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 26, 1998
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) (732) 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 2, 1998
- --------------------------------------- ----------------------------------
Common Stock, $.01 par value 4,488,444
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 26, 1998 and January 25, 1998
Consolidated Statements of Operations - 3
Three Months Ended April 26, 1998 and
April 27, 1997
Consolidated Statements of Cash Flows - 4
Three Months Ended April 26, 1998 and
April 27, 1997
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 26, 1998 January 25, 1998
Assets: (Unaudited)
Current Assets:
Cash and Cash Equivalents $ 950,794 $ 1,136,063
Investments 350,000 196,000
Miscellaneous Receivables 68,099 66,228
Inventories 1,058,526 1,039,203
Due on Sale of Discontinued Operations
from Related Party - Current 298,698 297,441
Prepaid Expenses 166,503 98,547
------------ -------------
Total Current Assets 2,892,620 2,833,482
----------- -----------
Property, Plant and Equipment - At Cost 18,815,358 18,591,633
Less: Accumulated Depreciation 7,472,884 7,234,384
----------- -----------
Property, Plant and Equipment - Net 11,342,474 11,357,249
---------- ----------
Other Assets:
Investments 535,000 685,000
Goodwill - Net 523,124 529,972
Liquor Licenses - Net 696,808 702,979
Due on Sale of Discontinued Operations
from Related Party - Long-Term 168,164 222,866
Cash Surrender Value of Life Insurance 406,438 406,438
Due from Related Parties 4,190 4,702
Other 36,068 62,144
------------ ------------
Total Other Assets 2,369,792 2,614,101
---------- ----------
Total Assets $16,604,886 $16,804,832
=========== ===========
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 26, 1998 January 25, 1998
Liabilities and Stockholders' Equity: (Unaudited)
Current Liabilities:
Accounts Payable $ 805,889 $ 945,067
Accrued Payroll 101,178 120,470
Accrued Expenses 446,855 305,688
Notes and Mortgages Payable to Banks 630,000 630,000
Capital Lease Obligations - Current 87,454 85,727
Other Liabilities 196,479 281,435
----------- -----------
Total Current Liabilities 2,267,855 2,368,387
---------- ----------
Long-Term Debt:
Notes and Mortgages Payable to Banks 774,664 819,998
Capital Lease Obligations - Long-Term 1,394 23,916
------------- ------------
Total Long-Term Debt 776,058 843,914
----------- -----------
Other Liabilities 455,103 457,806
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Stockholders' Equity:
Capital Stock - Common, $.01 Par Value,
Authorized 15,000,000 Shares; Issued and
Outstanding 4,488,444 and 4,488,347
Respectively 44,884 44,883
Additional Paid-in Capital 32,304,485 32,304,486
Accumulated [Deficit] (19,243,499) (19,214,644)
----------- -----------
Total Stockholders' Equity 13,105,870 13,134,725
---------- ----------
Total Liabilities and Stockholders' Equity $16,604,886 $16,804,832
=========== ===========
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 26, 1998 April 27, 1997
Sales $ 4,528,418 $ 4,354,317
Cost of Goods Sold 1,455,016 1,421,007
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Gross Profit 3,073,402 2,933,310
------------ -------------
Operating Expenses:
Payroll and Related Expenses 1,361,073 1,301,890
Other Operating Expenses 1,029,036 976,630
Depreciation and Amortization 251,519 246,907
General and Administrative Expenses 465,104 437,811
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Total Operating Expenses 3,106,732 2,963,238
------------ -------------
[Loss] from Operations (33,330) (29,928)
------------ -------------
Other Income [Expense]:
Interest Expense (29,967) (27,580)
Interest Income 34,442 33,270
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Other Income - Net 4,475 5,690
------------ -------------
[Loss] from Operations
Before Income Taxes (28,855) (24,238)
Provision for Income Taxes - -
------------ -------------
Net [Loss] $ (28,855) $ (24,238)
============ =============
Basic [Loss] Per Common Share $ (.01) $ (.01)
============ =============
Weighted Average Shares 4,488,444 4,488,291
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 26, 1998 April 27, 1997
Operating Activities:
Net [Loss] $ (28,855) $ (24,238)
---------- ----------
Adjustments to Reconcile Net [Loss] to Net
Cash Provided by Operating Activities:
Depreciation and Amortization 251,519 246,907
Change in Assets and Liabilities:
[Increase] Decrease in:
Inventories (19,323) 66,724
Prepaid Expenses (67,956) (81,046)
Other Assets 26,588 3,392
Miscellaneous Receivable (1,871) (12,163)
Increase [Decrease] in:
Accounts Payable (139,178) (84,399)
Accrued Expenses and Other Liabilities 34,215 35,931
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Total Adjustments 83,994 175,346
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Net Cash From Operations 55,140 151,108
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Investing Activities:
Capital Expenditures (223,725) (61,886)
Sale or Redemption of Investments (4,000) (50,000)
Due on Sale of Discontinued Operations -
Payments Received 53,445 619,201
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Net Cash - Investing Activities (174,280) 507,315
---------- ----------
Financing Activities:
Repayment of Debt (66,129) (688,034)
Proceeds from Debt --- ---
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Net Cash - Financing Activities (66,129) (688,034)
---------- ----------
Net [Decrease] in Cash and Cash Equivalents (185,269) (29,611)
Cash and Cash Equivalents - Beginning of Periods 1,136,063 951,668
---------- ----------
Cash and Cash Equivalents - End of Periods $ 950,794 $ 922,057
========== ==========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the periods for:
Interest $ 27,702 $ 25,495
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
26, 1998 and April 27, 1997 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
$4,481,600 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 $4,481,600 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 set the aggregate value of the consideration at $998,950.
An additional amount of $188,797 was due from MCF representing the balance due
on two capital leases which the Company will continue to pay. MCF agreed to
reimburse the Company for the payments. The total net amount due from MCF at
April 26, 1998 was $466,862. 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
Company sales were $4,528,400 for the quarter ended April 26, 1998, an
increase of $174,100 or 4% over the year-ago period in 1997. The number of
customers served increased by 1% during this year's first quarter and there was
an increase of approximately 3% in the average check per customer. The Company
operated the same nine restaurants during the comparative periods.
The Company realized a net loss of $28,800 for the current year's first
quarter compared to a net loss of $24,200 for the same period last year. Gross
profit was 67.9% of sales this year compared to 67.4% for the corresponding
first quarter last year. The improvement can be attributed to the addition of
low cost menu items.
Payroll and related expenses were 30% of sales for both this year's and last
year's first quarter. Other operating expenses were 22.7% of sales, slightly
higher than 22.4% for last year. The primary reason for the difference was an
increase in advertising at Garcia's, the Company's Mexican restaurant.
Depreciation and amortization expenses were $4,600 more during the quarter ended
April 26, 1998 due to capital expenditures of approximately $425,000 at the Vero
Beach, Florida, and Toms River, New Jersey restaurants during the latter part of
last year. General and administrative expenses were $27,000 higher in the
current quarter versus last year. Increases in training and recruiting expenses,
and legal fees account for the majority of the increase.
Interest expense was $2,400 higher during this year's first quarter primarily
as a result of the interest expense associated with a December 1997 loan used to
partially fund the Toms River renovation. Interest income was approximately the
same amount as last year.
Liquidity and Capital Resources
The Company's ratio of current assets to current liabilities was 1.28:1 at
April 26, 1998, compared to 1.20:1 at the year ended January 25, 1998. Working
capital was $624,700 at April 26, 1998 compared to $465,100 at the year end. The
primary components of the first quarter's cash flow were a reduction in accounts
payable of $139,100, capital expenditures of $223,700, primarily for the Toms
River interior renovation and outdoor dining area, and debt payment of $66,100.
Additionally, the Company received $53,400 in payments on notes receivable from
the sale of its Mister Cookie Face ("MCF") subsidiary which was sold on February
20, 1997 (as of January 26, 1997.) During last year's first quarter the primary
cash flow components were routine capital expenditures of $61,900 for
restaurants, debt payment of $688,000 and payments of $619,200 received from the
sale of MCF.
Subsequent to April 26, 1998, the Company purchased a property next to the
Toms River restaurant for $155,000. There are no immediate plans to develop the
property at this time. The purchase was partially funded with a new four-year
$124,000 term loan.
Management anticipates that funds from operations will be sufficient to meet
obligations in fiscal 1999, including routine capital expenditures.
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.
6
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CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
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PART II - OTHER INFORMATION
ITEM 5: OTHER INFORMATION
One June 2, 1998, the registrant announced that it had been notified that The
Nasdaq Stock market, Inc. intends to initiate proceedings to delist its common
stock from The Nasdaq ("Small Cap") Stock Market due to the failure of the
common stock to maintain a $1 minimum bid price in over-the-counter trading. The
registrant has requested a Nasdaq hearing to attempt to obtain a temporary
exception to the minimum bid price requirement. No assurance can be given that
it will be successful. In the event the common stock is delisted from Nasdaq, it
is expected to trade on the OTC Bulletin Board under the symbol "CHEF."
7
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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: June 9, 1998
8
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet and the consolidated statement of operations and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> Jan-31-1998
<PERIOD-END> Apr-26-1998
<CASH> 950,794
<SECURITIES> 885,000
<RECEIVABLES> 68,099
<ALLOWANCES> 0
<INVENTORY> 1,058,526
<CURRENT-ASSETS> 2,892,620
<PP&E> 18,815,358
<DEPRECIATION> 7,472,884
<TOTAL-ASSETS> 16,604,886
<CURRENT-LIABILITIES> 2,267,855
<BONDS> 0
0
0
<COMMON> 44,884
<OTHER-SE> 13,060,986
<TOTAL-LIABILITY-AND-EQUITY> 16,604,886
<SALES> 4,528,418
<TOTAL-REVENUES> 4,528,418
<CGS> 1,455,016
<TOTAL-COSTS> 1,455,016
<OTHER-EXPENSES> 3,106,732
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,967
<INCOME-PRETAX> (28,855)
<INCOME-TAX> 0
<INCOME-CONTINUING> (28,855)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (28,855)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
