Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
| (Mark One) | |||
| (X) | QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
| For the quarterly period ended September 20, 2003 | |||
| OR | |||
| ( ) | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
| For the transition period from ________ to ________ | |||
Commission File Number 0-12800
CUISINE SOLUTIONS, INC.
| DELAWARE | 52-0948383 | |
| (State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification Number) |
| 85 S Bragg Street, Suite 600, Alexandria, VA 22312 |
| (Address of principal executive offices) (Zip Code) |
(Registrant’s telephone number, including area code) (703) 270-2900
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
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of October 24, 2003.
| Common Stock 0.01 par value | Number of Shares | |
| Class A Class B |
15,824,788 None |
CUISINE SOLUTIONS, INC.
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
The accompanying unaudited consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of the Company, all adjustments necessary for the fair presentation of the Company’s results of operations, financial position and changes therein for the periods presented have been included.
2
CUISINE SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
| September 20, | June 28, | |||||||||
| 2003 | 2003 | |||||||||
| ASSETS | (Unaudited) | |||||||||
Current Assets |
||||||||||
Cash and cash equivalents |
$ | 615,000 | $ | 1,357,000 | ||||||
Accounts receivable, trade |
3,618,000 | 3,479,000 | ||||||||
Inventory |
4,208,000 | 4,056,000 | ||||||||
Prepaid expenses |
303,000 | 450,000 | ||||||||
Notes receivable, related party |
26,000 | 32,000 | ||||||||
Other current assets |
409,000 | 450,000 | ||||||||
TOTAL CURRENT ASSETS |
9,179,000 | 9,824,000 | ||||||||
Investments |
1,320,000 | 1,331,000 | ||||||||
Fixed assets, net |
5,095,000 | 5,264,000 | ||||||||
Other assets |
9,000 | 9,000 | ||||||||
TOTAL ASSETS |
$ | 15,603,000 | $ | 16,428,000 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||||
Current liabilities |
||||||||||
Current portion of long-term debt |
1,563,000 | 1,970,000 | ||||||||
Accounts payable and accrued expenses |
4,001,000 | 3,950,000 | ||||||||
Accrued payroll and related liabilities |
1,158,000 | 1,351,000 | ||||||||
Total current liabilities |
6,722,000 | 7,271,000 | ||||||||
Long-term debt, less current portion |
1,654,000 | 1,691,000 | ||||||||
TOTAL LIABILITIES |
8,376,000 | 8,962,000 | ||||||||
Stockholders’ equity |
||||||||||
Common stock — $.01 par value, 20,000,000 shares authorized,
15,824,788 shares issued and outstanding
at September 20, 2003 and June 28, 2003, respectively |
159,000 | 159,000 | ||||||||
Class B Stock — $.01 par value, 175,000 shares authorized,
none issued |
— | — | ||||||||
Additional paid-in capital |
26,284,000 | 26,284,000 | ||||||||
Accumulated deficit |
(19,667,000 | ) | (19,486,000 | ) | ||||||
Accumulated Other Comprehensive Income |
||||||||||
Unrealized gain on debt and equity investments |
48,000 | 59,000 | ||||||||
Cumulative translation adjustment |
403,000 | 450,000 | ||||||||
TOTAL STOCKHOLDERS’ EQUITY |
7,227,000 | 7,466,000 | ||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
$ | 15,603,000 | $ | 16,428,000 | ||||||
See accompanying notes to consolidated financial statements.
F-3
CUISINE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| First Quarter | ||||||||||
| Twelve Weeks Ended | ||||||||||
| Sep 20, | Sep 21, | |||||||||
| 2003 | 2002 | |||||||||
NET SALES |
$ | 7,102,000 | $ | 6,423,000 | ||||||
Cost of goods sold |
5,905,000 | 5,327,000 | ||||||||
GROSS MARGIN |
1,197,000 | 1,096,000 | ||||||||
Selling and administration |
1,242,000 | 1,715,000 | ||||||||
Depreciation and amortization |
114,000 | 131,000 | ||||||||
LOSS FROM OPERATIONS |
(159,000 | ) | (750,000 | ) | ||||||
Nonoperating income (expense) |
||||||||||
Investment income |
17,000 | 35,000 | ||||||||
Interest expense |
(31,000 | ) | (48,000 | ) | ||||||
Other expense |
(8,000 | ) | (11,000 | ) | ||||||
TOTAL NON-OPERATING EXPENSE |
(22,000 | ) | (24,000 | ) | ||||||
Loss from operations before income tax |
(181,000 | ) | (774,000 | ) | ||||||
Provision for income tax benefit (expense) |
— | — | ||||||||
NET LOSS |
(181,000 | ) | (774,000 | ) | ||||||
Basic and diluted net loss per share: |
||||||||||
Net loss per common share |
($0.01 | ) | ($0.05 | ) | ||||||
Weighted average shares outstanding |
15,824,788 | 15,824,588 | ||||||||
See accompanying notes to consolidated financial statements.
F-4
CUISINE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Year to date | |||||||||||
| Twelve weeks ended | |||||||||||
| Sep 20, | Sep 21, | ||||||||||
| 2003 | 2002 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES |
|||||||||||
Net Loss |
$ | (181,000 | ) | $ | (774,000 | ) | |||||
Adjustments to reconcile net loss to |
|||||||||||
net cash used in operating activities |
|||||||||||
Depreciation and amortization |
206,000 | 250,000 | |||||||||
Change in cumulative translation adjustment |
(47,000 | ) | (34,000 | ) | |||||||
Changes in assets and liabilities: |
|||||||||||
(Increase) Decrease in accounts receivable trade, net |
(139,000 | ) | 51,000 | ||||||||
(Increase) Decrease in inventory |
(152,000 | ) | 112,000 | ||||||||
Decrease (Increase) in prepaid expenses |
147,000 | (50,000 | ) | ||||||||
Decrease in notes receivable, related party |
6,000 | 30,000 | |||||||||
Decrease (Increase) in other assets |
41,000 | (242,000 | ) | ||||||||
Increase (Decrease) in accounts payable and accrued expenses |
51,000 | (182,000 | ) | ||||||||
Decrease in accrued payroll and related liabilities |
(193,000 | ) | (281,000 | ) | |||||||
Net cash used by operating activities |
(261,000 | ) | (1,120,000 | ) | |||||||
CASH FLOWS FROM INVESTING ACTIVITIES |
|||||||||||
Capital expenditures |
(37,000 | ) | (49,000 | ) | |||||||
Net cash used by investing activities |
(37,000 | ) | (49,000 | ) | |||||||
CASH FLOWS FROM FINANCING ACTIVITIES |
|||||||||||
Borrowings on debt obligations |
— | 77,000 | |||||||||
Payments on debt obligations |
(444,000 | ) | (96,000 | ) | |||||||
Net cash used by financing activities |
(444,000 | ) | (19,000 | ) | |||||||
Net decrease |
(742,000 | ) | (1,188,000 | ) | |||||||
Cash and cash equivalents, beginning of period |
1,357,000 | 1,958,000 | |||||||||
CASH and CASH EQUIVALENTS, END OF PERIOD |
$ | 615,000 | $ | 770,000 | |||||||
See accompanying notes to consolidated financial statements
F-5
Cuisine Solutions, Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
| Unrealized Gains | ||||||||||||||||||||||||||
| Additional | (Losses) on Debt | Cumulative | Total | |||||||||||||||||||||||
| Common | Paid-In | Accumulated | and Equity | Translation | Stockholders' | |||||||||||||||||||||
| Stock | Capital | Deficit | Investments | Adjustment | Equity | |||||||||||||||||||||
Balance, June 28, 2003 |
$ | 159,000 | $ | 26,284,000 | $ | (19,486,000 | ) | $ | 59,000 | $ | 450,000 | $ | 7,466,000 | |||||||||||||
First quarter 2004 net loss |
(181,000 | ) | (181,000 | ) | ||||||||||||||||||||||
Other Comprehensive Loss |
||||||||||||||||||||||||||
Unrealized loss on debt |
— | |||||||||||||||||||||||||
and equity investments |
(11,000 | ) | (11,000 | ) | ||||||||||||||||||||||
Translation adjustment |
— | (47,000 | ) | (47,000 | ) | |||||||||||||||||||||
Other Comprehensive Loss |
(58,000 | ) | ||||||||||||||||||||||||
Comprehensive Loss |
(239,000 | ) | ||||||||||||||||||||||||
Balance, September 20, 2003 |
$ | 159,000 | $ | 26,284,000 | $ | (19,667,000 | ) | $ | 48,000 | $ | 403,000 | $ | 7,227,000 | |||||||||||||
| Unrealized Gains | ||||||||||||||||||||||||||
| Additional | (Losses) on Debt | Cumulative | Total | |||||||||||||||||||||||
| Common | Paid-In | Accumulated | and Equity | Translation | Stockholders' | |||||||||||||||||||||
| Stock | Capital | Deficit | Investments | Adjustment | Equity | |||||||||||||||||||||
Balance, June 29, 2002 |
$ | 159,000 | $ | 26,284,000 | $ | (15,394,000 | ) | $ | 10,000 | $ | 97,000 | $ | 11,156,000 | |||||||||||||
First quarter 2003 net loss |
(774,000 | ) | (774,000 | ) | ||||||||||||||||||||||
Other Comprehensive Loss |
||||||||||||||||||||||||||
Unrealized loss on debt |
— | |||||||||||||||||||||||||
and equity investments |
(43,000 | ) | (43,000 | ) | ||||||||||||||||||||||
Translation adjustment |
— | (34,000 | ) | (34,000 | ) | |||||||||||||||||||||
Other Comprehensive Loss |
(77,000 | ) | ||||||||||||||||||||||||
Comprehensive Loss |
(851,000 | ) | ||||||||||||||||||||||||
Balance, September 21, 2002 |
$ | 159,000 | $ | 26,284,000 | $ | (16,168,000 | ) | $ | (33,000 | ) | $ | 63,000 | $ | 10,305,000 | ||||||||||||
F-6
Cuisine Solutions, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1) Financial Statements
The accompanying unaudited consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of the Company, all adjustments necessary for the fair presentation of the Company’s results of operations, financial position and changes therein for the periods presented have been included.
2) Fiscal Periods
The Company utilizes a 52/53 week fiscal year which ends on the last Saturday in June. The first, second and fourth quarters, of fiscal years 2004 and 2003 contain 12 weeks, and the third quarter contains 16 weeks.
3) Inventory
Inventories are valued at the lower of cost, determined by the first-in, first-out method (FIFO), or market. Included in inventory costs are raw materials, labor and manufacturing overhead.
Inventory consists of:
| Sept. 20, | June 28, | |||||||
| 2003 | 2003 | |||||||
Raw materials |
$ | 1,282,000 | $ | 1,140,000 | ||||
Frozen product & other finished goods |
2,846,000 | 2,892,000 | ||||||
Packing materials & supplies |
441,000 | 449,000 | ||||||
| 4,569,000 | 4,481,000 | |||||||
Less obsolescence reserve |
(361,000 | ) | (425,000 | ) | ||||
| $ | 4,208,000 | $ | 4,056,000 | |||||
4) Dividends — None.
5) Commitments and Contingencies
The Company is engaged in ordinary and routine litigation incidental to its business. Management does not anticipate that any amounts that it may be required to pay by reason thereof will have a material effect on the Company’s financial position or results of operations.
6) Transaction with Related Parties
The Company received $7,000 from Food Research Corporation (“FRC”) for payment related to a receivable from Classic European Bakers, LLC (“CEB”). CEB is owned by FRC, the majority owner of
7
Cuisine Solutions common shares. The receivables were primarily associated with unpaid rent related to a rental agreement for office space used by CEB at the Company’s premises in Alexandria.
The Company has receivables of $13,000 at September 20, 2003 from its President who sponsored a marketing event with the Young Presidents Organization in France. The amount is non-interest bearing and expected to be paid during fiscal year 2004.
The Company recorded an accrual in the amount of $268,000 to SOMDIAA at September 20, 2003. SOMDIAA is a holding company which is majority owned by Secria, S.A. and Secria Europe, S.A. Both enterprises are owned by the Jean-Louis Vilgrain family (“JLV”) and FRC is owned by Secria Europe, S.A. SOMDIAA provides the administration of French Social Security healthcare and retirement plans for individuals who work within the JLV Group. The primary portion of the recorded accrual is related to amounts billed from SOMDIAA for separate health and retirement plans for the President of the Company and two other non-officer but key employees. The total accrual at September 20, 2003 includes coverage for previous year’s benefits.
On June 12, 2001, the Company signed an agreement to create a partnership to build a sous-vide processing facility in Chile. The purpose of the facility would be to produce high quality, value priced whitefish, shellfish and salmon products in Chile for the Global Retail and Foodservice markets. Cuisine Solutions, Inc. would sell the Norwegian facility to the Chilean Group for approximately $3,900,000, the sole investment required to own 48% of the new joint venture, Cuisine Solutions Chile. The agreement was terminated without any prejudice between the partners during fiscal year 2003 due to administrative difficulties. However, the partners continue to develop the facility in Chile and agreed that the Company hold 10% of the total shares of Cuisine Solutions Chile S.A. A marketing agreement to market certain sous-vide products has been signed between the partners in June 2003 and a commercial agreement to commit to the purchase of certain raw materials from Cuisine Solutions Chile has been signed in August 2003.
On October 22, 2003, the Company entered into a six month term loan in the amount of $500,000 with Food Investors Corporation (“FIC”) to provide short term working capital necessary to expand operations for fiscal year 2004. The loan bears interest of 5% per annum and is payable upon maturity.
7) Income (Loss) Per Share
Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per common share also includes common equivalent shares outstanding during the period if dilutive. The Company’s common equivalent shares consist of stock options. The weighted average number of shares outstanding related to stock options were 1,539,500. For the periods ended September 20, 2003, and September 21, 2002, the assumed exercise of the Company’s outstanding stock options are not included in the calculation as the effect would be anti-dilutive.
8) Accounting for stock-based compensation
The Company accounts for employee stock option grants using the intrinsic value method in accordance with Accounting Principles Board (APB) Opinion No. 25 “Accounting for Stock Issued to Employees” and accordingly associated compensation expense, if any, is measured as the excess of the underlying stock price over the exercise price on the date of grant. The Company complies with the disclosure option of Statement of Financial Accounting Standards (SFAS) No. 123 “Accounting for Stock Based Compensation”, as amended by SFAS No. 148 “Accounting for Stock-Based Compensation—Transition and Disclosure” which requires pro-forma disclosure of compensation expense associated with stock options under the fair value method.
Had compensation cost been recognized based on the fair values of options at the grant dates consistent with the provisions of SFAS No. 123, the Company’s net income (loss) and basic and diluted net income
8
(loss) per common share would have been changed to the following pro forma amounts:
| Sep. 20, | |||||||||