SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 28, 2003.
-------------------
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.)
3551 PLANO PARKWAY
THE COLONY, TEXAS 75056
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES,
INCLUDING ZIP CODE)
(469) 384-5000
(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 IS AN ACCELERATED FILER (AS
DEFINED IN RULE 12 B-2 OF THE EXCHANGE ACT). YES NO [X]
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 FEBRUARY 2, 2004, AN AGGREGATE OF 10,073,674 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
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page
- -------- --------------------- ----
Condensed Consolidated Statements of Operations for the three months and
six months ended December 28, 2003 and December 29, 2002 (unaudited) 3
Condensed Consolidated Statements of Comprehensive Income for the three months
and six months ended December 28, 2003 and December 29, 2002 (unaudited) 3
Condensed Consolidated Balance Sheets at December 28, 2003 (unaudited)
and June 29, 2003 4
Condensed Consolidated Statements of Cash Flows for the three months and
six months ended December 28, 2003 and December 29, 2002 (unaudited) 5
Notes to Condensed Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of
- ------- ------------------------------------------
Financial Condition and Results of Operations 12
---------------------------------------------
Item 3 Quantitative and Qualitative Disclosures about Market Risk 16
- ------ ----------------------------------------------------------------
Item 4. Controls and Procedures 16
- -------- -------------------------
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
- -------- ------------------
Item 4. Submission of Matters to a Vote of Security Holders 18
- -------- -----------------------------------------------------------
Item 6. Exhibits and Reports on Form 8-K 18
- -------- -------------------------------------
Signatures 19
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- -------------------------------
PIZZA INN, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------- ------------------
DECEMBER 28, DECEMBER 29, DECEMBER 28, DECEMBER 29,
REVENUES: 2003 2002 2003 2002
-------------------- ------------------ -------------- --------------
Food and supply sales. . . . . . . . . . . . . $ 13,032 $ 13,275 $ 26,530 $ 26,804
Franchise revenue. . . . . . . . . . . . . . . 1,264 1,307 2,715 2,609
Restaurant sales . . . . . . . . . . . . . . . 376 453 782 920
Other income . . . . . . . . . . . . . . . . . 97 129 118 192
-------------------- ------------------ -------------- --------------
14,769 15,164 30,145 30,525
-------------------- ------------------ -------------- --------------
COSTS AND EXPENSES:
Cost of sales. . . . . . . . . . . . . . . . . 12,074 12,167 24,671 24,572
Franchise expenses . . . . . . . . . . . . . . 728 835 1,542 1,543
General and administrative expenses. . . . . . 962 (910) 2,003 649
Interest expense . . . . . . . . . . . . . . . 160 205 320 434
-------------------- ------------------ -------------- --------------
13,924 12,297 28,536 27,198
-------------------- ------------------ -------------- --------------
INCOME BEFORE INCOME TAXES . . . . . . . . . . . 845 2,867 1,609 3,327
Provision for income taxes . . . . . . . . . . 287 975 547 1,131
-------------------- ------------------ -------------- --------------
NET INCOME . . . . . . . . . . . . . . . . . . . $ 558 $ 1,892 $ 1,062 $ 2,196
==================== ================== ============== ==============
BASIC EARNINGS PER COMMON SHARE. . . . . . . . . $ 0.06 $ 0.19 $ 0.11 $ 0.22
==================== ================== ============== ==============
DILUTED EARNINGS PER COMMON SHARE. . . . . . . . $ 0.06 $ 0.19 $ 0.11 $ 0.22
==================== ================== ============== ==============
WEIGHTED AVERAGE COMMON SHARES . . . . . . . . . 10,071 10,058 10,065 10,058
==================== ================== ============== ==============
WEIGHTED AVERAGE COMMON AND
POTENTIAL DILUTIVE COMMON SHARES . . . . . . . 10,123 10,060 10,104 10,059
==================== ================== ============== ==============
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
THREE MONTHS ENDED . . . . . . . . . SIX MONTHS ENDED
--------------------------------------- ---------------------------
DECEMBER 28, . . . DECEMBER 29, DECEMBER 28, DECEMBER 29,
2003 2002 2003 2002
-------------------- ------------------ -------------- --------------
Net Income . . . . . . . . . . . . . . . . . . . $ 558 $ 1,892 $ 1,062 $ 2,196
Interest rate swap gain (loss) - (net of
tax (expense) benefit of $31 and $2
and $94 and $141, respectively) . . . . . . . (60) (4) (183) (281)
-------------------- ------------------ -------------- --------------
Comprehensive Income . . . . . . . . . . . . . . $ 498 $ 1,888 $ 879 $ 1,915
==================== ================== ============== ==============
See accompanying Notes to Consolidated Financial Statements.
PIZZA INN, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
DECEMBER 28, JUNE 29,
ASSETS 2003 2003
-------------- ----------
(UNAUDITED)
CURRENT ASSETS
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . $ 199 $ 399
Accounts receivable, less allowance for doubtful
accounts of $340 and $722, respectively. . . . . . . . . . . 4,346 3,730
Notes receivable, current portion, less allowance
for doubtful accounts of $53 and $175, respectively. . . . . 260 260
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . 1,461 1,511
Deferred taxes, net. . . . . . . . . . . . . . . . . . . . . . 308 585
Prepaid expenses and other . . . . . . . . . . . . . . . . . . 321 533
-------------- ----------
Total current assets . . . . . . . . . . . . . . . . . . . 6,895 7,018
Property, plant and equipment, net . . . . . . . . . . . . . . . 12,922 13,126
Property under capital leases, net . . . . . . . . . . . . . . . 80 120
Deferred taxes, net. . . . . . . . . . . . . . . . . . . . . . . 189 382
Long-term notes receivable, less allowance for
doubtful accounts of $9 and $19, respectively. . . . . . . . . - 41
Deposits and other . . . . . . . . . . . . . . . . . . . . . . . 1,072 109
-------------- ----------
$ 21,158 $ 20,796
============== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade . . . . . . . . . . . . . . . . . . . $ 1,489 $ 1,217
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . 2,923 1,950
Current portion of long-term debt. . . . . . . . . . . . . . . 823 1,448
Current portion of capital lease obligations . . . . . . . . . 64 109
-------------- ----------
Total current liabilities. . . . . . . . . . . . . . . . . . 5,299 4,724
LONG-TERM LIABILITIES
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . 8,440 9,643
Long-term capital lease obligations. . . . . . . . . . . . . . 28 33
Other long-term liabilities. . . . . . . . . . . . . . . . . . 703 989
-------------- ----------
14,470 15,389
-------------- ----------
SHAREHOLDERS' EQUITY
Common Stock, $.01 par value; authorized 26,000,000 shares;
issued 14,971,319 and 14,956,319 shares, respectively;
outstanding 10,073,674 and 10,058,674 shares, respectively. 150 150
Additional paid-in capital . . . . . . . . . . . . . . . . . . 7,855 7,825
Loans to officers. . . . . . . . . . . . . . . . . . . . . . . (562) (569)
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . 19,197 18,135
Accumulated other comprehensive loss . . . . . . . . . . . . . (468) (650)
Treasury stock at cost
Shares in treasury: 4,897,645 and 4,897,645 respectively . . (19,484) (19,484)
-------------- ----------
Total shareholders' equity . . . . . . . . . . . . . . . . . 6,688 5,407
-------------- ----------
$ 21,158 $ 20,796
============== ==========
See accompanying Notes to Consolidated Financial Statements.
PIZZA INN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
------------------
DECEMBER 28, DECEMBER 29,
2003 2002
------------------ --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,062 $ 2,196
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . 523 768
Non cash settlement of accounts receivable. . . . . . . . . . (281) -
Recovery for bad debt, net. . . . . . . . . . . . . . . . . . (249) (1,850)
Utilization of deferred taxes . . . . . . . . . . . . . . . . 547 1,131
Changes in assets and liabilities:
Notes and accounts receivable . . . . . . . . . . . . . . . . (344) (402)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . 50 (229)
Accounts payable - trade. . . . . . . . . . . . . . . . . . . 272 776
Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . 973 (165)
Prepaid expenses and other. . . . . . . . . . . . . . . . . . 75 553
------------------ --------------
CASH PROVIDED BY OPERATING ACTIVITIES . . . . . . . . . . . . 2,628 2,778
------------------ --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets. . . . . . . . . . . . . . . . . . 26 -
Acquisition of area development territory . . . . . . . . . . . (682) -
Capital expenditures. . . . . . . . . . . . . . . . . . . . . . (331) (236)
------------------ --------------
CASH USED FOR INVESTING ACTIVITIES. . . . . . . . . . . . . . (987) (236)
------------------ --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term bank debt and capital lease obligations (1,878) (5,063)
Officer loan payment. . . . . . . . . . . . . . . . . . . . . . 7 1,950
Proceeds from exercise of stock options . . . . . . . . . . . . 30 -
------------------ --------------
CASH USED FOR FINANCING ACTIVITIES. . . . . . . . . . . . . . (1,841) (3,113)
------------------ --------------
Net decrease in cash and cash equivalents . . . . . . . . . . . . (200) (571)
Cash and cash equivalents, beginning of period. . . . . . . . . . 399 770
------------------ --------------
Cash and cash equivalents, end of period. . . . . . . . . . . . . $ 199 $ 199
------------------ --------------
See accompanying Notes to Consolidated Financial Statements.
PIZZA INN, INC.
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
-----------------
DECEMBER 28, DECEMBER 29,
2003 2002
----------------- -------------
CASH PAYMENTS FOR:
Interest . . . . . . . . . . . . . . . . . $ 328 $ 432
Income taxes . . . . . . . . . . . . . . . - -
NON-CASH FINANCING AND INVESTING
ACTIVITIES:
Non-cash settlement of accounts receivable $ 281 $ -
See accompanying Notes to Consolidated Financial Statements.
PIZZA INN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) The accompanying condensed 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 condensed consolidated
financial statements should be read in conjunction with the notes to the
Company's audited condensed consolidated financial statements in its Form 10-K
for the fiscal year ended June 29, 2003.
In the opinion of management, the accompanying unaudited condensed 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.
The Company elected to follow APB No. 25, and related Interpretations in
accounting for employee stock options because the alternative fair value
accounting provided for under SFAS No. 123, "Accounting for Stock Based
Compensation," requires use of option valuation models that were not developed
for use in valuing employee stock options. Under APB No. 25, because the
exercise price of our employee stock options equals or exceeds the fair value of
the underlying stock on the date of grant, no compensation expense is
recognized.
Pro forma information regarding net income and earnings per share is required to
be determined as if the Company had accounted for its stock options granted
subsequent to June 25, 1995 under the fair value method of SFAS No. 123. For
purposes of pro forma disclosures, the estimated fair value of the stock options
is amortized over the option vesting periods. The Company's pro forma
information follows (in thousands, except for earnings per share information):
SIX MONTHS ENDED
------------------
DECEMBER 28, DECEMBER 29,
2003 2002
------------------ --------------
Net income, as reported. . . . . . . . . . . $ 1,062 $ 2,196
Deduct: Total stock-based employee
compensation expense determined under fair
value based method for all awards, net of
related tax effects. . . . . . . . . . . . (1) (9)
------------------ --------------
Pro forma net income . . . . . . . . . . . . $ 1,061 $ 2,187
Earnings per share
Basic-as reported. . . . . . . . . . . . . $ 0.11 $ 0.22
Basic-pro forma. . . . . . . . . . . . . . $ 0.11 $ 0.22
Diluted-as reported. . . . . . . . . . . . $ 0.11 $ 0.22
Diluted-pro forma. . . . . . . . . . . . . $ 0.11 $ 0.22
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts as the pro forma amounts above do not include the
impact of additional awards anticipated in future years.
(2)
The Company entered into an agreement effective December 29, 2002 with its
current lender to provide a $7.0 million revolving credit line that will expire
December 31, 2004, replacing a $9.5 million line that was due to expire December
31, 2003. The $7.0 million revolving credit line will reduce quarterly by
$500,000 beginning March 31, 2003 through December 31, 2004. Interest on the
revolving credit line is payable monthly. Interest is provided for at a rate
equal to prime less an interest rate margin from 1.0% to 0.5% or, at the
Company's option, at the LIBOR rate plus 1.25% to 1.75%. The interest rate
margin is based on the Company's performance under certain financial ratio
tests. A 0.375% to 0.5% annual commitment fee is payable on any unused portion
of the revolving credit line. As of December 28, 2003 and December 29, 2002,
the variable interest rates were 2.64% and 3.46%, respectively, using a LIBOR
rate basis. Amounts outstanding under the revolving credit line as of December
28, 2003 and December 28, 2002 were $1.5 million and $2.4 million, respectively.
The Company entered into a term note effective March 31, 2000 with its current
lender. The $5,000,000 term note had outstanding balances of $417,000 and $1.7
million at December 28, 2003 and December 29, 2002, respectively. The term note
requires monthly principal payments of $104,000 with the balance maturing on
March 31, 2004. Interest on the term loan is also payable monthly. Interest is
provided for at a rate equal to prime less an interest rate margin of 0.75% or,
at the Company's option, at the LIBOR rate plus 1.5%. As of December 28, 2003
and December 29, 2002, the variable interest rates were 2.69% and 2.94%,
respectively.
The Company entered into an agreement effective December 28, 2000, as amended,
with its current lender to provide up to $8.125 million of financing for the
construction of the Company's new headquarters, training center and distribution
facility. The construction loan converted to a term loan effective January 31,
2002 with the unpaid principal balance to mature on December 28, 2007. This
term loan will amortize over a term of twenty years, with principal payments of
$34,000 due monthly. Interest on this term loan is also payable monthly.
Interest is provided for at a rate equal to prime less an interest rate margin
of 0.75% or, at the Company's option, to the LIBOR rate plus 1.5%. As of
December 28, 2003 and December 29, 2002, the variable interest rates were 2.65%
and 2.89%, respectively. The Company, to fulfill bank requirements, has caused
the outstanding principal amount to be subject to a fixed interest rate by
utilizing an interest rate swap agreement as discussed below. The $8.125
million term loan had an outstanding balance of $7.3 million at December 28,
2003 and $7.7 million at December 29, 2002.
(3) The Company entered into an interest rate swap effective February 27,
2001, as amended, designated as a cash flow hedge, to manage interest rate risk
relating to the financing of the construction of the Company's new headquarters
and to fulfill bank requirements. The swap agreement has a notional principal
amount of $8.125 million with a fixed pay rate of 5.84% which began November 1,
2001 and will end November 19, 2007. The swap's notional amount amortizes over
a term of twenty years to parallel the terms of the term loan. SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" requires that for
cash flow hedges, which hedge the exposure to variable cash flow of a forecasted
transaction, the effective portion of the derivative's gain or loss be initially
reported as a component of other comprehensive income in the equity section of
the balance sheet and subsequently reclassified into earnings when the
forecasted transaction affects earnings. Any ineffective portion of the
derivative's gain or loss is reported in earnings immediately. At December 28,
2003 there was no hedge ineffectiveness. The Company's expectation is that the
hedging relationship will continue to be highly effective at achieving
offsetting changes in cash flows.
(4) On April 30, 1998, Mid-South Pizza Development, Inc. ("Mid-South")
entered into a promissory note whereby, among other things, Mid-South borrowed
$1,330,000 from a third party lender (the "Loan"). The proceeds of the Loan,
less transaction costs, were used by Mid-South to purchase area developer rights
from the Company for certain counties in Kentucky and Tennessee. Effective
December 28, 2003, the Company reacquired all such area development rights from
Mid-South. The Company paid approximately $963,000 for these rights of which
$682,000 was a cash payment, and a non-cash settlement of accounts receivable of
approximately $281,000. A long-term asset was recorded for the same amount.
Restaurants operating or developed in the reacquired territory will now pay all
royalties and franchise fees directly to Pizza Inn, Inc. The asset will be
amortized against actual incremental cash flows received, which is estimated to
be approximately five years.
(5) On January 18, 2002 the Company was served with a lawsuit filed by
Blakely-Witt & Associates, Inc. alleging Pizza Inn sent, or caused to be sent,
unsolicited facsimile advertisements. The plaintiff has requested this matter be
certified as a class action. We plan to vigorously defend our position in this
litigation. We cannot assure you that we will prevail in this lawsuit and our
defense could be costly and consume the time of our management. We are unable to
predict the outcome of this case. However, an adverse resolution of this matter
could materially affect our financial position and results of operations.
(6) In January 2003, the Financial Accounting Standards Board ("FASB")
issued Interpretation No. 46, "Consolidation of Variable Interest Entities, an
interpretation of Accounting Research Bulletin No. 51," ("FIN 46"). FIN 46
requires the consolidation of entities in which an enterprise absorbs a majority
of the entity's expected losses, receives a majority of the entity's expected
residual returns, or both, as a result of ownership, contractual or other
financial interests in the entity.
In October 2003, the FASB issued Staff Position No. 46-6, "Effective Date of
FASB Interpretation No. 46, Consolidation of Variable Interest Entities," ("FSP
FIN 46-6") in which the FASB deferred, for public companies, the required
effective dates to implement FIN 46 for interests held in a variable interest
entity ("VIE") or potential VIE that was created before February 1, 2003.
In December 2003, the FASB published a revision to FIN 46 to clarify some of the
provisions and to exempt certain entities from its requirements. Under the new
guidance, special effective date provisions apply to enterprises that have fully
or partially applied FIN 46 prior to issuance of the revised interpretation.
Otherwise, application of Interpretation 46R ("FIN 46R") is required in
financial statements of public entities that have interests in structures that
are commonly referred to as special-purpose entities ("SPEs") for periods ending
after December 15, 2003. Application by public entities, other than small
business issuers, for all other types of VIEs other than SPEs is required in
financial statements for periods ending after March 15, 2004.
The Company does not have any interests in structures commonly referred to as
SPEs, typically has no equity ownership interests in its franchisees, and has
not consolidated any of these entities in the Company's financial statements.
The Company will continue to monitor developments regarding the Interpretation
as they occur. Implementation of this pronouncement in the third fiscal quarter
of 2004 is not expected to have a material impact on the financial statements.
(7) 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 DECEMBER 28, 2003
BASIC EPS
Income Available to Common Shareholders $ 558 10,071 $ 0.06
Effect of Dilutive Securities - Stock Options 52
--
DILUTED EPS
Income Available to Common Shareholders
Assumed Conversions $ 558 10,123 $ 0.06
======= =========== =====
THREE MONTHS ENDED DECEMBER 29, 2002
BASIC EPS
Income Available to Common Shareholders $ 1,892 10,058 $ 0.19
Effect of Dilutive Securities - Stock Options 2
--
DILUTED EPS
Income Available to Common Shareholders
& Assumed Conversions $ 1,892 10,060 $ 0.19
======== ========== =====
SIX MONTHS ENDED DECEMBER 28, 2003
BASIC EPS
Income Available to Common Shareholders $ 1,062 10,065 $ 0.11
Effect of Dilutive Securities - Stock Options 39
--
DILUTED EPS
Income Available to Common Shareholders
& Assumed Conversions $ 1,062 10,104 $ 0.11
======== ========= ====
SIX MONTHS ENDED DECEMBER 29, 2002
BASIC EPS
Income Available to Common Shareholders $ 2,196 10,058 $ 0.22
Effect of Dilutive Securities - Stock Options 1
--
DILUTED EPS
Income Available to Common Shareholders
& Assumed Conversions $ 2,196 10,059 $ 0.22
======== ======== ====
(8) Summarized in the following tables are net sales and operating revenues,
operating profit, and geographic information (revenues) for the Company's
reportable segments for the three months and six months periods ended December
28, 2003 and December 29, 2002 (in thousands).
THREE MONTHS ENDED SIX MONTHS ENDED
-- ----------------- -----------------
DECEMBER 28, DECEMBER 29, DECEMBER 28, DECEMBER 29,
2003 2002 2003 2002
-------------- -------------- -------------- --------------
NET SALES AND OPERATING REVENUES:
Food and Equipment Distribution $13,032 $13,275 $26,530 $26,804
Franchise and Other 1,640 1,760 3,497 3,529
Intersegment revenues 216 176 363 351
-------------- -------------- -------------- --------------
Combined 14,888 15,211 30,390 30,684
Other revenues 97 129 118 192
Less intersegment revenues (216) (176) (363) (351)
-------------- -------------- -------------- --------------
Consolidated revenues $14,769 $15,164 $30,145 $30,525
============== ============== ============== ==============
OPERATING PROFIT:
Food and Equipment Distribution (1) $590 $652 $1,284 $1,396
Franchise and Other (1) 584 800 1,241 1,400
Intersegment profit 49 42 91 96
-------------- -------------- -------------- --------------
Combined 1,223 1,494 2,616 2,892
Other profit or loss 97 130 118 192
Less intersegment profit (49) (42) (91) (96)
Corporate administration and other (426) 1,285 (1,034) 339
-------------- -------------- -------------- --------------
Income before taxes $845 $2,867 $1,609 $3,327
============== ============== ============== ==============
GEOGRAPHIC INFORMATION (REVENUES):
United States $14,487 $14,860 $29,428 $30,028
Foreign countries 282 304 717 497
-------------- -------------- -------------- --------------
Consolidated total $14,769 $15,164 $30,145 $30,525
============== ============== ============== ==============
(1) Does not include full allocation of corporate administration.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
- -----------------------
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management's discussion and analysis is based on the Company's
condensed consolidated financial statements and related footnotes contained
within this report. The Company's critical accounting policies used in the
preparation of those condensed consolidated financial statements are discussed
below.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Significant estimates made by management include the
allowance for doubtful accounts, inventory valuation, deferred tax asset
valuation allowances, and legal accruals. Actual results could differ from
those estimates.
The Company's Norco division sells food, supplies and equipment to
franchisees on trade accounts under terms common in the industry. Revenue from
such sales is recognized upon shipment. Norco sales are reflected under the
caption "food and supply sales." Shipping and handling costs billed to customers
are recognized as revenue.
Franchise revenue consists of income from license fees, royalties, and
Territory sales. License fees are recognized as income when there has been
substantial performance of the agreement by both the franchisee and the Company,
generally at the time the unit is opened. Royalties are recognized as income
when earned.
Territory sales are the fees paid by selected experienced restaurant
operators to the Company for the right to develop Pizza Inn restaurants in
specific geographical territories. When the Company has no continuing
substantive obligations of performance to the area developer or master licensee
regarding the fee, the Company recognizes the fee to the extent of cash
received. If continuing obligations exist, fees are recognized ratably during
the performance of those obligations.
Inventories, which consist primarily of food, paper products, supplies and
equipment located at the Company's distribution center, are stated at the lower
of FIFO (first-in, first-out) cost or market. Provision is made for obsolete
inventories and is based upon management's assessment of the market conditions
for its products.
Accounts receivable consist primarily of receivables from food and supply
sales and franchise royalties. The Company records a provision for doubtful
receivables to allow for any amounts which may be unrecoverable and is based
upon an analysis of the Company's prior collection experience, customer
creditworthiness, and current economic trends.
Notes receivable primarily consist of notes from franchisees for the
purchase of area development and master license territories, trade receivables
and equipment purchases. These notes generally have terms ranging from one to
five years and interest rates of 6% to 9%. The Company records a provision for
doubtful receivables to allow for any amounts which may be unrecoverable and is
based upon an analysis of the Company's prior collection experience, customer
creditworthiness, and current economic trends.
The Company has recorded a valuation allowance to reflect the estimated
amount of deferred tax assets that may not be realized based upon the Company's
analysis of existing tax credits by jurisdiction and expectations of the
Company's ability to utilize these tax attributes through a review of estimated
future taxable income and establishment of tax strategies. These estimates
could be impacted by changes in future taxable income and the results of tax
strategies.
The Company assesses its exposures to loss contingencies including
legal and income tax matters based upon factors such as the current status of
the cases and consultations with external counsel and provides for an exposure
if it is judged to be probable and estimable. If the actual loss from a
contingency differs from management's estimate, operating results could be
impacted.
RESULTS OF OPERATIONS
QUARTER AND SIX MONTHS ENDED DECEMBER 28, 2003 COMPARED TO THE QUARTER AND SIX
MONTHS ENDED DECEMBER 29, 2002.
Earnings per share for the quarter were $0.06 versus $0.19 for the same
period last year. Net income was $558,000 versus $1,892,000, on revenues of
$14,769,000 versus $15,164,000 in the previous year. For the six month period,
earnings per share were $0.11 versus $0.22 last year. Net income was $1,062,000
compared to $2,196,000 on revenues of $30,145,000 versus $30,525,000 last year.
The prior year's quarter included the reversal of a previously recorded pre-tax
charge of approximately $1,950,000. The reserve was previously recorded in the
fourth quarter of fiscal 2002 to fully reserve for the expected nonpayment of a
note receivable owed to the Company from the Company's former Chief Executive
Officer. The Company received payment in full for the note receivable in
December 2002.
Food and supply sales by the Company's Norco division include food and
paper products, equipment, marketing material, and other distribution revenues.
Food and supply sales for the quarter decreased 2%, or $243,000 to $13,032,000
from $13,275,000 compared to the same period last year. For the six month
period, food and supply sales decreased 1%, or $274,000, to $26,530,000 from
$26,804,000. Lower retail sales were partially offset by higher cheese prices
and higher international sales.
Franchise revenue, which includes income from royalties, license fees and
area development and foreign master license (collectively, "Territory") sales,
decreased 3% or $43,000 for the quarter compared to the same period last year
and increased 4% or $106,000 for the six month period. The decrease for the
quarter is due to lower royalties due to lower retail sales. The increase for
the six month period is due primarily to higher international royalties, which
resulted from the collection of previously unrecorded past due royalties, and
was partially offset by lower domestic royalties due to lower retail sales.
Restaurant sales, which consist of revenue generated by Company-owned
training stores decreased 17% or $77,000 for the quarter, compared to the same
period of the prior year. For the six month period, restaurant sales decreased
15% or $138,000. These decreases are the result of lower comparable sales at
the two Company-owned stores.
Other income consists primarily of interest income, third party
commissions, and non-recurring revenue items. Other income decreased 25% or
$32,000 for the quarter, compared to the same period of the prior year. For the
six month period, other income decreased 39% or $74,000. These decreases are
due primarily to lower commissions and lower interest income.
Cost of sales decreased 1% or $93,000 for the quarter and increased $99,000
for the six month period. Cost of sales, as a percentage of sales for the
quarter and the six month period, increased to 90% from 89% for the same periods
last year. The decrease for the quarter was due to lower payroll and related
expenses which were partially offset by higher comparable cheese prices. The
six month increase is primarily due to higher cheese prices as compared to the
same period last year.
Franchise expenses include selling, general and administrative expenses
directly related to the sale and continuing service of franchises and
Territories. These costs decreased 13% or $107,000 for the quarter and
decreased $1,000 for the six month period compared to the same period last year.
These decreases are primarily the result of lower payroll and related expenses
in both periods offset by higher taxes on foreign royalties and marketing
expenses in the first quarter.
General and administrative expenses increased 206% or $1,872,000 for the
quarter and 209% or $1,354,000 for the six months, compared to the same periods
last year. This is primarily the result of the reversal of a previously
recorded pre-tax charge of approximately $1,950,000 for bad debt in the prior
year as described above. Additional, general and administrative expenses
included an accrual for approximately $200,000 for certain potential tax matters
which the Company is currently analyzing.
Interest expense decreased 22% or $45,000 for the quarter and 26% or
$114,000 for the six months, compared to the same periods of the prior year due
to lower debt balances and lower interest rates.
Provision for income taxes decreased 71% or $688,000 for the quarter, and
52% or $584,000 for the six months compared to the same periods in the prior
year. The effective tax rate was 34% for both the current and prior quarters
and six months.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities are generally the result of net
income, deferred taxes, depreciation and amortization, and changes in working
capital. In the first six months of fiscal 2004, the company generated cash
flows of $2,628,000 from operating activities as compared to $2,778,000 in
fiscal 2003. Cash provided by operations was utilized primarily to pay down
debt.
Cash flows from investing activities primarily reflect the Company's
capital expenditure strategy. In the first six months of fiscal 2004, the
Company used cash of $987,000 for investing activities as compared to $236,000
in fiscal 2003. The cash used during fiscal 2004 consisted primarily of the
reacquisition of an area development rights as described above, and costs
associated with a Company-owned store which opened in January 2004.
Cash flows from financing activities generally reflect changes in the
Company's borrowings during the period, treasury stock transactions, and
exercise of stock options. Net cash used for financing activities was
$1,841,000 in the first six months of fiscal 2004 as compared to cash used for
financing activities of $3,113,000 in fiscal 2003.
Management believes that future operations will generate sufficient taxable
income, along with the reversal of temporary differences, to fully realize the
deferred tax asset, net of a valuation allowance of $154,000 primarily related
to the potential expiration of certain foreign tax credit carryforwards.
Additionally, management believes that taxable income based on the Company's
existing franchise base should be more than sufficient to enable the Company to
realize its net deferred tax asset without reliance on material, non-routine
income. The Company's prior net operating loss carryforwards and alternative
minimum tax carryforwards have now been fully utilized and the Company began
making estimated quarterly tax payments in January 2004.
The Company entered into an agreement effective December 29, 2002 with its
current lender to provide a $7.0 million revolving credit line that will expire
December 31, 2004, replacing a $9.5 million line that was due to expire December
31, 2003. The $7.0 million revolving credit line will reduce quarterly by
$500,000 beginning March 31, 2003 through December 31, 2004. Interest on the
revolving credit line is payable monthly. Interest is provided for at a rate
equal to prime less an interest rate margin from 1.0% to 0.5% or, at the
Company's option, at the LIBOR rate plus 1.25% to 1.75%. The interest rate
margin is based on the Company's performance under certain financial ratio
tests. A 0.375% to 0.5% annual commitment fee is payable on any unused portion
of the revolving credit line. As of December 28, 2003 and December 29, 2002,
the variable interest rates were 2.64% and 2.94%, respectively, using a LIBOR
rate basis. Amounts outstanding under the revolving credit line as of December
28, 2003 and December 29, 2002 were $1.5 million and $2.4 million, respectively.
The Company entered into a term note effective March 31, 2000 with its
current lender. The $5,000,000 term note had outstanding balances of $417,000
and $1.7 million at December 28, 2003 and December 29, 2002, respectively. The
term note requires monthly principal payments of $104,000 with the balance
maturing on March 31, 2004. Interest on the term loan is also payable monthly.
Interest is provided for at a rate equal to prime less an interest rate margin
of 0.75% or, at the Company's option, at the LIBOR rate plus 1.5%. As of
December 28, 2003 and December 29, 2002, the variable interest rates were 2.69%
and 2.94%, respectively.
The Company entered into an agreement effective December 28, 2000, as
amended, with its current lender to provide up to $8.125 million of financing
for the construction of the Company's new headquarters, training center and
distribution facility. The construction loan converted to a term loan effective
January 31, 2002 with the unpaid principal balance to mature on December 28,
2007. This term loan will amortize over a term of twenty years, with principal
payments of $34,000 due monthly. Interest on this term loan is also payable
monthly. Interest is provided for at a rate equal to prime less an interest
rate margin of 0.75% or, at the Company's option, to the LIBOR rate plus 1.5%.
As of December 28, 2003 and December 29, 2002, the variable interest rates were
2.65% and 2.89%, respectively. The Company, to fulfill bank requirements, has
caused the outstanding principal amount to be subject to a fixed interest rate
by utilizing an interest rate swap agreement as discussed below. The $8.125
million term loan had an outstanding balance of $7.3 million at December 28,
2003 and $7.7 million at December 29, 2002.
The Company entered into an interest rate swap effective February 27,
2001, as amended, designated as a cash flow hedge, to manage interest rate risk
relating to the financing of the construction of the Company's new headquarters
and to fulfill bank requirements. The swap agreement has a notional principal
amount of $8.125 million with a fixed pay rate of 5.84% which began November 1,
2001 and will end November 19, 2007. The swap's notional amount amortizes over
a term of twenty years to parallel the terms of the term loan. SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" requires that for
cash flow hedges, which hedge the exposure to variable cash flow of a forecasted
transaction, the effective portion of the derivative's gain or loss be initially
reported as a component of other comprehensive income in the equity section of
the balance sheet and subsequently reclassified into earnings when the
forecasted transaction affects earnings. Any ineffective portion of the
derivative's gain or loss is reported in earnings immediately. At December 28,
2003 there was no hedge ineffectiveness. The Company's expectation is that the
hedging relationship will continue to be highly effective at achieving
offsetting changes in cash flows.
On April 30, 1998, Mid-South Pizza Development, Inc. ("Mid-South") entered
into a promissory note whereby, among other things, Mid-South borrowed
$1,330,000 from a third party lender (the "Loan"). The proceeds of the Loan,
less transaction costs, were used by Mid-South to purchase area developer rights
from the Company for certain counties in Kentucky and Tennessee. Effective
December 28, 2003, the Company reacquired all such area development rights from
Mid-South. The Company paid approximately $963,000 for these rights of which
$682,000 was a cash payment, and a non-cash settlement of accounts receivable of
approximately $281,000. A long-term asset was recorded for the same amount.
Restaurants operating or developed in the reacquired territory will now pay all
royalties and franchise fees directly to Pizza Inn, Inc. The asset will be
amortized against actual incremental cash flows received, which is estimated to
be approximately five years.
On January 18, 2002, the Company was served with a lawsuit filed by Blakely-Witt
& Associates, Inc. alleging Pizza Inn sent or, caused to be sent, unsolicited
facsimile advertisements. The plaintiff has requested this matter be certified
as a class action. We plan to vigorously defend our position in this litigation.
We cannot assure you that we will prevail in this lawsuit and our defense could
be costly and consume the time of our management. We are unable to predict the
outcome of this case. However, an adverse resolution of this matter could
materially affect our financial position and results of operations.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
The following chart summarizes all of the Company's material obligations
and commitments to make future payments under contracts such as debt and lease
agreements as of December 28, 2003 (in thousands):
Less Than 1 1-3 4-5 After 5
Total . Year Years Years Years
------ ------- ------ -------- ------
Bank debt . . . . . . . . . . . . . $ 9,263 $ 823 $ 1,906 $ 406 $6,128
Operating lease obligations . . . . 3,387 1,106 1,741 432 108
Capital lease obligations (1) . . . 92 64 21 7
------- ------ -------- ------ -----
Total contractual cash obligations. $12,742 $1,993 $ 3,668 $ 845 $6,236
======= ====== ======== ====== ======
20
(1) Does not include amount representing interest.
FORWARD-LOOKING STATEMENT
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------------
The Company has market risk exposure arising from changes in interest
rates. The Company's earnings are affected by changes in short-term interest
rates as a result of borrowings under its credit facilities which bear interest
based on floating rates.
At December 28, 2003 the Company has approximately $9.3 million of variable
rate debt obligations outstanding with a weighted average interest rate of
2.63%. A hypothetical 10% change in the effective interest rate for these
borrowings, assuming debt levels at December 28, 2003, would change interest
expense by approximately $12,000 for the six months ended December 28, 2003. As
discussed previously, the Company has entered into an interest rate swap
designed to manage the interest rate risk relating to $7.3 million of the
variable rate debt.
ITEM 4. CONTROLS AND PROCEDURES
- ------------------------------------
a) Evaluation of disclosure controls and procedures. Based on their
evaluation as of a date within 90 days of the filing date of this Quarterly
Report on Form 10-Q, the Company's principal executive officer and principal
financial officer have concluded that the Company's disclosure controls and
procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities
Exchange Act of 1934 (the "Exchange Act")) are effective to ensure that
information required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules
and forms. Our Chief Executive Officer and our Chief Financial Officer have
evaluated the effectiveness of our disclosure controls and procedures as of the
end of the period covered by this Quarterly Report, and they have concluded that
as of that date our disclosure controls and procedures were effective at
ensuring that required information will be disclosed on a timely basis in our
reports filed under the Exchange Act.
b) Changes in internal controls. There were no significant changes to our
internal controls or in other factors that could significantly affect our
internal controls subsequent to the date of their evaluation by our Chief
Executive Officer and our Chief Financial Officer. There were no significant
deficiencies or material weaknesses, and therefore there were no corrective
actions taken.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- ----------------------------
On January 18, 2002, the Company was served with a lawsuit filed by
Blakely-Witt & Associates, Inc. in the District Court, L-193rd Judicial
District, Dallas County, Texas (Cause No. 01-11043). The suit alleges Pizza Inn
sent, or caused to be sent, unsolicited facsimile advertisements to plaintiff
and others in violation of (i) 47 U.S.C. Section 227(b)(1)(C) and (b)(3), the
Telephone Consumer Protection Act, and (ii) Texas Business and Commerce Code
Section 35.47. The plaintiff has requested this matter be certified as a class
action. We plan to vigorously defend our position in this litigation. We cannot
assure you that we will prevail in this lawsuit and our defense could be costly
and consume the time of our management. We are unable to predict the outcome of
this case. However, an adverse resolution of this matter could materially affect
our financial position and results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ---------------------------------------------------------------------
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------------
(a) Exhibits:
31.1 Certification of Chief Executive Officer as Adopted Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer as Adopted Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
(b) Form 8-K
On October 31, 2003 the Company filed a report on Form 8-K, reporting a press
release with respect to earnings for the first quarter ended September 28, 2003.
On January 23, 2004 the Company filed a report on Form 8-K, reporting a press
release with respect to earnings for the second quarter ended December 28, 2003.
- -----
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 Chief Executive Officer
By: /s/Shawn M. Preator
---------------------
Shawn M. Preator
Chief Financial Officer
Dated: February 6, 2004
EXHIBIT 31.1
- -------------
CERTIFICATION
-------------
I, Ronald W. Parker, President and Chief Executive Officer of Pizza Inn, Inc.
certify that:
1. I have reviewed the quarterly report on Form 10-Q of Pizza Inn, Inc. (the
"Registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this quarterly report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
a. Designed such disclosure controls and procedures to ensure that material
information relating to the Registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. Evaluated the effectiveness of the Registrant's disclosure controls and
procedures as of the end of the period covered by this quarterly report; and
c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The Registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit committee
of Registrant's board of directors (or persons performing the equivalent
function):
a. All significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to record,
process, summarize and report financial data and have identified for the
Registrant's auditors any material weaknesses in internal controls; and
b. Any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal controls; and
6. The Registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
February 6, 2004
By: /s/ Ronald W. Parker
Ronald W. Parker
President and Chief Executive Officer
EXHIBIT 31.2
- -------------
CERTIFICATION
-------------
I, Shawn M. Preator, Chief Financial Officer (Principal Accounting Officer) of
Pizza Inn, Inc. certify that:
1. I have reviewed the quarterly report on Form 10-Q of Pizza Inn, Inc. (the
"Registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this quarterly report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
a. Designed such disclosure controls and procedures to ensure that material
information relating to the Registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. Evaluated the effectiveness of the Registrant's disclosure controls and
procedures as of the end of the period covered by this quarterly report; and
c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The Registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit committee
of Registrant's board of directors (or persons performing the equivalent
function):
a. All significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to record,
process, summarize and report financial data and have identified for the
Registrant's auditors any material weaknesses in internal controls; and
b. Any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal controls; and
6. The Registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
February 6, 2004
By: /s/ Shawn M. Preator
Shawn M. Preator
Chief Financial Officer
Principal Accounting Officer
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS
ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Pizza Inn, Inc. ("the Company") on
Form 10-Q for the three months and six months ended December 28, 2003 as filed
with Securities and Exchange Commission on the date hereof ("the Report"), I,
Ronald W. Parker, President and Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the
Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of section 13(a) or 15(d)
of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
2. I have reviewed this quarterly report on Form 10-Q of the Company;
3. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
4. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
A signed original of this written statement required by Section 906 has been
provided to Pizza Inn, Inc. and will be retained by Pizza Inn, Inc. and
furnished to the Securities and Exchange Commission or its staff upon request.
February 6, 2004 /s/Ronald W. Parker
Ronald W. Parker
President and Chief Executive Officer
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS
ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Pizza Inn, Inc. ("the Company") on
Form 10-Q for the three months and six months ended December 28, 2003 as filed
with Securities and Exchange Commission on the date hereof ("the Report"), I,
Shawn M. Preator, Chief Financial Officer of the Company, certify, pursuant to
18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley
Act of 2002, that:
1. The Report fully complies with the requirements of section 13(a) or 15(d)
of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
2. I have reviewed this quarterly report on Form 10-Q of the Company;
3. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
4. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
A signed original of this written statement required by Section 906 has been
provided to Pizza Inn, Inc. and will be retained by Pizza Inn, Inc. and
furnished to the Securities and Exchange Commission or its staff upon request.
February 6, 2004 /s/ Shawn M. Preator
Shawn M. Preator
Chief Financial Officer