U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[x] Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1996
[ ] Transition Report Under Section 13 or 15(d) of
the Exchange Act
For the transition period from _______ to _______.
Commission file number 1-12350
QPQ CORPORATION
(Exact Name of Small Business Issuer as Specified in Its Charter)
Florida 65-0611607
________________________________ ______________________
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1000 Lincoln Road, Suite 206
Miami Beach, Florida 33139
(Address of Principal Executive Office)
(305) 674-8115
_________________________________________________
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12
months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [x] No [ ]
The number of shares outstanding of the issuer's common stock,
par value $.01 per share as of May 6, 1996 was 6,025,000.
Transitional Small Business Disclosure Format:
Yes [ ] No [x]
QPQ CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page
PART I. FINANCIAL INFORMATION
ITEM. 1 Financial Statements
Consolidated Balance Sheets as of
March 31, 1996 and December 31, 1995
Consolidated Statements of Operations
for the Three Months Ended March 31, 1996
and 1995
Consolidated Statements of Shareholders'
Equity for the Three Months Ended March
31, 1996
Consolidated Statements of Cash Flows
for the Three Months Ended March 31,
1996 and 1995
Notes to Consolidated Financial
Statements
ITEM. 2 Management's Discussion and Analysis or
Plan of Operation
PART II. OTHER INFORMATION
SIGNATURES
QPQ CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS ( unaudited)
ASSETS
[CAPTION]
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March 31, December 31,
CURRENT ASSETS: 1996 1995
Cash and cash equivalents $ 293,312 $ 1,052,831
Restricted Cash 300,000 300,000
Receivables 12,986 868
Inventory 106,257 63,567
Due from parent 1,040 1,040
Prepaid expenses 64,695 7,952
Total Current Assets 778,290 1,426,258
Furniture, equipment & leasehold
improvements, net 1,786,783 1,635,195
Deferred charges, net of
accumulated amortization of
$84,200 and $18,747 at 1996
and 1995, respectively 340,559 279,249
Domino's development rights, net of
accumulated amortization of
$82,894 and $75,123 at 1996 and
1995, respectively 227,960 235,731
Total Assets $ 3,133,592 $ 3,576,433
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 477,050 $ 245,164
Accrued expenses 112,708 82,758
Due to affiliate 15,000 49,087
Bank credit facilities payable 342,621 -
Total Current Liabilities 947,379 377,009
Bank credit facilities payable 300,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred Stock, $.01 par value,
1,000,000 shares authorized;
no shares issued -
Common Stock, $.01 par value,
10,000,000 shares authorized;
6,025,000 and 6,025,000 shares
issued and outstanding,
respectively 60,250 60,250
Additional paid-in capital 7,063,044 7,063,044
Accumulated Deficit (4,937,081) (4,223,870)
Total Shareholders' Equity 2,186,213 2,899,424
Total Liabilities and
Shareholders' Equity $ 3,133,592 $ 3,576,433
See Accompanying Notes
</TABLE>
QPQ CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
[CAPTION]
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For the Three Months For the Three Months
Ended March 31, 1996 Ended March 31, 1995
REVENUES:
Restaurant $ 282,679 $ 206,171
Medical Weight Loss 47,003 -
Total Revenue 329,682 206,171
RESTAURANT OPERATING
EXPENSES:
Food and packaging 109,638 77,639
Payroll and related
costs 79,818 85,362
Occupancy and other
operating expenses 110,090 135,515
Depreciation and
amortization 53,651 56,126
Total restaurant
operating expenses 353,197 354,642
MEDICAL CENTERS:
Payroll and related 99,771 -
Occupancy and other 39,213 -
Depreciation and
amortization 11,828 -
Total Medical Weight
Loss 150,812 -
GENERAL & ADMINISTRATIVE
EXPENSES 488,317 329,462
OPERATING LOSS (662,644) (477,933)
OTHER INCOME (EXPENSES):
Interest and other income 6,087 88,985
Gain (loss) on sale of
investments - 640
Interest expense (9,185) (94,850)
Gain (Loss) from foreign
currency translation (47,469) (8,652)
Total other expense,
net (50,567) (13,877)
NET LOSS $(713,211) $(491,810)
NET LOSS PER COMMON SHARE $(.12) $(.18)
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES
OUTSTANDING 6,025,000 2,758,333
See Accompanying Notes
</TABLE>
QPQ CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
for the three months ended March 31, 1996
(unaudited)
[CAPTION]
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Common Stock Additional
Paid In
Shares Amount Capital
Balances, December 31,
1995 6,025,000 $60,250 $7,063,044
Net loss for the
period
Balances, March 31,
1996 6,025,000 $60,250 $7,063,044
(continued)
<S> <C> <C>
Accumulated
Deficit Total
Balances, December 31, 1995 $(4,223,870) $ 2,899,424
Net loss for the period (713,211) (713,211)
Balances, March 31, 1996 $(4,937,081) $ 2,176,213
See Accompanying Notes
</TABLE>
QPQ CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
[CAPTION]
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For the Three Months For the Three Months
Ended March 31, 1996 Ended March 31, 1995
CASH FLOWS FROM
OPERATING
ACTIVITIES:
Net Loss $(713,211) $(491,810)
Adjustment to
reconcile net loss
to net cash used
in operating
activities:
Depreciation and
amortization 163,572 86,742
(Gain) loss on
the sale of
investments - (640)
Changes in operating
assets and liabilities:
Receivables (12,118) 103,267
Inventory (42,690) (11,389)
Accrued interest
receivable - (22,973)
Prepaid expenses (56,743) (6,748)
Accounts payable
and accrued expenses 228,853 (93,035)
Net cash used in
operating activities (432,337) (436,586)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Increase in restricted cash - (306,814)
Proceeds from sales of
investments - 10,687
Payments for furniture,
equipment and leasehold
improvements (223,913) (136,254)
Payments for prepaid
advertising and
deferred charges (144,786) -
Net cash used in
investing activities (368,699) (432,381)
See Accompanying Notes
</TABLE>
QPQ CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
(unaudited)
[CAPTION]
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For the Three Months For the Three Months
Ended March 31, 1996 Ended March 31, 1995
CASH FLOWS FROM
FINANCING
ACTIVITIES:
Payments from
affiliate, net 15,000 4,410
Proceeds from
private offering - 750,000
Borrowings under bank
credit facilities 42,621 795,467
Payments from (to)
affiliate, net (16,104) (10,976)
Net cash (used in)
provided by financing
activities 41,517 1,538,901
(DECREASE) INCREASE IN
CASH AND CASH
EQUIVALENTS (759,519) 669,934
BEGINNING CASH AND CASH
EQUIVALENTS 1,052,831 416,966
ENDING CASH AND CASH
EQUIVALENTS $ 293,312 $ 1,086,900
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the
period for:
Interest $ 9,185 $ 94,850
See Accompanying Notes
</TABLE>
QPQ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION:
QPQ Corporation (the "Company") formerly known as
International Pizza Corporation, was organized for the purpose of
developing and operating franchised Domino's stores in the Republic
of Poland ("Poland"). One of the Company's majority shareholder,
Capital Brands, Inc. ("CBI"), entered into a development agreement
(the "Development Agreement") with Domino's Pizza International,
Inc. ("Domino's") and assigned all its rights and obligations under
the Development Agreement to the Company. Operations commenced on
April 1, 1994.
In addition to having the exclusive right to develop Domino's
Stores in Poland, the Company has been granted the exclusive right
to establish a commissary or commissaries for the purpose of
supplying food products and supplies to the Domino's stores in
Poland.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION - The accompanying consolidated
financial statements include the accounts of the Company and its
wholly-owned Polish subsidiary Pizza King Polska, a limited
liability corporation ("PK Polska") and a wholly owned subsidiary,
QPQ Medical Centers, Inc. ("QPQ Medical"). QPQ Medical was formed
in August, 1995, and commenced operations in January, 1996. All
significant intercompany transactions and balances have been
eliminated in consolidation.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from these estimates.
The Polish economy is considered to be "highly inflationary".
Accordingly, the U.S. dollar is considered to be the functional
currency of PK Polska. The only currency that may be used in
Poland is the zloty. The value of the zloty is pegged pursuant to
a system based on a basket of currencies, as well as all other
economic and political factors that effect the value of currencies
generally. As of January 1, 1995, the National Bank of Poland
introduced a new currency unit which is named a "zloty" (a "new
zloty"). New zlotys are equivalent to 10,000 old zlotys ("old
zlotys"). Old zlotys will remain legal tender until December 31,
1996, after which date they will only be exchangeable at certain
banks. All references in this document to zlotys are to old
zlotys. At March 31, 1996, the exchange rate was 25,875 old
zlotys.
Monetary assets and liabilities are translated from the local
currency, the "zloty", to U.S. dollars at the period end exchange
rate. Non-monetary assets, liabilities, and related expenses,
primarily furniture, equipment, leasehold improvements and related
depreciation and amortization, are translated using historical
exchange rates. Income and expense accounts, excluding
depreciation and amortization, are translated at an annual weighted
average exchange rate.
The December, 1995, Consolidated Balance Sheet included herein
was derived from audited financial statements but does not include
all disclosures required by generally accepted accounting
principles.
The accompanying unaudited financial statements have been
prepared in accordance with the instructions for Form 10-QSB and
include all disclosures necessary for fair presentation of
financial position, results of operations and cash flows in
conformity with generally accepted accounting principles.
GOING CONCERN - The report of the Company's independent
accountants on their audit of the Company's December 31, 1995
consolidated financial statements contained uncertainties relating
to the Company's ability to continue as a going concern. The
accompanying consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
FINANCIAL ACCOUNTING STANDARDS NO. 121 (FAS NO. 121) - In
March 1995, the FASB issued FAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of". This statement, which is effective for the Company's
financial statements for its 1996 fiscal year, requires that long
lived assets and certain intangibles to be held and used by the
Company be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not
be recoverable. If the estimated undiscounted cash flows that are
expected to result from the use of the asset are less than the
carrying amount of the asset, an impairment loss is recorded equal
to the excess of the carrying amount over the fair value of the
assets. The Company will review for impairment of its long-lived
assets in its fiscal 1996 year using the methodology prescribed by
FAS No. 121.
3. LINE OF CREDIT:
In January 1995, PK Polska obtained a $300,000 line of credit
from American Bank in Poland, S.A. with interest payable quarterly
at a rate of 7.75% per annum. The Company has guaranteed the
borrowings which are collateralized by its amounts on deposit. The
line expires January 28, 1997.
On March 18, 1996, PK Polska obtained a $150,000 line of
credit from American Bank. Borrowings under the facility bear
interest at 10% per annum, payable every three months commencing
April 30, 1996, may be used to finance up to 50% of the cost of
developing Domino's Stores. The credit facility is secured by a
promissory note of PK Polska, a guarantee of QPQ and title to the
fixtures and equipment of the Domino's Stores developed with the
credit facility borrowings. Draws may be made on the credit
facility until October 30, 1996. Commencing October 31, 1996, PK
Polska is required to repay $30,000 once every three months until
the outstanding principal balance of the credit facility is repaid.
As of March 31, 1996, no amounts had been borrowed under the
facility.
4. SHAREHOLDERS' EQUITY:
Pursuant to the terms of the Common Stock Subscription
Agreements dated March 28, 1995, between the Company and the
Company's Chairman and three other investors, the Company sold an
aggregate 3,400,000 shares of its Common Stock at a purchase price
of $.25 per share in exchange for cash of $850,000. After the
offering, the Company had 6,025,000 shares outstanding, including
1,375,000 (22.8%) owned by CBI.
In connection with its initial public offering, the Company
sold to the Underwriter for nominal consideration, two Purchase
Warrants. The first Purchase Warrant allows the holder to purchase
for $9.00 per share up to 125,000 shares of Common Stock. The
second Purchase Warrant allows the holder to purchase for $.145
each up to 125,000 Warrants which can be converted to one share of
Common Stock per Warrant at an exercise price of $9.00.
The Company's Stock Option Plan (the "Plan") and Directors
Stock Option Plan (the "Directors Plan") (collectively the
"Plans"), authorize the issuance of 1,000,000 and 50,000 shares of
common stock options, respectively. The Plans are designed to
serve as incentives for retaining qualified and competent employees
and directors.
The following table reflects the option activity for the three
months ended March 31,
1996:
[CAPTION]
<TABLE>
<S> <C>
Outstanding at beginning of period 542,000
Granted -
Exercised -
Expired -
Outstanding at end of period 542,000
Exercisable at end of period 137,000
Price range of options
outstanding at end of period $.69 - $6.00
Available for grant at end of period 508,000
</TABLE>
On March 7, 1995, certain of the stock option agreements were
amended to reduce the exercise price to $.69, which amount
represented the market price per share on that date.
The Company has granted International Fast Food Corporation,
a related company, the option to purchase 250,000 shares of the
Company's common stock at an exercise price of $6.00 per share.
As a result of the stock subscription and pursuant to the
Underwriters Warrant Agreement, the exercise price of 125,000
warrants to purchase common stock issued to the Underwriter were
repriced and became exercisable at a price of $.25 per share. In
June 1995, pursuant to a Warrant Redemption Agreement, the Company
repurchased 86,750 Underwriters Warrants for $10,000. Upon
original issuance those Warrants entitled the holder to purchase
86,750 shares of the Company's Common Stock at an exercise price of
$9.00 per share. The $10,000 is reflected in the accompanying
Consolidated Balance Sheet as a reduction of additional paid in
capital.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION.
A. QPQ CORPORATION
GENERAL
QPQ Corporation operates through two wholly-owned
subsidiaries, Pizza King Polska, Sp. zo.o. ("PKP") and QPQ Medical
Centers, Inc. ("QPQ Medical").
QPQ commenced its planned principal operations through PKP, in
April 1, 1994. PKP anticipates that it will incur losses until, at
the earliest, it establishes a number of Domino's Stores generating
sufficient revenues to offset its operating costs and the costs of
its proposed continuing expansion. There can be no assurance that
PKP will be able to successfully establish a sufficient number of
Domino's Stores to achieve profitable operations. PKP cannot
reasonably estimate the length of time before any Domino's Store
may generate sufficient revenues to offset its operating costs or
the length of time before PKP may generate income, if ever. QPQ's
independent auditors have included as explanatory paragraph in
their report for the year ended December 31, 1995 stating that
QPQ's financial statements have been prepared assuming QPQ will
continue as a going concern although QPQ's recurring losses raise
substantial doubt about QPQ's ability to do so.
QPQ Medical was organized on August 25, 1995. QPQ Medical
offers: (1) medically supervised weight loss programs using a
protocol which integrates systems and routines of nutrition
management, exercise and prescribed medication; and (2) certain
other medical services to address the weight loss and non-weight
loss related medical problems of its patients. QPQ Medical
commenced its planned principal operations in January 1996. QPQ
Medical anticipates that it will incur losses until at the
earliest, it establishes a number of medical centers generating
sufficient revenue to offset its operating costs and the costs of
its proposed expansion. There can be no assurance that QPQ Medical
will be able to successfully establish a sufficient number of
medical centers to achieve profitable operations. QPQ Medical
cannot reasonably estimate the length of time before it will
generate sufficient revenues to offset its operating costs, if
ever.
Subject to market conditions and its need for funds, QPQ may
generate additional capital through the private or public sale of
equity in QPQ and may seek to borrow funds, if available, on
commercially reasonable terms.
As of May 7, 1996, QPQ commenced a private offering (the
"Private Offering") of up to 1,000,000 shares of Common Stock at an
offering price of $1 per share. The Private Offering which,
subject to certain exceptions, is scheduled to expire May 30, 1996,
is being made only to accredited investors in accordance with the
provisions of Regulation D promulgated under the Securities Act of
1933, as amended. Subject to certain exceptions, the minimum
subscription being accepted in the Private Offering is for 50,000
shares. The Company may, in its sole discretion elect to accept
all or none of the subscription offers presented to it by May
30,1996. Mr. Rubinson, the Chairman of the Board, Chief Executive
Officer, President and principal shareholder of QPQ, and Nigel
Norton, a principal shareholder of QPQ, have indicated an intent to
purchase 200,000 and 100,000 shares of common stock, respectively.
There can be no assurance that the Private Offering will be
consummated and the following discussion has been prepared without
taking into account the funds that may be received by the Company
pursuant to the Private Offering.
During the quarter ended March 31, 1996, QPQ incurred a net
loss of $713,211 ($.72 per share) compared to a net loss of
$491,810 ($.18 per share) for the quarter ended March 31, 1995.
QPQ's relative decline in financial performance is primarily
attributable to the factors discussed below. Set forth below is a
discussion of the results of operations and liquidity and capital
resources of QPQ's restaurant business and medical center business.
General corporate and overhead expenses, which benefit all of QPQ's
businesses, have not been allocated to business segments for this
analysis and are discussed under "Results of Operations of
QPQ/PKP."
RESULTS OF OPERATIONS OF QPQ/PKP
THREE MONTHS ENDED MARCH 31, 1996 VS. THREE MONTHS ENDED MARCH 31,
1995
During the quarters ended March 31, 1996 and March 31, 1995,
QPQ generated Restaurant Revenues of $282,679 and $206,171,
respectively, from its three Domino's Stores and the Cafe
Renaissance. Relative to their performance in the quarter ended
March 31, 1995, in the quarter ended March 31, 1996 the three
Domino's Stores have generally experienced an increase in average
quarterly revenues and transactions.
During the quarter ended March 31, 1996, QPQ incurred
$109,638, $79,818, $110,090 and $53,651 of Food and Packaging
Expenses, Payroll and Related Costs, Occupancy and Other Operating
Expenses and Depreciation and Amortization Expense, respectively.
Food and Packaging Expenses for the quarters ended March 31,
1996 and March 31, 1995 were approximately 38.8% and 37.6% of
Restaurant Revenues, respectively. The relative increase in Food
and Packaging Expenses is primarily attributable to PKP's decision
to discount certain food prices and to increase its general food
prices at a rate slower than the historical rate of PKP's food cost
increases. Food and Packaging Expenses as a percentage of
Restaurant Revenues for the quarter ended March 31, 1995 were
adversely affected by special promotions and giveaways conducted in
connection with the Cafe Renaissance grand opening in January 1995.
Payroll and Related Costs as a percentage of Restaurant
Revenues for the quarter ended March 31, 1996 and March 31, 1995
were approximately 28.2% and 41.4%, respectively. The relative
decrease in Payroll and Related Costs as a percentage of Sales is
attributable to an increase in the average level of same restaurant
revenues and improved labor force scheduling.
Occupancy and Other Operating Expenses as a percentage of
Restaurant Revenues for the quarters ended March 31, 1996 and March
31, 1995 were approximately 38.9% and 65.7%, respectively. The
decrease in Occupancy and Other Operating Expenses as a percentage
of Restaurant Revenues is primarily attributable to an increase in
the average level of same restaurant revenues and the
implementation of better cost controls.
Restaurant Depreciation and Amortization as a percentage of
Restaurant Revenues for the quarters ended March 31, 1996 and
March 31, 1995 were 18.9% and 27.2%, respectively. The decrease in
Restaurant Depreciation and Amortization Expense as a percentage of
Restaurant Revenues is a function of the increase in QPQ's
Restaurant Revenues.
General and Administrative Expenses for the quarter ended
March 31, 1996 and March 31, 1995, totalled $488,317 and $329,462,
respectively. For the quarter ended March 31, 1996, General and
Administrative Expenses were comprised of executive and office
staff salaries and benefits of $71,782; legal and professional
fees, office rent, QPQ Medical's advertising expenses and travel,
telephone and other corporate expenses of $183,336, which figure
includes $83,041 of preopening costs incurred by QPQ Medical; and
depreciation and amortization of $19,004. For the quarter ended
March 31, 1995, General and Administrative Expenses were comprised
of executive and office staff salaries of $156,286, legal and
professional fees, office rent, travel, telephone and other general
corporate expenses of $142,560, and depreciation and amortization
of $30,616.
QPQ's General and Administrative Expenses for the quarter
ended March 31, 1996 are higher than such expenses for the quarter
ended March 31, 1995, as a result of, among other things, general
and administrative expenses associated with QPQ Medical's recent
business commencement and expansion. The increase in General and
Administrative Expenses was partly offset by a reduction in QPQ's
allocation of certain expenses it shares with International Fast
Food Corporation.
Interest and Other Income for the quarter ended March 31, 1996
and March 31, 1995, were $6,087 and $88,985, respectively. The
decrease in Interest and Other Income is attributable to a
reduction in the funds held for investment by QPQ.
During the quarter ended March 31, 1996 and March 31, 1995,
Interest Expense was $9,185 and $94,850, respectively. The
decrease in Interest Expense is due to a decrease in QPQ's
borrowings.
LIQUIDITY AND CAPITAL RESOURCES
A. QPQ Corporation/Pizza King Polska
Pursuant to the Domino's Development Agreement, as amended
November 13, 1995, QPQ is granted the exclusive right until
December 31, 2003 to develop, operate and franchise Domino's Stores
in Poland. During the Initial Term of the Domino's Development
Agreement, which expires on December 31, 2003, QPQ is required to
open and operate, either through affiliates of QPQ ("Affiliated
Franchisees") or unrelated third parties ("Non-Affiliated
Franchisees"), at least 50 Domino's Stores in accordance with a
schedule that obligates QPQ or its Non-Affiliated Franchisees to
open three Domino's Stores in 1994, no Domino's Stores in 1995,
eight Domino's Stores in 1996 and five, six or seven Domino's
Stores for each of the following seven years. Domino's Stores
developed and/or operated by Non-Affiliated Franchisees are counted
towards QPQ's obligation to open a minimum number of Domino's
Stores.
In compliance with the Domino's Development Agreement, QPQ
opened three Domino's Stores in 1994. QPQ is required and, subject
to the factors discussed below, intends to open or cause to be
opened at least eight additional Domino's Stores prior to December
31, 1996. QPQ has located but has not yet secured sites for its
fourth or fifth Domino's Store. Subject to the modification of the
Domino's Agreement, if QPQ in fact fails to meet the development
schedule described above, QPQ will lose its rights to develop and
franchise additional Domino's Stores but will be entitled to act as
a master franchisor and franchisee with respect to the franchise
agreements granted prior thereto. QPQ does not intend to open
additional cafe-style restaurants at this time.
As of March 31, 1996, QPQ had negative working capital of
$169,089. QPQ's material commitments for capital expenditures
relate to the Domino's Stores that QPQ must open to comply with the
Domino's Development Agreement. Although to date QPQ has
concentrated its efforts on the development of Domino's Stores in
Warsaw, Poland, subject to the re-evaluation described below, QPQ
intends to focus its future Domino's Store development efforts on
other Polish cities. QPQ's decision to expand its development
efforts is based on a number of factors, including, but not limited
to, QPQ's ability to conserve its capital resources by developing
additional Domino's Stores outside of Warsaw through Non-Affiliated
Franchisees.
QPQ estimates the cost of opening a Domino's Store to be
approximately $125,000 to $500,000, including leasehold
improvements, furniture, fixtures and equipment, and opening
inventories, but excluding up front payments, lease payments and
franchise fees. Such estimates vary depending on the size and
condition of a Domino's Store, the amount of customer seating
provided and the extent of leasehold improvements required. QPQ
estimates that once a space has been leased and made available,
approximately 90 days is required to renovate, equip and furnish
the store, obtain necessary licenses and approvals and open a
Domino's Store.
QPQ intends to, to the extent possible, finance the operation
and expansion of its restaurant system and weight loss center
system with the unutilized proceeds of its Private Offering and
Public Offering (defined below) credit facilities and cash from
operations.
Any implementation of QPQ's business plan with respect to the
operation of its three Domino's Stores and the Cafe Renaissance
(the "QPQ Operations Plan") beyond August 1996, may require
resources greater than those currently available to QPQ. Except as
discussed below, QPQ has no current arrangements with respect to,
or sources of, additional financing, and it is not contemplated
that QPQ's principal shareholders, will provide any portion of
QPQ's future financing requirements. Implementation of the QPQ
Operations Plan is contingent upon, among other things, QPQ's
ability to utilize significantly less of its capital resources
financing its restaurants' operations and General and
Administrative Expenses than it has to date. There can be no
assurance that QPQ will generate any cash flow from operations in
the future, or that additional financing will be available on
acceptable terms, or at all, to fund QPQ's operations.
Any implementation of QPQ's business plan with respect to the
expansion of its Domino's Store system by franchising Domino's
Stores to Non-Affiliated Franchisees (the "QPQ Development Plan")
beyond August 1996 may require resources greater than those
allocated for such purpose or otherwise currently available to QPQ.
Successful implementation of QPQ's Development Plan is contingent
upon QPQ identifying and engaging Non-Affiliated Franchisees with
the financial and other resources capable of developing and opening
Domino's Stores in accordance with the development schedule or QPQ
securing additional debt or equity financing to permit QPQ to
develop the Domino's Stores in accordance with the development
schedule. Successful implementation of the QPQ Development Plan is
also contingent upon QPQ's ability to economically supervise,
provide technical support and distribute food products from QPQ's
Commissary to Non-Affiliated Franchisees. QPQ has no experience in
identifying, engaging, supervising or providing technical
assistance to Non-Affiliated Franchisees. Further, QPQ has not yet
identified nor engaged any Non-Affiliated Franchisees which may
develop and operate future Domino's Stores. In addition, QPQ has
not yet secured any additional Domino's Store sites.
QPQ's Operations Plans and Development Plans beyond August
1996 are contingent upon its operating and development experiences
prior thereto. Accordingly, QPQ cannot accurately predict its
Operations Plans and Development Plans beyond August 1996.
QPQ continues to review the performance and prospects of its
pizza operations and is evaluating its current business plan to
determine the best possible means of effecting a profitable
operation. The alternatives now under consideration include, among
others, focusing future development efforts on Domino's traditional
takeout and delivery service; selling certain or all of QPQ's
existing Domino's Stores and/or the Cafe Renaissance (collectively,
the "Stores") to unrelated third parties and/or affiliates of QPQ;
closing certain of QPQ's Stores; or entering into management
agreements or joint venture agreements with unrelated third parties
or affiliates with respect to the operation of certain or all of
QPQ'S Stores.
Subject to market conditions and its need for funds, QPQ may
generate additional capital through the public or private sale of
equity in QPQ.
The deployment of QPQ's financial, personnel, capital and/or
other resources in other businesses or investment opportunities,
including QPQ Medical's Weight Loss Centers, may result in a
diminution in resources available to execute the QPQ Operations
Plan and/or the QPQ Development Plan. See "-B. QPQ Medical
Centers, Inc." for more information regarding QPQ Medical's
liquidity and capital resources.
Subject to, among other things, QPQ's future operating
results, QPQ's capital resources, QPQ's ability to locate a ready,
willing and able buyer (a "Qualified Buyer") for certain or all of
the Stores, QPQ's ability to locate a joint venture partner or
Non-Affiliated Franchisee (a "Qualified Partner"), willing and able
to develop and operate its existing or additional Stores and the
Board of Directors believes that it may be in the best interests of
QPQ to close certain of its Stores. The Board of Directors' belief
is based upon, among other things, certain of the Stores operating
results to date, QPQ's projected operating results with all of the
Stores open, QPQ's projected operating results with certain of the
Stores closed, QPQ's cash position, QPQ's ability to secure
additional sources of capital, QPQ's perceived risk adjusted rate
of return on additional cash investments in the Domino's Store
and/or Cafe Renaissance businesses versus QPQ's perceived risk
adjusted rate of return in alternative investments, QPQ's inability
to date to locate a Qualified Buyer for the Store(s) and/or QPQ's
Domino's Store development rights on acceptable terms, QPQ's
inability to date to locate a Qualified Partner to develop and
operate additional Domino's Stores, and QPQ's relationship with
Domino's.
To date, QPQ's business has been principally financed by
proceeds from QPQ's public offering of QPQ Common Stock and
Warrants, proceeds from a bank credit facility with Northern Trust
Bank of Florida ("Northern Trust Bank"), the proceeds from a bank
credit facility with American Bank in Poland, S.A. ("American
Bank") and proceeds from a private offering of QPQ Common Stock.
In September 1993, QPQ consummated an underwritten initial
public offering (the "Public Offering") of 1,250,000 shares of its
common stock and 1,405,660 redeemable Common Stock Purchase
Warrants (the "Warrants"), each Warrant entitling the holder
thereof to purchase one share of QPQ's Common Stock for $6.60, for
aggregate proceeds of approximately $6,012,000, net of underwriting
discounts and commissions, expense allowances and other
registration costs.
The unutilized proceeds of the Public Offering were invested
through a discretionary management account at Northern Trust Bank
of Florida, N.A. ("Northern Trust"). As of March 31, 1996 and May
6, 1996, $66,726 and $67,257, respectively, of the remaining funds
were invested in United States dollar denominated money market
funds.
As of March 30, 1995, QPQ sold (the "Private Offering")
3,400,000 restricted shares of QPQ Common Stock for aggregate
proceeds of $850,000. The proceeds of the Private Offering have
been utilized by QPQ to finance it operations and expansion.
In January 1994, QPQ's wholly owned subsidiary, PK Polska,
obtained a $28,000 line of credit from American Bank, with interest
payable on outstanding principal amounts at a rate equivalent to
the American Bank's overdraft rate minus 4%, payable monthly on the
first day of the month. In September 1994, QPQ guaranteed PK
Polska's payment of any and all amounts, not exceeding $28,000,
owed to American Bank pursuant to the credit facility. As of March
31, 1996 and May 6, 1996, $19,738 and $10,618, respectively, of the
credit facility were outstanding.
In January 1995, PK Polska obtained a $300,000 line of credit
from American Bank with interest payable on outstanding principal
amount at a rate of 7.75%. PK Polska is also obligated to pay
American Bank a 1% per annum commission on the daily average
unutilized principal balance of the credit facility. Interest and
commission expenses are payable once every three months. The
credit facility are secured by PK Polska deposits with American
Bank and a guarantee of QPQ. Borrowings are required to be repaid
in full on January 28, 1997. As of March 31, 1996 and May 6, 1996,
$300,000 and $300,000, respectively, of the credit facility were
outstanding.
On March 18, 1996, PK Polska obtained a $150,000 line of
credit from American Bank. PK Polska is required to make interest
payments on the outstanding principal amount of the credit facility
at a rate of 10% per annum. PK Polska is also obligated to pay
American Bank a 2% per annum commission on the daily average
unutilized principal balance of the credit facility. Interest and
commission expenses are payable once every three months commencing
April 30, 1996. The proceeds of the credit facility may be used to
finance up to 50% of the cost of developing Domino's Stores. The
credit facility is secured by: (i) a promissory note of PK Polska;
(ii) a guarantee of QPQ; and (iii) title to the fixtures and
equipment of the Domino's Stores developed with the credit facility
proceeds. Draws can be made on the credit facility until October
30, 1996. Commencing October 31, 1996, PK Polska is required to
pay American Bank $30,000 once every three months until the
outstanding principal balance of the credit facility is repaid. As
of March 31, 1996 and May 6, 1996, $0 and $0 of the credit facility
were outstanding.
B. QPQ MEDICAL CENTERS, INC.
GENERAL
In August 1995, QPQ entered into the business of developing
and operating medical centers ("Medical Centers") which offer
medically supervised weight loss programs. In January and April
1996, QPQ Medical opened its first two Medical Centers. QPQ
Medical has incurred losses and anticipates that it will contribute
to incur losses until it establishes a number of Medical Centers
generating sufficient resources to offset its operating costs and
the costs of its proposed continuing expansion. In light of the
uncertainties in connection with the commencement of a new
business, QPQ cannot reasonably estimate the length of time before
QPQ Medical may achieve profitable operations, if ever.
RESULTS OF OPERATIONS OF QPQ MEDICAL
THREE MONTHS ENDED MARCH 31, 1996
QPQ Medical commenced operations at its first Medical Center
in January 1996. Accordingly, a comparison of QPQ Medical's
results of operations in the quarter ended March 31, 1996 with any
other time period are not meaningful.
During the quarter ended March 31, 1996, QPQ Medical generated
Medical Center Revenues of $47,003 from its one open Medical
Center. During such period, the average monthly level of Medical
Center Revenues steadily increased.
During the quarter ended March 31, 1996, QPQ Medical incurred
$99,771, $89,213 and $11,828 of Payroll and Related Expense,
Occupancy and Other Expense and Depreciation and Amortization,
respectively. QPQ Medical believes that the foregoing expenses as
a percentage of Medical Center Revenues should decline as Medical
Center Revenues increase and Medical Centers currently under lease
and renovation develop into revenue production centers.
See "A. QPQ Corporation-Results of Operations" for a
discussion of QPQ Medical's general corporate and overhead
expenses.
LIQUIDITY AND CAPITAL RESOURCES
Subject to QPQ's other business commitments, QPQ Medical is
required to use its best efforts to develop the Medical Center
business concept, the License Agreement does not require QPQ
Medical to develop and open Medical Centers pursuant to an
established schedule. QPQ Medical's material commitments for
capital expenditures relate to the weight loss centers it is in the
process of developing and operating. In addition, under the
License Agreement, QPQ Medical is required to expend a minimum of
$100,000 in start-up funding and a percentage of its annual gross
receipts for promotion and marketing the Program.
QPQ Medical estimates the cost of opening a Medical Center to
be approximately $50,000 to $300,000, including leasehold
improvements, furniture, fixtures and equipment, but excluding
lease payments and license fees. Such estimates vary depending on
the size and style of a Medical Center and the extent of leasehold
improvements required. QPQ Medical estimates that once a space has
been leased and made available, approximately 90 days is required
to renovate, equip and furnish the Medical Center, obtain necessary
licenses and approvals and open a Medical Center.
QPQ intends to finance the development and operations of
Medical Centers with the unutilized proceeds of QPQ's Private
Offering and Public Offering and cash, if any, from Medical Center
operations. Any implementation of QPQ Medical's business plan with
respect to the operation of its Medical Centers (the "QPQ Medical
Operations Plan") beyond August 1996 may require resources greater
than those currently available to QPQ Medical. Although QPQ
Medical desires to develop additional Medical Centers, any
implementation of QPQ Medical's business plan with respect to the
expansion of its Medical Center System (the "QPQ Medical
Development Plan") beyond August 1996 may require resources greater
than those currently available to QPQ Medical. QPQ Medical has no
current arrangements with respect to, or sources of, financing.
QPQ's Medical's Operation Plans and QPQ Medical's Development Plans
beyond August 1996 are contingent upon its operating and
development experiences prior thereto. Accordingly, QPQ Medical
cannot accurately predict its operations and development plans
beyond August 1996.
IMPACT OF INFLATION AND CURRENCY FLUCTUATIONS
Domino's Store operations are conducted in Poland. The Polish
economy has historically been characterized by extremely high rates
of inflation and devaluation of the Polish zloty against the United
States dollar and European currencies. However, in the year ended
December 31, 1995, the rates of inflation and devaluation improved.
For the years ended December 31, 1993, 1994 and 1995, the annual
inflation rate in Poland exceeded 35%, 32% and 21.6%, respectively,
and as of December 31, 1993, 1994 and 1995 the exchange rate was
21,344, 24,372 and 24,680 zlotys per dollar, respectively.
Franchise fees for each Domino's Store opened are paid in United
States currency. Additionally, QPQ is dependent on foreign sources
of supply (equipment, paper goods and certain food products) which
require payment in European or United States currencies. Since
QPQ's revenues from operations are in zlotys, QPQ is subject to the
risk of currency fluctuations. QPQ has and intends to maintain
substantially all of its unutilized funds in dollar denominated
accounts and/or securities. There can be no assurance that QPQ
will successfully manage its exposure to currency fluctuations or
that such fluctuations will not have a material adverse effect on
QPQ.
Thus far, QPQ's revenues have been used to fund restaurant
operations and QPQ's expansion. As a result, such revenues have
been relatively insulated from inflationary conditions in Poland.
There can be no assurance that inflationary conditions in Poland
will not have an adverse effect on QPQ.
The accounts of PK Polska are measured using the Polish zloty.
Due to Poland's highly inflationary environment, generally accepted
accounting principles require QPQ to calculate and recognize on its
statement of operations its currency translation gains or losses
associated with PK Polska. For the quarters ended March 31, 1996
and March 31, 1995, QPQ had a foreign currency translation gain
(loss) of ($47,469) and ($8,652), respectively.
The only currency that may be used in Poland is the zloty.
The value of the zloty is pegged pursuant to a system based on a
basket of currencies, as well as all other economic and political
factors that affect the value of currencies generally. As of
January 1, 1995, the National Bank of Poland introduced a new
currency unit which is named a "zloty" (a "new zloty"). New zlotys
are equivalent to 10,000 old zlotys ("old zlotys"). Old zlotys
will remain legal tender until December 31, 1996, after which date
they will only be exchangeable at certain banks. All references in
this document to zlotys are to old zlotys.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) No reports on Form 8-K have been filed during the quarter
ended March 31, 1996.
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
QPQ CORPORATION
DATE: May 17, 1996 By: /s/ Mitchell Rubinson
Mitchell Rubinson, Chairman
of the Board, Chief Executive
Officer and President
(Principal Executive Officer)
DATE: May 17, 1996 By: /s/ Stephen R. Groth
Stephen R. Groth, Chief
Financial Officer and
Treasurer (Principal
Financial and Accounting
Officer)
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<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
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