<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 December 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) (Zip Code)
(818) 368-2616
----------------------------------------------------
(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, 1998, there were 48,164,008 shares of common stock
outstanding. Par value is $.001.
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PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
N. U. PIZZA HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
---------- ----------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 45,100 $ 54,800
Restricted cash 18,800 13,000
Franchisee advertising receivable 46,900 16,600
Receivables, net of allowance for
doubtful accounts of $21,100 101,000 47,000
Current portion of related party
notes receivable 24,200 25,700
Current portion of notes receivable -
franchisees, net of allowances
of $20,700 114,700 104,300
Inventories -- 3,600
Prepaid expenses 7,600 23,100
---------- ----------
Total current assets 358,300 288,100
---------- ----------
Other assets:
Related party notes receivable, net
of allowances of $110,300 126,200 129,100
Notes receivable - franchisees, net
of allowances of $236,000 898,300 814,500
Intangible assets, net of accumulated
amortization of $339,900 and $331,200,
respectively 160,100 168,800
Investments in affiliated corporations 295,900 262,200
Deposits and other assets 34,900 34,000
---------- ----------
1,515,400 1,408,600
---------- ----------
Leasehold improvements and property
and equipment, net of accumulated
depreciation and amortization of
$183,000 and $288,800, respectively 20,200 214,400
---------- ----------
$1,893,900 $1,911,100
========== ==========
</TABLE>
See accompanying notes to financial statements and management's
discussion and analysis of financial condition and results of operations.
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N. U. PIZZA HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
----------- -----------
(Unaudited) (Audited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 175,600 $ 175,300
Accounts payable and accrued expenses 298,200 461,600
Accrued franchise advertising 65,700 29,600
Current portion - litigation settlements 31,500 35,300
Loans payable to related parties 100,000 163,500
Income taxes payable 900 --
----------- -----------
Total current liabilities 671,900 865,300
----------- -----------
Long-term debt, net of current portion 140,000 91,500
Litigation settlements, net of
current portion 10,000 32,500
Deferred franchise fee income 47,400 66,900
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,
48,164,008 and 32,139,008 shares issued,
subscribed and outstanding, respectively 48,100 32,100
Additional paid-in capital 6,182,100 6,038,100
Notes receivable arising from stock
purchase agreements (402,000) (402,000)
Accumulated deficit (4,816,000) (4,825,700)
----------- -----------
1,024,600 854,900
----------- -----------
$ 1,893,900 $ 1,911,100
=========== ===========
</TABLE>
See accompanying notes to financial statements and management's discussion and
analysis of financial condition and results of operations.
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N. U. PIZZA HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
---------------------------- ----------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
FRANCHISE OPERATIONS:
REVENUES:
Initial franchise fees $ 14,700 $ 9,700 $ 29,500 $ 19,500
Royalties 99,200 129,400 198,500 268,200
Rental income 5,000 25,500 9,600 55,500
Interest income 11,200 5,400 21,800 11,600
Rebate income 36,600 49,800 68,000 84,500
Other income 16,100 12,100 36,500 99,200
Gain on sale of restaurant
and equipment 15,800 6,500 15,800 6,500
--------- --------- --------- ---------
198,600 238,400 379,700 545,000
--------- --------- --------- ---------
COSTS AND EXPENSES:
Rent 8,500 33,100 8,500 73,700
General and administrative 164,700 210,200 330,600 375,300
Interest expense 12,100 2,600 14,400 3,500
--------- --------- --------- ---------
185,300 245,900 353,500 452,500
--------- --------- --------- ---------
Franchise operating
income (loss) 13,300 (7,500) 26,200 92,500
--------- --------- --------- ---------
</TABLE>
See accompanying notes to financial statements and management's discussion and
analysis of financial condition and results of operations.
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N. U. PIZZA HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
----------------------------------- -----------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
COMPANY-OWNED RESTAURANT
OPERATIONS:
Sales $ 33,200 $ 392,900 $ 140,000 $ 850,900
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Cost of sales 11,500 125,400 45,500 279,800
Operating 17,500 182,400 69,500 394,200
General and
administrative 11,500 130,300 39,800 316,500
------------ ------------ ------------ ------------
40,500 438,100 154,800 990,500
------------ ------------ ------------ ------------
Company-owned
restaurant loss (7,300) (45,200) (14,800) (139,600)
------------ ------------ ------------ ------------
Income (loss) before
income tax provision 6,000 (52,700) 11,400 (47,100)
Income tax provision -- -- 1,700 1,600
------------ ------------ ------------ ------------
Net income (loss) $ 6,000 $ (52,700) 9,700 (48,700)
============ ============
Accumulated deficit,
beginning of period (4,825,700) (4,477,400)
------------ ------------
Accumulated deficit,
end of period $ (4,816,000) $ (4,526,100)
============ ============
Net income (loss)
per share - basic $ 0.00 $ 0.00 $ 0.00 $ 0.00
============ ============ ============ ============
Weighted average
number of shares
outstanding - basic 44,157,758 31,139,008 38,148,383 31,139,008
============ ============ ============ ============
Net income (loss)
per share - diluted $ 0.00 $ 0.00 $ 0.00 $ 0.00
============ ============ ============ ============
Weighted average
number of shares
outstanding -
diluted 44,157,758 31,139,008 38,148,383 31,139,008
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements and management's discussion and
analysis of financial condition and results of operations.
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N. U. PIZZA HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
----------- ----------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 9,700 $ (48,700)
Adjustments to reconcile net
income (loss) to net cash (used)
provided by operating activities:
Depreciation and amortization 24,700 156,400
Gain on sale of restaurants
and equipment (15,800) (6,500)
Realization of deferred income (19,500) (19,500)
Changes in assets and liabilities:
Receivables, net (54,000) (45,800)
Inventories 3,600 3,600
Prepaid expenses 9,500 44,400
Accounts payable and accrued
expenses (81,900) (32,200)
Accrued royalties due to officer 15,000 --
Deposits (900) (1,400)
Income taxes payable 900 1,600
--------- ---------
Net cash (used) provided by
operating activities (108,700) 51,900
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Collections on notes receivable 110,200 39,600
Investments in affiliates (20,800) --
--------- ---------
Net cash provided by
investing activities 89,400 39,600
--------- ---------
</TABLE>
See accompanying notes to financial statements and management's discussion and
analysis of financial condition and results of operations.
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N. U. PIZZA HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
---------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in amounts due
to related parties $ -- $ 24,600
Increase in notes payable 116,800 --
Principal payments on long-term debt (107,200) (113,300)
--------- ---------
Net cash provided (used)
by financing activities 9,600 (88,700)
--------- ---------
Net (decrease) increase
in cash and cash equivalents (9,700) 2,800
Cash and cash equivalents,
beginning of period 54,800 --
--------- ---------
Cash and cash equivalents,
end of period $ 45,100 $ 2,800
========= =========
Supplemental information:
Cash paid for interest $ 12,100 $ 3,500
Cash paid for income taxes $ 900 $ --
Non-cash transactions:
Note receivable issued in exchange
for fixed assets, prepaid expenses
and accounts receivable $ 200,000 $ 262,000
Common stock issued in exchange
for accrued expenses and loans
to related parties 160,000 --
Note payable issued in exchange for
investment in affiliated corporation 12,900 --
Notes receivable issued in
exchange for accounts receivable -- 30,800
Accounts and note receivable
forgiven in exchange for investment -- 17,000
</TABLE>
See accompanying notes to financial statements and management's discussion and
analysis of financial condition and results of operations.
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N. U. PIZZA HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997
(Unaudited)
In the opinion of management of N. U. Pizza Holding Corporation and Subsidiaries
(the "Company"), the accompanying unaudited consolidated 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, 1998
and the results of its operations and changes in its cash flows for the three
and six month periods presented.
The consolidated financial statements and notes are presented as permitted by
Form 10-Q and do not contain certain information included in the annual
consolidated financial statements and notes.
These unaudited consolidated financial statements should be read in conjunction
with the Company's annual report on Form 10-K for the year ended June 30, 1998.
Note 1.
A summary of significant accounting policies is currently on file with the
Securities and Exchange Commission on Form 10-K.
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. Litigation
Pending
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 franchi-
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see was nonexclusive and terminable by the 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 to
the landlord and outstanding utility bills.
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.
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.
Settled
In 1987, as part of a settlement of a previously filed complaint,
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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 Pizzeria restaurants for a period of five years.
Subsequently, the Company filed a Demand for Arbitration before JAMS/Endispute,
Inc. alleging that the plaintiff violated the terms of the second settlement
agreement. In November 1996, the parties entered into a third settlement
agreement which superseded both previous agreements referenced above. This final
settlement agreement required the Company to pay the plaintiff a total of
$238,000 consisting of an immediate cash payment of $101,000, subsequent
installment payments totaling $37,000 plus interest at 8% per annum due on or
before November 1, 1998 and $100,000 (reduced to $75,000 during the year ended
June 30, 1998) payable in sixty monthly installments of $1,250.
At December 31, 1998, the Company classified the remaining amount due under the
terms of the final settlement agreement as a litigation settlement on its
balance sheet.
In January 1982, the Company subleased a restaurant location to a franchisee. In
March 1992, the franchisee assigned his 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
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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.
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. At December 31, 1998
approximately $700 remained unpaid and was accrued as a current liability in
connection with this case.
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 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 which was paid in full during the year ended June 30, 1998.
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 paying the Company $30,000 during
the year ended June 30, 1997.
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 which was
paid in
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full during the year ended June 30, 1997.
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 during the year ended June 30, 1997 and entered into a
new lease for the premises. 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 which was paid in full during
the six months ended December 31, 1998.
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.
Note 3. Income Taxes
The Company's federal income tax provisions for the three and six month
periods presented have been eliminated by the utilization of net operating loss
carryforwards. The Company would have been required to pay additional 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.
Note 4. Subsequent Event
On January 1, 1999, the Company's founder and president, Ronald J. Gelet,
resigned his directorship and officerships in the Company so that he would have
more time to deal with some serious family matters and to pursue other
interests, both of a personal and professional nature. In conjunction with Mr.
Gelet's deci-
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sion, his wife, Gloria Gelet, also resigned her directorship in the Company as
of January 1, 1999.
Dan Rouse, vice president and a director of the Company for the past five years,
with the approval of the Company's board of directors, has succeeded Mr. Gelet
as president of the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Six Months Ended December 31, 1998:
Liquidity and Capital Resources.
For the six months ended December 31, 1998, the Company had an overall negative
cash flow of $9,700. Collection of principal amounts due on notes receivable
were offset by the Company's continued payments on outstanding trade and
notes payable. Cash and cash equivalents at December 31, 1998 were $45,100.
Operating Activities.
Accounts receivable increased $54,000 to $101,000 at December 31 1998 due to
franchisees not paying their royalties timely.
Prepaid expenses decreased $15,500 to $7,600 at December 31, 1998. The decrease
is due primarily to the sale of the one remaining Company-owned restaurant in
November, 1998 and the expiration of prepaid advertising, consulting, insurance
and rent recorded at June 30, 1998.
Inventories decreased $3,600 due to the sale of the last Company-owned
restaurant and deposits increased $900 at December 31, 1998 due to normal
business fluctuations.
Intangible assets decreased $8,700 to $160,100 during the six months ended
December 31, 1998 due to normal monthly amortization.
Accounts payable and accrued expenses decreased $163,400 to $298,200 at December
31, 1998, primarily due to the increased payment of outstanding trade payables
and the exchange of accrued salaries of $81,500 for 8,162,800 shares of common
stock.
Accrued franchise advertising payable increased $36,100 during the six months
ended December 31, 1998. This increase is offset by an increase in advertising
fund receivables of $30,300 and an increase in advertising cash of $5,800.
Deferred license fees of $19,500 were recognized as income during
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the six months ended December 31, 1998.
Income taxes payable increased $900 at December 31, 1998 due to the recognition
of required minimum state tax liabilities for the current fiscal year.
Related party loans payable decreased $63,500 to $100,000 at December 31, 1998
due to the accrual of $15,000 of additional dough royalties due to the former
president of the Company. This increase was offset by a decrease of $78,500
resulting from the exchange of 7,862,200 shares of common stock for outstanding
amounts due to the former president of the Company.
Investing Activities:
Notes receivable - franchisees and related party notes receivable increased
$89,800 to $1,013,000 and 150,400, respectively, at December 31, 1998 due to the
issuance of $200,000 of notes receivable in exchange for fixed assets,
receivables and prepaid expenses and the collection of $110,200 of outstanding
amounts due to the Company.
Net leasehold improvements and property and equipment decreased $194,200 to
$20,200 at December 31, 1998. The decrease was due to the sale of the one
remaining Company-owned restaurant and to normal monthly depreciation and
amortization.
The Company invested an additional $20,800 of cash and assumed a liability of
$12,900 of an affiliated corporation during the six months ended December 31,
1998.
Financing Activities.
Long-term debt and accrued litigation settlements increased $22,500 to $357,100
at December 31, 1998 due to borrowings of $116,800 and the assumption of a
$12,900 liability in exchange for an investment in an affiliated corporation.
These increases were offset by principal payments of $107,200.
Results of Operations.
Six Months Ended December 31, 1998
As Compared to Six Months Ended December 31, 1997
Franchise Operations.
For the six months ended December 31, 1998, the Company recognized initial
franchise fees of $19,500 from one international license contract and $10,000
from two one-time transfer fees from franchisees, a 51.3% increase in fees from
the same period in 1997.
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The Company recognized $198,500 of royalty income during the six months ended
December 31, 1998, a $69,700 (26%) decrease from royalty income of $268,200
recognized for the comparable period in 1997. The decrease was due primarily to
a reduction in the total number of operating franchised restaurants during the
six months ended December 31, 1998 as compared to the same period in 1997.
Rental income decreased $45,900 (82.7%) during the six months ended December 31,
1998 as compared to the six months ended December 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 65,200 (88.5%) to $8,500 during the six months ended December
31, 1998. 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 $10,200 (88%) to $21,800 for the six months ended
December 31, 1998 as compared to $11,600 for the six months ended December 31,
1997. This increase is due to an increase in collections on notes receivable.
Rebate income decreased $16,500 (19.5%) to $68,000 during the six months ended
December 31, 1998 as compared to the six months ended December 31, 1997, due to
an overall decline in system-wide sales.
Other income decreased $62,700 (63.2%) to $36,500 for the six months ended
December 31, 1998 due primarily to the one-time receipt during the six months
ended December 31, 1997 from a vendor when the Company agreed to change its soft
drink supplier.
The Company recognized a gain of $15,800 on the sale of its one remaining
Company-owned restaurant and equipment during the six months ended December 31,
1998.
General and administrative expenses decreased $44,700 (12%) to $330,600 during
the six months ended December 31, 1998 as compared to the six months ended
December 31, 1997 due primarily to an overall reduction in administrative and
management expenses.
Interest expense increased $10,900 (311.5%) to $14,400 for the six months ended
December 31, 1998 as compared to the six months ended December 31, 1997 due to
an increase in the Company's long-term debt.
15
<PAGE> 16
Company-owned Restaurant Operations.
Company-owned restaurant revenues decreased $710,900 or 83.6% during the six
months ended December 31, 1998 as compared to the same period in 1997. The
Company owned four operating restaurants and the Sandwich Express bakery during
the majority of the six months ended December 31, 1997 as compared to only one
Company-owned restaurant during four of the six months ended December 31, 1998.
Due to the decrease in sales volume, gross profit decreased $476,600 (83.5%) for
the six months ended December 31, 1998 as compared to the same period in 1997.
Gross profit as a percentage of sales increased slightly by 0.3% from 67.2% to
67.5% for the six months ended December 31, 1998.
Company-owned restaurant costs and expenses decreased $601,400 or 84.7% during
the six months ended December 31, 1998 as compared to the same period in 1997 as
a result of the sales of four Company-owned restaurants and the closure of the
Sandwich Express bakery during the year ended June 30, 1998.
Three Months Ended December 31, 1998
As Compared to Three Months Ended December 31, 1997
Franchise Operations.
For the three months ended December 31, 1998, the Company recognized initial
franchise fees of $9,700 from one international license contract and $5,000 from
a one-time transfer fee from a franchisee, a 51.5% increase in fees from the
same period in 1997.
The Company recognized $99,200 of royalty income during the three months ended
December 31, 1998, a $30,200 (23.4%) decrease from royalty income of $129,400
recognized for the comparable period in 1997. The decrease was due primarily to
a reduction in the total number of operating franchised restaurants during the
three months ended December 31, 1998 as compared to the same period in 1997.
Rental income decreased $20,500 (80.4%) during the three months ended December
31, 1998 as compared to the three months ended December 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 24,600 (74.3%) during the three months ended December 31,
1998. 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.
16
<PAGE> 17
This trend is expected to continue until all franchisees negotiate their own
leases directly with lessors.
Interest income increased $5,800 (107.4%) to $11,200 for the three months ended
December 31, 1998 as compared to $5,400 for the three months ended December 31,
1997. This increase is due to an increase in collections on notes receivable.
Rebate income decreased $13,200 (26.5%) to $36,600 during the three months ended
December 31, 1998 as compared to the three months ended December 31, 1997, due
to an overall decline in system-wide sales.
Other income increased $4,000 (33.1%) to $16,100 for the three months ended
December 31, 1998 due primarily to leasing equipment.
The Company recognized a gain of $15,800 on the sale of its one remaining
Company-owned restaurant and equipment during the three months ended December
31, 1998.
General and administrative expenses decreased $45,500 (21.7%) to $164,700 during
the three months ended December 31, 1998 as compared to the three months ended
December 31, 1997 due primarily to an overall reduction in administrative and
management expenses.
Interest expense increased $9,500 (365.4%) to $12,100 for the three months ended
December 31, 1998 as compared to the three months ended December 31, 1997 due to
an increase in the Company's long-term debt.
Company-owned Restaurant Operations.
Company-owned restaurant revenues decreased $359,700 or 91.6% during the three
months ended December 31, 1998 as compared to the same period in 1997. The
Company owned four operating restaurants and the Sandwich Express bakery during
the three months ended December 31, 1997 as compared to only one Company-owned
restaurant during one of the three months ended December 31, 1998.
Due to the decrease in sales volume, gross profit decreased $245,800 (91.9%) for
the three months ended December 31, 1998 as compared to the same period in 1997.
Gross profit as a percentage of sales decreased by 2.7% from 68.1% to 65.4% for
the three months ended December 31, 1998. This decrease was due to an increase
in food costs.
Company-owned restaurant costs and expenses decreased $283,700 or 90.8% during
the three months ended December 31, 1998 as compared to the same period in 1997
as a result of the sales of
17
<PAGE> 18
four Company-owned restaurants and the closure of the Sandwich Express bakery
during the year ended June 30, 1998.
President's Comments:
The Company reported a small profit of $6,000 for the second quarter but, more
importantly, the Company continued to reduce its total liabilities.
The Company sold its last Company-owned restaurant in order to allow the Company
to focus on growth and franchise sales. The Company has also started development
of its new prototype restaurant which will be introduced by the end of the
fiscal year.
Management believes that the third quarter should show a profit due to the
continued reduction in total debt and corporate overhead expenses.
The entire management team is very optimistic about the Company's
long-term future, both in profitability and growth.
CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
During the current fiscal year, the Company began the process of identifying,
evaluating and implementing changes to computer programs necessary to address
the year 2000 issue. This issue affects computer systems that have
time-sensitive programs that may not properly recognize the year 2000. This
could result in major system failures or miscalculations. The Company is
currently addressing its internal year 2000 issue with modifications to existing
programs and conversions to new programs. The Company is also communicating with
franchisees, vendors and others with which it conducts business to help them
identify and resolve the 2000 issue.
The total cost associated with the required modifications and conversions is not
expected to be material to the Company's consolidated results of operations and
financial position and is being expensed as incurred.
If necessary modifications and conversions by the Company and those with which
it conducts business are completed in a timely manner, the year 2000 issue is
not expected by management of the Company to have a material adverse effect on
the Company's consolidated results of operations and financial position.
18
<PAGE> 19
Certain statements in this report may be forward-looking in nature or
"forward-looking statements" as defined in the Private Securities Litigation
Reform Act of 1995. Forward-looking statements in this Form 10-Q relate to the
Company's Year 2000 compliance efforts, including expectations about compliance
timetables and costs.
Actual results may differ from those expressed or implied in forward-looking
statements. With respect to any forward-looking statements contained in this
report, the Company believes that its results are subject to a number of risk
factors, including the ability of the Company to identify and address
successfully Year 2000 issues in a timely manner, and at costs that are
reasonably in line with projections, and the ability of the Company's vendors to
identify and address successfully their own Year 2000 issues in a timely manner.
Any forward-looking statements in this report should be evaluated in light of
these important risk factors.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - None
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities and Use of Proceeds - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security
Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K - None
19
<PAGE> 20
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 February 11, 1999.
N. U. PIZZA HOLDING CORPORATION
By: /s/
-------------------------------
Dan Rouse
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: 2/11/98
- ------------------------------- -------------------------------
Dan Rouse
Director and President
/s/ Dated: 2/11/98
- ------------------------------- -------------------------------
Deborah Murphy
Director, Vice President and
Secretary
/s/ Dated: 2/11/98
- ------------------------------- -------------------------------
Jane Yennie
Treasurer and Controller
/s/ Dated: 2/11/98
- ------------------------------- -------------------------------
Michael L. Lorella
Director
20
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 63,900
<SECURITIES> 0
<RECEIVABLES> 304,400
<ALLOWANCES> 41,800
<INVENTORY> 0
<CURRENT-ASSETS> 358,300
<PP&E> 203,200
<DEPRECIATION> 183,000
<TOTAL-ASSETS> 1,893,900
<CURRENT-LIABILITIES> 671,900
<BONDS> 150,000
0
12,400
<COMMON> 48,100
<OTHER-SE> 964,100
<TOTAL-LIABILITY-AND-EQUITY> 1,893,900
<SALES> 140,000
<TOTAL-REVENUES> 519,700
<CGS> 45,500
<TOTAL-COSTS> 448,400
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,400
<INCOME-PRETAX> 11,400
<INCOME-TAX> 1,700
<INCOME-CONTINUING> 9,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,700
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