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 28, 2002
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE EXCHANGE ACT
For the transition period from to
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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 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 August 7, 2002
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Common Stock, $.01 par value 3,965,975
CHEFS INTERNATIONAL, INC.
I N D E X
PART I FINANCIAL INFORMATION PAGE NO.
ITEM 1. Consolidated Financial Statements
Consolidated Balance Sheets - 1 - 2
July 28, 2002 (unaudited) and January 27, 2002
Consolidated Statements of Operations - 3
Six and Three Months Ended July 28, 2002 and
July 29, 2001 (unaudited)
Consolidated Statements of Cash Flows - 4
Six Months Ended July 28, 2002 and
July 29, 2001 (unaudited)
Notes to Consolidated Financial Statements (unaudited) 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
July 28, 2002 January 27, 2002
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(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 1,460,110 $ 1,408,062
Investments 51,000 355,825
Available-for-sale securities 1,551,327 1,720,802
Miscellaneous receivables 176,692 62,468
Inventories 1,274,652 1,144,189
Prepaid expenses 64,523 181,459
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TOTAL CURRENT ASSETS 4,578,304 4,872,805
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PROPERTY, PLANT AND EQUIPMENT, at cost 21,825,886 21,229,149
Less: Accumulated depreciation 9,146,275 8,559,539
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PROPERTY, PLANT AND EQUIPMENT, net 12,679,611 12,669,610
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OTHER ASSETS:
Investments 100,000 151,000
Goodwill - net 1,012,943 430,403
Liquor licenses - net 889,764 821,788
Non-competition agreement - net 58,778 ---
Equity in life insurance policies 589,862 589,862
Deferred income taxes 1,015,000 1,166,000
Other 42,181 61,492
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TOTAL OTHER ASSETS 3,708,528 3,220,545
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TOTAL ASSETS $20,966,443 $20,762,960
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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 28, 2002 January 27, 2002
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(Unaudited)
CURRENT LIABILITIES:
Notes and mortgages payable $ 318,194 $ 277,745
Accounts payable 920,276 1,172,442
Accrued payroll 155,992 196,675
Accrued expenses 757,316 462,806
Income taxes payable 5,557 ---
Gift Certificates 304,006 461,610
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TOTAL CURRENT LIABILITIES 2,461,341 2,571,278
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NOTES AND MORTGAGES PAYABLE 2,097,091 1,816,930
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OTHER LIABILITIES 688,444 618,307
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STOCKHOLDERS' EQUITY:
Capital stock - common $.01 par value,
Authorized 15,000,000 shares,
Issued 3,969,525 and 3,969,508 respectively 39,695 39,695
Additional paid-in capital 31,549,492 31,549,492
Accumulated (deficit) (15,405,455) (15,739,658)
Accumulated other comprehensive (loss) (460,280) (89,199)
Treasury stock (3,885) (3,885)
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TOTAL STOCKHOLDERS' EQUITY 15,719,567 15,756,445
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $20,966,443 $20,762,960
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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 28, 2002 July 29, 2001 July 28, 2002 July 29, 2001
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SALES $ 12,584,137 $ 11,510,381 $ 6,941,008 $ 6,391,758
COST OF GOODS SOLD 3,882,377 3,642,714 2,147,319 2,005,199
------------ ------------ ----------- -----------
GROSS PROFIT 8,701,760 7,867,667 4,793,689 4,386,559
------------ ------------ ----------- -----------
OPERATING EXPENSES:
Payroll and related expenses 3,919,387 3,327,039 2,092,691 1,764,013
Other operating expenses 2,675,666 2,272,685 1,423,952 1,197,704
Depreciation and amortization 590,933 552,277 300,108 274,116
General and administrative expenses 986,342 915,768 497,914 479,391
------------ ------------ ----------- -----------
TOTAL OPERATING EXPENSES 8,172,328 7,067,769 4,314,665 3,715,224
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INCOME FROM OPERATIONS 529,432 799,898 479,024 671,335
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OTHER INCOME (EXPENSE):
Interest expense (90,562) (42,262) (46,806) (20,282)
Investment income 79,333 86,696 36,141 44,741
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OTHER INCOME (EXPENSE), NET (11,229) 44,434 (10,665) 24,459
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INCOME FROM BEFORE
INCOME TAXES 518,203 844,332 468,359 695,794
PROVISION FOR INCOME TAXES 184,000 91,000 170,000 71,000
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NET INCOME $ 334,203 $ 753,332 $ 298,359 $ 624,794
============ ============ =========== ===========
BASIC INCOME PER COMMON SHARE $ .08 $ .18 $ .08 $ .15
============ ============ =========== ===========
Number of shares outstanding 3,965,975 4,230,537 3,965,975 4,234,620
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 28, 2002 AND JULY 29, 2001 (Unaudited)
2002 2001
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OPERATING ACTIVITIES:
Net income from operations $ 334,203 $ 753,332
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 590,933 552,277
Deferred income taxes 151,000 ---
Gain on sale of assets and investments (5,154) ---
Changes in assets and liabilities:
Miscellaneous receivables (114,224) 3,835
Inventories (105,988) (69,203)
Prepaid expenses 116,936 (27,356)
Accounts payable 164,934 225,875
Accrued expenses and other liabilities 89,433 90,209
Income taxes payable 5,557 54,386
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NET CASH PROVIDED BY OPERATING ACTIVITIES 1,227,630 1,583,355
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INVESTING ACTIVITIES:
Purchase of property and equipment (869,122) (517,759)
Acquisition of restaurant assets (882,681) ---
Sale or redemption of investments 409,820 132,125
Purchase of investments (173,520) (545,653)
Other 19,311 38,854
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NET CASH (USED IN) INVESTING ACTIVITIES (1,496,192) (892,433)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt (179,390) (93,752)
Proceeds from debt 500,000 ---
Purchase of treasury stock --- (14,793)
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 320,610 (108,545)
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NET INCREASE IN CASH AND CASH EQUIVALENTS 52,048 582,377
CASH AND CASH EQUIVALENTS:
Beginning 1,408,062 1,159,580
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Ending $ 1,460,110 $1,741,957
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payment for:
Interest paid $ 89,593 $ 42,649
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Income taxes paid $ 14,240 $ 33,750
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Noncash Transactions:
Increase (decrease) in fair value of securities available for sale $ (294,154) $ 18,211
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Change in fair value of derivatives accounted for as hedges $ (76,927) $ ---
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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 27, 2002 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 month period ended July 28, 2002 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: ACQUISITION
On April 1, 2002, the Company acquired for $882,681 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 3: EARNINGS PER SHARE
Basic earnings per share is computed using the weighted average number of
shares of common stock outstanding during the period.
NOTE 4: INVENTORIES
Inventories consist of the following: July 28, 2002 January 27, 2002
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Food $ 599,415 $ 564,547
Beverages 204,189 149,735
Supplies 471,048 429,907
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$ 1,274,652 $ 1,144,189
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NOTE 5: INCOME TAXES
At July 28, 2002, the Company had net deferred tax assets of approximately
$2,245,000 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 $1,230,000 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.
5
NOTE 6: 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. Beginning January 28, 2002, the Company adopted Statement of
Financial Accounting Standard (SFAS) No. 142, "Goodwill and Other
Intangible Assets". Pursuant to this standard the Company no longer
amortizes its goodwill and liquor licenses. The Company will continue to
review its goodwill and liquor licenses for possible impairment of loss of
value. No impairment provision was required upon the adoption of this
standard or as of July 28, 2002.
NOTE 7: HEDGING INSTRUMENTS
As of January 29, 2001, the Company adopted the provisions of the new
accounting standard, SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities," as amended, which requires that the fair value of
all derivative financial instruments be recorded on the Company's
consolidated balance sheet as assets or liabilities. The Company has
interest rate swap agreements relating to substantially all 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).
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.
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. At
the year ended January 27, 2002, the Company was operating 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
"Jack Baker's Lobster Shanty" or "Baker's Wharfside." At said date, the
Company was also operating 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 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"). On April 1,
2002, the Company commenced 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 anticipates that
Freehold Escondido's will experience a seasonality factor similar to
Moore's and that Manatee's will follow the seasonality pattern of the other
Florida restaurants.
7
The Company operated nine restaurants during the six months ended July 29,
2001.
RESULTS OF OPERATIONS
SALES.
Sales for the six months ended July 28, 2002 ("fiscal 2003") were
$12,584,100, an increase of $1,073,800 or 9.3%, as compared to $11,510,400
for the six months ended July 29, 2001 ("fiscal 2002"). For the second
quarter ended July 28, 2002, sales were $6,941,000, an increase of $549,300
or 8.6% , as compared to last year's second quarter. The increases include
sales of $870,000 and $444,500 for the six and three month periods at the
Freehold Escondido's which opened on January 29, 2002 and sales of $610,100
and $429,100 at Manatee's, which opened on April 1, 2002. The other nine
restaurants combined had decreased sales of approximately $406,300 or 3.5%
and $324,300 or 5.1% for the six and three month periods versus last year.
The primary reasons for the decline in sales were the weak tourist and
summer seasons in Florida, where sales were off by $283,700 or 7% and
$137,200 or 9% for the six and three month periods, due to public concerns
about air travel safety after September 11 (see reduced customer traffic at
Disney in Orlando), the slowing economy and fears that it may result in
another recession, a dismal stock market performance in July which impacted
discretionary spending and consumer confidence, and, similar to the Florida
tourist season, a slow June and July at the New Jersey restaurants, where
sales were lower by $122,700 or 1.6% and $187,300 or 3.8% for the six and
three month periods ended July 28, 2002. Despite recording a slight
increase in sales for the first quarter ended April 28, 2002, the New
Jersey restaurants recorded lower sales during the summer tourist season
this year. The number of customers served in the nine restaurants which
operated during the comparable six and three month periods fell by 5.1% and
6.6% respectively, while the average check paid per customer increased by
1.7% and 1.6% versus last year. The average check paid per customer at both
Freehold Escondido's and Manatee's is less than at the seven seafood
restaurants and Moore's and higher than at Monmouth Escondido's.
GROSS PROFIT; GROSS MARGIN.
Gross profit was $8,701,800 or 69.1% of sales for the six month period and
$4,793,700 or 69.1% of sales for the second quarter ended July 28, 2002,
compared to $7,867,700 or 68.4% and $4,386,600 or 68.6% for the comparable
periods of fiscal 2002. The primary reason for the improvement was the
lower costs of high volume seafood items including shrimp, scallops,
flounder and lobster, which are primary components of the Company's menus.
Additionally, the Company's gross profit was improved by the addition of
both Freehold Escondido's which offers a lower cost Mexican fare and
Manatee's which offers a lower cost seafood menu.
OPERATING EXPENSES.
Total operating expenses increased by 15.6% from $7,067,800 during the
first six months of fiscal 2002 to $8,172,300 during the first six months
of fiscal 2003, and by 16.1% from $3,715,200 during the second quarter of
fiscal 2002 to $4,314,700 during the second quarter of fiscal 2003. Payroll
and related expenses were 31.1% of sales for the six months and 30.1% for
the second quarter this year compared to 28.9% and 27.6% respectively for
the comparable periods last year. The increase in payroll expenses as a
percent of sales is attributable to several reasons: the substantial
decrease in sales in the nine restaurants that operated during the
comparable periods, health insurance premiums which increased by more than
30% on April 1, 2002, and the overall higher payroll costs at the two new
restaurants. Historically, new restaurants have higher operating expenses
during the first few
8
months of operation. Other operating expenses increased to 21.3% of sales
versus 19.7% of sales for the six month comparison and to 20.5% versus
18.7% for the three month comparison primarily due to the addition of the
two new restaurants and higher occupancy costs resulting from higher
property insurance premiums. The Company's property and casualty insurance
coverages renewed in April 2002 at an overall increase of 26%. However, the
property component of the insurance package, which is included in the
Company's occupancy costs, was renewed with a 56% rate increase.
Depreciation and amortization expenses increased by approximately $38,700
and $26,000 over last year for the six and three month periods ended July
28, 2002 due to the depreciation expenses associated with the $1,334,200
renovation of the Freehold Escondido's and the $858,200 purchase of the
furniture, fixtures, equipment, liquor license and franchising rights of
Manatee's offset by the reduction in amortization costs due to the
Company's adoption of SFAS No. 142. Effective January 28, 2002 the Company
no longer amortizes indefinite life goodwill and intangible assets (liquor
licenses) as a charge to earnings (see Note 6).
General and administrative expenses increased by approximately $70,600 and
$18,500 versus last year for the six and three month periods. The primary
components of the increase were an increase of approximately $8,500 in
property and casualty insurance, higher group health insurance costs of
$25,700, higher salaries of $12,700 and $15,700 more in training and
recruiting costs associated with the opening of the two new restaurants.
OTHER INCOME AND EXPENSE.
Interest expense increased by $48,300 and $26,500 for the six and three
month periods ended July 28, 2002 as compared to the comparable periods
last year due to the interest expense associated with a $1,200,000 bank
loan the Company borrowed from its primary bank to finance the renovation
of Freehold Escondido's and the $500,000 bank line of credit which the
Company used to partially finance the acquisition of Manatee's. The
$1,200,000 loan is repayable in monthly installments of principal with
interest at an annual rate of 7.57% through September 2011. In June 2002
the Company borrowed $500,000 from the bank to paydown its $500,000 bank
line of credit. The new loan is repayable in monthly installments of
principal with interest at a variable rate of LIBOR plus 2% through May
2007. The entire $500,000 bank line of credit is currently available for
use through June 2003. Investment income was $7,400 and $8,600 less for the
six and three month periods ended July 28, 2002 due to the substantially
lower rates of interest available for investments.
NET INCOME.
For the six months ended July 28, 2002, net income was $334,200 or $.08 per
share compared to net income of $753,300 or $.18 per share for the six
months ended July 29, 2001. For the quarter ended July 28, 2002, net income
was $298,400 or $.08 per share as compared to net income of $624,800 or
$.15 per share for last year's second quarter. The primary reasons for the
decline in net income this year are the reduced sales and profits resulting
from weak tourist seasons in both Florida and New Jersey, the higher
operating expenses of the two new restaurants, the substantial increase in
all insurance costs and the increase in interest expense associated with
the two new bank loans.
Additionally, prior to the third quarter of fiscal 2002, the Company had
fully reserved against the future benefits of its net operating loss
carryforwards as utilization of these losses was not assured. In the third
quarter of fiscal 2002, the Company recognized a deferred tax asset
associated with the benefit of utilizing the operating loss carryforwards
as management determined, at that time, that future taxable income would be
sufficient to partially utilize the
9
loss carryforwards. Accordingly, the results of operations for the six and
three months ended July 28, 2002 include a deferred tax provision
associated with the utilization of the Company's net operating loss
carryforwards.
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 1.86:1 at
July 28, 2002 compared to 1.90:1 at the year ended January 27, 2002.
Working capital was $2,117,000 at July 28, 2002 versus $2,301,500 at the
year-end, a reduction of $184,500. During the six months ended July 28,
2002, net cash increased by $52,000. Net cash provided by operating
activities was $1,227,600. The primary components were net income, after
adjustment for depreciation and deferred income taxes, of $1,076,000, a
decrease in prepaid expenses of $116,900 primarily due to the financing of
the Company's property insurance renewal over a twelve month period, an
increase of $114,200 in miscellaneous receivables primarily due to health
insurance receivables paid by the Company's health insurance carrier
subsequent to July 28, 2002 and an increase in accounts payable of $164,900
related to the summer sales volume.
Investing activities during the first six months of fiscal 2003 resulted in
a net cash outflow of $1,496,200. Capital expenditures were $1,727,300 with
the major components including $858,200 for the April 1, 2002 acquisition
of the furniture, fixtures, equipment, liquor license and franchising
rights of Manatee's, approximately $452,000 for restaurant improvements and
company vehicles, and the payment of $417,100 of accounts payable from
January 27, 2002 associated with the renovation of Escondido's in Freehold.
Other investing activities included investment purchases of
available-for-sale securities totaling $173,500 offset by $409,800 from the
sale of investments and proceeds of maturing certificates of deposit. At
July 28, 2002, the fair value of the Company's holdings of
available-for-sale securities resulted in net unrealized losses of $327,000
compared to the investment cost of those securities, primarily due to the
dismal performances of the US stock markets during July 2002. The resulting
losses are reported in stockholders' equity as a component of accumulated
other comprehensive (loss).
Financing activities for the first six months of fiscal 2003 generated a
net cash flow of $320,600 and included debt repayment of $179,400 and bank
loan proceeds of $500,000 which were used to partially finance the purchase
of assets of Manatee's.
During the corresponding six month period ended July 29, 2001, working
capital increased by $877,900 and net cash increased by $582,400. The
primary components of last year's cash flow were net income, after
adjustment for depreciation, of $1,305,600, an increase of $225,900 in
accounts payable due to sales, capital expenditures of $517,800 for
restaurant improvements, company vehicles and design and construction costs
at the Freehold Escondido's, investment purchases totaling $545,700 for
available-for-sale securities and approximately $14,800 to repurchase
15,916 shares of the Company's outstanding stock pursuant to a Stock
Repurchase Plan authorized by the Company's Board of Directors in May,
2000. The Stock Repurchase Plan expired in May 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
restaurants for the balance of fiscal 2003,
10
including planned capital expenses of approximately $306,800 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 will have
to absorb in fiscal 2003.
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 the 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
July 28, 2002.
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
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ANTHONY C. PAPALIA
Principal Executive and Principal Financial Officer
DATED: September 11, 2002
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CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
PRINCIPAL EXECUTIVE
AND PRINCIPAL FINANCIAL OFFICER
CERTIFICATION
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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 July 28, 2002;
(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 audit committee of the Company's board of directors:
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(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: September 11, 2002
/s/ Anthony C. Papalia
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Anthony C. Papalia
Principal Executive and
Principal Financial Officer
Chefs International, Inc.
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