SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
x Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period
ended March 24, 1996.
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 0-12919
PIZZA INN, INC.
(Exact name of registrant in its charter)
Missouri 47-0654575
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5050 Quorum Drive
Suite 500
Dallas, Texas 75240
(Address of principal executive offices,
including zip code)
(214) 701-9955
(Registrant's telephone number,
including area code)
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 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 by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or
15(d)of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes x No
At March 24, 1996, an aggregate of 13,020,401 shares of the
registrant's Common Stock, par value of $.01 each (being the
registrant's only class of common stock), were outstanding.
PIZZA INN, INC.
Index
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page
Condensed Consolidated Statements of Operations
for the three months and nine months ended
March 24, 1996 and March 26, 1995......................3
Condensed Consolidated Balance Sheets at
March 24, 1996 and June 25, 1995.......................4
Condensed Consolidated Statements of
Cash Flows for the nine months ended
March 24, 1996 and March 26, 1995......................5
Notes to Condensed Consolidated Financial
Statements.............................................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..........7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K......................10
Signatures............................................11
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PIZZA INN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
March 24, March 26, March 24, March 26,
1996 1995 1996 1995
-------- -------- -------- --------
REVENUES:
Food and supply
sales $13,964 $12,523 $41,746 $38,167
Franchise revenue 1,836 1,903 5,458 5,326
Restaurant sales 684 768 2,162 2,376
Other 73 49 237 126
-------- -------- -------- -------
16,557 15,243 49,603 45,995
COSTS AND EXPENSES:
Cost of sales 12,860 11,896 38,733 36,227
Franchise expenses 781 727 2,167 2,063
General and admin-
istrative expenses 1,328 1,216 3,953 3,735
Non-recurring gain - - - (531)
Interest 194 309 677 1,016
-------- -------- -------- --------
15,163 14,148 45,530 42,510
INCOME BEFORE INCOME
TAXES 1,394 1,095 4,073 3,485
Provision for income
taxes 474 372 1,385 1,185
-------- -------- -------- --------
NET INCOME $ 920 $ 723 $ 2,688 $ $2,300
======== ======== ======== ========
NET INCOME PER COMMON
SHARE $ 0.07 $ 0.05 $ 0.19 $ 0.16
======== ======== ======== ========
See accompanying Notes to Condensed Consolidated Financial Statements
PIZZA INN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
March 24, June 25,
1996 1995
(Unaudited)
-------- --------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 326 $ 1,672
Restricted cash and short-term
investments (including $230
pledged as collateral for
certain letters of credit) 345 353
Notes and accounts receivable,
less allowance for doubtful
accounts of $1,170 and $1,119,
respectively 5,963 5,109
Inventories 1,845 1,590
Prepaid expenses and other 587 590
Net assets held for sale 131 243
-------- --------
Total current assets 9,197 9,557
PROPERTY, PLANT AND EQUIPMENT,
net 1,930 1,722
PROPERTY UNDER CAPITAL LEASES,
net 663 747
DEFERRED TAXES, net 11,279 12,582
OTHER ASSETS
Long-term notes and accounts
receivable, less allowance for
doubtful accounts of $61
and $199, respectively 129 690
Deposits and other 495 505
-------- --------
$ 23,693 $ 25,803
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of
long-term debt $ 2,000 $ 1,995
Current portion of
capital lease obligations 66 71
Accounts payable - trade 1,648 1,184
Accrued expenses 3,431 2,808
-------- --------
Total current liabilities 7,145 6,058
LONG-TERM LIABILITIES
Long-term debt 7,410 10,393
Long-term capital lease
obligations 589 646
Other long-term liabilities 783 1,304
SHAREHOLDERS' EQUITY
Common Stock, $.01 par value;
authorized 26,000,000 shares;
outstanding 13,020,401 and
13,526,970 shares,respectively
(after deducting shares in
treasury: March 24 - 1,156,967;
June 25 - 418,898) 130 135
Additional paid-in capital 3,598 3,974
Retained earnings 4,038 3,293
-------- --------
Total shareholders' equity 7,766 7,402
-------- --------
$ 23,693 $ 25,803
======== ========
See accompanying Notes to Condensed Consolidated Financial Statements
PIZZA INN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
March 24, March 26,
1996 1995
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,688 $ 2,300
Add non-cash items 1,742 943
Changes in assets and liabilities:
Accounts and notes receivable (293) (393)
Inventories (255) 105
Accounts payable - trade 464 121
Deferred income 204 (829)
Other accrued expenses (114) (339)
Other - net 26 (286)
-------- --------
Cash provided by
operating activities $ 4,462 $ 1,622
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and
equipment (534) (829)
Proceeds from sales of assets 91 129
-------- --------
Cash used for investing
activities (443) (700)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt and
capital lease obligations (3,041) (1,265)
Proceeds from exercise of stock
options 350 179
Purchases of treasury stock (2,674) (66)
-------- --------
Cash used for financing
activities (5,365) (1,152)
Net decrease in cash and cash
equivalents (1,346) (230)
Cash and cash equivalents,
beginning of period 1,672 2,924
-------- --------
Cash and cash equivalents, end
of period $ 326 $ 2,694
======== ========
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION
CASH PAYMENTS FOR:
Interest $ 660 $ 1,028
Income taxes 80 40
NON-CASH FINANCING AND INVESTING ACTIVITIES:
Notes received upon sale of area
development territories - 511
See accompanying Notes to Condensed Consolidated Financial Statements
PIZZA INN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) The accompanying condensed consolidated financial statements
of Pizza Inn, Inc. (the "Company") have been prepared without
audit pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote
disclosures normally included in the financial statements
have been condensed or omitted pursuant to such rules and
regulations. The condensed consolidated financial state-
ments should be read in conjunction with the notes to the
Company's audited consolidated financial statements in its
Form 10-K/A for the fiscal year ended June 25, 1995.
In the opinion of management, the accompanying unaudited
condensed consolidated financial statements contain all
adjustments necessary to fairly present the Company's
financial position and results of operations for the
interim periods. All adjustments contained herein are of
a normal recurring nature. Certain prior year amounts
have been reclassified to conform to current year
presentation.
(2) For the three and nine months ended March 24, 1996, common
stock equivalents were 901,492 and 778,681, respectively,
and the total weighted average number of shares considered
to be outstanding were 14,054,717 and 14,079,232,
respectively. For the three and nine months ended
March 26, 1995, common stock equivalents were 325,182 and
405,619, respectively, and the total weighted average num-
ber of shares considered to be outstanding were 14,267,081
and 14,339,616, respectively.
(3) On June 30, 1995, the Company purchased 262,094 shares of
its own common stock from a former lender for a cash price
price $596,285. In addition, during the nine months ended
March 24, 1996, the Company purchased 475,400 of its own
shares in the open market. The total purchase price for
these shares was $2,077,493. These reacquired shares are
held as treasury stock and will be retired at the earliest
opportunity.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Quarter and nine months ended March 24, 1996 compared to the quarter
and nine months ended March 26, 1995.
Net income for the third quarter of the current fiscal year
increased 27% to $920,000 or $.07 per share, from $723,000 or $0.05
per share for the same quarter last year. For the nine month period,
net income rose 17% to $2,688,000 or $0.19 per share from $2,300,000
or $0.16 per share last year. The prior year nine months included a non-
recurring gain of $350,000 net of tax from the resolution of certain
property and sales tax liabilities. Excluding the effect of this gain,
net income for the nine month period was up 38% and earnings per share
grew 36% to $0.19 from $0.14.
Food and supply sales from the Company's distribution division
increased 12% for the quarter and 9% for the nine month period,
compared to the same periods last year. This was partially the result
of higher domestic chainwide sales, which were up 2% for the quarter
and 3% for the nine month period. Increased market share on sales of
non-proprietary food ingredients and equipment, as well as increases
in the market price of certain commodities, also contributed to higher
food and supply sales.
Franchise revenue, which includes income from royalties, franchise
fees and area development sales, decreased 4% for the quarter and
increased 2% for the nine month period. Royalties during the quarter
were down 12%, primarily as a result of a one-time adjustment in
the previous year to recognize actual international royalties in
excess of amounts previously accrued. For the nine month period,
royalties were up slightly in the current year, due to higher domestic
chainwide sales and international store openings at higher effective
royalty rates than existing units. It should also be noted that
during the current quarter, all 39 Pizza Inn units in Korea were
closed. The Company had previously terminated the license and filed
suit against the Korean Master Licensee to enforce compliance with
certain contractual obligations and to collect past due receivables.
The Korean units paid less than $150,000 per year in royalties.
Franchise fees were down for the quarter and nine month periods
compared to the prior year, due to the timing of store openings and
the number of stores opening within area development territories.
Increased current year openings of Express units, which have a lower
initial fee, also contributed to the decrease in franchise fees.
Area development sales increased for both current year periods, and
include revenue from the sale of area development rights for
sections of North Carolina and South Carolina.
Other revenue consists primarily of interest income and non-
recurring revenue items. Revenue from the sale of lease rights on a
non-operating property during the current quarter and revenue from a
favorable lawsuit settlement during an earlier quarter of the current
year resulted in the increase in other revenue for both current year
periods.
Cost of sales increased 8% and 7% for the quarter and nine
month periods, respectively, as a result of the growth in food and
supply sales to the Company's franchisees. As a percentage of food
and supply sales, cost of sales is slightly lower during both
current year periods as a result of cost efficiencies achieved
through fleet modernization and routing efficiencies, increased
labor productivity, and improved buying power through volume
purchasing.
Franchise expenses increased 7% and 5% for the quarter and nine
month periods due to additional expenditures for franchisee training
and support personnel.
General and administrative expenses increased 9% and 6%
for the quarter and nine months, respectively. This was due primarily
to the implementation of a new computer system, which resulted in
additional expenses related to programming and support.
During the prior year nine month period, upon settlement of
certain sales and property tax liabilities for amounts lower than
previously estimated, the Company recorded a non-recurring gain of
$531,000. The after-tax effect of this adjustment on prior year
net income was an increase of $350,000 or $.02 per share.
Interest expense decreased 37% and 33% for the quarter and nine
months, respectively, due to lower debt levels and lower interest
rates.
Liquidity and Capital Resources
Cash provided by operations totalled $4.5 million for the first
nine months of fiscal 1996, and consisted primarily of net income,
plus the benefit of the Company's net operating loss
carryforwards which significantly reduced the amount of federal income
tax actually paid. The Company used cash of $534,000 during the
first nine months of this year for capital expenditures to upgrade
the distribution division warehouse and fleet, and to purchase new
equipment for the company-operated training stores. The Company also
used cash to reduce bank debt by making scheduled principal payments
of $1.6 million and voluntary prepayments of $1.4 million during
the first nine months of the year. Cash was also used to purchase
shares of the Company's own common stock. On June 30, 1995, the
Company purchased 262,094 shares from a former lender for a cash price
of $596,285. During the first nine months of fiscal 1996, the
Company also purchased 475,400 of its shares on the open market for
a total price of $2,077,493. Management believes that the recent
market price of its common stock makes it an attractive investment for
the Company, and to the extent that these prices prevail, the Company
plans to continue purchasing its own shares while repaying debt.
During the first quarter of fiscal 1996, the Company signed
an agreement for the sale of an area development territory covering
portions of North Carolina and South Carolina to an existing area
developer for a cash price of $1,350,000. This area development agree-
ment, along with other agreements signed during the last four years,
contain development commitments for significant unit growth over the
next five years. Related growth in royalties and distribution sales are
expected to provide adequate working capital for future needs. The
occurrence of any additional area development sales during the year,
which cannot be predicted with any certainty, may also provide
significant infusions of cash. External sources of cash are not
expected to be required in the foreseeable future.
The Company continues to realize substantial benefit
from utilization of its net operating loss carryforwards to reduce its
federal tax liability from the 34% reflected on its statement of
operations to an actual payment of approximately 2% of taxable
income. Management believes that future operations will generate
sufficient taxable income to fully realize the net deferred tax
asset balance of $11.3 million as of March 24, 1996. Taxable income
in future years at the same level as fiscal 1995 would be sufficient
for full realization of the net tax asset. Management believes
that, based on recent growth trends and future projections,
maintaining current levels of taxable income is achievable and that
the Company will be able to realize its net deferred tax asset without
reliance on material, non-routine income.
Historically, the differences between pre-tax earnings for
financial reporting purposes and taxable income for tax purposes
have consisted of temporary differences arising from the timing
of depreciation, deductions for accrued expenses and deferred
revenues, as well as permanent differences as a result of
goodwill amortization deducted for financial reporting purposes
but not for income tax purposes.
The following summarizes, as of March 24, 1996, the annual amounts
of net operating loss carryforwards for income tax purposes that
expire by year:
Net Operating Loss
Carryforwards
(In Thousands) Expires in Year
---------------- --------------
$ 3,700 2004
24,600 2005
-------
$ 28,300
=======
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
There are no exhibits filed with this report. No reports on Form
8-K were filed in the quarter for which this report is filed.
SIGNATURES
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.
PIZZA INN, INC.
Registrant
By: /s/C. Jeffrey Rogers
C. Jeffrey Rogers
President and
Principal Executive Officer
By: /s/Amy E. Manning
Amy E. Manning
Controller and
Principal Accounting Officer
Dated: May 7, 1996