UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report pursuant section 13 or 15(d) of the Securities and
Exchange Act of 1934 for the quarterly period ended September 30, 1996.
[ ] Transition report pursuant to section 13 or 15(d) of the Securities and
Exchange Act of 1934 for the transition period from
to .
COMMISSION FILE NUMBER: 0-21932
CALIFORNIA CULINARY ACADEMY, INC.
(Exact name of small business issuer in its charter)
California 94-3042862
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
625 Polk Street
San Francisco, CA 94102
(Address of principal executive offices) (Zip Code)
Issuer's Telephone Number: (415) 771-3536
check 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 .
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The number of shares outstanding of the registrant's Common Stock as of October
31, 1996, was 3,293,860.
Transitional Small Business Disclosure Format. Yes No X .
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CALIFORNIA CULINARY ACADEMY, INC.
BALANCE SHEET
SEPTEMBER 30, 1996
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents (including restricted
cash equivalents of $615,000) $3,383,000
Accounts receivable, net of allowance of $280,000 2,993,000
Inventories 214,000
Prepaid expenses and other assets 259,000
Deferred tax asset 114,000
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Total Current Assets 6,963,000
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Property and equipment, net of depreciation and amortization 4,681,000
Intangible assets, net 513,000
Other assets 576,000
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TOTAL ASSETS $12,733,000
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $626,000
Accrued liabilities 286,000
Dividends payable 11,000
Deferred revenue 3,833,000
Student prepayments 339,000
Current portion of note payable 814,000
Current portion of capital lease obligations 67,000
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Total Current Liabilities 5,976,000
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Note payable 81,000
Capital lease obligations 199,000
Other non-current liabilities 428,000
Shareholders' Equity:
Preferred stock, no par value, 5,000,000 shares authorized,
254,541 shares issued and outstanding 988,000
Common stock, no par value, 20,000,000 shares authorized,
3,312,719 shares issued and outstanding 9,112,000
Retained deficit (4,051,000)
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Total Shareholders' Equity 6,049,000
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $12,733,000
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CALIFORNIA CULINARY ACADEMY, INC.
STATEMENTS OF OPERATIONS
FOR THE QUARTER ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
Three Months Ended September 30,
--------------------------------
1996 1995
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Revenues:
Culinary arts education $2,995,000 $2,876,000
Restaurants & catering 379,000 429,000
Retail, media and other 155,000 145,000
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Total revenues 3,529,000 3,450,000
Cost of sales
Food & beverage 371,000 418,000
Program supplies 176,000 133,000
Scholarships & grants 46,000 38,000
Merchandise & other 109,000 139,000
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702,000 728,000
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Gross Margin 2,827,000 2,722,000
Fixed costs
Occupancy 445,000 438,000
Repairs & maintenance 95,000 133,000
Telephone, security & other 97,000 108,000
Depreciation & amortization 266,000 256,000
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Total fixed costs 903,000 935,000
Operating expenses
Compensation & benefits 1,331,000 1,550,000
Outside services 122,000 275,000
Advertising & promotion 148,000 157,000
Legal & other 240,000 438,000
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1,841,000 2,420,000
Interest income (expense) (6,000) 7,000
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Income (loss) before provision for
income taxes 77,000 (626,000)
Income tax provision (benefit) 31,000 (202,000)
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Net income (loss) $46,000 $(424,000)
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Primary earnings (loss) per share $0.01 $(0.13)
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Weighted average common shares and equivalents 3,228,732 3,308,805
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CALIFORNIA CULINARY ACADEMY, INC.
STATEMENTS OF CASH FLOWS
FOR THE QUARTER ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
Quarter Ended September 30
--------------------------
1996 1995
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Cash Flows From Operating Activities:
Net income (loss) $46,000 $(424,000)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 266,000 256,000
Tax provision 31,000 (202,000)
Provision for losses on accounts receivable 58,000
Loss on disposal of property 1,000
Deferred rent (1,000)
Changes in assets and liabilities:
Accounts receivable (206,000) 280,000
Inventories (6,000) (18,000)
Prepaid expenses and other assets (120,000) 9,000
Accounts payable (123,000) 15,000
Accrued and other liabilities (179,000) (17,000)
Deferred revenues 37,000 (455,000)
Student prepayments 81,000
Other long-term obligations (5,000)
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Net Cash Provided By Operating Activities (173,000) (503,000)
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Cash Flows From Investing Activities:
Acquisition of property and equipment (798,000) (16,000)
Decrease in long-term investments 646,000
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Net Cash Used In Investing Activities (152,000) (16,000)
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Cash Flows From Financing Activities:
Borrowings under term loan agreements 157,000
Principal payments on term loan agreements (77,000) (63,000)
Principal payments on capital lease obligations (25,000) (16,000)
Proceeds from exercise of stock options and warrants 1,087,000 33,000
Repurchase of Common Stock (717,000)
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Net Cash Provided By Financing Activities 425,000 (46,000)
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Net Increase In Cash and Cash Equivalents 100,000 (565,000)
Cash and cash equivalents, beginning of period 3,283,000 2,359,000
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Cash and cash equivalents, end of period $3,383,000 $1,794,000
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CALIFORNIA CULINARY ACADEMY, INC.
STATEMENTS OF CASH FLOWS
Supplemental disclosure of non-cash investing and financing activities:
The Academy paid approximately $81,000 and $19,000 in interest for the three
months ended September 30, 1996 and 1995, respectively.
The Academy paid approximately $1,000 and $6,000 in income taxes for the three
months ended September 30, 1996 and 1995, respectively.
CALIFORNIA CULINARY ACADEMY, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PRESENTATION
The accompanying condensed financial statements and related footnotes have been
prepared in accordance with generally accepted accounting principles. The
balance sheet as of September 30, 1996 and related statements of operations and
statements of cash flows for the three months ended September 30, 1996 and 1995
are unaudited, but have been prepared on substantially the same basis as the
annual audited financial statements. In the opinion of management, the
unaudited financial statements reflect all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the financial
position, operating results and cash flows for those periods presented. The
unaudited results for the three months ended September 30, 1996 are not
necessarily indicative of results to be expected for the entire year.
Certain prior year amounts have been reclassified to conform to current year
presentation.
NOTE 2 - INCOME TAXES
Deferred taxes are recorded based upon differences between the financial
statement and tax basis of assets and liabilities and available tax
carryforwards. The principal temporary differences that result in deferred tax
assets and liabilities are certain expenses accrued for financial reporting
purposes not deductible for tax purposes until paid, depreciation for income tax
purposes in excess of depreciation for financial reporting purposes and unused
net operating losses.
As of September 30, 1996 the Academy has federal and California net operating
loss carryforwards, for tax return purposes, of approximately $1,906,000 and
$1,092,000, respectively, which are available to offset future taxable income,
if any.
A valuation allowance has been provided for the prior year net operating loss
and deferred assets since it is more likely than not that the future tax
benefits of these items will not realized.
NOTE 3 -- NET INCOME PER SHARE
Net income per share is based on the weighted average number of shares
outstanding during each of the respective periods, including the dilutive effect
of stock options, warrants and any other common stock equivalents using the
treasury stock method.
NOTE 4 -- BANK DEBT
As of September 30, 1996, the Academy had a term loan with a bank. The term
loan provides for borrowings up to $750,000 with interest at 1% above the prime
rate of the bank, the proceeds of which are to be used to finance the purchase
of new equipment. The term loan is collateralized by all of the Academy's
equipment and a certificate of deposit, the balance of which shall not at any
time be less than 50% of the principal balance outstanding under the term note.
As of September 30, 1996, the Academy maintained a certificate of deposit of
$355,000 with the bank, of which $115,000 was collateral for the term loan.
The financing agreement contains various affirmative covenants including certain
covenants and ratios which the Academy must maintain. As of September 30, 1996,
the Academy was in violation of certain covenants. As of September 30, 1996,
the term loan was classified as current and was repaid during October 1996.
In June 1996, the Academy obtained a term loan from a bank in the amount of
$500,000, the proceeds of which were used for working capital requirements. The
term loan provides for interest paid monthly at 1% above the bank's index rate
for 90-day business certificate of deposits. The line of credit is
collateralized by a certificate of deposit at the same bank in the amount of
$500,000. As of September 30, 1996, the term loan was classified as current and
was repaid during October 1996.
NOTE 5- PREFERRED STOCK
During March 1996 and July 1996, the Board of Directors and shareholders,
respectively, authorized the Academy to issue up to 5,000,000 shares of
Preferred Stock in one or more series to be determined by the Board of
Directors from time to time. An amendment to the Articles of Incorporation
authorizing the issuance of Preferred Stock was filed with the California
Secretary of State in August 1996. On August 23, 1996, the Academy became
legally authorized to issue up to 700,000 shares of Series A Preferred Stock.
On the same date, the entire issue of Convertible Subordinated Notes in the
aggregate principal amount of $1,400,000 automatically converted to 254,541
shares of Series A Preferred Stock. The Academy plans to file a registration
statement to register for resale the Common Stock underlying the Series A
Preferred Stock and will use its best efforts to effect such registration before
November 23, 1996, the date after which an agreed upon $14,000 per month penalty
provision takes effect.
The non-redeemable Series A Preferred Stock into which the Notes converted
provides for quarterly dividends at an annual rate of 7.5% per share from the
date of first issuance, when and if declared by the Board of Directors, with a
liquidation preference of $5.50 per share, plus accrued dividends. Although the
Series A Preferred Stock is nonvoting, in the event the Academy fails to pay a
quarterly dividend, the holder of the Series A Preferred Stock will be entitled
to elect one-third of the Academy's Board of Directors at the next meeting held
for the election of directors. Each share of Series A Preferred Stock is
convertible at the option of the holder into the Academy's Common Stock at the
conversion price of $5.50 per share. After February 23, 1997, each share of
Series A Preferred Stock will convert automatically if the closing price of the
Common Stock equals or exceeds $8.00 for 20 consecutive days. Certain
provisions for price protection are set forth in the terms of the Series A
Preferred Stock, but in no event will the conversion price be less than $3.50.
The terms of the Convertible Subordinated Notes and the subsequent conversion to
Series A Preferred Stock provide for certain registration rights. Certain
penalties are payable to the Preferred shareholders in an amount equal to one
percent of the principal per month in the event that a registration statement
covering the resale of the Common Stock issuable upon conversion is not
effective within 90 days of (i) the date on which the Academy becomes legally
authorized to issue the Series A Preferred Stock and the Notes automatically
convert into Preferred Stock, or (ii) the date on which 100% of the Notes have
been converted to Common Stock. The penalty becomes payable as of November 23,
1996 unless the Common Stock issuable upon conversion of the Series A Preferred
Stock has been declared effective by the Securities and Exchange Commission.
NOTE 6 - REPURCHASE OF STOCK
In July 1996, a prior executive officer of the Academy elected to exercise
approximately 112,000 vested stock options. The Academy subsequently entered
into a transaction with this prior officer, wherein the Academy purchased and
retired this stock in exchange for approximately $717,000, which
approximated fair market value and was comprised of approximately $560,000 in
cash and $157,000 in promissory notes bearing an interest rate jof 8.75%.
NOTE 7 - RELATED-PARTY TRANSACTIONS
In July 1996, the Academy entered into a five-year lease for an approximately
3,800 square foot facility in Salinas, California. The lessor is a partnership
controlled by the principal shareholder, Chief Executive Officer and Chairman of
the Board of Directors and another principal shareholder and member of the Board
of Directors. The new facility will be an extension campus opened in October
1996. The monthly rent for the facility will be the greater of $3,900 or 8% of
gross sales plus a share of common area and exterior maintenance charges. The
Academy paid a lease acquisition fee of $150,000 upon execution of the lease
agreement. The lease agreement includes a termination clause subject to revenue
performance at the extension campus during the first twelve months of operations
and a termination fee should the Academy invoke the termination clause.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Academy's revenues are derived primarily from culinary arts education as
well as restaurant, retail and media operations. Culinary arts education
primarily consists of the A.O.S. Culinary Arts Degree Program, the 30-week
Baking & Pastry Arts Certificate Program, and consumer education classes.
Starting in June 1996, the A.O.S. Culinary Arts Degree Program began enrollment
on a two week cycle. The program can accommodate up to 29 students per
enrollment period. Previously the A.O.S. Degree Program enrolled an average of
approximately 80 students per enrollment period with six enrollments per year.
The 30-week Baking & Pastry Arts Certificate Program enrolled classes ranging
from 15 to 20 students. As of September 30, 1996, there were approximately 540
A.O.S. students and 60 Baking & Pastry students enrolled in the Academy.
The change in class size and the change in the enrollment cycle for the A.O.S.
program from every two months to every two weeks was made to enable student
enrollments to be managed more effectively. With an increased number of choices
of start dates for students, the Academy is better able to manage individual
student start dates to optimize class sizes. Additionally, the Academy is able
to manage faculty labor costs and other program costs due to more predictable
class sizes. Further, the Academy is able to utilize space in its teaching
facility more effectively because it is able to free up previously underutilized
space for other revenue producing activities, such as contract training.
Consumer education consists of avocational and team building programs. The
Academy's team building programs offer groups the use of the Academy's
professional kitchens under the guidance of a chef instructor. This form of
team building is an alternative to other forms of combined business and social
interaction such as river rafting and sporting event outings. Restaurant and
retail operations include two restaurants and two private dining rooms generally
open to the public seven days per week, banquet services generally offered seven
days per week and a small on-site retail shop offering student prepared foods,
beverages, cookbooks, video tapes, kitchen wares and selected clothing. Media
operations primarily consist of the marketing of the "Cooking at the Academy"
television series and the licensing of the Academy's name and cookbook content
for use in a series of cookbooks.
The Academy believes that manageable growth is achievable through the addition
of remote training facilities such as its culinary arts training center at
Salinas, California (opened in October 1996) and by the addition of programs to
be offered to the food industry such as contract training and research and
development in the areas of product development, menu development, and
restaurant design. In order to facilitate this revised strategy, the Academy
formed the CCA Development Company whose mission is to provide the food service
industry with knowledge based resources, which complement the education the
Academy's degree programs offer.
While management believes that this revised strategy will enable it to
significantly increase revenues by providing additional educational, training
and consultative resources to the food
industry, there can be no assurance that management will be able to successfully
implement such a strategy.
Except for historical information contained herein this report contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The
forward-looking statements contained herein are based upon current expectations,
and actual results may differ materially. Forward-looking statements contained
in this Report involve numerous risks and uncertainties, including those
discussed in this Report and the Academy's Annual Report on Form 10-KSB for the
fiscal year ended June 30, 1996, that could cause actual results to differ
materially from those projected.
The primary risks and uncertainties that could affect future results include,
without limitation, (i) the inability of management to successfully implement
and manage the Academy's new growth strategy of adding more remote training
facilities and new programs to be offered to the foodservice industry: (ii)
uncertainties associated with overhauling the structure of the A.O.S. degree
program enrollment process and the inability of the Academy to make
appropriate adjustments in a timely manner; (iii) the increased competition
from both for-profit and non-profit culinary arts education institutions;
(iv) the continued dependence on financial aid programs to fund a majority of
Academy's students' education, thereby providing a significant portion of the
Academy's revenues, together with the uncertainty that budgetary constraints
or other factors in the future could impact the availability and amount of
both public and private sources of financial aid; and (v) the possibility
that regulatory agencies that dirctly or indirectly impact aspects of the
Academy's business could revise regulations in such a way that the Academy
would not be able to comply with new regulations in a timely manner.
Investors are cautioned not to place undue reliance on these forward-looking
statements, which reflect management's analysis only as of the date hereof. The
Academy undertakes no obligation to publicly release the results of any revision
to these forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
RESULTS OF OPERATIONS
The Academy had net income of $46,000 or $0.01 per share for the quarter ended
September 30, 1996 ("Q1-97"), compared to net loss of $(424,000), or $(0.13) per
share for the quarter ended September 30, 1995 ("Q1-96").
Total revenues increased 2.3% for Q1-97 to $3,529,000 from $3,450,000 for Q1-96.
Revenues from culinary arts education, which typically account for approximately
80% of total revenues, increased $119,000 or 4.1% as compared to the same
quarter from the prior fiscal year. Revenues from restaurant and retail sales,
media and other decreased $33,000, or 5.9%, for the quarter over the same
quarter from the prior fiscal year.
Total culinary arts education revenues for Q1-97 were $2,995,000 compared to
$2,876,000 for the Q1-96. The increase of $119,000, or 4.1%, is primarily to
higher program fees and costs.
Restaurants and catering revenues for Q1-97 were $379,000 compared to $429,000
for Q1-96. The decrease of $50,000 or 11.6% is primarily related to related to
closure of the restaurants for remodeling and scheduled "black out" periods.
Retail, media and other revenues for Q1-97 were $155,000 compared to $145,000
for Q1-96. The increase of $10,000 or 6.9% is primarily related to increased
contract training and R&D revenue, royalties from book sales offset by lower
than expected revenues in the Academy's retail shop.
Total cost of sales for Q1-97 were $702,000 compared to $728,000 for Q1-96. The
decrease of $26,000 or 3.6% is primarily related to lower food and beverage
costs due to better cost control, and lower merchandise costs due to lower
activity in the Academy's retail shop offset by higher supply costs.
Total fixed costs for Q1-97 were $903,000 compared to $935,000 for Q1-96. The
decrease of $32,000 or 3.4% is primarily related to lower repairs and
maintenance expense.
Total operating expenses for Q1-96 were $1,841,000 compared to $2,422,000 for
Q1-96. The decrease of $581,000 or 24.0% is primarily related to lower
compensation and benefits expense and outside service costs resulting from the
Academy's restructuring plan implemented during the fourth quarter of fiscal
year 1996.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Academy financed its growth from the issuance of equity
securities in private and public transactions, borrowings from related parties,
lease and debt financing obligations and through cash flow provided by
operations.
At September 30, 1996, the Academy's principal sources of liquidity included
cash and cash equivalents of $3,284,000, including $615,000 of restricted cash
equivalents held in certificates of deposit and pledged as collateral for term
loans, and net accounts receivable of $2,993,000. The Academy has long-term
obligations of $708,000 and working capital of $888,000 at September 30, 1996.
Long-term obligations reflects the conversion of $1,400,000 Convertible Notes
into Series A Preferred Stock on August 23, 1996.
As of September 30, 1996 the Academy was indebted for a term loan that provides
for borrowings up to $750,000 with interest at 1% above the prime rate of the
bank, the proceeds of which are to be used to finance the purchase of new
equipment. The outstanding principal balance of the term loan is to be repaid
in 36 monthly installments of approximately $21,000. This term loan is
collateralized by all of the Academy's equipment and a certificate of deposit,
the balance of which shall not at any time be less than 50% of the principal
balance outstanding under the term loan. As of September 30, 1996, the Academy
had approximately $229,000 outstanding under this term loan and maintained a
certificate of deposit for $355,000 in accordance with this provision. The term
loan agreement contains various affirmative covenants including certain
covenants and ratios which the Academy must maintain. As of September 30, 1996,
the Academy was in violation of certain covenants. As of September 30, 1996,
the term
loan was classified as current and was repaid during October 1996. During
September, the Academy terminated a $500,000 revolving line of credit with this
bank. The Academy had no outstanding borrowings under the line of credit.
In June 1996, the Academy obtained a term loan from another bank in the amount
of $500,000, the proceeds of which were used for working capital requirements.
Any outstanding principal balance under the second term loan shall be due and
payable on July 15, 1997. The term loan provides for interest to be paid
monthly at 1% above the bank's index rate for 90-day business certificate of
deposits. The second term loan is collateralized by a certificate of deposit at
the same bank in the amount of $500,000. As of September 30, 1996, the Academy
had $500,000 outstanding under the term loan and maintained a certificate of
deposit of $500,000 in accordance with this provision. The loan was classified
as a current liability and was repaid during October 1996.
PART II
ITEM 1. LEGAL PROCEEDINGS
There are various legal claims and lawsuits pending by and against the Academy
that, in the opinion of management, after consultation with legal counsel, are
not expected to have in any material adverse effect on the results of operations
or financial position of the Academy.
ITEM 2. CHANGES IN SECURITIES None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None
ITEM 5. OTHER INFORMATION None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a.) EXHIBITS
Exhibit No. Description
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10.29 Lease for premises at Natividad Plaza, Salinas, CA
10.30 Agreement between Registrant and Noel-Levitz,
Inc. dated July 1, 1996
11.0 Statement re: Computation of Earnings per Share
27.0 Financial Data Schedule
(b.) REPORTS ON FORM 8-K None
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, as
amended, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CALIFORNIA CULINARY ACADEMY, INC.
November 19, 1996 By: /s/ Robert A. Stoffregen
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Robert A. Stoffregen
Chief Financial Officer and
Director of Development