<PAGE> 1
FORM 10-QSB
PAGE 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1996
OR
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 01-14221
UNIVERSAL FRANCHISE OPPORTUNITIES CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 51-0339167
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
705 Severn Road, Suite 1037, Wilmington, Delaware 19803
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (302) - 479 - 7733
3650 Silverside Road, Suite 1037, Wilmington, Delaware 19810
(Former name, former address and former fiscal year,
if changed since last report).
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Exchange Act during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No
Class Outstanding at March 31, 1996
- ----- -----------------------------
Common stock - Class A -
$.025 par value 2,081,190 shares
Common stock - Class B -
$.025 par value 731,790 shares
<PAGE> 2
FORM 10-QSB
PAGE 2.
UNIVERSAL FRANCHISE OPPORTUNITIES CORP.
INDEX
Page No.
--------
Facing Sheet 1
Index 2
PART I. Financial Information:
Unaudited Condensed Consolidated
Balance Sheet March 31, 1996 3, 4
Unaudited Condensed Consolidated
Statements of Income for the
Three Months ended March 31,
1996 and 1995 5
Unaudited Condensed Consolidated
Statements of Cash Flows for the
Three Months ended March 31,
1996 and 1995 6
Notes to Unaudited Condensed
Consolidated Financial Statements 7 - 12
Management's Discussion and
Analysis of Financial Condition
and Results of Operations 13 - 15
PART II. Item 6. Exhibits and Reports on
Form 8-K 16
Signatures 17
<PAGE> 3
FORM 10-QSB
PAGE 3
UNIVERSAL FRANCHISE OPPORTUNITIES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS AT
MARCH 31, 1996
(UNAUDITED)
<TABLE>
<S> <C>
Current Assets
Cash $ 362,875
U. S. Treasury Securities 1,380,788
Marketable securities, at cost,
which approximates market value 1,672
Inventory 43,189
Prepaid income taxes 5,978
Prepaid expenses 10,369
Other receivables 65,835
----------
Total Current Assets 1,870,706
----------
Property and Equipment
Restaurant improvements and equipment 157,807
Vehicular and office equipment 92,779
----------
250,586
Less: Accumulated depreciation and
amortization 113,955
----------
Total Property and Equipment 136,631
----------
Other Assets
Certificates of deposit 656,475
Franchise rights, net of amortization 286,338
Asset acquisition costs, net of amortization 11,841
Patents 4,859
Restaurant and vehicular equipment held for
resale 32,480
Security deposits 22,695
----------
Total Other Assets 1,014,688
----------
Total Assets $3,022,025
==========
</TABLE>
See accompanying notes to the unaudited condensed
consolidated financial statements.
<PAGE> 4
FORM 10-QSB
PAGE 4
UNIVERSAL FRANCHISE OPPORTUNITIES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS AT
MARCH 31, 1996
(UNAUDITED)
<TABLE>
<S> <C>
Current Liabilities
Current portion of long-term debt $ 22,184
Accounts payable 56,629
Deferred income 20,000
-----------
Total Current Liabilities 98,813
Long-term debt, less current portion above 36,072
-----------
Total Liabilities 134,885
-----------
Commitments and Contingencies
Stockholders' Equity
Preferred stock, par value $.10
per share - authorized 100
shares - no shares issued and
outstanding --
Common stock, Class A par value,
$.025 per share - authorized
5,000,000 shares - 2,081,190
shares issued and outstanding 52,030
Common stock, Class B, par value,
$.025 per share - authorized
2,000,000 shares - 731,790
shares issued and outstanding 18,294
Additional paid in capital 3,356,135
Retained earnings (deficit) (539,319)
-----------
Total Stockholders' Equity 2,887,140
-----------
Total Liabilities and
Stockholders' Equity $ 3,022,025
===========
</TABLE>
See accompanying notes to the unaudited condensed
consolidated financial statements.
<PAGE> 5
FORM 10-QSB
PAGE 5
UNIVERSAL FRANCHISE OPPORTUNITIES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
1996 1995
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Operating Revenues (excluding discontinued operations)
Restaurant sales $ 98,272 $ 91,505
Franchise fees 8,773 20,466
Consulting fees - franchisees 2,000 20,455
Other 446 59
----------- -----------
109,491 132,485
----------- -----------
Expenses (excluding discontinued operations)
General and administrative expense 199,942 264,921
Restaurant cost of sales 101,992 107,104
Depreciation and amortization -
restaurant improvements and
equipment 3,900 4,398
Amortization - franchise rights 5,925 5,925
Depreciation and amortization -
other 3,181 3,110
Provision for loss on store closings -- 5,626
----------- -----------
314,940 391,084
----------- -----------
Operating profit (loss) (205,449) (258,599)
----------- -----------
Other Income (Expense)
Interest income 36,081 46,674
Interest expense (1,197) (1,572)
Charges on redemption of certificates of
deposit -- (42,890)
----------- -----------
34,884 2,212
----------- -----------
Loss before income and franchise taxes (excluding
discontinued operations) (170,565) (256,387)
Provision for income and franchise taxes 928 1,284
----------- -----------
Loss from continuing operations (171,493) (257,671)
Income (loss) from discontinued operations, net
of income tax provisions of -0- -- (77,237)
----------- -----------
Net income (loss) ($ 171,493) ($ 334,908)
=========== ===========
Per share of Common Stock
Income (loss) from continuing operations ($ 0.06) ($ 0.09)
=========== ===========
Income (loss) from discontinued operations $ -- ($ 0.03)
=========== ===========
Net income (loss) ($ 0.06) ($ 0.12)
=========== ===========
Average Common Shares Outstanding 2,812,980 2,812,980
=========== ===========
</TABLE>
See accompanying notes to the unaudited condensed
consolidated financial statements.
<PAGE> 6
FORM 10-QSB
PAGE 6
UNIVERSAL FRANCHISE OPPORTUNITIES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
1996 1995
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($ 171,493) ($ 334,908)
Adjustments to reconcile
net income to net cash (used in) provided
by Operating Activities
Depreciation and amortization 13,007 20,402
Amortization of discount on U.S.
Treasury securities (16,759) (15,262)
Changes in certain current
assets and liabilities
Current assets (11,318) 41,543
Current liabilities (61,611) (29,681)
----------- -----------
Net Cash Provided (Used) by
Operating Activities (248,174) (317,906)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of U.S. Treasury securities (1,371,143) (1,911,075)
Maturity of U.S. Treasury securities 1,000,000 --
Redemption of certificates of deposit -- 2,000,726
Purchase of property and equipment (17,843) (1,293)
Purchase of patent rights (4,859) --
Sale of restaurant equipment 8,400 --
Decrease in security deposits 7,551 770
----------- -----------
Net Cash Provided (Used) by Investing
Activities (377,894) 89,128
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction of long-term debt (3,246) (4,509)
----------- -----------
Net Cash Provided (Used) by Financing
Activities (3,246) (4,509)
----------- -----------
Net Increase (Decrease) in Cash
and Certificates of Deposit ($ 629,314) ($ 233,287)
Cash and Certificates of Deposit
at beginning of period 992,189 765,761
----------- -----------
Cash and Certificates of Deposit
at end of period $ 362,875 $ 532,474
=========== ===========
Supplemental Cash Flow Information
Interest paid $ 809 $ 1,572
Income taxes paid (refunded) $ -- $ --
</TABLE>
See accompanying notes to the unaudited condensed
consolidated financial statements.
<PAGE> 7
FORM 10-QSB
PAGE 7
UNIVERSAL FRANCHISE OPPORTUNITIES CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996 and 1995
1. The financial information included herein is unaudited; however, in the
opinion of the Company, such information reflects all adjustments
(consisting solely of normal recurring accruals) necessary to present
fairly results for the interim periods.
2. The results of operations for the three-month period ended March 31, 1996
and 1995 are not necessarily indicative of the results to be expected for
the full year. Certain items in the 1995 financial statements have been
reclassified to conform with the 1996 presentation.
3. The Company had historically operated in four distinct market segments:
a. The Company had operated business schools in New York City and
Philadelphia, Pennsylvania, teaching courses of a general business
nature with an emphasis on data processing. New York City school
operations were discontinued as of December 31, 1989, and the
Philadelphia school discontinued operations on October 15, 1990.
b. The Company had purchased mainframe and peripheral computer equipment
which had been leased to various corporations. The Company has not
acquired any additional equipment for lease since 1985, although it
continued to receive revenues therefrom until August, 1993.
c. The Company leased an aggregate of approximately 37,500 square feet
consisting of classroom and office space at the premises located at 25
West 17th Street, New York, New York. The premises had previously been
used to conduct the Company's New York school operations. On May 24,
1990, the Company received from its landlord permission to sublease
approximately 60 percent of the premises to an unrelated third party
for a term to run substantially until the expiration date of the
Company's lease with its landlord. In addition, the Company also
leased to the sublessee most of the Company's equipment located at the
premises. On January 27, 1995, the Sublessee filed a Chapter 11
petition and moved to reject the aforementioned Sublease and equipment
rental contract. On March 2, 1995, the Bankrupcy Court issued an order
rejecting the Sublease and equipment rental contract. At December 31,
1994, after having applied the security deposit of $56,000, there
remained $60,856 of premises and equipment rental due. This amount had
been fully reserved in the 1994 financial statements, and the
applicable reserve and receivable have been written off in January,
1995. On May 26, 1995, CPU surrendered the premises to the landlord
and was released from all obligations related to the lease. As a
result of such surrender, improvements and equipment having a net book
value of $155,244 were written off. These operations, which had
previously been presented as a separate market segment, have been
presented, net of tax effect, as discontinued operations in the
financial statements.
<PAGE> 8
FORM 10-QSB
PAGE 8
UNIVERSAL FRANCHISE OPPORTUNITIES CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996 and 1995
(Con't...)
d. The remaining market segments in which the Company operates is (i) the
food service and franchising business commenced on April 30, 1993 and
(ii) development, marketing and production of nanocomposite coatings
which commenced January, 1996.
4. In August, 1992, a purported stockholder of the Company filed in the United
States District Court for the Southern District of New York a stockholder's
derivative action on behalf of the Company, naming two of the Company's
directors as defendants and the Company as nominal defendant. Such action
alleged (i) insider trading in Company's stock, (ii) breach of fiduciary
duty in approving and accepting compensation alleged to be excessive, and
(iii) operation of an unregistered investment company.
In addition to seeking unspecified monetary damages on behalf of the
Company, Plaintiff sought the appointment of a trustee or receiver to
dispose of the assets of the Company. On April 30, 1993, the Plaintiff
filed a motion to dismiss the action without prejudice and the case was
dismissed in 1996.
5. On April 30, 1993, a wholly-owned subsidiary that was created for the
Company's food service business, S.P. Unlimited, Inc., (SPU) acquired
substantially all the assets of Premier Franchise Corporation ("PFC")
(formerly called the Salad Bar Corporation) and SPFC, Inc. consisting
principally of franchise rights, restaurant improvements and equipment for
an aggregate consideration of $498,000 (including $351,000 of cash and
$147,000 of notes).
In addition, upon acquisition of the PFC assets, SPU assumed the existing
lease on the restaurant located in Miami Lakes, Florida. Such lease,
expiring December 31, 1998, provides for minimum annual rentals of $39,615
and a share of the real estate taxes. The lease is guaranteed by the
Company.
Since acquisition, SPU had entered into leases for two additional
restaurants in Margate and Oakland Park, Florida which provided for monthly
rentals aggregating $5,000 plus all expenses of operating the properties.
The two leases, which commenced late in 1993, had five year terms with
renewal options. In July, 1994, SPU closed the two aforementioned
restaurants. In June, 1995, SPU was released from its obligations with
respect to the Margate lease. SPU has surrendered the Oakland Park premises
to the landlord and has not paid the $3,000 plus expenses monthly rental on
the premises since May, 1995. Management believes there will be no attempt
by the landlord of the Oakland Park premises to collect the rent arrearages
or future rent obligations.
<PAGE> 9
FORM 10-QSB
PAGE 9
UNIVERSAL FRANCHISE OPPORTUNITIES CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996 and 1995
(Con't...)
SPU's operations, except for the Sir Pizza restaurant located in Miami
Lakes, have been assumed by Universal Franchise Operations, Inc., a wholly
owned subsidiary of the Company.
In connection with the acquisition of the food service business, SPU
entered into an Employment Agreement with Donald J. Ryan, pursuant to which
Mr. Ryan was to act as President, Chief Operating Officer and a Director of
SPU, and a Director of the Company, for a compensation package which
included a salary of $100,000 and an incentive bonus of $50,000 for any
year in which pre-tax earnings of the Company exceed $1,500,000.
On January 6, 1995, Mr. Ryan was terminated from his employment at SPU.
Shortly thereafter, Mr. Ryan commenced an arbitration proceeding against
the Company and SPU before the American Arbitration Association, claiming
that his employment agreement was breached by virtue of such termination
and seeking damages as a result. The Company asserted that Ryan's
employment was terminated for cause.
In response to the arbitration demand, the Company, SPU and CPU of Florida,
Inc. filed an action in the Florida Circuit Court asserting various claims
against Donald Ryan, and seeking to stay the arbitration proceedings filed
by Ryan. Ryan, in turn, moved to compel arbitration and stay the court
proceeding. The Florida Circuit Court entered an Order staying its
proceedings and requiring arbitration to proceed. In the arbitration
proceeding, the Company and SPU denied liability to Ryan for his
termination from employment and the Company, SPU and CPU of Florida, Inc.
asserted counterclaims against Ryan for damages. In December, 1995, the
Arbitrator (a) upheld the termination by the Company of Ryan's employment
for cause under the employment agreement, (b) denied the Company's
counterclaim, and (c) awarded $5,150 to Ryan for damages for not receiving
30 days' notice prior to termination. Pursuant to stipulation of the
parties, the Arbitrator retained jurisdiction to enter a Final Order based
on his determination of entitlement to and amount of attorneys' fees and
costs.
On December 29, 1995, the Arbitrator entered his Final Award wherein he
awarded the Company and SPU $92,000 for attorneys' fees and costs as the
prevailing party.
The Company and SPU have filed with the Florida Circuit Court a motion to
confirm the Arbitration Award and to enter judgment against Ryan, and a
motion to lift the stay of the litigation. Ryan has appealed the
Arbitrator's Award. Until the Court rules on the Company's and SPU's
motions to confirm the Arbitrator's Award, an unfavorable outcome is still
possible. The range of any potential loss is estimated to be approximately
$750,000 - $850,000.
<PAGE> 10
FORM 10-QSB
PAGE 10
UNIVERSAL FRANCHISE OPPORTUNITIES CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996 and 1995
(Con't...)
6. On April 30, 1993, in connection with the PFC acquisition, the Company
entered into a Stock Option Agreement with Donald Ryan, pursuant to which
the Company granted Mr. Ryan options, at a price of $.875 per share, to
purchase an aggregate of 250,000 shares of Class A Common Stock,
exercisable on a cumulative basis with regard to 50,000 shares each at the
end of each year for five years. Such options expire on April 30, 2003. Mr.
Ryan's employment was terminated in January, 1995. Whether or not such
options are currently effective depends on the outcome of the arbitration
described earlier.
On October 12, 1993, the Company entered into a Stock Option Agreement with
Mohamad Al-Omari, pursuant to which the Company granted Mr. Al-Omari
options, at a price of $.875 per share, to purchase an aggregate of 100,000
shares of Class A Common Stock, exercisable on a cumulative basis with
regard to 20,000 shares each at the end of each year for five years. In
1995, the option price was reduced to $.45 per share on the 60,000 shares
not already vested. These 60,000 shares are subject to certain
restrictions, in the event of liquidation and otherwise. Such options
expire on October 12, 2013.
In February, 1996, the Company granted a director of the Company options to
purchase up to an aggregate of 200,000 shares of the Company's Class A
Common Stock at a price of $.45 per share. The options are exercisable on a
cumulative basis with regard to 40,000 shares each at the end of each year
for five years. The options are subject to certain restrictions, in the
event of liquidation and otherwise.
On May 14, 1993, the Board of Directors of the Company adopted the
Commercial Programming Unlimited, Inc. Incentive Stock Option Plan (the
"Plan"), effective June 1, 1993. The Plan was approved by the stockholders
at the Company's annual meeting. The Plan provides for the grant to
officers and key employees of the Company and its subsidiaries of incentive
stock options and non-qualified stock options for the purchase of Class A
Common Stock. Two hundred thousand shares of Class A Common Stock are
reserved for issuance upon exercise of options granted under the Plan. If
an option terminates for any reason without being exercised, then the
shares represented by such option will be available for the further grant
of options. Generally, all options are exercisable, commencing one year
after the respective dates of grant, to the extent of a cumulative 25% of
the shares subject to a particular option during each of the next four
years, provided that no option may be exercised prior to six months from
the date of grant thereof. The option price for each option granted under
the Plan may not be less than 100% of the fair market value of the stock
when the option is granted. For purposes of the Plan, the fair
<PAGE> 11
FORM 10-QSB
PAGE 11
UNIVERSAL FRANCHISE OPPORTUNITIES CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996 and 1995
(Con't...)
market value of the shares of Class A Common Stock on any date is generally
the mean between the closing bid and asked prices of the shares as quoted
on NASDAQ on such date (or the average, on such date, of the high and low
sales prices of such shares in the principal market in which such shares
are traded, if they are not then quoted on NASDAQ). No options have been
granted under the Plan.
No options have been exercised.
7. In April, 1994, a wholly owned subsidiary of the Company, CPU of Florida,
Inc., entered into an agreement with the inventors of a portable pizza oven
to form a corporation, Gourmet Carts, Inc., to produce and market the ovens
and related carts. CPU of Florida, Inc. acquired a 50% interest in Gourmet
Carts, Inc. for $200,000, and had made loans and advances to such
Corporation of an additional $252,658 through September 30, 1995. The
inventors, who also acquired a 50% interest in Gourmet Carts, Inc.,
contributed a prototype oven. A patent has since been applied for. The
investment in this development stage company has been accounted for under
the equity method.
Gourmet Carts, Inc. sustained an operating loss of $361,000 from inception
in April, 1994 to December 31, 1994. As a result of the losses, the
litigation discussed below, and other matters pertaining to the oven, the
Company in 1994 wrote off its total investment in and loans and advances to
this affiliate. Although the loans to Gourmet Carts, Inc. are secured by
all assets of that company, CPU of Florida, Inc. does not believe that the
collateral has any net realizable value.
On January 4, 1995, CPU of Florida, Inc. filed suit against Gourmet Carts,
Inc. claiming that Gourmet Carts defaulted under a note and security
agreement. Although the Company sought to recover possession of collateral,
which consists of several pizza ovens, such motion was denied.
On January 13, 1995, Gourmet Carts, Inc. and the inventors filed suit in
Florida Circuit Court against the Company, CPU of Florida, Inc., SPU and
Walter Small seeking declaratory relief regarding the parties' rights and
obligations under the Gourmet Carts, Inc. stockholders agreement and under
the security agreement with respect to which the Company alleges Gourmet
Carts, Inc. is in default. Gourmet Carts alleged that the Company failed to
cooperate in carrying out the intentions of the stockholders agreement,
raised issues concerning the Company's right to appoint a substitute
designee director, and also alleged that the Company unlawfully took
possession of two of Gourmet Carts, Inc.'s ovens. The Company disputed all
of the material allegations made by the plaintiffs. On March 10, 1995,
<PAGE> 12
FORM 10-QSB
PAGE 12
UNIVERSAL FRANCHISE OPPORTUNITIES CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996 and 1995
(Con't...)
the Company, SPU and CPU of Florida, Inc. commenced an action in the same
venue against Gourmet Carts, Inc., Donald Ryan and the inventors of the
oven for damages and declaratory and injunctive relief claiming breach of
fiduciary duty, conversion, breach of contract and tortious interference
with contract. The two proceedings were consolidated. On February 14, 1996
the Florida Circuit Court issued a motion, notice and order of dismissal of
the consolidated cases, without prejudice, for lack of prosecution unless
good cause can be shown for continuance.
8. In 1996, the Company decided to enter into a new business segment: the
development, marketing and production of nanocomposite coatings. The new
subsidiary, Advanced Surface Engineering, Inc. has not generated any sales
in the three months ended March 31, 1996 and the entity is considered a
development-stage company.
9. Earnings per common share are calculated based on the weighted average
number of common shares outstanding during each period. No common stock
equivalents were outstanding for purposes of calculating primary and fully
diluted earnings per share for the three months ended March 31, 1996 and
1995. All calculations of primary and fully diluted earnings per share were
anti-dilutive.
<PAGE> 13
FORM 10-QSB
PAGE 13
UNIVERSAL FRANCHISE OPPORTUNITIES CORP. AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial position and operating
results during the periods included in the accompanying condensed consolidated
financial statements.
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO MARCH 31, 1995
As a result of the surrender of the New York premises to the landlord, and
the release of the Company from its obligations under the lease, the Company
discontinued its premises and equipment leasing business segment at its New York
facility in May, 1995. These operations have been presented, net of tax effect,
as discontinued operations in the financial statements.
The following discussion relates to the Company's continuing operations:
The Company sustained a gross profit (loss) from its one remaining
restaurant of ($3,720) for the three months ended March 31, 1996. This compares
to a gross profit (loss) of ($15,599) in the comparable period of 1995. Other
income from franchise fees and royalties aggregated $8,773 for the three months
ended March 31, 1996, as compared to $20,466 in the comparable 1995 period.
Consulting fees received from franchisees aggregated $2,000 for the three months
ended March 31, 1996 compared to $20,455 in the comparable 1995 period.
General and administrative expense decreased by 24.5% to $199,942 for the
three months ended March 31, 1996, as compared to the corresponding 1995 period.
This decrease is primarily the result of the decrease from the 1995 period in
legal fees incurred in connection with various litigation involving Donald Ryan,
SP Unlimited, Inc. and Gourmet Carts, Inc. offset partially by the increase in
general operating expenses due to the formation of the new subsidiary which will
develop, market and produce nanocomposite coatings.
Depreciation and amortization remained constant for the three months ended
March 31, 1996 and 1995.
Interest income for the three months ended March 31, 1996 decreased 22.7%
to $36,081, as compared to the corresponding 1995 period, primarily due to a
decrease in available liquid resources and a decline in available interest
rates.
A majority of the long-term certificates of deposit were redeemed during
the three months ended March 31, 1995. Charges of $42,890 were incurred during
the period as a result of such early redemptions.
The tax provisions for 1996 and 1995 reflect State and local taxes for the
current periods.
<PAGE> 14
FORM 10-QSB
PAGE 14
UNIVERSAL FRANCHISE OPPORTUNITIES CORP. AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Con't...)
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO MARCH 31, 1995 (Cont'd.)
As a result of the foregoing, operating losses decreased $53,150; loss
before income and franchise taxes (excluding discontinued operations) decreased
$85,822; and net loss from continuing operations decreased $86,178 in the
three-month period ending March 31, 1996, as compared to the same period in
1995.
LIQUIDITY AND CAPITAL RESOURCES
Cash decreased during the first three months of 1996 by $629,314 to
$362,875. The net decrease in cash is principally attributable to cash used by
investing activities ($377,894) and cash used by operating activities
($248,174).
Despite the fact that the Company sustained losses in the pizza cart
business through its investment in Gourmet Carts, Inc., the Company still
believes that the mobile cart business could be profitable for the Company, and
therefore developed and produced a prototype of a new mobile cart. This new cart
was well received early this year, at both the Las Vegas Pizza Show and the
International Franchise Show in Washington D.C. The Company has decided to
manufacture these carts through a wholly-owned subsidiary, Custom Carts and
Trailers, Inc., and intends to patent the oven and pizza cart. The Company
believes that the portable oven which was developed with the cooperation of two
independent engineers will not only help to sell the pizza carts and franchises,
but will also be able to be marketed successfully as a stand-alone product.
In January, 1996, the Company decided to enter the ceramic coating business
and established another wholly-owned subsidiary for this purpose, Advanced
Surface Engineering, Inc. Dr. Todd Schlessinger, stepson of the Company's
President, developed a nanocomposite self-lubricating ceramic coating which
served as the subject matter of his doctorate and was further perfected during
the past four years when he was working in the industry. The Company obtained
the pending patent rights to this coating together with five other coatings that
Dr. Schlessinger has developed, and the Company is in the process of obtaining
the use of the equipment needed to commercially produce and market these
coatings. This technology is believed to offer improvements to metal, ceramic,
polymer/plastic, glass or composite components through hard self-lubricating
wear resistant coatings with chemical and corrosion resistance as well as heat
resistance. The coatings do not harm or change the dimensions of the product to
be coated. Based upon preliminary investigations, the Company believes this
process could have widespread applications.
<PAGE> 15
FORM 10-QSB
PAGE 15
UNIVERSAL FRANCHISE OPPORTUNITIES CORP. AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Con't...)
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO MARCH 31, 1995 (Cont'd.)
Despite the continuing losses, the Company still retains significant liquid
resources. Current assets at March 31, 1996 were $1,870,706 while current
liabilities were only $98,813. Cash, investments in U.S. Treasury Securities,
marketable securities, and long-term certificates of deposit totalled $2,401,810
at March 31, 1996. Until its operations generate profits, or the Company finds a
business to generate sufficient operating profits, the Company will be unable to
report any material profits in its financial statements.
Inflation
Inflationary factors in recent years have not had a significant effect on
the Company's operations. As long as the Company continues to hold treasury
securities, certificates of deposit and other interest bearing instruments,
changes in interest rates will have a significant impact on such interest
income.
<PAGE> 16
FORM 10-QSB
PAGE 16
UNIVERSAL FRANCHISE OPPORTUNITIES CORP. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit 11 (a). Computation of Net Income Per Share.
(b) Reports on Form 8-K. The registrant has not filed any reports on Form
8-K during the three months ended March 31, 1996.
<PAGE> 17
FORM 10-QSB
PAGE 17
PART II - OTHER INFORMATION
CONTINUED
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNIVERSAL FRANCHISE OPPORTUNITIES CORP.
By: /s/ WALTER SMALL
------------------------------
Walter Small
President and Treasurer
(Principal financial and duly
authorized officer)
Date: May 14, 1996
<PAGE> 18
EXHIBIT INDEX
-------------
Exhibit
Number Exhibit
------ -------
11(a) Computation of Net Income Per Share
27 Financial Data Schedule
<PAGE> 1
FORM 10-QSB
UNIVERSAL FRANCHISE OPPORTUNITIES CORP. AND SUBSIDIARIES
EXHIBIT 11(a)
SCHEDULE OF COMPUTATION OF NET INCOME PER SHARE
For the three months ended
March 31,
-----------------------------------
1996 1995
-------------- -----------
PRIMARY
Income (loss) from continuing
operations ($ 171,493) ($ 257,671)
Income (loss) from discontinued
operations $ -- ($ 77,237)
-------------- -----------
Net income (loss) ($ 171.493) ($ 334,908)
============== ===========
Weighted average number of common
shares outstanding during the
period 2,812,980 2,812,980
============== ===========
Primary income (loss) per common
share-continuing operations ($ 0.06) ($ 0.09)
Primary income (loss) per common
share-discontinued operations -- (0.03)
-------------- -----------
Primary income (loss) per common
share ($ 0.06) ($ 0.12)
============== ===========
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 362,875
<SECURITIES> 1,382,460
<RECEIVABLES> 65,835
<ALLOWANCES> 0
<INVENTORY> 43,189
<CURRENT-ASSETS> 1,870,706
<PP&E> 250,586
<DEPRECIATION> 113,955
<TOTAL-ASSETS> 3,022,025
<CURRENT-LIABILITIES> 98,813
<BONDS> 0
0
0
<COMMON> 70,324
<OTHER-SE> 3,356,135
<TOTAL-LIABILITY-AND-EQUITY> 3,022,025
<SALES> 98,272
<TOTAL-REVENUES> 109,491
<CGS> 101,992
<TOTAL-COSTS> 314,940
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,197
<INCOME-PRETAX> (170,565)
<INCOME-TAX> 928
<INCOME-CONTINUING> (171,493)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (171,493)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
