SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(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 30, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE EXCHANGE ACT
For the transition period from _________________ to _______________
Commission file number 0-8513
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CHEFS INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 22-2058515
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
62 BROADWAY, POINT PLEASANT BEACH, NJ 08742
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(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 changed 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 MAY 23, 2000
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Common Stock, $.01 par value 4,488,162
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CHEFS INTERNATIONAL, INC.
I N D E X
PART I FINANCIAL INFORMATION PAGE NO.
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Consolidated Balance Sheets - 1 - 2
April 30, 2000 and January 30, 2000
Consolidated Statements of Operations - 3
Three Months Ended April 30, 2000 and
May 2, 1999
Consolidated Statements of Cash Flows - 4
Three Months Ended April 30, 2000 and
May 2, 1999
Notes to Consolidated Financial Statements 5 - 6
Management's Discussion and Analysis 7-9
of Financial Condition and Results of Operations
PART II OTHER INFORMATION 10
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PART I - FINANCIAL INFORMATION
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
April 30, January 30,
2000 2000
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(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 938,618 $ 1,314,247
Investments 762,600 634,900
Miscellaneous receivables 69,579 63,037
Inventories 982,048 964,134
Due on sale of discontinued operations
from related party 87,450 83,125
Prepaid expenses 251,213 153,016
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TOTAL CURRENT ASSETS 3,091,508 3,212,459
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PROPERTY, PLANT AND EQUIPMENT, at cost 20,290,316 19,820,157
Less: Accumulated depreciation 8,113,237 7,856,283
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PROPERTY, PLANT AND EQUIPMENT, net 12,177,079 11,963,874
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OTHER ASSETS:
Investments 416,000 526,000
Goodwill - net 472,506 478,521
Liquor licenses - net 873,735 523,299
Due on sale of discontinued operations
from related party 106,766 129,993
Equity in life insurance policies 503,262 503,262
Due from related party 3,647 16,422
Other 61,664 17,016
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TOTAL OTHER ASSETS 2,437,580 2,194,513
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$17,706,167 $17,370,846
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The accompanying notes are an integral part of these financial statements.
1
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CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
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April 30, January 30,
2000 2000
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(Unaudited)
CURRENT LIABILITIES:
Notes and mortgages payable $ 331,421 $ 364,086
Accounts payable 741,093 599,102
Accrued payroll 141,103 88,531
Accrued expenses 533,364 381,054
Other Liabilities 265,597 363,647
Income taxes payable 65,300 54,300
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TOTAL CURRENT LIABILITIES 2,077,878 1,850,720
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NOTES AND MORTGAGES PAYABLE 1,051,009 1,078,383
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OTHER LIABILITIES 512,414 513,862
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STOCKHOLDERS' EQUITY:
Capital stock - common $.01 par value,
Authorized 15,000,000 shares,
Issued and outstanding 4,488,162 44,882 44,882
Additional paid-in capital 32,304,487 32,304,487
Accumulated deficit (18,284,503) (18,421,488)
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TOTAL STOCKHOLDERS' EQUITY 14,064,866 13,927,881
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$17,706,167 $17,370,846
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The accompanying notes are an integral part of these financial statements.
2
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CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED APRIL 30, 2000 AND MAY 2, 1999 (Unaudited)
2000 1999
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SALES $4,891,354 $4,399,715
COST OF GOODS SOLD 1,574,153 1,399,575
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GROSS PROFIT 3,317,201 3,000,140
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OPERATING EXPENSES:
Payroll and related expenses 1,457,868 1,285,890
Other operating expenses 1,010,096 918,762
Depreciation and amortization 270,406 254,180
General and administrative expenses 438,484 471,967
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TOTAL OPERATING EXPENSES 3,176,854 2,930,799
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INCOME FROM OPERATIONS 140,347 69,341
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OTHER INCOME (EXPENSE):
Interest expense (29,631) (38,840)
Interest income 47,269 34,887
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OTHER INCOME (EXPENSE), NET 17,638 (3,953)
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INCOME BEFORE INCOME TAXES 157,985 65,388
PROVISION FOR INCOME TAXES 21,000 4,500
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NET INCOME $ 136,985 $ 60,888
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BASIC INCOME PER COMMON SHARE $ .03 $ .01
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Number of shares outstanding 4,488,162 4,488,369
The accompanying notes are an integral part of these financial statements.
3
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CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED APRIL 30, 2000 AND MAY 2, 1999 (Unaudited)
2000 1999
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OPERATING ACTIVITIES:
Net income $ 136,985 $ 60,888
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 270,406 254,180
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CASH PROVIDED BY OPERATIONS 407,391 315,068
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Increase (decrease) in cash attributable
to changes in assets and liabilities:
Miscellaneous receivables (6,542) (6,888)
Inventories (17,914) (57,097)
Prepaid expenses (98,197) (56,593)
Accounts payable 141,991 47,120
Accrued expenses and other liabilities 105,384 36,061
Income taxes payable 11,000 (15,200)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 543,113 262,471
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INVESTING ACTIVITIES:
Capital expenditures (470,159) (125,610)
Liquor license purchase (357,873) --
Sale or redemption of investments 200,000 250,000
Purchase of investments (217,700) (261,000)
Proceeds from notes receivable -
discontinued operations - related party 18,902 15,695
Other assets (31,873) (2,035)
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NET CASH USED IN INVESTING ACTIVITIES (858,703) (122,950)
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NET CASH USED IN FINANCING ACTIVITIES:
Repayment of debt (60,039) (60,629)
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NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (375,629) 78,892
CASH AND CASH EQUIVALENTS at beginning 1,314,247 871,950
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CASH AND CASH EQUIVALENTS at end $ 938,618 $ 950,842
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 21,717 $ 37,235
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Income taxes paid $ 10,000 $ 19,700
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The accompanying notes are an integral part of these financial statements.
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CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 1: BASIS OF PRESENTATION
The accompanying financial statements have been prepared by Chefs International,
Inc. (the "Company") and are unaudited. In the opinion of the Company's
management, all adjustments (consisting solely of normal recurring adjustments)
necessary to present fairly the Company's consolidated financial position,
results of operations and cash flows for the periods presented have been made.
Certain information and footnote disclosures required under generally accepted
accounting principles have been condensed or omitted from the consolidated
financial statements pursuant to the rules and regulations of the SEC. The
consolidated financial statements and notes thereto should be read in
conjunction with the Company's audited consolidated financial statements for the
year ended January 30, 2000 and notes thereto included in the Company's Annual
Report on Form 10-KSB filed with the SEC. The results of operations and the cash
flows for the three month period ended presented in the consolidated financial
statements are not necessarily indicative of the results to be expected for any
other interim period or the entire fiscal year.
NOTE 2: EARNINGS PER SHARE
Basic earnings per share is computed using the weighted average number of shares
of common stock outstanding during the period.
NOTE 3: INCOME TAXES
At April 30,2000, the Company had net deferred tax assets of approximately
$3,058,000 arising principally from net operating loss carryforwards. However,
due to the uncertainty that the Company will generate sufficient income in the
future to fully or partially utilize these carryforwards, an allowance of
$3,058,000 has been established to offset these assets.
NOTE 4: DUE ON SALE OF DISCONTINUED OPERATIONS FROM RELATED PARTY
On February 20, 1997 the Company sold 95% of the common stock of Mr. Cookie Face
("MCF"), its ice cream production segment, to a former 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 first note (Note A) for $100,000 was due on or
before March 24, 1997 and was paid in full on a timely basis. The second note
(Note B) for $500,000 is due in installments through July 1, 2000, and the third
note (Note C) for $500,000 is due on or before February 20, 2004, with mandatory
prepayments based on MCF's cash flow. The notes are secured by a first lien on
all of MCF's assets, however, the Company has agreed to subordinate the notes to
up to $1,750,000 of additional financing for MCF. Based on the estimated present
value of the payments, management recorded a valuation allowance of $601,050
against the second and third notes. During fiscal 1999, MCF requested a
restructuring of the terms of the second and third notes. During the quarter
ended October
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31, 1999, the Company's Board of Directors ("Board") was advised by MCF that MCF
had achieved a positive cash flow during its second quarter and pursuant to the
requirements of Note C, owed the Company approximately $41,800 in interest. The
Board agreed to allow MCF to make monthly payments of the said Note C interest
amount with the final payment due June 1, 2000. Additionally, the Board agreed
to allow MCF to continue making monthly partial payments on Note B and will
address a formal restructuring of all MCF debt by July 2000.
Cash receipts for these notes are applied to principal and interest based on the
discounted note payment schedules, which resulted in an additional $5,800 of
interest income being recognized during the three months ended April 30, 2000.
During the quarter ended April 30, 2000, MCF paid $10,000 in interest on Note C
to the Company. The 5% of MCF capital stock retained by the Company has been
valued at $35,000.
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CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
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Certain statements regarding future performance in this Quarterly Report Form
10-QSB constitute forward-looking statements under the Private Securities
Litigation Reform Act of 1995. No assurance can be given that the future results
covered by the forward-looking statements will be achieved. The Company cautions
readers that important factors may affect the Company's actual results and could
cause those results to differ materially from the forward-looking statements.
Such factors include, but are not limited to, changing market conditions,
weather, the state of the economy, the impact of competition to the Company's
restaurants, pricing and acceptance of the Company's food products.
OVERVIEW
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The Company's principal source of revenue is from the operations of its
restaurants. The Company's cost of sales includes food and liquor costs.
Operating expenses include labor costs, supplies and occupancy costs (rent and
utilities), marketing and maintenance costs. General and administrative expenses
include costs incurred for corporate support and administration, including the
salaries and related expenses of personnel and the costs of operating the
corporate office at the Company's headquarters in Point Pleasant Beach, New
Jersey.
The Company currently operates nine restaurants on a year-round basis. Seven of
the restaurants are free-standing seafood restaurants in New Jersey and Florida
and are operated under the names "Lobster Shanty" or "Baker's Wharfside." The
Company also operates a Mexican theme restaurant in New Jersey operated under
the name "Garcia's." The Company opened its first seafood restaurant in November
1978 and opened its Garcia's restaurant in April 1996. In February 2000, the
Company commenced the operation of its ninth restaurant, Moore's Tavern and
Restaurant ("Moore's"), a free standing restaurant in Freehold, New Jersey
serving an eclectic American food type menu.
Generally, the Company's New Jersey seafood restaurants derive a significant
portion of their sales from May through September. The Company's Florida seafood
restaurants derive a significant portion of their sales from January through
April. The Company's Garcia's restaurant derives a significant portion of its
sales during the holiday season from Thanksgiving through Christmas. The Company
anticipates that Moore's will experience a seasonality factor similar to but not
as dramatic as the seasonality factor of its New Jersey seafood restaurants.
The Company operated eight restaurants during the three months ended May 2,
1999.
7
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RESULTS OF OPERATIONS
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SALES
Sales for the three months ended April 30, 2000 were $4,891,400, an
increase of $491,700 or 11.2 %, as compared to $4,399,700 for the first quarter
ended May 2, 1999. The increase includes $343,700 in sales at Moore's which
opened during the quarter ended April 30, 2000 and an increase of $148,000 or
3.4% in sales at the eight restaurants which operated during the comparable
three month periods. The number of customers served in the eight restaurants
increased by 2.0% this year while the average check paid per customer increased
by 1.4%. The average check paid per customer at Moore's is less than at the
seven seafood restaurants and higher than at Garcia's.
GROSS PROFIT; GROSS MARGIN
Gross profit was $3,317,200 or 67.8% of sales for the three months ended
April 30, 2000 compared to $3,000,100 or 68.2% for the three months ended May 2,
1999. The decrease in the gross profit percent was primarily attributable to
Moore's which had a lower gross profit margin than the combined results of the
other eight restaurants. In an effort to improve the gross profit margin at
Moore's, management introduced a new menu featuring some lower cost menu items.
The other eight restaurants combined realized a slightly lower gross profit
margin this year as a result of higher food costs. New menus were also inserted
in May 2000 into the seafood restaurants which included some price increases.
OPERATING EXPENSES
Total operating expenses increased by 8.4% from $2,930,800 for the first
quarter of fiscal 2000 to $3,176,900 for the first three months of fiscal 2001.
Payroll and related expenses for this year's first quarter were 29.8% of sales
versus 29.2% for the corresponding quarter of the previous year. The combination
of higher insurance costs at the comparable eight restaurants and the overall
higher payroll costs at Moore's, account for the increase. Historically, new
restaurants have higher operating expenses during the first few months of
operation. Other operating expenses improved to 20.7% of sales for the quarter
ended April 30, 2000 as compared to 20.9% of sales for the corresponding quarter
in the prior year primarily due to the sales increase. Depreciation and
amortization increased by $16,200 over the corresponding quarter in the prior
year due primarily to the purchase of the liquor license and furniture, fixtures
and equipment of Moore's and to the depreciation expenses associated with
capital expenditures incurred during fiscal 2000. General and administrative
expenses decreased by $33,500 for the quarter ended April 30, 2000 primarily due
to reduced professional and director fees.
OTHER INCOME AND EXPENSE
Interest expense decreased by $9,200 for the three months ended April 30,
2000 as compared to last year's first quarter due to debt reduction. Interest
income increased by $12,400 in the current period primarily as a result of
additional interest income associated with notes receivable from the February
1997 sale of discontinued operations (see note 4.).
NET INCOME
Net Income was $137,000 of $.03 per share for the first quarter ended April
30, 2000 as compared to $60,900 or $.01 per share for the comparable period last
year.
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LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily from revenues derived
from its restaurants.
The Company's ratio of current assets to current liabilities was 1.49:1 at
April 30, 2000 compared to 1.74:1 at the year ended January 30, 2000. Working
capital was $1,013,600 at the end of the quarter versus $1,361,700 at the
year-end, a decrease of $348,100. For the quarter net cash decreased by
$375,600. The primary components of this year's first quarter cash flow were net
income of $137,000, an increase in accounts payable of $142,000 due to the
increased sales volume, an increase of $105,400 in accrued liabilities resulting
from a change in the Company's health plan, and capital expenditures of
$828,000, including approximately $636,400 for the purchase of a liquor license
and furniture, fixtures and equipment for Moore's. During the corresponding
three month period in fiscal 2000 working capital decreased by $17,000 and net
cash increased by $78,900. The primary components of last year's quarterly cash
flow were net income of $60,900, capital expenditures of $125,600 for routine
restaurant improvements and debt repayment of $60,600.
Subsequent to the quarter ended April 30, 2000 the Company's Board of
Directors ("Board") authorized the repurchase of up to 400,000 shares of the
Company's Common Stock over the next 24 months (see Part II).
Management believes that funds from operations and the Company's $500,000
bank line of credit will be sufficient to meet obligations for the balance of
fiscal 2001, including planned capital expenditures of approximately $494,000 in
addition to those incurred during the first quarter and to those incurred for
any stock repurchases.
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. There is a proposal before
Congress to raise the minimum wage by $1.00 to $6.15 per hour. However,
management believes that the increase would have a minimal impact on payroll
costs because the proposed increase would not change the cash wage of the
Company's tipped employees and a majority of the non-tipped employees already
receive in excess of $6.15 per hour.
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CHEFS INTERNATIONAL, INC.
PART II - OTHER INFORMATION
ITEM 5. Other Information
On June 8, 2000, the Company announced that it had decided to
repurchase up to 400,000 shares of its Common Stock over the next 24 months. The
Company expects to make such purchases from time to time in the over-the-counter
market at prevailing market prices. The Board of Directors believes that the
Company's Common Stock is currently undervalued and that a repurchase program of
this nature, if effected at current prices, would constitute an appropriate
investment to the benefit of the Company's stockholders.
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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
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ANTHONY C. PAPALIA
Principal Executive and Financial Officer
DATED: JUNE 9, 2000
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