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 27, 1997
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, 1997
- -------------------------------- ----------------------------------
Common Stock, $.01 par value 4,489,539
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 27, 1997 and January 26, 1997
Consolidated Statements of Operations - 3
Three Months Ended April 27, 1997 and
April 28, 1996
Consolidated Statements of Cash Flows - 4
Three Months Ended April 27, 1997 and
April 28, 1996
Notes to Consolidated Financial Statements 5
Management's Analysis of Three Months' Income 6 - 7
Statement
PART II OTHER INFORMATION 8
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 27, 1997 January 26, 1997
Assets: (Unaudited)
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 922,057 $ 951,668
Investments 156,000 160,000
Miscellaneous Receivables 159,264 147,101
Due on Sale of Discontinued Operations - Current 80,748 679,154
Inventories 858,739 925,463
Prepaid Expenses 169,555 88,509
------------ -----------
Total Current Assets 2,346,363 2,951,895
----------- -----------
Property, Plant and Equipment - At Cost 18,260,953 18,200,415
Less: Accumulated Depreciation 6,909,259 6,676,718
----------- -----------
Property, Plant and Equipment - Net 11,351,694 11,523,697
----------- -----------
Other Assets:
Investments 685,000 631,000
Goodwill - Net 550,517 557,364
Liquor Licenses - Net 721,492 727,663
Due on Sale of Discontinued Operations - Long-Term 487,798 508,593
Due from Related Parties 6,031 6,524
Deposits and Other Assets 35,434 38,333
-------------- -------------
Total Other Assets 2,486,272 2,469,477
----------- -----------
Total Assets $16,184,329 $16,945,069
=========== ===========
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 27, 1997 January 26, 1997
Liabilities and Stockholders' Equity: (Unaudited)
<S> <C> <C>
Current Liabilities:
Accounts Payable $ 882,846 $ 967,245
Accrued Payroll 101,140 134,954
Accrued Expenses 480,777 337,897
Notes and Mortgages Payable to Banks 408,500 1,008,500
Capital Lease Obligations - Current 80,748 79,154
Other Liabilities 174,596 246,304
----------- -----------
Total Current Liabilities 2,128,607 2,774,054
---------- ----------
Long-Term Debt:
Notes and Mortgages Payable to Banks 739,165 807,999
Capital Lease Obligations - Long-Term 88,848 109,643
------------ -----------
Total Long-Term Debt 828,013 917,642
----------- -----------
Other Liabilities 80,970 82,396
------------ ------------
Stockholders' Equity:
Capital Stock - Common, $.01 Par Value, Authorized 15,000,000
Shares; Issued and Outstanding 4,489,539 and 4,488,291
Respectively 44,895 44,883
Additional Paid-in Capital 32,304,474 32,304,486
Accumulated [Deficit] (19,202,630) (19,178,392)
---------- -----------
Total Stockholders' Equity 13,146,739 13,170,977
---------- ----------
Total Liabilities and Stockholders' Equity $16,184,329 $16,945,069
=========== ===========
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 27, 1997 April 28, 1996
<S> <C> <C>
Sales $ 4,354,317 $ 3,834,901
Cost of Goods Sold 1,421,007 1,289,652
------------ ------------
Gross Profit 2,933,310 2,545,249
------------ ------------
Operating Expenses [Income]:
Payroll and Related Expenses 1,301,890 1,207,526
Other Operating Expenses 976,630 903,721
Depreciation and Amortization 246,907 229,535
General and Administrative Expenses 437,811 441,367
------------- -------------
Total Operating Expenses 2,963,238 2,782,150
------------ ------------
[Loss] from Operations (29,928) (236,901)
------------- -----------
Other Income [Expense]:
Interest Expense (27,580) (11,713)
Interest Income 33,270 25,476
-------------- --------------
Other Income - Net 5,690 13,763
--------------- --------------
[Loss] from Continuing Operations
Before Taxes (24,238) (223,138)
Provision for Income Taxes - -
------------------ -------------
[Loss] from Continuing Operations (24,238) (223,138)
[Loss] from Operations of
Discontinued Ice Cream Business 0 (135,931)
------------------ ----------
Net [Loss] $ (24,238) $(359,069)
=========== =========
[Loss] Per Share from Continuing
Operations $ (.01) $ (.05)
------------- =============
Net [Loss] Per Share $ (.01) $ (.08)
============= =============
Weighted Average Shares 4,489,539 4,486,525
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
<S> <C> <C>
April 27, 1997 April 28, 1996
Operating Activities:
[Loss] from Continuing Operations $ (24,238) $ (223,138)
------------- ------------
Adjustments to Reconcile Net [Loss] to Net Cash
Provided by Continuing Operating Activities:
Depreciation and Amortization 246,907 229,535
Change in Assets and Liabilities:
[Increase] Decrease in:
Inventories 66,724 3,150
Prepaid Expenses (81,046) (92,353)
Other Assets 3,392 44,971
Miscellaneous Receivable (12,163) (25,221)
Increase [Decrease] in:
Accounts Payable (84,399) 271,891
Accrued Expenses and Other Liabilities 35,931 10,430
-------------- -------------
Total Adjustments 175,346 442,403
------------- ------------
Net Cash - Continuing Operations 151,108 219,265
------------ ------------
Discontinued Operations:
[Loss] from Discontinued Operations --- (135,931)
Depreciation and Amortization --- 72,679
[Increse] Decrease in Net Assets --- (242,017)
----------------- ----------
Net Cash - Discontinued Operations --- (305,269)
----------------- ----------
Investing Activities - Continuing Operations:
Capital Expenditures (61,886) (657,356)
Sale or Redemption of Investments (50,000) 50,000
Due on Sale of Discontinued Operations - Payments Received 619,201 ---
----------- -------
Net Cash - Investing Activities - Continuing Operations 507,315 (607,356)
----------- ----------
Investing Activities - Discontinued Operations:
Capital Expenditures --- (93,945)
---------------- -----------
Financing Activities - Continuing Operations:
Repayment of Debt (688,034) (86,562)
Proceeds from Debt --- 100,000
--------------- ----------
Net Cash - Financing Activities - Continuing Operations(688,034) 13,438
-------- -----------
Financing Activities - Discontinued Operations:
Repayment of Debt --- (6,321)
Proceeds from Debt --- 375,000
Net Cash - Financing Activities - Discontinued Operations 368,679
Net Increase [Decrease] in Cash and Cash Equivalents (29,611) (405,188)
Cash and Cash Equivalents - Beginning of Periods 951,668 1,378,814
Cash and Cash Equivalents - End of Periods $ 922,057 $ 973,626
========= =========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the years for:
Interest $ 25,495 $ 9,713
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
27, 1997 and April 28, 1996 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
$5,332,400 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 $5,332,400 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.
NOTE 5: DISCONTINUED OPERATIONS
On February 20, 1997 (as of January 26, 1997), the Company sold 95%
of the Common Stock of Mister Cookie Face, Inc. (MCF), its ice cream production
segment to a director for an aggregate purchase price of $1,600,000, consisting
of a $500,000 cash payment and three notes totaling $1,100,000. The notes are
secured by a first lien on all of MCF's assets, however, the Company has agreed
to subordinate its lien to any liens subsequently granted by MCF to its Senior
Bank or Institutional Lender but only with respect to a maximum aggregate
$1,750,000 of indebtedness. Based on the estimated present value of the
payments, management has set the aggregate value of the consideration at
$998,950. An additional amount of $188,797 is due from MCF representing the
balance due on two capital leases which the Company will continue to pay. MCF
has agreed to reimburse the Company for the payments. The equipment subject to
the lease was transferred by the Company as part of the sale. The 5% of MCF
capital stock retained by the Company has been valued at $35,000.
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
On February 20, 1997 (as of January 26, 1997) Chefs sold 95% of the
outstanding stock of its wholly-owned Mister Cookie Face, Inc. ("MCF")
subsidiary to a Chefs' director, Frank Koenemund. The statement of operations
for the quarter ended April 28, 1996 has been restated to reflect this
transaction as discontinued operations for comparative purposes.
For the quarter ended April 27, 1997, the Company realized a loss of $24,200
compared to a loss of $359,100 for the quarter ended April 28, 1996. The loss
for the first quarter of the prior year, includes a loss from the MCF
discontinued operations of $135,900.
The Company's continuing restaurant operations realized a loss of $24,200 for
the current year's first quarter compared to a loss of $223,100 for the same
period last year. Sales for the first quarter of the current year were
$4,354,300, an increase of $519,400 over sales for the first quarter of the
prior year of $3,834,900. The sales increase can be attributed primarily to the
mild winter in the Northeast this year versus last year, and the sales of
$234,300 at "Garcia's", the Company's Mexican restaurant, which opened during
the second quarter of last year. A majority of last year's restaurants loss was
$113,500 in start-up costs associated with the opening of Garcia's.
Gross profit was 67% of sales for the first quarter of the current year
compared to 66% for the corresponding first quarter one year ago. The
improvement primarily resulted from the addition of Garcia's which has a lower
cost of sales than the seafood restaurants.
Payroll and related expenses were 30% of sales for the first quarter of
fiscal 1998 compared to 31.5% in the first quarter of fiscal 1997. The increase
in sales was the primary reason for the improvement. Other operating expenses
were 22.4% of sales in the current fiscal quarter versus 23.6% in the
corresponding quarter last year. The fiscal 1998 sales increase and the
inclusion of start-up costs associated with Garcia's in fiscal 1997's first
quarter expenses account for the majority of this year's improvement.
Depreciation and amortization expenses were $17,400 more during the quarter
ended April 27, 1997 due to depreciation expenses charged to Garcia's.
Administrative expenses were approximately the same amount in each of the
comparative quarters.
Interest expense was $15,900 higher during this year's first quarter
primarily as a result of the interest expense associated with a bank term-loan
previously allocated to MCF operations. Interest income was $7,800 higher in
this year's first quarter due to interest on notes from the MCF sale.
Liquidity and Capital Resources
The Company's ratio of current assets to current liabilities was 1.10:1 at
April 27, 1997, compared to 1.06:1 at the year ended January 26, 1997. Working
capital was $217,700 at the end of the first quarter compared to $177,800 at the
year end. The primary components of the first quarter's cash flow statement were
routine capital expenditures of $61,900 for restaurant fixtures and
improvements, debt payment of $688,000 and payments of $619,200 received from
MCF. As per the terms of the sale, MCF paid the Company $500,000 in February at
the closing and $100,000 in March. The Company used the $600,000 to pay off
Chefs' outstanding indebtedness under its revolving line of credit with its
primary bank and the outstanding balance due on the Company's $350,000 secondary
line of credit. During the first quarter of 1996 working capital decreased by
$774,500 primarily as a result of capital expenditures of $657,400, $606,300 of
which was for Garcia's and the operational loss of $223,100.
Management anticipates that funds from operations will be sufficient to meet
obligations in fiscal 1998, including routine capital expenditures.
6
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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 will
increase to $5.15 per hour in September 1997.
7
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CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
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PART II - OTHER INFORMATION
Item I. Legal Proceedings
In May 1997, a lawsuit was filed in the Superior Court of New Jersey,
Chancery Division, Middlesex County (Docket No. C-133-97) by Michael F.
Lombardi, various Lombardi relatives, the law firm of Lombardi & Lombardi, P.A.
and the Lombardi & Lombardi, P.A. Defined Benefit Pension Plan (collectively the
"Lombardi Group") as plaintiffs, against the Company's five individual
directors, Anthony C. Papalia, James Fletcher, Martin Fletcher, Frank Koenemund
and Jack Mariucci (the "Director Group") and the Company's former wholly-owned
subsidiary, Mister Cookie Face, Inc. ("MCF") as defendants. Because the lawsuit
is a purported shareholder derivative action brought on behalf of the Company,
the Company is named as a nominal defendant.
The complaint alleges that certain corporate actions including the Company's
purchase of MCF in July 1993 from Frank Koenemund, the subsequent increase in
Mr. Koenemund's salary, a bonus payment made to Mr. Koenemund during fiscal 1996
and the February 1997 sale (as of January 26, 1997) by the Company of 95% of the
stock of MCF back to Mr. Koenemund constituted a waste of the Company's assets.
Among other remedies sought by the plaintiffs is a judgment finding that the
defendants "wasted" the Company's assets in violation of their fiduciary duties
and ordering them to account for damages incurred and profits lost by the
Company; a judgment declaring the Stock Purchase/Sale Agreement by which the
Company sold 95% of MCF to Mr. Koenemund in February 1997 to be null and void
"ab initio"; a judgment enjoining borrowings, fund raising or loan transactions
on behalf of MCF; a judgment enjoining Mr. Koenemund and MCF from transferring
encumbering, hypothecating or diluting the 950 shares of MCF stock transferred
to Mr. Koenemund in the February 1997 sale and placing a constructive trust on
said shares; a judgment enjoining Mr. Koenemund from transferring, encumbering,
hypothecating or diluting his approximately 7% stock ownership in the Company;
and in the alternative, a judgment awarding compensatory and/or punitive damages
against the defendants, jointly and severally in an amount to be determined at
trial. The plaintiffs have also asked for an award of costs and disbursements in
the lawsuit including a reasonable allowance for their attorneys' and experts'
fees, and such other or further relief as "may be just and proper under the
circumstances."
Although management intends to respond at an appropriate time to the
substance of the complaint, if required, the suit appears to be legally
deficient for several reasons and management intends to move with respect
thereto. Management notes that subsequent to the Company's 1993 acquisition of
MCF, the terms of which were fully disclosed, the Lombardi Group continued to
accumulate a substantial position in the Company's common stock through
purchases of same and according to the most recently filed amendment to its
Schedule 13D, the Lombardi Group appears to be the beneficial owner of
approximately 7.4% of the Company's outstanding Common Stock. In addition, in
October 1996, in an apparent effort to gain control of the Company, Michael F.
Lombardi wrote to the Company's attorneys stating a wish to explore with the
Company's Board of Directors, the possibility of the Lombardi Group purchasing
2,000,000 shares of the Company's Common Stock. Management rejected such
possibility.
This lawsuit is in its initial stages so that no assurances can be given as
to the eventual outcome.
8
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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.
---------------------------------
ANTHONY C. PAPALIA
Principal Financial Officer
DATED: ____________________
9
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(unaudited)
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> jan-28-1997
<PERIOD-END> apr-27-1997
<CASH> 922,057
<SECURITIES> 0
<RECEIVABLES> 159,264
<ALLOWANCES> 0
<INVENTORY> 858,739
<CURRENT-ASSETS> 2,346,363
<PP&E> 18,260,953
<DEPRECIATION> 6,909,259
<TOTAL-ASSETS> 16,184,329
<CURRENT-LIABILITIES> 2,128,607
<BONDS> 0
0
0
<COMMON> 44,895
<OTHER-SE> 13,101,844
<TOTAL-LIABILITY-AND-EQUITY> 16,184,329
<SALES> 4,354,317
<TOTAL-REVENUES> 4,354,317
<CGS> 1,421,007
<TOTAL-COSTS> 2,963,238
<OTHER-EXPENSES> (33,270)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,580
<INCOME-PRETAX> (24,238)
<INCOME-TAX> 0
<INCOME-CONTINUING> (24,238)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (24,238)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
