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 SEPTEMBER 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 NOVEMBER 4, 2003, AN AGGREGATE OF 10,068,674 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 ended
September 28, 2003 and September 29, 2002 (unaudited) 3
Condensed Consolidated Statements of Comprehensive Income for the three
months ended September 28, 2003 and September 29, 2002 (unaudited) 3
Condensed Consolidated Balance Sheets at September 28, 2003 (unaudited)
and June 29, 2003 4
Condensed Consolidated Statements of Cash Flows for the three months ended
September 28, 2003 and September 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 13
---------------------------------------------
Item 3.
- -------
Quantitative and Qualitative Disclosures about Market Risk 16
- ----------------------------------------------------------------
Item 4. Controls and Procedures 16
- -------- -------------------------
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
- -------- ------------------
Item 4. Submission of Matters to a Vote of Security Holders 17
- -------- -----------------------------------------------------------
Item 5. Other Information 17
- -------- ------------------
Item 6. Exhibits and Reports on Form 8-K 18
- -------- -------------------------------------
Signatures 19
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- -------------------------------
PIZZA INN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED
-------------------
SEPTEMBER 28, SEPTEMBER 29,
REVENUES: 2003 2002
------------------- ---------------
Food and supply sales. . . . . . . . . . . . . . . . . . $ 13,498 $ 13,530
Franchise revenue. . . . . . . . . . . . . . . . . . . . 1,451 1,302
Restaurant sales . . . . . . . . . . . . . . . . . . . . 406 467
Other income . . . . . . . . . . . . . . . . . . . . . . 21 62
------------------- ---------------
15,376 15,361
------------------- ---------------
COSTS AND EXPENSES:
Cost of sales. . . . . . . . . . . . . . . . . . . . . . 12,597 12,405
Franchise expenses . . . . . . . . . . . . . . . . . . . 814 709
General and administrative expenses. . . . . . . . . . . 1,041 1,558
Interest expense . . . . . . . . . . . . . . . . . . . . 160 229
------------------- ---------------
14,612 14,901
------------------- ---------------
INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . . . 764 460
Provision for income taxes . . . . . . . . . . . . . . . 260 157
------------------- ---------------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . $ 504 $ 303
=================== ===============
BASIC EARNINGS PER COMMON SHARE. . . . . . . . . . . . . . $ 0.05 $ 0.03
=================== ===============
DILUTED EARNINGS PER COMMON SHARE. . . . . . . . . . . . . $ 0.05 $ 0.03
=================== ===============
DIVIDENDS DECLARED PER COMMON SHARE. . . . . . . . . . . . $ - $ -
=================== ===============
WEIGHTED AVERAGE COMMON SHARES . . . . . . . . . . . . . . 10,059 10,058
=================== ===============
WEIGHTED AVERAGE COMMON AND
POTENTIAL DILUTIVE COMMON SHARES . . . . . . . . . . . . 10,086 10,058
=================== ===============
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
THREE MONTHS ENDED
-------------------------------
SEPTEMBER 28,. . SEPTEMBER 29,
2003 2002
------------------- ---------------
Net Income . . . . . . . . . . . . . . . . . . . . . . . $ 504 $ 303
Interest rate swap gain (loss) - (net of
tax (expense) benefit of ($63) and $143, respectively) . 122 (277)
------------------- ---------------
Comprehensive Income . . . . . . . . . . . . . . . . . . $ 626 $ 26
=================== ===============
See accompanying Notes to Condensed Consolidated Financial Statements.
PIZZA INN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
SEPTEMBER 28, JUNE 29,
ASSETS 2003 2003
--------------- ----------
(UNAUDITED)
CURRENT ASSETS
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . $ 187 $ 399
Accounts receivable, less allowance for doubtful
accounts of $668 and $722, respectively. . . . . . . . . . . 4,278 3,730
Notes receivable, current portion, less allowance
for doubtful accounts of $157 and $175, respectively . . . . 246 260
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . 1,608 1,511
Deferred taxes, net. . . . . . . . . . . . . . . . . . . . . . 343 585
Prepaid expenses and other . . . . . . . . . . . . . . . . . . 528 533
--------------- ----------
Total current assets . . . . . . . . . . . . . . . . . . . 7,190 7,018
Property, plant and equipment, net . . . . . . . . . . . . . . . 13,029 13,126
Property under capital leases, net . . . . . . . . . . . . . . . 100 120
Deferred taxes, net. . . . . . . . . . . . . . . . . . . . . . . 301 382
Long-term notes receivable, less allowance
for doubtful accounts of $19 and $19, respectively . . . . . 16 41
Deposits and other . . . . . . . . . . . . . . . . . . . . . . . 92 109
--------------- ----------
$ 20,728 $ 20,796
=============== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade . . . . . . . . . . . . . . . . . . . $ 1,666 $ 1,217
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . 2,121 1,950
Current portion of long-term debt. . . . . . . . . . . . . . . 1,135 1,448
Current portion of capital lease obligations . . . . . . . . . 83 109
--------------- ----------
Total current liabilities. . . . . . . . . . . . . . . . . . 5,005 4,724
LONG-TERM LIABILITIES
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . 8,842 9,643
Long-term capital lease obligations. . . . . . . . . . . . . . 30 33
Other long-term liabilities. . . . . . . . . . . . . . . . . . 796 989
--------------- ----------
14,673 15,389
--------------- ----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common Stock, $.01 par value; authorized 26,000,000 shares;
issued 14,966,319 and 14,956,319 shares, respectively;
outstanding 10,068,674 and 10,058,674 shares, respectively. 150 150
Additional paid-in capital . . . . . . . . . . . . . . . . . . 7,845 7,825
Loans to officers, less allowance for doubtful accounts. . . . (567) (569)
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . 18,639 18,135
Accumulated other comprehensive loss . . . . . . . . . . . . . (528) (650)
Treasury stock at cost,
Shares in treasury: 4,897,645 and 4,897,645, respectively. . (19,484) (19,484)
--------------- ----------
Total shareholders' equity . . . . . . . . . . . . . . . . . 6,055 5,407
--------------- ----------
$ 20,728 $ 20,796
=============== ==========
See accompanying Notes to Condensed Consolidated Financial Statements.
PIZZA INN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
--------------------
SEPTEMBER 28, SEPTEMBER 29,
2003 2002
-------------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 504 $ 303
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . . . 266 408
Provision for bad debt . . . . . . . . . . . . . . . . . . . . . . 15 50
Utilization of deferred taxes. . . . . . . . . . . . . . . . . . . 323 157
Changes in assets and liabilities:
Notes and accounts receivable. . . . . . . . . . . . . . . . . . . (565) 74
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . (56) (67)
Accounts payable - trade . . . . . . . . . . . . . . . . . . . . . 449 232
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . 171 (267)
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . (52) 486
-------------------- ---------------
CASH PROVIDED BY OPERATING ACTIVITIES. . . . . . . . . . . . . . . 1,055 1,376
-------------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . (146) (156)
-------------------- ---------------
CASH USED FOR INVESTING ACTIVITIES . . . . . . . . . . . . . . . . (146) (156)
-------------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term bank debt and capital lease obligations, net (1,143) (1,788)
Officer loan payment . . . . . . . . . . . . . . . . . . . . . . . . 2 -
Proceeds from exercise of stock options. . . . . . . . . . . . . . . 20 -
-------------------- ---------------
CASH USED FOR FINANCING ACTIVITIES . . . . . . . . . . . . . . . . (1,121) (1,788)
-------------------- ---------------
Net decrease in cash and cash equivalents. . . . . . . . . . . . . . . (212) (568)
Cash and cash equivalents, beginning of period . . . . . . . . . . . . 399 770
-------------------- ---------------
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . $ 187 $ 202
==================== ===============
See accompanying Notes to Condensed Consolidated Financial Statements.
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
-------------------
SEPTEMBER 28, SEPTEMBER 29,
2003 2002
------------------- --------------
CASH PAYMENTS FOR:
Interest . . . . . . . . . . . . . $ 166 $ 211
See accompanying Notes to Condensed 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. Certain prior year amounts have been
reclassified to conform with current year presentation.
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):
THREE MONTHS ENDED
-------------------
SEPTEMBER 28, 2003 SEPTEMBER 29, 2002
------------------- --------------------
Net income, as reported. . . . . . . . . . . $ 504 $ 303
Deduct: Total stock-based employee
compensation expense determined under fair
value based method for all awards, net of
related tax effects. . . . . . . . . . . . - (7)
------------------- --------------------
Pro forma net income . . . . . . . . . . . . $ 504 $ 296
Earnings per share
Basic-as reported. . . . . . . . . . . . . $ 0.05 $ 0.03
Basic-pro forma. . . . . . . . . . . . . . $ 0.05 $ 0.03
Diluted-as reported. . . . . . . . . . . . $ 0.05 $ 0.03
Diluted-pro forma. . . . . . . . . . . . . $ 0.05 $ 0.03
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 September 28, 2003 and September 29, 2002,
the variable interest rates were 2.62% and 3.57%, respectively, using a LIBOR
rate basis. Amounts outstanding under the revolving credit line as of September
28, 2003 and September 28, 2002 were $1.8 million and $5.2 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 $729,000 and $2.0
million at September 28, 2003 and September 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 September 28,
2003 and September 29, 2002, the variable interest rates were 2.63% and 3.31%,
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
September 28, 2003 and September 29, 2002, the variable interest rates were
2.61% and 3.34%, 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 $7.4 million at September 28,
2003 and $7.9 million at September 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 September 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., an area developer
of the Company ("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. As of September 28, 2003 the outstanding principal balance of
this loan was approximately $628,000 and matures on May 17, 2006. As part of
the terms and conditions of the Loan, the Company was required to guarantee the
obligations of Mid-South under the Loan. In the event such guarantee ever
required payment, the Company has personal guarantees from certain Mid-South
principals and a security interest in certain personal property. In the event
the personal guarantees and security interest pledged do not sufficiently
fulfill the obligation, the Company would assume the obligation. As of this
date, the obligation could be fully offset by the assumption of the area
development rights which are currently pledged to Mid-South's third party
lender.
(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 FASB issued Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities," which addresses the consolidation
of business enterprises (variable interest entities), to which the usual
condition of consolidation, a controlling financial interest, does not apply. As
defined in FIN 46, variable interests are contractual, ownership or other
interests in an entity that change with changes in the entity's net asset value.
Variable interests in an entity may arise from financial instruments, service
contracts, guarantees, leases or other arrangements with the variable interest
entity. An entity that will absorb a majority of the variable interest entity's
expected losses or expected residual returns, as defined in FIN 46, is
considered the primary beneficiary of the variable interest entity. The primary
beneficiary must include the variable interest entity's assets, liabilities and
results of operations in its condensed consolidated financial statements. FIN 46
is immediately effective for all variable interest entities created after
January 31, 2003. Effective October 9, 2003 the FASB issued FASB Staff Position
(FSP) FIN 46-6 which defers the effective date for applying the provisions of
FIN 46 for interests held by public entities in variable interest entities or
potential variable interest entities created before February 1, 2003. For
variable interest entities created prior to this date, the provisions of FIN 46
must be applied no later than the beginning of the Company's second quarter of
fiscal 2004.
The Company currently has contracts, guarantees and other arrangements with
other entities to develop and operate Pizza Inn stores. The Company is currently
evaluating the classification of its franchisees and, as a result, has not
completed its assessment of whether or not the adoption of FIN 46 will have a
material impact on its condensed consolidated financial statements.
On May 31, 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150
improves the accounting for certain financial instruments that, under previous
guidance, issuers could account for as equity and requires that those
instruments be classified as liabilities (or assets in certain circumstances) in
statements of financial position. SFAS No. 150 affects the issuer's accounting
for three types of freestanding financial instruments: 1) Mandatorily redeemable
shares are required to be redeemed at a specified or determinable date or upon
an event certain to occur; 2) Put options and forward purchase contracts, which
involves financial instruments embodying an obligation that the issuer must or
could choose to settle by issuing a variable number of its shares or other
equity instruments based solely on something other than the issuer's own equity
shares; and 3) Certain obligations that can be settled with shares, the monetary
value of which is (i) fixed, tied solely or predominantly to a variable such as
a market index, or (ii) varies inversely with the value of the issuers' shares.
SFAS No. 150 also requires disclosures about alternative ways of settling the
instruments and the capital structure of entities-all of whose shares are
mandatorily redeemable. SFAS No. 150 is generally effective for all financial
instruments entered into or modified after May 31, 2003. The adoption of SFAS
No. 150 did not have a significant impact on the Company's condensed
consolidated 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 SEPTEMBER 28, 2003
BASIC EPS
Income Available to Common Shareholders . . . $ 504 10,059 $ 0.05
Effect of Dilutive Securities - Stock Options 27
----------
DILUTED EPS
Income Available to Common Shareholders
& Assumed Conversions . . . . . . . . . . . . $ 504 10,086 $ 0.05
========== ============= ==========
THREE MONTHS ENDED SEPTEMBER 29, 2002
BASIC EPS
Income Available to Common Shareholders . . . $ 303 10,058 $ 0.03
Effect of Dilutive Securities - Stock Options -
--------
DILUTED EPS
Income Available to Common Shareholders
& Assumed Conversions . . . . . . . . . . . . $ 303 10,058 $ 0.03
============= ============= ==========
(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 period ended September 28, 2003 and
September 29, 2002 (in thousands).
SEPTEMBER 28, SEPTEMBER 29,
2003 2002
------------------------- --------------------------
NET SALES AND OPERATING REVENUES:
Food and Equipment Distribution . . $ 13,498 $ 13,530
Franchise and Other . . . . . . . . 1,857 1,769
Intersegment revenues . . . . . . . 147 175
------------------------- --------------------------
Combined. . . . . . . . . . . . . 15,502 15,474
Other revenues. . . . . . . . . . . 21 62
Less intersegment revenues. . . . . (147) (175)
------------------------- --------------------------
Consolidated revenues . . . . . . $ 15,376 $ 15,361
========================= ==========================
OPERATING PROFIT:
Food and Equipment Distribution (1) $ 694 $ 744
Franchise and Other (1) . . . . . . 657 600
Intersegment profit . . . . . . . . 41 54
------------------------- --------------------------
Combined. . . . . . . . . . . . . 1,392 1,398
Other profit. . . . . . . . . . . . 21 62
Less intersegment profit. . . . . . (41) (54)
Corporate administration and other. (608) (946)
------------------------- --------------------------
Income before taxes . . . . . . . $ 764 $ 460
========================= ==========================
GEOGRAPHIC INFORMATION (REVENUES):
United States . . . . . . . . . . . $ 14,941 $ 15,168
Foreign countries . . . . . . . . . 435 193
------------------------- --------------------------
Consolidated total. . . . . . . . $ 15,376 $ 15,361
========================= ==========================
(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 12%. 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 ENDED SEPTEMBER 28, 2003 COMPARED TO THE QUARTER ENDED SEPTEMBER 29,
2002.
Diluted earnings per share for the quarter were $0.05 versus $0.03 for the
same period last year. Net income for the quarter increased 66% to $504,000
from $303,000 for the same quarter last year. The previous year's quarter
included pre-tax severance-related charges of approximately $415,000 (after-tax
affect of approximately $274,000), in connection with the departure of the
Company's former Chief Executive Officer.
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 $32,000 to $13,498,000 from
$13,530,000 compared to the same period last year. Lower retail sales were
partially offset by higher cheese prices and higher equipment sales.
Franchise revenue, which includes income from royalties, license fees and
area development and foreign master license (collectively, "Territory") sales,
increased 11% or $149,000 for the quarter compared to the same period last year.
This increase is primarily due to higher international royalties, which resulted
from the collection of previously unrecorded past due royalties. The increase
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 13% or $61,000 for the quarter, compared to the same
period of the prior year. This is a 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 66% or
$41,000 due to lower commissions and lower interest income.
Cost of sales increased 2% or $192,000 for the quarter. Cost of sales, as a
percentage of sales, increased to 91% from 89% for the same quarter last year.
The increase is due primarily 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 increased 15% or $105,000 for the quarter compared to
the same period last year primarily due to taxes on foreign royalties and
marketing expenses.
General and administrative expenses decreased 33% or $517,000 for the
quarter compared to the same period last year. This is primarily the result of
severance-related charges of approximately $415,000, in connection with the
departure of the Company's former Chief Executive Officer in the prior year.
Interest expense decreased 30% or $69,000 for the quarter compared to the
same period of the prior year due to lower debt balances and lower interest
rates.
Provision for income taxes increased 66% or $103,000 in the current year
due to higher income as described above. The effective tax rate was 34% for
both quarters.
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 quarter of fiscal 2004, the company generated cash flows
of $1,055,000 from operating activities as compared to $1,376,000 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 quarter of fiscal 2004, the Company
used cash of $146,000 for investing activities as compared to $156,000 in fiscal
2003. The cash flow during fiscal 2004 consisted primarily of costs associated
with a future Company-owned store.
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
$1,121,000 in the first quarter of fiscal 2004 as compared to cash used for
financing activities of $1,788,000 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 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 September 28, 2003 and September 29, 2002,
the variable interest rates were 2.62% and 3.57%, respectively, using a LIBOR
rate basis. Amounts outstanding under the revolving credit line as of September
28, 2003 and September 29, 2002 were $1.8 million and $5.2 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 $729,000
and $2.0 million at September 28, 2003 and September 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
September 28, 2003 and September 29, 2002, the variable interest rates were
2.63% and 3.31%, 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 September 28, 2003 and September 29, 2002, the variable interest rates
were 2.61% and 3.34%, 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 $7.4 million at September
28, 2003 and $7.9 million at September 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 September 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., an area developer of
the Company ("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. As of September 28, 2003 the outstanding principal balance of
this loan was approximately $628,000 and matures on May 17, 2006. As part of
the terms and conditions of the Loan, the Company was required to guarantee the
obligations of Mid-South under the Loan. In the event such guarantee ever
required payment, the Company has personal guarantees from certain Mid-South
principals and a security interest in certain personal property. In the event
the personal guarantees and security interest pledged do not sufficiently
fulfill the obligation, the Company would assume the obligation. As of this
date, the obligation could be fully offset by the assumption of the area
development rights which are currently pledged to Mid-South's third party
lender.
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 September 28, 2003 (in thousands):
Less Than 1 1-3 4-5 After 5
Total . Year Years Years Years
- ----------------------------------- ------- ------ -------- ------ -----
Long-term debt. . . . . . . . . . . $ 9,977 $1,135 $ 2,613 $6,229 $ -
Operating lease obligations . . . . 3,667 1,128 1,806 608 125
Capital lease obligations (1) . . . 113 83 30 - -
------- ------ -------- ------ ----
Total contractual cash obligations. $13,757 $2,346 $ 4,449 $6,837 $125
======= ====== ======== ====== ====
(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 September 28, 2003 the Company has approximately $10 million of variable
rate debt obligations outstanding with a weighted average interest rate of
2.61%. A hypothetical 10% change in the effective interest rate for these
borrowings, assuming debt levels at September 28, 2003, would change interest
expense by approximately $7,000 for the three months ended September 28, 2003.
As discussed previously, the Company has entered into an interest rate swap
designed to manage the interest rate risk relating to $7.4 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, except as disclosed below, 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. As discussed in the Form 10-K filed on
September 25, 2003, the Company completed a project to review its deferred tax
asset and liability balances and determined a prior period adjustment, which
related to fiscal years ended 1997 and earlier, was necessary. The Company has
established controls to prepare and reconcile the tax balance sheet to the
deferred tax assets and liabilities on a quarterly basis. There were no other
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.
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 5. OTHER INFORMATION
- ----------------------------
On October 27, 2003, the Company received a letter from Newcastle Partners,
L.P. stating its intent to nominate Steven J. Pully, Barry M. Barron, Sr., and
Robert B. Page to the Board of Directors of the Company at the Company's
upcoming annual shareholders meeting and to solicit proxies from shareholders
with respect to the election of its nominees. Newcastle also indicated in the
letter its intention to submit shareholder proposals for consideration at the
annual meeting to repeal certain amendments to the Company's by-laws approved on
December 18, 2002 and to approve reimbursement of Newcastle's expenses incurred
in connection with the solicitation of proxies. Newcastle also indicated in the
letter its intention to file a preliminary proxy statement with the Securities
and Exchange Commission and to solicit proxies in support of the election of its
nominees and approval of the shareholder proposals at the annual meeting. On
November 7, 2003, the Company received a subsequent letter from Newcastle
stating that it intends to substitute Ramon D. Phillips for Robert B. Page as
one of its nominees for election at the annual meeting. On November 11, 2004,
the Company received a subsequent letter from Newcastle stating that it intends
to substitute Robert B. Page for Barry M. Barron, Sr. as one of its nominees for
election at the annual meeting.
The Board of Directors would like to avoid the cost and disruption that a
proxy contest would cause the Company and therefore has postponed the annual
shareholders meeting until January 21, 2004, in order to permit the Board of
Directors and Newcastle additional time to discuss the nominees to be proposed
by the Board of Directors at the annual meeting and to evaluate additional
information regarding whether the election of the two new directors proposed by
Newcastle could cause a "Change of Control" as defined in the employment
agreements between the Company and each of Ronald W. Parker, B. Keith Clark,
Ward T. Olgreen and Shawn M. Preator. Whether or not a Change of Control is
deemed to have occurred is a function of whether or not two existing directors,
Messrs. Schwarz and Pully, and a nominee director, Mr. Phillips, currently an
advisory director, are incumbent directors, as that term is defined in the
employment agreements. If a Change of Control were to occur and any or all of
these executive officers were to terminate their employment for any reason
(including the voluntary termination of employment by such officer) as provided
in the employment agreements within twelve months after such Change of Control,
the Company would be required to make a lump sum payment to such officer which
would have a material adverse effect on the Company's financial position and
results of operations.
The Board has additionally set a new record date for the annual
shareholders meeting of November 26, 2003.
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 September 4, 2003 the Company filed a report on Form 8-K, reporting a press
release with respect to earnings for the fourth quarter ended June 29, 2003.
One September 26, 2003 the Company filed a report on Form 8-K, reporting a press
release with respect to a prior period adjustment relating to its deferred tax
liability balances as reported on the Company's Form 10-K dated June 29, 2003.
On October 14, 2003 the Company filed a report on Form 8-K, reporting a press
release with respect to changes in the Registrant's Certifying Accountant.
------
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: November 12, 2003
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.
November 12, 2003
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.
November 12, 2003
By: /s/Shawn M. Preator
---------------------
Shawn M. Preator
Chief Financial Officer
Principal Accounting Officer
Exhibit 32.1
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 ended September 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.
November 12, 2003 /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 ended September 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.
November 12, 2003 /s/Shawn M. Preator
Shawn M. Preator
Chief Financial Officer