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 JULY 25, 2004
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 AUGUST 13, 2004
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Common Stock, $.01 par value 3,926,133
CHEFS INTERNATIONAL, INC.
I N D E X
PAGE NO.
PART I FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
Consolidated Balance Sheets - 1-2
July 25, 2004 (unaudited) and January 25, 2004
Consolidated Statements of Operations - 3
Six and Three Months Ended July 25, 2004 and
July 27, 2003 (unaudited)
Consolidated Statements of Cash Flows - 4
Six and Three Months Ended July 25, 2004 and
July 27, 2003 (unaudited)
Notes to Consolidated Financial Statements (unaudited) 5-6
ITEM 2. Management's Discussion and Analysis 7-10
of Financial Condition and Results of Operations
ITEM 3. Controls and Procedures 11
PART II OTHER INFORMATION
ITEM 6. Exhibits 12
SIGNATURES 13
CERTIFICATIONS 14 - 19
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM I - CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
ASSETS
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JULY 25, 2004 JANUARY 25, 2004
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(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 2,815,496 $ 1,410,899
Available-for-sale securities 2,322,647 2,435,090
Miscellaneous receivables 110,549 79,076
Receivable - related party 40,000 40,000
Inventories 1,314,995 1,240,054
Deferred income taxes 332,000 654,000
Prepaid expenses and other 87,486 197,976
----------- -----------
TOTAL CURRENT ASSETS 7,023,173 6,057,095
----------- -----------
PROPERTY AND EQUIPMENT, at cost 19,490,899 20,076,717
Less: Accumulated depreciation 8,705,387 8,714,945
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PROPERTY AND EQUIPMENT, net 10,785,512 11,361,772
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OTHER ASSETS:
Asset held for sale 50,181 50,181
Receivable - related party 18,523 38,523
Liquor Licenses 839,732 839,732
Non-Compete agreement 33,667 39,980
Equity in life insurance policies 641,024 641,024
Deferred income taxes 370,000 370,000
Other 169,652 138,656
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TOTAL OTHER ASSETS 2,122,779 2,118,096
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$19,931,464 $19,536,963
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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
------------------------------------
JULY 25, 2004 JANUARY 25, 2004
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(Unaudited)
CURRENT LIABILITIES:
Notes and mortgages payable,
current maturities $ 268,633 $ 266,346
Accounts payable 865,647 822,590
Accrued payroll 142,650 124,293
Accrued expenses 751,419 633,863
Gift certificates 349,333 523,167
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TOTAL CURRENT LIABILITIES 2,377,682 2,370,259
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NOTES AND MORTGAGES PAYABLE 1,563,664 1,694,092
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OTHER LIABILITIES:
Accrued retirement 582,417 589,720
Interest rate swap agreements 102,325 149,602
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OTHER LIABILITIES 684,742 739,322
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STOCKHOLDERS' EQUITY:
Capital stock - common $.01 par value,
Authorized 15,000,000 shares,
Issued and outstanding 3,926,133 39,261 39,261
Additional paid-in capital 31,488,831 31,488,831
Accumulated deficit (16,121,147) (16,815,013)
Accumulated other comprehensive
(loss) income (101,569) 20,211
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TOTAL STOCKHOLDERS' EQUITY 15,305,376 14,733,290
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$19,931,464 $19,536,963
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The accompanying notes are an integral part of these financial statements.
2
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
SIX MONTHS ENDED THREE MONTHS ENDED
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JULY 25, 2004 JULY 27, 2003 JULY 25, 2004 JULY 27, 2003
------------- ------------- ------------- -------------
SALES $ 12,184,325 $ 12,126,530 $ 6,331,859 $ 6,447,736
COST OF GOODS SOLD 3,886,531 3,792,601 2,020,193 2,018,282
------------ ------------ ------------ ------------
GROSS PROFIT 8,297,794 8,333,929 4,311,666 4,429,454
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Payroll and related expenses 3,613,228 3,672,202 1,840,703 1,890,195
Other operating expenses 2,568,767 2,690,147 1,276,929 1,321,097
Depreciation and amortization 534,708 574,646 262,949 280,989
General and administrative expenses 921,039 936,935 468,447 470,170
(Gain) loss on closing restaurant (415,473) 410,024 (415,473) 410,024
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 7,222,269 8,283,954 3,433,555 4,372,475
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 1,075,525 49,975 878,111 56,979
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense (73,939) (82,668) (36,406) (40,395)
Investment income 77,280 75,580 41,376 38,949
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE), NET 3,341 (7,088) 4,970 (1,446)
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 1,078,866 42,887 883,081 55,533
PROVISION FOR INCOME TAXES 385,000 10,000 319,000 19,000
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NET INCOME $ 693,866 $ 32,887 $ 564,081 $ 36,533
============ ============ ============ ============
BASIC AND DILUTED INCOME
PER COMMON SHARE $ .18 $ .01 $ .14 $ .01
============ ============ ============ ============
Weighted average number
of shares outstanding 3,926,133 3,926,045 3,926,133 3,926,045
The accompanying notes are an integral part of these financial statements.
3
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JULY 25, 2004 AND JULY 27, 2003 (Unaudited)
2004 2003
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 693,866 $ 32,887
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 534,708 574,646
Deferred income taxes 322,000 --
Loss (gain) on sale of investments 5,640 (5,187)
(Gain) loss on closing restaurant (415,473) 410,024
Changes in assets and liabilities:
(Increase) decrease in:
Miscellaneous receivables (11,473) (55,375)
Inventories (74,941) (156,279)
Prepaid expenses 110,490 (73,617)
Increase (decrease) in:
Accounts payable 43,057 329,179
Accrued expenses and other liabilities 74,776 74,105
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NET CASH PROVIDED BY OPERATING ACTIVITIES 1,282,650 1,130,383
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (378,854) (258,946)
Closing of restaurant (120,000) (60,000)
Sale of restaurant 842,192
Sale or redemption of investments 649,397 73,950
Purchase of investments (711,651) (9,185)
Other (30,996) 6,657
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NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 250,088 (247,524)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt (128,141) (134,838)
Purchase and retirement of treasury stock -- (59,200)
Additional paid in capital -- 1,990
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NET CASH (USED IN) FINANCING ACTIVITIES (128,141) (192,048)
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NET INCREASE IN CASH AND CASH EQUIVALENTS 1,404,597 690,811
CASH AND CASH EQUIVALENTS:
Beginning 1,410,899 1,069,857
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Ending $ 2,815,496 $ 1,760,668
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payment for:
Interest $ 74,267 $ 82,729
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Income taxes paid $ -- $ 4,000
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Noncash Transactions:
(Decrease) increase in fair value of securities available for sale $ (169,057) $ 230,017
=========== ===========
Change in fair value of derivatives accounted for as hedges $ 47,277 $ 15,982
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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: 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 25, 2004 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 six and three month periods ended July 25, 2004 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. There are no common stock
equivalents.
NOTE 3: INVENTORIES
Inventories consist of the following: JULY 25, 2004 JANUARY 25, 2004
------------- ----------------
Food $ 691,373 $ 644,547
Beverages 171,116 149,243
Supplies 452,506 446,264
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$ 1,314,995 $ 1,240,054
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NOTE 4: INCOME TAXES
At July 25, 2004, the Company had net deferred tax assets of approximately
$702,000 arising principally from net operating loss carryforwards. Management
has determined that it is more likely than not that future taxable income will
be sufficient to utilize the net operating loss carryforwards. Therefore, no
allowance has been established to offset these assets.
NOTE 5: DEPRECIATION AND AMORTIZATION
The Company depreciates its property and equipment using the straight-line
method over the estimated useful lives of the assets, ranging from three to
forty years.
NOTE 6: RESTAURANT CLOSINGS
In June 2003 the Company closed one of its Mexican theme restaurants. In
connection with the closing, the Company wrote off leasehold improvements and
other equipment of $230,024 and entered into a
5
Surrender Agreement with the restaurant's landlord which required the Company to
pay $180,000, of which $60,000 was paid during the second quarter ended July 27,
2003. The remaining balance of $120,000 was paid during the first quarter ended
April 25, 2004. The Company recorded a loss on closing this restaurant of
$410,000 for the six months ended July 27, 2003.
Additionally, the Company granted the landlord an option to purchase the closed
restaurant's liquor license. The landlord declined to exercise the right to
purchase the liquor license and subsequent to the quarter ended April 25, 2004,
the Company entered into an agreement with an unaffiliated buyer to sell the
license for approximately $675,000 pending government approval of the license
transfer. During the second quarter ended July 25, 2004, the buyer declined to
purchase the license. The license is currently for sale.
Subsequent to the year ended January 25, 2004, the Company entered into a
contract to sell the restaurant and property located in Jensen Beach, Florida.
Pursuant to the terms of the contract, the restaurant was sold on May 3, 2004
for $900,000 with the Company recognizing a gain of approximately $415,500 which
is included in the results of operations for the second quarter ended July 25,
2004.
NOTE 7: HEDGING INSTRUMENTS
The Company has interest rate swap agreements relating to a portion of its
variable rate debt. The interest rate swap agreements are designated as cash
flow hedges and are reflected at fair value in the consolidated balance sheet
and the related losses on these contracts are deferred in stockholders' equity
as a component of accumulated other comprehensive (loss).
NOTE 8: OTHER
On November 21, 2003, the Company announced that it had received an offer from
the principal shareholders of the Company, who own approximately 61% of the
Company's outstanding common stock, to purchase all of the remaining outstanding
shares of common stock for a cash purchase price of $1.75 per share, subject to
various conditions. The Company's Board of Directors appointed a Special
Committee, consisting of the three non-principal shareholder directors, to
review and analyze the proposal. The initial purchase price of $1.75 was
rejected by the Special Committee which concluded that the offered price did not
adequately reflect the Company's value. A subsequent offer of $3.12 per share
was deemed acceptable by the Special Committee and accepted by the Board. In
view of the fact that the proposal is subject to various conditions, no
assurance can be given that the proposed purchase will be completed.
NOTE 9: RESIGNATION OF PRESIDENT, TREASURER, PRINCIPAL EXECUTIVE AND PRINCIPAL
FINANCIAL OFFICER
In April 2004, Anthony C. Papalia, the Company's president, treasurer, principal
executive and principal financial officer requested of the Board that he be
released from his employment contract effective at the close of business on June
28, 2004 "...in order to pursue personal interests ...." The Board agreed to
release Mr. Papalia from his employment contract at said date and he agreed to a
one year non-competition agreement with the Company. The Board elected Robert M.
Lombardi as the new president of the Company. Martin Fletcher, the Company's
controller, succeeded Mr. Papalia as the Company's treasurer and principal
financial officer.
6
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 2 - 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, substantial increases in insurance costs (in
addition to those substantial increases which commenced in April 2002), the
impact of competition to the Company's restaurants, pricing and acceptance of
the Company's food products.
RECENT DEVELOPMENTS
On June 1, 2004, the Company announced that a Special Committee of its Board of
Directors, appointed to evaluate a proposal made by the Lombardi Restaurant
Group (owned by the principal stockholders of the Company) to purchase the
interests of the Company's minority stockholders at a cash purchase price of
$3.12 per share (increased from an initial offer of $1.75 per share), had
determined to recommend that the Board accept the proposal. The Board has
accepted the proposal. As the proposal is subject to various conditions, no
assurances can be given that the proposed purchase will be completed.
The Company reported in its Annual Report on Form 10-KSB for the year ended
January 25, 2004 that the employment of Anthony C. Papalia as the Company's
president, principal executive officer, treasurer and principal financial
officer, was ending effective at the close of business on June 28, 2004, at Mr.
Papalia's request, to enable him "...to pursue personal interests...." Robert M.
Lombardi, chairman of the board, succeeded Mr. Papalia as president and
principal executive officer. Martin Fletcher, the Company's controller,
succeeded Mr. Papalia as treasurer and principal financial officer.
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,
insurance 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. The
Company closed its Escondido's Mexican Restaurant in the Monmouth Mall during
the second quarter of calendar year 2003 and sold its Jensen Beach, Florida
Lobster Shanty during the second quarter of calendar year 2004. The Company
opened its first seafood restaurant in November 1978 and currently has six
free-standing seafood restaurants in New Jersey and Florida
7
operating under the names "Jack Baker's Lobster Shanty" or "Baker's Wharfside."
The Company opened its first Mexican theme restaurant, located in New Jersey, in
April 1996, under the name "Garcia's." On February 1, 2002, Garcia's began to
operate under the trade name Escondido's ("Monmouth"). The Company closed this
restaurant during the second quarter of fiscal 2004. In February 2000, the
Company commenced the operation of Moore's Tavern and Restaurant, ("Moore's"), a
free-standing restaurant in Freehold, New Jersey serving an eclectic American
food type menu. On January 29, 2002, the Company commenced operation of
Escondido's Mexican Restaurant ("Freehold"), a Mexican theme restaurant located
in Freehold, New Jersey, adjacent to Moore's. On April 1, 2002, the Company
acquired the operations of Mr. Manatee's Casual Grille ("Manatee's"), a casual
theme restaurant primarily featuring seafood items, located in Vero Beach,
Florida near the Company's Vero Beach, Florida Lobster Shanty. The sale of the
Jensen Beach restaurant in May 2004 reduced the number of restaurants operated
by the Company to nine.
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. Moore's experiences a seasonality factor similar to but not as dramatic
as the seasonality factor of the New Jersey seafood restaurants. The Company's
Freehold Escondido's experiences a seasonality factor similar to Moore's.
Manatee's follows the seasonality pattern of the other Florida restaurants.
The Company operated eleven restaurants during the second quarter of its prior
fiscal year.
RESULTS OF OPERATIONS
SALES
Sales for the six months ended July 25, 2004 ("fiscal 2005") were
$12,184,300, an increase of $57,800 or .5 %, as compared to $12,126,500 for the
six months ended July 27, 2003 ("fiscal 2004"). For the second quarter ended
July 25, 2004, sales were $6,331,900, a decrease of $115,900 or 1.8%, as
compared to the second quarter of fiscal 2004. Increased sales of $546,100 and
$223,800 for the nine restaurants that operated throughout the entire comparable
periods were offset by decreased sales of $311,800 and $127,300 at the Monmouth
Escondido's ("Monmouth") which was closed in June 2003 and decreased sales of
$176,500 and $212,300 at the Jensen Beach, Florida Lobster Shanty ("Jensen
Beach") which was sold in May 2004. The three Florida restaurants that operated
during the comparable periods realized increased sales of $246,800 or 6.3% and
$50,200 or 3.2% versus last year due to a very strong tourist season in Florida
and steady sales this summer. The six New Jersey restaurants that operated
during the comparable periods realized increased sales of $299,300 or 4.2% and
$173,600 or 3.9% versus last year primarily due to a milder winter and despite a
lackluster tourist season due to a rainy July when sales were down by $113,500
or 6.3% versus last July. Sales in both states continue to be under pressure due
to concerns related to terrorism threats, the Iraq war and the record price of
gasoline. The number of customers served in the nine restaurants which operated
during the comparable six and three month periods increased by .6% and fell by
1.2% respectively while the average check paid per customer increased by 4.3%
and 4.9% versus last year.
GROSS PROFIT; GROSS MARGIN
Gross profit was $8,297,800 or 68.1% of sales for the six month period and
$4,311,700 or 68.1% of sales for the second quarter ended July 25, 2004,
compared to $8,333,900 or 68.7% and $4,429,500 or 68.7% for the comparable
periods of fiscal 2004. The primary reasons for the slight decline are continued
increases in commodity costs, particularly poultry, beef and dairy, the addition
of fuel surcharges by suppliers, and the closing of the
8
Monmouth restaurant with its lower cost Mexican fare. Management raised some
menu prices and introduced lower cost specials to compensate for the higher
costs.
OPERATING EXPENSES
Total operating expenses decreased by 12.8% from $8,284,000 during the
first six months of fiscal 2004 to $7,222,300 during the first six months of
fiscal 2005, and by 21.5% from $4,372,500 for the second quarter of fiscal 2004
to $3,433,600 for the second quarter of the current year. Payroll and related
expenses were 29.7% of sales for the six months and 29.1% for the second quarter
this year compared to 30.3% and 29.3% respectively for the comparable periods
last year. The primary reasons for the improvement are lower health insurance
costs and the closure of Monmouth and Jensen Beach which operated with higher
payroll costs. Other operating expenses decreased to 21.1% of sales versus 22.2%
of sales for the six month comparison and 20.2% of sales versus 20.5% of sales
for the second quarter comparisons primarily due to the decrease in costs
directly attributable to the closing of Monmouth and Jensen Beach which offset a
12% increase in utility costs at the other nine restaurants related to the
recent increases in fuel costs.
Depreciation and amortization expenses were lower by approximately $39,900
and $18,000 over last year for the six and three month periods ended July 25,
2004 due primarily to the closings of Monmouth and Jensen Beach.
General and administrative expenses were lower by $15,900 and $1,700 versus
last year for the six and three month periods due primarily to reductions in
salaries and payroll taxes and group health insurance costs.
During the second quarter ended July 25, 2004, the Company sold the
restaurant and property located in Jensen Beach, Florida for $900,000 in cash to
an unrelated party. The sale resulted in a gain of approximately $415,000. In
June 2003, the Company closed the Monmouth Mall Mexican theme restaurant and
recorded a loss of approximately $410,000 which included an early lease
termination fee of $180,000.
OTHER INCOME AND EXPENSE
Interest expense decreased by $8,700 and $4,000 for the six and three
months ended July 25, 2004 as compared to the comparable periods last year due
to debt reduction. Interest income was slightly higher for both periods this
year which includes a net loss of $5,600 realized on the sale of investments
versus last year which included a net gain of $5,200 on the sale of investments.
NET INCOME (LOSS)
The Company realized net income of $693,900 or $.18 per share for the six
months ended July 25, 2004 as compared to net income of $32,900 or $.01 per
share for the six months ended July 27, 2003. For the second quarter ended July
25, 2004, net income was $564,000 or $.14 per share as compared to net income of
$36,500 or $.01 per share for the prior corresponding quarter. The primary
component of the improvement in income is the gain of $415,000 recognized on the
sale of Jensen Beach versus last year's loss of $410,000 associated with the
closing of Monmouth.
9
LIQUIDITY AND CAPITAL RESOURCES
The Company's ratio of current assets to current liabilities was 2.95:1 at
July 25, 2004 compared to 2.56:1 at the year ended January 25, 2004. Working
capital was $4,645,500 at July 25, 2004 versus $3,686,800 at the year end, an
increase of $958,700. During the six months ended July 25, 2004, net cash
increased by $1,404,600. Net cash provided by operating activities was
$1,282,600. The primary components were net income after adjustment for
depreciation, deferred taxes and the gain on the sale of Jensen Beach, totaling
$1,135,100, offset by an increase in inventories of $74,900 primarily related to
bulk purchases of shrimp to take advantage of market conditions and a decrease
in prepaid expenses primarily as a result of a change in the financing of the
Company's annual property and casualty insurance program.
Investing activities during the first six months of fiscal 2005 resulted in
a net increase in cash of $250,100. The primary components were capital
expenditures of $378,900 for restaurant improvements, a final payment of
$120,000 paid as per the Surrender Agreement associated with the closing of
Monmouth (see Note 6), $842,200 in net cash realized on the sale of Jensen Beach
(see Note 6), and investment purchases of $711,700 for available-for-sale
securities offset by $649,400 from the sale of investments.
Financing activities for the six months ended July 25, 2004 resulted in a
net cash outflow of $128,100 for debt repayment.
During the corresponding six month period ended July 27, 2003, working
capital increased by $642,000 and net cash increased by $690,800. The primary
components of last year's cash flow were net income, after adjustment for
depreciation and the loss on closing Monmouth, of $1,017,600, offset by an
increase in inventories of $156,300 related to the usual New Jersey summer
season buildup, an increase of $329,200 in accounts payable related to the
inventory increase, capital expenditures of $258,900 for restaurant
improvements, debt repayment of $134,800 and $59,200 for the repurchase of
40,000 shares of the Company's Common Stock.
Due to the destruction caused by Hurricane Frances ("Frances"), the Company
has been forced to close all three Florida restaurants and is unable, at the
present time, to predict when the three restaurants will reopen and the extent
to which its losses caused by Frances will be covered by its existing insurance.
Management anticipates that funds from operations will be sufficient to
meet obligations for the balance of fiscal 2005, including planned capital
expenditures of approximately $266,000 in addition to those incurred during the
first six months.
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. In general, the
Company is able to increase menu prices to counteract the majority of the
inflationary effects of increasing costs with the exception of the substantial
increase in insurance costs that the Company has had to absorb over the last two
years.
10
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 3 - CONTROLS AND PROCEDURES
(a) EXPLANATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Company's
principal executive and principal financial officers after evaluating the
effectiveness of the Company's disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14(c) and 15d-14(c) as of a date within 90 days of the
filing date of this quarterly report (the "Evaluation Date")) have concluded
that as of the Evaluation Date, the Company's disclosure controls and procedures
were adequate and effective to ensure that material information relating to the
Company and its consolidated subsidiaries would be made known to them by others
within those entities, particularly during the period in which this quarterly
report was being prepared.
(b) CHANGES IN INTERNAL CONTROLS. There were no significant changes
in the Company's internal controls or in other factors that could significantly
affect the Company's disclosure controls and procedures subsequent to the
Evaluation Date, nor any significant deficiencies or material weaknesses in such
disclosure controls and procedures requiring corrective actions. As a result, no
corrective actions were taken.
11
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS
EXHIBITS
31- Certifications of Principal Executive and Principal
Financial Officer
32- Certifications pursuant to 18 U.S.C. Section 1350 of
Principal Executive and Principal Financial Officer
12
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
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/ ROBERT LOMBARDI
-------------------
ROBERT LOMBARDI
Principal Executive Officer
/S/ MARTIN W. FLETCHER
----------------------
MARTIN W. FLETCHER
Principal Financial Officer
DATED: SEPTEMBER 8, 2004
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