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 September 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 November 4, 1996, 2,481,263 shares.
PERFORMANCE INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
PART 1 FINANCIAL INFORMATION (Unaudited) Page
--------------------------------- ----
Consolidated Balance Sheets -
September 30, 1996 and December 31, 1995 3
Consolidated Statements of Operations (Unaudited) -
Three Month Period Ended September 30, 1996 and 1995 4
Consolidated Statements of Operations (Unaudited) -
Nine month Period Ended September 30, 1996 and 1995 5
Consolidated Statements of Cash Flow (Unaudited) -
Nine month Period Ended September 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 9-10
PART II OTHER INFORMATION:
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Item 1. Legal Proceedings 11
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Item 2. Changes in Securities 11
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Item 3. Defaults upon Senior Securities 11
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Item 4. Submission of Matters to a Vote of Security Holders 11
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Item 5. Other Information 11
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Item 6. Exhibits and Reports on Form 8-K 11
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Signatures 12
2
PERFORMANCE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(Unaudited)
September 30, 1996 December 31,1995
------------------ ----------------
ASSETS
Current assets:
Cash and cash equivalents
Cash and equivalents, unrestricted $ 73 $ 411
Cash, restricted 688 1,267
Securities available for sale 913 1,783
Accounts and other receivables,
less allowance for doubtful 496 416
Receivable from sale of businesses,
net of allowance current portion 1,440 480
Factored receivables, net of allowance for doubtful 1,474 1,868
Inventories 312 293
Prepaid expenses and other current assets 765 322
Other assets held for sale 212 212
Deferred income taxes 81 0
--------- ----------
Total current assets 6,454 7,052
Receivables from sales of businesses, less current portion
net of allowance 373 520
Investment in real estate 9,298 11,073
Deferred income taxes 1,734 1,734
Property and equipment, net 4,485 3,578
Other assets, net 989 921
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$ 23,333 $ 24,878
========= ==========
LIABILITIES AND SHAREHOLDER' EQUITY Current liabilities:
Current portion of long-term debt 1,514 594
Accounts payable 1,080 1,260
Accrued employment costs 541 288
Accrued product liability costs 333 350
Accrued expenses and other current liabilities 831 `1,016
Factored receivables reserve 346 390
Liabilities subject to compromise 764 754
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Total current liabilities 5,409 4,652
Long-term debt, less current portion 6,518 6,751
Minority interest 394 414
Shareholders' equity:
Common stock, no par value; authorized
5,000,000 shares; 3,232,332 issued; 2,481,263 outstanding 31,202 31,202
Accumulated deficit (17,641) (16,416)
Unrealized appreciation on securities available for sale
net of income taxes 427 1,226
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13,988 16,012
Treasury stock at cost 679,050 shares (2,976) (2,951)
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Total shareholders' equity 11,012 13,061
$ 23,333 $ 24,878
========= =========
3
PERFORMANCE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Unaudited)
Three Months Ended September 30
-------------------------------
1996 1995
---- ----
Net revenue $ 5,169 $ 4,779
Cost of revenues (4,911) (4,508)
Selling general and administrative expense (1,223) (793)
Interest income (expense) (224) 289
Other income 50 17
Gain on sale of assets 1,568 (2)
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Gain or (Loss) from continuing operations before
income taxes and minority interest 429 (218)
Provision for income taxes (247) (4)
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Gain or (Loss) from continuing operations before minority interest 182 (222)
Minority interest in earnings 2 (14)
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Gain or (Loss) from continuing operations 184 (236)
Income from discontinued operations -0- -0-
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Net gain (loss) $ 184 $ (236)
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Income (loss) per common share:
Continuing operations $ .07 $ (.10)
Discontinued operations .00 (.00)
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Net income (loss) per common share $ .07 $ (.10)
=========== ===========
Average number of shares outstanding 2,481,263 2,481,263
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See accompanying notes to consolidated financial statements.
4
PERFORMANCE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Unaudited)
Nine Months Ended September 30
------------------------------
1996 1995
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Net Revenues 15,557 $ 14,607
Cost of revenues (14,570) (13,257)
Selling general and administrative expenses (2,732) (2,421)
Interest (expense) income (563) 285
Other income 548 509
Gain on sale or disposition of assets 993 (2)
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Loss from continuing operations before income
taxes and minority interest (767) (279)
Provision for income taxes (241) (9)
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Gain or (Loss) from continuum operation before minority interest (1,008) (288)
Minority interest in earnings 20 (48)
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Earnings (losses) before income tax (988) (336)
Income (loss) from discontinued operations (99) -0-
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Net losses (1,087) (336)
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Loss per common share:
Continuing operations $ (.40) $ (.14)
Discontinued operations (.04) (.00)
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Net loss per common share $ (.44) $ (.14)
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Average number of shares outstanding 2,481,263 2,481,263
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See accompanying notes to consolidated financial statements.
5
PERFORMANCE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(DOLLARS IN THOUSANDS)
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
Nine months Ended September 30
------------------------------
1996 1995
---- ----
Net cash (used in) operating activities $ (918) $(1,682)
Cash Flow from Investing Activities:
Decrease in restricted cash 579 1,110
Increase in receivables from sale of businesses, net (661) 539
(Increase) decrease in investment of factored
receivables, net (232) 1,830
Decrease (increase) assets held for sale -0- 19
Additions to property and equipment (1,181) (1,166)
(Increase) decrease in real estate under development 1,413 (2,711)
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Net cash provided by (used in) investing activities (82) (379)
Cash Flow from Financing Activities:
Repayment of debt (384) (140)
Proceeds from borrowings 1,071 1250
(Increase) decrease in treasury stock (25) 47
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Net cash provided by (used in) financing activities 662 1157
Net (decrease) in cash and cash equivalents (338) (904)
Cash and cash equivalents at beginning of period 411 1,142
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Cash and cash equivalents at end of period $ 73 $ 238
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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 1995 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
Nine month period ended September 30, 1996 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1996. 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):
September 30, 1996 December 31, 1995
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Restaurant Inventory 312 293
(3) Restricted Cash:
----------------
Cash which has been restricted as collateral and for use in tenant improvements
for the Camelback Plaza Development was reduced by $579,000 for the final
payments of Hard Rock improvements and the payment of commitments to one of the
other tenants.
(4) Securities Available for Sale:
------------------------------
The company owns 103,087 shares of common stock of Western Pacific Airlines
(WPAC on NASDAQ) with a cost basis of $2 per share. At December 31, 1995, the
company elected to record the stock at market value which was $17 1/4 a share.
At September 30, 1996 the value was dropped to $ 8 7/8 per share. Increases and
decreases in value are recorded as an adjustment to shareholders equity under
"Unrealized Appreciation on Securities Available for Sale".
(5) Receivable from Sale of Businesses:
-----------------------------------
The Company has notes from the sale of prior businesses. During the nine months
ended September 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. On July 15, 1996, the Company sold its land
and buildings in Mexicali, Mexico for $3,000,000, receiving $1,000,000 in cash
and a note providing 18 monthly payments of $120,000 each.
7
(6) Prepaid Expenses:
-----------------
Prepaid expenses increasing by $443,000 is the result of opening two
restaurants, and commissions and other expenses associated with negotiating
leases with tenants of the Company's real estate properties.
(7) Investment in Real Estate:
--------------------------
The Company's investment in real estate was reduced by $1,775.000. This is the
net result of the sale of the Mexicali facilities (footnote 5) and tenant
improvements to the Camelback Plaza development.
(8) Property and Equipment:
-----------------------
Property and equipment increased $907,000 net of depreciation. The increase is
due to opening and remodeling of two restaurants, plus continued capital
improvements at existing restaurants.
(9) Long Term Debt:
---------------
Long term debt has increased $687,000 during the nine month period ended
September 30, 1996. On April 1, 1996, the Company obtained a six month
$1,000,000 line of credit. The line is secured by securities available for sale.
The note which matures on October 1, 1996, has an option to extend for another
six months.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PERFORMANCE INDUSTRIES, INC. - CONSOLIDATED
- -------------------------------------------
Results of Operations - Consolidated
- ------------------------------------
The Company's results of operations for the three month period ended September
30, 1996, were a profit of $184,000 compared to a loss of $236,000 for the same
period last year. Several significant events occurred during the period with
mixed results offsetting each other.
On July 15, 1996, the Company sold its investment in a foreign subsidiary for
$3,000,000 in cash and future consideration. The gain on this sale was
approximately $1,600,000 before foreign income taxes of approximately $250,000.
Early in July, 1996, the Company took action to reduce overhead at its
administrative level. The downsizing of staff is expected to result in annual
savings of over $500,000.
During this same period a review of the Company's factoring portfolio indicated
a potential under provision for bad debts. Included in Selling, General, and
Administrative expenses for this three month period is an accrual of
approximately $580,000 to reserve for bad debts. S.G. & A expenses without this
charge would have been $150,000 less than for the same period last year.
At the July 19, 1996 annual meeting, the shareholders of the Company voted to
approve a 1 for 4 reverse stock split. As a component of the proposal, the
Company offered an odd lot tender to all post split shareholders of less than a
100 shares at a price of $3.00 a share (post split). Approximately two hundred
shareholders tendered their shares for a total of approximately 8,300 shares.
PERFORMANCE RESTAURANT GROUP, INC.
- ----------------------------------
Revenues for the quarter ended September 30, 1996, were $411,000 more than the
same period in 1995. Revenues for the nine months ended September 30, 1996, were
$1,161,000 more than the same period in 1995. The increase is primarily due to
new restaurant additions. Some store sales are up approximately 1% over 1995.
As a percentage of sales cost of goods sold was 28.3% for the nine months ended
September 24, 1996, as compared to 27.7% for the same period last year. The
increase is attributed to an increase in food sales as a percentage of total
sales.
General administrative expenses as a percentage of sales was 5.9% for the nine
months ended September 30, 1996, as compared to 6.5% for the same period last
year. This positive reduction should continue during the last three months of
1996.
9
PERFORMANCE FUNDING
- -------------------
Net revenues and income (loss) for the nine month period ending September 30,
1996, were $545,000 and ($326,000), respectively. This compares to revenues of
$716,000 and earnings of $452,000 for the same period in 1995.
Performance Funding, which was started in September of 1993, has provided over
$1,250,000 in earnings to date. Its bad debt history has been good. It has
purchased nearly $100,000,000 in receivables and has written off less than
$50,000. Recently non-performing customers have made it necessary to increase
the reserve for bad debts by approximately $600,000 during 1996.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
On November 1, 1996, the Company obtained refinancing of the retail development
Camelback Plaza. The new note provides a longer term at a reduced interest rate
and in an amount sufficient to repay the Company over $2,000,000 of its loan to
the subsidiary. The transaction also freed up the restricted cash required as
additional collateral by the previous lender. The Company intends to use some of
these funds to pay down its loans on lines of credit with Capital Factors.
On July 15, 1996, the Company sold its investment in a foreign subsidiary for
$3,000,000. The sale provides for payments of $120,000 a month for 18 months,
beginning in August 1996.
These two events, coupled with the downsizing of administrative overhead in
July, should provide the Company with sufficient cash to fund future operations,
but there can be no assurance.
10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- -------------------------
The arbitration filed by the minority members of Camelback Plaza Development,
L.C. as reported in the June 30, 1996, 10-Q, was dismissed without prejudice by
stipulation. The parties have agreed to the terms of this sale of the interest
of Performance Industries, Inc., to the other members.
The action for determination of the fair market value of the shares of the
Company stock for dissenting shareholders, Performance Industries, Inc. v. Ecco
Sales, et al, has been remanded to the Superior Court, State of Arizona, County
of Maricopa, for further proceeding by the Arizona Court of Appeals. Under Ohio
Statutes, the Company has requested a hearing be scheduled by the Court for
purposes of determining if there was a viable market for the Company's shares at
the time of the action from which the shareholder's dissented and, if so, to
determine the fair market value of the shares. In the alternative, the company
is requesting the appointment of an appraiser by the Court to determine the fair
market value of the shares.
Item 2. Changes in Securities
- -----------------------------
The one-for-four reverse stock split was effective October 17, 1996, in the
electronic bulletin board. The Company's new symbol is PFRI.
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
- -----------------------------------------
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: November 13, 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