<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10Q
Quarterly Report Under Section 13 or 15(d)
of the Securities and Exchange Act of 1934
[x ] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended December 31, 1996.
or
[ ] 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 0-19522
N.U. PIZZA HOLDING CORPORATION
------------------------------
(Exact name of registrant as specified in its charter)
Nevada 95-3656327
- ------------------------------- ------------------
(State or other jurisdiction of ( I.R.S. Employer
incorporation or organization) Identification No.)
15414 Cabrito Avenue, Suite A Van Nuys, California 91406-1419
- --------------------- ------- -------------------- ----------
(Address of principal executive offices)
(818) 779-8600
-------------------------------------------
(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 and 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.
[x] Yes [ ] No
As of December 31, 1996 there were 30,339,008 shares of Common Stock
outstanding. Par value is $.001.
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PART I - FINANCIAL STATEMENTS
N.U. Pizza Holding Corporation and Subsidiaries
Consolidated Balance Sheets
ASSETS
<TABLE>
<CAPTION>
December 31, June 30,
1996 1996
Unaudited Audited
------------------- -------------------
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $353,200 $255,100
Restricted Cash 7,400 44,900
Franchisee Advertising Receivable 64,100 70,600
Receivables, net of allowance for doubtful
accounts of $48,000 84,000 80,200
Current Portion of Notes Receivable, net
of allowance for possible future losses
of $547,300 254,000 254,800
Inventories 20,200 16,800
Prepaid Expenses 39,500 74,800
---------- ----------
Total Current Assets 822,400 797,200
---------- ----------
Other Assets:
Notes Receivable, net of
current portion 323,300 329,400
Intangibles, net of accumulated amortization
of $210,000 and $180,000 respectively 90,000 120,000
Deposits and Other Assets 37,000 21,800
---------- ----------
450,300 471,200
---------- ----------
Leasehold Improvements, Property and
Equipment and Construction in Progress, net of
accumulated depreciation and amortization of
$366,800 and $254,000, respectively 1,500,800 1,611,900
---------- ----------
$2,773,500 $2,880,300
========== ==========
</TABLE>
See accompanying notes to financial statements and management's discussion
and analysis of financial condition and results of operations.
2
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N.U. Pizza Holding Corporation and Subsidiaries
Consolidated Balance Sheets
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, June 30,
1996 1996
Unaudited Audited
------------- -------------
<S> <C> <C>
Current Liabilities:
Current Portion of Long- Term Debt 428,400 631,100
Accounts Payable and Accrued Expenses 485,400 576,400
Accrued Franchise Advertising 75,900 115,500
Current Portion-Accrued Litigation
Settlement 50,000 50,000
Income Taxes Payable 2,400 0
Loans Payable to Officer 18,300 3,300
--------- ----------
Total Current Liabilities 1,060,400 1,376,300
Long-Term Debt, net of current
portion 230,700 338,000
Accrued Litigation Settlement, net of
current portion 343,300 445,800
Deferred Franchise Fee Income 137,900 164,900
--------- ----------
1,772,300 2,325,000
--------- ----------
Stockholders' Equity:
Preferred Stock, Series B, $.10 par value per share,
authorized 10,000,000 shares, 80,000 shares issued
and outstanding (aggregate liquidation preference $400,000) 8,000 8,000
Preferred Stock, Series C, $.10 par value per
share, authorized 44,000 shares, 44,000
shares issued and outstanding (aggregate
liquidation preference $220,000) 4,400 4,400
Common Stock $.001 par value per
share, authorized 50,000,000 shares,
issued, subscribed and outstanding
30,339,008 and 24,039,008, respectively 30,300 24,000
Additional Paid-in Capital 5,922,900 5,429,200
Notes Receivable Arising from Stock
Purchase Agreements (435,000) (350,000)
Accumulated Deficit (4,529,400) (4,560,300)
--------- ----------
1,001,200 555,300
--------- ----------
$2,773,500 $2,880,300
========== ==========
</TABLE>
See accompanying notes to financial statements and management's discussion
and analysis of financial condition and results of operations.
3
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N.U. Pizza Holding Corporation and Subsidiaries
Consolidated Statements of Operations and Accumulated Deficit
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
--------------------------------------- ---------------------------------------
FRANCHISE OPERATIONS: Unaudited Unaudited
REVENUES: 1996 1995 1996 1995
---------------- ------------------- ---------------- -------------------
<S> <C> <C> <C> <C>
Initial Franchise Fees $ 38,500 $ 13,500 $52,000 $32,000
Royalties 135,500 222,900 257,900 375,000
Rental Income 41,800 47,800 98,200 95,000
Interest Income 11,800 6,900 21,200 18,200
Rebate Income 50,600 35,000 93,500 72,600
Gain (Loss) on Sales of Rest.and Equip. 0 27,000 0 (145,000)
Forgiveness of Debt Income 0 141,700 0 141,700
Other Income 100 0 19,600 6,100
------------- ------------- ------------- -------------
278,300 494,800 542,400 595,600
------------- ------------- ------------- -------------
COSTS AND EXPENSES:
Rent 50,500 118,300 115,300 172,600
General and Administrative 214,400 265,900 381,500 494,300
Interest Expense 8,000 15,000 18,100 24,900
------------- ------------- ------------- -------------
272,900 399,200 514,900 691,800
------------- ------------- ------------- -------------
Franchise Operating Income (Loss) 5,400 95,600 27,500 (96,200)
------------- ------------- ------------- -------------
COMPANY-OWNED RESTAURANT
OPERATIONS:
Sales 401,300 4,600 753,800 254,800
------------- ------------- ------------- -------------
COSTS AND EXPENSES:
Cost of Sales 111,800 1,600 219,200 84,000
Operating 301,200 1,100 444,500 178,700
General and Administrative (34,700) 12,500 84,300 87,800
------------- ------------- ------------- -------------
378,300 15,200 748,000 350,500
------------- ------------- ------------- -------------
Company-Owned Restaurant Income(Loss) 23,000 (10,600) 5,800 (95,700)
------------- ------------- ------------- -------------
Income(Loss) Before Income Tax
Provision 28,400 85,000 33,300 (191,900)
Income Tax Provision 0 0 2,400 800
------------- ------------- ------------- -------------
Net Income (loss) $ 28,400 $ 85,000 30,900 (192,700)
============= ============= ============= =============
Accumulated Deficit, Beginning of Period (4,560,300) (3,286,500)
------------- -------------
Accumulated Deficit, End of Period ($4,529,400) ($3,479,200)
============= =============
Net Income (loss) per Share 0.00 0.01 0.00 (0.01)
============= ============= ============= =============
Weighted average number of shares
outstanding 29,486,834 15,421,590 25,986,834 15,163,791
============= ============= ============= =============
</TABLE>
See accompanying notes to financial statements and management's discussion
and analysis of financial condition and results of operations.
4
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N.U. Pizza Holding Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
December 31, December 31,
1996 1995
------------- -----------
Unaudited Unaudited
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Income (Loss) $ 30,900 ($192,700)
----------- -----------
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Non-cash items included in net income (loss):
Depreciation and amortization 143,000 74,500
Loss on sale of restaurants and equipment 0 145,000
Realization of deferred license fee (27,000) (27,000)
Forgiveness of debt 0 (141,700)
Changes in assets and liabilities:
Receivables, net (53,000) 4,200
Inventories (3,400) 3,100
Prepaid expenses and other current assets 35,300 26,400
Accounts payable and accrued expenses (91,000) 45,100
Deposits (15,200) 28,700
Income taxes payable 2,400 (3,200)
------------ -----------
Total adjustments (8,900) 155,100
----------- -----------
Net cash provided (used) by operating
activities 22,000 (37,600)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Collections received on notes receivable 52,800 202,600
Capital expenditures (1,700) (1,000)
----------- -----------
Net cash provided by investing
activities 51,100 201,600
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in loans payable to
officer 15,000 (146,000)
Issuance of common stock 515,000 133,600
Principal payments on long-term liabilities (505,000) (59,600)
----------- -----------
Net cash provided (used) by financing
activities 25,000 (72,000)
----------- -----------
NET INCREASE IN CASH 98,100 92,000
CASH, beginning of period 255,100 15,100
----------- -----------
CASH, end of period $353,200 $107,100
=========== ===========
</TABLE>
See accompanying notes to financial statements and
management's discussion and analysis of financial
condition and results of operations
5
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N.U. Pizza Holding Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
December 31, December 31,
1996 1995
------------------------- ----------------------
SUPPLEMENTAL INFORMATION: Unaudited Unaudited
<S> <C> <C>
Cash paid for interest, (net of $8,000 $24,900
capitalized amounts)
Cash paid for taxes $800 $3,200
NON-CASH TRANSACTIONS:
Notes receivables issued in exchange for accounts
receivable. $68,900 $0
Forgiveness of note receivable in exchange
for payables reduction $23,000 $0
Notes receivables issued in exchange for fixed
assets. $0 $316,400
Forgiveness of receivables in exchange for
fixed assets $0 $103,000
Note receivable issued for stock $0 $310,000
Conversion of debt to equity $0 $150,200
Issuance of stock for future services $0 $24,800
</TABLE>
See accompanying notes to financial statements and
management's discussion and analysis of financial
condition and results of operations
6
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N.U. Pizza Holding Corporation and Subsidiaries
Notes to Financial Statements
Six Months Ended December 31, 1996 and 1995
(Unaudited)
In the opinion of the management of N.U. Pizza Holding Corporation and
Subsidiaries (the "Company"), the accompanying unaudited financial statements
reflect all adjustments (consisting only of normal recurring accruals) necessary
to present fairly the financial position of the Company as of December 31, 1996
and the results of its operations and changes in its cash flows for the three
and six month periods presented.
The financial statements and notes are presented as permitted by Form 10-Q and
do not contain certain information included in the annual financial statements
and notes.
These unaudited financial statements should be read in conjunction with the
Company's annual report on Form 10-K for the year ended June 30, 1996.
Note 1 - A summary of significant accounting policies is currently
on file with the Securities and Exchange Commission on
Form 10-K.
Note 2 - Stockholders' Equity:
During the six months ended December 31, 1996, the Company
raised $515,000 in capital via Regulation S and S-8 offerings;
1,000,000 shares of common stock were issued at $.07 per
share, 1,800,000 shares of common stock were issued at $.10
per share and 3,500,000 shares of common stock were issued at
$.10 per share in exchange for a subscription note receivable
of $350,000. The Company collected $265,000 on this receivable
and $85,000 remained uncollected at December 31, 1996.
Additionally, a $350,000 subscription note receivable
outstanding at June 30, 1996 remained uncollected for a total
of $435,000 of subscription notes receivable at December 31,
1996.
Note 3 - Litigation
An action was filed for breach of contract in October 1993
against the Company and its president. The matter arose out of
a promissory note executed by the Company in 1991, in the
original principal amount of $130,000 which was secured by a
security agreement. The plaintiff
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alleged that the Company breached the security agreement and
therefore the entire amount outstanding on the promissory note
was accelerated and due in full. At an arbitration hearing in
December 1995, the matter was resolved in favor of the
Company. The Company was held not to be liable for any portion
of the note.
A complaint was filed against the Company in July 1995 for
$50,943 due on a promissory note and guarantees. The Company
guaranteed a franchisee's note payments. The franchisee
defaulted on payments under the promissory note due to the
plaintiff beginning in April 1995 and continuing thereafter.
The parties settled the matter. The Company agreed to pay the
plaintiff the sum of $56,723 in monthly installments until
paid in full.
An action was filed in October 1994 against the Company for
breach of a settlement agreement. This matter arose out of the
settlement of a previous lawsuit filed by the plaintiff
against the Company in 1987. As part of that settlement, the
Company entered into a written agreement with the plaintiff
for the purchase and payment of merchandise. The plaintiff
alleges that the Company breached that agreement by failing to
purchase all the required items and also failed to pay for
some items which were delivered under the settlement
agreement. The Company contends that the plaintiff breached
the settlement agreement. After a settlement conference was
held, the Company agreed to pay the plaintiff an irrevocable
consulting fee of $500,000, payable in monthly installments of
$4,167 for a period of ten years commencing in June 1997 and
to use the plaintiff as exclusive supplier of various paper
products used by the Company and its franchisees in Numero Uno
restaurants for a period of five years. Subsequently, the
Company filed a Demand for Arbitration before JAMS/Endispute,
Inc. alleging that the plaintiff violated terms of the
settlement agreement. The Company intends to vigorously
prosecute the matter in arbitration and expects to obtain a
favorable ruling.
An action for breach of lease was filed against the
Company in June 1995 by the landlord of premises
leased by Numero Uno Takeout and Delivery, Inc. In March
1995, Numero Uno Takeout and Delivery, Inc. vacated the
premises. The plaintiffs sought rent in the sum of
$20,512 and other amounts for damages according to proof.
Numero Uno Takeout and Delivery, Inc. is a defunct
entity. There was no contractual liability on behalf of
the Company.
8
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The Company answered the complaint in August 1995 and an
arbitration hearing was held in June 1996. Thereafter, the
arbitrator awarded plaintiffs the sum of $31,781.
An action was filed against the Company in August 1995
alleging breach of contract arising out of a lease agreement
entered into in June 1990. The plaintiffs sued for back rent
and other damages. The parties agreed to settle the matter by
the Company paying the plaintiffs $12,913. The settlement was
paid in full in March 1996.
A suit was filed by a former franchisee against the Company in
November 1994 alleging breach of contract and various other
causes of action. The Company filed a cross-complaint for
amounts owing on a note by the plaintiff under the franchise
agreement. The case is scheduled for mediation on February 13,
1997. The restaurant is closed and the plaintiff would like to
get out of the long term lease which has another nine years to
run. In addition, the plaintiff franchisee owes the Company
approximately $150,000 in royalties and advertising fees. The
Company believes the matter will eventually be settled with
the plaintiff on terms favorable to the Company.
An action for breach of contract and foreclosure of mechanics
lien was filed in September 1995 against the Company. The
dispute centers around a parcel of real property for which the
Company contracted with the plaintiff to perform improvements.
The plaintiff sought $15,764, the outstanding balance owed on
the contract. The matter was settled with the Company agreeing
to pay the plaintiff $15,129 in monthly installments of $500
until paid in full.
In July 1995, an action was filed against the Company for
outstanding amounts due on a promissory note. The Company
settled the matter in April 1996 and paid the plaintiffs
$96,000.
An action was filed in November 1995 against the Company for
unlawful detainer for one of the Numero Uno restaurant
locations. The landlord (plaintiff) sought approximately
$58,000 in past due rent. The matter was
9
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settled with the Company agreeing to pay $30,000 in monthly
installments for prior rent arrearages. The Company also
entered into a new lease agreement for the premises. Upon
payment in full, the plaintiff agreed to dismiss the action.
An action was filed in September 1995 against the Company for
breach of a promissory note and security agreement. The
plaintiffs allege that the Company defaulted on amounts owing
them in the sum of $77,917. The Company settled the matter and
agreed to pay the sum requested by the plaintiffs. The Company
paid $14,000 initially and will make monthly payments of
$2,500 until the entire balance is paid in full.
An action was filed in September 1995 against the Company for
breach of contract for the failure of Numero Uno Takeout and
Delivery, Inc. to make payments on a promissory note. The
plaintiffs sought $12,604. The Company subsequently made a
settlement offer to the plaintiffs but the plaintiffs' counsel
has not pursued settlement. Currently, the case is dormant.
The Company believes the matter will eventually be settled for
no more than the balance due on the original promissory note.
A complaint was filed by the Company in January 1996 for
damages and injunctive relief for service mark infringement,
unfair competition and breach of contract. One of the
defendants, a former franchisee of the Company, sold his
restaurant to the remaining defendants. Specifically excluded
from the assets sold to the defendants was the right to use
the name Numero Uno. The defendants continued to use the name
and other trademarks. The Court held the defendants in
contempt, issued a bench warrant and ordered the defendants to
appear again in April 1996. The defendants have yet to appear
before the Court and the Company intends to file a Request for
Default Judgment in the near future.
Note 4 - Reclassification of Prior Year's Amounts
Certain reclassification have been made in the December 31,
1995 financial statements to conform to the classifications
used in the December 31, 1996 presentation.
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Note 5 - Subsequent Event
On January 7, 1997, the Company finalized an Asset Purchase
Agreement whereby, it acquired certain assets from the DAS
Group, Inc., the owner of an Oregon restaurant chain known as
Oregon's Original Sandwich Express and Bakery ("Sandwich
Express") for consideration of $200,000 in cash. Upon the
closing of the Agreement, the Company contributed the $200,000
of assets purchased from the DAS Group, Inc. to its
wholly-owned subsidiary, Formaggi Inc., a recently organized
corporation, in exchange for 2,000,000 shares of Formaggi
Inc.'s common stock.
Note 6 - Income Taxes
The Company's income tax provisions for the three month
periods ended December 31, 1996 and 1995 and the six month
period ended December 31, 1996 have been reduced by the
utilization of net operating loss carryforwards. The Company
would have been required to pay additional income taxes in
these periods had it not been able to utilize these
carryforwards.
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Six Months Ended December 31, 1996:
Liquidity and Capital Resources.
For the six months ended December 31, 1996, $22,000 of cash was provided by
operating activities. The Company has attained satisfactory cash flows for the
six months ended December 31, 1996 by raising $250,000 via Regulation S
offerings and collecting $85,000 of subscriptions receivable generated primarily
from S-8 offerings. Cash and cash equivalents at December 31, 1996 were
$353,200.
Operating Activities.
Accounts receivable increased $3,800 to $84,000 at December 31, 1996 primarily
because franchisees have had continued difficulty making royalty payments in a
timely manner. Past due royalties of $49,200 were converted to notes receivable
during the six months ended December 31, 1996.
11
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Inventories increased $3,400 to $20,200 at December 31, 1996 due to the
completion and opening of a restaurant location that was under construction at
June 30, 1996.
Prepaid expenses decreased $35,300 to $39,500 at December 31, 1996. This
decrease is primarily due to the expiration of $21,400 in prepaid legal fees at
June 30, 1996.
Deposits increased $15,200 to $37,000 at December 31, 1996 due to the payment of
a rent deposit on one of the restaurants purchased in June 1996.
Accounts payable and accrued expenses decreased $91,000 to $485,400 at December
31, 1996 due to the increased payment of outstanding trade payables.
Deferred license fees of $27,000 were recognized as income during the six months
ended December 31, 1996.
Accrued franchise advertising payable decreased $39,600 to $75,900 at December
31, 1996. This decrease is primarily due to the franchisee advertising fees
receivable that were converted to note receivable. Correspondingly, restricted
cash and franchise advertising receivable have also decreased $44,000 to $7,400
and $64,100, respectively, at December 31, 1996.
Investing Activities.
Notes receivable decreased $6,900 to $577,300 at December 31, 1996. The Company
received $52,800 of principal payments on outstanding amounts due, converted
$68,900 of royalties and franchise advertising fees receivable to notes
receivable and reduced its payables in the amount of $23,000 in exchange for the
cancellation of a note receivable from a franchisee.
Net leasehold improvements and equipment decreased $111,100 to $1,500,800 at
December 31, 1996. The decrease is due primarily to depreciation and
amortization of $112,800 and an offsetting increase attributed to equipment
purchases of $1,700.
Financing Activities.
Long-term debt decreased $295,000 to $677,400 and accrued litigation settlement
decreased $102,500 to $393,300 at December 31, 1996. The Company made principal
payments on outstanding debt of $505,000 which were offset by an increase of
$15,000 to loans payable to an officer.
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Common stock and additional paid-in capital increased $6,300 and $493,700,
respectively, to $30,300 and $5,922,900, respectively, at December 31, 1996 due
to the issuance of common stock via Regulation S and S-8 offerings and
collections on subscriptions receivable that were outstanding at June 30, 1996.
Results of Operations.
Six Months Ended December 31, 1996 as Compared to Six Months Ended
December 31, 1995.
Franchise Operations.
The Company recognized $52,000 of the licensing fees from international license
contracts during the six months ended December 31, 1996. This is a $20,000
(62.5%) increase from license fees recognized during the six months ended
December 31, 1995. This increase is due primarily to the opening of the first
franchised restaurant in Indonesia in December 1996.
For the six months ended December 31, 1996, the Company had royalty income of
$257,900, a $117,100 (31.2%) decrease from royalty income recognized of $375,000
for the six months ended December 31, 1995. The decrease was due to a continued
decline in system-wide sales and the conversion of three franchises into
Company-owned restaurants at the end of the fiscal 1996 from which the Company
no longer receives royalties.
Rental income for the six months ended December 31, 1996 increased slightly by
$3,200 (3.4%) to $98,200 compared to $95,000 for the six months ended December
31, 1995. This increase is due to increased rental receipts from franchisees who
pay their rent to the Company, who in turn, pays rent directly to the landlord.
Interest income increased during the six months ended December 31, 1996 to
$21,200, a $3,000 (16.5%) increase compared to $18,200 earned during the six
months ended December 31, 1995. This increase is due to the successful
collection of notes receivable as it is the Company's policy to not accrue
interest income on notes receivable that are six months or more past due.
Rebate income from suppliers for the six months ended December 31, 1996 was
$93,500, a $20,900 (28.8%) increase from rebate income of $72,600 for the six
months ended December 31, 1995. This increase is due to the Company's
negotiation with one its major paper goods suppliers to receive a rebate on all
pizza boxes purchased on a system-wide basis.
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Miscellaneous income increased $13,500 (221.3%) to $19,600 during the six months
ended December 31, 1996 compared to $6,100 during the six months ended December
31, 1995. This increase is due to a franchisee who sold his restaurant and paid
the Company past due collections from charges which totaled $13,500.
Rent expense decreased $57,300 (33.2%) to $115,300 during the six months ended
December 31, 1996 compared to $172,600 for the six months ended December 31,
1995. This decrease is due to monthly charges that were assumed and paid by
franchisees which were previously paid by the Company.
General and administrative expenses for the six months ended December 31, 1996
decreased $112,800 (22.8%) to $381,500 compare to $494,300 during the six months
ended December 31, 1995. This decrease is due primarily to an overall reduction
in administrative and management staff.
Interest expense for the six months ended December 31, 1996 decreased $6,800
(27.3%) compared to $24,900 for the six months ended December 31, 1995. This
decrease is primarily due to the continued reduction in notes payable.
Company-owned Restaurant Operations.
Company-owned restaurant revenues increased $499,000 (195.8%) to $753,800 during
the six months ended December 31, 1996 compared to $254,800 during the six
months ended December 31, 1995.
Overall company-owned restaurant expenses increased $397,500 (113.4%) to
$748,000 during the six months ended December 31, 1996 compared to $350,500
during the six months ended December 31, 1995. These increases are due to the
purchase of three existing franchises and the opening of one constructed
restaurant which were acquired at the end of fiscal 1996.
Three Months Ended December 31, 1996 as Compared to Three Months
Ended December 31, 1995.
Franchise Operations.
The Company recognized $38,500 of the licensing fees from international license
contracts during the three months ended December 31, 1996. This is a $25,000
(185.2%) increase from license fees recognized during the three months ended
December 31, 1995. This increase is due to the opening of the first franchised
restaurant in Indonesia in December 1996.
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For the three months ended December 31, 1996, the Company had royalty income of
$135,500, a $87,400 (39.2%) decrease from royalty income of $222,900 for the
three months ended December 31, 1995. The decrease was due to a continued
decline in system-wide sales and the conversion of three franchises into
Company-owned restaurants at the end of the fiscal 1996 from which the Company
no longer receives royalties.
Rental income for the three months ended December 31, 1996 decreased by $6,000
(12.6%) to $41,800 compared to $47,800 for the three months ended December 31,
1995. Rental expense for the three months ended December 31, 1996 decreased
$67,800 (57.3%) to $50,500 compared to $118,300 during the three months ended
December 31, 1995. These decreases are due to the Company's franchisees having
negotiated their own leases directly with the landlords instead of paying rent
through the Company. Historically, the Company's only source of rental income
was from franchisees who purchased restaurants that were previously owned by the
Company. The Company, who remained obligated on the leases, would collect rent
from the franchisees (sublesees) and pay it directly to the landlord. This trend
is expected to continue in future periods as franchisees negotiate their own
leases directly with lessors.
Interest income increased during the three months ended December 31, 1996 to
$11,800, a $4,900 (71.0%) increase compared to $6,900 earned during the three
months ended December 31, 1995. This increase is due to the successful
collection of notes receivable as it is the Company's policy to not accrue
interest income on notes receivable that are six months or more past due.
Rebate income from suppliers for the three months ended December 31, 1996 was
$50,600, a $15,600 (44.6%) increase from rebate income of $35,000 for the three
months ended December 31, 1995. This increase is due to the Company's
negotiation with one its major paper goods suppliers to receive a rebate on all
pizza boxes purchased on a system-wide basis.
General and administrative expenses for the three months ended December 31, 1996
decreased $51,500 (19.4%) to $214,400 compared to $265,900 during the three
months ended December 31, 1995. This decrease is due primarily to an overall
reduction in administrative and management staff.
Interest expense for the three months ended December 31, 1996 decreased $7,000
(46.7%) compared to $15,000 for the three months ended December 31, 1995. This
decrease is primarily due to the continued reduction in notes payable.
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Company-owned Restaurant Operations.
Company-owned restaurant revenues increased $396,700 (862.4%) to $401,300 during
the three months ended December 31, 1996 compared to $4,600 during the three
months ended December 31, 1995. Overall company-owned restaurant expenses
increased $363,100 (238.9%) to $378,300 during the three months ended December
31, 1996 compared to $15,200 during the three months ended December 31, 1995.
These increases are due to the purchase of three existing franchises and the
opening of one constructed restaurant which were acquired at the end of fiscal
1996.
Management Discussion.
During the six months ended December 31, 1996, the Company had continued success
with its short-term strategic plans implemented during the year ended June 30,
1996.
Those plans included reducing negative cash flow, disposing of unprofitable and
under-performing Company-owned restaurants, and strengthening the financial
position of the Company through the payment of most long-term debt obligations
or converting such long-term debt to equity.
The Company in now concentrating its efforts to develop the Numero Uno concept
of the future and to achieve rapid growth through enhanced revenues and
profitability.
In order to accomplish these goals, the Company purchased and remodeled three
existing Numero Uno franchised restaurants at the end of fiscal 1996 and
constructed a fourth restaurant which opened recently. These restaurants are
generating profits and are meeting the Company's sales projections.
On January 7, 1997, the Company purchased certain assets from the
DAS Group, Inc., the owner of an Oregon restaurant chain known as Oregon's
Original Sandwich Express and Bakery ("Sandwich Express") for consideration of
$200,000 in cash. The Company transferred these assets to its recently organized
subsidiary, Formaggi Inc., for 2,000,000 shares of Formaggi Inc's., common
stock.
Formaggi Inc. intends to retrofit the Sandwich Express chain into a new dual
concept. The concept will be a limited service, waiter assisted, sit-down
restaurant featuring Numero Uno's award winning thick and thin pizza, pastas and
salads, as well as specialty sandwiches and bread products. This represents an
excellent opportunity to increase sales as 80% of Sandwich Express's business is
derived from lunch business and approximately 80% of Numero Uno's business is
derived from evening business. Furthermore, the menus complement each other as
Numero Uno's cuisine appeals to customers during the Spring, Fall and Winter
months and Sandwich Express's fare is popular during the Spring and Summer
months.
16
<PAGE> 17
The name for the new concept has already been registered and the prototype plan
developed. Management believes that the revenues of the acquired Sandwich
Express restaurants will increase dramatically and that the new concept will
generate sales in excess of industry averages. The Company intends to begin
developing Company-owned restaurants and to sell individual and territorial
franchises outside the State of California hopefully in 1997.
The international marketplace is growing very rapidly and the Company continues
to have ten franchisees open and operating in South Korea, four in Kuwait and
one in China.
A franchise opened in Indonesia in December 1996 and four additional franchises
in South Korea and two in Kuwait are expected to open within the next six
months. In addition, the Company has entered into a license agreement for the
Philippines requiring six restaurants to be opened during the next thirty-six
months.
The new Company-owned restaurants, the acquisition of Sandwich Express and the
rapidly expanding international marketplace leads management to believe that the
Company will have profitable operations in the year ending June 30, 1997.
Management continues to believe that the Company is in the best position that it
has been in since the late 1980s.
PART II - OTHER INFORMATION
Item 1 - None
Item 2 - None
Item 3 - None
Item 4 - None
Item 5 - None
Item 6 - Exhibits and Reports on Form 8-K
a) Exhibits - none
b) No reports on Form 8-K were filed during the three
months ended December 31, 1996.
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Van Nuys,
State of California on February 11, 1997.
N.U. PIZZA HOLDING CORPORATION AND SUBSIDIARIES
By: /s/
--------------------------------------------------
Ronald J. Gelet, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
/s/ Dated:
- --------------------------------------- --------------------
Ronald J. Gelet
Director, President, Chief Executive
Officer, Chief Financial and
Accounting Officer
/s/ Dated:
- --------------------------------------- --------------------
Gloria Gelet
Director
/s/ Dated:
- --------------------------------------- --------------------
Jane Yennie
Controller
/s/ Dated:
- --------------------------------------- --------------------
Dan Rouse
Director
18
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-1-1996
<PERIOD-END> DEC-31-1996
<CASH> 360,600
<SECURITIES> 0
<RECEIVABLES> 977,400
<ALLOWANCES> 595,300
<INVENTORY> 20,200
<CURRENT-ASSETS> 826,400
<PP&E> 1,867,600
<DEPRECIATION> 366,800
<TOTAL-ASSETS> 2,773,500
<CURRENT-LIABILITIES> 1,060,400
<BONDS> 0
0
12,400
<COMMON> 30,300
<OTHER-SE> 958,500
<TOTAL-LIABILITY-AND-EQUITY> 2,773,500
<SALES> 753,800
<TOTAL-REVENUES> 1,296,200
<CGS> 219,200
<TOTAL-COSTS> 1,025,600
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,100
<INCOME-PRETAX> 33,300
<INCOME-TAX> 2,400
<INCOME-CONTINUING> 30,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,900
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
