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, 1997
[ ] 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
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(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
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(Address of Principal Executive Office)
(305) 674-8115
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(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 8, 1997 was 7,653,467. .
Transitional Small Business Disclosure Format:
Yes [ ] No [X]
<PAGE>
QPQ CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page
----
PART I. FINANCIAL INFORMATION
- ------- ---------------------
ITEM. 1 Financial Statements
Consolidated Balance Sheets as of
March 31, 1997 and December 31,
1996 2 - 3
Consolidated Statements of Operations
for the Three Months Ended March 31,
1997 and 1996 4
Consolidated Statements of
Shareholders' Equity for the Three
Months Ended March 31, 1997 5
Consolidated Statements of Cash Flows
for the Three Months Ended March 31,
1997 and 1996 6 - 7
Notes to Consolidated Financial
Statements 8 - 12
ITEM. 2 Management's Discussion and Analysis
or Plan of Operation 13 - 22
PART II. OTHER INFORMATION
- -------- -----------------
SIGNATURES
1
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QPQ CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
------
March 31, December 31,
1997 1996
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents $ 584,705 $ 138,731
Restricted Cash 300,000 300,000
Receivables 153,138 171,972
Inventory 55,404 57,718
Accrued interest receivable 32,588 28,889
Due from affiliates 149,382 149,382
Prepaid expenses 44,649 230,368
---------- ----------
Total Current Assets 1,319,866 1,077,060
---------- ----------
Furniture, equipment & leasehold
improvements, net 1,787,229 1,988,251
Deferred charges, net of accumulated
amortization of $16,908 and $11,301
at 1997 and 1996, respectively 168,046 124,030
Deferred debenture issuance costs,
net of accumulated amortization
of $8,889 204,444 --
Domino's development rights, net
of accumulated amortization of
$113,979 and $106,208 at 1997 and
1996, respectively 196,875 204,646
---------- ----------
Total Assets $3,676,460 $3,393,987
========== ==========
See Accompanying Notes
2
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QPQ CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, Continued
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
March 31, December 31,
1997 1996
---------- ----------
CURRENT LIABILITIES:
Accounts payable $ 392,527 $ 479,895
Accrued expenses 159,331 92,489
Due to affiliate 269,680 243,983
Bank credit facilities payable 328,355 21,718
8% convertible debentures 1,280,000 --
Accrued underwriter warrant
settlement 201,000 --
----------- -----------
Total Current Liabilities 2,630,893 838,085
----------- -----------
BANK CREDIT FACILITIES PAYABLE -- 300,000
----------- -----------
NOTE PAYABLE 40,000 --
----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred Stock, $.01 par value,
1,000,000 shares authorized;
no shares issued -- --
Common Stock, $.01 par value,
100,000,000 shares authorized;
7,653,467 and 6,025,000 shares
issued and outstanding,
respectively 76,535 76,535
Additional paid-in capital 9,201,682 9,201,682
Accumulated Deficit (8,379,421) (7,090,852)
Accumulated translation adjustment 106,771 68,537
----------- -----------
Total Shareholders' Equity 1,005,567 2,255,902
----------- -----------
Total Liabilities and
Shareholders' Equity $ 3,676,460 $ 3,393,987
=========== ===========
See Accompanying Notes
3
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QPQ CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
------------------------------
1997 1996
----------- -----------
REVENUES:
Restaurant $ 285,996 $ 282,679
Medical Centers 250,834 47,003
----------- -----------
Total Revenue $ 536,830 $ 329,682
----------- -----------
RESTAURANT OPERATING:
Food and packaging 101,379 109,638
Payroll and related costs 69,688 79,818
Occupancy and other operating
expenses 98,335 110,090
Depreciation and amortization 45,609 53,651
----------- -----------
Total restaurant operating
expenses 315,011 353,197
----------- -----------
MEDICAL CENTERS:
Payroll and related costs 302,075 99,771
Occupancy and other operating
expenses 176,305 39,213
Advertising expense 151,016 51,611
Depreciation and amortization 28,150 11,828
----------- -----------
Total Medical Centers 657,546 202,423
----------- -----------
GENERAL & ADMINISTRATIVE
EXPENSES 640,795 436,706
OPERATING LOSS (1,076,522) (662,644)
----------- -----------
OTHER INCOME (EXPENSES):
Interest and other income 4,160 6,087
Interest expense (15,207) (9,185)
Provision for underwriter
warrant settlement 201,000 --
----------- -----------
Total other expense,
net (212,047) (3,098)
----------- -----------
NET LOSS $(1,288,569) $ (665,742)
=========== ===========
NET LOSS PER COMMON
SHARE $ (.17) $ (.11)
=========== ===========
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING 7,653,467 6,025,000
=========== ===========
See Accompanying Notes
4
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QPQ CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Three Months Ended March 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional Accumulated
------------------------ Paid In Translation Accumulated
Shares Amount Capital Adjustment Deficit Total
--------- ----------- ----------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balances,
December 31,
1996 7,653,467 $ 76,535 $9,201,682 68,537 $( 7,090,852) $ 2,255,902
Translation
adjustments - - - 38,234 - 38,234
Net loss for
the period - - - - ( 1,288,569) ( 1,288,569)
--------- ----------- ----------- ----------- ------------ ------------
Balances,
March 31, 1997 7,653,467 $ 76,535 $9,201,682 $ 106,771 $( 8,379,421) $ 1,005,567
========== =========== ========== =========== ============ ============
</TABLE>
See Accompanying Notes
F-5
<PAGE>
QPQ CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
------------------------------
1997 1996
------------ ------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Loss $( 1,288,569) $( 665,742)
Adjustment to reconcile net
loss to net cash used in
operating activities:
Depreciation and amortization 102,135 163,572
Write-down of assets to net
estimated realizable value 131,375 -
Provision for underwriter
warrant settlement 201,000 -
Changes in operating assets and
liabilities:
Receivables 18,834 ( 12,118)
Inventory 2,314 ( 42,690)
Accrued interest receivable ( 3,699) -
Prepaid expenses 185,719 ( 56,743)
Other assets 55,761
Accounts payable and
accrued expenses ( 20,526) 228,853
------------ ------------
Net cash used in operating
activities ( 615,656) ( 384,868)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for organization and
prepaid advertising costs - ( 144,786)
Payments for other assets ( 65,374) -
Payments for furniture, equipment
and leasehold improvements ( 10,231) ( 223,913)
------------ ------------
Net cash (used in) provided by
investing activities ( 75,605) ( 368,699)
------------ ------------
See Accompanying Notes
6
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QPQ CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
(Unaudited)
Three Months Ended March 31,
------------------------------
1997 1996
------------ ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net proceeds from issuance of
8% Convertible debentures 1,066,667 -
Borrowings under bank credit
facilities, net 6,637 42,621
Payments from(to) affiliates, net 25,697 ( 1,104)
------------ ------------
Net cash provided by (used in)
financing activities 1,099,001 41,517
------------ ------------
FOREIGN CURRENCY TRANSLATION
ADJUSTMENT 38,234 ( 47,469)
INCREASE IN CASH AND CASH
EQUIVALENTS 445,974 ( 759,519)
BEGINNING CASH AND CASH EQUIVALENTS 138,731 1,052,831
------------ ------------
ENDING CASH AND CASH EQUIVALENTS $ 584,705 $ 293,312
============ ============
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 12,601 $ 9,185
============ ============
See Accompanying Notes
7
<PAGE>
QPQ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION:
QPQ Corporation (the "Company/"QPQ") 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"). A former
majority shareholder of the Company, 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.
Since August 1995, QPQ Medical Centers, Inc. has been in the business of
developing and/or operating centers which offer primary care, medical services
and medically supervised weight loss programs.
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, Sp.zo.o a limited liability corporation ("PK Polska") and a wholly
owned subsidiary, QPQ Medical Centers, Inc. ("QPQ Medical"). QPQ Medical
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 accompanying unaudited consolidated financial statements, which are
for interim periods, do not include all disclosures provided in the annual
consolidated financial statements. These unaudited consolidated financial
statements should be read in conjunction with the consolidated financial
statements and the footnotes thereto contained in the Annual Report on Form
10-KSB for the year ended December 31, 1996 of QPQ Corporation and Subsidiaries
(the "Company"), as filed with the Securities and Exchange Commission. The
December 31, 1996 consolidated balance sheet was derived from audited
consolidated financial statements, but does not include all disclosures required
by generally accepted accounting principles.
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (which are of a normal recurring
8
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nature) necessary for a fair presentation of the financial statements. The
results of operations for the three months ended March 31, 1997 are not
necessarily indicative of the results to be expected for the full year.
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 remained
legal tender until December 31, 1996, after which date they are only
exchangeable at certain banks. All references in this document to zlotys are to
new zlotys. At March 31, 1997 and 1996, the exchange rate was 3.0760 and 2.5875
new zlotys per dollar, respectively. 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 a
weighted average exchange rate.
The accounts of PK Polska are measured using the Polish zloty. Due to
Poland's highly inflationary environment through December 31, 1995, generally
accepted accounting principles required QPQ to calculate and recognize on its
statement of operations its currency translation gains or losses associated with
PK Polska. Due to the reduction in Polands inflation rate, effective for the
year ended December 31, 1996, QPQ was no longer required pursuant to generally
accepted accounting principles to recognize currency translation gains or losses
in its statement of operations. As a result of this change the net loss and net
loss per common share for the three months ended March 31, 1996, were decreased
by $47,469 and $.01, respectively.
Going Concern - The report of the Company's independent accountants on
their audit of the Company's December 31, 1996 consolidated financial statements
contained uncertainties relating to the Company's ability to continue as a going
concern. The Company has incurred a substantial loss in the three months ended
March 31, 1997 and uncertainties exist with regard to the Company's ability to
generate sufficient cash flows from operations or other sources to meet existing
obligations and fund its commitment with regard to the expansion of its existing
operations which gives rise to doubts about the Company's ability to continue as
a going concern. These financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Net Loss Per Common Share - The computation of net loss per common share
in the accompanying statements of operations is based upon the weighted average
number of shares outstanding during the period. The net loss per common share
does not include the assumed exercise of any common stock options or warrants
since their inclusion would be anti-dilutive.
3. RESTRICTED CASH:
At March 31, 1997, the Company had $300,000 of restricted cash, classified
as a current asset, which represents collateral for the outstanding line of
credit.
9
<PAGE>
QPQ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. BANK CREDIT FACILITIES:
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, 1998.
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. No draws have been made on the credit facility. The facility expires
on January 30, 1998.
5. NOTE PAYABLE:
The $40,000 note payable is payable in full in February 2000 and bears
interest at the prevailing prime rate as published by the Wall Street Journal.
6. 8 % CONVERTIBLE DEBENTURES:
In March 1997, the Company entered into Securities Subscription Agreements
(the "Agreements") for the sale of $1,280,000 of 8% Convertible Debentures (the
"Debentures") with a maturity date of March 31, 1998, for which the Company
received net proceeds of $1,066,667.
Interest is payable quarterly. The Debentures are convertible into shares
of common stock at a conversion price per share equal to the lower of (a) 75% of
the average closing bid price of the common stock for five business days
immediately preceding the conversion date or (b) 75% of the average of the
closing bid price of the common stock for the business day immediately preceding
the date of the individual Subscription Agreement.
The Debentures were issued in reliance upon the exemption from
registration afforded by Regulation S as promulgated by the Securities and
Exchange Commission under the Securities Act of 1933, as amended.
The Company has authorized a maximum of $6,000,000 principal amount of the
Debentures.
The $213,333 of costs associated with issuance of the debentures is being
amortized over a period of one year commencing on March 15, 1997.
7. SHAREHOLDERS' EQUITY:
On September 29, 1993, the Company completed its initial public offering
of 1,250,000 shares of its Common Stock and 1,405,660 Redeemable Common Stock
Purchase Warrants including 155,650 Warrants issued in November 1993, (the
"Warrants"). Each Warrant entitles the holder to purchase one share of Common
Stock for $6.60, exercisable through September 22, 1998. The offering closed
with net proceeds to the Company aggregating approximately $6,012,000, net of
underwriting discounts and commissions, expense allowances and other
registration costs.
10
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QPQ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
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.
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, 1997:
Outstanding at beginning of period 502,500
Granted 27,500
Exercised -
Expired (30,000)
--------
Outstanding at end of period 500,000
==========
Exercisable at end of period 314,500
==========
Price range of options
outstanding at end of period $ .69 - $2.875
==============
Available for grant at end of period 550,000
==========
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.
In July 1996, QPQ sold 1,195,000 shares of Common Stock in a private
offering and received cash proceeds of $1,195,000. Principal shareholders of the
Company, including the Company's Chairman, Chief Executive Officer and President
purchased an aggregate of 300,000 shares of the offering. In September 1996 and
November 1996 QPQ sold 337,012 and 96,455 shares of Common Stock pursuant to two
Regulation S offerings and received aggregate cash proceeds of $969,923, net of
offering expenses.
At March 31, 1997, the Company has reserved 4,683,416 shares of Common
Stock for issuance pursuant to outstanding options and warrants and the 8%
Convertible Debentures.
11
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QPQ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. COMMITMENTS AND CONTINGENCIES:
On November 20, 1996, the Company was notified by holders of Warrants for
the purchase of an aggregate of 38,250 shares of Common Stock issued on
September 22, 1993, pursuant to the Underwriter's Common Stock Purchase
Agreement, between the Company and Reich & Co., Inc., that pursuant to the
anti-dilution provisions contained in such Warrants, the Warrant exercise per
share of Common Stock underlying the Warrant was reduced to $0.25 per share. The
claim alleged that the number of shares for which the Warrants are exercisable
increased to an aggregate of 1,377,000 shares. Additionally, the warrant holders
demanded registration of such shares. On May 14, 1997, the Company repurchased
the warrants for a total purchase price of $201,000. The accompanying March 31,
1997 consolidated financial statements include a provision for loss on
underwriter warrant settlement in the amount of $201,000.
9. SUBSEQUENT EVENT:
On May 8, 1997 the Company filed a Form S-8 Registration Statement
registering 300,000 shares of Common Stock, which were issued in connection with
a management consulting agreement between the company and an unrelated
individual.
12
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Item 6. Management's Discussion and Analysis or Plan of Operation.
- ------- ----------------------------------------------------------
A. QPQ CORPORATION
GENERAL
QPQ commenced its planned principal operations through its wholly owned
subsidiary, Pizza King Polska Sp. zo.o ("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 an explanatory paragraph in
their report for the three months ended March 31, 1997 and 1996 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.
On August 25, 1995, QPQ Medical Centers, Inc. ("QPQ Medical"), a wholly
owned subsidiary of QPQ, was organized. QPQ Medical offers medically supervised
weight loss programs using a protocol which integrates systems and routines of
nutrition management, exercise and prescribed medication. QPQ Medical
anticipates that it will incur losses until at the earliest, it establishes a
number of weight loss 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 public or private sale of equity in QPQ and may
seek to borrow funds, if available, on commercially reasonable terms.
THREE MONTHS ENDED MARCH 31, 1997 VS THREE MONTHS ENDED MARCH 31, 1996:
RESULTS OF OPERATIONS
During the three months ended March 31, 1997, QPQ incurred a net loss of
$1,288,569 ($.17 per share) compared to a net loss of $665,742 ($.11 per share)
for the three months nded March 31, 1996. The $421,827 increase in QPQ's loss
for the three months ended March 31, 1997 compared to its loss for the three
months ended March 31, 1996 is primarily attributable to an approximate $246,000
increase in QPQ's loss for the three months ended March 31, 1997, resulting from
a $106,375 non recurring writedown of certain assets to estimated net realizable
value coupled with increases in various general corporate expenses.
Approximately $266,000 of the increase is attributable to an increase in the
losses incurred by QPQ Medical, which includes a $25,000 nonrecurring writedown
of certain assets to estimated net realizable value. The increased losses for
QPQ and QPQ Medical in the three months ended March 31, 1997 compared to the
13
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three months ended March 31, 1996, aggregating approximately $512,000, were
partially offset by a decrease of approximately $90,000 in PKP's loss in the
three months ended March 31, 1997 compared to the three months ended March 31,
1996.
During the three months ended March 31, 1997, QPQ generated Sales of
$285,996 from its three Domino's Stores which were opened in April, May and
August 1994, respectively, versus Sales of $282,679 for the three months ended
March 31, 1996 from its three Domino's Stores and the Cafe Renaissance, which
was sold in October 1996. For the three months ended March 31, 1996 the Cafe
Renaissance generated sales of $25,823. For the three months ended March 31,
1997, versus the three months ended March 31, 1996, the three Domino's Stores
experienced an increase in (average monthly) same store sales of $29,140.
During the three months ended March 31, 1997, QPQ incurred $101,379 of
Food and Packaging Expenses, $69,688 of Payroll and Related Costs, $98,335 of
Occupancy and Other Operating Expenses and $ 45,609 of Depreciation and
Amortization Expense.
Food and Packaging Expenses for the three months ended March 31, 1997 and
the three months ended March 31, 1996 were approximately 35% and 39% of Sales,
respectively. The decrease is primarily attributable to the improved cost
control and the elimination of the 3% import duty on imported cheese.
Payroll and Related Costs as a percentage of Sales for the three months
ended March 31, 1997 and March 31, 1996 were approximately 24% and 28%,
respectively. The decrease in Payroll and Related Costs as a percentage of Sales
is attributable to an increase in the average level of same store sales and
continued improvement in labor force scheduling. During the three months ended
March 31, 1996 the Payroll and Related Costs for the Cafe Renaissance were
higher than average Payroll and Related Costs as a percentage of Sales for QPQ's
Domino's Stores.
Occupancy and Other Operating Expenses as a percentage of Sales for the
three months ended March 31, 1997 and March 31, 1996 were approximately 34% and
39%, respectively. The decrease in Occupancy and Other Operating Expenses as a
percentage of Sales is primarily attributable to an increase in the average
level of same store sales for the three months ended March 31, 1997 coupled with
the elimination of the Cafe Renaissance.
Depreciation and Amortization as a percentage of Restaurant Sales for the
three months ended March 31, 1996 and March 31, 1996 were approximately 16% and
19%, respectively. The 3% decrease as a percentage of Restaurant Sales is
primarily attributable to an increase in the average level of same store sales,
coupled with a reduction in depreciation and amortization as a result of the
sale of the Cafe Renaissance in October 1996.
General and Administrative Expenses for the three months ended March 31,
1997 and March 31, 1996, totalled $640,795 and $436,706, respectively. For the
three months ended March 31, 1997 , General and Administrative Expenses were
comprised of executive and office staff salaries and benefits of $108,769, legal
and professional fees, office rent, travel, telephone and other corporate
expenses of $467,314, and depreciation and amortization of $64,712. For the
three months ended March 31, 1996, General and Administrative Expenses were
comprised of executive and office staff salaries of $71,782, legal and
professional fees, office rent, travel, telephone and other general corporate
expenses of $345,920 which figure includes $83,041 of preopening costs incurred
by QPQ Medical, and depreciation and amortization of $19,004.
14
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QPQ's General and Administrative Expenses for the three months ended March
31, 1997 were $204,089 higher than such expenses for the three months ended
March 31, 1996, as a result of, among other things, an increase in executive
salaries and other general corporate expenses, a non-recurring charge of 131,375
to writedown certain assets to estimated net realizable value. and an increase
in General and Administrative expenses applicable to QPQ Medical which commenced
operations in January 1996.
Interest and Other Income for the three months ended March 31, 1997 and
March 31, 1996 were $4,160 and $6,087, respectively. The decrease is primarily
attributable to a reduction in the funds held for investment by QPQ.
During the three months ended March 31, 1997 and March 31, 1996, Interest
Expense was $15,207 and $9,185, respectively. The increase in Interest Expense
is primarily attributable to the issuance of the 8% Convertible Debentures in
March 1997.
LIQUIDITY AND CAPITAL RESOURCES
A. QPQ CORPORATION/PIZZA KING POLSKA
Pursuant to the Domino's Development Agreement, as amended November 13,
1995 and March 21, 1997, 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, eight
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. QPQ did not
satisfy the requirements to open eight Domino's stores during 1996 and in March
1997, Domino's granted QPQ and extension until July 1, 1997 to satisfy such
requirement. In addition, Domino's indicated it would be agreeable to a further
six month extension if QPQ provided satisfactory evidence of recapitalization at
a level which in Domino's sole discretion, will enable QPQ to satisfy its
obligations under the agreement.
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, may open or cause to be opened at least eight additional Domino's Stores
prior to December 1997. Subject to the modifications of the Domino's Agreement,
QPQ will fail to meet the development schedule described above as amended, and
QPQ may 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.
As of March 31, 1997, QPQ had negative working capital of $1,311,027 and
cash and cash equivalents of $584,705. QPQ's material commitments for capital
15
<PAGE>
expenditures relate to the Domino's Stores that QPQ must open to comply with the
Domino's Development Agreement. 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 medical 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 (the "QPQ Operations Plan") beyond May, 1997, 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 May, 1997 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 September 1996, QPQ entered into a lease for approximately 100 square
meters of space in Warsaw Poland to be used as the site of its fourth Domino's
store. The lease is for an unlimited period of time but can be cancelled by
either party upon three months notice. Annual lease payments approximate $4,560.
In March 1997, QPQ commenced construction on the site and estimates that its
total costs of renovation of the site, including leasehold improvements and
furniture fixtures and equipment will approximate $110,000.
16
<PAGE>
QPQ's Operations Plans and Development Plans beyond May, 1997 are
contingent upon its operating and development experiences prior thereto.
Accordingly, QPQ cannot accurately predict its Operations Plans and Development
Plans beyond May, 1997.
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 to unrelated third parties and/or affiliates of
QPQ; selling the PKP subsidiary 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
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 including PKP, 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 Stores 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 bank
credit facilities, proceeds from two private offerings of QPQ Common Stock and
proceeds from two Regulation S Offerings 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
17
<PAGE>
$6.60, for aggregate proceeds of approximately $6,012,000, net of underwriting
discounts and commissions, expense allowances and other registration costs.
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, 1997 and
May 8, 1997, $28,355 and $25,412, 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,
1998. As of March 31, 1997 and May 8, 1997, $300,000 of the credit facility was
outstanding.
During the year ended December 31, 1996 , QPQ completed a private offering
(the "Private Offering") of 1,195,000 shares of Common Stock at an offering
price of $1 per share. The Private Offering was made only to accredited
investors in accordance with the provisions of Regulation D promulgated under
the Securities Act of 1933, as amended. Mr. Rubinson, the Chairman of the Board,
Chief Executive Officer, President and a principal shareholder of QPQ, and Nigel
Norton, a principal shareholder of QPQ, purchased 200,000 and 100,000 shares of
common stock, respectively.
In July 1996 and November 1996 QPQ sold 337,012 and 96,455 shares of
Common Stock in two Regulation S offerings and received cash proceeds of
$959,923, net of offering expenses.
From January 13, 1997 through March 12, 1997, the Company's Chairman of
the Board, Chief Executive Officer and President along with his mother loaned
the Company an aggregate of $397,000, repayable on demand, with interest at 8%
per annum. The loans were made for working capital purposes. On March 17, 1997,
the loans were repaid in full together with $3,022 of accrued interest from
proceeds received in connection with issuance of the 8% Convertible Debentures.
In March 1997, the Company entered into Securities Subscription Agreements
(the "Agreements") for the sale of $1,280,000 of 8% Convertible Debentures (the
"Debentures") with a maturity date of March 31, 1998, for which the Company
received net proceeds of $1,066,667. Interest is payable quarterly. The
Debentures are convertible into shares of common stock at a conversion price per
share equal to the lower of (a) 75% of the average closing bid price of the
18
<PAGE>
common stock for five business days immediately preceding the conversion date or
(b) 75% of the average of the closing bid price of the common stock for the
business day immediately preceding the date of the individual Subscription
Agreement.
The Debentures were issued in reliance upon the exemption from
registration afforded by Regulation S as promulgated by the Securities and
Exchange Commission under the Securities Act of 1933, as amended.
The Company has authorized a maximum of $6,000,000 principal amount of the
Debentures.
B. QPQ MEDICAL CENTERS, INC.
GENERAL
In August 1995, QPQ entered into the business of developing and operating
medical centers ("Medical Centers") which offer primary care medical services
and medically supervised weight loss programs. In January, April, July and
September 1996, QPQ Medical opened its first four Medical Centers. In February
1997, QPQ purchased a medical practice and relocated such practice to its
Aventura Medical Center. QPQ Medical has incurred losses and anticipates that it
will continue 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, 1997 VS THREE MONTHS ENDED MARCH 31, 1996:
QPQ Medical commenced operations in January 1996. Due to the start up
nature of QPQ Medical's operations and based upon the differing number of
Medical Centers open for the three months ended March 31, 1997 when compared to
the three months ended March 31, 1996, a comparison of QPQ Medicals operations
for the two periods is not meaningful.
During the three months ended March 31, 1997, QPQ Medical generated
Medical Center Revenues of $250,834 from its four Medical Centers. During the
three months ended March 31, 1996, QPQ Medical generated Medical Center Revenues
of $47,003 from the opening of its first Medical Center in January 1996.
During the three months ended March 31, 1997, QPQ Medical incurred
$302,075 of Payroll and Related Costs, $176,305 of Occupancy and other costs,
$151,016 of Advertising Expense, which includes the amortization of
approximately $146,000 of prepaid advertising incurred during 1996, and $28,150
of Depreciation and Amortization.
Payroll and Related Costs as a percentage of Medical Center Revenues for
the three months ended March 31, 1997 and 1996, were approximately 120% and
212%, respectively. Due to the start up nature of QPQ Medicals operations these
costs are disproportionate in relation to the Medical Center Revenues, as a
result of the necessity to fully staff the Medical Centers at the time of
opening prior to their ability to generate Medical Center Revenues. The 92%
19
<PAGE>
decrease as a percentage of sales is primarily attributable to the operation of
all four Medical Centers during the three months ended March 31, 1997 as
compared to the operation of one Medical Center for a portion of the three
months ended March 31, 1996.
Occupancy and Other Operating Expenses as a percentage of Medical Center
Revenues for the three months ended March 31, 1997 and March 31, 1996 were
approximately 70% and 83%, respectively. The 13% decrease as a percentage of
Medical Center Revenues is primarily attributable to the operation of all four
Medical Centers during the three months ended March 31, 1997, as compared to the
operation of one Medical Center for a portion of the three months ended March
31, 1996.
Advertising Expense as a percentage of Medical Center Revenues for the
three months ended March 31, 1997 and March 31, 1996 were approximately 60% and
110%, respectively. The 50% decrease as a percentage of Medical Center Revenues
is primarily attributable to the operation of all four Medical Centers during
the three months ended March 31, 1997 as compared to the operation of one
Medical Center for a portion of the three months ended March 31, 1996.
Depreciation and Amortization as a percentage of Medical Center Revenues
for the three months ended March 31, 1997 and March 31, 1996 were approximately
11% and 25%, respectively. The 14% decrease as a percentage of Medical Center
Revenues is primarily attributable to the operation of all four Medical Centers
during the three months ended March 31, 1997 as compared to the operation of
only one Medical Center for a portion of the three months ended March 31, 1996.
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 has expended the required amounts in accordance with the License
Agreement.
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.
In February 1997, the Company purchased a medical practice for $100,000
consisting of cash of $60,000, and a promissory note in the amount of $40,000
20
<PAGE>
due in February 2000. The promissory notes bear interest at the prevailing prime
rate as published in the Wall Street Journal.
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 May 1997 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 May 1997 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 May 1997
are contingent upon its operating and development experiences prior thereto.
Accordingly, QPQ Medical cannot accurately predict its operations and
development plans beyond May 1997.
QPQ continues to review the performance and prospects of its Medical
Centers 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 the
development of additional centers, purchase of existing medical practices,
selling certain or all of QPQ's existing Medical Centers to unrelated third
parties and/or affiliates of QPQ; closing certain of the Medical Centers 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
the Medical Centers.
The deployment of QPQ's financial, personnel, capital and/or other resources
in other businesses or investment opportunities, including Domino's Stores, may
result in a diminution in resources available to execute the QPQ Operations Plan
and/or the QPQ Development Plan.
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 Medical Centers, QPQ's ability to
locate a joint venture partner (a "Qualified Partner"), willing and able to
develop and operate its existing or additional Medical Centers, the Board of
Directors believes that it may be in the best interests of QPQ to close certain
of its Medical Centers. The Board of Directors' belief is based upon, among
other things, certain of the Medical Centers operating results to date, QPQ's
projected operating results with additional Medical Centers open, QPQ's
projected operating results with certain of the Medical Centers 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
Medical Centers versus QPQ's perceived risk adjusted rate of return in
alternative investments, QPQ's inability to date to locate a Qualified Buyer for
the Medical Centers on acceptable terms and QPQ's inability to date to locate a
Qualified Partner to develop and operate additional Medical Centers.
IMPACT OF INFLATION AND CURRENCY FLUCTUATIONS
Domino's Store operations are conducted in Poland. The Polish economy has
historically been characterized by high rates of inflation and devaluation of
21
<PAGE>
the Polish zloty against the United States dollar and European currencies.
However, in the year ended December 31, 1996, the rates of inflation and
devaluation improved. For the years ended December 31, 1993, 1994, 1995 and
1996, the annual inflation rate in Poland was 35%, 32% , 21.6% and 19.5%
respectively, and as of December 31, 1993, 1994, 1995 and 1996 the exchange rate
was 21,344, 24,372, 24,680 and 28,725 old 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 in the future.
The accounts of PK Polska are measured using the Polish zloty. Due to
Poland's highly inflationary environment through December 31, 1995, generally
accepted accounting principles required QPQ to calculate and recognize on its
statement of operations its currency translation gains or losses associated with
PK Polska. Due to the reduction in Polands inflation rate, effective for the
year ended December 31, 1996, QPQ is no longer required pursuant to generally
accepted accounting principles to recognize currency translation gains or losses
in its statement of operations.
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 remained
legal tender until December 31, 1996, after which date they are only
exchangeable at certain banks. At March 31, 1997, the exchange rate was 3.0760
new zlotys per dollar.
22
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. LEGAL PROCEEDINGS
On November 20, 1996, the Company was notified by holders of Warrants for
the purchase of an aggregate of 38,250 shares of Common Stock issued on
September 22, 1993, pursuant to the Underwriter's Common Stock Purchase
Agreement, between the Company and Reich & Co., Inc., that pursuant to the
anti-dilution provisions contained in such Warrants, the Warrant exercise per
share of Common Stock underlying the Warrant was reduced to $0.25 per share. The
claim alleged that the number of shares for which the Warrants are exercisable
increased to an aggregate of 1,377,000 shares. Additionally, the warrant holders
demanded registration of such shares. On May 14, 1997, the Company repurchased
the warrants for a total purchase price of $201,000. The accompanying March 31,
1997 consolidated financial statements include a provision for loss on
underwriter warrant settlement of the litigation in the amount of $201,000.
On December 19, 1996, Pizza King Polska, Sp. z o.o. was formally informed
by the Voivodship court in Warsaw that Teresa Romanska-Ninkowic had filed suit
alleging that PKP owed Ms. Romanska-Ninkowic approximately 123,422 PLN
(approximately $40,124.00 based on March 31, 1997 exchange rates) plus interest
from April 6, 1994. PKP asked the court to reject these allegations on the basis
that Ms. Romanska-Ninkowic failed to comply with the construction agreement. A
June court date has been set.
ITEM 5. OTHER INFORMATION
On May 12, 1997, C. Lawrence Rutstein was appointed President and Chief
Executive Officer of the Company succeeding Mitchell Rubinson. Mr. Rutstein is a
graduate of Harvard Law School and has practiced corporate, banking and
securities law. In addition, Mr. Rutstein has participated in a number of public
and private investment banking activities. Mr. Rubinson has terminated his
employment with the Company and no further financial obligations are owed to him
by the Company. Mr. Rubinson will continue as Chairman of the Board. Robert
Hausman was also appointed as a Director of the Company on May 12, 1997,
succeeding Dr. Mark Rabinowitz.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) Reports on Form 8-K
(i) On January 16, 1997, the Company filed a Form 8-K in
connection with proposed acquisition of Vitex, S.A. de C.V., a Mexican
corporation.
(ii) On Februay 7, 1997, the Company filed a Form 8-K in connection
with the change of accountants to Moore Stephens-Lovelace, Roby, P.L.
(iii) On March 17, 1997, the Company filed a Form 8-K in connect, on
with the termination of a Letter of Intent between the Company and Vitex, S.A.
de C.V., a Mexican Corporation.
(iv) On March 19, 1997, the Company filed a Form 8-K/A in
connection with the change of accountants to Moore Stephens-Lovelace, Roby, P.L.
(v) On March 21, 1997, the Company filed a Form 8-K in connection
with a Regulation S offering.
23
<PAGE>
SIGNATURES
In accordance with Section 13 or 15 (d) of the Securities Exchange Act of
1934, QPQ has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
QPQ CORPORATION
DATE: May 14, 1997 By: /s/ Mitchell Rubinson
----------------------
Mitchell Rubinson, Chairman of the Board
DATE: May 14, 1997 By: /s/ James Martin
-----------------
James Martin, Chief Financial Officer
(Principal Financial and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF QPQ CORPORATION FOR THE THREE MONTHS ENDED MARCH 31,
1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 884,705
<SECURITIES> 0
<RECEIVABLES> 153,138
<ALLOWANCES> 0
<INVENTORY> 55,404
<CURRENT-ASSETS> 1,319,866
<PP&E> 2,478,417
<DEPRECIATION> 691,188
<TOTAL-ASSETS> 3,676,460
<CURRENT-LIABILITIES> 2,630,893
<BONDS> 0
0
0
<COMMON> 76,535
<OTHER-SE> 929,032
<TOTAL-LIABILITY-AND-EQUITY> 3,676,460
<SALES> 536,830
<TOTAL-REVENUES> 536,830
<CGS> 315,011
<TOTAL-COSTS> 315,011
<OTHER-EXPENSES> 640,795
<LOSS-PROVISION> 201,000
<INTEREST-EXPENSE> 15,207
<INCOME-PRETAX> (1,288,569)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,288,569)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,288,569)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> (.17)
</TABLE>
