SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
( X )QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT
OF 1934
For the quarterly period ended JULY 28, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT
OF 1934
For the transition period from _________________ to _______________
Commission file number 0-8513
CHEFS INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 22-2058515
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
62 Broadway, Point Pleasant Beach, NJ 08742
(Address of principal executive offices)
(Registrant's telephone number, including area code) (908) 295-0350
-------------------------
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(Former name, former address and former fiscal year, if changes since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements of the past 90 days.
Yes X . No .
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the
latest practicable date:
Class Outstanding Shares at September 1, 1996
- ----------------------------------- -------------------------------
Common Stock, $.01 par value 13,466,319
1
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CHEFS INTERNATIONAL, INC.
I N D E X
PART I FINANCIAL INFORMATION PAGE NO.
Consolidated Balance Sheets - 1 - 2
July 28, 1996 and January 28, 1996
Consolidated Statements of Operations - 3
Six Months Ended July 28, 1996 and
July 30, 1995
Consolidated Statements of Cash Flows - 4
Six Months Ended July 28, 1996 and
July 30, 1995
Notes to Consolidated Financial Statements 5
Management's Analysis of Six Months' Income 6 - 8
Statement
PART II OTHER INFORMATION 9
2
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<TABLE>
PART I - FINANCIAL INFORMATION
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEETS
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July 28, 1996 January 28, 1996
(Unaudited)
<S> <C> <C>
Assets:
Current Assets:
Cash and Cash Equivalents $ 1,292,859 $1,411,154
Investments 100,000 350,000
Accounts Receivable [Net of Allowance of $41,950
and $15,000, Respectively] 1,148,728 494,326
Miscellaneous Receivables 371,567 102,714
Inventories 2,278,409 1,890,309
Prepaid Expenses 88,388 131,235
----------- ---------
Total Current Assets 5,379,951 4,379,738
----------- ---------
Property, Plant and Equipment - At Cost 19,851,283 19,032,083
Less: Accumulated Depreciation 7,064,063 6,543,545
----------- ---------
Property, Plant and Equipment - Net 12,787,220 12,488,538
----------- ----------
Other Assets:
Investments 506,000 356,000
Goodwill - Net 1,172,380 1,221,448
Liquor Licenses - Net 740,005 752,347
Due from Employees 4,540 5,818
Due from Related Parties 8,737 11,782
Deposits and Other Assets 56,017 92,954
----------- ---------
Total Other Assets 2,487,679 2,440,349
----------- ---------
Total Assets $20,654,850 $19,308,625
=========== ===========
The Accompanying Notes Are an Integral Part of These Financial Statements.
</TABLE>
1
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<TABLE>
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEETS
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July 28, 1996 January 28, 1996
(Unaudited)
<S> <C> <C>
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts Payable $ 1,848,872 $1,105,537
Accrued Expenses 1,035,356 708,255
Notes and Mortgages Payable to Banks 1,008,500 408,500
Capital Lease Obligations - Current 76,378 86,344
Other Liabilities 137,658 228,695
----------- ---------
Total Current Liabilities 4,106,764 2,537,331
----------- ---------
Long-Term Debt:
Due to Related Party 74,857 74,857
Notes and Mortgages Payable to Banks 978,583 1,341,500
Capital Lease Obligations - Long-Term 150,009 188,797
----------- ---------
Total Long-Term Debt 1,203,449 1,605,154
----------- ----------
Other Liabilities 82,396 82,396
----------- ---------
Commitments and Contingencies -- --
---------- ---------
Stockholders' Equity:
Capital Stock - Common, $.01 Par Value, Authorized 50,000,000
Shares; Issued and Outstanding 13,466,319 and 13,466,243,134,663 134,662
Respectively
Additional Paid-in Capital 32,214,706 32,214,707
Accumulated [Deficit] (17,087,128) (17,265,625)
----------- -----------
Total Stockholders' Equity 15,262,241 15,083,744
----------- ----------
Total Liabilities and Stockholders' Equity $20,654,850 $19,308,625
=========== ===========
The Accompanying Notes Are an Integral Part of These Financial Statements.
2
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CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
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Six Months Ended Three Months Ended
July 28, 1996 July 30, 1995 July 28, 1996 July 30, 1995
Sales $16,824,931 $18,911,096 $ 9,838,718 $10,411,368
Cost of Goods Sold 7,820,331 9,195,274 4,479,282 5,121,910
----------- ----------- ----------- -----------
Gross Profit 9,004,600 9,715,822 5,359,436 5,289,458
----------- ----------- ----------- -----------
Operating Expenses:
Payroll and Related Expenses 2,749,410 2,787,192 1,541,884 1,481,415
Other Operating Expenses 4,033,403 4,127,511 2,278,409 2,102,555
Depreciation and Amortization 622,967 677,733 320,753 345,107
General and Administrative 1,375,242 1,293,581 653,213 664,992
---------- ----------- ----------- -----------
Total Operating Expenses 8,781,022 8,896,017 4,794,259 4,594,069
----------- ----------- ----------- -----------
Income from Operations 223,578 819,805 565,177 695,389
----------- ----------- ----------- -----------
Other Income [Expense]:
Interest Expense (88,432) (116,209) (45,487) (58,674)
Interest Income 43,351 45,769 17,875 22,547
----------- ----------- ----------- -----------
Total Other [Expense] - Net (45,081) (70,440) (27,612) (36,127)
----------- ----------- ----------- -----------
Income Before Income Taxes 178,497 749,365 537,565 659,262
Income Tax Expense [Current] -- -- -- --
----------- ----------- ----------- -----------
Net Income $ 178,497 $ 749,365 $ 537,565 $ 659,262
=========== =========== =========== ===========
Net Income Per Share $ .01 $ .06 $ .04 $ .05
=========== =========== =========== ===========
Weighted Average Shares 13,466,319 13,459,576 13,466,319 13,459,576
=========== =========== =========== ===========
The Accompanying Notes Are an Integral Part of These Financial Statements.
3
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CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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Six Months Ended
July 28, 1996 July 30, 1995
<S> <C> <C>
Operating Activities:
Net Income $ 178,497 $749,365
----------- --------
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 622,967 677,733
Changes in Assets and Liabilities:
[Increase] Decrease in:
Inventories (388,100) (548,726)
Prepaid Expenses (57,153) (19,528)
Other Assets 41,260 (32,056)
Accounts Receivable (654,402) (855,234)
Miscellaneous Receivables (268,853) (63,974)
Increase [Decrease] in:
Accounts Payable 743,335 370,719
Accrued Expenses and Other Liabilities 236,064 576,895
----------- ---------
Total Adjustments 275,118 105,829
----------- ---------
Net Cash - Operating Activities 453,615 855,194
----------- ---------
Investing Activities:
Capital Expenditures (860,239) (546,347)
Sale or Redemption of Investments 100,000 --
----------- ---------
Net Cash - Investing Activities (760,239) (546,347)
----------- ---------
Financing Activities:
Repayment of Debt (286,671) (968,667)
Proceeds from Debt 475,000 900,000
----------- ---------
Net Cash - Financing Activities 188,329 (68,667)
----------- ---------
Net [Decrease] Increase in Cash and Cash Equivalents (118,295) 240,180
Cash and Cash Equivalents - Beginning of Quarter 1,411,154 1,408,957
----------- ---------
Cash and Cash Equivalents - End of Quarter $ 1,292,859 $1,649,137
=========== ==========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the quarter for:
Interest $ 84,576 $ 107,537
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
During fiscal 1996 the Company acquired equipment from a director/employee for
an interest free note valued at $74,857.
The Accompanying Notes Are an Integral Part of These Financial Statements.
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4
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CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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NOTE 1: BASIS OF PRESENTATION
The financial information included herein is unaudited, however,
such information reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
statement of results of the interim period.
The results of operations for the six month periods ended July 28,
1996 and July 30, 1995 are not necessarily indicative of the results to be
expected for the full year.
NOTE 2: EARNINGS PER SHARE
Earnings per share have been computed based on the weighted average
of outstanding common shares.
NOTE 3: INCOME TAXES
Effective January 1, 1993, the Company adopted FAS 109 "Accounting
for Income Taxes." The Company has a deferred tax asset of approximately
$4,990,600 arising from net operating loss carry forwards. However, due to the
uncertainty that the Company will generate income in the future sufficient to
fully or partially utilize these carry forwards, an allowance of $4,990,600 has
been established to offset this asset. The effect of adoption on current and
prior financial statements is immaterial.
5
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CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
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MANAGEMENT'S ANALYSIS OF SIX MONTH INCOME STATEMENT
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RESULTS OF OPERATIONS
For the six months ended July 28, 1996, the Company had sales of $16,824,900
a decrease of $2,086,100 versus the same period in 1995. For the quarter ended
July 28, 1996, sales were $9,838,700, $572,600 less than last year. Company
profits were $178,500 and $537,500 for the six months and quarter respectively
compared to $749,400 and $659,300 for the same periods last year. Segment
operating results are summarized below.
Restaurants
Restaurant sales were $9,257,100 for the six months and $5,422,200 for the
second quarter compared to $9,248,800 and $5,109,100 for the comparable periods
in fiscal 1996. The Company operated nine restaurants during the comparable
periods. However, fiscal 1997 sales include "Garcia's", the Company's first
Mexican restaurant, which opened at the beginning of the second quarter, while
fiscal 1996 sales included the Eatontown, New Jersey, LaCrepe, which was closed
in December of 1995. Garcia's had sales of $377,200 for the quarter ended July
28, 1996 while the LaCrepe restaurant had sales of $270,300 and $114,400
respectively for the six months and second quarter of fiscal 1996. For the eight
restaurants that operated during the comparative periods, sales were $102,500
lower for the more recent six month period and $46,400 higher for the quarter
ended July 28, 1996. The three Florida restaurants were up $210,100 and $105,000
while the five New Jersey restaurants were down $310,700 and $58,700
respectively due to the severe winter weather and according to the National
Weather Service, the wettest July in the Northeast since 1895.
Restaurant operations had net earnings of $150,200 for the six months ended
July 28, 1996 compared to net earnings of $304,000 for the same period in fiscal
1996. For the quarter, net earnings were $373,300 compared to $379,200 last
year. A majority of the difference can be attributed to $113,500 in start-up
costs associated with the opening of Garcia's.
Gross profit was 67% of sales for the six month period and 67.7% for the
quarter compared to 67% and 67.3% respectively for the fiscal 1996 periods. The
second quarter improvement primarily resulted from the addition of Garcia's
which has a lower cost of sales than the seafood restaurants. While seafood,
produce and dairy prices were higher in the current fiscal year. Management was
able to offset some of the higher costs with lower cost dinner specials and
modest menu price increases.
Payroll and related expenses were 29.7% of sales for six months and 28.4% for
the quarter compared to 29.3% and 27.8% last year. The increase resulted from
wage increases, higher insurance costs and higher initial payroll costs
associated with the opening of Garcia's. Other operating expenses were 21.5% of
sales for six months and 20% for the quarter compared to 20.6% and 19.3% last
year. The major components of the increase were higher occupancy costs and
Garcia's start-up costs. Depreciation and amortization expenses were lower by
$16,000 and $2,000 respectively for the six months and quarter compared to last
year, primarily as a result of the fiscal year end write down of $171,000 of
long-lived assets, primarily goodwill, resulting from the Company's adoption of
FASB 121 which offset depreciation expense increases resulting from capital
improvements, primarily the renovation of Garcia's. Administrative expenses were
$59,000 higher for the six months and $5,000 higher for the quarter than last
year's comparable periods. The major components of the increase were higher
group health insurance costs of $14,000 and $46,000 in increased payroll and
related expenses resulting from wage increases.
Interest expense was $3,000 less for the six month period and essentially the
same amount for the second quarter as compared to fiscal 1996. Debt reduction
and lower interest rates offset new interest costs associated with a three year
$350,000 loan, used to partially finance the renovation of Garcia's; and a
$100,000 short-term borrowing draw for working capital purposes on the Company's
$350,000 line of credit secured by the Toms River, New Jersey restaurant.
Interest income was $9,000 and $8,000 less for the two comparable periods due to
lower rates and less funds available for short-term investments.
6
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CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
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MANAGEMENT'S ANALYSIS OF SIX MONTH INCOME STATEMENT
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Mister Cookie Face ("MCF")
MCF sales were $7,567,700 for the six months and $4,416,400 for the quarter
compared to $9,662,300 and $5,302,200 for fiscal 1996. Due to working capital
shortages, MCF was unable to increase slotting fee payments or introduce a
variety of new products as originally planned. Management is continuing to
explore its options concerning the MCF business.
MCF had income of $28,200 and $164,200 for the six months and quarter ended
July 28, 1996, respectively, compared to income of $445,400 and $280,000 for the
same periods in fiscal 1996.
Gross profit was 37% of sales for the six months and 38% for the quarter
ended July 28, 1996 compared to 36.5% and 35% last year. Nationwide dairy
increases resulting in higher ice cream costs of 25% during the second quarter
were offset by lower direct labor and packaging costs and price increases in
selected markets.
Other operating expenses were 27% of sales for both the six month and three
month periods of 1996 compared to 23% and 21% last year. The primary component
of the increase was substantially higher promotional and advertising costs paid
to supermarket chains. Additionally, fixed operating costs such as slotting fees
and occupancy costs, were spread over much lower sales. Depreciation and
amortization expenses were $39,000 and $23,000 lower for the six months and
quarter due to the write down of approximately $2,000,000 in goodwill resulting
from the Company's adoption of FASB 121 at the year ended January 1996. General
and administrative expenses were higher by $23,000 for the six months but
$17,000 lower for the quarter compared to last year.
Interest expense was lower by $25,000 for the six months and $13,000 for the
quarter primarily due to a reduction in interest rates resulting from the
Company's restructuring of MCF debt in January 1996 with its primary bank.
During the second quarter, MCF sold its Mister Cookie Face restaurant, closed
since September of 1995, to an unaffiliated third party.
Liquidity and Capital Resources
The Company's ratio of current assets to current liabilities was 1.31:1 at
July 28, 1996, compared to 1.73:1 at the year ended January 28, 1996. Working
capital decreased by $569,200 due to capital expenditures of $860,200,
short-term borrowings of $100,000 , and the reclassification of the $500,000
balance due on the Company's $1,000,000 line of credit from long-term to
short-term offset, by operational profits. Capital expenditures included
$761,700 for restaurants, approximately $710,000 of which was for the Garcia's
renovations and $98,500 for MCF operations. The $100,000 short-term borrowing
was a draw on the Company's $350,000 bank line of credit and was used for
restaurant working capital purposes leaving an available balance of $250,000.
The Company has taken draws on its $1,000,000 bank line of $375,000 since the
year end for MCF working capital purposes leaving an available balance of
$500,000. During the corresponding six month period in fiscal 1996, working
capital decreased by $612,000 due to capital expenses of $546,000 and an
increase in short-term debt of $1,390,000 offset by profits of $749,000. Capital
expenses included $248,000 for restaurants and $298,000 for MCF.
During the second quarter of 1996, the Company's $350,000 bank line of credit
was renewed for another year.
7
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CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
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MANAGEMENT'S ANALYSIS OF SIX MONTH INCOME STATEMENT
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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 supply shortages.
The federal minimum wage rises to $4.75 an hour on October 2, 1996, and to
$5.15 in September 1997. Management anticipates that the increase should have a
minimal impact on the Company's payroll cost because the bulk of the Company's
minimum wage earners work in New Jersey where the State minimum wage is now
$5.05 an hour and because the new federal law freezes the cash wages of tipped
employees (as long as their tips and cash wages together, equal or exceed the
minimum wage).
8
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CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
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PART II - OTHER INFORMATION - None
SIGNATURE
Pursuant to the requirements of the securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHEFS INTERNATIONAL, INC.
/s/ Anthony C. Papalia
ANTHONY C. PAPALIA,
Principal Financial Officer
DATED: September 11, 1996
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<ARTICLE> 5
<LEGEND>
this schedule contains summary financial information extracted from the
consolidated balance sheet and the consolidated statement of operations and
is qualfied in its entirety by reference to such financial statements,
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> jan-28-1996
<PERIOD-END> jul-28-1996
<CASH> 1,292,859
<SECURITIES> 0
<RECEIVABLES> 1,190,678
<ALLOWANCES> 41,950
<INVENTORY> 2,278,409
<CURRENT-ASSETS> 5,379,951
<PP&E> 19,851,283
<DEPRECIATION> 7,064,063
<TOTAL-ASSETS> 20,654,850
<CURRENT-LIABILITIES> 4,106,764
<BONDS> 0
0
0
<COMMON> 134,663
<OTHER-SE> 15,127,578
<TOTAL-LIABILITY-AND-EQUITY> 20,654,850
<SALES> 9,838,718
<TOTAL-REVENUES> 9,838,718
<CGS> 4,479,282
<TOTAL-COSTS> 4,794,259
<OTHER-EXPENSES> (17,875)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 45,487
<INCOME-PRETAX> 537,565
<INCOME-TAX> 0
<INCOME-CONTINUING> 537,565
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 537,565
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
