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, 1997
-------------
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
incorporation or organization) No.)
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 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 July 12, 1997, is 2,481,264 shares.
PERFORMANCE INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
PART 1 FINANCIAL INFORMATION (Unaudited) Page
--------------------------------- ----
Consolidated Balance Sheets - 3
June 30, 1997 and December 31, 1996
Consolidated Statements of Operations (Unaudited) - 4
Six Month Period Ended June 30, 1997 and 1996
Consolidated Statements of Operations (unaudited) - 5
Three Month Period Ended June 30, 1997 and 1996
Consolidated Statements of Cash Flows (Unaudited) - 6
Three Month Period Ended June 31, 1997 and 1996
Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
PART II OTHER INFORMATION 10
-----------------
Item 1. Legal Proceedings
- -----------------------------
Item 2. Changes in Securities
- ---------------------------------
Item 3. Defaults upon Senior Securities
- -------------------------------------------
Item 4. Submission of Matters to a Vote of Security Holders
- ---------------------------------------------------------------
Item 5. Other Information
- -----------------------------
Item 6. Exhibits and Reports on Form 8-K
- -------------------------------------------
Signatures 12
PERFORMANCE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(Unaudited)
ASSETS
30-Jun-97 31-Dec-96
Current assets:
- ---------------
Cash and equivalents, unrestricted $1,753 $1,136
Cash, restricted 0 409
Securities available for sale 574 727
Accounts and other receivables,
less allowance for doubtful accounts 713 503
Current Portion of Receivables from sale of businesses,
net of allowance 815 1,356
Factored accounts receivables, net of allowance for doubtful accounts 634 1,139
Inventories 309 328
Prepaid expenses and other current assets 260 192
Other assets held for sale 206 206
--- ---
Total current assets 5,264 5,996
Receivables from sales of businesses, less current portion,
net of allowance 0 119
Investment in real estate 9,318 9,481
Deferred income taxes 1,482 1,460
Property and equipment, net 3,065 3,084
Other assets 1,755 1,831
----- -----
TOTAL ASSETS $20,884 $21,971
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
- --------------------
Current portion of long-term debt 496 547
Accounts payable 922 1,000
Accrued employment costs 656 491
Accrued expenses and other current liabilities 848 1,339
Factored receivables reserve 207 286
Liabilities subject to compromise 749 754
Foreign Tax Liability 250 250
--- ---
Total current liabilities 4,128 4,667
Long-term debt, less current portion 8,183 8,403
Minority interest 330 371
Shareholders' equity:
- ---------------------
Preferred Stock, par value $1.00 per share: authorized
100,000 shares; none issued 0 0
Common stock, no par value; authorized 5,000,000 shares;
3,157,332 issued; outstanding 2,481,264 and 2,489,530, respectively 31,202 31,202
Accumulated deficit (20,293) (20,139)
Unrealized appreciation on securities available for sale
net of income taxes 310 443
--- ---
11,219 11,506
Treasury stock at cost (670,784 and 667,802 shares, respectively) (2,976) (2,976)
------- -------
Total shareholders' equity 8,243 8,530
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $20,884 $21,971
======= =======
3
PERFORMANCE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Unaudited)
Six Months Ended June 30
------------------------
1997 1996
---- ----
Revenues $ 11,906 $ 10,970
Cost of revenues (10,783) (9,659)
Selling, general and administrative expenses (1,024) (1,884)
Interest expense (383) (391)
Other income (expenses), net 90 244
Loss on closure of restaurants 0 (575)
- -----
Income (loss) from continuing operations before
income taxes and minority interest (194) (1,295)
Provision for income taxes (1) 6
Minority interest in loss from subsidiary 41 18
-- --
Net income (loss) $ (154) $ (1,271)
============ ============
Net income (loss) per common share $ (0.06) $ (0.51)
============ ============
Average number of shares outstanding 2,481,264 2,489,530
============ ============
4
PERFORMANCE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIODS ENDED JUNE 30, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Unaudited)
Three Months Ended June 30
--------------------------
1997 1996
---- ----
Revenues $ 5,814 $ 5,429
Cost of revenues (5,451) (4,950)
Selling, general and administrative expenses (367) (1,007)
Interest expense (177) (210)
Other income (expenses), net 25 122
Loss on closure of restaurants 0 (575)
- -----
Income (loss) from continuing operations before
income taxes and minority interest (156) (1,191)
Provision for income taxes 0 (1)
Minority interest in loss from subsidiary 22 15
-- --
Net income (loss) $ (134) $ (1,177)
========== ==========
Net income (loss) per common share $ (0.05) $ (0.47)
========== ==========
Average number of shares outstanding 2,481,264 2,489,530
========== ==========
5
PERFORMANCE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPTING PER SHARE DATA)
(Unaudited)
Six Months Ended June 30
------------------------
1,997 1,996
------ -----
Net cash provided by (used in) operating activities $ 135 $(1,301)
Cash flows from investing activities:
Decrease (increase) in restricted cash 409 488
Decrease (increase) in receivables from sales of businesses,
net 660 691
Purchase of property and equipment (321) (1,310)
Increase in real estate under development 0 (220)
Other 5 0
-- -
Net cash provided by (used in) investing activities 753 (351)
Cash flows from financing activities:
Proceeds from borrowings 0 1,702
Repayments of borrowings (271) (350)
----- -----
Net cash provided by (used in) financing activities (271) 1,352
Net increase (decrease) in cash and cash equivalents 617 (300)
Cash and cash equivalents at beginning of period 1,136 411
------ ---
Cash and cash equivalents at end of period $ 1,753 $ 111
======= =======
PERFORMANCE INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(1) Reclassifications:
Certain reclassifications have been made to the consolidated financial
statements of prior periods to conform to the classifications for the current
period's presentation.
6
Managements Discussion and Analysis
Results of Operations
Performance Industries, Inc.
The loss for the three month period ending June 30, 1997 was $134,000 as
compared to a loss of $1,171,000 for the same period last year. Included in the
loss for three months was a non-recurring charge of $50,000 for discontinued
operations, the Development subsidiary lost approximately $75,000 which accounts
for the three month period ending June 30, 1997. This accounts for a majority of
the loss for the parent.
The company had a net operating loss of $154,000 for the six months ending June
30, 1997 as compared to a loss of $1,295,000 for the same period in 1996. The
company's cost cutting measures including, reduction of management staff at the
corporate level, tighter controls at the restaurant division and the completion
of construction in the Development division all helped in reducing the loss.
The company is moving its corporate offices as of August 15, 1997. The lease for
the offices it currently occupies expired on July 31, 1997 and a substantial
increase in the rental was sought by the landlord. In addition the company
requires less space due to staff reductions. The new space is at a comparable
costs to the present rent and is less square feet saving approximately $80,000
per year in rental expense.
Management has decided to concentrate all of its future efforts on the
restaurant business. This has produced the greatest revenue for the company in
the past. To do so the company is selling its Funding and Development
subsidiaries as more particularly described in Part II Item 5 Other Information.
Management believes, that by divesting itself of these divisions, the company
may have greater interest to stock analysts who specialize in certain industry
segments. Management believes, but there can be no assurance, that this will
result in greater activity in the company's stock and an increase in the stock
price.
Performance Restaurants Group, Inc.
Gross revenue for the Restaurant Group for the first months ending June 30, 1997
increased 11% from the same period last year to $5,477,175 from $4,960,526. Cost
of sales rose by 6% for the three month period ending June 30, 1997 from the
same period last year from $4,849,536 to $5,157,359. Restaurant level earnings
increased by $307,823. This increase is a result of increased sales and better
cost controls at the restaurant level.
7
Administrative expenses for the three month period ending June 30, 1997
decreased 45% to $186,749 from $342,100 for the same period last year. This
decrease is related to the reduction in management at the corporate level in
July, 1996. The Restaurant Group had net income of $113,426 for the second
quarter 1997 as compared to a net loss of $234,188 for the same period last
year.
Gross revenues for stores opened at least one year rose by less than 1% from
$8,998,172 for the first 6 months of the year to $9,051,376. Restaurant earnings
for stores opened at least one year increased by 18% from $659,986 to $780,299.
The increase in restaurant earnings resulted from tighter controls on the
restaurant level as well as changes to the menu which yielded higher profit
margins.
The increase in sales was mainly a result of the acquisition of new restaurants.
The company has instituted cost cutting measures which has helped reduce the
cost of sales as a percentage of gross sales at the restaurant level. In
addition, the corporate office was restructured over the last year to further
reduce expenses. As a result the division posted a net profit for the quarter as
compared to a loss last year.
Liquidity and Capital Resources
With the sale of the Funding and Development subsidiaries, the company will have
sufficient cash to meet its capital needs through year end and into the next
fiscal year. The Restaurant division has been reporting substantial net income
before administrative expense for the first half of the year. Management,
expects but there can be no assurance, that this trend will continue for the
remainder of the year. The increase in net income has resulted from increased
revenues and reduced costs of sales. Management believes that cost of sales as a
percentage of gross revenues will remain steady throughout the balance of this
fiscal year.
There are no plans for further capital improvements at any of the company's
Restaurants over the remainder of the fiscal year. There are no pending
acquisitions of new units, although the company does receive and review
information on restaurants for sale on a regular basis. With the significant
cash reserve the company will be able to make any desirable acquisition it may
find without outside financing.
The company expects to continue expansion plans by purchasing operating
restaurants. The Carlos Murphy's Restaurants purchased last year are operating
within projections. Management believes there are other restaurants on the
market that present the same opportunity as Carlos Murphy's to increase sales
and profits with a comparatively small capital outlay.
The company is also considering changing several of its Bobby McGee's to the
McGee's Grill Sports Bar concept. Some of the older stores are not showing
growth in sales and even some decline. As the McGee's Grill concept has lower
operating costs these stores could produce profits at lower sales volume. A
change in concept would also entice new patrons to try the store and increase
sales.
8
Part II Other Information
Item 1 Legal Proceedings
The minority members of Camelback Plaza Development L.C. filed
a demand for arbitration under the Operating Agreement of the
Limited Liability Company for and accounting. Pending the sale
of the company's interest in the L.C. to the minority members,
the parties have stipulated to a stay of proceedings.
Item 2 Changes in Securities
None
Item 3 Defaults upon Senior Securities
None
Item 4 Submission of matters to a vote of Security holders
The annual meeting of shareholders was held of July 28, 1997
for the election of directors and ratification of choice of
auditors.
Item 5 Other Information
The Company has agreed to sell its Funding Subsidiary to a
Limited Liability Company which includes two of its officers
and directors as members, Ed Fochtman Jr. and Joe Hrudka. The
sale is on terms which are at least as favorable as the
company would have received in an arms length transaction. The
Funding Subsidiary had not added a new client since the first
quarter when its principal marketing employee left for other
employment. The company was not able to find a suitable
replacement. A third party had offered to purchase the
business on substantially the same terms but the closing was
delayed while financing was arranged.
With the sale approximately $400,000 of capital invested in
accounts receivable will be available to the company. The
company will also no longer be required to guarantee the line
of credit with the third party finance company which was used
to fund purchases of accounts. The move will allow the company
to focus on its core business of Restaurant ownership and
management.
The company has agreed to sell its interest in Camelback Plaza
Development, L.C. to the other members for $700,000. As a
result of the sale the company will report a loss on sale of
approximately 1.5 million dollars in the third quarter of
1997.
The company had loaned money to the subsidiary over the years
to cover the cost of developing the property. The loss will be
a result of forgiving this debt as part of the sale. The
Development subsidiary has been a financial drain on the
company since its beginning and still has operational losses.
By selling its interest the company will terminate its
obligation to meet any continuing shortfalls in operational
income to meet the needs of the Plaza. The Company will also
resolve an arbitration proceeding filed by the other members
over it's management of the property. While management
believes they would have ultimately prevailed in this action,
the expense of the litigation would effect the company's
income for the next several quarters. The Board of Directors
has decided to concentrate on the core business of the
company, Restaurant management and ownership, and to divest
itself of its other operations.
Item 6 Exhibits and Reports on form 8-K
None
9
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 13, 1997 /s/ Joe Hrudka
--------------
Joe Hrudka
Chairman of the Board
(Principal Executive Officer)
/s/ Ed Fochtman
---------------
Ed Fochtman
Chief Financial Officer
(Principal Accounting Officer)
12