SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended APRIL 29, 2001
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
CHEFS INTERNATIONAL, INC.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 22-2058515
--------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
62 BROADWAY, POINT PLEASANT BEACH, NJ 08742
-------------------------------------------
(Address of principal executive offices)
(Registrant's telephone number, including area code) (732) 295-0350
--------------
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements of the past 90 days. Yes X . No .
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date:
CLASS OUTSTANDING SHARES AT MAY 18, 2001
----------------------------- ----------------------------------
Common Stock, $.01 par value 4,245,469
CHEFS INTERNATIONAL, INC.
I N D E X
PART I FINANCIAL INFORMATION PAGE NO.
--------------------- --------
ITEM 1. Consolidated Financial Statements
Consolidated Balance Sheets - 1 - 2
April 29, 2001 and January 28, 2001
Consolidated Statements of Operations - 3
Three Months Ended April 29, 2001 and
April 30, 2000
Consolidated Statements of Cash Flows - 4
Three Months Ended April 29, 2001 and
April 30, 2000
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
-----------------
PART I - FINANCIAL INFORMATION
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
------
APRIL 29, 2001 JANUARY 28, 2001
-------------- ----------------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 1,317,596 $ 1,159,580
Investments 425,839 385,711
Available-for-sale securities 1,201,464 978,652
Miscellaneous receivables 61,591 109,492
Inventories 1,065,913 1,129,260
Prepaid expenses 308,558 176,187
----------- -----------
TOTAL CURRENT ASSETS 4,380,961 3,938,882
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, at cost 20,327,415 20,045,070
Less: Accumulated depreciation 8,444,924 8,182,351
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, net 11,882,491 11,862,719
----------- -----------
OTHER ASSETS:
Investments 151,000 301,000
Goodwill - net 448,447 454,462
Liquor licenses - net 844,051 851,472
Equity in life insurance policies 545,115 545,115
Other 29,096 72,949
----------- -----------
TOTAL OTHER ASSETS 2,017,709 2,224,998
----------- -----------
$18,281,161 $18,026,599
=========== ===========
The accompanying notes are an integral part of these financial statements.
1
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
APRIL 29, 2001 JANUARY 28, 2001
-------------- ----------------
(Unaudited)
CURRENT LIABILITIES:
Notes and mortgages payable $ 167,600 $ 166,707
Accounts payable 769,650 582,276
Accrued payroll 145,593 186,687
Accrued expenses 595,209 477,825
Income taxes payable 13,636 --
Gift certificates 308,810 416,430
----------- -----------
TOTAL CURRENT LIABILITIES 2,000,498 1,829,925
----------- -----------
NOTES AND MORTGAGES PAYABLE 871,409 905,675
----------- -----------
OTHER LIABILITIES 532,861 534,234
----------- -----------
STOCKHOLDERS' EQUITY:
Capital stock - common $.01 par value,
Authorized 15,000,000 shares,
Issued 4,245,469 and 4,257,085 respectively 42,455 42,571
Additional paid-in capital 32,129,023 32,138,798
Accumulated deficit (17,338,129) (17,466,667)
Accumulated other comprehensive income 48,435 51,043
Treasury stock (5,391) (8,980)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 14,876,393 14,756,765
----------- -----------
$18,281,161 $18,026,599
=========== ===========
The accompanying notes are an integral part of these financial statements.
2
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED APRIL 29, 2001 AND APRIL 30, 2000 (Unaudited)
2001 2000
---- ----
SALES $ 5,118,623 $ 4,891,354
COST OF GOODS SOLD 1,637,515 1,574,153
----------- -----------
GROSS PROFIT 3,481,108 3,317,201
----------- -----------
OPERATING EXPENSES:
Payroll and related expenses 1,563,026 1,457,868
Other operating expenses 1,074,981 1,010,096
Depreciation and amortization 278,161 270,406
General and administrative expenses 436,377 438,484
----------- -----------
TOTAL OPERATING EXPENSES 3,352,545 3,176,854
----------- -----------
INCOME FROM OPERATIONS 128,563 140,347
----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (21,980) (29,631)
Investment income 41,955 47,269
----------- -----------
OTHER INCOME, NET 19,975 17,638
----------- -----------
INCOME BEFORE INCOME TAXES 148,538 157,985
PROVISION FOR INCOME TAXES 20,000 21,000
----------- -----------
NET INCOME $ 128,538 $ 136,985
=========== ===========
BASIC INCOME PER COMMON SHARE $ .03 $ .03
=========== ===========
Number of shares outstanding 4,245,469 4,488,162
The accompanying notes are an integral part of these financial statements.
3
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED APRIL 29, 2001 AND APRIL 30, 2000 (Unaudited)
2001 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 128,538 $ 136,985
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 278,161 270,406
----------- -----------
CASH PROVIDED BY OPERATIONS 406,699 407,391
----------- -----------
Increase (decrease) in cash attributable to changes
in assets changes in assets and liabilities:
Miscellaneous receivables 47,901 (6,542)
Inventories 63,347 (17,914)
Prepaid expenses (132,371) (98,197)
Accounts payable 187,374 141,991
Accrued expenses and other liabilities (32,703) 105,384
Income taxes payable 13,636 11,000
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 553,883 543,113
----------- -----------
CASH FLOWS (USED IN) INVESTING ACTIVITIES:
Capital expenditures (284,497) (470,159)
Liquor license purchase -- (357,873)
Sale or redemption of investments 121,250 200,000
Purchase of investments (236,798) (217,700)
Due on sale of discontinued operations - payments -- 18,902
Other assets 43,853 (31,873)
----------- -----------
NET CASH (USED IN) INVESTING ACTIVITIES (356,192) (858,703)
----------- -----------
CASH FLOWS (USED IN) FINANCING ACTIVITIES:
Repayment of debt (33,373) (60,039)
Purchase of treasury stock (6,302) --
----------- -----------
NET CASH (USED IN) FINANCING ACTIVITIES (39,675) (60,039)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 158,016 (375,629)
CASH AND CASH EQUIVALENTS:
Beginning 1,159,580 1,314,247
----------- -----------
Ending $ 1,317,596 $ 938,618
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payment for:
Interest $ 21,954 $ 21,717
=========== ===========
Income taxes $ 3,500 $ 10,000
=========== ===========
Noncash Transactions:
(Decrease) in fair value of securities available for sale $ (2,608) $ --
=========== ===========
The accompanying notes are an integral part of these financial statements.
4
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 28, 2001 and notes thereto included in the Company's Annual
Report on Form 10-KSB filed with the SEC. The results of operations and the cash
flows for the three month period ended April 29, 2001 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: INVENTORIES
Inventories consist of the following: APRIL 29, 2001 JANUARY 28, 2001
-------------- ----------------
Food $ 509,006 $ 597,161
Beverages 142,422 127,820
Supplies 414,485 404,279
------------ -----------
$ 1,065,913 $ 1,129,260
============ ===========
NOTE 4: INCOME TAXES
At April 29, 2001, the Company had net deferred tax assets of approximately
$2,890,000 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
$2,890,000 has been established to offset these assets.
NOTE 5: 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
5
before February 20, 2004, with mandatory prepayments based on MCF's cash flow.
The notes were secured by a first lien on all of MCF's assets. However, the
Company agreed to subordinate the notes to up to $1,750,000 of additional
financing for MCF. Based on the estimated present value of the payments,
management recorded a valuation allowance of $601,050 against the second and
third notes. The 5% of MCF capital stock retained by the Company was valued at
$35,000. During fiscal 1999, MCF requested a restructuring of the terms of the
second and third notes. During the quarter ended October 31, 1999, the Company's
Board of Directors ("Board") was advised by MCF that MCF had achieved a positive
cash flow during its second quarter and pursuant to the requirements of Note C,
owed the Company approximately $41,800 in interest. The Board agreed to allow
MCF to make monthly payments of the said Note C interest amount with the final
payment due June 1, 2000. Additionally, the Board agreed to allow MCF to
continue making monthly partial payments on Note B. During the quarter ended
July 30, 2000, the Note C interest was paid off as per the payment schedule.
At the May 24, 2000 Board of Director's meeting, the Board authorized management
to negotiate and execute a settlement and satisfaction of the 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 recognized a gain from
discontinued operations of approximately $322,000 in its financial statements
for the quarter ended July 30, 2000. The gain represented partial recoveries of
the valuation allowance provided for against Notes B and C when MCF was sold in
1997.
6
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements regarding future performance in this Quarterly Report on 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
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 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. Segment information is not presented since all
of the Company's revenue is attributable to a single reportable segment.
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. During the
first year of operation, Moore's experienced a seasonality factor similar to but
not as dramatic as the seasonality factor of the New Jersey seafood restaurants.
The Company operated nine restaurants including Moore's, during the three months
ended April 30, 2000.
7
RESULTS OF OPERATIONS
SALES
Sales for the three months ended April 29, 2001 ("fiscal 2002") were
$5,118,600, an increase of $227,200 or 4.6 %, as compared to $4,891,400 for the
three months ended April 30, 2000 ("fiscal 2001"). The increase includes an
increase of $100,000 or 11% in sales at the Vero Beach, Florida restaurant due
to the completion of a municipal park adjacent to the restaurant and an increase
in sales of $179,200 or 52% at Moore's primarily because Moore's operated for
the entire thirteen weeks of the first quarter this year as compared to only ten
weeks for last year's first quarter. The other seven restaurants combined had
lower sales of approximately $52,000 primarily due to the poor March weather in
New Jersey. The number of customers served increased by 1.7% during the first
quarter this year, while the average check paid per customer increased by 2.9%.
GROSS PROFIT; GROSS MARGIN
Gross profit was $3,481,100 or 68% of sales for the three months ended
April 29, 2001 compared to $3,317,200 or 67.8% of sales for the quarter ended
April 30, 2000. This year's improvement was primarily attributable to
improvement in the gross profit % at Moore's versus last year. The other eight
restaurants combined had a slightly higher gross profit margin percent during
this year's first quarter. In an effort to further improve gross margins, new
menus were inserted in May 2001 into the New Jersey restaurants which included
some price increases and lower cost menu items. Additionally, management secured
favorable pricing on bulk shrimp purchases for fiscal 2002 which should improve
gross profit margins in the seafood restaurants this summer.
OPERATING EXPENSES
Total operating expenses increased by 5.5% from $3,176,900 for the first
quarter of fiscal 2001 to $3,352,500 for the first three months of fiscal 2002.
Payroll and related expenses for this year's first quarter were 30.5% of sales
versus 29.8% for the corresponding quarter of the previous year. The combination
of salary increases due primarily to the tight labor market and higher health
insurance costs account for the increase. Other operating expenses were 21% of
sales this year versus 20.7% of sales for last year's first quarter. The primary
causes of the higher percentage cost this year were increases in utility costs,
specifically dramatic increases in natural gas costs, and increased occupancy
costs due to higher rent expenses and an increase in property insurance costs
related to the tightening of the property insurance market. Depreciation and
amortization expenses increased by approximately $7,800 over the corresponding
quarter due to the depreciation expenses associated with capital expenditures
incurred during fiscal 2001 and the first quarter this year. General and
administrative expenses were approximately $2,000 less than last year.
OTHER INCOME AND EXPENSE
Interest expense decreased by $7,700 for the three months ended April 29,
2001 as compared to last year's first quarter due to debt reduction. Investment
income was approximately $5,300 less than last year primarily because last
year's investment income included approximately $21,000 in interest income
associated with notes receivable from the February 1997 sale of discontinued
operations (see note 5).
NET INCOME
Net Income was $128,500 or $.03 per share for the first quarter ended April
29, 2001 as compared to $137,000 or $.03 per share for the comparable period
last year.
8
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily from revenues derived
from its restaurants.
The Company's ratio of current assets to current liabilities was 2.19:1 at
April 29, 2001 compared to 2.15:1 at the year ended January 28, 2001. Working
capital was $2,380,500 at the end of the first quarter versus $2,109,000 at the
year-end, an increase of $271,500. For the quarter net cash increased by
$158,000. The primary components of this year's first quarter cash flow were net
income of $148,500, an increase in prepaid expenses of $132,400 due to increased
insurance premium costs, an increase of $187,400 in accounts payable due to
higher sales, capital expenditures of $284,500 for restaurant improvements and
company vehicles and investment purchases of $236,800 for available-for-sale
securities consisting of convertible bonds, mutual funds and equity securities.
Additionally, approximately $6,300 was paid by the Company to repurchase 6,841
shares of the Company's outstanding stock pursuant to a Stock Repurchase Plan
("Stock Plan") authorized by the Company's Board of Directors in May, 2000.
During the first quarter ended April 29, 2001, the Company canceled a total of
11,250 of the repurchased shares, including repurchases incurred during fiscal
2001.
During the corresponding three month period in fiscal 2001, working capital
decreased by $348,100 and net cash decreased by $375,600. The primary components
of last year's quarterly cash flow were net income of $137,000, capital
expenditures of $828,000, including approximately $636,400 for the purchase of a
liquor license and furniture, fixtures and equipment for Moore's, and debt
repayment of $60,000.
Subsequent to the quarter ended April 29, 2001 through May 30, 2001, the Company
purchased an additional 1,475 shares of Chefs' Common Stock pursuant to the
Stock Plan.
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 2002, including planned capital expenditures of approximately $295,000 in
addition to those incurred during the first quarter and any additional common
stock repurchases.
INFLATION
It is not possible for the Company to predict with any accuracy the effect
of inflation upon the results of its operations in future years. The price of
food is extremely volatile and projections as to its performance in the future
vary and are dependent upon a complex set of factors. There is a proposal before
Congress to raise the minimum wage by $1.00 to $6.15 per hour. However,
management believes that the increase would have a minimal impact on payroll
costs because the proposed increase would not change the cash wage of the
Company's tipped employees and a majority of the non-tipped employees already
receive in excess of $6.15 per hour
CHEFS INTERNATIONAL, INC.
9
PART II OTHER INFORMATION
None.
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: JUNE 13, 2001
10