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 APRIL 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 June 5, 1996
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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
April 28, 1996 and January 28, 1996
Consolidated Statements of Operations - 3
Three Months Ended April 28, 1996 and
April 30, 1995
Consolidated Statements of Cash Flows - 4 - 5
Three Months Ended April 28, 1996 and
April 30, 1995
Notes to Consolidated Financial Statements 6
Management's Analysis of Three Months' Income 7 - 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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April 28, 1996 January 28, 1996
(Unaudited)
Assets:
Current Assets:
Cash and Cash Equivalents $989,876 $1,411,154
Investments 250,000 350,000
Accounts Receivable [Net of Allowance of $47,035
and $15,000 Respectively] 683,592 494,326
Miscellaneous Receivables 127,935 102,714
Inventories 2,158,792 1,890,309
Prepaid Expenses 198,882 131,235
-------- ---------
Total Current Assets 4,409,077 4,379,738
--------- ---------
Property, Plant and Equipment - At Cost 19,782,302 19,032,083
Less: Accumulated Depreciation 6,813,972 6,543,545
--------- ---------
Property, Plant and Equipment - Net 12,968,330 12,488,538
---------- ----------
Other Assets:
Investments 406,000 356,000
Goodwill - Net 1,196,914 1,221,448
Liquor Licenses - Net 746,176 752,347
Due from Employees 4,195 5,818
Due from Related Parties 10,251 11,782
Deposits and Other Assets 55,778 92,954
-------- ---------
Total Other Assets 2,419,314 2,440,349
--------- ---------
Total Assets $19,796,721 $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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April 28, 1996 January 28, 1996
(Unaudited)
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts Payable $1,579,909 $1,105,537
Accrued Payroll 146,014 144,487
Accrued Expenses 613,268 563,768
Notes and Mortgages Payable to Banks 508,500 408,500
Capital Lease Obligations - Current 81,495 86,344
Other Liabilities 168,345 228,695
-------- ---------
Total Current Liabilities 3,097,531 2,537,331
--------- ---------
Long-Term Debt:
Due to Related Party 74,857 74,857
Notes and Mortgages Payable to Banks 1,647,666 1,341,500
Capital Lease Obligations - Long-Term 169,596 188,797
-------- ---------
Total Long-Term Debt 1,892,119 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, Respectively 134,663 134,662
Additional Paid-in Capital 32,214,706 32,214,707
Accumulated [Deficit] (17,624,694) (17,265,625)
----------- -----------
Total Stockholders' Equity 14,724,675 15,083,744
---------- ----------
Total Liabilities and Stockholders' Equity $19,796,721 $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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Three Months Ended
April 28, 1996 April 30, 1995
Sales $6,986,213 $8,499,726
Cost of Goods Sold 3,341,049 4,073,364
--------- ---------
Gross Profit 3,645,164 4,426,362
--------- ---------
Operating Expenses [Income]:
Payroll and Related Expenses 1,207,526 1,305,777
Other Operating Expenses 1,754,995 2,009,955
Depreciation and Amortization 302,214 332,626
General and Administrative Expenses 722,029 653,589
--------- ---------
Total Operating Expenses 3,986,764 4,301,947
--------- ---------
Income [Loss] from Operations (341,600) 124,415
--------- ---------
Other Income [Expense]:
Interest Expense (42,945) (57,535)
Interest Income 25,476 23,223
--------- ---------
Total Other [Expense] - Net (17,469) (34,312)
--------- ---------
Income [Loss] Before Taxes (359,069) 90,103
Provision for Income Taxes -- --
--------- ---------
Net Income [Loss] $(359,069) $ 90,103
========= =========
Net Income [Loss] Per Share $ (.03) $ .01
========= =========
Weighted Average Shares 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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Three Months Ended
April 28, 1996 April 30, 1995
Operating Activities:
Net Income [Loss] $(359,069) $ 90,103
--------- --------
Adjustments to Reconcile Net Income [Loss] to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 302,214 332,626
Change in Assets and Liabilities:
[Increase] Decrease in:
Inventories (268,483) (211,901)
Prepaid Expenses (67,647) (22,457)
Other Assets 40,330 (32,789)
Accounts Receivable (189,266) (1,022,530)
Miscellaneous Receivable (25,221) 6,148
Increase [Decrease] in:
Accounts Payable 474,372 299,083
Accrued Expenses and Other Liabilities (9,324) 409,124
Total Adjustments 256,975 (242,696)
--------- ---------
Net Cash - Operating Activities (102,094) (152,593)
--------- ---------
Investing Activities:
Capital Expenditures (751,301) (376,093)
Sale or Redemption of Investments 50,000 --
--------- ---------
Net Cash - Investing Activities (701,301) (376,093)
--------- ---------
Financing Activities:
Repayment of Debt (92,883) (563,072)
Proceeds from Debt 475,000 700,000
--------- ---------
Net Cash - Financing Activities 382,117 136,928
--------- ---------
Net Increase [Decrease] in Cash and Cash Equivalents(421,278)(391,758)
Cash and Cash Equivalents - Beginning of Periods1,411,154 1,408,957
Cash and Cash Equivalents - End of Periods $ 989,876 $1,017,199
========= ==========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the periods for:
Interest $ 38,945 $ 46,876
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.
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 three month periods ended April 28,
1996 and April 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 $5,205,600
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 $5,205,600 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 THREE MONTH INCOME STATEMENT
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RESULTS OF OPERATIONS
For the quarter ended April 28, 1996, the Company realized a loss of
$359,100 compared to income of $90,100 for the first quarter last year. Total
sales for the quarter were $6,986,200, a decrease of $1,513,500 versus last
year. Segment results are summarized below.
Restaurants
Restaurant operations sustained a loss of $223,100 for the quarter ended
April 28, 1996 compared to a loss of $75,200 for 1995. A majority of the loss
can be attributed to $113,500 in start-up costs associated with the opening of
"Garcia's", the Company's first Mexican restaurant which opened at the beginning
of the second quarter. Restaurant sales for the first quarter were $3,834,900, a
decrease of $304,800 versus 1995. The severe winter storms in the Northeast and
the loss of sales of $155,800 at the Eatontown, New Jersey, LaCrepe restaurant
which was closed in December of 1995, accounted for the sales decline.
Gross profit was 66% of sales, the same as the first quarter of last
year.
Payroll and related expenses were 31.5% of sales, slightly higher than
the 31.2% of sales in 1995. The main reasons for the increase was the decrease
in sales and the payroll costs associated with the opening of "Garcia's". Other
operating expenses were 23.6% of sales compared to 22.1% for 1995. The decrease
in sales and "Garcia's" start-up costs account for the increase. Depreciation
and amortization expenses were $14,200 less during the quarter ended April 28,
1996 primarily due to the fiscal 1996 year end write down of $171,000 of
long-lived assets, primarily goodwill, resulting from the Company's adoption of
Statement of Financial Accounting Standards No. 121, "Accounting for Impairment
of Long-Lived Assets and Long-Lived Assets To Be Disposed Of" (FASB 121).
Administrative expenses were $53,500 higher this year primarily resulting from
higher group health insurance costs of $18,000 and $31,000 in increased payroll
and related expenses resulting from wage increases.
Interest expense was $3,300 less during this year's first quarter due to
debt reduction and lower interest rates offset by interest costs associated with
a three-year $350,000 bank loan used to partially finance the renovation of
"Garicia's". Interest income was essentially the same amount for the comparative
periods.
Mister Cookie Face ("MCF")
MCF sustained a loss of $135,900 for the quarter ended April 28, 1996
compared to income of $165,300 in 1995. Sales decreased by $1,208,700 to
$3,151,300 primarily as a result of inadequate funding necessary to maintain
market share through promotions and slotting fees for shelf space in
supermarkets. The core six-pack sandwich business decreased during the first
quarter and the new MCF product, "The Pail", introduced during the fourth
quarter of fiscal 1996, has met with disappointing results. MCF has been able to
introduce its products, primarily the singles (for sale in convenience stores),
into a few new markets.
Gross profit was 35% of sales this year compared to 38.4% last year. The
primary reason for the decrease was higher promotional price discounts given to
supermarket chains.
Other operating expenses were 27% of sales in 1996 compared to 25.7% in
1995. The large drop in sales accounted for the increase because fixed operating
expenses, such as slotting fees, were spread over much lower sales. Depreciation
and amortization costs were $16,000 lower during this year's first quarter due
to the fiscal 1996 year end write down of approximately $2,000,000 in goodwill
in connection with the adoption of FASB 125. General and administrative expenses
were $40,000 higher this year primarily due to increased payroll and related
expenses of $26,000 and higher travel and entertainment costs of $17,000 due to
increased marketing efforts including overseas.
Interest expense was $11,300 lower due to a reduction in interest rates.
The lower rates took effect in January 1996 when the Company was able to
restructure MCF debt with its primary bank.
6
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Liquidity and Capital Resources
The Company's ratio of current assets to current liabilities was 1.42:1
at April 28, 1996, compared to 1.73:1 at the year ended January 28, 1996.
Working capital decreased by $530,800 during the first quarter primarily due to
the operational loss, capital expenditures of $751,300 and short-term borrowings
of $100,000 offset by $375,000 in long-term borrowings. Capital expenditures
included $657,400 for the restaurants, $606,300 of which was for "Garcia's" and
$93,900 for MCF operations. The $100,000 short-term borrowing was a draw on the
$350,000 line of credit secured by the Toms River, New Jersey restaurant and was
used for restaurant working capital leaving an available balance of $250,000.
The $375,000 long-term borrowings were draws on the $1,000,000 line of credit
and were used for MCF working capital needs leaving an available balance of
$500,000. During the first quarter of 1995 working capital decreased by
$1,411,300 primarily due to profits offset by capital expenditures of $376,000
and an increase in short-term debt of $1,500,000.
Management anticipates that funds from operations and the two lines of
credit will be sufficient to meet obligations in fiscal 1997, including routine
capital expenditures and the completion of the "Garcia's" renovations.
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, primarily in dairy products, due to
the severe Midwest drought. Additionally, management anticipates that Congress
will pass legislation to increase the minimum wage which should not affect
payroll costs in a material way.
7
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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.
---------------------------------
ANTHONY C. PAPALIA
Principal Financial Officer
DATED: ____________________
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OD OPERATIONS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> jan-28-1996
<PERIOD-END> apr-28-1996
<CASH> 989,876
<SECURITIES> 0
<RECEIVABLES> 749,492
<ALLOWANCES> 62,035
<INVENTORY> 2,158,792
<CURRENT-ASSETS> 4,409,077
<PP&E> 19,782,302
<DEPRECIATION> 6,813,972
<TOTAL-ASSETS> 19,796,721
<CURRENT-LIABILITIES> 3,097,531
<BONDS> 0
0
0
<COMMON> 134,663
<OTHER-SE> 14,590,012
<TOTAL-LIABILITY-AND-EQUITY> 19,796,721
<SALES> 6,986,213
<TOTAL-REVENUES> 6,986,213
<CGS> 3,341,049
<TOTAL-COSTS> 3,986,764
<OTHER-EXPENSES> (25,476)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,945
<INCOME-PRETAX> (359,069)
<INCOME-TAX> 0
<INCOME-CONTINUING> (359,069)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (359,069)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
