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 June 30, 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
--------------------------------------------------------------------------
(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.)
7777 Glades Road, Suite 211
Boca Raton, Florida 33434
---------------------------------------------
(Address of Principal Executive Office)
(561) 470-6005
--------------------------------------------------
(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 August 11, 1997 was 717,928, after giving effect to a 1 for
20 reverse split which was declared on August 8, 1997.
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
June 30, 1997 and December 31, 1996 2 - 3
Consolidated Statements of Operations
for the Three and Six Months Ended
June 30, 1997 and 1996 4
Consolidated Statements of
Shareholders' Equity for the Six
Months Ended June 30, 1997 5
Consolidated Statements of Cash Flows
for the Six Months Ended June 30,
1997 and 1996 6 - 7
Notes to Consolidated Financial
Statements 8 - 13
ITEM. 2 Management's Discussion and Analysis
or Plan of Operation 14 - 19
PART II. OTHER INFORMATION
- ---------------------------
SIGNATURES
1
<PAGE>
QPQ CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
June 30, December 31,
1997 1996
------------ -----------
CURRENT ASSETS:
Cash and cash equivalents $ 362,798 $ 138,731
Restricted Cash - 300,000
Note and accounts receivable
from sale of Medical Centers 82,000
Receivables 198,118 171,972
Inventory - 57,718
Accrued interest receivable 37,054 28,889
Due from affiliates - 149,382
Prepaid expenses 30,000 230,368
------------ -----------
Total Current Assets 709,970 1,077,060
------------ -----------
Furniture, equipment & leasehold
improvements, net 392,195 1,988,251
Deferred charges, net of accumulated
amortization of $27,700 and $11,301
at 1997 and 1996, respectively 130,444 124,030
Domino's development rights, net
of accumulated amortization of
$106,208 at December 31, 1996 - 204,646
------------ -----------
Total Assets $ 1,232,609 $ 3,393,987
============ ===========
See Accompanying Notes
2
<PAGE>
QPQ CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, Continued
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
June 30, December 31,
1997 1996
------------ ------------
CURRENT LIABILITIES:
Accounts payable $ 85,806 $ 479,895
Accrued expenses 18,747 92,489
Due to affiliate - 243,983
Bank credit facilities payable - 21,718
------------ ------------
Total Current Liabilities 104,553 838,085
------------ ------------
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,
5,000,000 shares authorized;
655,315 and 382,673 shares
issued and outstanding,
respectively 6,553 3,827
Additional paid-in capital 10,768,603 9,274,390
Accumulated Deficit ( 9,687,100) ( 7,090,852)
Accumulated translation adjustment - 68,537
------------ ------------
Total Shareholders' Equity 1,088,056 2,255,902
------------ ------------
Total Liabilities and
Shareholders' Equity $ 1,232,609 $ 3,393,987
============ ============
See Accompanying Notes
3
<PAGE>
QPQ CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Medical Centers $ 287,889 $ 260,587 $ 538,723 $ 307,590
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Payroll and related 188,450 124,063 490,525 223,834
Occupancy and other 173,490 111,351 349,795 150,564
Advertising 22,609 105,545 173,625 157,157
Depreciation and amortization 28,432 15,688 56,582 27,516
----------- ----------- ----------- -----------
Total Medical Centers 412,981 356,647 1,070,527 559,071
----------- ----------- ----------- -----------
GENERAL & ADMINISTRATIVE
EXPENSES 555,768 278,473 1,012,947 593,261
LOSS ON SALE OF ASSETS 228,088 -- 228,088 --
----------- ----------- ----------- -----------
OPERATING LOSS (908,948) (374,533) (1,772,839) (844,742)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSES):
Interest and other income 17,533 1,213 21,676 9,748
Interest expense (19,348) -- (26,872) --
Underwriter warrant
settlement -- -- (201,000) --
----------- ----------- ----------- -----------
Total other income
(expense), net (1,815) 1,213 (206,196) 9,748
----------- ----------- ----------- -----------
LOSS FROM CONTINUING
OPERATIONS (910,763) (373,320) (1,979,035) (834,994)
DISCONTINUED OPERATIONS:
Loss from operations (95,205) (117,398) (315,502) (321,466)
Loss on disposal of
discontinued operations (301,711) -- (301,711) --
----------- ----------- ----------- -----------
LOSS FROM DISCONTINUED
OPERATIONS (396,916) (117,398) (617 213 (321,466)
----------- ----------- ----------- -----------
NET LOSS $(1,307,679) $ (490,718) $(2,596,248) $(1,156,460)
=========== =========== =========== ===========
NET LOSS PER COMMON
SHARE:
Continuing operations $ (1.96) $ (1.14) $ (4.67) $ (3.80)
Discontinued operations (.86) (.36) (1.46) (1.47)
----------- ----------- ----------- -----------
Net loss $ (2.82) $ (1.50) $ (6.13) $ (5.27)
=========== =========== =========== ===========
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING 463,566 327,099 423,352 219,537
=========== =========== =========== ===========
</TABLE>
See Accompanying Notes
4
<PAGE>
QPQ CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Six Months Ended June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Additional Accumulated
Common Stock Paid In Translation Accumulated
Shares Amount Capital Adjustment Deficit Total
---------- ----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balances,
December 31,
1996 382,673 $ 3,827 $ 9,274,390 68,537 $( 7,090,852) $ 2,255,902
Issuance of Common Stock
in exchange for 8%
Convertible Debentures,
net of unamortized debenture
issue costs of $165,927 192,000 1,920 1,134,791 1,136,711
Issuance of Common Stock
in satisfaction of liabilities
and payment of legal and
professional expenses 65,000 650 328,294 328,944
Issuance of Common Stock
in payment of officer
compensation 15,642 156 31,128 31,284
Translation
adjustments ( 68,537) ( 68,537)
Net loss for
the period ( 2,596,248) ( 2,596,248)
---------- ----------- ----------- ----------- ------------ ------------
Balances,
June 30, 1997 655,315 $ 6,553 $10,768,603 $ - $( 9,687,100) $ 1,088,056
========== =========== =========== =========== ============ ============
</TABLE>
See Accompanying Notes
5
<PAGE>
QPQ CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
------------------------------
1997 1996
------------ ------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Loss $( 2,596,248) $( 1 156,460)
Adjustment to reconcile net
loss to net cash used in
operating activities:
Depreciation and amortization 141,142 91,267
Loss on sale of discontinued
operations 301,711 -
Loss on disposition of assets 310,088 -
Expenses paid by issuance of
common stock 382,866 -
Changes in operating assets and
liabilities:
Receivables ( 99,955) ( 42,571)
Inventory - ( 9,992)
Accrued interest receivable ( 8,165) ( 176,047)
Prepaid expenses 168,363 ( 34,613)
Other assets ( 61,306)
Accounts payable and
accrued expenses 71,005 114,034
Discontinued operations -
noncash charges and
working capital changes 36,509 393,068
Other noncash charges 101,829 -
------------ ------------
Net cash used in operating
activities ( 1,252,161) ( 821,314)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of
discontinued operations 500,000 -
Proceeds from sale of equipment 49,282 -
Discontinued operations 315,135 ( 32,695)
Payments for furniture, equipment
and leasehold improvements - ( 805,009)
------------ ------------
Net cash provided by(used in)
investing activities 864,417 ( 837,704)
------------ ------------
See Accompanying Notes
6
<PAGE>
QPQ CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
(Unaudited)
Six Months Ended June 30,
------------------------------
1997 1996
------------ ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net proceeds from issuance of
Common stock - 1,195,000
Payment for option - ( 10,000)
Net proceeds from issuance of
8% Convertible debentures 1,066,667 -
Proceeds from exercise of
stock options 30,000 -
Discontinued operations ( 321,718) ( 4,803)
Payments from(to) affiliates, net ( 94,601) ( 135,286)
------------ ------------
Net cash provided by financing
activities 680,348 1,044,911
------------ ------------
FOREIGN CURRENCY TRANSLATION
ADJUSTMENT ( 68,537) ( 18,704)
INCREASE(DECREASE) IN CASH AND
CASH EQUIVALENTS 224,067 ( 632,811)
BEGINNING CASH AND CASH EQUIVALENTS 138,731 1,052,831
------------ ------------
ENDING CASH AND CASH EQUIVALENTS $ 362,798 $ 420,020
============ ============
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the period for:
Interest:
Continuing operations $ 3,022 $ -
============ ============
Discontinued operations $ 17,475 $ 18,536
============ ============
SUPPLEMENTAL SCHEDULE OF NON
CASH INVESTING & FINANCING
ACTIVITIES:
Six Months Ended June 30, 1997:
Issuance of 192,000 shares of Common Stock in satisfaction of $1,280,000
principal amount of 8% Convertible Debentures and $22,638 of accrued
interest.
Issuance of 65,000 shares of Common Stock in satisfaction of liabilities
and payment of legal and professional expenses.
Issuance of 15,642 shares of Common Stock in payment of officer
compensation.
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"). On June 27,
1997, the Company sold its wholly-owned Polish subsidiary Pizza King Polska,
Sp.zo.o ("PK Polska") to an unrelated party, in exchange for $500,000 cash,
relinquishment of certain PK Polska related assets owned by the Company and
assumption of all liabilities of PK Polska by the purchaser as more fully
explained in Note 10.
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. In June 1997, the Company sold
three of its four operating weight loss centers as more fully explained in Note
9.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION - The accompanying consolidated financial statements
at June 30, 1997 include the accounts of the Company and its 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 results of operations and
cash flows for PK Polska for all periods presented are included in discontinued
operations.
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
nature) necessary for a fair presentation of the financial statements. The
results of operations for the six months ended June 30, 1997 are not necessarily
indicative of the results to be expected for the full year.
8
<PAGE>
QPQ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
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. At June 30, 1997 and 1996, the exchange rate was 3.2640
and 2.7720 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, were translated using historical exchange rates.
Income and expense accounts, excluding depreciation and amortization, were
translated at a weighted average exchange rate.
The accounts of PK Polska were 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 and six months ended June 30, 1996, were
decreased by $28,765 and $18,704 and $.09 and $.09 , 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 six months ended
June 30, 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 adjusted for the 1 for 20 reverse
split described in Note 7. 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 December 31, 1996, the Company had $300,000 of restricted cash,
classified as a current asset, which represented collateral for the outstanding
line of credit of PK Polska (See Note 10). The $300,000 was relinquished in
connection with the sale of PK Polska as more fully described in Note 10.
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 guaranteed the borrowings which were collateralized by
its amounts on deposit. In connection with the sale of PK Polska the borrowings
were assumed by the purchaser of PK Polska and the Company was released from its
guarantee.
5. NOTE PAYABLE:
The $40,000 note 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 on the debentures was payable
quarterly.
The Debentures were originally 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.
Pursuant to a settlement entered into with all holders of the Debentures
the holders agreed to accept three shares of Common Stock in exchange for each
$1 of principal amount of each Debenture. In addition, all accrued interest on
the debentures was satisfied by issuance of the Common Stock. On June 4, 1997,
the Company issued 192,000 shares of Common Stock in exchange for all of the
outstanding Debentures.
The $165,927 of unamortized costs associated with issuance of the
debentures has been charged against additional paid in capital in the
accompanying consolidated financial statements at June 30, 1997.
The Debentures were originally 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.
7. SHAREHOLDERS' EQUITY:
On August 8, 1997, the Company declared a 1-for-20 reverse stock split,
payable to stockholders of record on August 22, 1997. All information relating
to outstanding shares of common stock in the accompanying financial statements
for all periods presented has been restated to reflect the reverse split.
10
<PAGE>
QPQ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company's Stock Option Plan (the "Plan") and Directors Stock Option
Plan (the "Directors Plan") (collectively the "Plans"), authorize the issuance
of 50,000 and 2,500 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 six months ended
June 30, 1997:
Outstanding at beginning of period 25,125
Granted 1,375
Exercised -
Expired ( 1,500)
----------
Outstanding at end of period 25,000
==========
Exercisable at end of period 15,725
==========
Price range of options
outstanding at end of period $13.80 - $57.50
===============
Available for grant at end of period 27,500
==========
In July 1996, QPQ sold 59,750 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 former Chairman, Chief Executive Officer and President
purchased an aggregate of 15,000 shares of the offering. In September 1996 and
November 1996 QPQ sold 16,851 and 4,823 shares of Common Stock pursuant to two
Regulation S offerings and received aggregate cash proceeds of $969,923, net of
offering expenses.
At June 30, 1997, the Company has reserved 206,541 shares of Common Stock
for issuance pursuant to outstanding options and warrants.
8. SETTLEMENT OF UNDERWRITER WARRANTS:
On November 20, 1996, the Company was notified by holders of Warrants for
the purchase of an aggregate of 1,913 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 $5.00 per share. The claim alleged that
the number of shares for which the Warrants are exercisable increased to an
aggregate of 68,850 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 June 30, 1997
consolidated financial statements reflect a loss on underwriter warrant
settlement in the amount of $201,000.
11
<PAGE>
QPQ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. LOSS ON DISPOSITION OF ASSETS:
Effective June 23, 1997 the Company sold three of its operating Medical
Centers to an unrelated party in exchange for cash of $25,000, which was
received on July 1, 1997 and notes receivable of $57,000. Following is a
computation of the loss incurred on such sale:
Net book value of assets sold:
Furniture equipment and leasehold
improvements $ 261,468
Deposits and other assets 48,620
--------
Total Assets sold 310,088
Proceeds from sale 82,000
--------
Loss on sale $ 228,088
========
As security for its notes receivable the Company has a first lien on all
assets located in the three medical centers sold as well as a first lien on all
assets located in an additional medical center owned by the purchaser.
The Company has been released by the landlord on the leases relating to
two of the centers sold and is presently attempting to obtain a release relating
to the third center.
10. DISCONTINUED OPERATIONS:
On June 27, 1997, the Company sold its wholly-owned Polish subsidiary PK
Polska for $500,000, plus a release from all other obligations of the Company
relative to PK Polska, including bank guarantees. The Company also relinquished
its $300,000 certificate of deposit and related interest receivable of $37,054
(which was used as collateral for a $300,000 bank loan to PK Polska) and
transferred the unamortized cost of its Domino's Development rights to the
purchaser. Following is a computation of the loss incurred on the sale:
Net assets of PK Polska at
date of sale $ 312,608
Certificate of deposit relinquished 300,000
Transfer of net book value of
Domino's development rights 189,103
--------
Total 801,711
Less proceeds received 500,000
--------
Loss on sale $ 301,711
========
12
<PAGE>
QPQ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Following is a condensed summary of the results of operations of PK Polska
for all periods presented in the accompanying consolidated financial statements:
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
Restaurant Sales $ 302,443 $ 365,459 $ 588,439 $ 648,138
Operating Loss $( 96,326) $( 114,716) $( 308,957) $( 307,151)
Net Loss $( 95,205) $( 117,398) $( 315,502) $( 321,466)
11. COMMITMENTS:
On April 18, 1997, the Company entered into a two year consulting
agreement with an unrelated individual to provide advice and consult with the
company concerning identifying, evaluating, structuring, negotiating and closing
business acquisitions, including asset purchases, consolidations, mergers, joint
ventures and strategic alliances with companies located in Russia and the former
Soviet Republic. The company issued 15,000 shares of common stock as initial
compensation and further agreed to issue 30,000 shares of common stock upon the
successful completion of an acquisition or merger introduced to the Company by
the consultant. If any such acquisition or merger is not completed due to the
fault of the Company the 30,000 shares will be issued to the consultant as a
breakup fee.
On May 9, 1997, the Company entered into a five year employment agreement
with its President providing for annual salary of $120,000 with annual increases
equal the greater of the annual increase in CPI or 6% of the previous year's
base salary. The President received a signing bonus in the form of 18,255 shares
of common stock and received options to purchase an aggregate of 25,000 shares
of common stock at an amended exercise price of $1.20 per share. The options
vested immediately and expire ten years from the date of the employment
agreement. Subsequent to June 30, 1997, additional options to purchase an
aggregate of 20,708 shares of common stock at an exercise price of $1.20 per
share, were granted pursuant to the anti-dilution provisions contained in the
employment agreement.
13
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation.
---------------------------------------------------------
GENERAL
On May 12, 1997, C. Lawrence Rutstein was appointed CEO and President of
the Company. When the existing Board of Directors resigned, Robert Hausman was
added to the Board with Mr. Rutstein.
After the new management reviewed the financial status of the Company and
the continuing serious operating losses the following actions were taken:
1. The Company's subsidiary, Pizza King Polska, Ltd. ("PKP") which
operated Domino Pizza franchises in Poland was sold for $500,000. In addition to
the continuing operating losses, the Company was in default of its franchise
agreement with Dominos and the Company did not have adequate resources to cure
the default.
2. The Company sold three of its four weight loss centers operated by
QPQ Medical Weight Loss Center, Inc. ("QPQ Medical") a wholly owned subsidiary
which was organized on August 25, 1995 to offer supervised weight loss programs
using a protocol which integrates systems and routines of nutrition management,
exercise and prescribed medication. The centers continued to have substantial
operating losses and combined with the negative publicity on weight loss
medications management believed it was prudent to sell the centers. The
remaining center in Aventura, Florida is focused on primary medical care and
management has made changes to reduce its operating losses.
3. The new management has reduced the corporate overhead in salaries,
rents and other expenses to preserve the Company's resources.
4. The Company has made a $250,000 demand loan to Lator, Inc, a company
involved in the harvesting, bagging and selling of sphagnum peat moss to the
nursery industry and other allied uses primarily in Canada and the United
States. The Company is presently completing its due diligence and may consider a
more permanent investment in Lator.
5. Management continues to examine other business opportunities for the
company.
With the cash on hand and the cash available from the demand note
receivable the company has the ability to fund its corporate operations for the
next twelve months. However, in the event management identifies new business
opportunities for the Company it would most likely be necessary for the Company
to raise additional funds by debt or equity to fund such opportunity. QPQ has no
assurances that such fund raising will be available.
SIX MONTHS ENDED JUNE 30, 1997 VS SIX MONTHS ENDED JUNE 30, 1996:
RESULTS OF OPERATIONS
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 six months ended June 30, 1997 when compared to the
six months ended June 30, 1996, a comparison of QPQ Medicals operations for the
two periods is not meaningful.
14
<PAGE>
During the six months ended June 30, 1997, QPQ Medical generated Medical
Center Revenues of $538,723 from its four Medical Centers. During the six months
ended June 30, 1996, QPQ Medical generated Medical Center Revenues of $307,590
from the opening of its first two Medical Centers in January 1996 and April
1996.
During the six months ended June 30, 1997, QPQ Medical incurred $490,525
of Payroll and Related Costs, $349,795 of Occupancy and other costs, $173,625 of
Advertising Expense, which includes the amortization of approximately $146,000
of prepaid advertising incurred during 1996, and $56,582 of Depreciation and
Amortization.
Payroll and Related Costs as a percentage of Medical Center Revenues for
the six months ended June 30, 1997 and 1996, were approximately 91% and 73%,
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.
Occupancy and Other Operating Expenses as a percentage of Medical Center
Revenues for the six months ended June 30, 1997 and June 30, 1996 were
approximately 65% and 49%, respectively. The 16% increase as a percentage of
Medical Center Revenues is primarily attributable to the operation of all four
Medical Centers during the six months ended June 30, 1997, as compared to the
operation of two Medical Centers for a portion of the six months ended June 30,
1996.
Advertising Expense as a percentage of Medical Center Revenues for the six
months ended June 30, 1997 and June 30, 1996 were approximately 32% and 51%,
respectively. The 19% decrease as a percentage of Medical Center Revenues is
primarily attributable to the operation of all four Medical Centers during the
six months ended June 30, 1997 as compared to the operation of two Medical
Centers for a portion of the six months ended June 30, 1996 and a reduction in
media advertising during the 1997 period.
Depreciation and Amortization as a percentage of Medical Center Revenues
for the six months ended June 30, 1997 and June 30, 1996 were approximately 11%
and 9%, respectively. The 3% increase as a percentage of Medical Center Revenues
is primarily attributable to the operation of all four Medical Centers during
the six months ended June 30, 1997 as compared to the operation of only two
Medical Centers for a portion of the six months ended June 30, 1996.
Effective June 23, 1997 the Company sold three of its operating Medical
Centers to an unrelated party in exchange for cash of $25,000, which was
received on July 1, 1997 and notes receivable of $57,000. Following is a
computation of the loss incurred on such sale:
Net book value of assets sold:
Furniture equipment and leasehold
improvements $ 261,468
Deposits and other assets 48,620
--------
Total Assets sold 310,088
Proceeds from sale 82,000
--------
Loss on sale $ 228,088
========
15
<PAGE>
As security for its notes receivable the Company has a first lien on all
assets located in the three medical centers sold as well as a first lien on all
assets located in an additional medical center owned by the purchaser.
The Company has been released by the landlord on the leases relating to
two of the centers sold and is presently attempting to obtain a release relating
to the third center.
General and Administrative Expenses for the six months ended June 30, 1997
and June 30, 1996, totalled $1,012,947 and $593,261, respectively. For the six
months ended June 30, 1997, General and Administrative Expenses were comprised
of executive and office staff salaries and benefits of $165,848, legal and
professional fees, office rent, travel, telephone and other corporate expenses
of $762,539, and depreciation and amortization of $84,560. For the six months
ended June 30, 1996, General and Administrative Expenses were comprised of
executive and office staff salaries of $186,735, legal and professional fees,
office rent, travel, telephone and other general corporate expenses of $363,420
which figure includes $83,041 of preopening costs incurred by QPQ Medical, and
depreciation and amortization of $43,106.
Interest and other income for the six months ended June 1997 and 1996 was
$21,676 and $9,748. The $11,928 is primarily attributable to interest earned on
invested funds during the 1997 period as well as miscellaneous income relating
to the disposal of assets.
Interest expense for the six months ended June 30, 1997 was $26,872 and
relates primarily to the issuance of the 8% Convertible Debentures in March
1997, which were exchanged for common stock in June 1997.
On June 27, 1997, the Company sold its wholly-owned Polish subsidiary PK
Polska for $500,000, plus a release from all other obligations of the Company
relative to PK Polska, including bank guarantees. The Company also relinquished
its $300,000 certificate of deposit (which was used as collateral for a $300,000
bank loan to PK Polska) and transferred the unamortized cost of its Domino's
Development rights to the purchaser. Following is a computation of the loss
incurred on the sale:
Net assets of PK Polska at
date of sale $ 312,608
Certificate of deposit and related
interest receivable relinquished 300,000
Transfer of net book value of
Domino's development rights 189,103
--------
Total 801,711
Less proceeds received 500,000
--------
Loss on sale $ 301,711
========
Following is a condensed summary of the results of operations of PK Polska
for all periods presented in the accompanying consolidated financial statements:
16
<PAGE>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
Restaurant Sales $ 302,443 $ 365,459 $ 588,439 $ 648,138
Operating Loss $( 96,326) $( 114,716) $( 308,957) $( 307,151)
Net Loss $( 95,205) $( 117,398) $( 315,502) $( 321,466)
LIQUIDITY AND CAPITAL RESOURCES
On August 8, 1997, QPQ declared a 1 for 20 reverse stock split, payable to
stockholders of record on August 22, 1997. All information relating to
outstanding shares of common stock in the following paragraphs has been restated
to reflect the reverse split
As of June 30, 1997, QPQ had working capital of $605,417 and cash and cash
equivalents of $362,798.
With the cash on hand and the cash available from the demand note
receivable the company has the ability to fund its corporate operations for the
next twelve months. However, in the event management identifies new business
opportunities for the Company it would most likely be necessary for the Company
to raise additional funds by debt or equity to fund such opportunity. QPQ has no
assurances that such fund raising will be available.
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.
During the year ended December 31, 1996 , QPQ completed a private offering
(the "Private Offering") of 59,750 shares of Common Stock at an offering price
of $20.00 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. The former Chairman of the Board, Chief
Executive Officer, President and a principal shareholder of QPQ, and another
principal shareholder of QPQ, purchased 10,000 and 5,000 shares of common stock,
respectively.
In July 1996 and November 1996 QPQ sold 16,851 and 4,823 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 former
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.
17
<PAGE>
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 was payable quarterly. The
Debentures were 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.
Pursuant to a settlement entered into with all holders of the Debentures
the holders agreed to accept three shares of Common Stock in exchange for each
$1 of principal amount of each Debenture. In addition, all accrued interest on
the debentures was satisfied by issuance of the Common Stock. On June 4, 1997,
the Company issued 192,000 shares of Common Stock in exchange for all of the
outstanding Debentures.
The $165,927 of unamortized costs associated with issuance of the
debentures has been charged against additional paid in capital in the
accompanying consolidated financial statements at June 30, 1997.
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.
On November 20, 1996, the Company was notified by holders of Warrants for
the purchase of an aggregate of 1,913 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 $5.00 per share. The claim alleged that
the number of shares for which the Warrants are exercisable increased to an
aggregate of 68,850 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 June 30, 1997
consolidated financial statements reflect a loss on underwriter warrant
settlement in the amount of $201,000.
On May 23, 1997, QPQ entered into an Undertaking and Loan Agreement (the
"Loan Agreement") with International Fast Food Corporation, a Florida
corporation ("IFFC") and Pizza King Polska Sp, z.o.o., a Polish limited
liability company ("PKP"), whereby IFFC granted to QPQ a loan in the amount of
$500,000, plus interest at the rate of 9% per annum (the "Loan"). By the terms
of the Loan Agreement, the Loan shall be repaid by QPQ (in U.S. Dollars) in full
no later than 3 months from the date of the Loan Agreement. QPQ also had the
right to prepay the principal amount without penalty. In order to secure IFFC's
rights under the Loan Agreement, QPQ agreed to transfer to IFFC 41,258 shares of
Common Stock of PKP (the "PKP Shares") owned by QPQ pursuant to an Agreement on
Transfer of Shares as Collateral dated May 23, 1997 (the "Transfer Agreement").
Under the Transfer Agreement, IFFC agrees to transfer the PKP Shares back to QPQ
upon full repayment of the Loan.
On June 27, 1997, QPQ, IFFC and PKP mutually agreed to terminate the
Transfer Agreement and IFFC transferred the shares of PKP back to QPQ, and QPQ
sold the PKP shares to Krolewska Pizza Sp.zo.o ("KP") for a total purchase price
of $500,000, represented by the transfer of QPQ's $500,000 liability owing to
IFFC to KP.
18
<PAGE>
On May 27, 1997, QPQ received a letter from Nasdaq concerning the
continued listing of QPQ's shares of Common Stock on The Nasdaq SmallCap Market
(the "Letter"). The Letter indicated that QPQ's shares of Common Stock have
failed to maintain a closing bid price greater than or equal to $1.00. Nasdaq
also stated that to be eligible for continued listing, all securities, except
warrants and rights, must maintain a minimum bid price of $1.00 or, as an
alternative if the bid price is less than $1.00, maintain capital surplus of
$2,000,000 and a market value of the public float of $1,000,000. QPQ has also
failed to meet the alternative. The Letter also stated that QPQ will be provided
90 calendar days in which to regain compliance with the minimum bid price or the
alternative requirement. On August 8, 1997, QPQ declared a 1 for 20 reverse
stock split, payable to stockholders of record on August 22, 1997, in order to
meet the minimum Nasdaq bid price for its common stock.
On April 18, 1997, the Company entered into a two year consulting
agreement with an unrelated individual to provide advice and consult with the
company concerning identifying, evaluating, structuring, negotiating and closing
business acquisitions, including asset purchases, consolidations, mergers, joint
ventures and strategic alliances with companies located in Russia and the former
Soviet Republic. The company issued 15,000 shares of common stock as initial
compensation and further agreed to issue 30,000 shares of common stock upon the
successful completion of an acquisition or merger introduced to the Company by
the consultant. If any such acquisition or merger is not completed due to the
fault of the Company the 30,000 shares will be issued to the consultant as a
breakup fee.
On May 9, 1997, the Company entered into a five year employment agreement
with its President providing for annual salary of $120,000 with annual increases
equal the greater of the annual increase in CPI or 6% of the previous year's
base salary. The President received a signing bonus in the form of 18,255 shares
of common stock and received options to purchase an aggregate of 25,000 shares
of common stock at an amended exercise price of $1.20 per share. The options
vested immediately and expire ten years from the date of the employment
agreement. Subsequent to June 30, 1997, additional options to purchase an
aggregate of 20,708 shares of common stock at an exercise price of $1.20 per
share, were granted pursuant to the anti-dilution provisions contained in the
employment agreement.
On August 5, 1997, the Company's publicly traded warrants were delisted
from the Nasdaq Small Cap Market due to the absence of any registered market
makers to trade the securities.
19
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Please see Note 8 on Page 11 and the Managements Discussion and Analysis
on Page 18 with respect to the settlement of the Underwriters warrant for
$201,000.
ITEM 2. CHANGES IN SECURITIES
(c) 10,000 shares of stock were issued to Weight Loss Associates, Inc.
in exchange as consideration for the termination and transfer of assets under a
License Agreement between Weight Loss Associates and the Company.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) Reports on Form 8-K
(i) On June 19, 1997, the Company filed a Form 8-K in
connection with the resignation of Mitchell Rubinson as President and Chief
Executive Officer, a loan of $500,000 from International Fast Food Corporation;
the conversion of the 8.0% Convertible Debentures, and the NASDAQ 90 day
continued listing letter.
20
<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: August 19, 1997 By: /s/ C. Lawrence Rutstein
-----------------------------------------
C. Lawrence Rutstein, Chairman of the Board,
Chief Executive Officer and President
(Principal Executive Officer)
21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF QPQ CORPORATION FOR THE SIX MONTHS ENDED JUNE 30,
1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 362,798
<SECURITIES> 0
<RECEIVABLES> 317,172
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 709,970
<PP&E> 492,115
<DEPRECIATION> 99,920
<TOTAL-ASSETS> 1,232,609
<CURRENT-LIABILITIES> 104,553
<BONDS> 0
0
0
<COMMON> 6,553
<OTHER-SE> 1,081,503
<TOTAL-LIABILITY-AND-EQUITY> 1,232,609
<SALES> 538,723
<TOTAL-REVENUES> 538,723
<CGS> 1,070,527
<TOTAL-COSTS> 1,070,527
<OTHER-EXPENSES> 991,271
<LOSS-PROVISION> 429,088
<INTEREST-EXPENSE> 26,872
<INCOME-PRETAX> (1,979,035)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,979,035)
<DISCONTINUED> (617,213)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,596,248)
<EPS-PRIMARY> (6.13)
<EPS-DILUTED> (6.13)
</TABLE>
