<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 March 31, 1997.
[ ] 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 of incorporation (I.R.S. Employer Identification
or organization) 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 April
30, 1997, was 3,352,569.
Transitional Small Business Disclosure Format. Yes No X .
-------- -------
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CALIFORNIA CULINARY ACADEMY, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS
(Unaudited) (Unaudited) (Unaudited)
March 31, June 30, March 31,
1996 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,674,000 $ 3,283,000 $ 2,845,000
Accounts receivable, net 2,638,000 2,786,000 2,904,000
Inventories 190,000 208,000 310,000
Prepaid expenses and other assets 324,000 160,000 211,000
Deferred tax asset 254,000 145,000
----------- ----------- -----------
Total Current Assets 5,080,000 6,582,000 6,270,000
----------- ----------- -----------
Property and equipment, net 4,243,000 4,117,000 4,799,000
Intangible assets, net 577,000 546,000 451,000
Long-term investments - restricted 646,000
Other assets 489,000 967,000 553,000
----------- ----------- -----------
TOTAL ASSETS $10,389,000 $12,858,000 $12,073,000
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 510,000 $ 749,000 $ 347,000
Accrued liabilities 334,000 477,000 548,000
Deferred revenue 3,607,000 3,795,000 3,696,000
Student prepayments 270,000 258,000 342,000
Current portion of notes payable 250,000 292,000 50,000
Current portion of capital lease o 84,000 76,000 66,000
Other current liabilities 26,000
----------- ----------- -----------
Total Current Liabilities 5,055,000 5,647,000 5,075,000
----------- ----------- -----------
Notes payable 104,000 500,000 4,000
Capital lease obligations 230,000 215,000 165,000
Other non-current liabilities 72,000 441,000 436,000
Subordinated convertible notes payable 1,400,000
Shareholders' Equity:
Convertible Preferred stock, no par
value, 5,000,000 shares authorized,
254,541 shares issued and outsta 967,000
Common stock, no par value,
20,000,000 shares authorized,
3,352,319 shares issued and outs 8,377,000 8,741,000 9,289,000
Accumulated deficit (3,449,000) (4,086,000) (3,863,000)
----------- ----------- -----------
Total Shareholders' Equity 4,928,000 4,655,000 6,393,000
----------- ----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $10,389,000 $12,858,000 $12,073,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
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CALIFORNIA CULINARY ACADEMY, INC.
STATEMENTS OF OPERATIONS
FOR THE QUARTER AND NINE MONTHS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------- --------------------------
1997 1996 1997 1996
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Culinary arts education $3,401,000 $3,413,000 $ 9,433,000 $ 9,243,000
Restaurants & catering 623,000 465,000 1,700,000 1,521,000
Retail, media and other 97,000 120,000 306,000 427,000
---------- ---------- ----------- -----------
Total revenues 4,121,000 3,998,000 11,439,000 11,191,000
Cost of sales
Food & beverage 478,000 446,000 1,263,000 1,290,000
Program supplies 256,000 127,000 612,000 490,000
Scholarships & grants 50,000 67,000 159,000 137,000
Merchandise & other 110,000 130,000 375,000 416,000
---------- ---------- ----------- -----------
894,000 770,000 2,409,000 2,333,000
---------- ---------- ----------- -----------
Gross Margin 3,227,000 3,228,000 9,030,000 8,858,000
Fixed costs
Occupancy 432,000 435,000 1,307,000 1,307,000
Repairs & maintenance 107,000 92,000 294,000 326,000
Telephone, security & other 100,000 139,000 283,000 344,000
Depreciation & amortization 314,000 270,000 878,000 788,000
---------- ---------- ----------- -----------
Total fixed costs 953,000 936,000 2,762,000 2,765,000
Operating expenses
Compensation & benefits 1,586,000 1,573,000 4,225,000 4,614,000
Outside services 76,000 167,000 378,000 529,000
Advertising & promotion 141,000 158,000 409,000 535,000
Legal & other 292,000 290,000 805,000 917,000
---------- ---------- ----------- -----------
2,095,000 2,188,000 5,817,000 6,595,000
Interest income (expense) 13,000 (4,000) 26,000 (18,000)
---------- ---------- ----------- -----------
Income (loss) before provision for income taxes 192,000 100,000 477,000 (520,000)
Income tax provision (benefit) 77,000 42,000 191,000 (158,000)
---------- ---------- ----------- -----------
Net income (loss) $115,000 $58,000 $286,000 $(362,000)
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Net income (loss) per share $0.03 $0.02 $0.08 $(0.11)
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Weighted average common shares and equivalents 3,698,791 3,318,958 3,654,156 3,294,630
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
</TABLE>
3
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CALIFORNIA CULINARY ACADEMY, INC.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
(Unaudited)
NINE MONTHS ENDED MARCH 31,
--------------------------
1997 1996
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 286,000 $ (362,000)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 878,000 784,000
Tax provision 191,000 (158,000)
Provision for losses on accounts receivable 9,000 (48,000)
Gain on disposal of property 2,000
Deferred rent 7,000
Stock issued for services 13,000
Changes in assets and liabilities:
Accounts receivable (126,000) 726,000
Inventories (102,000) 68,000
Prepaid expenses and other assets (100,000) (254,000)
Accounts payable (402,000) (291,000)
Accrued and other liabilities 59,000 (115,000)
Deferred revenues (99,000) (752,000)
Student prepayments 84,000 39,000
Other non-current liabilities (15,000)
----------- ----------
Net cash provided by (used in) operating activities 687,000 (365,000)
----------- ----------
Cash flows from investing activities:
Acquisition of property and equipment (1,465,000) (158,000)
Decrease in long-term investments 646,000
----------- ----------
Net cash used in investing activities (819,000) (158,000)
----------- ----------
Cash flows from financing activities:
Principal payments on term loan agreements (738,000) (188,000)
Principal payments on capital lease obligations (59,000) (57,000)
Proceeds from exercise of stock options and warrants 1,265,000 83,000
Repurchase of common stock (717,000)
Payment of Preferred Stock dividends (37,000)
Cost of Offering - Preferred Stock (20,000)
----------- ----------
Net cash used in financing activities (306,000) (162,000)
----------- ----------
Net decrease in cash and cash equivalents (438,000) (685,000)
Cash and cash equivalents, beginning of period 3,283,000 2,359,000
----------- -----------
Cash and cash equivalents, end of period $ 2,845,000 $1,674,000
----------- ----------
</TABLE>
4
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CALIFORNIA CULINARY ACADEMY, INC.
STATEMENTS OF CASH FLOWS
Supplemental disclosure of cash paid for:
FOR THE NINE MONTHS ENDED
MARCH 31,
1997 1996
------- -------
Interest $43,000 $64,000
Income taxes 10,000 9,000
Supplemental disclosure of non-cash investing and financing activities:
The Academy issued 254,541 shares of Series A Preferred Stock upon conversion
of $1,400,000 of Convertible Subordinated Debt for the nine months ended March
31, 1997.
The Academy issued a promissory note of approximately $157,000 for the
repurchase of Common Stock for the nine months ended March 31, 1997.
The Academy entered into a capital lease obligation for approximately
$190,000 for the nine months ended March 31, 1996.
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 March 31, 1997 and related statements of
operations and cash flows for the three and nine months ended March 31, 1997
and 1996 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 nine months
ended March 31, 1997 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 March 31, 1997 the Academy has federal and California net operating
loss carryforwards, for tax return purposes, of approximately $2,205,000 and
$989,000, 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
---------- ---------- --------
6/30/1997 $337,000
6/30/2001 $652,000
6/30/2004 $ 290,000
6/30/2005 1,360,000
6/30/2011 555,000
---------- --------
$2,205,000 $989,000
---------- --------
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
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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 March 31, 1997, 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
$433,000 of issuance costs.
7
<PAGE>
if declared by the Board of Directors, with a liquidation preference of $5.50
per share, plus 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 trading 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.
In connection with the offer and sale of the convertible subordinated notes,
the Academy granted 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 became 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 became payable as of November 23,
1996 unless the Academy used its best efforts to have the registration
statement for the resale of Common Stock issuable upon conversion of the
Series A Preferred Stock was declared effective by the Securities and
Exchange Commission. Management believes it has used its best efforts in
this regards. On April 15, 1997, the registration statement to register for
resale the Common Stock underlying the Series A Preferred Stock was declared
effective by the Securities and Exchange Commission.
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 March
31, 1997, 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 individual who is a
principal shareholder and former 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 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
8
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agreement. The lease acquisition fee will be amortized over the 10-year term
of the lease. The lease agreement 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 individuals who were then 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 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
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share". The Company
is required to adopt SFAS No. 128 in the second quarter of fiscal 1998 and
will restate at that time earnings per share (EPS) data for prior periods to
conform with SFAS No. 128. Earlier application is not permitted.
SFAS No. 128 replaces current EPS reporting requirements and requires a dual
presentation of basic and diluted EPS. Basic EPS excludes dilution and is
computed by dividing net income available to common shareholders by the
weighted average number of shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted in to common
stock.
Pro-forma amounts for basic and diluted EPS assuming SFAS No. 128 had been in
effect for the quarter and year-to-date periods are as follows:
FOR THE QUARTER ENDED FOR THE NINE MONTHS ENDED
3/31/97 3/31/96 3/31/97 3/31/96
----------- ----------- ----------- -----------
Basic $0.03 $0.02 $0.07 $(0.11)
Diluted $0.03 $0.02 $0.07 $(0.11)
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 adopt the disclosure requirement of SFAS No. 123
and will include such information in its financial statements for the fiscal
year ending June 30, 1997.
9
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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 and
incidentally from 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, College of Food Culinary
Skills and Baking and Pastry Skills, continuing professional education
programs 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 March 31, 1997, there were 574 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.
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 develop programs and
knowledge-based products which complement the education which the Academy
already provides.
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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 revenues 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
efforts 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, which 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 $115,000 or $0.03 per share for the quarter
ended March 31, 1997 compared to net income of $58,000 or $0.02 per share for
the quarter ended March 31, 1996. The Academy had net income of $286,000 or
$0.08 per share for the nine months ended March 31, 1997 compared to net loss
of $362,000 or $(0.11) for the nine months ended March 31, 1996.
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Net income for the quarter and the nine months ended March 31, 1997 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.
FOR THE QUARTER ENDED FOR THE NINE MONTHS ENDED
3/31/97 3/31/96 3/31/97 3/31/96
-------- ------- --------- ---------
NET INCOME (LOSS):
Main Campus $160,000 $58,000 $ 401,000 $(362,000)
College of Food (45,000) (115,000)
-------- ------- --------- ---------
$115,000 $58,000 $ 286,000 $(362,000)
-------- ------- --------- ---------
-------- ------- --------- ---------
PRIMARY EARNINGS PER SHARE DATA:
Main Campus $ 0.04 $0.02 $ 0.11 $(0.11)
College of Food (0.01) (0.03)
-------- ------- --------- ---------
$ 0.03 $0.02 $ 0.08 $(0.11)
-------- ------- --------- ---------
-------- ------- --------- ---------
Management believes improved operating results at the Main Campus are a
result of the changes to the enrollment program and restructuring implemented
in the last quarter of fiscal 1996. The results from the College of Food
reflect 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.
Total revenues for the quarter were $4,121,000 compared to $3,998,000 for the
same quarter last year, an increase of $123,000 or 3.1%. Total revenues for
the nine months ended March 31, 1997 were $11,439,000, an increase of
$248,000 or 2.2% 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 $3,401,000 compared
to $3,413,000 for the same quarter last year, a decrease of $12,000 or 0.4%.
The decrease during the quarter was due primarily to Christmas break schedule
changes resulting in fewer revenue recognition days in the third quarter of
1997 compared to the same quarter in the prior year. Culinary arts education
revenues for the nine months ended March 31, 1997 were $9,433,000 compared to
$9,243,000 for the same period last year, an increase of $190,000 or 2.1%.
The increase is due 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 650 students as of March 31, 1997 compared to 659
students as of March 31,
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1996, a decrease of 9 students or 1.4%. The decrease in ending enrollments
was expected due to the change in the A.O.S. Culinary Arts Degree Program
enrollment structure wherein smaller class sizes are enrolled with greater
frequency. Due to the fact that classes graduating had been higher in size
than starting classes for a period of time, ending enrollment count was
depressed. Management believes that this depressive effect is substantially
over by the end of the third quarter of 1997. New student enrollments
totaled 472 for the nine months ended March 31, 1997 compared to 442 students
for the same period in the prior year, an increase of 6.8%. Management
believes the increase is the result of changes to improve A.O.S. Degree
Program curriculum; change in the enrollment cycle to admit smaller classes
with greater frequency; and improvements to the enrollment management process
and the restructuring of its Admissions Department. Management believes the
increased enrollment activity is evidence that the actions taken to correct
prior declining enrollments 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 ended March 31, 1997 were
$623,000 compared to $465,000 for the same quarter last year, an increase of
$158,000 or 34.0%. Restaurant and catering revenues for the nine months ended
March 31, 1997 were $1,700,000 compared to $1,521,000 for the same period
last year, an increase of $179,000 or 11.8% from the same period in the prior
year. The increase is primarily due to higher banquet sales.
Retail, media and other revenues for the quarter were $97,000 compared to
$120,000 for the same quarter last year, a decrease of $23,000 or 19.2%.
Retail, media and other revenues for the nine months ended March 31, 1997
were $306,000 compared to $427,000 for the same period in the prior year, a
decrease of $121,000 or 28.3%. The decrease is due primarily to lower sales
in the Academy's retail store, which was relocated within the San Francisco
facility during December 1996 and the conversion of the former store into a
kitchen, offset by higher book royalty revenue.
Total cost of sales for the quarter ended March 31, 1997 were $894,000
compared to $770,000 for the same quarter last year, a increase of $124,000
or 16.1%. Total cost of sales for the nine months ended March 31, 1997 were
$2,409,000 compared to $2,333,000 for the same period last year, an increase
of $76,000 or 3.3%. The increase is primarily related to higher program
supplies cost as a result of higher number of enrolling students, offset by
lower cost of food and beverage resulting from purchasing and inventory
management efficiencies.
Total fixed costs for the quarter ended March 31, 1997 were $953,000 compared
to $936,000 for the same quarter last year, an increase of $17,000 or 1.8%.
The increase is due primarily to higher depreciation and amortization expense
related to additional capital expenditures, including equipment and leasehold
improvements for the Academy's first extension campus during the nine months
ended March 31, 1997, offset by reductions in telephone, security and other
costs. Total fixed costs for the nine months ended March 31, 1997 were
$2,762,000, a decrease of $3,000 or 0.1% from the same period in the prior
year. The decrease is due primarily to lower telephone, security and other
costs as well as lower repair and maintenance costs, offset by higher
depreciation and amortization expense.
13
<PAGE>
Total operating expenses for the quarter ended March 31, 1997 were $2,095,000
compared to $2,188,000 for the same quarter last year, a decrease of $93,000
or 4.3%. Total operating expense for the nine months ended March 31, 1997
were $5,817,000 compared to $6,594,000 for the same period last year, a
decrease of $777,000 or 11.8% from the same period in the prior year. The
decrease is primarily related to lower compensation and benefits expense,
reduction in outside services and lower advertising and promotion expense
resulting from the Academy's restructuring plan implemented during the fourth
quarter of fiscal year 1996.
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 March 31, 1997, the Academy's principal sources of liquidity included cash
and cash equivalents of $2,845,000 and net accounts receivable of $2,904,000
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 $605,000 and working capital of
$1,195,000 at March 31, 1997 compared to $2,556,000 and $935,000 as of June
30, 1996. The decrease in long-term obligations is due primarily to the
conversion of $1,400,000 of subordinated debt to Series A Preferred Stock in
August 1996.
As of March 31, 1997, the Academy had no outstanding loans with banks. Other
term loans aggregate in the amount of $54,000. 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
(a). The annual meeting of the shareholders' was held on March 15, 1997.
Five directors were elected. The vote was as follows:
NUMBER OF SHARES
NAME FOR AGAINST ABSTAIN
--------------------- --------- ------- -------
Theodore G. Crocker 3,089,869 None 130,205
W. Bruce G. Bailey 2,957,366 None 130,205
James D. Cockman 2,949,766 None 137,805
Frederick L. Dame 2,949,766 None 137,805
Grover T. Wickersham 2,957,366 None 130,205
All directors were elected to one year terms.
(b.) The shareholders' ratified the appointment of Deloitte & Touche, LLP
as the Academy's independent public accountants. The vote was as follows:
NUMBER OF SHARES
FOR AGAINST ABSTAIN
--------- ------- -------
2,954,316 127,285 5,970
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.
May 15, 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 MARCH 31,
----------------------------------------------------
1997 1996
Primary Fully Diluted Primary Fully Diluted
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Net earnings (loss) $ 115,000 $ 115,000 $ 58,000 $ 58,000
---------- ------------- ---------- -------------
Weighted average common shares
outstanding:
Common shares 3,323,752 3,323,752 3,318,958 3,318,958
Common equivalent shares:
Stock options and warrants 120,498 120,498
Convertible Preferred shares 254,541 254,541
---------- ------------- ---------- -------------
Weighted average common and common
equivalent shares outstanding 3,698,791 3,698,791 3,318,958 3,318,958
---------- ------------- ---------- -------------
---------- ------------- ---------- -------------
Earnings (loss) per share $0.03 $0.03 $0.02 $0.02
---------- ------------- ---------- -------------
---------- ------------- ---------- -------------
NINE MONTHS ENDED MARCH 31,
----------------------------------------------------
1997 1996
Primary Fully Diluted Primary Fully Diluted
---------- ------------- ---------- -------------
Net earnings (loss) $ 286,000 $ 286,000 $ (362,000) $ (362,000)
---------- ------------- ---------- -------------
Weighted average common shares
outstanding:
Common shares 3,289,734 3,289,734 3,294,630 3,294,630
Common equivalent shares:
Stock options and warrants 109,881 109,881
Convertible Preferred shares 254,541 254,541
---------- ------------- ---------- -------------
Weighted average common and common
equivalent shares outstanding 3,654,156 3,654,156 3,294,630 3,294,630
---------- ------------- ---------- -------------
---------- ------------- ---------- -------------
Earnings (loss) per share $0.08 $0.08 $(0.11) $(0.11)
---------- ------------- ---------- -------------
---------- ------------- ---------- -------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF MARCH 31, 1997 AND THE STATEMENT OF OPERATIONS FOR THE QUARTER ENDED
MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 2845
<SECURITIES> 0
<RECEIVABLES> 3184
<ALLOWANCES> 280
<INVENTORY> 310
<CURRENT-ASSETS> 6270
<PP&E> 9452
<DEPRECIATION> 4653
<TOTAL-ASSETS> 12073
<CURRENT-LIABILITIES> 5075
<BONDS> 0
0
967
<COMMON> 9289
<OTHER-SE> (3863)
<TOTAL-LIABILITY-AND-EQUITY> 12073
<SALES> 33
<TOTAL-REVENUES> 4121
<CGS> 24
<TOTAL-COSTS> 870
<OTHER-EXPENSES> 3048
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (13)
<INCOME-PRETAX> 192
<INCOME-TAX> 77
<INCOME-CONTINUING> 115
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 115
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
