SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
Commission file number 0-21996
JAKE'S PIZZA INTERNATIONAL, INC.
(Exact name of small business issuer as
specified in its charter)
Delaware 36-3882273
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5999 New Wilke Road, Suite 205, Rolling Meadows, IL 60008
(Address of principal executive offices)
(847) 952-3278
(Issuer's telephone number)
(Former name, former address and former fiscal year, if changed
since last report)
Check whether the Issuer (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the
past 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
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
1,231,540 shares of common stock, $.01 par, as of July 31, 1997.
Transitional Small Business Disclosure Format (check one): Yes
No X
<PAGE>
<TABLE>
JAKE'S PIZZA INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30, September 30,
1997 1996
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 18,323 $ 2,090
Accounts receivable, net of allowance for doubtful
accounts of $188,958 and $89,359, respectively 206,864 294,489
Inventories 37,141 32,945
Notes receivable - current portion net of allowance
for uncollectable notes of $48,574 and $43,078,
respectively 31,751 76,863
Other current assets 6,885 17,833
Total current assets 300,964 424,220
PROPERTY AND EQUIPMENT (at cost):
Buildings and improvements 44,925 192,440
Equipment 164,238 421,151
Furniture and fixtures 15,040 67,747
224,203 681,338
Less - Accumulated depreciation 119,585 250,915
Net property and equipment 104,618 430,423
ASSET HELD FOR SALE - 732,148
OTHER ASSETS:
Intangible assets, net of accumulated amortization
of $47,500 and $32,500, respectively 32,500 47,500
Security deposits 45,936 47,587
Notes receivable - net of current portion 121,868 167,479
Total other assets 200,304 262,566
Total assets $ 605,886 $ 1,849,357
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable, current portion -
Related party $ 16,000 $ 16,000
Mortgage - 21,120
Other 58,249 57,235
Capital lease obligation 4,413 8,346
Accounts payable 160,959 426,246
Franchise deposits - -
Accrued professional fees 172,552 188,877
Accrued - other 30,247 31,584
Total current liabilites 442,420 749,408
LONG-TERM DEBT:
Notes payable, net of current portion -
Related party 100,000 116,000
Mortgage - 565,879
Other 17,795 34,684
LEASE DEPOSITS 32,621 32,621
Total long-term debt and other long-term obligations 150,416 749,184
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, authorized
9,000,000 shares, issued and outstanding
1,231,540 and 1,176,540, respectively 12,315 12,315
Paid-in capital 3,532,947 3,532,947
Deficit (3,532,212) (3,194,497)
Total stockholders' equity 13,050 350,765
Total liabilities and stockholders' equity $ 605,886 $ 1,849,357
</TABLE>
<PAGE>
<TABLE>
JAKE'S PIZZA INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
June 30, June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
REVENUES:
Distribution sales $ - $ 596,194 $ - $ 1,976,427
Franchise royalties 85,326 70,889 268,520 211,717
Advertising royalties - 25,172 - 71,571
Franchise fees - 88,000 18,000 170,500
Rebate income 30,979 5,057 98,448 5,057
Store sales 72,686 42,666 257,604 118,428
Total revenues 188,991 827,978 642,572 2,553,700
COST OF SALES:
Cost of distribution sales - 545,534 - 1,682,286
Cost of store sales 49,157 53,626 203,141 120,668
Total cost of sales 49,157 599,160 203,141 1,802,954
Gross profit and service revenues 139,834 228,818 439,431 750,746
OPERATING AND ADMINISTRATIVE EXPENSES:
Store operations 30,691 37,036 115,126 89,972
Distribution and franchise
operations - 23,701 - 69,426
Selling, general and administrative
expenses 201,282 490,787 775,972 1,263,865
Loss on impairment of assets - - 80,050 -
Total operating and administrative
expenses 231,973 551,524 971,148 1,423,263
Loss from operations (92,139) (322,706) (531,717) (672,517)
OTHER INCOME (EXPENSE):
Interest income 1,787 2,464 6,567 12,715
Interest expense--
Related party (2,400) (2,720) (7,182) (8,160)
Other (2,509) (10,349) (32,727) (57,392)
Minority interest - 31,299 - 31,299
Loss on sale of assets (81,157) (69,217) (162,073) (142,001)
Settlement expense - (151,581) (172,356)
Total other income (expense) (84,279) (200,104) (195,415) (335,895)
NET LOSS, before extraordinary
gain $ (176,418)$ (522,810)$ (727,132)$(1,008,412)
EXTRAORDINARY GAIN, net of taxes
of $0 114,758 - 389,417 -
NET LOSS $ (61,660)$ (522,810)$ (337,715)$(1,008,412)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
NET LOSS PER SHARE, before
extraordinary gain ($0.14) ($0.44) ($0.60) ($0.88)
EXTRAORDINARY GAIN PER SHARE $0.09 - $0.32 -
NET LOSS PER COMMON SHARE ($0.05) ($0.44) ($0.28) ($0.88)
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 1,231,540 1,176,540 1,213,207 1,145,984
NET LOSS PER COMMON SHARE,
assuming full dilution ($0.05) ($0.42) ($0.27) ($0.82)
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING, assuming full
dilution 1,231,540 1,231,540 1,231,540 1,231,540
</TABLE>
<PAGE>
<TABLE>
JAKE'S PIZZA INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
June 30,
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income/(Loss) $ (337,715) $ (1,008,412)
Adjustments to reconcile net (loss) to net
cash provided by (used for) operating activities:
Extraordinary gain (389,417) -
Provision for losses on accounts and
notes receivable 160,796 188,241
Loss on sale of property, plant and equipment 158,473 142,127
Loss on impairment of assets 80,050 -
Depreciation and amortization 40,241 171,682
Equipment inventory loss reserve 30,000 -
Non-cash settlement expense - 151,581
Non-cash franchisee fees received - (5,000)
Changes in assets and liabilities:
Accounts receivable, net (18,827) 68,382
Inventories 17,940 127,254
Other current assets 10,948 (38,522)
Security deposits 1,651 (2,511)
Accounts payable 41,176 (30,515)
Franchise and lease deposits - (104,949)
Accrued professional fees 20,397 53,288
Accrued other (1,337) (4,362)
Net cash used for operating activities (185,624) (291,716)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,515) (104,341)
Gross Proceeds from sale of property
and equipment 789,800 87,000
Net cash provided from investing activities 788,285 (17,341)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of bank line-of-credit - (193,943)
Repayments of long-term debt (602,874) (32,698)
Repayments of related party long-term debt (16,000) -
Repayments of capital lease obligations (3,933) (3,485)
Payments received from minority interest holders - 40,364
Payments received on notes receivable 36,379 33,657
Net cash used for financing activities (586,428) (156,105)
NET DECREASE IN CASH $ 16,233 $ (465,162)
CASH, beginning of period $ 2,090 $ 497,436
CASH, end of period $ 18,323 $ 32,274
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 39,054 $ 75,231
</TABLE>
<PAGE>
JAKE'S PIZZA INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
The interim condensed financial statements included herein
reflect all adjustments which are, in the opinion of management,
necessary for a fair statement of the results for the interim
periods presented, which adjustments are of a normal recurring
nature.
There are no other notes attached to these interim financial
statements since there have been no other material changes which
would require additional disclosures from those included in the
Company's 1996 audited financial statements filed on Form 10-KSB.
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of
Operation.
Liquidity and Capital Resources
The increase in cash at June 30, 1997 is primarily
attributable to the timing of payments for payroll and related
expenses and rent for the Company's office and Company-owned
store.
The net decrease in accounts receivable reflect additional
charges to the reserve for uncollectible accounts. Accounts
receivable before bad debt charges increased $18,827. This
increase is primarily due to a significant number of franchises
that are experiencing cash flow restraints due to a weak
operation. The Company is currently working with these
franchises to improve their operations, strengthen their cash
position and enable them to pay their current obligations.
Notes receivable also decreased due to an additional charges
to the reserve for uncollectible notes as well as collection of
$36,379 in payments. The increase in inventories reflect the
addition of equipment and related costs, which was removed from a
closed Company store and is now held in inventory. As of June
30, 1997, the Company has been unsuccessful in its attempts to
sell a substantial portion of the used equipment held for sale in
inventory and has written down the value of the equipment by
$30,000. This charge to income was classified in the Company's
Consolidated Statements of Income in selling, general and
administrative expenses.
The decrease in building and improvements and equipment is
primarily related to the sale of the Company's office/warehouse.
The Company sold warehouse equipment from its discontinued
distribution business and has written-off other various warehouse
assets that the Company could not sell or utilize in its new
offices. Additionally, the Company has written down the value of
its assets at its restaurant in Ft. Lauderdale, Florida to their
net realizable value. This charge is classified as a loss on
impairment of assets in the Company's Consolidated Statement of
Operations for the nine month period ending June 30, 1997. The
Company has written off the remaining balance of the assets at
its restaurant in Ft. Lauderdale, Florida, and its Company-owned
store in Chicago, Illinois. The Company was unable to sell these
restaurants to satisfy its obligations to the landlords.
Subsequently, the restaurants were repossessed by the respective
landlords to satisfy the Company's obligations under default of
the leases. These losses are classified in the Company's
Statement of Income as a loss on sale of assets.
<PAGE>
The decrease in accounts payable and professional fees is
due to the payment to several creditors who accepted the
Company's settlement. The Company paid its proposed settlement
to its unsecured creditors in January, 1997 from the proceeds
from the sale of its office/warehouse. The Company paid $91,552
to settle $366,211 of its unsecured debts. This amount was
revised from the initial estimate of $470,965 primarily for two
of the Company's unsecured creditors who did not accept the
proposed settlement. The Company reached a verbal agreement, in
principle, for releases from a severance agreement and a
consulting agreement from James J. Banks, a prior President and
CEO, and from Samuel V.P. Banks, a prior officer and director,
respectively. The written releases from the prior officers of
the Company were not yet complete at the time of this filing.
The decrease in notes payable and related notes payable is
due to the payment of the mortgage from the sale of the Company's
office/warehouse in January, 1997 and payment of $16,000 to a
related-party as part of an agreement to defer the payment of the
remaining $100,000 of the original $116,000 related-party note.
A new three year note payable was signed under the same terms and
interest rate as the original note. Interest is to be paid
quarterly at 8% per year with a balloon payment of $100,000 at
maturity.
As previously disclosed in a press release dated July 28,
1997, the Company's board of directors resigned effective July
22, 1997. The board of directors submitted their resignations
since, due to the Company's financial difficulties, it could not
obtain adequate directors and officers liability insurance
coverage. The board, however, was not in disagreement with the
direction or performance of the Company under the leadership of
John Flowers, the Company's President, Chief Executive Officer
and Chairman of the Board, when they tendered their resignations.
Although the Company has significantly streamlined its
operations reducing its operational costs, the Company continues
to search for additional financing to help the Company's
liquidity problem. This liquidity problem is due to the
Company's shortfall of operating and paying franchises it needs
to operate with a positive cash flow. Management currently
believes that it will need approximately 65 healthy operating
franchised restaurants to bring the Company to a breakeven cash
flow. As of July 31, 1997 the Company has 39 franchises of which
a significant portion cannot meet their obligations for various
reasons, including cash flow restraints due to a weak franchise
operation.
The Company is currently obligated under several leases,
including a lease for a Company-owned Jake's Pizza restaurant and
a lease for the Company's office space as well as leases for
space utilized by franchisees of Jake's Pizza restaurants. The
terms of the leases range up to six years, with the last lease
expiring in 2000. The leases utilized by the franchisees are
sub-leased to those franchisees under the same terms as the
original lease.
<PAGE>
Results of Operations
Total revenues for the nine months and three months ending
June 30, 1997 decreased $1,911,128 and $638,987, respectively,
compared to the nine months ending and three months ending June
30, 1996. The decrease in revenues was primarily attributable to
the discontinuance of the distribution business on June 16, 1996
as part of the reorganization of the Company. The Company
currently has an agreement with a local distributor to provide
the franchisees with all the necessary food and supply products
for the franchisees to operate their businesses. The Company
receives a rebate on the sales to the franchisees from the
distributor which is reflected as rebate income in the
Consolidated Statements of Operations. Store sales increased due
to one more Company-owned store operating during the first nine
months of fiscal 1997.
Advertising royalties decreased due to the suspension, for a
period of six months, of the current monthly advertising fee that
most of the franchisees are to contribute to an advertising fund
beginning with the September, 1996 advertising fee. As of March
1, 1997, the Company decided to continue the suspension of
advertising fees for an indefinite period. The suspension of
advertising fees does not directly impact the cash flows of the
Company's operations since any amounts collected for the
advertising fund would be used only to finance additional
advertising.
The Company's total cost of sales decreased 88.7% during the
nine month period ending June 30, 1997 compared to the same
period ending June 30, 1996. The Company's total cost of sales
decreased 91.8% during the third quarter ending June 30, 1997
compared to the third quarter ending June 30, 1996. This
decrease for the nine months and third quarter is primarily
attributable to the discontinuance of the Company's distribution
business in June, 1996. The cost of store sales as a percentage
of store sales decreased during the nine months and third quarter
ending June 30, 1997 compared to the same periods ending June 30,
1996. This decrease is due to improved operational efficiencies
and managerial changes at the Company-owned stores.
Total operating and administrative expenses decreased 31.8%
for the nine month period ending June 30, 1997 compared to the
nine month period ending June 30, 1996. For the third quarter
ending June 30, 1997 total operating and administrative expenses
decreased 57.9% from the third quarter ending June 30, 1996. The
decreases in the nine month period and third quarter were
primarily due to the discontinuance of the distribution business
and the downsizing of the Company. This decrease was offset by
an increase in selling, general and administrative expense which
was attributable to additional reserves for uncollectible
accounts and notes receivable of $160,796, a reserve for loss on
equipment inventory of $30,000 in the third quarter of 1997 and a
$80,050 charge for the write-down of assets, at the Company's
closed Ft. Lauderdale, Florida restaurant, to their net
realizable value.
<PAGE>
Other income and expense decreased 41.8% for the nine month
period ending June 30, 1997 compared to the nine month period
ending June 30, 1996. This decrease was primarily due to
settlement expenses incurred in the prior year offset in part by
additional losses on sale of assets in the current year from the
sale of warehouse equipment used in the Company's discontinued
distribution business, the write-off of various assets related to
the sale of the Company's office/warehouse, and the repossession
of the assets of two Company-owned restaurants. The Company's
interest expense also decreased resulting from the payment of the
Company's line of credit in March, 1996 and payment of the
mortgage in January, 1997 offset by lower interest income earned
due to lower invested cash balances.
The extraordinary gain of $389,417 for the nine months
ending June 30, 1997 was due to the settlement with several of
the Company's creditors in January, 1997 and releases from a
severance agreement and a consulting agreement from James J.
Banks, a prior President and CEO, and from Samuel V.P. Banks, a
prior officer and director, respectively. A verbal agreement for
the releases from the severance agreement and consulting
agreement was made in June, 1997 and a final signed agreement was
not yet complete at the time of this filing.
The net loss, before extraordinary gain, for the nine months
ending June 30, 1997 was $727,132, or a loss of $.60 per share,
compared to a net loss for the nine month period ending June 30,
1996 of $1,008,412, or a loss of $.88 per share. For the quarter
ending June 30, 1997 the net loss, before extraordinary gain, was
$176,418, or a loss of $.14 per share versus a net loss of
$522,810, or a loss of $.44 per share for the quarter ending June
30, 1996. This decrease in the net loss and net loss per share
for the nine months and quarter ending June 30, 1997 primarily
reflects the discontinuance of the Company's distribution
business and reorganization efforts offset by higher charges to
the reserve for uncollectible accounts and notes receivable
compared to the prior year and the loss on impairment and sale of
various assets of the Company.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, the Company is involved in
litigation relating to claims arising out of its normal business
operations. The Company is not now engaged in any legal
proceedings that are expected to have any material adverse
effects on the Company.
Item 2. Changes in Securities.
None.
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.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act,
the registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
(Registrant) JAKE'S PIZZA INTERNATIONAL, INC.
By: /s/ John S. Flowers Date: August 14, 1997
John S. Flowers,
President and Chairman of the Board
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 18323
<SECURITIES> 0
<RECEIVABLES> 206864
<ALLOWANCES> 188958
<INVENTORY> 37141
<CURRENT-ASSETS> 300964
<PP&E> 224403
<DEPRECIATION> 119585
<TOTAL-ASSETS> 605886
<CURRENT-LIABILITIES> 442420
<BONDS> 117795
0
0
<COMMON> 12315
<OTHER-SE> 735
<TOTAL-LIABILITY-AND-EQUITY> 605886
<SALES> 257604
<TOTAL-REVENUES> 642572
<CGS> 203141
<TOTAL-COSTS> 1410579
<OTHER-EXPENSES> 971148
<LOSS-PROVISION> 242123
<INTEREST-EXPENSE> 39909
<INCOME-PRETAX> (727132)
<INCOME-TAX> 0
<INCOME-CONTINUING> (727132)
<DISCONTINUED> 0
<EXTRAORDINARY> 389417
<CHANGES> 0
<NET-INCOME> (337715)
<EPS-PRIMARY> (.28)
<EPS-DILUTED> (.27)
</TABLE>
