UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended June 30, 1996
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 ________________________
PERFORMANCE INDUSTRIES, INC., AND SUBSIDIARIES
----------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 34-1334199
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2425 E. Camelback Road, Suite 620
Phoenix, Arizona 85016
- ---------------------------------------- ----------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (602) 912-0100
Indicate by checkmark 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 by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15d of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES X NO
---- ----
Number of shares outstanding of each of the issuer's classes of common stock as
of August 2, 1996, 2,489,529 shares.
1
PERFORMANCE INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
PART 1 FINANCIAL INFORMATION (Unaudited) Page
--------------------------------- ----
Consolidated Balance Sheets -
June 30, 1996 and December 31, 1995 3
Consolidated Statements of Operations (Unaudited) -
Three Months Period Ended June 30, 1996 and 1995 4
Consolidated Statements of Operations (Unaudited) -
Six Month Period Ended June 30, 1996 and 1995 5
Consolidated Statements of Cash Flow (Unaudited) -
Six Month Period Ended June 30, 1996 and 1995 6
Notes to Consolidated Financial Statements (Unaudited) 7-8
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 - 11
PART II OTHER INFORMATION:
------------------
Item 1. Legal Proceedings 12
- ---------------------------
Item 2. Changes in Securities 12
- -------------------------------
Item 3. Defaults upon Senior Securities 12
- -----------------------------------------
Item 4. Submission of Matters to a Vote of Security Holders 12
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Item 5. Other Information 12
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K 12
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Signatures 13
2
PERFORMANCE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(Unaudited)
June 30, 1996 December 31, 1995
------------- -----------------
ASSETS
Current assets:
Cash and cash equivalents
Cash and equivalents, unrestricted $ 111 $ 411
Cash, restricted 779 1,267
Securities available for sale 1,448 1,783
Accounts and other receivables,
less allowance for doubtful accounts 558 416
Receivable from sale of businesses,
net of allowance current portion 62 480
Factored receivables, net of allowance for doubtful accounts 2,444 1,868
Inventories 279 293
Prepaid expenses and other current assets 583 322
Other assets held for sale 212 212
Deferred income taxes 81 0
------------- -------------
Total current assets 6,557 7,052
Receivables from sales of businesses, less current portion
net of allowance 105 520
Investment in real estate 11,093 11,073
Deferred income taxes 1,734 1,734
Property and equipment, net 4,188 3,578
Other assets, net 923 921
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$ 24,600 $ 24,878
============= =============
LIABILITIES AND SHAREHOLDER' EQUITY Current liabilities:
Current portion of long-term debt 1,502 594
Accounts payable 1,062 1,260
Accrued employment costs 501 288
Accrued product liability costs 334 350
Accrued expenses and other current liabilities 822 1,016
Factored receivables reserve 499 390
Liabilities subject to compromise 764 754
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Total current liabilities 5,484 4,652
Long-term debt, less current portion 7,195 6,751
Minority interest 395 414
Shareholders' equity:
Common stock, no par value; authorized
5,000,000 shares; 3,232,332 issued; 2,489,529 outstanding 31,202 31,202
Accumulated deficit (17,687) (16,416)
Unrealized appreciation on securities available for sale
net of income taxes 962 1,226
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14,477 16,012
Treasury stock at cost 670,784 shares (2,951) (2,951)
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Total shareholders' equity 11,526 13,061
$ 24,600 $ 24,878
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3
PERFORMANCE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS PERIOD ENDED JUNE 30, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Unaudited)
Three Months Ended June 30
--------------------------
1996 1995
---- ----
Net revenue $ 5,162 $ 5,211
Cost of revenues (4,950) (4,750)
Selling general and administrative expense (772) (775)
Interest income (expense) (158) 82
Other income 201 159
Loss on disposition of assets (575) -0-
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Loss from continuing operations before
income taxes and minority interest (1,092) (73)
Provision for income taxes (1) (3)
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Loss from continuing operations before minority interest (1,093) (76)
Minority interest in earnings 15 (15)
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Loss from continuing operations (1,078) (91)
Loss from discontinued operations (99) -0-
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Net loss $ (1,177) $ (91)
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Income loss per common share:
- -----------------------------
Continuing operations $ (.43) (.01)
Discontinued operations (.04) (.00)
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Net income loss per common share $ (.47) $ (.01)
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Average number of shares outstanding 2,489,529 9,958,115
============= ==========
See accompanying notes to consolidated financial statements.
4
PERFORMANCE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Unaudited)
Six Months Ended June 30
------------------------
1996 1995
---- ----
Net Revenues $ 10,388 $ 9,828
Cost of revenues (9,659) (8,749)
Selling general and administrative expenses (1,509) (1,628)
Interest (expense) income (339) (4)
Other income 498 492
Loss on disposition of assets (575) -0-
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Loss from continuing operations before income
taxes and minority interest (1,196) (61)
Provision for income taxes 6 (5)
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Loss from continuing operations before minority interest (1,190) (66)
Minority interest in earnings 18 (34)
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Loss before discontinued operations (1,172) (100)
Loss from discontinued operations (99) -0-
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Net losses (1,271) (100)
============== ============
Loss per common share:
Continuing operations $ (.47) $ $(.01)
Discontinued operations (.04) -0-
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Net loss per common share $ (.51) $ (.01)
============== ============
Average number of shares outstanding 2,489,529 9,958,115
============== ============
See accompanying notes to consolidated financial statements.
5
PERFORMANCE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(DOLLARS IN THOUSANDS)
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1996 AND 1995
(Unaudited)
Six Months Ended June 30
------------------------
1996 1995
---- ----
Net cash (used in) operating activities $ (834) $ (1,123)
Cash Flow from Investing Activities:
Decrease in restricted cash 488 638
Increase in notes receivable (142) -0-
Decrease in receivables from sale of businesses, net 833 417
(Increase) decrease in investment of factored
receivables, net (467) 1,460
Decrease (increase) assets held for sale -0- 19
Additions to property and equipment ( 1,310) (1,091)
Increase in real estate under development (220) (2,144)
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Net cash provided by (used in) investing activities (818) (701)
Cash Flow from Financing Activities:
Repayment of debt (350) (42)
Proceeds from borrowings 1,702 844
(Increase) decrease in treasury stock -0- 47
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Net cash provided by (used in) financing activities 1,352 849
Net (decrease) in cash and cash equivalents (300) (975)
Cash and cash equivalents at beginning of period 411 1,142
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Cash and cash equivalents at end of period $ 111 $ 167
========== ==========
See accompanying notes to consolidated financial statements.
6
PERFORMANCE INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(1) Basis of Presentation:
----------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnote disclosure required by generally accepted accounting principles for
complete financial statements. These interim consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes included in the Company's 1994 Form 10-K filing. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
six month period ended June 30, 1996 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1995. For further
information, refer to the consolidated financial statements and footnotes
thereto contained herein.
(2) Inventories:
------------
The components of inventories were as follows (in thousands):
June 30, 1996 December 31, 1995
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Restaurant Inventory 297 293
(3) Restricted Cash
---------------
Cash which has been restricted as collateral and for use in tenant improvements
for the Camelback Plaza Development was reduced by $488,000 for the final
payments of Hard Rock improvements and the payment of commitments to one of the
other tenants.
(4) Receivable from Sale of Businesses
----------------------------------
The Company has several unsecured notes from the sale of prior businesses.
During the six months ended June 30, 1996, the Company discounted one note for
an immediate cash payment of $700,000. The discount is reported on the statement
of operations as a loss from discontinued operations.
(5) Prepaid Expenses
----------------
Prepaid expenses have increased by $261,000. This increase is the result of
opening of a new restaurant, and commissions and other prepayment expenses
resulting from negotiating new leases with tenants of the Company's real estate
properties.
(6) Property and Equipment
----------------------
Property and equipment increased $610,000, net of depreciation. The majority of
the increase is the net result of opening one new restaurant in Las Vegas, plus
capital expenditures at existing restaurants, and the closing of one restaurant
in California. Additionally tenant improvements made to the Camelback Plaza
Development project were capitalized during this period.
7
(7) Long Term Debt
--------------
Long term debt has increased $1,352,000 during the six month period ended June
30, 1996. On April 1, 1996 the Company obtained a six month $1,000,000 line of
credit to finance its new restaurant opening. The line is secured by the
securities available for sale. The note which matures at October 1, 1996 has an
option to extend for another six months. The additional increase is borrowings
associated with the funding operations normal business activities and using its
existing line of credit.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PERFORMANCE INDUSTRIES, INC. - CONSOLIDATED
- -------------------------------------------
Results of Operations - Earnings Outlook
- ----------------------------------------
The Company's net loss for the three month and six month periods ending June 30,
1996 were approximately $1,177,000 and $1,271,000 compared to a loss of $91,000
and $100,000 for the same periods respectively in 1995. The losses are
attributed to several factors chief among which were some strategic decisions
made by management.
One decision was to close the San Ramon, California restaurant, one of it's
original acquisitions. Despite every effort this restaurant has been unable to
generate the revenue to offset its fixed expenses. The company is writing off
approximately $475,000 of assets with this closure.
The second decision is one of a change in management philosophy. In early July
the Company took steps to decentralize restaurant management. The changes that
have been instituted are estimated to immediately save approximately $500,000 in
direct corporate administrative expenses annually. The Company has also taken a
$125,000 charge against quarter earnings for future expenses related to this
management restructuring.
Efforts to reduce expenses at store level continue. General Managers are being
given more autonomy and instructed to take a more entrepreneurial attitude
towards their responsibilities. Management is optimistic that these changes will
put the restaurant group back on a profitable course.
The Company continues to operate its funding operations. This subsidiary, which
has generated continuous profits since its beginning in September of 1993, has
had its earnings affected by borrowings to finance its growth. The expenses of
financing has reduced its net profitability. Factoring, the subsidiaries
operations, is a high risk business. Factoring involves the purchase of invoices
of companies not ordinarily bankable which generate fees generating a return on
investment in excess of normal bank interest rates. In July of 1995 the Company
obtained a line of credit to fund its factoring operations, which allowed it to
reimburse its investment from its profits back into the parent. The financing of
this subsidiary from borrowings has therefore reduced its contribution to the
bottom line.
The Company, through one of its subsidiaries, owns approximately 72% of
Camelback Plaza Development L C. This retail center located on 26th Street and
Camelback, in Phoenix, Arizona, is fully occupied with tenants including Hard
Rock Cafe, Blockbuster Music, Just for Feet, and Raghetti's Bar and Grill. The
property is fully rented with long term leases.
As of July 15, 1996, the Company sold its investment in its foreign subsidiary,
FMMSA, for $900,000 and the assumption of a notes payable to the Company for
$2,100,000. The Company has received $1,000,000 in cash (less offsets) and a
note for $2,000,000 bearing interest of approximately 10%. The sales agreement
provides for payments of $120,000 a month for 18 months.
9
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
During the six months ended June 30, 1996, the Company has invested almost
$2,000,000 into its existing businesses, $1,300,000 into restaurants, $470,000
into factoring, and $220,000 into its real estate development.
Long and short term debt increased by approximately $1,350,000.
During July the Company sold two long term fixed assets for $1,125,000 cash and
a note which provides for 18 payments of $120,000 per month. One asset was a
small land parcel acquired with the assets of Bobby McGee's USA. the other asset
was the stock of the Company's Mexican subsidiary, FMMSA. In addition to the
cash from these sales the Company collected a note receivable in the amount of
$150,000.
While the Company continues to seek a buyer for the Camelback Plaza retail
center, it is negotiating with several lenders for increased financing and a
longer term commitment than the present commitment from Norwest Bank. Without a
sale or obtaining alternative financing of this property, the Company is going
to be dependent upon internal funding for continuing operations.
Management believes the Company has the funds available to finance its
continuing operations, but there can be no assurance.
10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- -------------------------
An action was filed by the minority members of Camelback Plaza Development, L.C.
for an accounting and the appointment of a receiver for the Limited Liability
Company in May, 1996. The action was filed in the Superior Court County of
Maricopa, State of Arizona. On motion of the Company, the matter was referred to
arbitration pursuant to the contracts between the parties. The matter is
expected to be heard by an arbitrator within 90 days.
Item 2. Changes in Securities
- -----------------------------
The shareholders approved a one-for-four reverse stock split of the Company's
common shares.
Item 3. Defaults upon Senior Securities
- ---------------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
The Company held its annual meeting June 14, 1996 at which the Board of
Directors was reelected to serve for one year and employment of Toback CPA's as
auditors was approved. And a one-for-four reverse stock split was approved.
Item 5. Other information
- -------------------------
None
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
None
11
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.
PERFORMANCE INDUSTRIES, INC. and SUBSIDIARIES
Date: August 15, 1996 /s/ Joe Hrudka
--------------------------------------------
Joe Hrudka
Chairman of the Board
(Principal Executive Officer)
/s/ James W. Brown
--------------------------------------------
James W. Brown
Chief Financial Officer
(Principal Accounting Officer)
12