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 December 31, 1996
[ ] 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:
1,176,540 shares of common stock, $.01 par, as of February 7,
1997.
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JAKE'S PIZZA INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, September 30,
1996 1996
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ASSETS
CURRENT ASSETS:
Cash $ 2,910 $ 2,090
Accounts receivable, net of allowance for doubtful
accounts of $93,111 and $89,359, respectively 302,548 294,489
Inventories 21,958 32,945
Notes receivable - current portion net of
allowance for uncollectable notes of $3,650 and
$43,078, respectively 83,383 76,863
Other current assets 19,242 17,833
Total current assets 430,041 424,220
PROPERTY AND EQUIPMENT (at cost):
Buildings and improvements 166,054 192,440
Equipment 379,831 421,151
Furniture and fixtures 67,747 67,747
613,632 681,338
Less - Accumulated depreciation 244,396 250,915
Net property and equipment 369,236 430,423
ASSET HELD FOR SALE 732,148 732,148
OTHER ASSETS:
Intangible assets, net of accumulated amortization
of $37,500 and $32,500, respectively 42,500 47,500
Security deposits 58,897 47,587
Notes receivable - net of current portion 153,089 167,479
Total other assets 254,486 262,566
Total assets $ 1,785,911 $ 1,849,357
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable, current portion -
Related party 16,000 16,000
Mortgage 22,430 21,120
Other 53,316 57,235
Capital lease obligation 7,070 8,346
Accounts payable 509,079 426,246
Franchise deposits 15,000
Accrued professional fees 209,243 188,877
Accrued - other 54,020 31,584
Total current liabilites 886,158 749,408
LONG-TERM DEBT:
Notes payable, net of current portion -
Related party 116,000 116,000
Mortgage 557,481 565,879
Other 29,152 34,684
LEASE DEPOSITS 32,621 32,621
Total long-term debt and other long-term obligations 735,254 749,184
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value, authorized
9,000,000 shares, issued and outstanding
1,176,540 and 1,176,540 shares, respectively 12,315 12,315
Paid-in capital 3,532,947 3,532,947
Deficit (3,380,763) (3,194,497)
Total shareholders' equity 164,499 350,765
Total liabilities and shareholders' equity $ 1,785,911 $ 1,849,357
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JAKE'S PIZZA INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
December 31,
1996 1995
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REVENUES:
Distribution sales $ - $ 729,871
Franchise royalties 95,147 80,598
Advertising royalties - 26,390
Franchise fees - 30,000
Rebate income 35,979
Store sales 95,655 39,538
Total revenues 226,781 906,397
COST OF SALES:
Cost of distribution sales - 615,693
Cost of store sales 89,890 33,605
Total cost of sales 89,890 649,298
Gross profit and service revenues 136,891 257,099
OPERATING AND ADMINISTRATIVE EXPENSES:
Store operations 47,483 19,658
Distribution and franchise operations - 22,073
Selling, general and
administrative expenses 219,197 340,976
Total operating and administrative expenses 266,680 382,707
Loss from operations (129,789) (125,608)
OTHER INCOME (EXPENSE):
Interest income 2,108 4,809
Interest expense--
Related party (2,720) (2,720)
Other (15,153) (19,680)
Loss on sale of assets (40,712) (72,784)
(56,477) (90,375)
NET LOSS $ (186,266) $ (215,983)
NET LOSS PER COMMON SHARE ($0.16) ($0.19)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 1,176,540 1,121,540
NET LOSS PER COMMON SHARE,
assuming full dilution ($0.15) ($0.18)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING,
assuming full dilution 1,231,540 1,231,540
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JAKE'S PIZZA INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
December 31,
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income/(Loss) $ (186,266) $ (215,983)
Adjustments to reconcile net (loss) income to net
cash provided by (used for) operating activities
Provision for losses on accounts
and notes receivable 7,500 -
Depreciation and Amortization 16,124 57,976
Loss on sale of assets 40,712 72,784
Changes in assets and liabilities:
Accounts receivable, net (12,559) 4,525
Inventories 10,987 5,968
Other current assets (1,409) 2,801
Security deposits (11,310) 1,199
Accounts payable 82,833 6,992
Franchise and lease deposits 15,000 12,551
Accrued professional fees 20,366 14,747
Accrued other 22,436 23,015
Net cash used for operating activities 4,414 (13,425)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (450) (5,932)
Proceeds from sale of property and equipment 9,800 12,000
Net cash used for investing activities 9,350 6,068
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (16,538) (11,293)
Repayments of capital lease obligations (1,276) (1,125)
Payments received on notes receivable 4,870 9,309
Net cash used for financing activities (12,944) (3,109)
NET DECREASE IN CASH $ 820 $ (10,466)
CASH, beginning of period $ 2,090 $ 497,436
CASH, end of period $ 2,910 $ 486,970
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 13,845 $ 14,143
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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 increase in accounts and notes receivable at December
31, 1996 compared to September 30, 1996 is due to slower
collectability of accounts and notes receivables 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.
The increase in accounts payable and other accrued current
liabilities is due to slower payment due to the Company's
operational cash flow shortages which results from the inability
of a significant portion of the franchises to pay their
obligations as previously discussed. 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 $90,678 to settle $362,711 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 increase in franchise deposits is from a new franchisee
in the metropolitan St. Louis, Missouri area. This franchisee
opened for business during the first week of February, 1997.
The decrease in building and improvements and equipment is
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.
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
believes that it will need 65 to 70 healthy operating franchised
restaurants to bring the Company to a breakeven cash flow. As of
January 31, 1997 the Company has 48 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.
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Results of Operations
Total revenues for the first quarter ending December 31,
1996 decreased $679,616 compared to the prior first quarter
ending December 31, 1995. 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.
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. 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 86.2% during the
period ending December 31, 1996 compared to the period ending
December 31, 1995. This decrease is also 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 increased to 94.0% for the period ending December 31, 1996
compared to 85.0% for the period ending December 31, 1995. This
increase was due to operational inefficiencies and managerial
problems at the Company-owned stores, which have been corrected.
Operating and administrative expenses decreased 30.3% for
the three month period ending December 31, 1996 compared to the
three month period ending December 31, 1995. This decrease was
and the downsizing of the Company. This decrease was offset by
operational inefficiencies at the Company-owned stores, rents
paid on one closed franchisees lease which the Company is
obligated under and on its closed joint venture restaurant in
Placentia, California and continued legal fees related to
collections of accounts and notes receivables from closed
franchises. 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 for the period ending
December 31, 1996 compared to the period ending December 31, 1995
due to lower interest expense resulting from the payment of the
Company's line of credit in March, 1996 offset by a lower amount
of interest income earned on lower invested cash balances at
December 31, 1996 compared to December 31, 1995. Other income
and expense also decreased due to a lower loss on sale of assets.
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 net loss for the first quarter ending December 31, 1996
was $186,266, or a loss of $.16 per share compared to a loss for
the first quarter ending December 31, 1995 of $215,983, or a loss
of $.19 per share. This decrease in the net loss and net loss
per share for the first quarter of fiscal 1997 primarily reflects
the effects of the Company's reorganization. Management
believes that it has positioned the Company with plans that will
grow the Company while significantly reducing the losses of the
Company.
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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.
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.
JAKE'S PIZZA INTERNATIONAL, INC.
(Registrant)
By: /s/ John S. Flowers Date: February 14, 1997
John S. Flowers,
President and Chairman of the Board
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 2910
<SECURITIES> 0
<RECEIVABLES> 302548
<ALLOWANCES> 93111
<INVENTORY> 21958
<CURRENT-ASSETS> 430041
<PP&E> 613632
<DEPRECIATION> 244396
<TOTAL-ASSETS> 1785911
<CURRENT-LIABILITIES> 886158
<BONDS> 735254
0
0
<COMMON> 12315
<OTHER-SE> 152184
<TOTAL-LIABILITY-AND-EQUITY> 1785911
<SALES> 95655
<TOTAL-REVENUES> 226781
<CGS> 89890
<TOTAL-COSTS> 356570
<OTHER-EXPENSES> 266680
<LOSS-PROVISION> 40712
<INTEREST-EXPENSE> 17873
<INCOME-PRETAX> (186266)
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<NET-INCOME> (186266)
<EPS-PRIMARY> (.16)
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</TABLE>
