $10,411,400, $1,229,900 less than last year. Company
profits were $749,400 and $659,300 for the six months and quarter respectively
compared to $726,700 and $849,500 for the same periods last year. Segment
operating results are summarized below.
Restaurants
Restaurant sales were $9,248,800 for the six months and $5,109,100 for the
second quarter compared to $8,704,500 and $4,865,500 for the comparable periods
in 1994. The Company operated nine restaurants during the comparable periods.
However, 1995 sales included the Belmar, New Jersey, Lobster Shanty restaurant
which opened in November 1994, while 1994 sales included the Quakerbridge, New
Jersey, LaCrepe, which was sold in September 1994. The Belmar restaurant had
sales of $923,100 for six months and $539,300 for the quarter ended July 30,
1995 while the Quakerbridge restaurant had 1994 sales of $246,500 and $121,900
respectively. For the eight restaurants that operated during the comparative
periods, sales were $132,400 lower for the more recent six month period and
$173,800 lower for the quarter ended July 30, 1995. A majority of the decreases
resulted from poor weather at the New Jersey shore during June.
Restaurant operations had net earnings of $304,000 for the six months ended
July 30, 1995 compared to net earnings of $545,500 for the same period in 1994.
For the quarter, net earnings were $379,200 in 1995 compared to $521,300 last
year.
Gross profit was 67% of sales for the six month period and 67.3% for the
quarter compared to 67.2% and 67.6% respectively for the 1994 periods. The
slight decrease is due primarily to increases in the cost of seafood.
Management did raise menu prices modestly to offset some of the higher costs.
Payroll and related expenses were 29.3% of sales for six months and 27.8% for
the quarter compared to 28.3% and 27.1% last year. The increase resulted from
wage increases, higher payroll taxes and workers compensation rates, and the
effect of lower sales at restaurants that operated during the comparable
periods. Other operating expenses were 20.3% of sales for six months and 19.3%
for the quarter compared to 19.8% and 18.4% last year. The major components of
the increase were higher advertising and promotional expenses including opening
costs at Belmar and higher paper and packaging costs resulting from nationwide
paper increases. Depreciation and amortization costs increased by $27,800 and
$13,600 respectively for the six months and quarter compared to last year,
primarily as a result of asset purchases and restaurant improvements. General
and administrative costs were $145,200 higher for the six months and $97,900
higher for the quarter than last year's comparable periods. The main components
of the increase included an increase in group health insurance costs of $70,000
resulting from a year of higher medical claims versus premiums paid, increased
payrolls and related expenses of $29,000 resulting from wage increases and
increased property and liability insurance costs of $16,400.
Interest expenses were lower for both periods compared to 1994 due to debt
reduction. Interest income was higher for both periods in the current year due
to higher interest rates available for short-term investments.
Mister Cookie Face ("MCF")
MCF sales were $9,662,300 for the six months and $5,302,300 for the quarter
ended July 30, 1995 compared to $10,492,300 and $6,775,800 last year. The
primary reasons for the sales decrease were increased competition as companies
introduced several new novelty ice cream products vying for the limited space
available in supermarket display cases and, less funds spent for slotting fees
needed to introduce MCF products into new markets and new MCF products into
existing markets. MCF sales for the second quarter of this year included
$76,400 for the Mister Cookie Face restaurant which opened in May.
MCF had net earnings of $445,400 for the six months and $280,000 for the
quarter ended July 30, 1995 compared to $181,300 and $328,200 last year.
Included in the 1995 figures was a loss of $104,700 for the Mister Cookie Face
restaurant during the second quarter. The primary reasons for the loss include
lower than anticipated sales and high start-up costs associated with restaurant
openings.
Gross profit was 36.5% of sales for the six months and 35% for the quarter
ended July 30, 1995 versus 33.2% and 32.6% last year. Lower ice cream costs and
modest price increases in selective markets more than offset increased packaging
costs and higher promotional price discounts given to supermarket chains.
Other operating costs were 23% and 21% of sales for the six and three month
periods ended July 30, 1995 compared to 25% and 22% last year. The improvement
is largely due to a $400,000 decrease in slotting fees for the six months and
approximately $100,000 less in advertising and promotion expenses. The 1994
expenses included a radio advertising campaign which was not repeated this year.
Depreciation and amortization costs increased by $40,000 and $21,000 for the two
periods versus last year due to plant capital expenditures and equipment
purchases and improvements incurred at the Mister Cookie Face restaurant.
General and administrative costs were $26,000 higher for the six months and
$21,000 lower for the second quarter this year primarily due to increased
payroll and plant utility costs offset by lower bad debt costs.
Interest expense increased by $22,000 and $8,000 compared to the same periods
in 1994 due to borrowings on the two-year revolving line of credit secured in
February 1994 to fund MCF in lieu of a public offering which was halted by the
SEC in September 1993, and to interest charges on a six month $500,000 bank note
secured during the first quarter ended April 30, 1995.
Liquidity and Capital Resources
The Company's ratio of current assets to current liabilities was 1.12:1 at
July 30, 1995, compared to 1.45:1 at January 29, 1995. Despite profits of
$749,000, working capital decreased by $612,000 due to capital expenditures of
$546,000 and an increase in short-term debt of $1,390,000. Capital expenditures
included $248,000 for restaurants and $298,000 for MCF operations. The largest
component of the debt increase is the reclassification of the two-year,
$2,000,000 revolving line of credit, which matures in February 1996, from
long-term to short-term. Preliminary discussions with bank officials have been
favorable as to a conversion of all or a substantial portion of the line to a
term loan payable over several years.
During the first quarter ended April 30, 1995, the Company's $350,000 line of
credit secured by the Toms River, New Jersey restaurant was renewed. At July
30, 1995, the available balance was $350,000. Available funds remaining under
the $2,000,000 revolving line of credit were $875,000 at July 30, 1995.
Management anticipates that funds from operations and the two lines of credit
will be sufficient to meet obligations throughout the balance of fiscal 1996,
including routine capital expenditures.
Inflation
It is not possible for the Company to predict with any accuracy the effect of
inflation upon the results of its operations in future years. The price of food
is extremely volatile and projections as to its performance in the future vary
and are dependent upon a complex set of factors. The Company is currently
experiencing food and paper cost increases due to supply shortages.
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION - None
SIGNATURE
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.
CHEFS INTERNATIONAL, INC.
/s/Anthony C. Papalia
ANTHONY C. PAPALIA
Principal Financial Officer
DATED: September 13, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED
BALANCE SHEET AND THE CONSOLIDATED STATEMENTS OF OPERATIONS AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-28-1996
<PERIOD-END> JUL-30-1995
<CASH> 1,649,137
<SECURITIES> 0
<RECEIVABLES> 1,462,797
<ALLOWANCES> 31,776
<INVENTORY> 2,309,999
<CURRENT-ASSETS> 5,603,390
<PP&E> 19,609,268
<DEPRECIATION> 6,683,163
<TOTAL-ASSETS> 23,432,130
<CURRENT-LIABILITIES> 5,020,801
<BONDS> 0
<COMMON> 134,595
0
0
<OTHER-SE> 17,880,475
<TOTAL-LIABILITY-AND-EQUITY> 23,432,130
<SALES> 18,911,096
<TOTAL-REVENUES> 18,911,096
<CGS> 9,195,274
<TOTAL-COSTS> 8,896,017
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 70,440
<INCOME-PRETAX> 749,365
<INCOME-TAX> 0
<INCOME-CONTINUING> 749,365
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 749,365
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
