<PAGE>
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, 1999.
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
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(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
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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 December 31, 1999, there were 49,164,008 shares of common stock out
standing. 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,
1999 1999
------------ ------------
(Unaudited) (Audited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 58,300 $ 60,600
Restricted cash 13,900 16,800
Franchisee advertising receivable 92,000 35,600
Receivables, net of allowance for
doubtful accounts of $21,100 113,900 54,000
Advances to affiliated corporations 57,600 42,400
Current portion of related party
notes receivable, net of allowances
of $150,300 96,700 96,700
Current portion of notes receivable -
franchisees, net of allowances of
$295,700 125,500 130,500
Prepaid expenses 15,300 15,700
------------ ------------
Total current assets 573,200 452,300
------------ ------------
Other assets:
Notes receivable - franchisees,
net of allowances of $118,600 488,600 423,100
Intangibles assets, net of
accumulated amortization of $3,600 8,300 8,300
Deposits 35,100 22,900
------------ ------------
532,000 454,300
------------ ------------
$ 1,105,200 $ 906,600
============ ============
</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 (CONTINUED)
<TABLE>
<CAPTION>
December 31, June 30,
1999 1999
------------ ------------
(Unaudited) (Audited)
LIABILITIES AND STOCKHOLDERS' DEFICIT
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses $ 435,200 $ 350,500
Accrued franchise advertising 105,900 52,400
Current portion of long-term debt 117,000 167,700
Current portion of litigation settlements 110,000 164,800
Loans payable to related parties 653,500 486,400
------------ ------------
Total current liabilities 1,421,600 1,221,800
------------ ------------
Long-term debt, net of current portion 152,700 161,300
Litigation settlements, net of current
portion 73,400 76,500
Deferred franchise fee income 3,400 22,900
Stockholders' deficit:
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 100,000,000 and
50,000,000 shares, shares issued,
subscribed and outstanding
49,164,008, and 48,164,008 49,200 48,400
Additional paid-in capital 6,211,100 6,182,100
Accumulated deficit (6,818,600) (6,818,800)
------------ ------------
(570,400) (575,900)
------------ ------------
$ 1,105,200 $ 906,600
============ ============
</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
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1999 1998 1999 1998
------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
FRANCHISE OPERATIONS:
REVENUES:
Initial franchise fees $ 9,800 $ 14,700 $ 19,500 $ 29,500
Royalties 89,000 99,200 175,600 198,500
Rental income -- 5,000 -- 9,600
Interest income 10,200 11,200 18,300 21,800
Rebate income 34,300 36,600 68,000 68,000
Other income 20,000 16,100 140,100 36,500
Gain on sale of restaurant
and equipment -- 15,800 -- 15,800
Forgiveness of debt 5,600 -- 5,600 --
------------ ------------ ------------ ------------
168,900 198,600 427,100 379,700
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Rent -- 8,500 -- 8,500
General and administrative 157,400 164,700 435,400 330,600
Interest expense 9,000 12,100 15,300 14,400
------------ ------------ ------------ ------------
166,400 185,300 450,700 353,500
Franchise operating -- --
income (loss) 2,500 13,300 (23,600) 26,200
------------ ------------ ------------ ------------
</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 OPERATIONS AND ACCUMULATED DEFICIT
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1999 1998 1999 1998
------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
COMPANY-OWNED RESTAURANT
OPERATIONS:
Sales $ -- $ 33,200 $ -- $ 140,000
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Cost of sales -- 11,500 -- 45,500
Operating -- 17,500 69,500
General and
administrative -- 11,500 -- 39,800
------------ ------------ ------------ ------------
-- 40,500 -- 154,800
------------ ------------ ------------ ------------
Company-owned
restaurant loss -- (7,300) -- (14,800)
------------ ------------ ------------ ------------
Income (loss) before
income tax provision 2,500 6,000 (23,600) 11,400
Income tax provision 800 -- 800 1,700
------------ ------------ ------------ ------------
Net income (loss) $ 1,700 $ 6,000 (24,400) 9,700
============ ============
Accumulated deficit,
beginning of period (6,818,600) (4,825,700)
------------ ------------
Accumulated deficit,
end of period $ (6,794,200) $ (4,816,000)
============ ============
Net income (loss)
per share - basic $ 0.00 $ 0.00 $ 0.00 $ 0.00
============ ============ ============ ============
Weighted average
number of shares
outstanding - basic 48,229,225 44,157,758 48,000,283 38,148,383
============ ============ ============ ============
Net income (loss)
per share - diluted $ 0.00 $ 0.00 $ 0.00 $ 0.00
============ ============ ============ ============
Weighted average
number of shares
outstanding - diluted 48,229,225 44,157,758 48,000,283 38,148,383
============ ============ ============ ============
</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
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income /loss $ (24,400) $ 9,700
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Depreciation and amortization -- 24,700
Forgiveness of debt (5,600) (15,800)
Realization of deferred franchise
fee income (9,800) (19,500)
Changes in assets and liabilities:
Receivables, net (8,800) (54,000)
Inventories -- 3,600
Prepaid expenses (3,000) 9,500
Accounts payable and accrued expenses 35,000 (81,900)
Accrued expenses due to related party 7,500 15,000
Deposits (300) (900)
--------- ---------
Net cash provided (used)
by operating activities (9,400) (108,700)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Collections on notes receivable -
franchisees 9,900 110,200
Advances to affiliated corporations (57,600) (20,800)
--------- ---------
Net cash (used) provided
by investing activities (47,700) 89,400
--------- ---------
</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
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in loans payable
to related parties $ 170,600 $ 116,800
Principal payments on long-term debt (155,500) (107,200)
Proceeds from issuance of
common stock 30,000 --
--------- ---------
Net cash provided (used)
by financing activities 45,100 9,600
--------- ---------
Net increase (decrease) in
cash and cash equivalents (12,000) (9,700)
Cash and cash equivalents,
beginning of period 60,600 54,800
--------- ---------
Cash and cash equivalents,
end of period $ 58,300 $ 45,100
========= =========
Supplemental information:
Cash paid for interest $ 46,100 $ 12,100
Cash paid for income taxes $ 800 $ 900
</TABLE>
See accompanying notes to financial statements and management's discussion and
analysis of financial condition and results of operations.
7
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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, 1999 AND 1998
(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, 1999 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, 1999.
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.
Certain prior period balances have been reclassified in the consolidated
financial statements to conform to the current period's presentation.
Note 2. Common Stock
In August 1999, the Company's Board of Directors approved an increase from
50,000,000 to 100,000,000 authorized shares of common stock.
On July 23, 1999, the Company entered into agreements with two consultants. The
agreements are for a fourteen month period and are scheduled to expire on
September 30, 2000. The consultants are to assist the Company with the expansion
of its operations by identifying, evaluating and structuring acquisitions of
other companies. The consultants will also provide ongoing consulting services
in the areas of management, strategic planning, corporate financing and
marketing in connection with the Company's line of business.
In consideration for their efforts, the Company granted each consultant an
option to purchase 1,000,000 shares of the Company's common stock at an exercise
price of $.03 per share. On September 22, 1999, one of the consultants
exercised his option by paying the Company $30,000 in exchange for 1,000,000
shares of the Company's common stock, and on September 30, 1999, the option for
the other consultant expired without being exercised.
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Note 3. 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 franchisee 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.
9
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SETTLED
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 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 refer enced 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
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 March 31, 1999, 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 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
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parties settled the matter; the Company agreed to pay the plaintiff $56,700
in monthly installments of $2,500 until paid in full. At March 31, 1999
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 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 nine months ended March 31, 1999.
11
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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 4. 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 5. Resignation of Officer and Directors
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 decision, 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.
Jane Yennie, controller of the Company resigned her officership as Treasurer on
February 15, 2000.
Note 6. Subsequent Event
On February 4, 2000, the Company filed chapter 11.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1999:
LIQUIDITY AND CAPITAL RESOURCES.
For the six months ended December 31, 1999, the Company had an overall negative
cash flow of $12,000. 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, 1999 were $58,300.
OPERATING ACTIVITIES.
Accounts receivable increased $12,900 to $113,900 at December 31 1999 due to
franchisees not paying their royalties timely.
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Prepaid expenses increased $7,700 to $15,300 at December 31, 1999. The increase
is due primarily to the prepayment of general liability insurance.
Intangible assets decreased to $8,300 during the six months ended December 31,
1999.
Accounts payable and accrued expenses increased $137,000 to $435,200 at December
31, 1999. This was due primarily to the Company's limited ability to generate
cash flow to pay its obligations.
Accrued franchise advertising payable increased $40,200 during the six months
ended December 31, 1999. This increase is offset by an increase in advertising
fund receivables of $45,100 and an decrease in advertising cash of $4,900.
Deferred license fees of $19,500 were recognized as income during the six months
ended December 31, 1999.
Related party loans payable increased $167,100 to $653,500 at December 31, 1999.
During the six months ended December 31, 1999, the Company borrowed $159,600
from its former president, and accrued additional obligations to him of $7,500.
INVESTING ACTIVITIES:
Notes receivable - franchisees and related party notes receivable decreased
$398,900 to $614,100 and 96,700, respectively, at December 31, 1999 due to the
collection of outstanding amounts due to the Company.
Advances to affiliated corporations increased $53,000 to $95,400 at December 31,
1999.
FINANCING ACTIVITIES.
Long-term debt and litigation settlements decreased $97,600 and $57,900,
respectively, to $231,400 and $183,400, respectively, at December 31, 1999 due
to principal payments made by the Company.
Common stock and additional paid-in capital increased $1,000 and $29,000,
respectively, to $49,200 and $6,211,100, respectively, at December 31, 1999. The
Company issued 1,000,000 shares of common stock at $.03 per share upon the
exercise of an option granted in connection with a consulting agreement entered
into on July 23, 1999.
RESULTS OF OPERATIONS.
SIX MONTHS ENDED DECEMBER 31, 1999
AS COMPARED TO SIX MONTHS ENDED DECEMBER 31, 1998
FRANCHISE OPERATIONS.
For the six months ended December 31, 1999, the Company recognized initial
franchise fees of $19,500, the same during the six months ended December 31,
1998.
The Company recognized $175,600 of royalty income during the six months ended
December 31, 1999, a $22,900 (12%) decrease from royalty income of $198,500
recognized for the comparable period in 1998. The decrease was due primarily to
a reduction in the total number of operating franchised restaurants during the
six months ended December 31, 1999 as compared to the same period in 1998.
No rental income was recognized during the six months ended December 31, 1999 as
compared to $4,600 of rental income recognized during the same period in
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1998. This decrease is due to the franchisees paying their rent directly to the
landlord instead of rents being passed through the Company as in prior years.
Interest income decreased $3,500 (16%) to $18,300 for the six months ended
December 31, 1999 as compared to $21,800 for the six months ended December 31,
1998.This decrease is due to a decrease in interest bearing notes receivable
outstanding during the six months ended December 31, 1999.
Rebate income maintained the same $68,000 during the six months ended
December 31, 1999 as compared to the six months ended December 31, 1998, due
to the favorable renegotiation of certain rebate agreements.
Other income increased $103,600 (283.8%) to $140,100 for the six months ended
December 31, 1999 due primarily to the one-time receipt during the six months
ended December 31, 1999 from a promotion Company to be used exclusively.
The Company recognized $5,600 of forgiveness of debt income for the six months
ended December 31, 1999 due to the writeoff of previously accrued accounts
payable. There were no such writeoffs during the three months ended December 31,
1998.
General and administrative expenses increased $104,800 (32%) to $435,400 during
the six months ended December 31, 1999 as compared to the six months ended
December 31, 1998 due primarily to franchisee who vacated their stores leaving
corporate debt.
Interest expense increased $900 (6.2%) to $15,300 for the six months ended
December 31, 1999 as compared to the six months ended December 31, 1998 due to
an increase in the Company's long-term debt.
COMPANY-OWNED RESTAURANT OPERATIONS.
There were no Company-owned restaurant operations during the six months ended
December 31, 1999. For the six months ended December 31, 1998, Company-owned
restaurant revenues totaled $140,000 and Company-owned restaurant costs and
expenses totaled $154,300, resulting in a Company-owned restaurant loss of
$14,800.
THREE MONTHS ENDED DECEMBER 31, 1999
AS COMPARED TO THREE MONTHS ENDED DECEMBER 31, 1998
FRANCHISE OPERATIONS.
For the three months ended December 31, 1999, the Company recognized initial
franchise fees of $9,800 from one international license agreement as compared to
$14,700 in initial franchise fees for the three months ended December 31, 1998,
a 33.8% decrease in fees.
The Company recognized $89,000 of royalty income during the three months ended
December 31, 1999, a $10,200 (10.3%) decrease from royalty income of $99,200
recognized for the comparable period in 1998. The decrease was due primarily to
a reduction in the total number of operating franchised restaurants during the
three months ended December 31, 1999 as compared to the same period in 1998.
No rental income was recognized during the three months ended December 31, 1999
as compared to $5,000 of rental income recognized during the same period in
1998. This decrease is due to the franchisees paying their rent directly to the
landlord instead of rents being passed through the Company as in prior years.
14
<PAGE>
Interest income decreased $1,000 (8.5%) to $10,200 for the three months ended
December 31, 1999 as compared to $11,200 for the three months ended December 31
1998. This decrease is due to a decrease in interest bearing notes receivable
outstanding during the three months ended December 31, 1999.
Rebate income decreased $2,300 (6.3%) to $34,300 during the three months ended
December 31, 1999 as compared to the three months ended December 31, 1998, due
to an overall decline in system-wide sales.
Other income increased $3,900 (24.2%) to $20,000 for the three months ended
December 31, 1999, the decrease in other income is primarily related to
fluctuations in payments received from the Company's exclusive 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 three months ended December
31, 1998.
The Company recognized $5,600 of forgiveness of debt income for the three months
ended December 31, 1999 due to the writeoff of previously accrued accounts
payable. There were no such writeoffs during the three months ended December 31,
1998.
General and administrative expenses consist of corporate payroll and related
benefits, insurance, professional fees, license fees and depreciation and
amortization. These expenses decreased $7,300 (4.4%) to $157,400 for the three
months ended December 31, 1999 as compared to $164,700 for the three months
ended December 31 1998. This decrease is due primarily to an overall reduction
in administrative and management staff expenses.
Interest expense decreased $3,100 (25.6%) to $9,000 for the three months ended
December 31, 1999 as compared to the three months ended December 31, 1998 This
was due primarily to the Company's limited ability to generate cash flow to pay
its obligations.
COMPANY-OWNED RESTAURANT OPERATIONS.
There were no Company-owned restaurant operations during the three months ended
December 31, 1999. For the three months ended December 31, 1998, Company-owned
restaurant revenues totaled $33,200 and Company-owned restaurant costs and
expenses totaled $40,500, resulting in a Company-owned restaurant loss of
$7,300.
PRESIDENT'S COMMENTS:
During this last quarter, the Company continued to be plagued by non-performing
obligations and creditors whose excessive demands were consuming all of the
Company's cash flow. In order to give the company an opportunity to move
forward, the company elected on February 4, 2000 to file for reorganization and
protection under Chapter 11 of the Federal Bankruptcy Laws.
With the non-performing obligations and the old creditors on hold, the company
can now concentrate on developing a plan which will give it the ability to meet
its obligations while growing and experiencing positive cash flow.
During the first month under the protection of the filing, the company has been
able to easily meet all of its obligations and is experiencing positive cash
flow.
We will now devote our time to a detailed plan to grow the company, improve and
expand our franchisee base and bring additional capital into the company. For
the first time since I have taken over as President of the company, we are in a
position to concentrate our energy on the issues that need attention in
15
<PAGE>
order for the company to prosper. Although it will take time, we are confident
that we will come out of this reorganization a stronger competitor and a more
viable company.
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.
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
16
<PAGE>
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 March 22, 2000.
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: 3/22/00
- ---------------------------------- -----------------------------
Dan Rouse
Director and President
/s/ Dated: 3/22/00
- ---------------------------------- -----------------------------
Deborah Murphy
Director, Vice President and
Secretary
/s/ Dated: 3/22/00
- ---------------------------------- -----------------------------
Jane Yennie
Controller
/s/ Dated: 3/22/00
- ---------------------------------- -----------------------------
Michael L. Lorella
Director
17
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<PAGE>
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 72,200
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 316,800
<INVENTORY> 0
<CURRENT-ASSETS> 573,200
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,105,200
<CURRENT-LIABILITIES> 1,421,600
<BONDS> 118,900
0
12,400
<COMMON> 49,200
<OTHER-SE> (607,500)
<TOTAL-LIABILITY-AND-EQUITY> 1,105,200
<SALES> 0
<TOTAL-REVENUES> 427,100
<CGS> 0
<TOTAL-COSTS> 435,400
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<INTEREST-EXPENSE> 15,300
<INCOME-PRETAX> (23,600)
<INCOME-TAX> 800
<INCOME-CONTINUING> (24,400)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> (24,400)
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