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 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)
62Broadway, 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 September 2, 1998
- -------------------------------- ---------------------------------------
Common Stock, $.01 par value 4,488,444
<PAGE>
CHEFS INTERNATIONAL, INC.
I N D E X
PART I FINANCIAL INFORMATION PAGE NO.
Consolidated Balance Sheets - 1 - 2
July 26, 1998 and January 25, 1998
Consolidated Statements of Operations - 3
Six Months Ended July 26, 1998 and
July 27, 1997
Consolidated Statements of Cash Flows - 4
Six Months Ended July 26, 1998 and
July 27, 1997
Notes to Consolidated Financial Statements 5
Management's Analysis of Six Months' Income 6 - 7
Statement
PART II OTHER INFORMATION 8
<PAGE>
PART I - FINANCIAL INFORMATION
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEETS
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<TABLE>
July 26, 1998 January 25, 1998
Assets: (Unaudited)
Current Assets:
<S> <C> <C>
Cash and Cash Equivalents $ 1,510,763 $ 1,136,063
Investments 250,000 196,000
Miscellaneous Receivables 113,210 66,228
Inventories 1,025,772 1,039,203
Due on Sale of Discontinued Operations
from Related Party - Current 278,523 297,441
Prepaid Expenses 113,248 98,547
----------- ------------
Total Current Assets 3,291,516 2,833,482
---------- ----------
Property, Plant and Equipment - At Cost 19,280,616 18,591,633
Less: Accumulated Depreciation 7,707,438 7,234,384
---------- ----------
Property, Plant and Equipment - Net 11,573,178 11,357,249
----------- ----------
Other Assets:
Investments 535,000 685,000
Goodwill - Net 516,276 529,972
Liquor Licenses - Net 690,637 702,979
Due on Sale of Discontinued Operations
from Related Party - Long-Term 98,949 222,866
Surrender Value of Life Insurance 406,438 406,438
Due from Related Party 4,190 4,702
Other 33,840 62,144
------------- -------------
Total Other Assets 2,285,330 2,614,101
----------- -----------
Total Assets $17,150,024 $16,804,832
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEETS
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<TABLE>
July 26, 1998 January 25, 1998
Liabilities and Stockholders' Equity: (Unaudited)
Current Liabilities:
<S> <C> <C>
Accounts Payable $ 956,825 $ 945,067
Accrued Payroll 158,351 120,470
Accrued Expenses 572,024 305,688
Notes and Mortgages Payable to Banks 554,800 630,000
Capital Lease Obligations - Current 67,634 85,727
Other Liabilities 177,159 281,435
----------- -----------
Total Current Liabilities 2,486,793 2,368,387
----------- -----------
Long-Term Debt:
Notes and Mortgages Payable to Banks 741,398 819,998
Capital Lease Obligations - Long-Term --- 23,916
----------- -----------
Total Long-Term Debt 741,398 843,914
----------- -----------
Other Liabilities 450,893 457,806
----------- -----------
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] (18,878,429) (19,214,644)
----------- -----------
Total Stockholders' Equity 13,470,940 13,134,725
---------- -----------
Total Liabilities and Stockholders' Equity $17,150,024 $16,804,832
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
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<TABLE>
Six Months Ended Three Months Ended
July 26, 1998July 27, 1997 July 26, 1998 July 27, 1997
<S> <C> <C> <C> <C>
Sales $ 9,994,270 $ 9,838,524 $ 5,465,852 $ 5,484,207
Cost of Goods Sold 3,256,357 3,211,733 1,801,341 1,790,726
----------- ----------- ----------- -----------
Gross Profit 6,737,913 6,626,791 3,664,511 3,693,481
----------- ----------- ----------- -----------
Operating Expenses:
Payroll and Related Expenses 2,909,310 2,841,626 1,548,237 1,539,736
Other Operating Expenses 2,100,166 2,083,599 1,071,130 1,106,969
Depreciation and Amortization 506,081 496,605 254,562 249,698
General and Administrative
Expenses 890,361 879,527 425,257 441,716
----------- ----------- ----------- -----------
Total Operating Expenses 6,405,918 6,301,357 3,299,186 3,338,119
----------- ----------- ----------- -----------
Income from Operations 331,995 325,434 365,325 355,362
----------- ----------- ----------- -----------
Other Income [Expense]:
Interest Expense (62,287) (49,274) (32,320) (21,694)
Interest Income 66,507 66,678 32,065 33,408
----------- ----------- ----------- -----------
Other Income (Expense) - Net 4,220 17,404 (255) 11,714
----------- ----------- ----------- -----------
Income from Operations
Before Income Taxes 336,215 342,838 365,070 367,076
Provision for Income Taxes - - - -
----------- ----------- ----------- -----------
Net Income $ 336,215 $ 342,838 $ 365,070 $ 367,076
=========== =========== =========== ===========
Basic Per Common Share $ .07 $ .08 $ .08 $ .08
=========== =========== =========== ===========
Weighted Average Shares 4,488,444 4,488,347 4,488,444 4,488,347
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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<TABLE>
Six Months Ended
July 26, 1998 July 27, 1997
Operating Activities:
<S> <C> <C>
Income from Operations $ 336,215 $ 342,838
----------- -----------
Cash Provided by Operating Activities:
Depreciation and Amortization 506,081 496,605
Change in Assets and Liabilities:
[Increase] Decrease in:
Inventories 13,431 (90,798)
Prepaid Expenses (14,701) (86,655)
Other Assets 28,817 687
Miscellaneous Receivable (46,982) (78,960)
Increase [Decrease] in:
Accounts Payable 11,758 79,229
Accrued Expenses and Other Liabilities 193,027 93,001
----------- ------------
Total Adjustments 691,431 413,109
----------- -----------
Net Cash from Operations 1,027,646 755,947
---------- -----------
Investing Activities
Capital Expenditures (695,972) (289,555)
Sale or Redemption of Investments 96,000 (50,000)
Due on Sale of Discontinued Operations -
Payments Received 142,835 638,788
Net Cash - Investing Activities (457,137) 299,233
Financing Activities:
Repayment of Debt (319,809) (876,705)
Proceeds from Debt 124,000 50,000
---------- ------------
Net Cash - Financing Activities (195,809) (826,705)
---------- ----------
Net Increase [Decrease] in Cash and Cash Equivalents 374,700 228,475
Cash and Cash Equivalents - Beginning of Periods 1,136,063 951,668
Cash and Cash Equivalents - End of Periods $1,510,763 $1,180,143
========== ==========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the years for:
Interest $ 55,939 $ 47,416
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
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 26,
1998 and July 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
$4,347,100 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 $4,347,100 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 original 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 equipment subject to the
lease was transferred by the Company as part of the sale. The total net amount
due from MCF at July 26, 1998 was $377,472. The 5% of MCF capital stock retained
by the Company is valued at $35,000.
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
Company sales were $9,994,300 for the six months and $5,465,800 for the
second quarter ended July 26, 1998 compared to $9,838,500 and $5,484,200 for the
comparable periods in fiscal 1998. The number of customers served during this
year's six month period was slightly less than last year while this year's
average check paid per customer was approximately 2% higher. The Company
operated the same nine restaurants during the comparable periods.
The Company had net earnings of $336,200 for the six months this year
compared to $342,800 for the same period last year. For the second quarter ended
July 26, 1998 net earnings were $365,100 compared to net earnings of $367,100
for last year's second quarter.
Gross profit was 67.4% of sales for the six month period and 67% for the
quarter compared to 67.4% and 67.3% respectively for the fiscal 1998 periods.
The lower gross profit during this year's second quarter can be attributed to
increases in the cost of liquor. Management instituted a modest liquor price
increase in the first week of August in an attempt to offset the higher costs.
Payroll and related expenses were 29.1% of sales for the six months and 28.3%
for the quarter compared to 28.9% and 28.1% respectively for the fiscal 1998
periods. The slight increases resulted from higher direct labor costs in the
restaurants. Other operating expenses were 21% for the six months and 19.6% for
the quarter versus 21.2% and 20.2% last year. Depreciation and amortization
expenses were higher by $9,500 and $4,900 respectively for the six months and
quarter compared to last year, primarily due to capital expenditures of
approximately $650,000 for renovations at the Vero Beach, Florida and Toms
River, New Jersey restaurants during the last three quarters. General and
administrative expenses were $10,800 higher for the six months and $16,400 lower
for the quarter versus last year. Increases in training and recruiting expenses,
and legal fees account for the year to date increase while the second quarter
decrease resulted primarily from lower group health insurance costs.
Interest expense was $13,000 and $10,600 higher for the comparable periods
this year primarily as a result of the interest expenses associated with a
December 1997 loan used to partially fund the Toms River restaurant renovation
and with a May 1998 loan used to purchase a property next to the Toms River
restaurant. Interest income was approximately the same as last year for both the
year to date and second quarter comparisons.
Liquidity and Capital Resources
The ratio of current assets to current liabilities was 1.32:1 at July 26,
1998, compared to 1.20:1 at the year ended January 25, 1998. Working capital
increased by $339,600 primarily due to operational profits. The primary
components of the six month cash flow statement were an increase in accrued
expenses of $193,000 due primarily to an increase in accrued legal expenses,
capital expenditures of $696,000, primarily at the Toms River, New Jersey
restaurant, debt repayment of $319,800, new debt of $124,000 used for the
purchase of the property adjacent to the Toms River restaurant, and payments of
$142,800 on notes receivable from the sale of Mister Cookie Face ("MCF"), the
Company's former subsidiary which was sold on February 20, 1997 (as of January
26, 1997). During the corresponding six month period in fiscal 1998 working
capital increased by $352,200. The major components of last year's cash flow
were operational profits, capital expenditures of $289,500, debt repayment of
$876,700 and payments of $638,800 received from MCF.
6
<PAGE>
During the second quarter of the current fiscal year the Company's bank line
of credit was renewed for another year and was increased from $350,000 to
$500,000.
Subsequent to the quarter ended July 26, 1998, the Company paid down the
outstanding balance on the line of credit leaving the entire $500,000 available
for future use. Additionally, on August 31, 1998, the Company announced that the
United States Bankruptcy Court for the District of New Jersey accepted the
Company's $1,100,000 bid to purchase the Vero Beach, Florida real property where
it currently operates a Lobster Shanty restaurant from the Chapter 11 Trustee of
the Bankruptcy Estate of Robert E. Brennan. The Company's primary bank, First
Union National Bank, has committed to fund $880,000 of the Vero Beach property
purchase price.
Management anticipates that funds from operations and the line of credit will
be sufficient to meet obligations for the balance of 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.
7
<PAGE>
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
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PART II - OTHER INFORMATION
Item 5. Other Information
(a) Listing of Common Stock on NASDAQ - On August 20, 1998, the
Company announced that its common stock would continue to be listed on The
Nasdaq SmallCap Market pursuant to an exception from the minimum $1 closing bid
price requirement. While the Company failed to meet this requirement at May 28,
1998, it was granted a temporary exception subject to its meeting certain
conditions. The exception will expire on October 30, 1998. There can be no
assurance that the Company will be able to meet all of the conditions of the
exception. If the Company's common stock should cease to be listed on The Nasdaq
SmallCap Market, it may continue to be listed on the OTC Bulletin Board.
(b) Potential Change of Control - At the conclusion of competitive
bidding conducted in Trenton, New Jersey on August 31, 1998 at the United States
Bankruptcy Court for the District of New Jersey, the Court ordered the sale of
the 1,766,557 shares of the Company's common stock owned by the Bankruptcy
Estate of Robert E. Brennan (comprising approximately 39% of the Company's
outstanding common stock) to the highest bidder, JES Management Corp. ("JES").
The successful bid was $2.5625 per share or $4,526,802.30 in the aggregate. JES
is a Florida corporation whose president and sole stockholder is Sheldon
Maschler. The purchase of the shares is expected to be completed in
mid-September 1998.
(c) Purchase of Vero Beach Property - Also on August 31, 1998, the
Court ordered acceptance of the Company's bid of $1,100,000 to purchase the Vero
Beach, Florida real property where it currently operates a Lobster Shanty
restaurant from the Chapter 11 Trustee of the Bankruptcy Estate of Robert E.
Brennan. The Company has received an $880,000 mortgage loan commitment from its
principal lending bank to apply towards the purchase which is expected to be
completed on or before September 30, 1998.
<PAGE>
8
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 9, 1998
9
<PAGE>
<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 schedules.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-Mos
<FISCAL-YEAR-END> Jan-25-1998
<PERIOD-END> Jul-26-1998
<CASH> 1,510,763
<SECURITIES> 785,000
<RECEIVABLES> 113,210
<ALLOWANCES> 0
<INVENTORY> 1,025,772
<CURRENT-ASSETS> 3,291,516
<PP&E> 19,280,616
<DEPRECIATION> 7,707,438
<TOTAL-ASSETS> 17,150,024
<CURRENT-LIABILITIES> 2,486,793
<BONDS> 0
0
0
<COMMON> 44,884
<OTHER-SE> 13,426,056
<TOTAL-LIABILITY-AND-EQUITY> 17,150,024
<SALES> 9,994,270
<TOTAL-REVENUES> 9,994,270
<CGS> 3,256,357
<TOTAL-COSTS> 3,256,357
<OTHER-EXPENSES> 6,405,918
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 62,287
<INCOME-PRETAX> 336,215
<INCOME-TAX> 0
<INCOME-CONTINUING> 336,215
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 336,215
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
