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 March 31, 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 April 30, 1997.
Transitional Small Business Disclosure Format (check one): Yes No X
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JAKE'S PIZZA INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
March 31, September 30,
1997 1996
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ASSETS
CURRENT ASSETS:
Cash $ 728 $ 2,090
Accounts receivable, net of allowance for doubtful
accounts of $172,578 and $89,359, respectively 223,527 294,489
Inventories 70,605 32,945
Notes receivable-current portion, net of allowance for
uncollectable notes of $54,944 and $43,078,
respectively 23,609 76,863
Other current assets 11,223 17,833
Total current assets 329,692 424,220
PROPERTY AND EQUIPMENT (at cost):
Buildings and improvements 77,856 192,440
Equipment 232,557 421,151
Furniture and fixtures 15,040 67,747
325,453 681,338
Less - Accumulated depreciation 132,632 250,915
Net property and equipment 192,821 430,423
ASSET HELD FOR SALE - 732,148
OTHER ASSETS:
Intangible assets, net of accumulated
amortization of $42,500 and $32,500, respectively 37,500 47,500
Security deposits 57,755 47,587
Notes receivable - net of current portion 140,168 167,479
Total other assets 235,423 262,566
Total assets $ 757,936 $ 1,849,357
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable, current portion -
Related party 16,000 16,000
Mortgage - 21,120
Other 57,529 57,235
Capital lease obligation 5,757 8,346
Accounts payable 261,730 426,246
Franchise deposits - -
Accrued professional fees 152,092 188,877
Accrued - other 33,974 31,584
Total current liabilites 527,082 749,408
LONG-TERM DEBT:
Notes payable, net of current portion -
Related party 100,000 116,000
Mortgage - 565,879
Other 23,523 34,684
LEASE DEPOSITS 32,621 32,621
Total long-term debt and other long-term obligations 156,144 749,184
SHAREHOLDERS' 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 (3,470,552) (3,194,497)
Total stockholders' equity 74,710 350,765
Total liabilities and stockholders' equity $ 757,936 $ 1,849,357
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JAKE'S PIZZA INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Six Months Ended
March 31, March 31,
1997 1996 1997 1996
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REVENUES:
Distribution sales $ - $ 650,362 $ - $1,380,233
Franchise royalties 88,047 60,230 183,194 140,828
Advertising royalties - 20,009 - 46,399
Franchise fees 18,000 52,500 18,000 82,500
Rebate income 31,490 - 67,469 -
Store sales 89,263 36,224 184,918 75,762
Total revenues 226,800 819,325 453,581 1,725,722
COST OF SALES:
Cost of distribution sales - 521,059 - 1,136,752
Cost of store sales 64,094 33,437 153,984 67,042
Total cost of sales 64,094 554,496 153,984 1,203,794
Gross profit and service revenues 162,706 264,829 299,597 521,928
OPERATING AND ADMINISTRATIVE EXPENSES:
Store operations 36,952 33,278 84,435 52,936
Distribution and franchise operations - 23,652 - 45,725
Selling, general and
administrative expenses 355,493 432,102 574,690 773,078
Loss on impairment of assets 80,050 - 80,050 -
Total operating and administrative
expenses 472,495 489,032 739,175 871,739
Loss from operations (309,789) (224,203) (439,578) (349,811)
OTHER INCOME (EXPENSE):
Interest income 2,672 5,442 4,780 10,251
Interest expense--
Related party (2,062) (2,720) (4,782) (5,440)
Other (15,065) (27,363) (30,218) (47,043)
Loss on sale of assets (40,204) - (80,916) (72,784)
Settlement expense - (20,775) - (20,775)
Total other income (expense) (54,659) (45,416) (111,136) (135,791)
NET LOSS, before extraordinary gain $ (364,448)$ (269,619)$ (550,714)$ (485,602)
EXTRAORDINARY GAIN,
net of taxes of $0 274,659 - 274,659 -
NET LOSS $ (89,789)$ (269,619)$ (276,055)$ (485,602)
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NET LOSS PER SHARE,
before extraordinary gain ($0.30) ($0.24) ($0.46) ($0.43)
EXTRAORDINARY GAIN PER SHARE $0.22 - $0.23 -
NET LOSS PER COMMON SHARE ($0.07) ($0.24) ($0.23) ($0.43)
WEIGHTED AVERAGE NUMBER OF
OUTSTANDING SHARES 1,231,540 1,130,707 1,204,040 1,139,873
NET LOSS PER COMMON SHARE,
assuming full dilution ($0.07) ($0.22) ($0.22) ($0.39)
WEIGHTED AVERAGE NUMBER OF OUTSTANDING
SHARES, assuming full dilution 1,231,540 1,231,540 1,231,540 1,231,540
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JAKE'S PIZZA INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
March 31,
1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income/(Loss) $ (276,055)$ (485,602)
Adjustments to reconcile net income/(loss) to net
cash provided by (used for) operating activities
Provision for losses on accounts and
notes receivable 136,627 75,000
Depreciation and amortization 28,995 115,575
Extraordinary Gain (274,659) -
Loss on impairment of assets 80,050 -
Loss on sale of assets 80,916 72,784
Changes in assets and liabilities:
Accounts receivable, net (14,071) (39,501)
Inventories 10,076 59,840
Other current assets 6,610 (5,204)
Security deposits (10,168) (131)
Accounts payable 27,189 (40,116)
Franchise and lease deposits - (34,949)
Accrued professional fees (63) 16,705
Accrued other 2,390 (6,960)
Net cash used for operating activities (202,163) (272,559)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,515) (6,497)
Gross Proceeds from sale of property and equipment 789,800 12,000
Net cash provided from investing activities 788,285 5,503
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of bank line-of-credit - (193,943)
Repayments of long-term debt (597,866) (21,291)
Repayments of related party long-term debt (16,000) -
Repayments of capital lease obligations (2,589) (1,125)
Payments received on notes receivable 28,971 11,993
Net cash used for financing activities (587,484) (204,366)
NET DECREASE IN CASH $ (1,362)$ (471,422)
CASH, beginning of period $ 2,090 $ 497,436
CASH, end of period $ 728 $ 26,014
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 37,088 $ 29,371
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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.
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Item 2. Management's Discussion and Analysis or Plan of
Operation.
Liquidity and Capital Resources
The net decrease in accounts receivable reflect additional
charges to the reserve for uncollectible accounts. Accounts
receivable before bad debt charges increased $14,071. This
increase is due 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 $28,971
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. The Company intends
to sell this equipment to a new franchisee.
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 period ending March 31, 1997.
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 decrease in notes payable and related notes payable is
due to the payoff 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.
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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 April 30, 1997 the Company has 42 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 in the process of selling
its two Company-owned stores and equipment the Company holds in
inventory to help fund the Company's short-term cash flow needs.
The Company is currently obligated under several leases,
including two leases for Company-owned Jake's Pizza restaurants
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.
Results of Operations
Total revenues for the six months and three months ending
March 31, 1997 decreased $1,272,141 and $592,525, respectively,
compared to the six months ending and three months ending March
31, 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. The decrease in revenues
also reflects reduced franchise fees due to the opening of fewer
franchises in the comparable periods. Store sales increased due
to one more Company-owned store operating during the first six
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.
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The Company's total cost of sales decreased 87.2% during the
six month period ending March 31, 1997 compared to the same
period ending March 31, 1996. The Company's total cost of sales
decreased 88.4% during quarter ending March 31, 1997 compared to
the quarter ending March 31, 1996. This decrease for the and six
months and 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 six months and quarter ending March
31, 1997 compared to the same periods ending March 31, 1996.
This decrease is due to an improved operational efficiencies and
managerial changes at the Company-owned stores.
Total operating and administrative expenses decreased 15.2%
for the six month period ending March 31, 1997 compared to the
six month period ending March 31, 1996. For the quarter ending
March 31, 1997 total operating and adminstrative expenses
decreased 3.4% from the quarter ending March 31, 1996. This
decrease was 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 attributible to additional reserves for
uncollectible accounts and notes receivable of $136,627 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. Additionally, the Company continues to accrue
expenses for the prior President and Chief Executive Officer
under his related severance, consulting and non-compete
agreement.
Other income and expense decreased 18.2% for the six month
period ending March 31, 1997 compared to the period ending March
31, 1996 due to lower interest expense resulting from the payment
of the Company's line of credit in March, 1996 and payment of the
mortgage in January, 1997 offset by a lower interest income
earned on lower invested cash balances at March 31, 1997 compared
to March 31, 1996. The loss on sale of assets at December 31,
1996 was due to the sale of warehouse equipment used in the
Company's discontinued distribution business and the write-off of
various assets related to the sale of the Company's
office/warehouse.
The extraordinary gain of $274,659 in the quarter ending March 31,
1997 was due to the settlement with several of the Company's creditors.
The Company and these creditors agreed to settle $366,211 of
unsecured debts for $91,552 as payment in full for the unsecured debts.
The Company paid the creditors in January, 1997 with the proceeds
from the sale of its office/warehouse.
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The net loss, before extraordinary gain, for the six months
ending March 31, 1997 was $550,714, or a loss of $.46 per share,
compared to a net loss for the six month period ending March 31,
1996 of $485,602, or a loss of $.43 per share. For the quarter
ending March 31, 1997 the net loss, before extraordinary gain,
was $364,448, or a loss of $.30 per share versus a net loss of
$269,619, or a loss of $.24 per share for the quarter ending
March 31, 1996. This increase in the net loss and net loss per
share for the six months and quarter ending March 31, 1997
primarily reflects higher charges to the reserve for
uncollectible accounts and notes receivable compared to the prior
year, the loss on impairment of assets, and the loss on the sale
of assets related to the sale of the office/warehouse in January,
1997. These additional expenses were partially offset by the
effects of the Company's reorganization efforts.
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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.
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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: May 15, 1997
John S. Flowers,
President and Chairman of the Board
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 728
<SECURITIES> 0
<RECEIVABLES> 223527
<ALLOWANCES> 172578
<INVENTORY> 70605
<CURRENT-ASSETS> 329692
<PP&E> 325453
<DEPRECIATION> 132632
<TOTAL-ASSETS> 757936
<CURRENT-LIABILITIES> 527082
<BONDS> 123523
0
0
<COMMON> 12315
<OTHER-SE> 62395
<TOTAL-LIABILITY-AND-EQUITY> 757936
<SALES> 184918
<TOTAL-REVENUES> 453581
<CGS> 153984
<TOTAL-COSTS> 893159
<OTHER-EXPENSES> 739175
<LOSS-PROVISION> 160966
<INTEREST-EXPENSE> 35000
<INCOME-PRETAX> (550714)
<INCOME-TAX> 0
<INCOME-CONTINUING> (550714)
<DISCONTINUED> 0
<EXTRAORDINARY> 274659
<CHANGES> 0
<NET-INCOME> (276055)
<EPS-PRIMARY> (.23)
<EPS-DILUTED> (.22)
</TABLE>
