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 27, 2003
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.
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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 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 9, 2003
---------------------------- ---------------------------------
Common Stock, $.01 par value 3,926,039
CHEFS INTERNATIONAL, INC.
I N D E X
PAGE NO.
PART I FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
Consolidated Balance Sheets - 1 - 2
April 27, 2003 and January 26, 2003
Consolidated Statements of Operations - 3
Three Months Ended April 27, 2003 and
April 28, 2002
Consolidated Statements of Cash Flows - 4
Three Months Ended April 27, 2003 and
April 28, 2002
Notes to Consolidated Financial Statements 5 - 6
ITEM 2. Management's Discussion and Analysis 7 - 11
of Financial Condition and Results of Operations
ITEM 3. Controls and Procedures 12
PART II OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 13
SIGNATURE 14
CERTIFICATION 15 - 16
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM I - CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
ASSETS
------
APRIL 27, 2003 JANUARY 26, 2003
-------------- ----------------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 1,191,817 $ 1,069,857
Investments 100,000 151,000
Available-for-sale securities 1,745,278 1,668,531
Receivable - related party 40,000 40,000
Miscellaneous receivables 70,270 62,173
Inventories 1,191,012 1,128,992
Prepaid expenses 243,663 107,988
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TOTAL CURRENT ASSETS 4,582,040 4,228,541
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, at cost 21,540,206 21,411,079
Less: Accumulated depreciation 9,454,877 9,164,376
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, net 12,085,329 12,246,703
----------- -----------
OTHER ASSETS:
Intangibles 939,362 942,518
Receivable - related party 67,548 77,563
Equity in life insurance policies 602,822 602,822
Deferred income taxes 1,077,000 1,064,000
Other 42,905 34,635
----------- -----------
TOTAL OTHER ASSETS 2,729,637 2,721,538
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$19,397,006 $19,196,782
=========== ===========
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 27, 2003 JANUARY 26, 2003
-------------- ----------------
(Unaudited)
CURRENT LIABILITIES:
Notes and mortgages payable,
current maturities $ 265,987 $ 271,490
Accounts payable 865,905 702,233
Accrued payroll 195,680 157,637
Accrued expenses 656,603 493,450
Gift certificates 381,942 511,955
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TOTAL CURRENT LIABILITIES 2,366,117 2,136,765
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NOTES AND MORTGAGES PAYABLE 1,923,906 1,960,438
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OTHER LIABILITIES 747,931 747,559
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STOCKHOLDERS' EQUITY:
Capital stock - common $.01
par value, Authorized
15,000,000 shares,
Issued 3,969,589 39,696 39,695
Additional paid-in capital 31,549,491 31,549,492
Accumulated deficit (16,857,656) (16,854,010)
Accumulated other comprehensive
(loss) (308,994) (379,272)
Treasury stock - 43,550 shares (63,485) (3,885)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 14,359,052 14,352,020
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$19,397,006 $19,196,782
=========== ===========
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 27, 2003 AND APRIL 28, 2002 (Unaudited)
2003 2002
---- ----
SALES $ 5,678,794 $ 5,643,129
COST OF GOODS SOLD 1,774,319 1,735,058
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GROSS PROFIT 3,904,475 3,908,071
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OPERATING EXPENSES:
Payroll expenses 1,782,007 1,826,696
Other operating expenses 1,369,050 1,251,714
Depreciation and amortization 293,657 290,825
General and administrative expenses 466,765 488,428
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TOTAL OPERATING EXPENSES 3,911,479 3,857,663
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(LOSS) INCOME FROM OPERATIONS (7,004) 50,408
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OTHER INCOME (EXPENSE):
Interest expense (42,273) (43,756)
Investment income 36,631 43,192
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OTHER INCOME (EXPENSE), NET (5,642) (564)
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(LOSS) INCOME BEFORE INCOME TAXES (12,646) 49,844
PROVISION (CREDIT) FOR INCOME TAXES (9,000) 14,000
----------- -----------
(LOSS) INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE (3,646) 35,844
CUMULATIVE EFFECT OF AN
ACCOUNTING CHANGE (Note 2)
- GOODWILL ACCOUNTING METHOD -- (430,403)
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NET (LOSS) $ (3,646) $ (394,559)
=========== ===========
INCOME PER COMMON SHARE BEFORE
CUMULATIVE EFFECT OF AN ACCOUNTING CHANGE -- $ .01
CUMULATIVE EFFECT OF AN ACCOUNTING CHANGE
- GOODWILL ACCOUNTING METHOD -- (.11)
----------- -----------
NET (LOSS) PER COMMON SHARE $ -- $ (.10)
=========== ===========
Number of shares outstanding 3,926,039 3,965,966
========= =========
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 27, 2003 AND APRIL 28, 2002 (Unaudited)
2003 2002
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (3,646) $ (394,559)
Adjustments to reconcile net (loss) to net
cash provided by operating activities:
Depreciation and amortization 293,657 290,825
Cumulative effect of an accounting change -- 430,403
Deferred income taxes (13,000) 8,000
Gain on sale of assets and investments -- (5,900)
Changes in assets and liabilities:
(Increase) decrease in:
Miscellaneous receivables 1,918 (13,356)
Inventories (62,020) (32,262)
Prepaid expenses (135,675) 91,691
Increase (decrease) in:
Accounts payable 163,672 (38,177)
Accrued expenses and other liabilities 69,568 6,464
Income taxes payable -- --
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NET CASH PROVIDED BY OPERATING ACTIVITIES 314,474 343,129
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (129,127) (694,425)
Acquisition of restaurant assets -- (867,826)
Sale or redemption of investments 51,000 176,053
Purchase of investments (4,482) (91,642)
Other (8,270) 2,757
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NET CASH (USED IN) INVESTING ACTIVITIES (90,879) (1,475,083)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt -- 500,000
Repayment of debt (42,035) (48,266)
Purchase of treasury stock (59,600) --
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NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (101,635) 451,734
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 121,960 (680,220)
CASH AND CASH EQUIVALENTS:
Beginning 1,069,857 1,408,062
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Ending $ 1,191,817 $ 727,842
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payment for:
Interest $ 41,904 $ 41,562
=========== ===========
Income taxes $ -- $ 240
=========== ===========
Noncash Transactions:
Increase in fair value of securities available for
sale $ 72,265 $ 1,668
=========== ===========
Change in fair value of derivatives accounted for
as hedges $ (1,987) $ (13,674)
=========== ===========
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 26, 2003 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 27, 2003 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: ACCOUNTING FOR BUSINESS COMBINATIONS
------------------------------------
In July 2001, the FASB issued Statements of Financial Accounting Standards
("Statement") No. 141. "Business Combinations" and No. 142, "Goodwill and Other
Intangible Assets" ("FAS 142"). These standards change the accounting for
business combinations by, among other things, prohibiting the prospective use of
pooling-of-interests accounting and requiring companies to stop amortizing
goodwill and certain intangible assets with an indefinite useful life. Instead,
goodwill and intangible assets deemed to have an indefinite useful life will be
subject to an annual review for impairment. The new standards were effective for
the Company in the first quarter of Fiscal 2003 and for purchase business
combinations consummated after June 30, 2001. The Company completed its initial
goodwill impairment testing during the first quarter of Fiscal 2003 and
determined that there was impairment of goodwill solely because the aggregate
market capitalization of the Company was less than its book value (market
capitalization at January 28, 2002 was $8,923,406 versus a book value of
$15,756,445). Therefore, the Company recorded a one-time, noncash charge of
$430,403 to reduce the carrying value of its goodwill. Such charge is reflected
as a cumulative effect of an accounting change in the accompanying consolidated
statement of operations.
NOTE 3: ACQUISITION
-----------
On April 1, 2002, the Company acquired for $867,826 the inventory, furniture,
fixtures, equipment, liquor license and franchising rights of a restaurant
business located in Florida known as Mr. Manatee's Casual Grille. In connection
with the acquisition, the Company entered into a five-year lease, effective
April 1, 2002, which requires minimum annual rentals of $96,000. The lease
contains three five-year renewal options and includes an option for the Company
to purchase the property during the first term of the lease for $1,075,000.
NOTE 4: EARNINGS PER SHARE
------------------
Basic earnings per share is computed using the weighted average number of shares
of common stock outstanding during the period.
5
NOTE 5: INVENTORIES
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Inventories consist of the following: APRIL 27, 2003 JANUARY 26, 2003
-------------- ----------------
Food $ 544,157 $ 512,058
Beverages 163,840 152,269
Supplies 483,015 464,665
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$ 1,191,012 $ 1,128,992
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NOTE 6: INCOME TAXES
------------
At April 27, 2003, the Company had net deferred tax assets of approximately
$2,175,000 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
$1,098,000 has been established to offset these assets. 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 7: 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 8: 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 shareholders' equity
as a component of accumulated other comprehensive (loss).
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.
SIGNIFICANT TRANSACTIONS AND NONRECURRING ITEMS
As more fully described herein and in the related footnotes to the accompanying
consolidated financial statements, the comparability of Chefs International,
Inc.'s operating results has been affected by a significant transaction and
nonrecurring item for the three months ended April 28, 2002. During 2001, the
Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting standards No. 142 "Goodwill and Other Intangible Assets"("FAS 142"),
which requires that, effective for years beginning on or after January 1, 2002,
goodwill, and certain other intangible assets deemed to have an indefinite
useful life, cease amortizing. Under the new rules goodwill and certain
intangible assets must be assessed for impairment using fair value measurement
techniques. The Company completed its initial goodwill impairment testing during
the first quarter of Fiscal 2003, and determined that there was impairment of
goodwill solely because the aggregate market capitalization of the Company was
exceeded by its book value. Therefore, the Company recorded a $430,403
impairment of goodwill. The charge is reflected as a cumulative effect of an
accounting change in the accompanying consolidated financial statements.
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 eleven restaurants on a year-round basis. The
Company plans to close one of these restaurants, its Escondido's Mexican
Restaurant in the Monmouth Mall, during the second quarter of calendar year
2003. The Company opened its first seafood restaurant in November 1978 and
currently has seven free-standing seafood restaurants in New Jersey and Florida
operating under the names "Jack Baker's Lobster
7
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." In
February 2000, the Company commenced the operation of the ninth restaurant,
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 its tenth restaurant, Escondido's
Mexican Restaurant ("Freehold"), a Mexican theme restaurant located in Freehold,
New Jersey, adjacent to Moore's. On February 1, 2002, Garcia's began to operate
under the trade name Escondido's ("Monmouth"). The Company plans to close this
restaurant during the second quarter of calendar year 2003. On April 1, 2002,
the Company acquired the operations of its eleventh restaurant, 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.
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 Monmouth Escondido's restaurant derives a significant
portion of its sales during the holiday season from Thanksgiving through
Christmas. 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 ten restaurants in February and March 2002 and eleven
restaurants in April 2002.
RESULTS OF OPERATIONS
---------------------
SALES
Sales for the three months ended April 27, 2003 (first quarter of "fiscal
2004") were $5,678,800, an increase of $35,700 or .6 %, as compared to
$5,643,100 for the three months ended April 28, 2002 (first quarter of "fiscal
2003"). The increase includes increased sales of $440,500 at Manatee's which
opened on April 1, 2002, and therefore, was in operation during one month of
last year's first quarter as compared to three months of operation this year.
The other ten restaurants combined had decreased sales of approximately $404,800
or 7.4% as compared to last year's first quarter. The three Florida restaurants
that operated during the comparable quarters realized reduced sales of $58,600
or 2.6% primarily due to the continued softness in air travel, including a
substantial reduction in foreign visitation (see Disney's second quarter
results) and the Columbia space shuttle tragedy which negatively impacted (and
will continue to impact until the fleet is cleared to fly again) the Cocoa Beach
location. The seven New Jersey locations had lower sales of $346,200 or 10% as
compared to last year due primarily to the dismal winter weather including the
largest snow storm in the Northeast in seven years, which occurred over the
Valentines'/Presidents' Day weekend. Additionally, customer traffic at all of
the restaurants continues to be negatively impacted by the slow economy and
terrorism concerns post 9/11 and the Iraq war. The number of customers served
during the first quarter ended April 27, 2003 in the ten restaurants decreased
by 8.8% while the average check paid per customer increased by 1.5%.
GROSS PROFIT; GROSS MARGIN
Gross profit was $3,904,500 or 68.8% of sales for the first quarter ended
April 27,
8
2003 compared to 69.3% of sales for the quarter ended April 28, 2002. The
primary reason for this year's decrease was due to the inclusion of Manatee's
for the entire quarter this year compared to one month of operation during last
year's first quarter. The effect of a full quarter of Manatee's operations was
to weight the Company's overall gross profit toward seafood costs which are
higher than the Mexican fare of the Company's Escondido's restaurants which
reported lower sales for the first quarter of fiscal 2004.
OPERATING EXPENSES
Total operating expenses increased by 1.4% from $3,857,700 for the first
quarter of fiscal 2003 to $3,911,500 for the first quarter of fiscal 2004.
Payroll and related expenses were 31.4% of sales versus 32.4% of sales for the
corresponding quarter of the previous year. The improvement is directly
attributable to productivity improvements and controls at the restaurants. Other
operating expenses increased to 24.1% of sales for the first quarter this year
versus 22.2% primarily due to the inclusion of Manatee's expenses for the full
13 weeks of this year's first quarter versus four weeks last year (opened April
1, 2002) and higher occupancy costs for all restaurants due to increases in
property insurance, real estate taxes and rent costs. The Company's annual
property and casualty insurance coverage was renewed in April 2003 at an overall
decrease of approximately 13%.
Depreciation and amortization expenses increased by approximately $2,800
over the corresponding quarter due to the inclusion (for the entire quarter) of
depreciation expenses associated with the purchase of furniture, fixtures,
equipment, liquor license and franchising rights of Manatee's offset by the
expiration of fully depreciated assets at the other restaurants.
General and administrative expenses were $21,700 lower in the first quarter
of fiscal 2004 versus the first quarter of fiscal 2003. Higher insurance costs
of $11,000 were more than offset by decreases of $22,000 in salaries and payroll
taxes and an approximate $10,000 settlement with an insurance carrier pertaining
to a business interruption claim stemming from the closure of the main access
road near the Cocoa Beach, Florida restaurant due to security concerns of an Air
Force base subsequent to 9/11/01.
OTHER INCOME AND EXPENSE
Interest expense was $1,500 lower for the three months ended April 27, 2003
compared to last year due to debt reduction and lower interest rates which
reduced the interest expense on the Company's variable debt. Investment income
was $6,600 lower than last year due to lower interest rates and because last
year's investment income included a $5,900 gain on the sale of investments.
NET (LOSS) INCOME
The Company realized a net loss of $3,600 for the quarter ended April 27,
2003 as compared to net income, before the $430,400 charge for goodwill
impairment, of $35,800 or $.01 per share for the three months ended April 28,
2002. The primary components of the loss this year are the reduced sales due to
economic, terrorism and weather issues, lower gross profit and higher operating
expenses which included a substantial increase in insurance costs versus last
year.
9
LIQUIDITY AND CAPITAL RESOURCES
The Company's ratio of current assets to current liabilities was 1.94:1 at
April 27, 2003 compared to 1.98:1 at the year ended January 26, 2003. Working
capital was $2,215,900 at April 27, 2003 versus $2,091,800 at the year end, an
increase of $124,100. During the first quarter ended April 27, 2003, net cash
increased by $122,000. Net cash provided by operating activities was $314,500.
The primary components were net income after adjustment for depreciation, of
$290,000, an increase in prepaid expenses of $135,600 primarily due to a change
in the financing structure of the Company's property insurance renewal, an
increase of $163,700 in accounts payable primarily due to the timing of several
prepaid expenses including insurance and accounting and an increase in accrued
expenses of $69,600 due to an increase in accrued health insurance expenses.
Investing activities during the first quarter of fiscal 2004 resulted in a
net cash outflow of approximately $91,000. The primary components were capital
expenditures of $129,000 for routine restaurant improvements offset by $51,000
from the proceeds of a maturing certificate of deposit.
Financing activities for the quarter ended April 27, 2003 resulted in a net
cash out flow of $101,600 and included debt repayment of $42,000 and $59,600 for
the repurchase of 40,000 shares of the Company's Common Stock pursuant to a
December 24, 2002 Board of Directors authorization to repurchase up to 100,000
shares of the Company's stock on or before January 29, 2004 at prevailing market
prices. The Company currently holds 43,550 of its shares as treasury stock which
will be retired during the second quarter.
During the corresponding three month period ended April 28, 2002, working
capital decreased by $269,000 and net cash decreased by $680,200. The primary
components of last year's cash flow were net income, after adjustment for
depreciation and a cumulative effect of an accounting change, of $326,700, a
decrease in prepaid expenses of $91,700 due to a change in the financing of the
Company's property insurance renewal, capital expenditures of $1,537,800 which
included $843,400 for the April 1, 2002 purchase of Manatee's assets, $277,300
for restaurant improvements and the payment of $417,100 of accounts payable
associated with the January 2002 renovation of Escondido's in Freehold,
investment purchases of $91,600 for available-for-sales securities offset by
$176,100 from the sale of investments and proceeds of maturing certificates of
deposit, debt repayment of $48,300 and bank loan proceeds of $500,000 which were
used to partially finance the purchase of Manatee's assets.
Subsequent to the quarter ended April 27, 2003, management executed a
surrender agreement to close its Monmouth Mall Mexican theme restaurant and
terminate the lease as of April 30, 2003. Management believes that proceeds from
the sale of its liquor license will exceed the amount the Company is required to
pay to obtain the early termination of the lease. Additionally, management
executed a license agreement with the mall landlord which allows the Company to
operate the restaurant until June 30, 2003 for a reduced monthly license fee.
The restaurant will close in June 2003, and all usable inventory, supplies and
furniture, fixtures and equipment will be transferred to other Company
restaurants.
Management anticipates that funds from operations will be sufficient to
meet
10
obligations for the restaurants for the balance of fiscal 2004, including
planned capital expenditures of approximately $365,000 in addition to those
incurred during the first three 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
couple of years.
11
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 officer 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")) has 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 him 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.
12
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
99.1 Certification of Principal Executive and Principal Financial
Officer of the Company pursuant to 18 United States Code
Section 1530.
(b) REPORTS OF FORM 8-K
No reports on Form 8-K were filed during the quarter
ended April 27, 2003.
13
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/ ANTHONY C. PAPALIA
------------------------
ANTHONY C. PAPALIA
Principal Executive and Financial Officer
DATED: JUNE 11, 2003
-------------
14
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
PRINCIPAL EXECUTIVE
AND PRINCIPAL FINANCIAL OFFICER
CERTIFICATION
----------------------------------------------------------------------
I, Anthony C. Papalia, Principal Executive and Principal Financial Officer
of Chefs International, Inc. (the "Company") do hereby certify that:
(1) I have reviewed this quarterly report on Form 10-QSB of the Company
for the quarterly period ended April 27, 2003;
(2) Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by
this quarterly report;
(3) Based on my knowledge, the financial statements and other financial
information included in this quarterly report, fairly present in all material
respects, the financial condition, results of operations and cash flows of the
Company as of, and for, the period presented in this quarterly report;
(4) I am responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
the Company and I have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the Company, including
its consolidated subsidiaries, is made known to me by others
within those entities, particularly during the period in
which this quarterly report was being prepared;
(b) evaluated the effectiveness of the Company's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
(c) presented in this quarterly report my conclusions about the
effectiveness of the disclosure controls and procedures
based on my evaluation as of the Evaluation Date;
(5) I have disclosed, based on my most recent evaluation, to the
Company's auditors and the Company's board of directors:
15
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the Company's
ability to record, process, summarize and report financial
data and have identified for the Company's auditors any
material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
Company's internal controls; and
(6) I have indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of my most recent
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
Dated: June 11, 2003
/S/ ANTHONY C. PAPALIA
-------------------------
Anthony C. Papalia
Principal Executive and
Principal Financial Officer
Chefs International, Inc.
16
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
EXHIBIT 99.1
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CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
----------------------------------
I, Anthony C. Papalia, Principal Executive and Principal Financial Officer
of Chefs International, Inc. (the "Company"), do hereby certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(a) the Quarterly Report on Form 10-QSB of the Company for the quarterly
period ended April 27, 2003, which this certification accompanies (the
"Periodic Report"), fully complies with the requirements of Section
13(a) of the Securities Exchange Act of 1934; and
(b) to the best of my knowledge, the information contained in the Periodic
Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
Dated: June 11, 2003
/S/ ANTHONY C. PAPALIA
----------------------
Anthony C. Papalia
Principal Executive and
Principal Financial Officer
Chefs International, Inc.