<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities 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 March 31, 1998.
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
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(Exact name of registrant as specified in its charter)
Nevada
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(State or other jurisdiction of incorporation or organization)
95-3656327
------------------------------------
(I.R.S. Employer Identification No.)
16800 Devonshire St., Suite 305 Granada Hills, Ca 91344
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(Address of principal executive offices)
(818) 368-2616
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(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 March 31 1998, there were 32,139,008 shares of common stock outstanding.
Par value is $.001.
1
<PAGE> 2
PART I - FINANCIAL INFORMATION
N. U. PIZZA HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
(Unaudited) (Audited)
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 28,600 $ --
Restricted cash 17,500 17,000
Franchisee advertising receivable 19,000 29,600
Receivables, net of allowance for
doubtful accounts of $22,600 and
$65,900, respectively 75,500 127,900
Current portion of notes receivable,
net of allowance for possible future
losses of $215,800 and $376,300,
respectively 113,000 213,000
Inventories 4,300 24,500
Prepaid expenses 31,700 78,300
---------- ----------
Total current assets 289,600 490,300
---------- ----------
Other assets:
Notes receivable, net of allowance for
possible future losses of $0 and
$40,200, respectively 1,102,900 512,300
Intangible assets, net of accumulated
amortization of $309,300 and $250,400,
respectively 190,700 249,600
Investments 256,900 --
Deposits 29,600 33,300
---------- ----------
1,580,100 795,200
---------- ----------
Leasehold improvements and property
and equipment, net of accumulated
depreciation and amortization of
$322,000 and $407,000, respectively 286,000 1,154,100
---------- ----------
$2,155,700 $2,439,600
========== ==========
</TABLE>
See accompanying notes to financial statements and management's discussion and
analysis of financial condition and results of operations.
<PAGE> 3
N. U. PIZZA HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
----------- -----------
(Unaudited) (Audited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 130,300 $ 180,800
Accounts payable and accrued expenses 461,300 516,300
Accrued franchise advertising 36,500 46,600
Current portion - accrued litigation
settlements 27,000 32,000
Loans payable to related parties 156,000 173,900
----------- -----------
Total current liabilities 811,100 949,600
----------- -----------
Long-term debt, net of current portion 138,600 230,400
Accrued litigation settlements, net
of current portion 72,300 90,500
Deferred franchise fee income 71,600 100,900
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,
32,139,008 and 31,139,008 shares issued,
subscribed and outstanding, respectively 32,100 31,100
Additional paid-in capital 6,038,100 5,989,100
Notes receivable arising from stock
purchase agreements (487,000) (487,000)
Accumulated deficit (4,533,500) (4,477,400)
----------- -----------
1,062,100 1,068,200
----------- -----------
$ 2,155,700 $ 2,439,600
=========== ===========
</TABLE>
See accompanying notes to financial statements and management's discussion and
analysis of financial condition and results of operations.
<PAGE> 4
N. U. PIZZA HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
1998 1997 1998 1997
---------- ---------- ---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
FRANCHISE OPERATIONS:
REVENUES:
Initial franchise fees $ 9,800 $ 38,500 $ 29,300 $ 90,500
Royalties 119,500 144,600 387,700 402,500
Rental income 11,800 42,000 67,300 140,200
Interest income 16,800 9,100 28,400 30,300
Rebate income 34,700 36,800 119,200 130,300
Other income 31,600 29,200 130,800 48,800
Gain on sale of restaurant
and equipment 19,700 70,200 26,200 70,200
---------- ---------- ---------- ----------
243,900 370,400 788,900 912,800
---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Rent 27,400 198,500 101,100 313,800
General and administrative 152,900 178,200 528,200 559,700
Interest expense 1,200 9,000 4,700 27,100
---------- ---------- ---------- ----------
181,500 385,700 634,000 900,600
Franchise operating ---------- ---------- ---------- ----------
income (loss) 62,400 (15,300) 154,900 12,200
---------- ---------- ---------- ----------
</TABLE>
See accompanying notes to financial statements and management's discussion and
analysis of financial condition and results of operations.
<PAGE> 5
N. U. PIZZA HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT (CONTINUED)
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
1998 1997 1998 1997
------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
COMPANY-OWNED RESTAURANT
OPERATIONS:
Sales $ 149,200 $ 473,200 $ 1,000,100 $ 1,227,000
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Cost of sales 45,200 146,800 325,000 366,000
Operating 68,400 211,900 462,600 656,400
General and
administrative 105,400 68,200 421,900 152,500
------------ ------------ ------------ ------------
219,000 426,900 1,209,500 1,174,900
------------ ------------ ------------ ------------
Company-owned
restaurant income
(loss) (69,800) 46,300 (209,400) 52,100
------------ ------------ ------------ ------------
Income (loss) before
income tax provision (7,400) 31,000 (54,500) 64,300
Income tax provision -- -- 1,600 2,400
------------ ------------ ------------ ------------
Net income (loss) $ (7,400) $ 31,000 (56,100) 61,900
============ ============
Accumulated deficit,
beginning of period (4,477,400) (4,560,300)
------------ ------------
Accumulated deficit,
end of period $ (4,533,500) $ (4,498,400)
============ ============
Net income (loss)
per share $ 0.00 $ 0.00 $ 0.00 $ 0.00
============ ============ ============ ============
Weighted average
number of shares
outstanding 31,772,341 30,846,617 31,347,037 29,486,834
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements and management's discussion and
analysis of financial condition and results of operations.
<PAGE> 6
N. U. PIZZA HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
March 31, 1998 March 31, 1997
-------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (56,100) $ 61,900
Adjustments to reconcile net
income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization 203,500 222,900
Gain on sale of restaurants
and equipment (26,200) (70,200)
Realization of deferred income (29,300) (65,500)
Changes in assets and liabilities:
Receivables, net 13,400 (165,900)
Inventories 16,600 (8,700)
Prepaid expenses and other
current assets 36,500 22,700
Accounts payable and accrued
expenses (63,300) (49,500)
Deposits (9,700) (17,600)
--------- ---------
Net cash provided (used) by
operating activities 85,400 (69,900)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Collections on notes receivable 71,600 83,400
Acquisition of intangible assets -- (200,000)
Capital expenditures -- (1,800)
--------- ---------
Net cash provided (used)
by investing activities 71,600 (118,400)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in amounts due
to related parties 32,100 47,300
Principal payments on long-term debt (160,500) (551,500)
Proceeds from issuance of common stock -- 515,000
--------- ---------
Net cash (used) provided
by financing activities (128,400) 10,800
--------- ---------
</TABLE>
See accompanying notes to financial statements and management's discussion and
analysis of financial condition and results of operations.
<PAGE> 7
N. U. PIZZA HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE NINE MONTHS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
March 31, 1998 March 31, 1997
-------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C>
Net increase (decrease) in cash
and cash equivalents $ 28,600 $(177,500)
Cash and cash equivalents,
beginning of period -- 255,100
--------- ---------
Cash and cash equivalents,
end of period $ 28,600 $ 77,600
========= =========
Supplemental information:
Cash paid for interest $ 4,700 $ 17,000
Cash paid for income taxes $ 1,600 $ 800
Non-cash transactions:
Notes receivable issued in
exchange for accounts receivable $ 30,800 $ 45,900
Notes receivable issued in exchange
for fixed assets, prepaid expenses
and accounts receivable 531,400 210,000
Accounts and note receivable
forgiven in exchange for investment 17,000 --
Loans payable to related party forgiven
in exchange for common stock 50,000 --
Leasehold improvements, property and
equipment and other assets transferred
in exchange for investment in
affiliate 239,900 --
Notes receivable issued for stock -- 402,000
Forgiveness of debt in exchange for
a reduction in accounts payable -- 23,000
Issuance of stock for future services -- 15,000
</TABLE>
See accompanying notes to financial statements and management's discussion and
analysis of financial condition and results of operations.
<PAGE> 8
N. U. PIZZA HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
In the opinion of 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 March 31, 1998 and the
results of its operations and changes in its cash flows for the three and nine
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, 1997.
Note 1 -
A summary of significant accounting policies is currently on file with the
Securities and Exchange Commission on Form-10K.
The accompanying consolidated financial statements include the accounts of
N. U. Pizza Holding Corporation and its wholly-owned subsidiaries, Numero Uno
Franchise Corporation and Formaggi Inc. (the "Company"). Intercompany
transactions and balances have been eliminated in consolidation.
Certain prior period balances have been reclassified in the consolidated
financial statements to conform to the current period's presentation.
Note 2 - Stockholders' Equity
During the three months ended March 31, 1998, loans payable to a related party
of $50,000 were forgiven in exchange for 1,000,000 shares of the Company's
common stock issued at $.05 per share.
Note 3 - Litigation
Pending
In September 1995, an action was filed against the Company for breach of
contract for failure to make payments on a Promissory Note totaling
approximately $12,800. The Company filed an answer on December 6, 1995 and made
a settlement offer to the plaintiffs but the plaintiffs' counsel has not pursued
settlement. Currently, the case is dormant and the Company believes that the
matter will eventually be settled for no more that the current balance due on
the original promissory note of approximately $12,800, which has been classified
as a current liability.
In June 1993, a dispute arose between a franchisee and the Company relating to
the termination of the franchisee's delivery rights and the exclusivity of the
franchisee's original geographic territory. The plaintiff franchisee sought
compensatory and punitive damages of approximately $130,000, alleging that its
geographic territory was exclusive and its delivery rights nonterminable by the
Company. The Company strongly disagreed and contended that the geographic
territory assigned to the franchisee was nonexclusive and terminable by the
<PAGE> 9
Company and that a replacement delivery area was agreed to by the franchisee. In
September 1994, the parties settled the matter. The settlement agreement grants
the franchisee an abatement of the payment of royalties to the Company for a
five year period and a one-time waiver of the transfer fee should the franchisee
decide to sell its franchise. The parties established the boundaries of the
franchisee's geographic territory and delivery rights.
As part of the settlement agreement, one of the plaintiffs entered into a new
franchise agreement with the Company in October 1995. Subsequently, the
plaintiff breached his obligations under the franchise agreement by failing to
pay required fees and his franchise was terminated by the Company. The plaintiff
refused to vacate the restaurant he was subleasing from the Company, continued
to use Company trademarks and breached his building lease with the landlord by
failing to pay rent which was due. The Company was forced to pay back rent and
utilities to the landlord.
The plaintiff and the Company agreed to arbitrate their claims. The plaintiff
filed a claim against the Company and its president for fraud, intentional
infliction of emotional distress and breach of fiduciary duty in the amount of
$418,000. The Company filed a cross claim against the plaintiff for breach of
contract and trademark infringement for $100,000. The Company is also seeking
indemnification for rents and utilities paid on behalf of the plaintiff and
damages for trademark infringement and unfair competition claims in the amount
of $7,000.
Management believes that the Company will prevail in arbitration, because the
plaintiff's claims are without merit, and at best, the plaintiff can only seek
damages for breach of his franchise agreement since the September 1994
settlement agreement was reached between the parties. Management also believes
that the outcome will not have a material adverse effect on the Company's
financial position.
Settled
In October 1996, an action was filed against the Company for sexual battery,
intentional infliction of emotional distress and other allegations concerning
sexual discrimination. The matter arose out of an alleged incident between an
employee of the Company and the plaintiff. The Company investigated the matter
and believed it was without merit. A status conference was held on June 2, 1997
and the Court set the matter for trial on October 20, 1997. Prior to the trial
date, the Company resolved the matter by paying the plaintiff a settlement of
$5,000.
In 1987, as part of a settlement of a previously filed complaint, the Company
agreed to make certain purchases and pay certain amounts to a plaintiff
supplier. In October 1994, the plaintiff alleged that the Company breached that
agreement by failing to purchase all the required items and also by failing to
pay for some items which were delivered under the settlement agreement. The
Company contended that the plaintiff breached the settlement agreement. The
Company answered the complaint and the Superior Court referred the matter to the
Joint Association Settlement Program. After a settlement conference was held,
the parties settled the matter.
As part of the second settlement agreement, the Company agreed to pay the
plaintiff an irrevocable consulting fee of $500,000, payable in monthly
installments of $4,200 for a period of ten years commencing on June 15, 1996 and
to use the plaintiff as exclusive supplier of various paper products used by the
Company in Numero Uno restaurants for a period of five years. Subsequently, the
Company filed a Demand for Arbitration before
<PAGE> 10
JAMS/Endispute, Inc. alleging that the plaintiff violated the terms of the
second settlement agreement. In November 1996, the parties entered into a new
third settlement agreement which superseded both previous agreements referenced
above. This final settlement agreement required the Company to make an immediate
cash payment of $101,000 and subsequent installment payments totaling $117,500
plus interest on or before November 1, 2001. At March 31, 1998, the Company has
classified the remaining amount due under the terms of the final settlement
agreement as an accrued litigation settlement on its balance sheet.
In November 1995, an action was filed against the Company for unlawful detainer
at one of its restaurant locations. The landlord was seeking approximately
$58,000 in past due rent. The matter was settled out of court and the Company
paid the landlord $30,000. The action has been dismissed by the landlord.
In September 1995, an action was filed against the Company for breach of
contract for failure to make payments under the terms of a promissory note and
Security Agreement. The plaintiffs alleged that the Company defaulted on amounts
due them totaling approximately $77,900. A tentative settlement was reached with
the plaintiff's attorney but the plaintiffs did not agree to the terms. A
Settlement Conference was held on June 29, 1996. The parties were unable to
settle the matter at the Conference and the Court scheduled a trial date for
October 16, 1996. However, prior to the trial date, the parties settled the
matter with the Company agreeing to pay the sum of approximately $54,500 plus
interest at 10% per annum in monthly installments until paid in full. The
Company has made regular monthly installment payments and the unpaid balance has
been classified as a current liability.
In September 1995, a complaint was filed against the Company for breach of
contract and foreclosure of mechanics liens. The dispute centered around a piece
of real property for which the Company contracted with the plaintiff to perform
investment services. The plaintiff sought the sum of $15,800 as the outstanding
balance owed on the contract. The Company responded to the complaint on October
31, 1995. After some discovery, the matter was settled. The Company agreed to
pay the plaintiff the sum of $15,200 at the rate of $500 per month until paid in
full. The Company entered into a stipulation for entry of judgment with the
plaintiff, which may be filed with the Court in the event that the Company
defaults on any payment due to the plaintiff.
On August 8, 1995, a landlord of a leased restaurant location filed an action
alleging breach of contract arising out of a lease agreement entered into by
himself and Gelet Enterprises, Inc. in June 1990. The lease agreement was
amended in January 1993 and again in April 1995. The plaintiff sued for back
rent and other damages. The parties agreed to settle matter by the Company
paying the plaintiff $12,900 in March 1996.
On July 28, 1995, an action was filed against the Company for an amount due on a
Promissory Note payable. The plaintiffs alleged that the Company was in arrears
on an installment note made on July 16, 1993. The balance on the note at June
30, 1995 was approximately $107,900. The Company responded to the complaint on
September 19, 1995 and in April 1996, the Company paid the plaintiffs $96,000 as
a settlement of the action and the remaining balance of $11,900 was forgiven by
the plaintiffs.
In June 1995, the landlord of premises leased by Numero Uno Takeout and Delivery
Corporation filed a complaint against the Company and other defendants for
breach of a lease agreement in the amount of approximately $20,500. The
plaintiffs contended that the premises were vacated in March
<PAGE> 11
1995 and that the Company and other defendants were responsible for the unpaid
rent. The Company contended that Numero Uno Takeout and Delivery Corporation was
a defunct entity and that there was no contractual liability on behalf of the
Company and the other named defendants. After the discovery stage, the Court
assigned the case to nonbinding arbitration which was held on June 20, 1996.
Thereafter, the arbitrator awarded the plaintiffs the sum of $31,800. The
Company did not agree with the award of the arbitrator and filed a Request For
Trial De Novo with the Court. Subsequently, the Court set a trial date for March
31, 1997. Prior to trial, the parties entered into a settlement agreement which
provides for a stipulation for judgment should the Company fail to pay
installments pursuant to the terms of the settlement. The Company agreed to pay
$16,500 plus interest in monthly installments until paid in full. The unpaid
balance has been accrued as a current liability in connection with this case.
In May 1987, the Company guaranteed the payments on a note payable to a former
franchisee by the party to whom the franchise was sold. In April 1995, the
outside party defaulted on the note payable and the plaintiff noteholder filed a
complaint for approximately $50,900, the balance remaining on the note. The
parties settled the matter; the Company agreed to pay the plaintiff $56,700 in
monthly installments of $2,500 until paid in full.
In November 1994, a franchisee filed an action against the Company alleging
breach of contract and various other causes of action. Prior to trial, the
parties settled the matter with the plaintiff agreeing to pay the Company
$30,000.
In January 1982, the Company subleased a restaurant location to a franchisee. In
March 1992, the franchisee assigned their right, title and interest to the
sublease. The sublease specifically stated that it shall not release the
originally named sublessee from liability for the continued performance on the
terms and provisions of the sublease. In January 1994, the assignees failed to
pay rent to the lessor or to the Company.
As a result of the failure to pay rent, the landlord brought an action against
the Company to recover damages for breach of the lease. In August 1994, the
Company stipulated with the landlord to a payment of $43,600 and a judgment may
be entered against the Company if it fails to meet the obligation. The Company
has performed all of the conditions and obligations to be performed under the
original sublease and believes that it is entitled to indemnification from the
sublessee in the same amount as the stipulated agreement with the landlord. The
Company entered into a stipulated agreement with the sublessee who agreed to pay
the Company $31,000 in monthly installments of $750 which began on October 15,
1994. During the year ended June 30, 1997, with $10,000 remaining due on the
installment agreement, the sublessee agreed to pay the Company $6,000 and the
remaining $4,000 was forgiven by the Company.
On January 17, 1996, the Company filed an action against a former franchisee and
the current owners of a restaurant for damages and injunctive relief for service
mark infringement, dilution of mark, common law trademark and service mark
infringement, unfair competition and breach of contract. The former franchisee
closed his location and sold the assets to the current owners to be used in
operating an independent restaurant. Specifically excluded from the sale of
assets was the right to use the name Numero Uno and trademarks. The new owners,
however, continued to use the name and other trademarks.
On March 15, 1996, the Company filed a Request for Entry of Default against the
defendants and default was entered on the same day. At June 30, 1996, the
<PAGE> 12
defendants still had not appeared before the Court and the Company subsequently
decided to withdraw its action.
In October 1993, an action was filed against the Company and other defendants by
a former franchisee. The matter arose out of a note payable executed by one of
the Company's wholly-owned subsidiaries in the amount of approximately $130,000
which was secured by and under an accompanying security agreement. The plaintiff
alleged that the Company's wholly-owned subsidiary breached the security
agreement and therefore the entire amount of the promissory note was
accelerated. The plaintiff also contended that the Company is liable under the
alter ego theory for the debt of the wholly-owned subsidiary.
In September 1994, a Mandatory Settlement Conference was held but the parties
were unable to reach a settlement. The Court ordered the matter to binding
arbitration on December 8, 1995 and the matter was resolved in favor of the
Company. The Company was held not liable for any portion of the note payable.
Note 3 - Investments
The Company and an affiliated corporation agreed to the formation of a new
corporation in which they would be 24% and 27% shareholders, respectively. On
October 1, 1997, the new corporation finalized the purchase of the business and
assets of an existing Sandwich Express restaurant. The Company agreed to forgive
$17,000 in receivables, which arose after June 30, 1997, from the current owners
of the restaurant in exchange for its stock ownership in the new corporation.
In January 1998, the Company transferred leasehold improvements, property and
equipment and other assets totaling $239,900 in exchange for 4,000,000 shares of
common stock in a newly formed affiliated corporation.
Note 4 - Income Taxes
The Company's federal income tax provisions for the three month and nine month
periods ended March 31, 1997 have been eliminated by the utilization of net
operating loss carryforwards. The Company would have been required to pay
federal income taxes in these periods had it not been able to utilize these
carryforwards. A provision for minimum state income taxes has been provided in
the consolidated financial statements.
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Nine Months Ended March 31, 1998:
Liquidity and Capital Resources.
For the nine months ended March 31, 1998, cash of $85,400 was provided by
operating activities. This marks the third consecutive quarter that cash flow
has been provided from operating activities. The Company attained positive
<PAGE> 13
cash flow for the nine months ended March 31, 1998 primarily from the collection
of principal amounts due on its notes receivable and the receipt of a one-time
payment of $83,000 from a vendor when the Company agreed to change its sole
supplier of soft drink products. Cash and cash equivalents at March 31, 1998
were $28,600.
Operating Activities.
Accounts receivable decreased $52,400 to $75,500 at March 31 1998. A net
decrease of $13,400 was caused by franchisees paying their royalties more
timely. A further decrease of $39,000 was due to conversions of accounts
receivable to notes receivable.
Prepaid expenses decreased $46,600 to $31,700 at March 31, 1998. The decrease is
due primarily to the expiration of prepaid advertising, consulting, insurance
and rent at June 30, 1997 as well as the sale of company-owned restaurants.
Inventories decreased $20,200 to $4,300 at March 31, 1998 due to the sale of
Company-owned restaurants and deposits decreased $3,700 to $29,600 at March 31,
1998 due to normal business fluctuations.
Accounts payable, accrued expenses and accrued litigation settlements decreased
$60,000 to $488,300 at March 31, 1998, primarily due to the increased payment of
outstanding trade payables and the continued payment of accrued litigation
settlements.
Accrued franchise advertising payable decreased $10,100 during the nine months
ended March 31, 1998. This decrease is offset by an decrease in advertising fund
receivables of $10,600 and an increase in advertising cash of $500.
Deferred license fees of $29,300 were recognized as income during the nine
months ended March 31, 1998.
Investing Activities.
Notes receivable increased $490,600 to $1,215,900 at March 31, 1998 due to the
issuance of $562,200 of notes receivable in exchange for fixed assets,
receivables and prepaid expenses of Company-owned restaurants and the collection
of $71,600 of outstanding amounts due to the Company.
Net leasehold improvements and property and equipment decreased $868,100 to
$286,000 at March 31, 1998. In January 1998, the Company transferred leasehold
improvements, property and equipment and other assets totaling $239,900 in
exchange for 4,000,000 shares of common stock in a newly formed affiliated
corporation. The decrease was also due to the sale of three Company-owned
restaurants and to normal monthly depreciation and amortization.
The Company forgave $17,000 of accounts and notes receivable from the previous
owners of a Sandwich Express Restaurant in exchange for a 27% stock ownership
interest in a new corporation formed with an affiliated corporation.
Financing Activities.
Long-term debt decreased $178,400 to $497,200 at March 31, 1998 due to payments
of $160,500 on outstanding obligations and the forgiveness of $50,000 due to a
related party in exchange for common stock. This decrease was offset by an
increase in amounts due to related parties of $32,100.
<PAGE> 14
Common stock and additional paid-in capital increased $1,000 and $49,000,
respectively, to $32,100 and $6,038,100, respectively, at March 31, 1998 due to
the forgiveness of $50,000 of related party debt in exchange for 1,000,000
shares of common stock issued at $.05 per share.
Results of Operations.
Nine Months Ended March 31, 1998
As Compared to Nine Months Ended March 31, 1997
Franchise Operations.
For the nine months ended March 31, 1998, the Company recognized initial
franchise fees of $29,300 from one international license contract, a 67.6%
decrease in fees from the comparable period in 1997.
The Company recognized $387,700 of royalty income during the nine months ended
March 31, 1998, a $14,800 (3.7%) decrease from royalty income of $402,500
recognized for the comparable period in 1997. The decrease was due primarily to
an overall decrease in system-wide sales.
Rental income decreased $72,900 (52.0%) during the nine months ended March 31,
1998 as compared to the nine months ended March 31, 1997, due to the decrease in
rental receipts from franchisees who pay their rent directly to the landlord
instead of to the Company as a pass through to the landlord. Similarly, rent
expense decreased by approximately the proportionate percentage amount.
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 lease, would collect rent from the
franchisees (subleases) and pay it directly to the landlord. This trend is
expected to continue until all franchisees negotiate their own leases directly
with lessors.
Interest income decreased $1,900 (6.3%) to $28,400 for the nine months ended
March 31, 1998 as compared to $30,300 for the nine months ended March 31, 1997.
This decrease is due to an increase in collections on notes receivable and the
Company's policy of not accruing interest income on notes receivable that are
over six months in arrears.
Rebate income decreased $11,100 (8.5%) to $119,200 during the nine months ended
March 31, 1998 as compared to the nine months ended March 31, 1997, due to an
overall decline in system-wide sales.
Other income increased $82,000 (168.0%) to $130,800 for the nine months ended
March 31, 1998 due primarily to the one-time receipt of $83,000 from a vendor
when the Company agreed to change its soft drink supplier.
The Company recognized a gain of $26,200 on the sale of restaurants and
equipment during the nine months ended March 31, 1998.
General and administrative expenses decreased $31,500 (5.6%) to $528,200 during
the nine months ended March 31, 1998 as compared to the nine months ended March
31, 1997 due primarily to an overall reduction in administrative and management
expenses.
Interest expense decreased $22,400 (82.7%) to $4,700 for the nine months ended
March 31, 1998 as compared to the nine months ended March 31, 1997 due to a
significant decrease in the Company's long-term debt.
<PAGE> 15
Company-owned Restaurant Operations.
Company-owned restaurant revenues decreased $226,900 or 18.5% during the nine
months ended March 31, 1998 compared to the same period in 1997. The Company
sold three operating restaurants during the nine months ended March 31, 1998.
Due to the decrease in sales volume, gross profit decreased $185,900 (21.6%) for
the nine months ended March 31, 1998 as compared to the same period in 1997.
Gross profit as a percentage of sales decreased 2.7% from 70.2% to 67.5% for the
nine months ended March 31, 1998. The decrease was due to increases in food
costs.
Company-owned restaurant expenses increased $75,600 or 9.3% during the nine
months ended March 31, 1998 as compared to the same period in 1997 as a result
of the increased overhead costs incurred in operating an additional
Company-owned restaurant and bakery.
Three Months Ended March 31, 1998
As Compared to Three Months Ended March 31, 1997
Franchise Operations.
For the three months ended March 31, 1998, the Company recognized initial
franchise fees of $9,800 from one international license contract, a 74.5%
decrease in fees from the same period in 1997.
The Company recognized $119,500 of royalty income during the three months ended
March 31, 1998, a $25,100 (17.4%) decrease from royalty income of $144,600
recognized for the comparable period in 1997. The decrease was due primarily to
an overall decline in system-wide sales.
Rental income decreased $30,200 (71.9%) during the three months ended March 31,
1998 as compared to the three months ended March 31, 1997, due to the decrease
in rental receipts from franchisees who pay their rent directly to the landlord
instead of to the Company as a pass through to the landlord. Similarly, rent
expense decreased by approximately the proportionate percentage amount.
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 lease, would collect rent from the
franchisees (subleases) and pay it directly to the landlord. This trend is
expected to continue until all franchisees negotiate their own leases directly
with lessors.
Interest income increased $7,700 (84.6%) to $16,800 for the three months ended
March 31, 1998 as compared to $9,100 for the three months ended March 31, 1997.
This increase is due to an increase in collections on notes receivable.
Rebate income decreased $2,100 (5.7%) during the three months ended March 31,
1998 as compared to the three months ended March 31, 1997, due to an overall
decline in system-wide sales.
Other income increased $2,400 (8.2%) to $31,600 for the three months ended March
31, 1998. The increase was due primarily to salad dressing sales revenue and
vending game income earned during the quarter ended March 31, 1998.
The Company recognized a gain of $19,700 on the sale of company-owned
<PAGE> 16
restaurants and equipment during the three months ended March 31, 1998.
General and administrative expenses decreased $25,300 (14.2%) to $152,900 during
the three months ended March 31, 1998 as compared to the three months ended
March 31, 1997 due primarily to an overall reduction in administrative and
management expenses.
Interest expense decreased $7,800 (86.7%) to $1,200 for the three months ended
March 31, 1998 as compared to the three months ended March 31, 1997 due to a
significant decrease in the Company's long-term debt.
Company-owned Restaurant Operations.
Company-owned restaurant revenues decreased $324,000 or 68.5% during the three
months ended March 31, 1998 as compared to the same period in 1997. The Company
owned only one operating restaurant and the Sandwich Express bakery during most
of the three month period ended March 31, 1998 as compared to three restaurants
and the bakery during the three months ended March 31, 1997.
Due to the decrease in sales volume, gross profit decreased $222,400 (68.1%) for
the three months ended March 31, 1998 as compared to the same period in 1997.
Gross profit as a percentage of sales increased 0.7% from 69.0% to 69.7% for the
three months ended March 31, 1998.
Company-owned restaurant expenses decreased $106,300 or 40.0% during the three
months ended March 31, 1998 as compared to the same period in 1997 as a result
of the sale of company-owned restaurants
President's Comments:
The third quarter results for the year ended June 30, 1998, were substantially
better than management's projections. Even after taking a one time write-off of
$58,000 for uncollectible notes receivable and royalties receivable, there was a
loss of only $7,400 for the quarter. In large part, this is due to the fact that
the Company is ahead of schedule in divesting itself of its Company-owned
restaurants. Furthermore, the Company has made substantial progress in
stabilizing and increasing the revenues generated from franchise operations. The
Company also re-licensed two locations, which it did not expect to do.
For the remainder of the current fiscal year, the Company intends to continue to
develop its new express and fresh mex concepts.
The Company will also continue to seek a merger/acquisition which will
strengthen the Company's balance sheet and give it the resources necessary to
aggressively develop its new concepts.
<PAGE> 17
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
quarter ended March 31, 1998.
<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 Granada
Hills, State of California on May 15, 1998.
N.U. PIZZA HOLDING CORPORATION
By: /s/
--------------------------------
Ronald J. Gelet
President
Pursuant to 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: 5/15/98
- ----------------------------------- --------------
Ronald J. Gelet
Director, President and Chief
Executive Officer
/s/ Dated: 5/15/98
- ----------------------------------- --------------
Gloria Gelet
Director
/s/ Dated: 5/15/98
- ----------------------------------- --------------
Jane Yennie
Controller
/s/ Dated: 5/15/98
- ----------------------------------- --------------
Dan Rouse
Director
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-30-1998
<PERIOD-START> JUL-1-1997
<PERIOD-END> MAR-31-1998
<CASH> 46,000
<SECURITIES> 0
<RECEIVABLES> 445,900
<ALLOWANCES> 238,400
<INVENTORY> 4,300
<CURRENT-ASSETS> 289,600
<PP&E> 608,000
<DEPRECIATION> 322,000
<TOTAL-ASSETS> 2,155,700
<CURRENT-LIABILITIES> 811,100
<BONDS> 0
0
12,400
<COMMON> 32,100
<OTHER-SE> 1,017,600
<TOTAL-LIABILITY-AND-EQUITY> 2,155,700
<SALES> 1,000,100
<TOTAL-REVENUES> 1,789,000
<CGS> 325,000
<TOTAL-COSTS> 1,513,800
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,700
<INCOME-PRETAX> (54,500)
<INCOME-TAX> 1,600
<INCOME-CONTINUING> (56,100)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (56,100)
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