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 JULY 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 AUGUST 28 , 2000
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Common Stock, $.01 par value 4,256,698
<PAGE>
CHEFS INTERNATIONAL, INC.
I N D E X
PART I FINANCIAL INFORMATION PAGE NO.
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ITEM 1. Consolidated Financial Statements
Consolidated Balance Sheets - 3 - 4
July 30, 2000 and January 30, 2000
Consolidated Statements of Operations - 5
Six and Three Months Ended July 30, 2000 and
August 1, 1999
Consolidated Statements of Cash Flows - 6
Six Months Ended July 30, 2000 and
August 1, 1999
Notes to Consolidated Financial Statements 7 - 8
ITEM 2. Management's Discussion and Analysis 9 - 11
of Financial Condition and Results of Operations
PART II OTHER INFORMATION 12
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2
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PART I - FINANCIAL INFORMATION
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
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JULY 30, JANUARY 30,
2000 2000
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(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 1,708,709 $ 1,314,247
Investments 816,100 634,900
Miscellaneous receivables 79,390 63,037
Due on sale of discontinued operations -- 83,125
Inventories 1,308,819 964,134
Prepaid expenses 187,347 153,016
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TOTAL CURRENT ASSETS 4,100,365 3,212,459
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PROPERTY, PLANT AND EQUIPMENT, at cost 20,567,885 19,820,157
Less: Accumulated depreciation 8,376,511 7,856,283
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PROPERTY, PLANT AND EQUIPMENT, net 12,191,374 11,963,874
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OTHER ASSETS:
Investments 381,000 526,000
Goodwill - net 466,491 478,521
Liquor licenses - net 866,314 523,299
Due on sale of discontinued operations
from related party -- 129,993
Due from related parties 560 16,422
Other 32,830 17,016
Equity in life insurance policies 503,262 503,262
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TOTAL OTHER ASSETS 2,250,457 2,194,513
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TOTAL ASSETS $18,542,196 $17,370,846
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The accompanying notes are an integral part of these financial statements.
3
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CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
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JULY 30, JANUARY 30,
2000 2000
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(Unaudited)
CURRENT LIABILITIES:
Accounts payable $ 917,902 $ 599,102
Accrued payroll 128,339 88,531
Accrued expenses 714,774 381,054
Notes and mortgages payable 248,780 364,086
Income taxes payable 32,162 54,300
Other Liabilities 235,882 363,647
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TOTAL CURRENT LIABILITIES 2,277,839 1,850,720
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NOTES AND MORTGAGES PAYABLE 990,630 1,078,383
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OTHER LIABILITIES 507,030 513,862
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STOCKHOLDERS' EQUITY:
Capital stock - common $.01 par value,
Authorized 15,000,000 shares,
Issued and outstanding 4,256,698
and 4,488,162 respectively 42,567 44,882
Additional paid-in capital 32,138,802 32,304,487
Accumulated deficit (17,414,672) (18,421,488)
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TOTAL STOCKHOLDERS' EQUITY 14,766,697 13,927,881
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $18,542,196 $17,370,846
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The accompanying notes are an integral part of these financial statements.
4
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CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
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JULY 30, 2000 AUGUST 01, 1999 JULY 30, 2000 AUGUST 01, 1999
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<S> <C> <C> <C> <C>
SALES $11,042,488 $9,979,400 $6,151,134 $5,579,685
COST OF GOODS SOLD 3,559,678 3,210,808 1,985,525 1,811,233
---------- ---------- ---------- ----------
GROSS PROFIT 7,482,810 6,768,592 4,165,609 3,768,452
---------- ---------- ---------- ----------
OPERATING EXPENSES:
Payroll and related expenses 3,175,562 2,794,031 1,717,694 1,508,141
Other operating expenses 2,153,852 1,927,105 1,143,756 1,008,343
Depreciation and amortization 547,116 506,345 276,710 252,165
General and administrative expenses 882,519 918,495 444,035 446,528
Gain on sale of asset -- (13,947) -- (13,947)
---------- ---------- ---------- ----------
TOTAL OPERATING EXPENSES 6,759,049 6,132,029 3,582,195 3,201,230
---------- ---------- ---------- ----------
INCOME FROM OPERATIONS 723,761 636,563 583,414 567,222
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OTHER INCOME (EXPENSE):
Interest expense (57,270) (77,092) (27,639) (38,252)
Interest income 101,113 70,440 53,844 35,553
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OTHER INCOME (EXPENSE), NET 43,843 (6,652) 26,205 (2,699)
---------- ---------- ---------- ----------
INCOME FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES 767,604 629,911 609,619 564,523
PROVISION FOR INCOME TAXES 83,000 26,900 62,000 22,400
---------- ---------- ---------- ----------
INCOME FROM CONTINUING
OPERATIONS 684,604 603,011 547,619 542,123
GAIN ON DISPOSAL OF
DISCONTINUED ICE
CREAM BUSINESS 322,212 -- 322,212 --
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NET INCOME $1,006,816 $ 603,011 $ 869,831 $ 542,123
========== ========== ========== ==========
INCOME PER COMMON SHARE FROM
CONTINUING OPERATIONS $ .15 $ .13 $ .12 $ .12
========== ========== ========== ==========
BASIC INCOME PER COMMON SHARE $ .23 $ .13 $ .20 $ .12
========== ========== ========== ==========
Number of shares outstanding 4,449,273 4,488,291 4,410,384 4,488,291
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JULY 30, 2000 AND AUGUST 1, 1999 (Unaudited)
2000 1999
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OPERATING ACTIVITIES:
Net income $ 1,006,816 $ 603,011
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 547,116 506,345
Gain on sale of asset -- (13,947)
Gain on disposal of discontinued business (322,212) --
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CASH PROVIDED BY OPERATIONS 1,231,720 1,095,409
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Increase (decrease) in cash attributable
to changes in assets and liabilities:
Miscellaneous receivables (16,353) (35,920)
Inventories (344,685) (30,464)
Prepaid expenses (34,331) (33,072)
Accounts payable 318,800 57,678
Accrued expenses and
other liabilities 238,931 139,679
Income taxes payable (22,138) 2,075
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NET CASH PROVIDED BY OPERATING ACTIVITIES 1,371,944 1,195,385
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INVESTING ACTIVITIES:
Capital expenditures (747,728) (223,786)
Liquor License Purchase (357,873) --
Net proceeds from sale of asset -- 148,947
Sale or redemption of investments 349,000 250,000
Purchase of investments (420,200) (261,000)
Due on sale of discontinued operations - payments 570,330 31,646
Other assets 48 7,712
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NET CASH USED IN INVESTING ACTIVITIES (606,423) (46,481)
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FINANCING ACTIVITIES:
Repayment of debt (203,059) (428,010)
Purchase of common stock (168,000) --
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NET CASH USED IN FINANCING ACTIVITIES (371,059) (428,010)
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NET INCREASE IN CASH AND
CASH EQUIVALENTS 394,462 720,894
CASH AND CASH EQUIVALENTS at beginning 1,314,247 871,950
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CASH AND CASH EQUIVALENTS at end $ 1,708,709 $ 1,592,844
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 49,961 $ 65,957
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Income taxes paid $ 105,138 $ 24,825
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The accompanying notes are an integral part of these financial statements.
6
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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 and six month periods 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 July 30,2000, the Company had net deferred tax assets of approximately
$2,806,000 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
$2,806,000 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 was due in installments through July 1, 2000, and the
third note (Note C) for $500,000 was due on or before February 20, 2004, with
mandatory prepayments based on MCF's cash flow. The notes were secured by a
first lien on all of MCF's assets, however, the Company 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. The 5% of MCF capital
stock retained by the Company was valued at $35,000. During fiscal 1999, MCF
requested a restructuring of the terms of the second and third notes. During the
quarter ended October 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. During the quarter ended July 30, 2000, the Note C
interest was paid off as per the payment schedule.
7
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At the May 24, 2000 Board of Director's meeting, the Company's Board of
Directors ("Board") authorized management to negotiate and execute a settlement
and satisfaction of debt owed by MCF to the Company.
On June 30, 2000, the Company sold both Notes B and C and its 5% holding of MCF
capital stock to MCF for a cash payment of $379,836 and the return of 233,334
shares of the Company's common stock owned by the president of MCF. The Company
subsequently canceled these shares. The Company has recognized a gain from
discontinued operations of approximately $322,000 in its financial statements
for the quarter ended July 30, 2000. The gain represents partial recoveries of
the valuation allowance provided for against Notes B and C when MCF was sold in
1997.
8
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CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Unaudited)
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 six months ended August 1,
1999.
RESULTS OF OPERATIONS
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SALES.
Sales for the six months ended July 30, 2000 were $11,042,500, an increase of
$1,063,100 or 10.7%, as compared to $9,979,400 for the six months ended August
1, 1999. For the second quarter ended July 30, 2000, sales were $6,151,100, an
increase of $571,400 or 10.2% , as compared to last year's second quarter. The
increases include sales of $847,300 and $503,600 for the six and three month
periods at Moore's which opened during the first quarter this year.
9
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Sales for the eight restaurants that operated during the comparable periods
increased $215,800 or 2.2% for six months and $67,800 or 1.2% for the second
quarter of this year. The New Jersey restaurants were slightly up in sales for
the second quarter versus last year despite the fact that July 2000 was one of
the wettest and coolest on record. The number of customers served in the eight
restaurants decreased this year by .4% for the six months and 2.5% for the
second quarter, while the check average paid per customer increased this year by
2.6% and 3.7% for the respective six and three month periods.
GROSS PROFIT; GROSS MARGIN.
Gross profit was $7,482,800 or 67.8% of sales for the six month period and
$4,165,600 or 67.7% of sales for the quarter ended July 30, 2000, compared to
$6,768,600 or 67.8% and $3,768,500 or 67.5% for the comparable periods of fiscal
2000. The improvement during this year's second quarter can be attributed
primarily to new menus inserted into the New Jersey restaurants, including
Moore's, in May 2000 which included price increases and lower cost items, and
lower liquor costs in the Florida restaurants due to a reduction in state liquor
taxes.
OPERATING EXPENSES.
Total operating expenses increased by 10.2% from $6,132,000 during the first six
months of fiscal 2000 to $6,759,000 during the first six months of fiscal 2001,
and by 11.9% from $3,201,200 during the second quarter of fiscal 2000 to
$3,582,200 during the second quarter of fiscal 2001. Payroll and related
expenses were 28.8% of sales for the six months and 27.9% for the second quarter
this year compared to 28% and 27% respectively for the comparable periods last
year. The increases can be primarily attributed to higher health insurance costs
and the overall higher payroll costs at Moore's. Historically, new restaurants
have higher operating expenses during the first few months of operation. Other
operating expenses increased to 19.5% of sales versus 19.3% of sales for the six
month comparison and 18.6% versus 18.1% for the three month comparison. Higher
operating expenses at Moore's account for the increase. Depreciation and
amortization expenses increased by $40,800 and $24,500 for the six and three
month periods respectively and primarily result from the February 2000 purchase
of the liquor license and furniture, fixtures and equipment of Moore's and to
depreciation associated with the capital expenditures at the other eight
restaurants incurred during fiscal 2000 and this year. General and
administrative expenses decreased by $36,000 and $2,500 for the six and three
month periods ended July 30, 2000 versus last year primarily due to reduced
professional and director fees.
OTHER INCOME AND EXPENSE.
Interest expense decreased by $19,800 and $10,600 for the six and three month
periods ended July 30, 2000 as compared to the comparable periods last year due
to debt reduction. Interest income increased by $30,700 and $18,300 for the six
and three month periods ended July 30, 2000 versus the comparable periods last
year 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.
For the six months ended July 30, 2000, net income from continuing operations
was $684,600 or $.15 per share and net income was $1,006,800 or $.23 per share
compared to net income of $603,000 or $.13 per share for the six months ended
August 1, 1999. For the quarter ended July 30, 2000, net income from continuing
operations was $547,600 or $.12 per share and net income was $869,800 or $.20
per share versus net income of $542,100 or $.12 per share for last year's second
quarter.
10
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LIQUIDITY AND CAPITAL RESOURCES
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The Company has financed its operations primarily from revenues derived from its
restaurants.
The Company's ratio of current assets to current liabilities was 1.80:1 at July
30, 2000 compared to 1.74:1 at the year ended January 30, 2000. Working capital
was $1,822,500 at July 30, 2000 compared to $1,361,700 at the year-end, an
increase of $460,800. During the six months ended July 30, 2000, net cash
increased by $394,500. The primary components of this year's cash flow were net
income of $1,006,800, an increase in inventories of $344,700 resulting from bulk
seafood purchases incurred to take advantage of market prices, an increase in
accounts payable of $318,800 primarily due to higher sales and the inventory
purchases, an increase in accrued expenses of $238,900 resulting from expenses
associated with the increased sales volume including payroll and other taxes,
and capital expenditures of $1,105,600, including approximately $636,400 for the
purchase of a liquor license and furniture, fixtures and equipment for Moore's,
and debt repayment of $203,100. Additionally, this year's cash flow includes
$570,300 of payments attributable to the February 1997 sale of MCF and the
Company's 5% holding of MCF stock, and the repurchase of 233,334 shares of the
Company's common stock (see Note 4.) During the corresponding six month period
in fiscal 2000 working capital increased by $560,200 and net cash increased by
$720,900. The primary components of last year's cash flow statement were net
income of $603,000, capital expenditures of $223,800 for routine restaurant
improvements, the sale of a liquor license for $150,000, and debt repayment of
$428,000.
During the quarter ended July 30, 2000 the Company's Board of Directors
("Board") authorized the repurchase of up to 400,000 shares of the Company's
Common Stock ("shares") over the next 24 months. As of August 30, 2000 the
Company had purchased 525 shares for $425.
Additionally, during the second quarter of the current fiscal year the Company's
$500,000 bank line of credit was renewed for two years. The interest rate is
variable, equal to the monthly LIBOR Market Index Rate plus 2.00%. The entire
$500,000 is currently available for use.
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 $165,000 in addition to those
expenditures incurred during the six months and to those incurred for any
additional share 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.
11
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CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
PART II
None
12
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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: September 13, 2000
