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
DECEMBER 29, 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 as specified 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)
Registrant's telephone number, including area code: (972) 701-9955
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 Section 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 December 29, 1996, an aggregate of 12,923,752 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 and six months ended December 29, 1996
and December 24, 1995 . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Balance Sheets at
December 29, 1996 and June 30, 1996 . . . . . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows
for the six months ended December 29, 1996
and December 24, 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 4. Submission of Matters to a Vote of Security Holders . . . 10
Item 5. Other Information . . . . . . . . . . . . . . . . . . . 10
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 10
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
PIZZA INN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
----------------------------- -------------------------------
December 29, December 24, December 29, December 24,
1996 1995 1996 1995
------------ ------------ -------------- ------------
REVENUES:
Food and supply sales $ 15,146 $ 14,207 $ 30,567 $ 27,782
Franchise revenue 1,739 1,839 3,339 3,622
Restaurant sales 645 753 1,330 1,478
Other income 29 95 57 164
------------ ------------- ------------ ------------
17,559 16,894 35,293 33,046
------------ ------------- ------------ ------------
COSTS AND EXPENSES:
Cost of sales 13,714 13,202 27,680 25,873
Franchise expenses 680 685 1,422 1,386
General and administrative
expenses 1,232 1,312 2,557 2,625
Interest expense 168 218 360 483
------------ ------------ ------------ ------------
15,794 15,417 32,019 30,367
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 1,765 1,477 3,274 2,679
Provision for income taxes 600 502 1,113 911
------------ ------------ ------------ ------------
NET INCOME $ 1,165 $ 975 $ 2,161 $ 1,768
============ ============ ============ ============
NET INCOME PER COMMON SHARE $ 0.08 $ 0.07 $ 0.16 $ 0.13
============ ============ ============ ============
<FN>
See accompanying Notes to Condensed Consolidated Financial Statements
PIZZA INN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
December 29, June 30,
1996 1996
----------- --------
(Unaudited)
ASSETS
- ----------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents $ 532 $ 653
Restricted cash and short-term investments
(including $0 and $230, respectively,
pledged as collateral for certain
letters of credit) 210 360
Notes and accounts receivable, less allowance
for doubtful accounts of $883 and $900,
respectively 8,373 6,652
Inventories 1,805 1,919
Prepaid expenses and other 457 466
Net assets held for sale 65 70
--------- ---------
11,442 10,120
Total current assets
PROPERTY, PLANT AND EQUIPMENT, net 1,846 1,866
PROPERTY UNDER CAPITAL LEASES, net 1,020 1,107
DEFERRED TAXES, net 9,639 10,687
OTHER ASSETS
Long-term notes and accounts receivable, less
allowance for doubtful accounts of $79
and $63, respectively 289 149
Deposits and other 436 490
--------- ---------
$ 24,672 $ 24,419
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ----------------------------------------------------
CURRENT LIABILITIES
Current portion of long-term debt $ 2,000 $ 2,000
Current portion of capital lease obligations 111 109
Accounts payable - trade 2,018 2,331
Accrued expenses 2,969 3,158
--------- ---------
Total current liabilities 7,098 7,598
LONG-TERM LIABILITIES
Long-term debt 5,910 6,910
Long-term capital lease obligations 938 992
Other long-term liabilities 813 813
SHAREHOLDERS' EQUITY
Common Stock, $.01 par value; authorized
26,000,000 shares; outstanding 12,923,752
and 12,876,801 shares, respectively (after
deducting shares in treasury:
December - 1,487,616; June - 1,360,567) 129 129
Additional paid-in capital 3,919 3,684
Retained earnings 5,865 4,293
--------- ---------
Total shareholders' equity 9,913 8,106
--------- ---------
$ 24,672 $ 24,419
========= =========
<FN>
See accompanying Notes to Condensed Consolidated Financial Statements
PIZZA INN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
------------------------------
December 29, December 24,
1996 1995
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,161 $ 1,768
Add non-cash items 1,394 1,151
Changes in assets and liabilities:
Accounts and notes receivable (1,861) (445)
Inventories 114 (380)
Accounts payable - trade (313) 534
Accrued expenses (251) (100)
Deferred income 62 603
Other - net 127 107
---------- ------------
Cash provided by operating activities 1,433 3,238
---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (148) (378)
Proceeds from sales of assets - 83
---------- ------------
Cash used for investing activities (148) (295)
---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt and capital
lease obligations (1,052) (2,514)
Proceeds from exercise of stock options 273 213
Purchases of treasury stock (627) (1,519)
---------- ------------
Cash used for financing activities (1,406) (3,820)
---------- ------------
Net decrease in cash and cash equivalents (121) (877)
Cash and cash equivalents, beginning of period 653 1,672
---------- ------------
Cash and cash equivalents, end of period $ 532 $ 795
========== ============
- --------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAYMENTS FOR:
Interest $ 315 $ 504
Income taxes 70 25
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 statements should be read
in conjunction with the notes to the Company's audited consolidated financial
statements in its Form 10-K for the fiscal year ended June 30, 1996.
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.
(2) For the three and six months ended December 29, 1996, common stock
equivalents were 930,236 and 839,951, respectively, and the total weighted
average number of shares considered to be outstanding were 13,879,815 and
13,775,855, respectively. For the three and six months ended December 24,
1995, common stock equivalents were 894,996 and 755,276, respectively, and the
total weighted average number of shares considered to be outstanding were
14,199,864 and 14,129,490, respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Quarter and six months ended December 29, 1996 compared to the quarter and six
months ended December 24, 1995.
Net income for the second quarter of the current fiscal year rose 20% to
$1,165,000 or $.08 per share compared to $975,000 or $.07 per share for the
same quarter last year. For the six months ended December 29, 1996, net
income increased 22% to $2,161,000 or $0.16 per share, from $1,768,000 or
$0.13 per share for the same period last year.
Food and supply sales from the Company's distribution division increased
7% for the quarter and 10% for the six month period, compared to the same
periods last year. The increase is due to growth in chainwide domestic retail
sales, as well as increased market share on sales of non-proprietary food and
equipment to both international and domestic franchisees. Increases in the
market price of certain commodities also contributed to the sales increase.
Franchise revenue, which includes income from royalties, license fees and
area development ("A.D.") sales, decreased 5% for the quarter and 8% for the
six month period. This was primarily due to lower income from A.D. sales in
the current year. The timing and amount of proceeds from A.D. sales may vary
significantly from year to year. Current year sales include partial
recognition of proceeds from the sale of area development rights for Korea and
the Philippines.
Restaurant sales, which are comprised of sales from Company operated
units, decreased 14% and 10% for the quarter and six month periods,
respectively, compared to the same periods last year. This is primarily the
result of the closing during fiscal 1996 of one of these units, leaving five
units which the Company uses for training or other purposes.
Cost of sales increased 4% and 7% for the quarter and six 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, the cost of
sales is slightly lower during both current year periods, as a result of cost
savings achieved through fleet modernization and routing efficiencies,
increased labor productivity and improved buying power through volume
purchasing. Variations in the seasonal cost patterns of key commodities from
year to year have also impacted the comparable cost of sales percentages.
Franchise expenses for the quarter were maintained at essentially the
same level as the comparable quarter last year. Franchise expenses for the
six month period increased 3%, reflecting additional expenditures in the first
quarter of fiscal 1997 for sales, training and field service personnel, as
well as increases in expenses related to marketing the Company's franchising
opportunities.
General and administrative expenses decreased 6% and 3% for the quarter
and six months, respectively, as the Company continues to hold down costs not
directly related to the franchise service and distribution areas of the
business.
Interest expense decreased 23% and 25% for the three and six month
periods, respectively, as a result of lower average debt balances and lower
interest rates.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations totaled $1.4 million for the first six months
of fiscal 1997, and consisted primarily of net income plus the benefit of the
Company's net operating loss carryforwards which significantly reduce the
amount of federal income tax actually paid. The Company utilized cash
primarily to pay down debt, making $1 million in scheduled principal payments
during the first half of the year. In addition, cash of $627,000 was used to
purchase shares of the Company's own common stock during the first six months
of fiscal 1997.
In September 1996, the Company signed an agreement for the sale of
exclusive operating and franchising rights in Korea, for a total cash price of
$800,000 ($687,000 net of certain expenses). This agreement, along with other
area development 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. The occurrence of any additional area development
sales, 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 the utilization
of its net operating loss carryforwards (which currently total $23.6 million
and expire in 2005) to reduce its federal tax liability from the 34% tax
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, along with the reversal of temporary differences,
to fully realize its net deferred tax asset balance ($9.6 million as of
December 29,1996). Taxable income in future years at the same level as fiscal
1996 would be sufficient for full realization of the net tax asset. Management
believes that, based on recent growth trends and future projections, main-
taining 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.
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" contains certain projections and other forward-looking
statements that are not historical facts and are subject to various risks and
uncertainties, including but not limited to: changes in demand for Pizza Inn
products and franchises; the impact of competitors' actions; changes in prices
or supplies of food ingredients; and restrictions on international trade and
business.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders on December 4, 1996, the Company's
shareholders elected all four nominees to the Board of Directors. The results
of the voting were as follows:
NOMINEE VOTES FOR VOTES WITHHELD
--------------- ---------- -------------
Bobby Clairday 10,424,300 94,188
Don G. Navarro 10,423,300 95,188
Ronald W. Parker 10,426,554 91,934
Ramon D. Phillips 10,426,819 91,669
The shareholders also approved the proposed amendment of the Company's
1993 Stock Award Plan. The results of the voting were as follows:
BROKER
FOR AGAINST ABSTAIN NON-VOTES
--------- ------- ------- --------
9,566,716 654,155 43,873 253,744
ITEM 5. OTHER INFORMATION
In January 1997, the Company terminated the agreement with its former
licensee in Taiwan, after extensive efforts to resolve problems by mutual
agreement. The Company intends to require the former licensee's compliance
with its post-termination obligations and to pursue a new licensee who can
develop the Pizza Inn business in Taiwan.
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/Ronald W. Parker
--------------------
Ronald W. Parker
Executive Vice President and
Principal Financial Officer
By: /s/Elizabeth D. Reimer
----------------------
Elizabeth D. Reimer
Controller and
Principal Accounting Officer
Dated: February 11, 1997