SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended January 29, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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
incorporation or organization] Identification
Number]
62 Broadway, P.O. Box 1332
Pt. Pleasant Beach, New Jersey 08742
[Address of principal executive offices] [Zip Code]
Registrant's telephone number, including area code 908-295-0350
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
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 ninety days. YES X NO___
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-B is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-KSB or any amendment to this Form 10-KSB.
[ ]
For the year ended January 29, 1995, the issuer's revenues were
$31,916,257.
On March 31, 1995, the aggregate market value of the voting stock
of Chefs International, Inc. (consisting of Common Stock, $.01 par
value) held by non-affiliates of the Issuer was approximately
$3,600,000 based upon the closing bid price for such Common Stock
on said dated in the over-the-counter market as reported by the
National Quotation Bureau, Inc. On such date, there were
13,459,576 shares of Common Stock of the Issuer outstanding.
CHEFS INTERNATIONAL, INC.
PART I
Item 1. Description of Business
(a) Business Development - Chefs International, Inc. ("Chefs"
or the "Company") was organized under the laws of the State of
Delaware in March 1975. The Company currently operates nine
restaurants on a year-round basis, eight of which are free-standing
seafood restaurants in New Jersey (five) and Florida (three) and
one of which is a limited menu La Crepe restaurant located in a
shopping mall in New Jersey. Seven of the seafood restaurants are
operated under the name "Lobster Shanty" and one under the name
"Baker's Wharfside." The Company opened its first La Crepe
restaurant in November, 1975 and its first seafood restaurant in
November, 1978. In July 1993 effective June 30, 1993, the Company
acquired all of the issued and outstanding capital stock of Mister
Cookie Face, Inc. ("MCF" or "Mr. Cookie Face"), a Lakewood, New
Jersey producer of ice cream sandwiches currently available in 35
states. Mr. Cookie Face's products are currently being distributed
primarily in the northeastern United States including the New York,
Philadelphia and Boston metropolitan areas, and also in the
midwest, including the Chicago metropolitan area, Colorado and
Arizona, the northwest, Florida and the greater Los Angeles and San
Francisco areas. (As used herein, the term the "Company" may also
at times include Chefs and its various subsidiaries, including "Mr.
Cookie Face").
The Company's executive offices are located at 62 Broadway,
Point Pleasant Beach, New Jersey 08742. Its telephone number is
(908) 295-0350. Mr. Cookie Face's offices and production facility
are located at 170 North Oberlin Avenue, Unit 19, Lakewood, New
Jersey 08701 where its telephone number is (908) 370-5533.
Recent Developments
Effective June 8, 1993, the Company completed a one-for-three
reverse stock split of its outstanding Common Stock, $.01 par value
(the "Common Stock"). Unless otherwise indicated, all share and
per share information contained in this report gives effect to the
said one-for-three reverse stock split. In addition, unless
otherwise indicated, actual price quotations for the Common Stock
as quoted on the NASDAQ System have been adjusted throughout this
report by multiplying the actual price for the Common Stock for
periods prior to June 8, 1993 by three. No assurances can be given
that the actual price quotations for the Common Stock during such
pre-split period would have approximated such adjusted prices if
the one-for-three reverse stock split had been effectuated at such
time.
In July 1993 effective June 30, 1993, the Company acquired all
of the issued and outstanding capital stock of Mr. Cookie Face from
its sole stockholder, Frank Koenemund, in exchange for 1,000,000
authorized but unissued shares of Chefs Common Stock. In
connection with the acquisition, Mr. Koenemund agreed to execute an
approximately four and one-half year employment contract with Mr.
Cookie Face to serve as its president and chief executive officer.
See "Item 10 - Executive Compensation."
An aggregate 500,000 of the 1,000,000 shares of Chefs Common
Stock issued to Mr. Koenemund were held in escrow subject to
forfeiture pursuant to a formula requiring Mr. Cookie Face to
achieve certain net revenues in fiscal 1994 and fiscal 1995,
provided that Chefs provide at least $5,000,000 of funding to Mr.
Cookie Face on or before January 31, 1994. As Chefs was unable to
provide the $5,000,000 of funding to Mr. Cookie Face by January 30,
1994, the escrowed shares were released to Mr. Koenemund. Despite
Chefs' inability to provide $5,000,000 of funding by January 31,
1994, Mr. Cookie Face achieved net revenues in excess of the target
net revenues it would have been required to achieve to avoid
forfeiture ($2,000,000 in fiscal 1994 and $10,000,000 in fiscal
1995).
At the Closing, Mr. Koenemund was elected to the Chefs board
of directors and two of Chefs' principal executive officers,
Anthony Papalia and Martin Fletcher, were elected as directors and
as vice president and as secretary-treasurer of Mr. Cookie Face.
See "Item 12 - Certain Relationships and Related Transactions"
herein as to the grant by the Company's principal stockholder to
Messrs. Papalia, Martin Fletcher, Koenemund and Jack Mariucci, of
options to purchase an aggregate 3,250,000 of his approximately
5,800,000 shares of Chefs' Common Stock.
On August 3, 1993, Chefs filed a Registration Statement on
Form SB-2 (File No. 33-66936) with the Securities and Exchange
Commission (the "Commission") for the purpose of registering shares
of Common Stock and warrants for sale to the public in an
underwritten public offering. The offering was seeking to raise
net proceeds of approximately $8,500,000, approximately $5,000,000
of which was to be applied to the expansion of the business of Mr.
Cookie Face and the balance to the acquisition and/or construction
by Chefs of additional seafood restaurants.
The effectiveness of the Registration Statement is currently
being delayed due to the conduct by the staff of the Commission of
an investigation pursuant to a formal order of investigation (HO-
2781) issued by the Commission in October 1993. See Item 3 herein.
The ongoing investigation has inhibited the Company's ability to
obtain sufficient additional financing to adequately fund the
growth of Mr. Cookie Face or to adequately fund the planned
expansion of the Company's restaurant business. No assurances can
be given that the Registration Statement will be declared effective
or that the proposed public offering will be consummated upon
completion of the investigation. Furthermore, management is unable
to predict the long-term effect which this investigation will have
on the Company or the market for its securities.
On February 25, 1994, the Company obtained a $2,000,000 line
of credit pursuant to a two-year revolving credit agreement with
First Fidelity Bank, National Association ("First Fidelity")
secured by mortgages on the Company's two Point Pleasant Beach, New
Jersey restaurants. Repayment of borrowings under the line of
credit is guaranteed by each of the Company's subsidiaries. At
the end of fiscal 1995, approximately $1,225,000 was outstanding
under the line. Pursuant to the credit agreement, the Company has
made certain affirmative and negative covenants to First Fidelity
(including covenants not to pay dividends while the loan is
outstanding, to maintain on a consolidated basis, minimum working
capital of at least $600,000 and a current asset to current
liability ratio of at least 1.25:1; tangible net worth of at least
$12,300,000; a debt to equity ratio of no greater than .55:1; a net
income, depreciation and amortization to current portion of long
term debt ratio of not less than 1.15:1; and cash and cash
equivalents of not less than $750,000). A failure by the Company
to satisfy any such covenant constitutes an event of default which
would enable First Fidelity to accelerate repayment of borrowings
under the line of credit. The Company applied proceeds borrowed
under the line of credit to the expansion of Mr. Cookie Face's
business. Subsequent to said fiscal year-end, Chefs drew down an
additional $200,000 under the line to provide additional working
capital for Mr. Cookie Face. In September 1994, Chefs borrowed an
additional $150,000 from First Fidelity (not pursuant to the line
of credit) to fund renovations at its newly opened seafood
restaurant in Belmar, New Jersey. This loan is repayable over a
three-year period in principal installments of $12,500 in June,
July, August and September, the balance being due September 30,
1997. Interest is paid monthly at an annual rate equal to 1% above
the Bank's prime rate. See "Item 6 - Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note
5 to Notes to the Company's Consolidated Financial Statements.
In September 1994, Chefs closed its LaCrepe restaurant at the
Quakerbridge Mall in Lawrenceville, New Jersey. In connection with
the closing of this restaurant, Chefs sold the liquor license for
$160,000 and was paid an additional $60,000 in order to prematurely
abandon the lease.
In October 1994, Chefs opened an additional approximately
9,000 square foot seafood restaurant in Belmar, New Jersey under
the name "Lobster Shanty." See "Restaurant Operations - Lobster
Shanty Restaurants" in this Item 1.
(b) Business of Issuer - The Company is engaged in two
principal lines of business; the operation of nine restaurants in
New Jersey and Florida on a year-round basis and, through its Mr.
Cookie Face subsidiary acquired in July 1993, the production of ice
cream sandwiches currently distributed primarily in the
northeastern United States including the New York, Philadelphia and
Boston metropolitan areas and also distributed in the midwest, the
northwest, Florida and the greater Los Angeles area.
RESTAURANT OPERATIONS
For the past three fiscal years and at present, the Company
has been principally engaged in the operation of nine restaurants
on a year-round basis, eight of which are free-standing seafood
restaurants in New Jersey (five) and Florida (three) and one of
which is a limited menu La Crepe restaurant located in a shopping
mall in New Jersey. Seven of the seafood restaurants are operated
under the name "Lobster Shanty" and one under the name "Baker's
Wharfside." The Company opened its first La Crepe restaurant in
November, 1975 and its first seafood restaurant in November, 1978.
The Company's restaurants, all of which are operated on a year-
round basis, are as follows:
Date of Opening
Under the Company's
Location Management
SEAFOOD RESTAURANTS
Lobster Shanty
Vero Beach, Florida December, 1979
Pt. Pleasant Beach, New Jersey October, 1980
Toms River, New Jersey October, 1980
Jensen Beach, Florida December, 1980
Cocoa Beach, Florida September, 1981
Hightstown, New Jersey December, 1981
Belmar, New Jersey October, 1994
Baker's Wharfside
Pt. Pleasant Beach, New Jersey October, 1980
LA CREPE RESTAURANT
Monmouth Mall, Eatontown,
New Jersey November, 1975
Seafood Restaurants
The Company's seafood restaurants provide a variety of seafood
dishes including shell fish such as lobster, scallops, shrimp,
oysters and clams, and other fish including red snapper, bluefish,
grouper and other varieties. A limited selection of non-seafood
entrees is also offered including steak and chicken as well as a
dessert selection. Most of the Company's seafood restaurants have
a nautical decor.
Lobster Shanty Restaurants
Vero Beach, Florida - This restaurant, consisting of
approximately 6,900 square feet, is free standing in Vero Beach,
Florida approximately 100 yards off U.S. Highway #60 on the
intracoastal waterway. It opened in December, 1979 pursuant to a
lease from Gourmet Associates ("Gourmet") owned by Robert E.
Brennan, the principal stockholder of the Company. The lease is
currently a month to month "net" lease at a monthly rental of
$10,000 with the Company paying personal property taxes and
insurance thereunder.
Gourmet had purchased the property for $700,000 in April, 1979
by making a $200,000 down payment and issuing its $500,000
promissory note for the balance, payable with 9.5% annual interest
over 18 years secured by a first mortgage. Gourmet expended
approximately $315,000 in extensions and improvements to the
facility as well as for equipment therein prior to leasing this
restaurant to the Company.
Pt. Pleasant Beach, New Jersey - This restaurant, consisting
of approximately 17,000 square feet, is free standing with a
waterfront location on Channel Drive in Pt. Pleasant Beach, New
Jersey and seats approximately 750. It shares parking with the
Baker's Wharfside restaurant in Pt. Pleasant Beach with space for
approximately 250 automobiles. The Company purchased this
restaurant and three others (including the land, buildings,
improvements and businesses including personal property and
fixtures, liquor licenses and all of the outstanding stock of the
four corporations operating these restaurants) from Robert E.
Brennan, the principal stockholder of the Company, and from three
partnerships owned by him, in October, 1980 for an aggregate
$7,750,000 less a subsequent $250,000 prepayment discount.
Subsequent to its January 26, 1992 fiscal year-end, the Company
commenced renovations and improvements to this restaurant at a cost
of approximately $375,000. These renovations were completed in the
second quarter of calendar 1992.
Toms River, New Jersey - This restaurant, consisting of
approximately 10,750 square feet, is free standing on Robbins
Parkway in Toms River, New Jersey and seats approximately 400.
Municipal parking facilities are available nearby. The Company
purchased this restaurant and three others (including the land,
buildings, improvements, and businesses including personal property
and fixtures, liquor licenses and all of the outstanding stock of
the four corporations operating these restaurants) from Robert E.
Brennan, the principal stockholder of the Company, and from three
partnerships owned by him, in October, 1980 for an aggregate
$7,750,000 less a subsequent $250,000 prepayment discount.
Jensen Beach, Florida - This 200 seat restaurant, consisting
of approximately 4,500 square feet, is located in a free standing
building on the intracoastal waterway in Jensen Beach, Martin
County, approximately 50 miles north of Palm Beach. The restaurant
has parking for 100 automobiles. Acquired in October, 1980 were
two lots, the restaurant with furnishings and a liquor license from
an unaffiliated party for $975,000. The Company made a $295,000
down payment and paid the balance over a ten year period through
September, 1990.
Cocoa Beach, Florida - On September 29, 1981, the Company
purchased all of the outstanding capital stock of two corporations
engaged in the ownership and operation of two Florida seafood
restaurants from two unaffiliated individuals. One restaurant was
in Cocoa Beach and the other (sold by the Company in January, 1988)
was in Titusville, Florida. The corporations owned the land on
which the restaurants were located, the restaurant buildings, the
restaurant businesses including personal property and fixtures and
liquor licenses for each restaurant, all of which were included in
the sale. Each restaurant was free standing and had approximately
240 seats. The Cocoa Beach restaurant on Highway A1A has parking
for approximately 90 cars. The Titusville restaurant on Marina
Road, within one mile of Highway A1A had parking for approximately
120 cars. The Company commenced operation of both restaurants
immediately after the purchase under the names "Jack Baker's
Pelican Point Inn" and "Jack Baker's Sands Point Inn" and
subsequently changed the name of each to "Lobster Shanty."
The purchase price for the stock of the two corporations was
$3,370,000 increased by an amount equal to certain additional
assets available at the closing, primarily cash and receivables
totalling $414,029 and decreased by indebtedness under various bank
notes, recapture taxes and other liabilities paid by the Company
leaving a net balance of $2,655,239. The Company paid $289,671 in
cash at the closing and issued two $1,182,784 promissory notes, one
to each seller, for the balance. Each note was secured by a
mortgage on the restaurants and was payable in 240 consecutive
monthly installments with interest computed on the unpaid balance
at an annual rate of 12%. In addition, the Company paid a $130,000
sales commission to the real estate broker involved in the
transaction by delivering its check for $60,000 and its ten year
note for the $70,000 balance.
In January, 1988, the Company sold the Titusville restaurant
to an unaffiliated third party in a transaction in which it
realized a loss of approximately $942,000. The $800,000
consideration received by the Company together with an additional
$263,126 paid by the Company was applied to reduce the outstanding
promissory notes to 50% of the outstanding balance immediately
prior to the sale thereby enabling the release of a mortgage lien
on the Titusville restaurant. The outstanding notes secured by a
mortgage on the Cocoa Beach restaurant were paid in July 1993 with
the proceeds received from the sale in June 1993 of the Company's
Ft. Myers, Florida property.
Hightstown, New Jersey - This restaurant, consisting of
approximately 4,600 square feet, is free standing on State Highway
33 approximately two miles east of Hightstown and seats
approximately 175. The restaurant has parking for approximately
100 automobiles. The Company purchased this restaurant and three
others (including the land, buildings, improvements and businesses
including personal property and fixtures, liquor licenses and all
of the outstanding stock of the four corporations operating these
restaurants) from Robert E. Brennan, the principal stockholder of
the Company and from three partnerships owned by him, in October,
1980 for an aggregate $7,750,000 less a subsequent $250,000
prepayment discount. The Company made substantial renovations to
this restaurant commencing in fiscal 1993 which renovations were
completed early in fiscal 1994. The renovations, which cost
approximately $200,000, were paid for by the Company out of
existing cash reserves.
Belmar, New Jersey - This restaurant, consisting of
approximately 9,000 square feet, is free standing on Main Street in
Belmar, New Jersey. The restaurant seats approximately 250 and has
parking for approximately 110 automobiles. The Company purchased
the liquor license and trade name for use at this restaurant in
October 1994 for $250,000 from unaffiliated parties and leased the
restaurant, the parking lot and the restaurant furniture, fixtures
and equipment at such time from such parties pursuant to a five-
year lease in which the Company was given four consecutive five-
year options to renew. The lease provides for a monthly base rent
of $8,000 increasing every three years up to a monthly base rent
after the eighteenth year of $12,693 with an additional annual
percentage rent equal to 6% of Chefs' gross receipts at the
restaurant for such period less the base rent. The restaurant
opened as a "Lobster Shanty" restaurant under the Company's
management in October 1994. In November 1994, the Company borrowed
$150,000 from First Fidelity to fund renovations at this
restaurant. This loan is repayable over a three-year period in
principal installments of $12,500 in June, July, August and
September, the balance being due September 30, 1997. Interest is
paid monthly at an annual rate equal to 1% above the bank's prime
rate.
Baker's Wharfside Restaurant
Pt. Pleasant Beach, New Jersey - This restaurant, consisting
of approximately 7,500 square feet, is free standing with a
waterfront location on Channel Drive in Pt. Pleasant Beach, New
Jersey and seats approximately 500. It shares parking with the
Lobster Shanty restaurant in Pt. Pleasant Beach with space for
approximately 250 automobiles. The Company purchased this
restaurant and three others (including the land, buildings,
improvements and businesses including personal property and
fixtures, liquor licenses and all of the outstanding stock of the
four corporations operating these restaurants) from Robert E.
Brennan, the principal stockholder of the Company, and from three
partnerships owned by him, in October, 1980 for an aggregate
$7,750,000 less a subsequent $250,000 prepayment discount.
La Crepe Restaurant
The Company's La Crepe restaurant features authentic crepes;
thin, delicate French pancakes which can be filled with more than
fifty different fillings ranging from breakfast and brunch items,
such as sausages and eggs, to French culinary specialties suitable
for lunch and dinner, such as ratatouille, beef bourguignon,
seafood, etc., to dessert items, such as crepe suzettes, hot apples
and ice cream, etc. The crepes are prepared and filled in a stone-
faced barbecue area in full view of the customers. Soups and salad
dishes and a variety of other desserts are also featured. The
Company's La Crepe unit features a sidewalk cafe area.
Monmouth Mall, Eatontown, Monmouth County, New Jersey - The
Company has leased approximately 3,550 square feet in the Monmouth
Mall, Eatontown, New Jersey for an approximately twenty-year period
ending December 31, 1995 and has constructed a 150-seat La Crepe
restaurant and sidewalk cafe within the leased premises. The
restaurant opened in November, 1975 and has a liquor license for
which the Company paid $85,000, permitting the consumption of wine
and alcoholic beverages on the premises.
The lease requires the Company to pay a minimum annual rental
of the greater of $34,450 or 5% of gross sales as well as a common
area charge, taxes and Merchants' Association dues. The Mall and
the restaurant are open seven days per week.
The Mall has been in operation for approximately nineteen
years. Macy's, J.C. Penney and Abraham & Straus are major
department stores in the Mall. The Mall is one of the largest
shopping centers in New Jersey with 1,500,000 square feet of
shopping area on 105 acres with parking for 7,200 cars.
The restaurant is located on the upper level of the Mall next
to a major Mall entrance between J.C. Penney and Abraham & Straus.
Sources of Food Products
The food products used by the Company in the operation of its
seafood restaurants and its La Crepe restaurant are readily
available from a variety of sources including national distributors
and local sources on an order basis when needed. In its last three
fiscal years, the Company has not purchased any of its food
products from affiliated entities or entities affiliated with
former executive officers or directors.
Seasonal Aspects
To date, the Company's New Jersey seafood restaurants have
experienced their greatest sales volumes from May through September
whereas its Florida seafood restaurants have experienced their
greatest sales volumes from January through April. The Company's
La Crepe restaurant has experienced a greater sales volume during
the period from Thanksgiving through the beginning of January, than
at any other similar time span during the year.
Trademarks
The Company has no patents, trademarks, licenses, franchises
or concessions which it regards as material to its restaurant
business with the exception of the service mark "Jack Baker's
Lobster Shanty"R registered for a 20 year period with the U.S.
Patent and Trademark Office in February, 1989.
Competition
The restaurant business is highly competitive and the success
of any restaurant depends to a great extent upon the services it
supplies and its location. The Company's seafood restaurants
compete primarily with other local seafood restaurants and to a
lesser extent, with local restaurants serving a more general fare.
The principal national competition to the Company's seafood
restaurants is the Red Lobster restaurant chain owned and operated
by General Mills. This chain has substantially greater resources
than the Company. There are other restaurants in the mall and in
the vicinity of the mall where the Company is now operating a La
Crepe restaurant, all of which supply competition to the Company's
La Crepe unit. Typical "chain" competitors, all of which are
affiliated with better established and more prominent national
chains, are the Friendly Ice Cream chain, McDonalds and Roy Rogers
Restaurants. Local Chinese restaurants and "sit-down"
delicatessens also provide competition. There can be no assurance
that the Company's units will be able to successfully compete with
any of such other restaurants.
Government Regulation
The Company is subject to various Federal, state and local
laws affecting the operation of its restaurants, including
licensing and regulation by health, sanitation, safety and fire
departments and alcoholic beverage control authorities. The
Company is also subject to the Fair Labor Standards Act, which
governs such matters as minimum wages, overtime and other working
conditions. While such regulations have not had a material
negative impact on the Company's operations to date, difficulties
in obtaining necessary licenses or permits could result in delays
or cancellations in the opening of new restaurants and increases in
the minimum wage could increase the Company's labor cost.
Employees
The Company maintains its administrative employees at its
executive offices including its principal officers (see "Item 9 -
Directors, Executive Officers, Promoters and Control Persons,
Compliance with Section 16(a) of the Exchange Act"), secretarial
and bookkeeping personnel. Each of the Company's seafood
restaurant units employs a manager, a relief manager and between 40
and 130 other employees to serve as waitresses, waiters, busboys,
bartenders, cooks, dishwashers, kitchen help, hostesses and
cashiers (some on a part-time basis). Each La Crepe restaurant
unit employs approximately 25 to 40 employees serving similar
functions. The Company also presently employs three area
supervisors, each responsible for three of the Company's
restaurants. Managerial candidates are recruited for the Company's
restaurants from hotel and restaurant management schools,
restaurant recruiting agencies, through advertising in restaurant
management magazines and by promotion from within the Company's own
organization. At January 29, 1995, the Company had a total of
approximately 477 employees (including part-time workers). This
number excludes the employees of Mr. Cookie Face acquired in July
1993. The Company is not a party to any collective bargaining
agreements and has enjoyed satisfactory employee relations since
inception.
ICE CREAM OPERATIONS
(Mister Cookie Face)
In July 1993, the Company acquired all of the issued and
outstanding capital stock of Mr. Cookie Face, a Lakewood, New
Jersey producer of ice cream sandwiches currently available in 35
states. Mr. Cookie Face's products are currently being distributed
primarily in the northeastern United States including New York,
Philadelphia and Boston metropolitan areas, and also in the
midwest, including the Chicago metropolitan area, Colorado and
Arizona, the northwest, Florida and the greater Los Angeles and San
Francisco areas. The Company's ice cream operations are presently
conducted through its wholly owned Mister Cookie Face, Inc.
subsidiary.
Products
Mr. Cookie Face's ice cream sandwiches consist of
approximately three fluid ounces of ice cream covered top and
bottom with a chocolate wafer. At present, approximately twelve
varieties of ice cream and combinations thereof are used including
vanilla, chocolate, chocolate vanilla swirl, vanilla nut, mint,
mint chip, strawberry, chocolate chunk, chocolate fudge and butter
pecan. Mr. Cookie Face ice cream sandwiches are wrapped in
polypropylene plastic containers and are sold to consumers in
convenient six-pack and twelve-pack trays primarily at supermarkets
and other food chains and as singles primarily at convenience
stores. Current retail prices for a six-pack tray generally range
from $2.99 to $3.99 and for a twelve-pack tray from $4.99 to $5.99.
The current suggested retail price for single ice cream sandwiches
is $1.49. Other products include "COOKIES AND CREAMS," a miniature
ice cream sandwich containing approximately one-half fluid ounce of
vanilla ice cream covered top and bottom with a small chocolate
cookie, "CHIPSTER," a similar miniature ice cream sandwich using
chocolate chip cookies, and a lowfat product similar to the
standard Mr. Cookie Face ice cream sandwich but using lowfat
vanilla chocolate swirl ice cream.
Production
All of Mr. Cookie Face's ice cream products are presently
produced at its production facility in Lakewood, New Jersey by an
independent subcontractor pursuant to a subcontracting agreement
which expires in June 1995 subject to Mr. Cookie Face's right to
renew the contract for incremental periods of six months on the
same terms and conditions up to a maximum of thirty months. The
subcontractor currently operates one to three shifts per diem at
the facility as business requires.
Mr. Cookie Face's ice cream products are produced using
chocolate wafers provided by three different suppliers, mini
cookies provided by two other suppliers and ice cream mix provided
by two other suppliers. All of the suppliers (except for one
located in the midwest) are located in the greater New York
metropolitan area. Mr. Cookie Face does not have any long term
contract with its suppliers but does not regard this fact as a
material risk to its business as the wafers, the mini cookies and
the ice cream mix are currently available in similar qualities and
quantities at competitive prices from a variety of sources on an
order basis if needed.
Mr. Cookie Face regards its ice cream sandwiches as handmade
as the amount of ice cream in each sandwich is determined by a
production worker who draws the mix for each sandwich by hand onto
a wafer or mini cookie from an ice cream dispensing machine. After
production, the ice cream sandwiches are placed in freezers and
then packaged before shipment to retail outlets. With its present
configuration of 24 ice cream dispensing machines and its present
freezer and packaging equipment, management believes that Mr.
Cookie Face can ship approximately $20,000,000 by dollar volume in
product (based on its current pricing) on an annual basis from the
Lakewood facility.
Marketing and Distribution
Mr. Cookie Face ice cream products are sold directly or
through food brokers to supermarket and other food chains and
through distributors, to convenience stores. At present, Mr.
Cookie Face utilizes more than 40 independent food brokers under
contracts terminable on 30 days notice to attempt to place its
products in various retail outlets . The brokers are compensated
on a commission basis equal to a percentage of Mr. Cookie Face's
collections and provide nationwide coverage. Marketing efforts are
also conducted directly by Mr. Cookie Face's chief executive
officer, Frank Koenemund and two full-time salaried salespersons.
In order for its products to be afforded retail "shelf" space
in most supermarkets, Mr. Cookie Face has been required to pay
"slotting" fees to various supermarket chains ranging from $2,000
to $35,000 per product and will be required to pay additional
slotting fees for each additional type of ice cream sandwich. No
assurances can be given that Mr. Cookie Face will be able to obtain
retail shelf space in additional chains or will be able to obtain
additional shelf space for new products at chains where its present
product line is carried, even with the availability of financial
resources to pay additional slotting fees.
Supermarket and other retail food chains which presently carry
Mr. Cookie Face's products include Pathmark, Waldbaums, A&P,
Shoprite, Food Town, Grand Union, King Kullen, Winn-Dixie, Stop &
Shop, Albertsons, Acme and Shaws; in the Los Angeles area - Vons,
Ralph's and Lucky's; and Safeway, Food Lion, Jewel, Dominicks and
Kroger.
Mr. Cookie Face was organized in February 1992 and to date has
not conducted any substantial advertising of its product line.
Advertising has been limited to radio (primarily in the New York
metropolitan area), in-store promotions, circulars and coupons.
Management believes that Chefs' inability to provide substantial
funding for Mr. Cookie Face's operations including advertising has
had an adverse effect on its potential growth. See "Developments
Since the Beginning of the Last Fiscal Year".
Seasonal Aspects
During its first full year of operation after acquisition by
the Company, Mr. Cookie Face experienced its greatest sales volume
during the period from May through August, which management
believes is typical in the industry for sales of ice cream
products.
Competition
Mr. Cookie Face's ice cream products compete primarily with
other ice cream products as well as non-ice cream and other frozen
dessert products. Various national and regional ice cream
manufacturers with substantially greater resources than the Company
produce ice cream products similar to Mr. Cookie Face's products.
Certain well known competitors with similar "novelty" ice cream
products are Carvel (in the eastern United States), Colemans (in
Pennsylvania), and Klondike's "Big Bear" square ice cream sandwich
(nationwide). In addition, there are relatively few entry barriers
to new manufacturers and/or products. Management believes that in
addition to product quality and appearance, accessibility of retail
"shelf" space, entry into new markets before competitors and
advertising are major competitive factors. No assurances can be
given that Mr. Cookie Face will be able to successfully compete.
Proposed Mr. Cookie Face Restaurant
Mr. Cookie Face expects to open its first "Mister Cookie Face"
restaurant in a Manalapan, New Jersey strip mall in May 1995. The
restaurant, occupying approximately 2,000 square feet, will seat
approximately 65 people and will offer a limited menu during lunch
and dinner hours. In addition, it will sell Mr. Cookie Face
products as well as other ice cream and dessert products such as
sundaes and cakes for consumption on the premises as well as on a
retail take-out basis. See Item 12 herein as to the sale of the
furniture, fixtures and equipment at this restaurant to Mr. Cookie
Face by a related party.
Trademark and Litigation
Mr. Cookie Face filed an application with the United States
Patent Office in 1992 to register the trademark "MISTER COOKIE
FACE." On July 26, 1994, the application was granted and the
trademark was registered. Mr. Cookie Face regards this trademark
to be of material importance to its business.
Employees
In addition to Frank Koenemund who devotes substantially all
of his working time to Mr. Cookie Face's business as chief
executive and chief marketing officer and president, two of the
Company's executive officers also serve as executive officers of
Mr. Cookie Face. Mr. Cookie Face also employs a plant manager, two
full-time salaried salespersons and Mr. Koenemund's wife who
performs administrative functions. Mr. Cookie Face's production
operations are performed by production workers employed by an
independent subcontractor. See "Ice Cream Operations -
Production."
Item 2. Description of Property
The Company's executive and administrative offices are located
in an approximately 4,000 square foot two story Company owned
building of cinder block construction at 62 Broadway, Point
Pleasant Beach, New Jersey.
Mr. Cookie Face produces its ice cream products from
approximately 15,600 square feet of leased premises in Lakewood,
New Jersey pursuant to a lease expiring in January, 1998. At
present, Mr. Cookie Face has 24 ice cream dispensing machines,
freezers and packaging equipment at the facility capable of
producing approximately $20,000,000 of product sales annually
(based on current pricing). Mr. Cookie Face management regards its
current production equipment to be in good condition, reasonable
wear and tear excepted.
See Item 1 herein for a description of the Company's operating
restaurants.
Item 3. Legal Proceedings
In October 1993, the Securities and Exchange Commission (the
"Commission") issued a formal order of private investigation
concerning the Company (HO-2781). The order alleges that members
of the staff have reported information to the Commission which
tends to show that certain persons, including persons associated
with Chefs, and persons associated with broker dealer firms who
make a market in Chefs' securities, may have, in connection with
the offer, purchase, or sale of Chefs' securities, employed
devices, schemes or artifices to defraud; obtained money or
property by means of untrue statements of material facts or
omissions to state material facts; or may have engaged in
transactions, practices or courses of business which operate or
would operate as a fraud upon other persons, including purchasers
or sellers of Chefs' securities, in that, among other things, such
persons may have engaged in a scheme to dominate, control and
manipulate the market for Chefs' securities, and Chefs'
registration statement may include untrue statements of material
fact or omit to state material facts necessary in order to make the
statements therein not misleading, concerning among other things,
recent activity in the market for Chefs' securities, the market
price for Chefs' securities, or the possible existence of a scheme
to dominate, control and manipulate the market for Chefs'
securities.
The Commission deemed that if the alleged acts and practices
were true, they would constitute possible violations of the
Securities Act of 1933 and the Securities Exchange Act of 1934 and
be the possible basis for the issuance of a stop order pursuant to
the Securities Act of 1933 suspending the effectiveness of the
registration statement and therefore issued a formal order of
private investigation with respect to these allegations. See Item
5 herein as to certain of the staff's specific factual concerns
related to this investigation.
The staff of the Commission is currently conducting the
investigation as a result of which the effectiveness of the
Company's Registration Statement on Form SB-2 (File No. 33-66936)
is being delayed. Although management is unaware of any violations
of law concerning recent activity in the market for Chefs'
securities, the market price for Chefs' securities or the existence
of a scheme to dominate, control or manipulate the market for
Chefs' securities, the ongoing investigation has inhibited the
Company's ability to obtain sufficient additional financing to
adequately fund the growth of Mr. Cookie Face or to adequately fund
the planned expansion of the Company's restaurant business. No
assurances can be given that the Registration Statement will be
declared effective or that the proposed public offering will be
consummated upon completion of the investigation. Furthermore,
management is unable to predict the long-term effect which this
investigation will have on the Company or the market for its
securities.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's security
holders in the fourth quarter of fiscal year 1995.
CHEFS INTERNATIONAL, INC.
PART II
Item 5. Market for the Registrant's Common Stock
and Related Security Holder Matters
The Common Stock is quoted in the over-the-counter market on
the NASDAQ Small Cap System under the symbol "CHEF." The following
table sets forth the range of high and low closing bid prices for
the Common Stock for the periods indicated, as derived from reports
furnished by the National Quotation Bureau, Inc. All such prices
have been adjusted to give effect to the Company's one-for-three
reverse stock split effected at the close of business on June 7,
1993. Such prices for periods prior to the split have been
computed by multiplying the actual bid price by three. No
assurances can be given that the actual bid prices for the Common
Stock would have approximated the prices set forth in the table if
the one-for-three reverse stock split had been in effect at the
various periods set forth therein.
Bid Prices
(Adjusted for
Quarter Reverse Stock Split)
Ended High Low
May 2, 1993 $ .66 $ .57
August 1, 1993 $6.00 $ .75
October 31, 1993 $5.38 $3.88
January 30, 1994 $4.25 $3.00
April 29, 1994 $3.25 $1.75
July 29, 1994 $1.75 $1.00
October 28, 1994 $1.19 $ .38
January 29, 1995 $1.44 $ .44
The above quotations represent prices between dealers and do
not include retail mark-ups, mark-downs or commissions. They do
not necessarily represent actual transactions.
See "Item 3 - Legal Proceedings" herein as to an investigation
ordered by the Securities and Exchange Commission concerning among
other items, trading in the Common Stock and the increase in the
bid price for the Common Stock from a low of $.66 to a high of
$6.00 in May and June 1993. The staff of the Commission has also
expressed concerns about the involvement in such trading of certain
broker-dealers who as selected dealers, were each expected to sell
in excess of 25% of the securities to be offered in the proposed
public offering to their customers. The Company is not aware of
any violations of applicable law or rules with respect to such
trading or with respect to the increase in the bid price for the
Common Stock.
At March 31, 1995, the number of record holders of the Common
Stock was 7,844. Such number of record owners was determined from
the Company's shareholder records and does not include beneficial
owners whose shares are held in nominee accounts with brokers,
dealers, banks and clearing agencies.
Pursuant to the Company's two-year revolving credit agreement
with First Fidelity Bank entered into on February 25, 1994, the
Company is restricted during the period any loans are outstanding
under the agreement from paying dividends on any of its outstanding
stock.
Item 6. Management Discussion and
Analysis or Plan of Operation
Results of Operations
In fiscal 1995, the Company sustained a loss of $257,100
compared to a loss of $176,700 in fiscal 1994. The figures for
1995 included registration costs of $270,700 associated with the
Company's September 1993 registration statement which were written
off due to the ongoing investigation related to the registration
statement. As a result of its inability to obtain funding from the
proposed public offering, the Company was required to finance the
planned Mister Cookie Face ("MCF") expansion, in part, through
borrowings. As a result, additional interest expense of $101,600
was incurred. Sales rose 80% to $31,916,300 primarily due to the
MCF expansion. Segment operating results are summarized below.
Restaurants
Net income from restaurant operations in fiscal 1995 increased
by 23% to $334,500 compared to $271,200 for fiscal 1994. Sales for
1995 were $16,043,700, an increase of $726,100 or 4.7% over 1994
sales of $15,317,600. The increase was due to increased customer
counts (1.4% higher than 1994), as well as higher menu prices (3.3%
higher).
Gross profit for 1995 was 67% of sales, slightly less than
1994's 67.3%. Management offset higher costs by raising menu
prices modestly and by attractively pricing higher margin items.
Payroll and related expenses were 29.5% of sales in 1995
versus 29.1% in 1994. The main components of the increase were
higher workers' compensation premiums and payroll tax costs. Other
operating expenses were 21% of sales, essentially the same as in
1994. Depreciation and amortization costs were $36,000 higher in
1995, mainly as a result of asset purchases and restaurant
improvements. General and administrative expenses were $7,300
lower in 1995 resulting from higher payroll and lower rental income
offset by reduced health insurance costs.
The gain of $76,467 from the sale of restaurants in fiscal
1995 resulted from the sale of the Company's Quakerbridge, New
Jersey, LaCrepe liquor license and the early termination of the
lease in September, 1994. The 1994 fiscal year gain of $71,318
resulted from the sale of the Company's Fort Myers, Florida
property.
Interest expense in the restaurant operations was $66,200
lower in 1995 due to debt reduction. The 1994 interest expense
included the early pay-off of the Cocoa Beach, Florida restaurant
mortgage. Interest income was $22,700 lower in fiscal 1995 due to
reduced amounts of cash available for short-term investments.
The Company operated a total of nine restaurants in both
fiscal 1995 and 1994. During fiscal 1995, the Company sold the
Quakerbridge, New Jersey restaurant and opened a new seafood
restaurant in Belmar, New Jersey, under the name Jack Baker's
Lobster Shanty. Management believes that the addition of the
Belmar restaurant should have a positive effect on the restaurant
division's overall results.
Mister Cookie Face ("MCF")
MCF sustained a loss of $320,900 for fiscal 1995 compared to
a loss of $447,900 for the seven months of operations during fiscal
1994. Sales increased by $13,477,800 to $15,872,600 during fiscal
1995. The increase was comprised of higher sales of $4,810,100 for
the seven-month comparative period and $8,667,700 for the five
additional months of operation in fiscal 1995. Expansion into new
markets across the country, as well as successful promotions in
existing markets, accounted for the increase in sales.
Gross profit was 33% of sales in fiscal 1995 compared to 38.2%
of sales in 1994. The increased cost of promotional price
discounts given to supermarket chains was partially offset by a
reduction in raw material costs. This was achieved through the use
of additional suppliers and volume discounts. Additionally, MCF
was able to raise its prices modestly in selective markets.
Other operating expenses were 27.9% of sales in 1995 versus
34% in 1994. The improvement is due primarily to the large
increase in sales volume. Depreciation and amortization expenses
increased by $170,000 due to depreciation of equipment purchases
and plant upgrades and the amortization of the excess fair value
resulting from the Company's purchase of MCF. General and
administrative expenses increased by $272,000 primarily due to the
fact that MCF operated for five additional months during fiscal
1995.
Interest expense increased by $132,000 in fiscal 1995 due to
borrowings used to finance equipment acquisitions and for working
capital needs and due to increases in the prime rate.
Management believes that MCF should be able to maintain its
sales volume, despite increased competition, by introduction of new
products and expansion into new markets. Additionally, MCF will
open its first Mister Cookie Face restaurant during May 1995. The
restaurant will be located in a Manalapan, New Jersey strip mall
and will offer a limited menu during lunch and dinner hours. In
addition, the restaurant will sell ice cream products such as
sundaes and cakes for consumption on the premises as well as on a
retail take-out basis.
Liquidity and Capital Resources
The Company's ratio of current assets to current liabilities
was 1.45:1 at January 29, 1995 compared to 1.11:1 at January 30,
1994. Working capital was $1,195,200 at January 29, 1995, $908,700
more than at January 30, 1994. The increase was primarily due to
net draws on the Company's $2,000,000 revolving line of credit
amounting to $1,225,000, new equipment lease funding for MCF
totalling $375,600, funds from a six-month $500,000 bank note used
for MCF operations, and a new three-year bank loan of $150,000 used
for the Belmar purchase, offset by capital expenditures of
$967,300, acquisition of the Belmar, New Jersey liquor license and
trade name for $250,000 and debt repayment of $1,294,200. Capital
expenditures included outlays of $465,900 for restaurant
improvements and equipment and $501,400 for MCF equipment and plant
upgrades. During fiscal 1994, the Company incurred capital
expenditures of $1,105,400; $742,300 for restaurant renovations,
improvements and equipment and $363,100 for MCF equipment. Debt
repayment in 1995 of $1,294,200 included scheduled debt repayment
as well as repayment of the six-month $500,000 bank note. Fiscal
1994's debt repayment of $1,178,500 included the early pay-off of
the Cocoa Beach mortgage of $854,700.
Subsequent to the year ended January 29, 1995, the Company
drew down an additional $200,000 from its revolving line of credit
leaving available a balance of $575,000. Additionally, the Company
has $350,000 available in a line of credit secured by the Toms
River, New Jersey restaurant.
Management anticipates that funds from operations, the
$2,000,000 line and the $350,000 line will be sufficient to meet
obligations in fiscal 1996 including routine capital expenditures.
During fiscal 1996, management will be negotiating with the
Company's bank to discuss pay-out terms of the revolving line of
credit, the balance of which is due in February 1996. The
expenditures necessary to open the planned MCF restaurant estimated
at approximately $75,000 will be paid with existing cash. There
are no additional major capital expenditures planned.
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 cost increases due to higher seafood prices
resulting from fishing quotas in New England.
Item 7. Financial Statements
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors of
Chefs International, Inc.
Point Pleasant, New Jersey
We have audited the accompanying consolidated balance sheet of Chefs
International, Inc. and its subsidiaries as of January 29, 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the two fiscal years in the period ended January 29, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall consolidated financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Chefs International, Inc. and its subsidiaries as of January 29,
1995, and the consolidated results of their operations and their
cash flows for each of the two fiscal years in the period ended January 29,
1995, in conformity with generally accepted accounting principles.
MORTENSON AND ASSOCIATES, P. C.
Certified Public Accountants.
Cranford, New Jersey
March 22, 1995
<TABLE>
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF JANUARY 29, 1995.
<CAPTION>
Assets:
Current Assets:
<S> <C>
Cash and Cash Equivalents $ 1,408,957
Investments 100,000
Accounts Receivable [Net of Allowance of $3,878] 383,138
Miscellaneous Receivables 128,675
Inventories 1,761,273
Prepaid Expenses 93,705
Total Current Assets 3,875,748
Property, Plant and Equipment - At Cost 19,065,295
Less: Accumulated Depreciation 6,111,219
Property, Plant and Equipment - Net 12,954,076
Other Assets:
Investments 606,000
Goodwill - Net 3,528,859
Liquor Licenses - Net 777,031
Due from Employees 12,529
Deposits and Other Assets 49,575
Total Other Assets 4,973,994
Total Assets $ 21,803,818
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts Payable $ 1,471,349
Accrued Expenses 524,021
Notes and Mortgages Payable to Banks 333,000
Other Liabilities 258,920
Capital Lease Obligations - Current 93,286
Total Current Liabilities 2,680,576
Long-Term Debt:
Notes and Mortgages Payable to Banks 1,500,000
Capital Lease Obligations - Long-Term 275,141
Total Long-Term Debt 1,775,141
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] (15,081,476)
Total Stockholders' Equity 17,265,705
Total Liabilities and Stockholders' Equity $ 21,803,818
</TABLE>
See Notes to Consolidated Financial Statements.
<TABLE>
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
For the years ended
January 29, January 30,
1 9 9 5 1 9 9 4
<S> <C> <C>
Sales $ 31,916,257 $ 17,712,293
Cost of Goods Sold 15,920,043 6,485,019
Gross Profit 15,996,214 11,227,274
Operating Expenses [Income]:
Payroll and Related Expenses 4,734,671 4,455,080
Other Operating Expenses 7,819,627 4,074,802
Depreciation and Amortization 1,241,949 1,036,010
Suspended Registration Expenses 270,750 --
General and Administrative Expenses 2,125,045 1,860,207
[Gain] on Sale of Restaurant (76,467) (71,318)
Total Operating Expenses 16,115,575 11,354,781
[Loss] from Operations (119,361) (127,507)
Other Income [Expense]:
Interest Expense (210,586) (144,725)
Interest Income 72,817 95,568
Total Other [Expense] - Net (137,769) (49,157)
[Loss] Before Income Taxes (257,130) (176,664)
Income Tax Expense [Current] -- --
Net [Loss] (257,130) (176,664)
Net [Loss] Per Share $ (.02) $ (.01)
</TABLE>
See Notes to Consolidated Financial Statements.
<TABLE>
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>
Capital Additional Total
Number Stock Paid-in Accumulated Stockholders'
of Shares Par Value Capital [Deficit] Equity
<S> <C> <C> <C> <C> <C>
Balance - January 31, 1993 12,458,389 $124,584 $ 29,072,596 $ (14,647,682) $ 14,549,498
Common Stock Issued in Connection
with Acquisition 1,000,000 10,000 3,139,990 -- 3,149,990
Common Stock Issued -
3:1 Split Fractional Shares 1,082 10 -- -- 10
Net [Loss] for the Year -- -- -- (176,664) (176,664)
Balance - January 30, 1994 13,459,471 134,594 32,212,586 (14,824,346) $ 17,522,834
Common Stock Issued -
3:1 Split Fractional Shares 105 1 -- -- 1
Net [Loss] for the year -- -- -- (257,130) (257,130)
Balance - January 29, 1995 13,459,576 $134,595 $32,212,586 $ (15,081,476) $ 17,265,705
</TABLE>
See Notes to Consolidated Financial Statements.
<TABLE>
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended
January 29, January 30,
1 9 9 5 1 9 9 4
<S> <C> <C>
Operating Activities:
Net [Loss] $ (257,130) $ (176,664)
Adjustments to Reconcile Net [Loss] to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 1,241,949 1,036,010
Loss on Asset Disposals 3,225 129,477
Allowance for Doubtful Accounts (29,873) 22,005
[Gain] on Sale of Restaurant (76,467) (71,318)
Change in Assets and Liabilities:
[Increase] Decrease in:
Inventories (748,915) (245,414)
Prepaid Expenses 25,621 (26,477)
Other Assets 246,948 (277,870)
Accounts Receivable (124,790) (81,545)
Miscellaneous Receivable (28,571) 11,349
Increase [Decrease] in:
Accounts Payable 143,238 446,341
Accrued Expenses and Other Liabilities 110,550 94,290
Total Adjustments 762,915 1,036,848
Net Cash - Operating Activities 505,785 860,184
Investing Activities:
Capital Expenditures (955,902) (1,105,389)
Proceeds from Sale of Restaurant 211,273 895,897
Payment Received on Mortgage Receivables -- 104,495
Sale or Redemption of Investments 347,000 297,000
Purchase of Investments (460,000) (146,000)
Loans to Acquired Company Prior to Acquisition -- (100,000)
Purchase of Subsidiary - Cash Acquired -- 59,696
Acquisition of Restaurant (267,008) --
Net Cash - Investing Activities (1,124,637) 5,699
Financing Activities:
Repayment of Debt (1,294,270) (1,178,474)
Proceeds from Debt 2,250,618 245,000
Net Cash - Financing Activities 956,348 (933,474)
Net Increase [Decrease] in Cash and
Cash Equivalents 337,496 (67,591)
Cash and Cash Equivalents - Beginning of Years 1,071,461 1,139,052
Cash and Cash Equivalents - End of Years $ 1,408,957 $ 1,071,461
Supplemental Disclosures of Cash Flow Information:
Cash paid during the years for:
Interest $ 202,400 $ 139,536
Income Taxes $ -- $ 6,500
</TABLE>
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
As of June 30, 1993, the Company acquired all of the outstanding common stock
of Mister Cookie Face 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, which
was recorded as cost in excess of fair value that is being amortized over 20
years under the straight-line method.
During the year ending January 30, 1994, the Company acquired $139,052 of
equipment which was financed through capital leases.
See Notes to Consolidated Financial Statements.
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[1] Summary of Significant Accounting Policies
Principles of Consolidation - The accompanying consolidated financial statements
include the accounts of the Company and all of its wholly-owned subsidiaries.
Intercompany transactions and balances have been eliminated in consolidation.
Segment Information - The Company is involved in two businesses, the restaurant
business and the manufacturing and sale of ice cream products. The Company had
nine restaurants in operation at January 29, 1995 and January 30, 1994. At
January 29, 1995 and January 30, 1994, the Company had one manufacturing plant
in operation.
Cash and Cash Equivalents - Cash equivalents are comprised of certain highly
liquid investments with a maturity of three months or less when purchased. The
Company has a significant portion of its cash in one bank, which at times may
exceed federally insured limits.
Investments - Investments are separated between current and long-term based on
maturity. These consist solely of certificates of deposit and are stated at
cost, which approximates market value.
Inventories - Inventories consist of food, beverages and supplies for the
restaurant operations and raw materials and finished goods for the ice cream
manufacturing operation. Inventories are stated at the lower of cost
[determined by the first-in, first-out method] or market.
Property, Plant and Equipment and Depreciation - Plant and equipment are carried
at cost less accumulated depreciation. Depreciation is computed over the
estimated useful lives of the assets using the straight-line method. The costs
of maintenance and repairs are expensed as incurred, whereas significant
betterments and renewals are capitalized.
Goodwill - Goodwill represents cost in excess of fair value of property acquired
and is being amortized over estimated useful lives ranging from 20 to 40 years
under the straight-line method.
Management of the Company evaluates the periods of goodwill amortization to
determine whether later events and circumstances warrant revised estimates of
useful lives. Management also evaluates whether the carrying value of goodwill
has become impaired. This evaluation is done by comparing the carrying
value of goodwill to the value of projected discounted net cash flow from
related operations
Liquor Licenses - Liquor licenses are being amortized over 40 years under the
straight-line method.
[2] Inventories
Inventories consist of the following:
Raw Materials $ 539,159
Finished Goods 1,222,114
Total $ 1,761,273
[3] Property, Plant and Equipment
The classification of property, plant and equipment together with their
estimated useful lives is as follows:
January 29, Estimated
1 9 9 5 Useful Life
Land $ 2,335,026 N/A
Buildings and Improvements 12,531,683 20 - 40 Years
Leasehold Improvements 886,210 Term of Lease
Furniture and Equipment 2,699,873 5 - 10 Years
China, Glassware and Utensils 105,830 *
Equipment Held Under Capital Leases 506,673 5 - 10 Years
Total $19,065,295
* Carried at original cost for each restaurant. All replacement purchases are
charged to expense as incurred.
Accumulated depreciation for equipment held under capital leases was $76,163 at
January 29, 1995, and the related depreciation expense was $53,126 and $12,990
for fiscal 1995 and 1994, respectively.
In June 1993, the Company sold a former restaurant located in Fort Myers,
Florida for $896,000 resulting in a gain of $71,318. The net cash proceeds were
used to pay off a mortgage on another restaurant owned by the Company.
In September 1994, the Company sold a former restaurant located in Quakerbridge,
New Jersey for $211,273 resulting in a gain of $76,467.
[4] Intangible Assets
Intangible assets consist of:
Liquor
Goodwill Licenses
Cost $ 4,123,453 $ 987,307
Less: Accumulated Amortization 594,594 210,276
Net $ 3,528,859 $ 777,031
Amortization of goodwill is $178,445 and $111,427 for fiscal 1995 and 1994,
respectively. Amortization of liquor licenses is $24,136 and $24,330 for fiscal
1995 and 1994.
[5] Notes and Mortgages Payable
Notes and mortgages payable as of January 29, 1995, are as follows:
Line of Credit, Due February 25, 1996, at prime plus
1-1/8%, collateralized by all corporate assets $ 1,225,000
Note Payable, Due November 25, 1995, at prime plus
1%, collateralized by real estate 233,000
Note Payable, Due February 1, 1996 at prime,
collateralized by real estate 225,000
Note Payable, Due September 30, 1997 at prime plus
1%, collateralized by real estate 150,000
Total 1,833,000
Less: Current Portion 333,000
Total Long-Term Debt $ 1,500,000
Availability under the line of credit at January 29, 1995, was $775,000. The
notes payable are due in periodic installments through the due dates. An
additional $200,000 was borrowed subsequent to year end. The prime rate at
January 29, 1995 was 8.5%.
The Company has an additional line of credit available which permits borrowings
up to a maximum of $350,000 at the bank's base rate of interest plus 1%. The
current line expires in June 1995. At January 29, 1995, there was no
outstanding balance under this line.
Annual maturities of debt as of January 29, 1995, are as follows:
1996 $ 333,000
1997 1,450,000
1998 50,000
1999 --
2000 --
Thereafter --
Total $ 1,833,000
[6] Capital Lease Obligations
The Company leases machinery and equipment under capital leases expiring in 2000
Future minimum payments by the Company under capital leases consist of the
following at January 29, 1995:
Payments Due in Fiscal:
1996 $ 121,834
1997 105,353
1998 91,404
1999 91,404
2000 24,254
Thereafter --
Total Minimum Lease
Payments 434,249
Amount Representing
Interest 65,822
Present Value of
Minimum Lease Payment 368,427
Less: Current Portion 93,286
Capital Lease
Obligations - Long-Term$275,141
[7] Transactions with Related Parties
Mr. Robert E. Brennan, a principal stockholder of the Company, is the principal
owner of a partnership known as Gourmet Associates, which leases the Vero Beach
Restaurant to the Company. The lease for Vero Beach is on a month-to-month
basis and requires monthly payments of $10,000. Total rent expense for Gourmet
Associates was $120,000 for both fiscal 1995 and 1994.
[8] Operating Leases
The Company leases restaurant, office and storage facilities, and equipment
under operating leases expiring at various times through the year 2000.
Minimum future rental payments under non-cancelable operating leases as of
January 29, 1995, are as follows:
Year ending January
1996 $ 320,452
1997 257,498
1998 232,524
1999 129,117
2000 104,463
Thereafter --
Total Minimum Future Rentals $ 1,044,054
Rent expense was $363,947 and $284,618 for fiscal 1995 and 1994, respectively.
[9] Earnings per Share
Earnings [loss] per share are based on weighted average number of shares
outstanding of 13,459,576 and 13,010,156 for fiscal years 1995 and 1994,
respectively. The effect of options or warrants is anti-dilutive.
[10] Stock Options
In June of 1982, the Company's Board of Directors adopted an incentive stock
option plan for key employees which was subsequently approved by the Company's
stockholders. All incentive options granted under the plan were intended to
qualify as incentive stock options under Section 422A of the Internal Revenue
Code. Under the plan, an aggregate of 166,667 shares of common stock were
reserved for issuance. Options may be exercised over a period of ten years from
the date of grant and expire in 1996 and 1999.
In October of 1994, the stockholders approved the grant of 650,000 options to
four directors to purchase the Company's stock at $1.25 per share. The options
are for five years.
The following is a summary of transactions:
Shares Under Options
1 9 9 5 1 9 9 4
Outstanding, beginning of year 156,334 156,334
Granted or Sold during the year 650,000 --
Cancelled during the year (1,000) --
Exercised during the year -- --
Outstanding, end of year [Option
prices range from $.328 to 1.25] 805,334 156,334
[11] Income Taxes
Effective February 1, 1993, the Company adopted FASB Statement No. 109,
"Accounting for Income Taxes." Under Statement 109, the asset and liability
method is used in accounting for income taxes. Under this method, deferred tax
assets and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.
At January 29, 1995, the Company has a deferral tax asset of approximately
$4,677,694 which was offset by a valuation allowance of the same amount. The
asset resulted from the availability of operating loss carryforwards and tax
credits and temporary differences primarily caused by using different
depreciation methods for financial reporting and income tax purposes of
approximately $280,000.
The Company has available at January 29, 1995, operating loss carryforwards and
unused investment credits expiring as follows:
Year of Unused Operating Unused
Expiration Loss Carryforwards Investment Credits
1997 $ -- $ 80,672
1998 289,544 71,197
1999 1,217,240 23,103
2000 2,341,860 27,682
2001 1,838,179 23,634
2002 1,509,463 --
2003 2,072,345 --
2004 2,942,316 --
2005 472,062 --
2009 118,411 --
2010 285,130 --
Totals $ 13,086,550 $ 226,288
[12] 52-53 Week Year
The Company's year end is the last Sunday in January. The statements of
operations are comprised of a 52-week year for fiscal 1995 and 1994.
[13] New Authoritative Pronouncements
The Financial Accounting Standards Board ["FASB"] has issued Statement of
Financial Accounting Standards ["SFAS"] No. 107, "Disclosure about Fair Value
of Financial Instruments", which the Company will adopt on January 28, 1996.
The FASB has also issued SFAS No. 119, "Disclosure about Derivative Financial
Instruments and Fair Value of Financial Instruments." While SFAS No. 119
primarily creates new disclosure requirements for derivative financial
instruments which the Company does not trade in at this time, the technical
disclosure amendments to SFAS No. 107 created by SFAS No. 119 will be
implemented on January 28, 1996. The Company adopted SFAS No. 109, "Accounting
for Income Taxes," on February 1, 1993. Since that implementation, the
Financial Accounting Standards Board has issued eleven new authorative
accounting pronouncements [SFASs]. These new pronouncements either do not apply
to the Company, will be implemented on the effective date as mentioned
previously, or will be implemented when the Company engages in applicable
transactions, such as making investments in certain debt and equity securities,
at which time the Company will implement SFAS No. 115. None of these applicable
accounting pronouncements is anticipated to have a material impact on the
Company's financial statements.
[14] Acquisition
On July 14, 1993, the Company acquired Mister Cookie Face for 1,000,000 shares
of its common stock as of June 30, 1993, 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, which will be amortized over 20 years under
the straight-line method. The results of operations of Mister Cookie Face, Inc.
are included in the consolidated statements of operations from July 1, 1993
onward.
On October 28, 1994, the Company purchased a liquor license and tradename from a
restaurant in New Jersey. The purchase price of $267,008 exceeded the fair
value of the assets acquired by $117,008, which is being amortized over 20 years
under the straight-line method.
[15] Capital Transactions
On June 8, 1993, the Company effected a one-for-three reverse stock split of its
outstanding common stock, .01 par value, without changing the par value of the
common stock. All share data has been adjusted to reflect this change.
[16] Registration Statement and SEC Investigation
In September 1993, the Company filed a registration statement which was
subsequently suspended by the Securities and Exchange Commission pending
completion of an investigation which is still ongoing. The Company incurred
approximately $270,750 in registration costs which were written-off in fiscal
1995.
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
None.
CHEFS INTERNATIONAL, INC.
PART III
Item 9. Directors and Executive Officers, Promoters
and Control Persons, Compliance with Section
16(a) of the Exchange Act
The following table sets forth certain information with
respect to each of the directors and executive officers of the
Company:
Name Age Office
Anthony Papalia 37 President, Treasurer, Chief
Executive Officer, Chief Financial
Officer and Director
James Fletcher 64 Vice President and Director
Martin W. Fletcher 42 Secretary and Director
Frank Koenemund 51 Director
Jack Mariucci 55 Director
____________
(a) James Fletcher is the father of Martin Fletcher.
The Company does not have an Executive Committee. The term of
office of each director and executive officer expires when his
successor is elected and qualified. Executive officers are elected
by and hold office at the discretion of the Board of Directors.
The following is a brief account of the business experience of
each director and executive officer of the Company during the past
five years.
Anthony Papalia has been continuously employed by the Company
for the preceding five years. He has served as a manager of
various New Jersey Lobster Shanty restaurants and as an area
supervisor. Mr. Papalia, who was elected senior vice president and
a director of the Company in September, 1985 and president and
treasurer in March, 1988, is currently devoting all of his working
time to the business of the Company. In July 1993, he was elected
an executive officer and a director of Mr. Cookie Face.
James Fletcher was elected a vice president of the Company on
February 10, 1978 and a director in December, 1978. In April, 1980
Mr. Fletcher became general manager of the Company's Florida
seafood restaurants. He is currently devoting all of his working
time to the business of the Company.
Martin Fletcher has been continuously employed by the Company
for the preceding five years in various capacities. He has served
as general manager of the Company's Toms River, New Jersey Lobster
Shanty, as area supervisor for its Florida west coast restaurants,
as assistant controller, since September, 1987 as controller and
since March 1988 as secretary and a director of the Company. He is
currently devoting all of his working time to the business of the
Company. In July 1993, he was elected an executive officer and a
director of Mr. Cookie Face.
Frank Koenemund was principally engaged from 1988 through 1991
as a principal of Thin's Inn and Thin N'Creamy, two New Jersey
entities packaging and selling diet cookies in various United
States markets. Since February 1992, Mr. Koenemund has been
principally engaged as sole owner and as an executive officer of
Mr. Cookie Face which was acquired by the Company in July 1993, at
which time, he was elected a director of the Company. He currently
devotes all of his working time to the business of the Company.
Jack Mariucci was principally engaged for more than the past
five years and until October 1994 as Executive Vice President and
Executive Creative Director of DDB Needham Worldwide - New York.
DDB Needham is a global advertising agency with offices in cities
throughout the world. Mr. Mariucci was also a member of the New
York Management Board of DDB Needham. Since October 1994, Mr.
Mariucci has been principally engaged as an independent marketing
consultant. He was elected a director of the Company in July 1993.
Compliance with Section 16 (a) of the Exchange Act
Based solely upon a review of Forms 3 and 4 and on
representations that no Forms 5 were required, the Company believes
that with respect to fiscal 1995, all Section 16(a) filing
requirements applicable to its officers, directors and beneficial
owners of more than 10% of its equity securities were timely
complied with except for late filings made in fiscal 1995 by
Messrs. Papalia, Martin Fletcher, Koenemund and Mariucci with
respect to stock options authorized at the Company's annual meeting
of stockholders held on October 3, 1994.
Item 10. Executive Compensation
The following table sets forth information concerning the
compensation paid or accrued by the Company during the three fiscal
years ended January 29, 1995 to its Chief Executive Officer as well
as to any other executive officer of the Company or a subsidiary
who earned at least $100,000 during fiscal 1995. During the three-
year period ended January 29, 1995, the Company did not grant any
restricted stock awards or have any long-term incentive plan in
effect. The Company maintains a Supplemental Employee Benefit
Program for its officers, supervisors, restaurant managers and
assistant managers paying annual contributions ranging from $1,000
to $2,000 per individual. The Program provides life insurance
death benefits, disability income benefits and retirement income
benefits. James Fletcher is not covered under this Program but the
Company has agreed if he remains in its employ until age 65 and
leaves such employ at any time thereafter, the Company will pay him
$20,000 annually for the ten year period following such termination
of employment or until his death, if he dies prior thereto. The
Company partially funds this obligation with an insurance policy
paying an annual premium of approximately $5,000.
SUMMARY COMPENSATION TABLE
Annual Compensation
Name and Fiscal Other Annual
Principal Position Year Salary Bonus Compensation
Anthony Papalia 1995 $110,600 $-0- $-0-
President and 1994 $107,139 $-0- $-0-
Chief Executive 1993 $ 97,439 $-0- $-0-
Officer
Frank Koenemund 1995 $100,000 $-0- $-0-
Chief Executive 1994 $ 84,878 $-0- $-0-
Officer of MCF 1993 -- $-0- $-0-
Long-Term
Compensation
Restric-
ted All
Name and Fiscal Options Stock LTIP Other
Principal Position Year SARs Awards Payouts Compensation
Anthony Papalia 1995 162,500* 0 $-0- $-0-
President and 1994 -0- 0 $-0- $-0-
Chief Executive 1993 -0- 0 $-0- $-0-
Officer
Frank Koenemund 1995 162,500* 0 $-0- $-0-
Chief Executive 1994 -0- 0 $-0- $-0-
Officer of MCF 1993 -0- 0 $-0- $-0-
_________
*Each exercisable to purchase one share of Common Stock at $1.25
per share.
Employment Agreement
None of the executive officers of Chefs or any of its
subsidiaries has an employment contract except for Frank Koenemund
who in connection with the Company's acquisition of Mr. Cookie Face
in July 1993, executed an approximately four and one-half year
employment contract with Mr. Cookie Face (through January 31, 1998)
agreeing to serve as president and chief executive officer and to
devote at least 90% of his working time to such duties. Pursuant
to the employment contract, Mr Koenemund is compensated at an
annual salary of $100,000 and is also entitled to an annual bonus
equal to the following percentages of Mr. Cookie Face's pre-tax
income (excluding extraordinary items) provided that no losses from
any fiscal period will be carried over to reduce profits in any
other fiscal period.
MCF Pre-Tax Income Percentage Bonus
On amounts up to $1,000,000 10%
On amounts in excess of $1,000,000
but not in excess of $2,000,000 7.5%
On amounts in excess of $2,000,000
but not in excess of $3,000,000 5%
On amounts in excess of $3,000,000 2.5%
Stock Options
On November 18, 1986, the Company's Board of Directors granted
Incentive Stock Options ("ISOs") exercisable to purchase an
aggregate 36,334 shares of Chefs's Common Stock at $.375 per share,
pursuant to the Company's 1982 Incentive Stock Option Plan (the
"Plan") to 27 employees including three officers. The options are
exercisable until ten years after the Date of Grant but only by the
employee (or his estate in the event of death). The Company's
three present executive officers each were granted options to
purchase 1,667 shares. On November 18, 1986, the closing bid price
for the Company's common stock on the NASDAQ system was $.375.
None of such options have been exercised to date and an aggregate
20,667 of such options have been cancelled due to terminations of
employment.
On November 3, 1989, the Company's Board of Directors granted
additional ISOs, identical in form and exercisable to purchase an
aggregate 146,334 shares of Common Stock at $.328125 per share
(equal to the mean between the closing bid price and the closing
asked price for the Common Stock on NASDAQ on November 2, 1989),
pursuant to the Plan, to ten employees including three officers.
Anthony Papalia, James Fletcher and Martin W. Fletcher were granted
36,667, 20,000 and 33,000 of these options, respectively. None of
such options have been exercised to date and an aggregate 6,664 of
such options have been cancelled due to terminations of employment.
On August 1, 1994 pursuant to the recommendation of the
Compensation Committee, Chefs' Board of Directors authorized the
grant to four key members of management of stock options
exercisable to purchase an aggregate 650,000 shares of Common
Stock, subject to stockholder approval. The options are each
exercisable over a term of five years from the date of stockholder
approval at an exercise price of $1.25 per share (the last sales
price for the Common Stock on the NASDAQ Small-Cap System on July
29, 1994, the last trading day prior to the date of grant). Each
option is non-transferable (except on death) and is exercisable by
the optionee only while serving as an officer, director or employee
of the Company or one of its subsidiaries. The grant of each of
said options was approved by stockholders at Chefs' annual meeting
of stockholders held on October 3, 1994. The optionees and the
number of shares issuable upon exercise of the options granted to
such optionees are as follows:
Optionee Number of Shares
Anthony Papalia 162,500
(President, Treasurer, CEO,
CFO and Director)
Martin Fletcher 162,500
(Secretary and Director)
Frank Koenemund 162,500
(President of Mr. Cookie Face
subsidiary and Director)
Jack Mariucci 162,500
(Director)
No stock options have been exercised during the three fiscal
years ended January 29, 1995. The Company's ISO Plan terminated in
August 1992.
The following table illustrates information concerning stock
option grants made during fiscal 1995 to each of the executive
officers named in the "Summary Compensation Table."
Option Grants in Fiscal 1995
Percent of
Number of Shares Total Options
of Common Stock Granted to Exercise Expir-
Underlying "Employees" Price ation
Name Options Granted in Fiscal Year Per Share Date
Anthony Papalia 162,500 33% $1.25 10/3/99
Frank Koenemund 162,500 33% $1.25 10/3/99
The following tables sets forth certain information concerning
unexercised options for each of the executive officers named in the
"Summary Compensation Table." No options were exercised in fiscal
1995.
1995 Fiscal Year-End Options Values
Number of Unexercised Options
at 1995 Fiscal Year-End
Value of
Unexercised
In-The-Money
Name Exercisable Unexercisable Options at 1/29/95(1)
Anthony Papalia 38,334 -0- $11,302.27
162,500 -0- -0-(2)
Frank Koenemund 162,500 -0- -0-(2)
____________
(1) Based upon the difference between the closing bid price for
the Common Stock in the over-the-counter market on the last trading
day preceding January 29, 1995 and the option exercise prices.
(2) The option exercise price exceeded the over-the-counter
market price referred to in footnote (1).
The foregoing table does not include stock options granted by
the Company's principal stockholder to purchase shares of Common
Stock owned by him. See "Item 12 - Certain Relationships and
Related Transactions."
Directors' Compensation
Directors who are not employees of the Company or its
subsidiaries are compensated at a monthly rate of $1,500.
Item 11. Security Ownership of Certain
Beneficial Owners and Management
The following table sets forth information as of March 31,
1995 with respect to their ownership of Chefs' Common Stock by (i)
each person known by the Company to be the beneficial owner of more
than 5% of Chefs' outstanding Common Stock, (ii) each director of
the Company, (iii) each executive officer of the Company, and (iv)
all directors and executive officers as a group. The percentages
have been calculated on the basis of treating as outstanding for a
particular holder, all shares of Chefs' Common Stock outstanding on
said date and all shares of Common Stock issuable to such holder in
the event of exercise or conversion of outstanding options,
warrants and convertible securities owned by such holder at said
date which are exercisable or convertible within 60 days of such
date.
Shares of
Name and Address of Common Stock Percentage
Beneficial Owner Beneficially Owned Ownership
Directors*
Anthony Papalia 1,200,834(1) 9%
James Fletcher 22,667(2) --
Martin Fletcher 697,167(3) 5%
Frank Koenemund 2,662,500(4) 20%
Jack Mariucci 412,500(5) 3%
All executive officers
and directors as a group
(five persons) 4,995,688(1)(2)(3)(4)(5) 35%
Other
Robert E. Brennan 5,299,667(6) 39%
50 Broadway
New York, New York 10004
____________
*The address of each executive officer and director is c/o the
Company, 62 Broadway, Point Pleasant Beach, New Jersey 08742.
(1) Includes 200,834 shares issuable upon exercise of stock
options granted by the Company and 1,000,000 shares issuable upon
exercise of options granted by Robert E. Brennan to purchase shares
of Chefs' Common Stock owned by him. See "Item 12 - Certain
Relationships and Related Transactions".
(2) Includes 21,667 shares issuable upon exercise of stock
options granted by the Company.
(3) Includes 197,167 shares issuable upon exercise of stock
options granted by the Company and 500,000 shares issuable upon
exercise of options granted by Robert E. Brennan to purchase shares
of Chefs' Common Stock owned by him. See "Item 12 - Certain
Relationships and Related Transactions."
(4) Includes 162,500 shares issuable upon exercise of stock
options granted by the Company, 1,000,000 shares of Chefs' Common
Stock issued in connection with the July 1993 acquisition of Mr.
Cookie Face and 1,500,000 shares issuable upon exercise of options
granted by Robert E. Brennan to purchase shares of Chefs' Common
Stock owned by him. See "Item 12 - Certain Relationships and
Related Transactions."
(5) Includes 162,500 shares issuable upon exercise of stock
options granted by the Company and 250,000 shares issuable upon
exercise of options granted by Robert E. Brennan to purchase shares
of Chefs' Common Stock owned by him. See "Item 12 - Certain
Relationships and Related Transactions."
(6) Includes 3,250,000 shares subject to options granted by
Robert E. Brennan to four of the five directors of the Company.
See "Item 12 - Certain Relationships and Related Transactions."
Robert E. Brennan through his stock ownership may be deemed
the controlling stockholder of the Company. However if the options
he has granted to Messrs. Papalia, Martin Fletcher, Koenemund and
Mariucci to purchase an aggregate 3,250,000 shares of his Chefs'
Common Stock are exercised in full, the management group of Messrs.
Papalia, Fletcher, Koenemund and Mariucci would to the best of
management's knowledge, based on the present number of outstanding
shares, collectively comprise the largest single ownership group of
Chefs' Common Stock.
Item 12. Certain Relationships and Related Transactions
Robert E. Brennan is a principal stockholder of the Company as
well as the owner of Gourmet Associates ("Gourmet") which has
leased the Vero Beach, Florida Lobster Shanty restaurant to the
Company since 1979. During the Company's two most recently
completed fiscal years and at present, the lease has been and
continues to be a month to month "net" lease at a monthly rental of
$10,000 with the Company also paying personal property taxes and
insurance thereunder. Management regards this lease to be
advantageous to the Company.
On July 23, 1993, Robert E. Brennan, granted options to
purchase an aggregate of 3,250,000 of his approximately 5,800,000
shares of Chefs Common Stock to Messrs. Koenemund, Papalia and
Martin Fletcher and to Jack Mariucci who became a Chefs' director
on July 14, 1993. The options granted are as follows:
No. of Option Expiration
Optionees Shares Price Date
Frank Koenemund 750,000 $5.50 7/23/95
750,000 $8.00 7/23/96
Anthony Papalia 500,000 $5.50 7/23/95
500,000 $8.00 7/23/96
Martin Fletcher 250,000 $5.50 7/23/95
250,000 $8.00 7/23/96
Jack Mariucci 125,000 $5.50 7/23/95
125,000 $8.00 7/23/96
The options granted to Messrs. Koenemund, Papalia and Fletcher
are exercisable solely while the optionee is employed by the
Company and/or a Company subsidiary and the options granted to Mr.
Mariucci are exercisable only while he is a director of the
Company. If all 3,250,000 options are exercised, the management
group of Messrs. Papalia, Fletcher, Koenemund and Mariucci would to
the best of management's knowledge, based on the present number of
outstanding shares, collectively comprise the largest single
ownership group of Chefs' Common Stock.
In February 1995, Mr. Cookie Face agreed to purchase certain
furniture, fixtures and equipment at a restaurant operated by a
corporation wholly-owned by Frank Koenemund in a strip mall in
Manalapan, New Jersey for $125,000. Chefs' management is of the
opinion that the replacement cost of such furniture, fixtures and
equipment approximated $125,000. Mr. Koenemund represented that
his approximate cost for same two and three years prior was also
$125,000. Mr. Cookie Face entered into a five-year lease for the
premises through January 31, 2000 to operate its first Mister
Cookie Face restaurant at such location at an annual rental
initially at approximately $32,000 and reducing to an annual rental
in the last year of $26,700. The restaurant is expected to open in
May 1995. See "Item 1 - Business - Ice Cream Operations."
Parents of the Company
Assuming non-exercise of the above described options, Anthony
Papalia, chief executive and chief financial officer of the Company
and Robert E. Brennan, the beneficial owner of 39% of the Company's
outstanding Common Stock may be deemed the "parents" or controlling
persons of the Company as that term is defined under the Securities
Act of 1933.
Item 13. Exhibits and Reports on Form 8-K
3.1 Certificate of Incorporation of the Company, as amended(A)
3.2 By-Laws of the Company, as amended(A)
4.1 Specimen Common Stock Certificate(A)
10.1 Monmouth Mall Shopping Center Lease(A)
10.2 Quaker Bridge Mall Lease(A)
10.3 Acquisition Agreement as of June 30, 1993 between the
Company and Frank Koenemund concerning the acquisition of
Mr. Cookie Face(B)
10.4 Employment Agreement as of June 30, 1993 between Mr.
Cookie Face and Frank Koenemund(B)
10.5 Revolving Credit Agreement dated February 25, 1994
between the Company and First Fidelity Bank, National
Association(C)
10.6 Acquisition Agreement dated April 8, 1994 between the
Company and Evelyn's Fish Market, Inc. for the
acquisition of "Evelyn's" restaurant in Belmar, N.J.(C)
10.7 Lease Agreement dated September 29, 1995 between Evelyn's
Associates and Chefs International, Inc. for "Lobster
Shanty" restaurant in Belmar, New Jersey.
22 Subsidiaries - The following table indicates the wholly
owned subsidiaries of the Company, their respective
states of incorporation, and (except for Mister Cookie
Face, Inc.) the restaurants operated by each
State of
Name Incorporation Restaurants
Chefs International Florida Lobster Shantys -
Palm Beach, Inc. Vero Beach and Jensen
Beach, Florida
Kev, Inc. New Jersey Lobster Shanty -
Pt. Pleasant Beach,
New Jersey
Robbins Parkway New Jersey Lobster Shanty - Toms
Realty Co., Inc. River, New Jersey
Hightstown REB, Inc. New Jersey Lobster Shanty -
Hightstown, New Jersey
Mister Cookie Face,Inc. New Jersey
____________
(A) Incorporated by reference to exhibit filed with the
Company's Registration Statement on Form SB-2 (File no. 33-66936)
(B) Incorporated by reference to exhibit filed with the
Company's current report on Form 8-K for July 23, 1993
(C) Incorporated by reference to exhibit filed with the
Company's annual report on Form 10-KSB for the fiscal year ended
January 30, 1994
The Company did not file any reports on Form 8-K during the
last quarter of the fiscal year ended January 29, 1995.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
(Registrant) Chefs International, Inc.
By /s/Anthony Papalia
Anthony C. Papalia, President
Date April 27, 1995
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the date
indicated.
By/s/Anthony Papalia By/s/Frank Koenemund
Anthony C. Papalia, Principal Frank Koenemund, Director
executive, financial and
accounting officer and director Date April 27, 1995
Date April 27, 1995
By/s/Martin Fletcher By/s/Jack Mariucci
Martin Fletcher, Director Jack Mariucci, Director
Date April 27, 1995 Date April 27, 1995
By/s/James Fletcher
James Fletcher, Director
Date April 27, 1995
<TABLE> <S> <C>
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET DATED JANUARY 29, 1995 AND THE CONSOLIDATED
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED JANUARY 29, 1995 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (257,130)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> 0
</TABLE>
