SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended OCTOBER 28, 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
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CHEFS INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 22-2058515
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
62 BROADWAY, POINT PLEASANT BEACH, NJ 08742
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(Address of principal executive offices)
(Registrant's telephone number, including area code) (732) 295-0350
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(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X . No .
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date:
CLASS OUTSTANDING SHARES AT NOVEMBER 16, 2001
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Common Stock, $.01 par value 3,966,497
CHEFS INTERNATIONAL, INC.
I N D E X
PART I FINANCIAL INFORMATION PAGE NO.
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ITEM 1. Consolidated Financial Statements
Consolidated Balance Sheets - 1 - 2
October 28, 2001 and January 28, 2001
Consolidated Statements of Operations - 3
Nine and Three Months Ended October 28, 2001 and
October 29, 2000
Consolidated Statements of Cash Flows - 4
Nine Months Ended October 28, 2001 and
October 29, 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
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PART I - FINANCIAL INFORMATION
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
OCTOBER 28, 2001 JANUARY 28, 2001
---------------- ----------------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 2,206,605 $ 1,159,580
Investments 351,210 385,711
Available for sale securities 1,670,352 978,652
Miscellaneous receivables 51,898 109,492
Inventories 1,213,942 1,129,260
Prepaid expenses 167,189 176,187
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TOTAL CURRENT ASSETS 5,661,196 3,938,882
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PROPERTY, PLANT AND EQUIPMENT, at cost 20,641,631 20,045,070
Less: Accumulated depreciation 8,967,034 8,182,351
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PROPERTY, PLANT AND EQUIPMENT, net 11,674,597 11,862,719
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OTHER ASSETS:
Investments 151,000 301,000
Goodwill - net 436,418 454,462
Liquor licenses - net 829,209 851,472
Equity in life insurance policies 545,115 545,115
Deferred income taxes 1,223,000 --
Other 127,741 72,949
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TOTAL OTHER ASSETS 3,312,483 2,224,998
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TOTAL ASSETS $20,648,276 $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
OCTOBER 28, 2001 JANUARY 28, 2001
---------------- ----------------
(Unaudited)
CURRENT LIABILITIES:
Notes and mortgages payable $ 288,948 $ 166,707
Accounts payable 601,622 582,276
Accrued payroll 229,746 186,687
Accrued expenses 674,307 477,825
Income taxes payable 67,147 0
Other liabilities 241,836 416,430
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TOTAL CURRENT LIABILITIES 2,103,606 1,829,925
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NOTES AND MORTGAGE PAYABLE 1,833,129 905,675
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OTHER LIABILITIES 604,608 534,234
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STOCKHOLDERS' EQUITY:
Capital stock - common $.01 par value,
Authorized 15,000,000 shares,
Issued and outstanding 3,966,497
and 4,257,085 respectively 39,665 42,571
Additional paid-in capital 31,549,522 32,138,798
Accumulated deficit (15,366,554) (17,466,667)
Accumulated other comprehensive income:
Unrealized gains (losses) on available
for sale securities (30,068) 51,043
Loss on derivative instruments (81,747) --
Treasury stock (3,885) (8,980)
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TOTAL STOCKHOLDERS' EQUITY 16,106,933 14,756,765
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 20,648,276 $ 18,026,599
============ ============
The accompanying notes are an integral part of these financial statements.
2
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
NINE MONTHS ENDED THREE MONTHS ENDED
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OCTOBER 28, 2001 OCTOBER 29, 2000 OCTOBER 28, 2001 OCTOBER 29, 2000
---------------- ---------------- ---------------- ----------------
SALES $ 16,899,502 $ 16,393,823 $ 5,389,121 $ 5,351,335
COST OF GOODS SOLD 5,352,406 5,280,038 1,709,692 1,720,360
------------ ------------ ----------- -----------
GROSS PROFIT 11,547,096 11,113,785 3,679,429 3,630,975
------------ ------------ ----------- -----------
OPERATING EXPENSES:
Payroll and related expenses 4,915,787 4,721,103 1,588,748 1,545,541
Other operating expenses 3,372,589 3,226,222 1,099,904 1,072,370
Depreciation and amortization 827,143 825,955 274,866 278,839
General and administrative expenses 1,525,027 1,370,050 609,259 487,531
------------ ------------ ----------- -----------
TOTAL OPERATING EXPENSES 10,640,546 10,143,330 3,572,777 3,384,281
------------ ------------ ----------- -----------
INCOME FROM OPERATIONS 906,550 970,455 106,652 246,694
------------ ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (74,184) (82,060) (31,922) (24,790)
Interest income 150,747 149,799 64,051 48,686
------------ ------------ ----------- -----------
OTHER INCOME, NET 76,563 67,739 32,129 23,896
------------ ------------ ----------- -----------
INCOME FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES 983,113 1,038,194 138,781 270,590
PROVISION (CREDIT) FOR INCOME TAXES (1,117,000) 115,000 (1,208,000) 32,000
------------ ------------ ----------- -----------
INCOME FROM CONTINUING OPERATIONS $ 2,100,113 $ 923,194 $ 1,346,781 $ 238,590
============ ============ =========== ===========
GAIN ON DISPOSAL OF
DISCONTINUED ICE
CREAM BUSINESS --- 322,212 --- ---
------------ ------------ ----------- -----------
NET INCOME $2,100,113 $1,245,406 $1,346,781 $ 238,590
============ ============ =========== ===========
INCOME PER COMMON SHARE FROM
CONTINUING OPERATIONS $ .50 $ .21 $ .33 $ .06
============ ============ =========== ===========
BASIC INCOME PER COMMON SHARE $ .50 $ .28 $ .33 $ .06
============ ============ =========== ===========
Number of shares outstanding 4,211,947 4,385,303 4,143,557 4,256,730
The accompanying notes are an integral part of these financial statements.
3
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED OCTOBER 28, 2001 AND OCTOBER 29, 2000 (Unaudited)
2001 2000
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OPERATING ACTIVITIES:
Net income $ 2,100,113 $ 1,245,406
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 827,142 825,955
Deferred income taxes (1,223,000) ---
Gain on disposal of discontinued business --- (322,212)
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CASH PROVIDED BY OPERATIONS 1,704,255 1,749,149
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Increase (decrease) in cash attributable to
changes in assets and liabilities:
Miscellaneous receivables 57,594 10,657
Inventories (84,682) (231,438)
Prepaid expenses 8,998 (54,699)
Accounts payable 19,346 33,763
Accrued expenses and other liabilities 53,574 226,462
Income taxes payable 67,147 (1,586)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 1,826,232 1,732,308
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INVESTING ACTIVITIES:
Capital expenditures (598,713) (874,311)
Liquor license purchase --- (357,873)
Sale or redemption of investments 243,875 349,000
Purchase of investments (832,185) (780,100)
Due on sale of discontinued operations - payments -- 570,330
Other assets (54,792) 10,629
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NET CASH USED IN INVESTING ACTIVITIES (1,241,815) (1,082,325)
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FINANCING ACTIVITIES:
Repayment of debt (150,305) (320,578)
Debt proceeds 1,200,000
Purchase of treasury stock (17,193) ---
Purchase of common stock (569,894) (168,000)
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 462,608 (488,578)
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NET INCREASE IN CASH AND
CASH EQUIVALENTS 1,047,025 161,405
CASH AND CASH EQUIVALENTS at beginning 1,159,580 1,314,247
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CASH AND CASH EQUIVALENTS at end $ 2,206,605 $ 1,475,652
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payment for:
Interest paid $ 70,136 $ 83,139
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Income taxes paid $ 42,529 $ 116,586
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Noncash Transactions:
Decrease in fair value of securities available for sale $ (81,111) $ ---
=========== ===========
Loss on derivative instruments $ (81,747) $ ---
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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: GENERAL
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 for such year filed with the SEC. The results of
operations and the cash flows for the nine month period ended October 28, 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.
NEW ACCOUNTING PRONOUNCEMENT:
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 142 "Goodwill and Other Intangibles" ("SFAS
No. 142"). SFAS No. 142 is effective for the Company on January 28, 2002. SFAS
No. 142 primarily addresses the accounting for goodwill and intangible assets
subsequent to their acquisition. The statement requires that goodwill and
indefinite lived intangible assets no longer be amortized and be tested for
impairment at least annually. The amortization period of intangible assets with
finite lives will no longer be limited to forty years. The Company is currently
assessing the impact of this statement.
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: OCTOBER 28, 2001 JANUARY 28, 2001
---------------- ----------------
Food $ 661,935 $ 597,161
Beverages 140,533 127,820
Supplies 411,474 404,279
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$ 1,213,942 $ 1,129,260
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NOTE 4: INCOME TAXES
At October 28, 2001, the Company had net deferred tax assets of approximately
$2,554,000 arising principally from net operating loss carryforwards. However,
due to the uncertainty that the Company will generate sufficient income in the
future to fully utilize these carryforwards, an allowance of $1,331,000 has been
established to offset these assets. For the nine months ended October 28, 2001
the valuation allowance was reduced by $1,641,000, principally by recognition of
a deferred tax asset of $1,223,000. Management has determined that it is more
likely than not that future taxable income will be sufficient to partially
utilize the net operating loss carryforwards.
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,
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consisting of a $500,000 cash payment and three notes totaling $1,100,000. The
first note (Note A) for $100,000 was due on or before March 24, 1997 and was
paid in full on a timely basis. The second note (Note B) for $500,000 was due in
installments through July 1, 2000, and the third note (Note C) for $500,000 was
due on or before February 20, 2004, with mandatory prepayments based on MCF's
cash flow. The notes were secured by a first lien on all of MCF's assets.
However, the Company agreed to subordinate the notes to up to $1,750,000 of
additional financing for MCF. Based on the estimated present value of the
payments, management recorded a valuation allowance of $601,050 against the
second and third notes. The 5% of MCF capital stock retained by the Company was
valued at $35,000. During fiscal 1999, MCF requested a restructuring of the
terms of the second and third notes. During the quarter ended October 31, 1999,
the Company's Board of Directors ("Board") was advised by MCF that MCF had
achieved a positive cash flow during its second quarter and pursuant to the
requirements of Note C, owed the Company approximately $41,800 in interest. The
Board agreed to allow MCF to make monthly payments of the said Note C interest
amount with the final payment due June 1, 2000. Additionally, the Board agreed
to allow MCF to continue making monthly partial payments on Note B. During the
quarter ended July 30, 2000, the Note C interest was paid off as per the payment
schedule.
At the May 24, 2000 Board 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 (Unaudited)
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
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Certain statements regarding future performance in this Quarterly Report 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 nine months
ended October 29, 2000.
RESULTS OF OPERATIONS
---------------------
SALES.
Sales for the nine months ended October 28, 2001 ("fiscal 2002") were
$16,899,500, an increase of $505,700 or 3.1%, as compared to $16,393,800 for the
nine months ended October 29, 2000 ("fiscal 2001"). For the third quarter ended
October 28, 2001, sales were $5,389,100, an increase of $37,800 or .7% , as
compared to last year's third quarter. The increases include increases in sales
of $262,900 or 14.8% and $83,500 or 22.6% for the nine and three month periods
at the Vero Beach, Florida restaurant ("Vero") due to the completion of a
municipal park ("Vero Park") adjacent to the restaurant and sales increases of
$293,100 or 21.0% and $34,700 or 6.3% at Moore's compared to the same periods
for fiscal 2001. Moore's operated for the entire thirteen weeks of the first
quarter this year as compared to ten weeks for last year's first quarter,
whereas the comparable second and third quarter periods each include thirteen
weeks of operations. The other seven restaurants combined had decreased sales of
approximately $50,300 and $80,400 for the nine and three month
7
periods last year primarily due to the September 11, 2001 tragedy ("9/11") and
the weakening national economy. The 9/11 tragedy has had the greatest impact on
the Company's Cocoa Beach, Florida restaurant ("Cocoa") because the location of
Patrick Air Force Base, a military base south of the restaurant, has resulted in
the indefinite closure of Route A1A, the sole access highway to the restaurant
from the south. Since 9/11, weekly sales at Cocoa are down approximately 33%
versus last year and for the quarter Cocoa is down approximately $86,200 or
17.6% in sales versus last year. The number of customers served in the nine
restaurants increased by .3% for the nine months and decreased by 2.2% for the
third quarter, while the check average paid per customer increased this year by
2.8% and 3.0% for the respective nine and three month periods.
GROSS PROFIT; GROSS MARGIN.
Gross profit was $11,547,100 or 68.3% of sales for the nine month period and
$3,679,400 or 68.3% of sales for the quarter ended October 28, 2001, compared to
$11,113,800 or 67.8% and $3,631,000 or 67.9% for the comparable periods of
fiscal 2001. The primary reason for the improvement was lower costs of high
volume seafood items including shrimp, flounder, lobsters and scallops which are
primary components of the Company's menus. Management was able to secure
favorable pricing on bulk shrimp purchases for the balance of fiscal 2002 which
should translate into improved gross profit margins for the fourth quarter.
Additionally, Moore's gross profit has improved versus last year.
OPERATING EXPENSES.
Total operating expenses increased by 4.9% from $10,143,300 during the nine
months of fiscal 2001 to $10,640,500 during the nine months of fiscal 2002, and
by 5.6% from $3,384,300 during the third quarter of fiscal 2001 to $3,572,800
for the third quarter of fiscal 2002. Payroll and related expenses were 29.1% of
sales for the nine months and 29.5% for the third quarter this year compared to
28.8% and 28.9% respectively for the comparable periods last year. The increase
in payroll expenses as a percent of sales during the third quarter this year is
partially attributable to the 9/11 impact at Cocoa as management has maintained
employee salaries at such location despite the substantial decrease in sales.
Other operating expenses increased to 20% of sales versus 19.7% of sales for the
nine month comparison and to 20.4% versus 20% for the three month comparison
primarily due to increases in utility costs, higher occupancy costs due to
higher property insurance premiums and rent expenses, and to a one-time special
property assessment of $62,700 at Vero for its portion of the Vero Park project.
Depreciation and amortization expenses were essentially the same as last year
for the comparable periods. The increase in this year's general and
administrative expenses of $155,000 and $121,700 for the nine and three month
periods are primarily attributed to increased worker compensation and group
insurance costs of $26,200, higher salaries of $35,700, $18,500 more in training
and recruiting costs and $80,000 to terminate an agreement with Garcimex of New
Jersey. In 1995, the Company entered into an agreement with Garcimex to open
Mexican restaurants in New Jersey under the trade name of Garcia's in exchange
for royalty payments of 3% or gross sales. The Company opened its only Garcia's
Mexican Restaurant at the Monmouth Mall in Eatontown, New Jersey in April 1996.
The Company will continue to operate the Monmouth Mall as a Garcia's and pay the
royalty fees until the end of the current fiscal year (see "Liquidity and
Capital Resources").
OTHER INCOME AND EXPENSE.
Interest expense decreased by $7,900 for the nine month period compared to last
year due to debt repayment. However, during the third quarter ended October 28,
2001, interest expense was approximately $7,100 higher than last year due to
interest expenses associated with a $1,200,000 bank loan the Company borrowed
from its primary bank to finance the renovation of a building adjacent to
Moore's ("Building B"), which management expects to open early next year as a
Mexican theme type restaurant. The loan is repayable in monthly installments of
principal with interest at an annual rate of 7.57% through September 2011.
Investment income was approximately the same as last year for the comparable
nine month periods and $15,400 higher this year during the third quarter
primarily due to the increase in dividends received on Company investments this
year.
NET INCOME.
For the nine months ended October 28, 2001, net income from continuing
operations was $2,100,100 or $.50 per share compared to net income from
continuing operations of $923,200 or $.21 per share and net income of $1,245,400
or $.28 per share for the nine months ended October 29, 2000. Net income for the
nine months ended October 28, 2001 includes the recognition of a deferred tax
asset of
8
$1,223,000 relating to the Company's net operating loss carryforwards (see note
4). Last year's net income included a gain of approximately $322,200 from
discontinued operations (see note 5). For the quarter ended October 28, 2001,
net income was $1,346,800 or $.33 per share compared to net income of $238,600
or $.06 per share for last year's third quarter. This year's third quarter net
income includes income relating to the recognition of the deferred tax asset for
$1,223,000 and a reduction of approximately $51,800 in income at Cocoa versus
last year.
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 2.69:1 at
October 28, 2001 compared to 2.15:1 at the year ended January 28, 2001. Working
capital was $3,557,600 at October 28, 2001 versus $2,109,000 at the year-end, an
increase of $1,448,600. During the nine months ended October 28, 2001, net cash
increased by $1,047,000. The primary components of this year's cash flow were
net income, after adjustments for depreciation, amortization and deferred taxes,
of $1,704,000, capital expenditures of $500,600 for restaurants improvements and
Company vehicles and approximately $98,100 in design and construction costs
associated with Building B, investment purchases of $832,200 for
available-for-sale securities consisting of convertible bonds, mutual funds and
equity securities, debt repayment of $150,300, the new bank loan proceeds of
$1,200,000 to be used to finance Building B renovation costs, and $569,900 to
repurchase a block of an aggregate 262,603 shares of the Company's outstanding
common stock from three stockholders and their affiliates at $2.10 per share,
for cash. The repurchase was authorized by the Company's Board of Directors and
the shares were subsequently canceled. Additionally, approximately $17,200 was
paid by the Company to repurchase 17,916 shares of the Company's outstanding
stock pursuant to a Stock Repurchase Plan ("Stock Plan") authorized by the Board
in May, 2000. During the nine months ended October 28, 2001, the Company
canceled a total of 24,641 of the repurchased shares, including repurchases
incurred during fiscal 2001.
During the corresponding nine month period ended October 29, 2000, working
capital increased by $806,100 and net cash increased by $161,400. The primary
components of last year's cash flow statement were net income, after adjustments
for depreciation, amortization and gain on disposal of discontinued business, of
$1,749,000, an increase in inventories of $231,400 resulting from bulk seafood
purchases due to favorable market pricing, an increase of $226,500 in accrued
expenses, capital expenditures of $1,232,200, including approximately $688,200
for the purchase of a liquor license and furniture, fixtures and equipment for
Moore's and debt repayment of $320,600. Additionally, last year's cash flow
included $570,300 of payments attributable to the February 1997 sale of MCF (see
note 5).
During the third quarter ended October 28, 2001, the Company's $500,000 bank
line of credit ("bank line") was modified to extend the termination date from
June 30, 2002 to June 30, 2003. The interest rate is variable, equal to the
monthly LIBOR Market Index Rate plus 2.00%. The entire $500,000 is currently
available for use.
Subsequent to the quarter ended October 28, 2001, management engaged a market
research firm to determine a tradename for the new Mexican restaurant at
Building "B" and Garcia's. After extensive focus group marketing analysis and
legal review and research, management chose Escondido's Mexican Restaurant
("Escondido's") as the new tradename. Additionally, trademark applications have
been filed to register federal service marks for both Escondido's Mexican
Restaurant and Escondido's A Mexican Cantina. Garcia's will begin to operate as
Escondido's on February 1, 2002.
Management believes that funds from operations and the Company's $500,000 bank
line of credit will be sufficient to meet obligations for the nine restaurants
for the balance of fiscal 2002, including planned capital expenditures of
approximately $103,000 in addition to those incurred during the nine months and
any additional common stock repurchases pursuant to the Stock Plan.
INFLATION.
It is not possible for the Company to predict with any accuracy the effect of
inflation upon the results of
9
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.
10
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
PART II
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: December 12, 2001
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