<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report pursuant section 13 or 15(d) of the Securities and
Exchange Act of 1934 for the quarterly period ended December 31, 1996.
[ ] Transition report pursuant to section 13 or 15(d) of the Securities and
Exchange Act of 1934 for the transition period from ____________________
to _________________.
COMMISSION FILE NUMBER: 0-21932
CALIFORNIA CULINARY ACADEMY, INC.
(Exact name of small business issuer in its charter)
California 94-3042862
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
625 Polk Street
San Francisco, CA 94102
(Address of principal executive offices) (Zip Code)
Issuer's Telephone Number: (415) 771-3536
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act 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 .
------ ------
The number of shares outstanding of the registrant's Common Stock as of January
30, 1997, was 3,317,719.
Transitional Small Business Disclosure Format. Yes No X .
------ ------
<PAGE>
CALIFORNIA CULINARY ACADEMY, INC.
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
(Unaudited) (Unaudited) (Unaudited)
December 31, June 30, December 31,
1995 1996 1996
------------ ------------ ------------
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents $2,078,000 $3,283,000 $2,264,000
Accounts receivable, net 2,352,000 2,786,000 3,378,000
Inventories 336,000 208,000 325,000
Prepaid expenses and other assets 468,000 160,000 250,000
Deferred tax asset 145,000 30,000
------------ ------------ ------------
Total Current Assets 5,234,000 6,582,000 6,247,000
------------ ------------ ------------
Property and equipment, net 4,414,000 4,117,000 4,935,000
Intangible assets, net 738,000 546,000 484,000
Long-term investments - restricted 646,000
Other assets 105,000 967,000 598,000
------------ ------------ ------------
TOTAL ASSETS $10,491,000 $12,858,000 $12,264,000
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $697,000 $749,000 $481,000
Accrued liabilities 447,000 477,000 501,000
Deferred revenue 3,252,000 3,795,000 3,980,000
Student prepayments 160,000 258,000 367,000
Current portion of notes payable 300,000 292,000 12,000
Current portion of capital lease obligations 76,000 65,000
Other current liabilities 26,000
------------ ------------ ------------
Total Current Liabilities 4,856,000 5,647,000 5,432,000
------------ ------------ ------------
Notes payable 509,000 500,000 44,000
Capital lease obligations 215,000 182,000
Other non-current liabilities 441,000 438,000
Subordinated convertible notes payable 1,400,000
Shareholders' Equity:
Preferred stock, no par value, 5,000,000 shares authorized,
254,541 shares issued and outstanding 976,000
Common stock, no par value, 20,000,000 shares authorized,
3,317,719 shares issued and outstanding 8,195,000 8,741,000 9,144,000
Accumulated deficit (3,069,000) (4,086,000) (3,952,000)
------------ ------------ ------------
Total Shareholders' Equity 5,126,000 4,655,000 6,168,000
------------ ------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $10,491,000 $12,858,000 $12,264,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
2
<PAGE>
STATEMENTS OF OPERATIONS
FOR THE QUARTER AND SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
------------------------- -------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Culinary arts education $3,016,000 $2,946,000 $6,010,000 $5,822,000
Restaurants & catering 698,000 628,000 1,077,000 1,056,000
Retail, media and other 75,000 169,000 231,000 315,000
---------- ---------- ---------- ----------
Total revenues 3,789,000 3,743,000 7,318,000 7,193,000
Cost of sales
Food & beverage 415,000 426,000 786,000 843,000
Program supplies 180,000 230,000 356,000 363,000
Scholarships & grants 63,000 32,000 108,000 70,000
Merchandise & other 155,000 147,000 265,000 287,000
---------- ---------- ---------- ----------
813,000 835,000 1,515,000 1,563,000
---------- ---------- ---------- ----------
Gross Margin 2,976,000 2,908,000 5,803,000 5,630,000
Fixed costs
Occupancy 430,000 434,000 875,000 871,000
Repairs & maintenance 91,000 101,000 187,000 234,000
Telephone, security & other 86,000 98,000 183,000 206,000
Depreciation & amortization 299,000 262,000 564,000 518,000
---------- ---------- ---------- ----------
Total fixed costs 906,000 895,000 1,809,000 1,829,000
Operating expenses
Compensation & benefits 1,308,000 1,452,000 2,639,000 3,002,000
Outside services 180,000 126,000 302,000 401,000
Advertising & promotion 118,000 217,000 266,000 374,000
Legal & other 274,000 190,000 516,000 630,000
---------- ---------- ---------- ----------
1,880,000 1,985,000 3,723,000 4,407,000
Interest income (expense) 20,000 (22,000) 14,000 (14,000)
---------- ---------- ---------- ----------
Income (loss) before provision for income taxes 210,000 6,000 285,000 (620,000)
Income tax provision (benefit) 84,000 2,000 114,000 (200,000)
---------- ---------- ---------- ----------
Net income (loss) $126,000 $4,000 $171,000 $(420,000)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income (loss) per share $0.04 $0.00 $0.05 $(0.13)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average common shares and equivalents 3,542,517 3,251,372 3,460,970 3,281,915
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
3
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CALIFORNIA CULINARY ACADEMY, INC.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
(Unaudited)
SIX MONTHS ENDED DECEMBER 31,
-----------------------------
1996 1995
------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $171,000 $(420,000)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 565,000 517,000
Tax provision 114,000 (200,000)
Provision for losses on accounts receivable 13,000 55,000
Gain on disposal of property (10,000)
Deferred rent 9,000
Stock issued for services 13,000
Changes in assets and liabilities:
Accounts receivable (605,000) 557,000
Inventories (117,000) 56,000
Prepaid expenses and other assets (136,000) (120,000)
Accounts payable (267,000) (353,000)
Accrued and other liabilities 36,000 (58,000)
Deferred revenues 184,000 (967,000)
Student prepayments 109,000 206,000
Other non-current liabilities (10,000)
------------- ------------
Net cash provided by (used in) operating activities 66,000 (724,000)
------------- ------------
Cash flows from investing activities:
Acquisition of property and equipment (1,319,000) (125,000)
Decrease in long-term investments 646,000
------------- ------------
Net cash used in investing activities (673,000) (125,000)
------------- ------------
Cash flows from financing activities:
Principal payments on term loan agreements (760,000) (125,000)
Principal payments on capital lease obligations (43,000) (34,000)
Proceeds from exercise of stock options and warrants 1,119,000 33,000
Repurchase of common stock (717,000)
Cost of Offering for Preferred Stock (11,000)
------------- ------------
Net cash provided by (used in) financing activities (412,000) (126,000)
------------- ------------
Net increase (decrease) in cash and cash equivalents (1,019,000) (975,000)
Cash and cash equivalents, beginning of period 3,283,000 2,359,000
------------- ------------
Cash and cash equivalents, end of period $2,264,000 $1,384,000
------------- ------------
------------- ------------
</TABLE>
4
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CALIFORNIA CULINARY ACADEMY, INC.
STATEMENTS OF CASH FLOWS
Supplemental disclosure of cash paid for:
For the Six Months Ended
------------------------
December 31,
------------
1996 1995
------- -------
Interest $35,000 $37,000
Income taxes 7,000
Supplemental disclosure of non-cash investing and financing activities:
The Academy issued 254,541 shares of Series A Preferred Stock in exchange for
$1,400,000 of Convertible Subordinated Debt for the six months ended December
31, 1996.
The Academy issued a promissory note of approximately $157,000 for the
repurchase of Common Stock for the six months ended December 31, 1996
The Academy entered into a capital lease obligation for approximately $190,000
for the six months ended December 31, 1995.
5
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CALIFORNIA CULINARY ACADEMY, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited, condensed financial statements and related footnotes
have been prepared in accordance with generally accepted accounting principles.
The balance sheet as of December 31, 1996 and related statements of operations
and cash flows for the three and six months ended December 31, 1996 and 1995 are
unaudited, but have been prepared on substantially the same basis as the annual
audited financial statements. In the opinion of management, the unaudited
financial statements reflect all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the financial
position, operating results and cash flows for those periods presented. The
unaudited results for the three and six months ended December 31, 1996 are not
necessarily indicative of results to be expected for the entire year.
Certain prior year amounts have been reclassified to conform to current year
presentation.
NOTE 2 -- INCOME TAXES
Deferred taxes are recorded based upon differences between the financial
statement and tax basis of assets and liabilities and available tax
carryforwards. The principal temporary differences that result in deferred tax
assets and liabilities are certain expenses accrued for financial reporting
purposes not deductible for tax purposes until paid, depreciation for income tax
purposes in excess of depreciation for financial reporting purposes and unused
net operating losses.
As of December 31, 1996 the Academy has federal and California net operating
loss carryforwards, for tax return purposes, of approximately $1,906,000 and
$1,092,000, respectively, which are available to offset future taxable income,
if any. Federal and California net operating loss carryforwards, if unused, are
scheduled to expire as follows:
Year ended Federal California
---------- ---------- ----------
6/30/1999 $470,000
6/30/2003 1,369,000 622,000
6/30/2011 537,000
---------- ----------
$1,906,000 $1,092,000
---------- ----------
---------- ----------
A valuation allowance has been provided for that portion of net operating losses
and deferred tax assets where it is more likely than not that the future tax
benefits of these items will not realized.
6
<PAGE>
NOTE 3 -- NET INCOME PER SHARE
Net income per share is based on the weighted average number of shares
outstanding during each of the respective periods, including the dilutive effect
of stock options, warrants and any other common stock equivalents using the
treasury stock method.
NOTE 4 -- BANK DEBT
As of December 31, 1996, the Academy had no outstanding loans with banks.
The Academy had a term loan with a bank which provided for borrowings up to
$750,000 with interest at 1% above the prime rate of the bank, the proceeds of
which were used to finance the purchase of new equipment. The financing
agreement contained various affirmative covenants including certain covenants
and ratios which the Academy was required to maintain. As of September 30,
1996, the Academy was in violation of certain covenants as follows: Other
indebtedness not to exceed $250,000 at anytime; net income not less than $1.00
on a cumulative quarterly basis beginning with the quarter ended 12/31/95; and
EBITDA Coverage Ratio not less than 2.00 . "EBITDA" is defined as net profit
before interest expense, income tax expense, depreciation and amortization
expense. "EBITDA Coverage Ratio" is defined as EBITDA divided by the aggregate
of total interest expense plus prior period current maturity of long-term debt
and the prior period maturity of subordinated debt. The term loan was repaid
during October 1996.
In June 1996, the Academy obtained a term loan from a bank in the amount of
$500,000, the proceeds of which were used for working capital requirements. The
line of credit was collateralized by a certificate of deposit at the same bank
in the amount of $500,000. The term loan was repaid during October 1996.
NOTE 5 -- PREFERRED STOCK
During March 1996 and July 1996, the Board of Directors and shareholders,
respectively, authorized the Academy to issue up to 5,000,000 shares of
Preferred Stock in one or more series to be determined by the Board of Directors
from time to time. An amendment to the Articles of Incorporation authorizing
the issuance of Preferred Stock was filed with the California Secretary of State
in August 1996. On August 23, 1996, the Academy became legally authorized to
issue up to 700,000 shares of Series A Preferred Stock. On the same date, the
entire issue of Convertible Subordinated Notes in the aggregate principal amount
of $1,400,000 automatically converted to 254,541 shares of Series A Preferred
Stock. The preferred stock was recorded net of $424,000 of issuance costs. As
of December 31, 1996, the Academy filed a registration statement to register for
resale the Common Stock underlying the Series A Preferred Stock.
The non-redeemable Series A Preferred Stock into which the Notes converted
provides for quarterly dividends at an annual rate of 7.5% per share from the
date of first issuance, when and if declared by the Board of Directors, with a
liquidation preference of $5.50 per share, plus
7
<PAGE>
accrued dividends. Although the Series A Preferred Stock is nonvoting, in the
event the Academy fails to pay a quarterly dividend, a meeting of the Board of
Directors can be called at which the holders of the Series A Preferred Stock
will be entitled to elect one-third of the Academy's Board of Directors. Upon
payment of the missed dividend(s), the right to elect one-third of the Board
will be rescinded. Each share of Series A Preferred Stock is convertible at the
option of the holder into the Academy's Common Stock at the conversion price of
$5.50 per share. After February 23, 1997, each share of Series A Preferred
Stock will convert automatically if the closing price of the Common Stock equals
or exceeds $8.00 for 20 consecutive days. Certain provisions for price
protection are set forth in the terms of the Series A Preferred Stock, but in no
event will the conversion price be less than $3.50.
The terms of the Convertible Subordinated Notes and the subsequent conversion to
Series A Preferred Stock provide for certain registration rights. Certain
penalties are payable to the Preferred shareholders in an amount equal to one
percent of the principal per month in the event that a registration statement
covering the resale of the Common Stock issuable upon conversion is not
effective within 90 days of (i) the date on which the Academy becomes legally
authorized to issue the Series A Preferred Stock and the Notes automatically
convert into Preferred Stock, or (ii) the date on which 100% of the Notes have
been converted to Common Stock. The penalty becomes payable as of November 23,
1996 unless the Academy uses its best efforts to have the registration statement
for the Common Stock issuable upon conversion of the Series A Preferred Stock
declared effective by the Securities and Exchange Commission. As of December
31, 1996 the registration statement was filed, but had not been declared
effective. Management believes it has used its best efforts in this regards.
NOTE 6 -- PROMISSORY NOTES
In July 1996, a prior executive officer of the Academy elected to exercise
approximately 112,000 vested stock options. The Academy subsequently entered
into a transaction with this prior officer, wherein the Academy purchased and
retired this stock in exchange for approximately $717,000, which approximated
fair market value and was comprised of approximately $560,000 in cash and
$157,000 in promissory notes bearing an interest rate of 8.75%. As of December
31, 1996, the outstanding balance of these notes was approximately $38,000.
Interest is to be paid monthly on the notes until January 1, 1998 when the note
is due.
NOTE 7 -- RELATED-PARTY TRANSACTIONS
In July 1996, the Academy entered into a five-year lease for an approximately
3,800 square foot facility in Salinas, California. The lessor is a partnership
controlled by the principal shareholder, Chief Executive Officer and Chairman of
the Board of Directors and another principal shareholder and member of the Board
of Directors. The new facility is an extension campus, which opened in October
1996. The monthly rent for the facility is be the greater of $3,900 or 8% of
gross sales plus a share of common area and exterior maintenance charges. The
Academy paid a lease acquisition fee of $150,000 upon execution of the lease
agreement. The lease acquisition fee will be amortized over the 10-year term of
the lease. The lease agreement
8
<PAGE>
includes a termination clause subject to revenue performance at the extension
campus during the first twelve months of operations and a termination fee should
the Academy invoke the termination clause.
In July 1992 and from time to time prior to August 1, 1991, the Chairman of the
Board and two other members of the Board of Directors, all principal
shareholders, made unsecured loans to the Academy. These loans were evidenced
by promissory notes and subsequently repaid. The loans carried interest at then
prevailing interest rates and called for warrants to be issued that entitled the
holders thereof to purchase an aggregate of 94 shares of the Academy's
then-existing Series A Preferred Stock. Warrants issued in conjunction with
these loans were converted, concurrently with the completion of the Initial
Public Offering in July 1993, into warrants to purchase 102,770 shares of common
stock at an exercise price of $4.18 per share. In August 1996, all warrants
were exercised to purchase 102,770 shares of common stock.
In August 1992, the Academy issued warrants to a shareholder who is related to
the Chairman of the Board of Directors to purchase 20 shares of its
then-existing Series A preferred stock at $8,000 per share. These warrants were
converted, concurrently with the completion of the Initial Public Offering in
July 1993, into warrants to purchase 23,900 shares of common stock at an
exercise price of $4.18. In August 1996, all warrants were exercised to purchase
23,900 shares of common stock.
In June 1996, the Academy issued 25,454 warrants at $6.625 per share to the
company serving as the selling agent of Convertible Subordinated Notes
("Notes"). The Chairman and President of the selling agent company is a member
of on the Academy's Board of Directors. As selling agent of the Notes, the
company was paid $189,000 for commission and fees and was entitled to warrants
to purchase Common Stock equal to 10% of the number of shares issued upon
conversion of the Notes to Series A Preferred Stock.
NOTE 8 -- NEW ACCOUNTING STANDARDS
During fiscal 1997, the Academy will adopt SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets Disposed of." SFAS No 121
establishes recognition and measurement criteria for impairment losses when the
Company no longer expects to recover the carrying value of a long-lived asset.
The effect on the financial statements of adopting SFAS No. 121 has not been
determined.
The Company is required to adopt SFAS No.123, "Accounting for Stock-based
Compensation" during fiscal 1997. SFAS No. 123 establishes accounting and
disclosure requirements using a fair value based method of accounting for
stock-based employee compensation plans. Under SFAS No.123, the Company may
either adopt the new fair value based accounting method or continue the
intrinsic value method and provide pro-forma disclosures of net income and
earnings per share as if the accounting provisions of SFAS No. 123 had been
adopted. The Company will only adopt the disclosure requirement of SFAS No.
123; and will include such information in its financial statements for the year
ending June 30, 1997.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Academy's revenues are derived primarily from culinary arts education as
well as restaurant, retail and media operations. Culinary arts education
primarily consists of the A.O.S. Culinary Arts Degree Program, the 30-week
Baking & Pastry Arts Certificate Program, and consumer education classes.
Starting in June 1996, the A.O.S. Culinary Arts Degree Program began enrollment
on a two week cycle. The program can accommodate up to 29 students per
enrollment period. Previously the A.O.S. Degree Program enrolled an average of
approximately 80 students per enrollment period with six enrollments per year.
The 30-week Baking & Pastry Arts Certificate Program enrolled classes ranging
from 15 to 20 students. As of December 31, 1996, there were 532 A.O.S. students
and 76 Baking & Pastry students enrolled in the Academy.
The change in class size and the change in the enrollment cycle for the A.O.S.
program from every two months to every two weeks was made to enable student
enrollments to be managed more effectively. With an increased number of choices
of start dates for students, the Academy is better able to manage individual
student start dates to optimize class sizes. Additionally, the Academy is able
to manage faculty labor costs and other program costs due to more predictable
class sizes. Further, the Academy is able to utilize space in its teaching
facility more effectively because it is able to free up previously underutilized
space for other revenue producing activities, such as contract training.
Consumer education consists of avocational and team building programs. The
Academy's team building programs offer groups the use of the Academy's
professional kitchens under the guidance of a chef instructor. This form of
team building is an alternative to other forms of combined business and social
interaction such as river rafting and sporting event outings. Restaurant and
retail operations include two restaurants and two private dining rooms generally
open to the public six days per week, banquet services generally offered seven
days per week and a small on-site retail shop offering student prepared foods,
beverages, cookbooks, video tapes, kitchen wares and selected clothing. Media
operations primarily consist of the marketing of the "Cooking at the Academy"
television series and the licensing of the Academy's name and cookbook content
for use in a series of cookbooks.
The Academy believes that manageable growth is achievable through the addition
of remote training facilities such as its College of Food campus at Salinas,
California (opened in October 1996) and by the addition of programs to be
offered to the food industry such as contract training and research and
development in the areas of product development, menu development, and
restaurant design. In order to facilitate this revised strategy, the Academy
formed the CCA Development Company whose mission is to provide the food service
industry with knowledge based resources, which complement the education the
Academy's degree programs offer.
10
<PAGE>
While management believes that this revised strategy will enable it to
significantly increase revenues by providing additional educational, training
and consultative resources to the food industry, there can be no assurance that
management will be able to successfully implement such a strategy or that it
will increase revenue significantly or at all.
Except for historical information contained herein this report contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The
forward-looking statements contained herein are based upon current expectations,
and actual results may differ materially. Forward-looking statements contained
in this Report involve numerous risks and uncertainties, including those
discussed in this Report and the Academy's Annual Report on Form 10-KSB for the
fiscal year ended June 30, 1996, that could cause actual results to differ
materially from those projected.
The primary risks and uncertainties that could affect future results include,
without limitation, (i) the event of a net loss of $999,000 for the year ended
June 30, 1996 from which there can be no assurance that the recent effort will
be successful in achieving profitable operations, or if achieved, that
profitability can be sustained in future periods; (ii) the inability of
management to successfully implement and manage the Academy's new growth
strategy of adding more remote training facilities and new programs to be
offered to the foodservice industry; (iii) uncertainties associated with
overhauling the structure of the A.O.S. degree program enrollment process and
the inability of the Academy to make appropriate adjustments in a timely manner;
(iv) the increased competition from both for-profit and non-profit culinary arts
education institutions; (v) the continued dependence on financial aid programs
to fund a majority of Academy's students' education, thereby providing a
significant portion of the Academy's revenues, together with the uncertainty
that budgetary constraints or other factors in the future could impact the
availability and amount of both public and private sources of financial aid;
(vi) increase of the Academy's cohort default rate, the percentage of Academy
students who have defaulted on repayment of government student loans, that could
in the future impair or limit the Academy's participation in government
financial aid programs; and (vii) the possibility that regulatory agencies that
directly or indirectly impact aspects of the Academy's business could revise
regulations in such a way that the Academy would not be able to comply with new
regulations in a timely manner.
Investors are cautioned not to place undue reliance on these forward-looking
statements, which reflect management's analysis only as of the date hereof. The
Academy undertakes no obligation to publicly release the results of any revision
to these forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
RESULTS OF OPERATIONS
The Academy had net income of $126,000 or $0.04 per share for the quarter ended
December 31, 1996 compared to net income of $4,000 for the quarter ended
December 31, 1995. The Academy had net income of $171,000 or $0.05 per share
for the six months ended December 31, 1996 compared to net loss of $420,000 or
$(0.13) for the six months ended December 31, 1995.
11
<PAGE>
The Company is required to adopt SFAS No.123, "Accounting for Stock-based
Compensation" during fiscal 1997. SFAS No. 123 establishes accounting and
disclosure requirements using a fair value based method of accounting for
stock-based employee compensation plans. The Company will only adopt the
disclosure requirement of SFAS No. 123; and will include such information in its
financial statements for the year ending June 30, 1997.
Net income for the quarter and the six months ended December 31, 1996 reflects
continuing operations of the Academy's main campus in San Francisco and the
opening in October 1996 of the College of Food campus in Salinas, California.
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED FOR THE SIX MONTHS ENDED
12/31/96 12/31/95 12/31/96 12/31/95
-------- -------- -------- --------
<S> <C> <C> <C> <C>
PRO-FORMA NET INCOME (LOSS):
Main Campus $179,000 $4,000 $240,000 $(420,000)
College of Food (53,000) (69,000)
-------- -------- -------- --------
$126,000 $4,000 $171,000 $(420,000)
-------- -------- -------- --------
-------- -------- -------- --------
PRO-FORMA PRIMARY EARNINGS PER SHARE DATA:
Main Campus $0.05 $0.00 $0.07 $(0.13)
College of Food (0.01) (0.02)
-------- -------- -------- --------
$0.04 $0.00 $0.05 $(0.13)
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
Management believes improved operating results at the Main Campus are a result
of the changes to the enrollment program and restructuring implemented in last
quarter of fiscal 1996. The result from the College of Food reflects the
opening of the first extension campus in Salinas in October 1996 and the initial
cost of operations. Management believes these costs are an investment in the
development and growth of the College of Food concept. The Academy celebrated
the grand opening of the Salinas campus in January 1997.
Total revenues for the quarter were $3,789,000 compared to $3,743,000 for the
same quarter last year, an increase of $45,000 or 1.2%. Total revenues for the
six months ended December 31, 1996 were $7,318,000, an increase of $125,000 or
1.7% from the same period in the prior year.
Revenues from culinary arts education, which typically account for approximately
80% of total revenues, for the quarter were $3,016,000 compared to $2,946,000
for the same quarter last year, an increase of $70,000 or 2.4%. Culinary arts
education revenue for the six months ended December 31, 1996 were $6,010,000
compared to $5,822,000 for the same period from last year, an increase of
$188,000 or 3.2%. The increase is due to primarily to higher program fees and
lower student attrition rate.
Enrollment in the A.O.S. Culinary Arts Degree Program and Baking & Pastry
Certificate Program totaled 608 students as of December 31, 1996 compared to 588
students as of December 31, 1995, an in crease of 20 students or 3.4%.
Management believes the increase is the result of changes to improve A.O.S.
Degree Program curriculum; change in the enrollment cycle to admit
12
<PAGE>
smaller classes of approximately 25 students every two weeks compared to
approximately 95 students every two months; and improvement to the enrollment
management process and the restructuring of its Admissions Department.
Management believes the increased enrollment is evidence the actions taken to
correct decreased enrollment problems have proven successful.
There can be no assurance, however, that management's corrective actions will be
continue to be successful or that enrollments or revenues will increase in the
future.
Restaurant and catering revenues for the quarter were $698,000 compared to
$628,000 for the same quarter last year, an increase of $70,000 or 11.1%.
Restaurant and catering revenues for the six months ended December 31, 1995 were
$1,077,000 compared to $1,056,000 for the same period last year, an increase of
$21,000 or 2.0% from the same period in the prior year. The increase is
primarily due to higher restaurant and banquet sales during the Christmas
holiday season.
Retail, media and other revenues for the quarter were $75,000 compared to
$169,000 for the same quarter last year, a decrease of $94,000 or 55.6%.
Retail, media and other revenues for the six months ended December 31, 1996 were
$231,000 compared to $315,000 for the same period in the prior year., a decrease
of $84,000 or 26.7%. The decrease is due primarily to lower sales in our retail
store, which was relocated within our San Francisco facility during December
1996.
Total cost of sales for the quarter were $813,000 compared to $835,000 for the
same quarter last year, a decrease of $22,000 or 2.6%. Total cost of sales for
the six months ended December 31, 1996 were $1,515,000 compared to $1,563,000
for the same period last year, a decrease of $48,000 or 3.1%. The decrease is
primarily related to lower food and beverage costs due to better cost control,
and lower merchandise costs due to lower activity in the Academy's retail shop.
Total fixed costs for the quarter were $906,000 compared to $895,000 for the
same quarter last year, an increase of $11,000 or 1.2%. The increase is due
primarily to higher depreciation and amortization expense related to $1,300,000
of capital expenditures, including approximately $497,000 for equipment and
construction of the Academy's first extension campus, during the six months
ended December 31, 1996. Total fixed costs for the six months ended December 31,
1996 were $1,809,000, a decrease of $20,000 or 1.1% from the same period in the
prior year. The decrease is primarily due to lower repairs and maintenance
costs offset by higher depreciation and amortization expense.
Total operating expenses for the quarter were $1,880,000 compared to $1,985,000
for the same quarter last year, a decrease of $105,000 or 5.3%. Total operating
expense for the six months ended December 31, 1996 were $3,723,000 compared to
$4,407,000 for the same period last year, a decrease of $684,000 or 15.5% from
the same period in the prior year. The decrease is primarily related to lower
compensation and benefits expense resulting from the Academy's restructuring
plan implemented during the fourth quarter of fiscal year 1996.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Academy financed its growth from the issuance of equity
securities in private and public transactions, borrowings from related parties,
lease and debt financing obligations and through cash flow provided by
operations.
At December 31, 1996, the Academy's principal sources of liquidity included cash
and cash equivalents of $2,264,000 and net accounts receivable of $3,378,000
compared to $3,284,000 and $2,787,000 as of June 30, 1996, respectively. The
decrease in cash and cash equivalents is due primarily to the Academy's using
cash and cash flow from operations to fund capital expenditures. The increase
in net accounts receivable is due primarily to increase enrollments.
The Academy has long-term obligations of $664,000 and working capital of
$815,000 at December 31, 1996 compared to $2,556,000 and $935,000 as of June 30,
1996, respectively. The decrease in long-term obligations is due primarily to
the conversion of $1,400,000 of subordinated debt to Series A Preferred Stock.
As of December 31, 1996, the Academy had no outstanding loans with banks. Other
term loans aggregate in the amount of $56,000. As of June 30, 1996, the Academy
had $792,000 of outstanding term loans with banks and $24,000 in other term
loans.
14
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
There are various legal claims and lawsuits pending by and against the Academy
that, in the opinion of management, after consultation with legal counsel, are
not expected to have in any material adverse effect on the results of
operations or financial position of the Academy.
ITEM 2. CHANGES IN SECURITIES None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None
ITEM 5. OTHER INFORMATION None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a.) EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- ------------------------------------------------
11.0 Statement re: Computation of Earnings per Share
27.0 Financial Data Schedule
(B.) REPORTS ON FORM 8-K None
15
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, as
amended, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CALIFORNIA CULINARY ACADEMY, INC.
February 18, 1997 By: /s/ Robert A. Stoffregen
-------------------------------------
Robert A. Stoffregen
Executive Vice President and
Chief Financial Officer
(Principal Accounting and Financial
Officer)
16
<PAGE>
CALIFORNIA CULINARY ACADEMY, INC.
STATEMENT RE: EARNINGS PER SHARE
<TABLE>
<CAPTION>
QUARTER ENDED DECEMBER 31,
--------------------------
1996 1995
---- ----
PRIMARY FULLY DILUTED PRIMARY FULLY DILUTED
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Net earnings (loss) $126,000 $126,000 $4,000 $4,000
----------- ----------- ----------- -----------
Weighted average common shares outstanding:
Common shares 3,317,343 3,317,343 3,251,372 3,251,372
Common equivalent shares:
Stock options and warrants 135,898 137,057
Convertible Preferred shares 89,276 89,839
----------- ----------- ----------- -----------
Weighted average common and common
equivalent shares outstanding 3,542,517 3,544,239 3,251,372 3,251,372
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Earnings (loss) per share $0.04 $0.04 $0.00 $0.00
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 31,
-----------------------------
1996 1995
---- ----
PRIMARY FULLY DILUTED PRIMARY FULLY DILUTED
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Net earnings (loss) $171,000 $171,000 $(420,000) $(420,000)
----------- ----------- ----------- -----------
Weighted average common shares outstanding:
Common shares 3,272,346 3,272,346 3,281,915 3,281,915
Common equivalent shares:
Stock options and warrants 121,883 135,739
Convertible Preferred shares 66,741 72,264
----------- ----------- ----------- -----------
Weighted average common and common
equivalent shares outstanding 3,460,970 3,480,349 3,281,915 3,281,915
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Earnings (loss) per share $0.05 $0.05 $(0.13) $(0.13)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF DECEMBER 31, 1996 AND THE STATEMENTS OF OPERATIONS FOR THE QUARTER
AND SIX MONTHS ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENT.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1997
<CASH> 2,264
<SECURITIES> 0
<RECEIVABLES> 3,671
<ALLOWANCES> 293
<INVENTORY> 325
<CURRENT-ASSETS> 6,247
<PP&E> 9,306
<DEPRECIATION> 4,371
<TOTAL-ASSETS> 12,264
<CURRENT-LIABILITIES> 5,432
<BONDS> 0
0
976
<COMMON> 9,144
<OTHER-SE> (3,952)
<TOTAL-LIABILITY-AND-EQUITY> 12,264
<SALES> 141
<TOTAL-REVENUES> 7,318
<CGS> 103
<TOTAL-COSTS> 1,515
<OTHER-EXPENSES> 5,473
<LOSS-PROVISION> 9
<INTEREST-EXPENSE> 36
<INCOME-PRETAX> 285
<INCOME-TAX> 114
<INCOME-CONTINUING> 171
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 171
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
