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 OCTOBER 29, 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 for 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 November 27, 2000
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Common Stock, $.01 par value 4,256,730
<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 - 1 - 2
October 29, 2000 and January 30, 2000
Consolidated Statements of Operations - 3
Nine and Three Months Ended October 29, 2000 and
October 31, 1999
Consolidated Statements of Cash Flows - 4
Nine Months Ended October 29, 2000 and
October 31, 1999
Notes to Consolidated Financial Statements 5 - 6
ITEM 2. 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
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<TABLE>
<CAPTION>
October 29, 2000 January 30, 2000
---------------- ----------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,475,652 $ 1,314,247
Investments 1,176,000 634,900
Miscellaneous receivables 52,380 63,037
Due on sale of discontinued operations --- 83,125
from related party
Inventories 1,195,572 964,134
Prepaid expenses 207,715 153,016
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TOTAL CURRENT ASSETS 4,107,319 3,212,459
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PROPERTY, PLANT AND EQUIPMENT, at cost 20,694,468 19,820,157
Less: Accumulated depreciation 8,641,915 7,856,283
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PROPERTY, PLANT AND EQUIPMENT, net 12,052,553 11,963,874
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OTHER ASSETS:
Investments 381,000 526,000
Goodwill - net 460,477 478,521
Liquor licenses - net 858,893 523,299
Due on sale of discontinued operations
from related party --- 129,993
Due from related parties 470 16,422
Other 22,339 17,016
Equity in life insurance policies 503,262 503,262
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TOTAL OTHER ASSETS 2,226,441 2,194,513
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TOTAL ASSETS $18,386,313 $17,370,846
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</TABLE>
The accompanying notes are an integral part of these financial statements.
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CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
October 29, 2000 January 30, 2000
---------------- ----------------
(Unaudited)
<S> <C>
CURRENT LIABILITIES:
Accounts payable $ 632,865 $ 599,102
Accrued payroll 219,105 88,531
Accrued expenses 643,345 381,054
Notes and mortgage payable 182,814 364,086
Income taxes payable 52,714 54,300
Other liabilities 208,692 363,647
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TOTAL CURRENT LIABILITIES 1,939,535 1,850,720
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NOTES AND MORTGAGE PAYABLE 939,077 1,078,383
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OTHER LIABILITIES 502,414 513,862
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STOCKHOLDERS' EQUITY:
Capital stock - common $.01 par value,
Authorized 15,000,000 shares,
Issued and outstanding 4,256,730
and 4,488,162 respectively 42,567 44,882
Additional paid-in capital 32,138,802 32,304,487
Accumulated deficit (17,176,082) (18,421,488)
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TOTAL STOCKHOLDERS' EQUITY 15,005,287 13,927,881
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $18,386,313 $17,370,846
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</TABLE>
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
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
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October 29, 2000 October 31, 1999 October 29, 2000 October 31, 1999
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
SALES $ 16,393,823 $ 14,640,834 $ 5,351,335 $ 4,661,434
COST OF GOODS SOLD 5,280,038 4,755,477 1,720,360 1,544,669
------------ ------------ ------------ ------------
GROSS PROFIT 11,113,785 9,885,357 3,630,975 3,116,765
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Payroll and related expenses 4,721,103 4,126,368 1,545,541 1,332,337
Other operating expenses 3,226,222 2,838,634 1,072,370 911,529
Depreciation and amortization 825,955 758,698 278,839 252,353
General and administrative expenses 1,370,050 1,358,433 487,531 439,938
Gain on sale of asset -- (13,947) -- --
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 10,143,330 9,068,186 3,384,281 2,936,157
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 970,455 817,171 246,694 180,608
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense (82,060) (108,536) (24,790) (31,444)
Interest income 149,799 118,670 48,686 48,230
------------ ------------ ------------ ------------
OTHER INCOME, NET 67,739 10,134 23,896 16,786
------------ ------------ ------------ ------------
INCOME FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES 1,038,194 827,305 270,590 197,394
PROVISION FOR INCOME TAXES 115,000 46,500 32,000 19,600
------------ ------------ ------------ ------------
INCOME FROM CONTINUING
OPERATIONS 923,194 780,805 238,590 177,794
GAIN ON DISPOSAL OF
DISCONTINUED ICE
CREAM BUSINESS 322,212 -- --
------------ ------------ ------------ ------------
NET INCOME $ 1,245,406 $ 780,805 $ 238,590 $ 177,794
============ ============ ============ ============
INCOME PER COMMON SHARE FROM
CONTINUING OPERATIONS $ .21 $ .17 $ .06 $ .04
============ ============ ============ ============
BASIC INCOME PER COMMON SHARE $ .28 $ .17 $ .06 $ .04
============ ============ ============ ============
Number of shares outstanding 4,385,303 4,488,162 4,256,730 4,488,162
</TABLE>
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
NINE MONTHS ENDED OCTOBER 29, 2000 AND OCTOBER 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,245,406 $ 780,805
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 825,955 758,698
Gain on sale of asset -- (13,947)
Gain on disposal of discontinued business (322,212) --
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CASH PROVIDED BY OPERATIONS 1,749,149 1,525,556
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Increase (decrease) in cash attributable
to changes in assets and liabilities:
Miscellaneous receivables 10,657 10,628
Inventories (231,438) (35,378)
Prepaid expenses (54,699) 42,920
Accounts payable 33,763 (107,895)
Accrued expenses and other liabilities 226,462 (10,746)
Income taxes payable (1,586) 15,674
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NET CASH PROVIDED BY OPERATING ACTIVITIES 1,732,308 1,440,759
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INVESTING ACTIVITIES:
Capital expenditures (874,311) (306,341)
Liquor license purchase (357,873) --
Net proceeds from sale of asset -- 148,947
Sale or redemption of investments 349,000 300,000
Purchase of investments (780,100) (341,000)
Due on sale of discontinued operations - payments 570,330 50,699
Other assets 10,629 (12,285)
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NET CASH USED IN INVESTING ACTIVITIES (1,082,325) (159,980)
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FINANCING ACTIVITIES:
Repayment of debt (320,578) (553,051)
Purchase of common stock (168,000) --
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NET CASH USED IN FINANCING ACTIVITIES (488,578) (553,051)
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NET INCREASE IN CASH AND
CASH EQUIVALENTS 161,405 727,728
CASH AND CASH EQUIVALENTS at beginning 1,314,247 871,950
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CASH AND CASH EQUIVALENTS at end $ 1,475,652 $ 1,599,678
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</TABLE>
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 and nine 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 October 29,2000, the Company had net deferred tax assets of approximately
$2,675,000 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
$2,675,000 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
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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.
At the May 24, 2000 Board of Director's meeting, the 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.
6
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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 nine months ended October 31,
1999.
Results of Operations
---------------------
SALES.
Sales for the nine months ended October 29, 2000 were $16,393,800, an increase
of $1,753,000 or 12%, as compared to $14,640,800 for the nine months ended
October 31, 1999. For the third quarter ended October 29, 2000, sales were
$5,351,300, an increase of $689,900 or 14.8% , as compared to last year's third
quarter. The increases include sales of $1,393,900
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and $546,600 for the nine and three month periods at Moore's which opened during
the first quarter this year. Sales for the eight restaurants that operated
during the comparable periods increased $359,100 or 2.5% for nine months and
$143,300 or 3.1% for the third quarter of this year. The New Jersey restaurants
were slightly up in sales for the nine months 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 1.1% for the
nine months and 2.8% for the third quarter, while the check average paid per
customer increased this year by 3.6% and 6% for the respective nine and three
month periods.
GROSS PROFIT; GROSS MARGIN.
Gross profit was $11,113,800 or 67.8% of sales for the nine month period and
$3,631,000 or 67.9% of sales for the quarter ended October 29, 2000, compared to
$9,885,400 or 67.5% and $3,116,800 or 66.9% for the comparable periods of fiscal
2000. The improvement this year 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 11.9% from $9,068,200 during the first
nine months of fiscal 2000 to $10,143,300 during the first nine months of this
year, and by 15.3% from $2,936,200 during the third quarter of fiscal 2000 to
$3,384,300 during the third quarter of this year. Payroll and related expenses
were 28.8% of sales for the nine months and 28.9% for the third quarter this
year compared to 28.2% and 28.6% 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 19.7% of sales versus 19.4% of sales for the
nine month comparison and 20% versus 19.6% for the three month comparison.
Higher operating expenses at Moore's account for the increase. Depreciation and
amortization expenses increased by $67,300 and $26,500 for the nine 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 increased by $11,600 and $47,600 for the nine and three
month periods ended October 29, 2000 versus last year primarily due to higher
salaries.
OTHER INCOME AND EXPENSE.
Interest expense decreased by $26,500 and $6,700 for the nine and three month
periods ended October 29, 2000 as compared to the comparable periods last year
due to debt reduction. Interest income increased by $31,100 and $500 for the
nine and three month periods ended October 29, 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 nine months ended October 29, 2000, net income from continuing
operations was $923,200 or $.21 per share and net income was $1,245,400 or $.28
per share compared to net income of $780,800 or $.17 per share for the nine
months ended October 31, 1999. For the quarter ended October 29, 2000, net
income was $238,600 or $.06 per share versus net income of $177,800 or $.04 per
share for last year's third quarter.
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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 2.12:1 at
October 29, 2000 compared to 1.74:1 at the year ended January 30, 2000. Working
capital was $2,167,800 at October 29, 2000 compared to $1,361,700 at the
year-end, an increase of $806,100. During the nine months ended October 29,
2000, net cash increased by $161,400. The primary components of this year's cash
flow were net income of $1,245,400, an increase in inventories of $231,400
resulting from bulk seafood purchases incurred to take advantage of market
prices, an increase in accrued expenses of $226,500 resulting from expenses
associated with the increased sales volume including payroll and other taxes,
and capital expenditures of $1,232,200, including approximately $688,200 for the
purchase of a liquor license and furniture, fixtures and equipment and
improvements at Moore's, and debt repayment of $320,600. 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 nine month period in fiscal 2000 working capital increased by
$700,100 and net cash increased by $727,700. The primary components of last
year's cash flow statement were net income of $780,800, capital expenditures of
$306,300 for routine restaurant improvements, the sale of a liquor license for
$150,000, and debt repayment of $553,100.
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 November 24, 2000 the
Company had purchased 3,600 shares for approximately $3,000.
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 approximately $50,000 in
addition to those expenditures incurred during the nine 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.
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CHEFS INTERNATIONAL, INC.
PART II - OTHER INFORMATION
Item 6. Other Information
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(b) Reports on Form 8-K. During the quarter ended October 29, 2000,
the Company filed a current report on Form 8-K for October 6, 2000 reporting in
Item 4 thereto, the replacement of Edward Isaacs & Company LLP as the Company's
independent accountants with McGladrey & Pullen, LLP due to the merger of Edward
Isaacs & Company LLP with McGladrey & Pullen, LLP. Under Item 7 to the Form 8-K,
the Company filed a letter from Edward Isaacs & Company LLP as an exhibit
thereto.
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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 Executive and Financial Officer
DATED: December 12, 2000
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