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 OCTOBER 27, 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 December 6, 1996
- ------------------------------------ --------------------------------------
Common Stock, $.01 par value 4,488,773
1
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CHEFS INTERNATIONAL, INC.
I N D E X
PART I FINANCIAL INFORMATION PAGE NO.
Consolidated Balance Sheets - 1 - 2
October 27, 1996 and January 28, 1996
Consolidated Statements of Operations - 3
Nine Months Ended October 27, 1996 and
October 29, 1995
Consolidated Statements of Cash Flows - 4
Nine Months Ended October 27, 1996 and
October 29, 1995
Notes to Consolidated Financial Statements 5
Management's Analysis of Nine Months' Income 6 - 8
Statement
PART II OTHER INFORMATION 9
2
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PART I - FINANCIAL INFORMATION
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEETS
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October 27, 1996 January 28, 1996
(Unaudited)
<S> <C> <C>
Assets:
Current Assets:
Cash and Cash Equivalents $ 1,060,079 $ 1,411,154
Investments 100,000 350,000
Accounts Receivable
[Net of Allowance of $65,095 and $15,000 Respectively] 419,715 494,326
Miscellaneous Receivables 393,613 102,714
Inventories 1,943,927 1,890,309
Prepaid Expenses 138,537 131,235
----------- -----------
Total Current Assets 4,055,871 4,379,738
---------- ----------
Property, Plant and Equipment - At Cost 19,991,560 19,032,083
Less: Accumulated Depreciation 7,355,513 6,543,545
----------- -----------
Property, Plant and Equipment - Net 12,636,047 12,488,538
---------- ----------
Other Assets:
Investments 656,000 356,000
Goodwill - Net 1,147,846 1,221,448
Liquor Licenses - Net 733,834 752,347
Due from Employees 3,470 5,818
Due from Related Parties 7,217 11,782
Deposits and Other Assets 77,927 92,954
----------- -----------
Total Other Assets 2,626,294 2,440,349
---------- ----------
Total Assets $19,318,212 $19,308,625
=========== ===========
The accompanying notes are an integral part of these financial statements.
1
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CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEETS
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October 27, 1996 January 28, 1996
(Unaudited)
<S> <C> <C>
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts Payable $1,033,447 $1,105,537
Accrued Expenses 833,171 708,255
Notes and Mortgages Payable to Banks 1,008,500 408,500
Capital Lease Obligations - Current 77,591 86,344
Other Liabilities 123,875 228,695
-------------- --------------
Total Current Liabilities 3,076,584 2,537,331
------------- -------------
Long-Term Debt:
Due to Related Party 70,333 74,857
Notes and Mortgages Payable to Banks 842,416 1,341,500
Capital Lease Obligations - Long-Term 130,027 188,797
-------------- --------------
Total Long-Term Debt 1,042,776 1,605,154
------------- -------------
Other Liabilities 82,396 82,396
--------------- ---------------
Commitments and Contingencies -- ---
---------------- ---------------------
Stockholders' Equity:
Capital Stock - Common, $.01 Par Value, Authorized 15,000,000
Shares; Issued and Outstanding 4,488,773 and 4,488,748,
Respectively (see Note 4) 44,888 44,888
Additional Paid-in Capital 32,304,481 32,304,481
Accumulated [Deficit] (17,232,913) (17,265,625)
------------ ------------
Total Stockholders' Equity 15,116,456 15,083,744
---------- ----------
Total Liabilities and Stockholders' Equity $19,318,212 $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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Nine Months Ended Three Months Ended
10/27/96 10/29/95 10/27/96 10/29/95
<S> <C> <C> <C> <C>
Sales $23,881,985 $26,686,422 $ 7,057,054 $ 7,775,326
Cost of Goods Sold 10,853,489 12,846,745 3,033,158 3,651,471
---------- ---------- ---------- ----------
Gross Profit $13,028,496 $13,839,677 $ 4,023,896 $ 4,123,855
---------- ---------- ---------- ----------
Operating Expenses:
Payroll and Related Expenses $ 4,127,254 $ 4,104,830 $ 1,377,844 $ 1,317,638
Other Operating Expenses 5,827,127 5,999,648 1,793,724 1,862,137
Depreciation and Amortization 945,124 1,025,108 322,157 347,375
General and Administrative Exp. 2,031,564 1,940,152 656,322 646,571
---------- ---------- ---------- ----------
Total Operating Expenses $12,931,069 $13,069,738 $ 4,150,047 $ 4,173,721
---------- ---------- ---------- ----------
Income (Loss) from Operations$ 97,427 $ 769,939 $ (126,151) $ (49,866)
------------- ------------ ---------- -----------
Other Income [Expense]:
Interest Expense $ (130,570) $ (164,381) $ (42,138) $ (48,172)
Interest Income 65,855 70,397 22,504 24,628
------------ ------------- ------------ ------------
Total Other [Expense] - Net $ (64,715) $ (93,984) $ (19,634) $ (23,544)
----------- ----------- ----------- -----------
Income (Loss) Before Income Taxes$ 32,712 $ 675,955 $ (145,785) $ (73,410)
Income Tax Expense [Current] --- --- --- ---
----------------- ------------- ---------------- --------------
Net Income (Loss) $ 32,712 $ 675,955 $ (145,785) $ (73,410)
============ =========== =========== ============
Net Income (Loss) Per Share $ .0$ .15$ (.03)$ (.02)
=============== =============== =============== ===============
Weighted Average Shares 4,488,773 4,486,538 4,488,773 4,486,538
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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Nine Months Ended
October 27, 1996 October 29, 1995
<S> <C> <C>
Operating Activities:
Net Income $ 32,712 $ 675,955
---------- ----------
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization $ 945,124 $1,025,108
Change in Assets and Liabilities:
[Increase] Decrease in:
Inventories (53,618) (329,058)
Prepaid Expenses (7,302) (53,299)
Other Assets 21,940 (39,561)
Accounts Receivable 74,611 (235,065)
Miscellaneous Receivables (290,899) 23,128
Increase [Decrease] in:
Accounts Payable (72,090) (422,973)
Accrued Expenses and Other Liabilities 15,572 680,338
----------- -----------
Total Adjustments $ 633,338 $ 648,618
--------- ----------
Net Cash - Operating Activities $ 666,050 $1,324,573
--------- ---------
Investing Activities:
Capital Expenditures $(1,000,518) $(656,114)
Purchase of Investments (50,000) ---
----------- -------------
Net Cash - Investing Activities $(1,050,518) $(656,114)
---------- --------
Financing Activities:
Repayment of Debt $ (441,607) $(1,396,090)
Proceeds from Debt 475,000 900,000
--------- ---------
Net Cash - Financing Activities $ 33,393 $ (496,090)
---------- ----------
Net Increase [Decrease] in Cash and Cash Equivalents $ (351,075) $ 172,369
Cash and Cash Equivalents - Beginning of Years $1,411,154 $1,408,957
--------- ---------
Cash and Cash Equivalents - End of Quarter $1,060,079 $1,581,326
========= =========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the quarter for:
Interest $ 126,398 $ 155,715
---------- ----------
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. During fiscal 1997 the Company
sold assets for a $149,713 receivable from a supplier which is being
amortized in
connection with discounts received on purchases.
The accompanying notes are an integral part of these financial statements.
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 nine month periods ended October
27, 1996 and October 29, 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 (see Note 4).
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
$5,048,900 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 $5,048,900 has
been established to offset this asset. The effect of adoption on current and
prior financial statements is immaterial.
NOTE 4: CAPITAL STRUCTURE
On November 7, 1996, the Company's stockholders approved a
one-for-three reverse stock split of the outstanding shares of the Company's
Common Stock, $.01 par value, without changing the par value of the Common
Stock. The one-for-three reverse split was effected at the close of business on
November 22, 1996. All share data has been adjusted to reflect this change [see
PART II - Other Information, Item 4 (c)].
5
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CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
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MANAGEMENT'S ANALYSIS OF NINE MONTH INCOME STATEMENT
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RESULTS OF OPERATIONS
For the nine months ended October 27, 1996, the Company had sales of
$23,882,000, a decrease of $2,804,400 versus the same period in 1995. For the
quarter ended October 27, 1996, sales were $7,057,100, $718,300 less than the
corresponding period in the prior year. The Company realized a profit of $32,700
for the nine month period compared to a profit of $676,000 for the corresponding
period in the prior year. For the quarter ended October 27, 1996, the Company
had a loss of $145,800 compared to a loss of $73,400 for the corresponding
period in the prior year.
Segment operating results are summarized below.
Restaurants
Restaurant sales were $14,060,200 for the nine months and $4,803,000 for the
third quarter compared to $13,807,700 and $4,558,900 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 $657,700 for its six months of
operation commencing at the beginning of the second quarter and $280,500 for the
quarter ended October 27, 1996 while the LaCrepe restaurant had sales of
$360,600 and $90,400 respectively for the nine months and third quarter of
fiscal 1996. For the eight restaurants that operated during the comparative
periods, sales were $44,600 lower during the current nine month period and
$54,000 higher for the quarter.
Restaurant operations had net earnings of $360,400 for the nine months ended
October 27, 1996 compared to net earnings of $467,600 for the same period in
fiscal 1996. For the quarter, net earnings were $210,200 compared to $163,600
for the corresponding period in the prior year. A majority of the year to date
difference can be attributed to $113,500 in start-up costs associated with the
opening of Garcia's.
Gross profit was 67.3% of sales for the nine month period and 67.6% for the
quarter compared to 66.9% and 66.8% respectively for the fiscal 1996 periods.
The 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 29.4% of sales for nine months and 28.7%
for the quarter compared to 29% and 28.4% for the corresponding periods in the
prior year. The increase resulted from wage increases and higher insurance
costs. Other operating expenses were 21.2% of sales for nine months and 20.6%
for the quarter compared to 20.5% and 20.4% 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 $17,300 and $1,200
respectively for the nine 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 $65,400
higher for the nine months and $6,700 higher for the quarter than last year's
comparable periods. The major components of the increase were higher group
health insurance costs of $15,000 and $65,000 in increased payroll and related
expenses resulting from wage increases.
Interest expense was essentially the same for the nine month period and
$2,900 higher for the third quarter as compared to fiscal 1996. Debt reduction
and lower interest rates offset new interest costs associated with a three year
6
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$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 $14,900 and $5,600 less for the two comparable periods in
the prior year due to lower rates and less funds available for short-term
investments.
Mister Cookie Face ("MCF")
MCF sales were $9,821,800 for the nine months and $2,254,000 for the quarter
compared to $12,878,700 and $3,216,400 for the corresponding periods in the
prior year. 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 its MCF
business.
MCF had losses of $327,700 and $356,000 for the nine months and quarter ended
October 27, 1996, respectively, compared to income of $208,400 and a loss of
$237,000 for the same periods in fiscal 1996.
Gross profit was 36.3% of sales for the nine months and 34.6% for the quarter
ended October 27, 1996 compared to 35.8% and 33.5% for the corresponding periods
in the prior year. Nationwide dairy price increases resulting in higher ice
cream costs were offset by lower direct labor and packaging costs and price
increases in selected markets.
Other operating expenses were 29% and 35.8% of sales for the nine month and
three month periods ended October 27, 1996 compared to 24.6% and 29% for the
corresponding periods in the prior 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 significantly lower sales. Depreciation and amortization
expenses were $62,600 and $24,000 lower for the current nine 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 $26,000 for the current nine months and
$3,000 higher for the current quarter compared to last year.
Interest expense was lower by $33,800 for the current nine months and $9,000
for the current quarter as compared to the corresponding periods in the prior
year 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 1.32:1 at
October 27, 1996, compared to 1.73:1 at the year ended January 28, 1996. Working
capital decreased by $836,100 due to capital expenditures of $1,000,500,
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
$900,100 for restaurants, approximately $710,000 of which was for the Garcia's
renovations and $100,400 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 nine month period in fiscal 1996, working
capital decreased by $512,100 due to capital expenses of $656,100 and an
increase in short-term debt of $1,023,500 offset by profits of $676,000. Capital
expenses included $358,100 for restaurants and $298,000 for MCF.
During the second quarter of fiscal 1997, the Company's $350,000 bank line of
credit was renewed for another year.
7
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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 federal minimum wage increased to $4.75 an hour on October 2, 1996, and
will increase to $5.15 in September 1997. Management anticipates that the
increase should have a minimal impact on the Company's payroll costs 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
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Registrant's Annual Meeting of Stockholders was held on
Thursday, November 7, 1996.
(b) At said meeting, the following five individuals were elected to serve as
directors until the next annual meeting of stockholders and until their
successors are elected and qualified.
Anthony Papalia
James Fletcher
Martin Fletcher
Frank Koenemund
Jack Mariucci
(c) At said meeting, 10,262,540 shares of Common Stock were voted in favor
and 242,684 shares of Common Stock were voted against a proposal to amend the
Registrant's Certificate of Incorporation to reduce the number of authorized
shares of Common Stock from 50,000,000 shares to 15,000,000 shares and to effect
a one-for- three reverse stock split of the outstanding shares of Common Stock,
so that said proposal was duly adopted by the affirmative vote of holders of a
majority of the outstanding Common Stock. The one-for-three reverse stock split
was effected at the close of business on November 22, 1996.
Item 6. Exhibits and Report on Form 8-K
(a) Exhibits
1. Notice, Proxy Statement and Form of Proxy for the Registrant's
Annual Meeting of Stockholders held on November 7, 1996 (previously filed).
(b) Reports on Form 8-K
The Registrant did not file any reports on Form 8-K during the
quarter for which this report is filed.
9
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CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
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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: DECEMBER 10 , 1996
------------------------
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> jan-28-1996
<PERIOD-END> oct-27-1996
<CASH> 1,060,079
<SECURITIES> 0
<RECEIVABLES> 484,810
<ALLOWANCES> 65,095
<INVENTORY> 1,943,927
<CURRENT-ASSETS> 4,055,871
<PP&E> 19,991,560
<DEPRECIATION> 7,355,513
<TOTAL-ASSETS> 19,318,212
<CURRENT-LIABILITIES> 3,076,584
<BONDS> 0
0
0
<COMMON> 44,888
<OTHER-SE> 15,071,568
<TOTAL-LIABILITY-AND-EQUITY> 19,318,212
<SALES> 7,057,054
<TOTAL-REVENUES> 7,057,054
<CGS> 3,033,158
<TOTAL-COSTS> 4,150,047
<OTHER-EXPENSES> (22,504)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,138
<INCOME-PRETAX> (145,785)
<INCOME-TAX> 0
<INCOME-CONTINUING> (145,785)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (145,785)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
