SEC Filing | Rave Restaurant Group, Inc.

SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q (MARK ONE) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 24, 2000. -------------------- 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 0-12919 PIZZA INN, INC. (EXACT NAME OF REGISTRANT IN ITS CHARTER) MISSOURI 47-0654575 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 5050 QUORUM DRIVE SUITE 500 DALLAS, TEXAS 75240 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE) (972) 701-9955 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) INDICATE BY CHECK MARK 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 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 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 SUBSEQUENT TO THE DISTRIBUTION OF SECURITIES UNDER A PLAN CONFIRMED BY A COURT. YES [X] NO AT NOVEMBER 1, 2000, AN AGGREGATE OF 10,729,173 SHARES OF THE REGISTRANT'S COMMON STOCK, PAR VALUE OF $.01 EACH (BEING THE REGISTRANT'S ONLY CLASS OF COMMON STOCK), WERE OUTSTANDING.

PIZZA INN, INC. Index ----- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Page - -------- --------------------- ---- Consolidated Statements of Operations for the three months ended September24, 2000 and September 26, 1999 3 Consolidated Balance Sheets at September 24, 2000 and June 25, 2000 4 Consolidated Statements of Cash Flows for the three months ended September 24, 2000 and September 26, 1999 5 Notes to Consolidated Financial Statements 7 Item 2. - ------- Management's Discussion and Analysis of ------------------------------------------- Financial Condition and Results of Operations 10 --------------------------------------------- PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 12 - -------- ----------------------------------------------------------- Item 6. Exhibits and Reports on Form 8-K 12 - -------- ------------------------------------- Signatures 13

PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL INFORMATION - -------------------------------- PIZZA INN, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) THREE MONTHS ENDED ------------------- SEPTEMBER 24, SEPTEMBER 26, REVENUES: 2000 1999 ------------------- -------------- Food and supply sales . . . . . . . $ 14,728 $ 15,329 Franchise revenue . . . . . . . . . 1,401 1,469 Restaurant sales. . . . . . . . . . 569 577 Other income. . . . . . . . . . . . 118 19 ------------------- -------------- 16,816 17,394 ------------------- -------------- COSTS AND EXPENSES: Cost of sales . . . . . . . . . . . 13,925 14,584 Franchise expenses. . . . . . . . . 584 627 General and administrative expenses 1,020 907 Interest expense. . . . . . . . . . 255 139 ------------------- -------------- 15,784 16,257 ------------------- -------------- INCOME BEFORE INCOME TAXES. . . . . . 1,032 1,137 Provision for income taxes. . . . . 386 390 ------------------- -------------- NET INCOME. . . . . . . . . . . . . . $ 646 $ 747 =================== ============== BASIC EARNINGS PER COMMON SHARE . . . $ 0.06 $ 0.07 =================== ============== DILUTED EARNINGS PER COMMON SHARE . . $ 0.06 $ 0.07 =================== ============== DIVIDENDS DECLARED PER COMMON SHARE . $ 0.06 $ 0.06 =================== ============== WEIGHTED AVERAGE COMMON SHARES. . . . 10,733 11,250 =================== ============== WEIGHTED AVERAGE COMMON AND POTENTIAL DILUTIVE COMMON SHARES. . 10,743 11,470 =================== ============== See accompanying Notes to Consolidated Financial Statements. PIZZA INN, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) SEPTEMBER 24, JUNE 25, ASSETS 2000 2000 --------------- ---------- (UNAUDITED) CURRENT ASSETS Cash and cash equivalents. . . . . . . . . . . . . . . . . . . $ 428 $ 484 Accounts receivable, less allowance for doubtful accounts of $775 and $776, respectively. . . . . . . . . . . 4,932 4,681 Notes receivable, current portion, less allowance for doubtful accounts of $262 and $260, respectively . . . . 860 810 Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . 2,156 2,910 Deferred taxes, net. . . . . . . . . . . . . . . . . . . . . . 1,117 1,117 Prepaid expenses and other . . . . . . . . . . . . . . . . . . 637 566 --------------- ---------- Total current assets . . . . . . . . . . . . . . . . . . . 10,130 10,568 Property, plant and equipment, net . . . . . . . . . . . . . . . 1,519 1,650 Property under capital leases, net . . . . . . . . . . . . . . . 1,032 1,165 Deferred taxes, net. . . . . . . . . . . . . . . . . . . . . . . 3,024 3,312 Long-term notes receivable, less allowance for doubtful accounts of $64 and $66, respectively . . . . . . . . . . . . . . . . . . . . . . . . . 229 262 Deposits and other . . . . . . . . . . . . . . . . . . . . . . . 654 734 --------------- ---------- $ 16,588 $ 17,691 =============== ========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable - trade . . . . . . . . . . . . . . . . . . . $ 1,590 $ 2,251 Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . 1,717 1,797 Current portion of long-term debt. . . . . . . . . . . . . . . 1,250 1,250 Current portion of capital lease obligations . . . . . . . . . 545 534 --------------- ---------- Total current liabilities. . . . . . . . . . . . . . . . . . 5,102 5,832 LONG-TERM LIABILITIES Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . 9,629 9,842 Long-term capital lease obligations. . . . . . . . . . . . . . 673 813 Other long-term liabilities. . . . . . . . . . . . . . . . . . 715 715 --------------- ---------- 16,119 17,202 --------------- ---------- SHAREHOLDERS' EQUITY Common Stock, $.01 par value; authorized 26,000,000 shares; issued 14,954,849 and 14,954,789 shares, respectively outstanding 10,740,753 and 10,645,380 shares, respectively. 150 150 Additional paid-in capital . . . . . . . . . . . . . . . . . . 7,823 7,708 Loans to officers. . . . . . . . . . . . . . . . . . . . . . . (2,490) (2,250) Retained earnings. . . . . . . . . . . . . . . . . . . . . . . 13,007 13,163 Treasury stock at cost Shares in treasury: 4,214,096 and 4,309,409 respectively . . (18,021) (18,282) --------------- ---------- Total shareholders' equity . . . . . . . . . . . . . . . . . 469 489 --------------- ---------- $ 16,588 $ 17,691 =============== ========== See accompanying Notes to Consolidated Financial Statements. PIZZA INN, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED) THREE MONTHS ENDED -------------------- SEPTEMBER 24, SEPTEMBER 26, 2000 1999 -------------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 646 $ 747 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization . . . . . . . . . . . . . . . . 348 273 Provision for bad debt. . . . . . . . . . . . . . . . . . . . 50 25 Utilization of pre-reorganization net operating loss carryforwards. . . . . . . . . . . . . . . . . . . . . 288 364 Changes in assets and liabilities: Notes and accounts receivable . . . . . . . . . . . . . . . . (318) (288) Inventories . . . . . . . . . . . . . . . . . . . . . . . . . 754 351 Accounts payable - trade. . . . . . . . . . . . . . . . . . . (661) (252) Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . (80) (237) Prepaid expenses and other. . . . . . . . . . . . . . . . . . 54 153 -------------------- --------------- CASH PROVIDED BY OPERATING ACTIVITIES . . . . . . . . . . . . 1,081 1,136 -------------------- --------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures. . . . . . . . . . . . . . . . . . . . . . (51) (133) -------------------- --------------- CASH USED FOR INVESTING ACTIVITIES. . . . . . . . . . . . . . (51) (133) -------------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings of long-term bank debt . . . . . . . . . . . . . . . 500 1,000 Repayments of long-term bank debt and capital lease obligations (842) (309) Dividends paid. . . . . . . . . . . . . . . . . . . . . . . . . (603) (706) Proceeds from exercise of stock options . . . . . . . . . . . . 298 30 Purchases of treasury stock . . . . . . . . . . . . . . . . . . (439) (1,131) -------------------- --------------- CASH USED FOR FINANCING ACTIVITIES. . . . . . . . . . . . . . (1,086) (1,116) -------------------- --------------- Net decrease in cash and cash equivalents . . . . . . . . . . . . (56) (113) Cash and cash equivalents, beginning of period. . . . . . . . . . 484 509 -------------------- --------------- Cash and cash equivalents, end of period. . . . . . . . . . . . . $ 428 $ 396 -------------------- --------------- See accompanying Notes to Consolidated Financial Statements. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION (IN THOUSANDS) (UNAUDITED) THREE MONTHS ENDED ------------------- SEPTEMBER 24, SEPTEMBER 26, 2000 1999 ------------------- -------------- CASH PAYMENTS FOR: Interest . . . . . . . . . . . . . . . . . . . $ 274 $ 73 Income taxes . . . . . . . . . . . . . . . . . 25 - NONCASH FINANCING AND INVESTING ACTIVITIES: Stock issued to officers in exchange for loans $ 303 $ - See accompanying Notes to Consolidated Financial Statements. PIZZA INN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (1) The accompanying consolidated financial statements of Pizza Inn, Inc. (the "Company") have been prepared without audit pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in the financial statements have been omitted pursuant to such rules and regulations. The consolidated financial statements should be read in conjunction with the notes to the Company's audited consolidated financial statements in its Form 10-K for the fiscal year ended June 25, 2000. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to fairly present the Company's financial position and results of operations for the interim periods. All adjustments contained herein are of a normal recurring nature. (2) On September 25, 2000, the Company's Board of Directors declared a quarterly dividend of $.06 per share on the Company's common stock, payable October 20, 2000 to shareholders of record on October 6, 2000. (3) In October 1999, the Company loaned $2,506,754 to certain officers of the Company in the form of promissory notes due in June 2004 to acquire 900,000 shares of the Company's common stock through the exercise of vested stock options previously granted to them in 1995 by the Company. In July 2000, the Company loaned $302,581 to an officer of the Company in the form of a promissory note due in June 2004 to acquire 200,000 shares of the Company's common stock through the exercise of vested stock options granted to him in 1995 by the Company. The notes bear interest at the same floating interest rate the Company pays on its credit facility with Wells Fargo and are collaterized by certain real property and existing Company stock owned by the officers. The notes are reflected as a reduction to stockholders' equity. The accounting for these options has no net effect on stockholders' equity. (4)

The following table shows the reconciliation of the numerator and denominator of the basic EPS calculation to the numerator and denominator of the diluted EPS calculation (in thousands, except per share amounts). INCOME SHARES PER SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ------------ ------------- ---------- THREE MONTHS ENDED SEPTEMBER 24, 2000 BASIC EPS Income Available to Common Shareholders . . . $ 646 10,733 $ 0.06 Effect of Dilutive Securities - Stock Options 10 ------------ DILUTED EPS Income Available to Common Shareholders & Assumed Conversions . . . . . . . . . . . . $ 646 10,743 $ 0.06 ============ ============= ========== THREE MONTHS ENDED SEPTEMBER 26, 1999 BASIC EPS Income Available to Common Shareholders . . . $ 747 11,250 $ 0.07 Effect of Dilutive Securities - Stock Options 220 ------------ DILUTED EPS Income Available to Common Shareholders & Assumed Conversions . . . . . . . . . . . . $ 747 11,470 $ 0.07 ============ ============= ========== (5) Summarized in the following tables are net sales and operating revenues, operating profit (loss), and geographic information (revenues) for the Company's reportable segments for the three months ended September 24, 2000, and September 26, 1999. SEPTEMBER 24, SEPTEMBER 26, 2000 1999 ------------------------- ------------------------- (In thousands) NET SALES AND OPERATING REVENUES: Food and Equipment Distribution . . $ 14,728 $ 15,329 Franchise and Other . . . . . . . . 1,970 2,046 Intersegment revenues . . . . . . . 206 217 ------------------------- ------------------------- Combined. . . . . . . . . . . . . 16,904 17,592 Other revenues. . . . . . . . . . . 118 19 Less intersegment revenues. . . . . (206) (217) ------------------------- ------------------------- Consolidated revenues . . . . . . 16,816 17,394 ========================= ========================= OPERATING PROFIT: Food and Equipment Distribution (1) $ 807 $ 727 Franchise and Other (1) . . . . . . 692 846 Intersegment profit . . . . . . . . 61 56 ------------------------- ------------------------- Combined. . . . . . . . . . . . . 1,560 1,629 Other profit or loss. . . . . . . . 118 19 Less intersegment profit. . . . . . (61) (56) Corporate administration and other. (585) (455) ------------------------- ------------------------- Income before taxes . . . . . . . 1,032 1,137 ========================= ========================= GEOGRAPHIC INFORMATION (REVENUES): United States . . . . . . . . . . . $ 16,591 $ 17,073 Foreign countries . . . . . . . . . 225 321 ------------------------- ------------------------- Consolidated total. . . . . . . . 16,816 17,394 ========================= ========================= (1) Does not include full allocation of corporate administration 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - -------------------------------------------------------------------------------- RESULTS OF OPERATIONS - ----------------------- Quarter ended September 24, 2000 compared to the quarter ended September 26, 1999. Diluted earnings per share for the three months ending September 24, 2000 and September 26, 1999 were $0.06 and $0.07 respectively. Net income decreased 14% to $646,000 from $747,000 for the same period last year, primarily due to higher interest costs resulting from increased borrowings. Food and supply sales decreased 4% or $601,000 for the quarter compared to the same period last year. This decrease is a result of lower chainwide retail sales in the first three months of the current year, and significantly lower cheese prices as compared to the same period last year. Franchise revenue, which includes income from royalties, license fees and area development and foreign master license (collectively, "Territory") sales, decreased 5% or $68,000 for the quarter compared to the same period last year. This decrease is primarily the result of lower royalties due to lower chainwide retail sales. Franchisee fees were lower due to the type of Pizza Inn units that were opened this quarter compared to the same period last year. Restaurant sales, which consists of revenue generated by Company-owned training stores, for the quarter decreased 1% or $8,000 compared to the same period of the prior year. Other income, which consists primarily of interest income and non-recurring revenue items, increased 521% or $99,000 compared to the same period last year. This increase is primarily due to interest earned on officers' notes and vendor incentives not received in the same quarter last year. Cost of sales decreased 5% or $659,000 compared to the same period last year. This decrease is due to lower chainwide retail sales as noted above and to favorably lower cheese prices in the current year as compared to the same period last year. Cost of sales, as a percentage of sales, decreased to 91% from 92% for the same quarter last year. Franchise expenses include selling, marketing, general and administrative expenses directly related to the sale and continuing service of franchises and Territories. These costs decreased 7% or $43,000 compared to the same period last year primarily due to lower marketing costs. General and administrative expenses increased 12% or $113,000 compared to the same quarter last year primarily due to computer programming costs which were capitalized in the prior year related to the computer conversion for year 2000 compliance. Interest expense increased 83% or $116,000 compared to the same period of the prior year primarily as a result of higher debt balances. LIQUIDITY AND CAPITAL RESOURCES During the first three months of fiscal 2001, the Company utilized cash provided by operations in the amount of $1,081,000 to purchase 119,687 shares of its own common stock for $439,000 and to pay dividends of $603,000 on the Company's common stock. Capital expenditures of $51,000 during the first three months included computer upgrades, prototype plan costs, and an air conditioning system for one of the three Company-owned stores. The Company continues to realize substantial benefit from the utilization of its net operating loss carryforwards (which currently total $5.6 million and expire in 2005) to reduce its federal tax liability from the 34% tax rate reflected on its statement of operations to an actual payment of approximately 2% of taxable income. Management believes that future operations will generate sufficient taxable income, along with the reversal of temporary differences, to fully realize its net deferred tax asset balance ($4.1 million as of September 24, 2000) without reliance on material, non-routine income. Taxable income in future years at the current level would be sufficient for full realization of the net tax asset. The Company entered into an agreement effective March 31, 2000 with its current lender to extend the term of its existing $9.5 million revolving credit line through March 2002 and to modify certain financial covenants. In addition, the Company entered into a $5,000,000 term note with monthly principal payments of $104,000 maturing on March 31, 2004. Interest on the term loan is payable monthly. Interest is provided for at a rate equal to prime less an interest rate margin of .75%, or, at the Company's option, of the Eurodollar rate plus 1.5%. In accordance with the agreement, the Company is obligated in fiscal year 2001 to cause at least 50% of the outstanding principal amount to be subject to a fixed interest rate. This report contains certain forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) relating to the Company that are based on the beliefs of the management of the Company, as well as assumptions and estimates made by and information currently available to the Company's management. When used in this report, the words "anticipate," "believe," "estimate," "expect," "intend" and similar expressions, as they relate to the Company or the Company's management, identify forward-looking statements. Such statements reflect the current views of the Company with respect to future events and are subject to certain risks, uncertainties and assumptions relating to the operations and results of operations of the Company as well as its customers and suppliers, including as a result of competitive factors and pricing pressures, shifts in market demand, general economic conditions and other factors including but not limited to, changes in demand for Pizza Inn products or franchises, the impact of competitors' actions, changes in prices or supplies of food ingredients, and restrictions on international trade and business. Should one or more of these risks or uncertainties materialize, or should underlying assumptions or estimates prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected or intended.

PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - --------------------------------------------------------------------- None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - ----------------------------------------------- There are no exhibits filed with this report. No reports on Form 8-K were filed in the quarter for which this report is filed.

------ 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. PIZZA INN, INC. Registrant By: /s/Ronald W. Parker --------------------- Ronald W. Parker President and Principal Financial Officer By: /s/Shawn Preator ----------------- Shawn Preator Vice President, Controller and Principal Accounting Officer Dated: November 7,2000

WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

5 1000 YEAR JUN-24-2001 JUN-26-2000 SEPT-24-2000 428 0 5792 1102 2156 10130 1519 4510 16588 5102 0 150 0 0 319 16588 15297 16816 13925 13925 584 50 255 1032 386 646 0 0 0 646 .06 .06