10-K 1 a2031287z10-k.txt FORM 10K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [Fee Required] For the fiscal year ended June 30, 2000 OR [x] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] Commission file number 0-19522 N. U. PIZZA HOLDING CORPORATION (Exact name of registrant as specified in its charter) NEVADA 95-3656327 ------------------------------- ------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3550 WILSHIRE BOULEVARD, SUITE 1725 LOS ANGELES, CA 90010 --------------------------------------------------- ------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (213)252-9991 Securities registered pursuant to Section 12 (b) of the Act: Name of each exchange TITLE OF EACH CLASS ON WHICH REGISTERED ------------------------- ----------------------- Common ($0.001 par value) O.T.C. (NUZA) Preferred ($0.10 par value) None Securities registered pursuant to Section 12(g) of the Act: Not Applicable Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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. [x] Yes [ ] No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ ] The aggregate market value of shares of the voting stock held by non-affiliates of the Company, based on the bid price of such stock on the Over-The-Counter electronic bulletin board on October 2, 2000 was $1,407,010. The number of shares of Common Stock outstanding as of October 2, 2000 was 51,164,008. Documents Incorporated by Reference None PART I ITEM 1. BUSINESS GENERAL The Company consists of N. U. Pizza Holding Corporation and its wholly-owned subsidiaries Formaggi, Inc. and Numero Uno Franchise Corporation. N. U. Pizza Holding Corporation was incorporated under the laws of the State of Nevada in 1981 as Gelet Enterprises, Inc. In April 1993, Gelet Enterprises, Inc. changed its name to N. U. Pizza Holding Corporation. Its principal place of business is 3550 Wilshire Boulevard, Suite 1725, Los Angeles, California 90010, telephone number (213) 252-9991. N. U. Pizza Holding Corporation owns a wholly-owned subsidiary, Numero Uno Franchise Corporation, which was incorporated in 1975 to franchise a chain of restaurants known as Numero Uno Pizzeria. On July 15, 1998, Numero Uno Franchise Corporation assigned all of its assets, including franchise agreements then in effect, and certain trademarks to N. U. Pizza Holding Corporation in exchange for N. U. Pizza Holding Corporation's assumption of specific liabilities of Numero Uno Franchise Corporation. In January 1999, the officers and directors of Numero Uno Franchise Corporation resigned. Numero Uno Franchise Corporation is currently inactive. N. U. Pizza Holding Corporation is managing the Company's franchising operations. On February 4, 2000, the Company filed voluntary petition under Chapter 11 of the United States Bankruptcy Code with the United States Bankruptcy Court for the Central District of California. In a Chapter 11 filing, substantially all liabilities as of the petition date are subject to compromise or other treatment under a plan of reorganization. Generally, actions to enforce or otherwise effect payment of all pre-Chapter 11 liabilities are stayed while the Company continue their business operations as debtors-in-possession. The Debtor's Chapter 11 case resulted from sequence of events stemming primarily from Company not being able to restructure the monthly payment plans. After filing of Chapter 11 the Company and attorneys have worked with franchisees on their past due royalty and note payments due to the Company. Plans have been worked out with franchisees to pay arrears on short term notes, effective since April 2000. The Company has developed a unique system for producing and merchandising distinctive, high quality Sicilian style, deep-dish pizza, sandwiches and other Italian food products. There are two types of Numero Uno establishments: (1) full service Numero Uno Pizzeria Restaurants which offer server-assisted, sit down, dining room service, with takeout and delivery service as an ancillary feature of its business, and (2) Numero Uno Pizzeria establishments which provide only limited dine-in service and which feature takeout and delivery services. N. U. Pizza Holding Corporation maintains centralized franchising, buying, personnel, systems, pricing, advertising, merchandising and accounting functions at its principal executive offices. Most of the Company's business is currently done in Southern California. Formaggi, Inc., which is a wholly-owned subsidiary of N. U. Pizza Holding Corporation, franchised the "Oregon's Original Sandwich Express and Bakery" concept and a new dual concept known as "Formaggi Pizza/Sandwich Express." Both concepts featured limited dine-in service and provided takeout, delivery, and, in some instances, drive-through services. All of Formaggi, Inc.'s business was conducted in Oregon. During the years ended June 30, 1999 and 1998, all of the Oregon's Original Sandwich Express and Bakery and Formaggi Pizza/Sandwich Express restaurants were closed and Formaggi Inc. ceased all franchising operations. At June 30, 1999, Formaggi, Inc. wrote off its remaining unamortized intangible assets. During the year ended June 30, 2000, the Company entered into an agreement with Salsa Fresh, Inc. This agreement gave the Company the exclusive rights to the Salsa Fresh Grill name and concept as well as right to franchise and develop the concept. The company felt this would be a good additional concept for future growth. The Salsa Fresh Grill concept is appealing in many ways and is bringing additional lunch business where Numero Uno is traditionally more dinner driven. There are currently three dual concept units operating. Pursuant to a stock purchase agreement (the "Agreement") dated February 1, 1994, as amended, Woodbury, Inc., an affiliate, acquired all of the issued and outstanding shares of common stock of N. U. Pizza Holding Corporation. The agreement was approved by the respective directors of both companies and the transaction was formally closed on April 19, 1994. The consideration paid to the shareholders for the acquisition of N. U. Pizza Holding Corporation was 80,000 shares of Woodbury, Inc.'s convertible preferred stock. Upon formalization of the acquisition of N. U. Pizza Holding Corporation by Woodbury, Inc., the directors of N. U. Pizza Holding Corporation and Woodbury, Inc. approved the merger of Woodbury, Inc. into its newly acquired subsidiary, N. U. Pizza Holding Corporation. The stockholder of Woodbury, Inc. received one share of common stock of N. U. Pizza Holding Corporation for each share of Woodbury, Inc. common stock that he owned. N. U. Pizza Holding Corporation has amended its articles of incorporation to provide for capitalization similar to that of Woodbury, Inc., including the authorization of convertible preferred stock. The merger of Woodbury, Inc. and its wholly-owned subsidiary did not require Woodbury, Inc. shareholder action. Ronald J. Gelet, who was the sole officer and director of the Company prior to the merger remained in his capacity as president and director until he resigned on January 1, 1999. 2 On January 7, 1997, N. U. Pizza Holding Corporation consummated an asset purchase agreement whereby it bought certain intangible assets from the DAS Group, Inc., the owner of a bakery and the franchisor of Original Sandwich Express Restaurants for consideration of $200,000 in cash. Upon the closing of the agreement, N. U. Pizza Holding Corporation contributed the $200,000 of intangible assets it purchased from the DAS Group, Inc., to Formaggi, Inc. in exchange for 2,000,000 shares of Formaggi, Inc.'s common stock. As discussed above, the unamortized balance of the intangible assets of $155,000 was written off by Formaggi, Inc. at June 30, 1999. Currently, there are no other shareholders of Formaggi, Inc. THE COMPANY'S PRODUCTS The distinguishing characteristics of the Numero Uno system include, but are not limited to, a unique and readily recognizable design, color scheme and layout for the premises where such business is conducted; distinctive furnishings; specialized paper products; signs and advertising; and distinctive trade names, service marks and other identifying marks, designs, logos and commercial symbols including, without limitation, "Numero Uno Pizzeria,", "Numero Uno Takeout and Delivery," "One Bite and We Gotcha" and "Pizza, Pasta and More." In addition, the Company and its former president have created and perfected unique and distinctive methods for preparing, serving and merchandising Sicilian-style, deep dish pizza, sandwiches and other related Italian food products including the use of specially prepared ingredients and secret recipes which the Company and its former president originated. Pizza is clearly the most important product in the Company's line. Deep dish, Sicilian-style is the most popular product and New York-style, thin crust pizza is second in demand. As of June 30, 2000 there were 31 franchised restaurants in the Numero Uno system featuring dine-in facilities as well as takeout and delivery services. DOMESTIC FRANCHISING The Company began franchising Numero Uno full service restaurants in 1975. Through franchising activities, the Company has established a good reputation and a demand for its deep dish, Sicilian-style pizza, sandwiches and other Italian food products. The name Numero Uno and the related trade names, trademarks, service marks, logo designs and commercial symbols have come to signify to the public the highest standards of quality, cleanliness, appearance and service, all of which are publicized through various advertising media. The Company currently engages in the sale and administration of full service restaurant franchises as well as takeout and delivery restaurant franchises. The franchise terms granted to each franchisee are subject to terms and 3 conditions of the then applicable franchise agreement. Over the past twenty-five years, the franchise licenses have been modified so that the terms of the franchise agreements range from ten to twenty years; initial franchise fees range from $6,000 to $25,000 and monthly royalty fees are the higher of $1,200 or 5% of net franchise revenues. Advertising fees are the higher of $800 per month or 3% of net franchise revenues. Typically, the franchise agreements provide for either a protected or exclusive delivery territory. The Company provides the franchisee assistance with site selection, lease negotiations, architectural designs and training. On a continuing basis, the Company creates, develops and purchases local and regional advertising, public relations and promotional campaigns. The Company negotiates purchase contracts for proprietary and mandatory products on an annual basis. Also, on an ongoing basis, the Company provides supervision and operating assistance to franchisees. INTERNATIONAL FRANCHISING International development agreements grant the licensee the right to develop the Numero Uno system and concept in an overseas market by opening either franchised full service or takeout and delivery restaurants. The license grants exclusivity for a fixed period of years providing that the licensee fulfills the development schedule set forth in the respective agreement. The initial non-refundable fee is based on the negotiated number of restaurants to be opened under the agreement, with a typical fee ranging from $10,000 to $15,000 per restaurant. Typically, the first restaurant must be opened within one year of execution of the agreement with the balance of restaurants to be opened within five years. Once the development terms are met, the licensee has the right to extend the term of the agreement for an additional 25 years and also has the right to open additional restaurants. The Company receives a negotiated initial fee for the opening of each additional restaurant. The initial and ongoing services provided by the Company are the same as for domestic contracts with the exception of advertising services. There are currently five international development agreements in effect: China; South Korea; Indonesia; Lebanon and the United Arab Emirates; and the Philippines. Currently, there are nine international units opened and operating. COMPANY-OWNED RESTAURANTS During the year ended June 30, 2000, there was no Company owned or operated restaurants. The Company has decided to concentrate its growth and effort in the domestic franchising and joint venturing of the Numero Uno concept through dual concept restaurants - pizza and sandwiches, smaller express restaurants and licensed, branded 4 restaurants and no additional wholly-owned Company operations are expected to be added. MERCHANDISE, SUPPLIERS AND DISTRIBUTORS There are numerous products and recipes in the Numero Uno system that are proprietary in nature. These items have either been developed by the Company or by others for exclusive use with the Numero Uno system. Whenever possible, license agreements are entered into with outside vendors to prepare these products for ultimate distribution exclusively to Numero Uno restaurants. This is to ensure that the highest level of quality is maintained and that there is consistency throughout the chain. Proprietary items include, but are not limited to the following items: tomato sauce, meat sauce, alfredo sauce, soup, garlic sauce and recipes for dough, lasagna and meatballs. Two dough recipes are the most important products in the Numero Uno system. Both dough recipes were developed by the Company's founder and former president, Ronald J. Gelet, and are directly responsible for the uniqueness of the respective pizza products. The formula and ownership of the recipes belong to Mr. Gelet. The Company, pursuant to a licensing agreement, has the exclusive right to the use and distribution of the formula and recipe. Mr. Gelet receives a royalty of $2,000 per month. Each restaurant must order and purchase all dough, spices, sauces and other proprietary items designated by the Company, exclusively from the Company or its designated distributor. These items are made available on terms and at prices equally applicable to all restaurants located within the same freighting area and are competitive with other items of like quality and quantity. Pizza dough, spices and sauces are produced from secret recipes; consequently, in order to preserve the confidentiality of such recipes, it is essential that the source of purchase be limited. To further ensure high standards of quality and consistency throughout the Numero Uno chain, there are many additional items which are set forth in the operations manual as mandatory for use in Numero Uno restaurants. Mandatory items, unlike proprietary items, are items that are not exclusively produced for the Numero Uno system but are brand items or items that are identified by Numero Uno as having specific quality or nature. These items include, but are not limited to the following: pepperoni, bulk Italian sausage, pasta products, tomatoes, canned sauces, spices, seasonings, grades of vegetables, salad bar items and percent of leanness in meat products. EMPLOYEES The Company currently has four "nonunion" employees. This does not include personnel that are employed by the Company's franchisees. Management believes that its employee relations are generally good. COMPETITION 5 There is a tremendous amount of competition in the pizza business. The Company faces competition for patronage of customers in varying degrees from national, regional and local chains which are located in the Company's marketplace. Many of these competitors offer merchandise similar to that made available by the Company. The Company attempts to compete by offering what it believes to be higher quality food and better service at reasonable prices. The Company's major national competitors include Pizza Hut, Dominos and Little Caesar's. Regional competitors include Shakey's and Round Table Pizza. There is also significant independent competition which currently accounts for more than 50% of the pizza market in Southern California. In the recent past, the competition in the Southern California marketplace has intensified. Predatory pricing and deep discounting have had an effect on consumers' brand loyalty. The Company also competes for the customers' dollar with virtually all restaurants in the Southern California marketplace whether or not they specialize in pizza or offer Italian specialty items. TRADEMARKS, SERVICE MARKS, TRADE NAMES, LOGO TYPES AND COMMERCIAL SYMBOLS "Numero Uno" is a registered service mark in the State of California. The Numero Uno name was first used in California on June 15, 1973 and was registered as a state service mark on February 27, 1986 as Reg. #26019. A separate California service mark registration for the words "Numero Uno" with design was obtained on March 22, 1986 as Reg. #4242. Both of said registrations are currently held by N. U. Pizza Holding Corporation. On September 6, 1985, the Company obtained a state service mark registration for "Numero Uno Pizza, Pasta and More" as Reg. #24304. The Company was issued a certificate of registration by the United States Patent and Trademark Office evidencing the registration on March 11, 1986 of the service mark "One Bite and We Gotcha" on the principal register as Reg. #1386261 and a Section 8 Affidavit of Use has been timely filed. The Company was also issued a certificate of registration by the United States Patent and Trademark Office for the mark "Pizza, Pasta and More" which was registered on the principal register on May 6, 1986 as Reg. #1392746 and a Section 8 Affidavit of Use was timely filed. The mark "Numero Uno Takeout and Delivery" is not separately registered. The Company does not believe that such registration would be significantly beneficial inasmuch as the distinctive part of the mark, the words "Numero Uno," are already the subject of a state registration. On November 11, 1997, the Company received a registered trademark in the State of Oregon for "Formaggi" as Reg. #2112981. Formaggi Inc. owns, by assignment, "Oregon's" Original Sandwich Express Bakery" trademark as Reg. #1747562 with the U.S. Patent and Trademark Office. 6 There are presently no effective adverse determinations by the United States Patent and Trademark Office; the trademark administrator of any state or any court; no impending interference, opposition or cancellation proceedings; nor any pending material litigation involving any of the foregoing marks which is relevant to their use in California. With the exception of the agreement with Pizzeria Uno Corporation (which prevents the Company from using the name anywhere within the continental United States except for California), there are no agreements currently in effect which significantly limit the rights of the Company or its affiliated entities to use or license the use of any of the said marks. Furthermore, there are no infringing uses actually known to the Company which would materially affect the use of any of the marks in California. The Company has copyrights on certain confidential operations manuals and confidential food preparation manuals. These copyrights are not registered. Under each franchise agreement, the franchisee is granted the right to use the manuals during the term of his franchise, subject to the confidentiality restrictions and other terms and conditions contained in the franchise agreement. There are presently no effective determinations of the copyright office, or any court, any pending interference, opposition or cancellation proceedings, or any material litigation involving manuals which is relevant to their use in California. ITEM 2. PROPERTIES RESTAURANTS In many instances, the Company has signed or guaranteed leases for restaurants operated by franchisees. The leases for the restaurant premises vary as to their terms, rental provisions, expiration dates and the existence of renewal options. The number of years remaining on the leased locations range from approximately six months to five years. The termination of any of the leases due to expire within the next two years (without renewal options) would not have a material adverse effect on the operations of the Company. Most of the leases provide for a fixed minimum rent and some have provisions for additional rent based on a percentage of the total sales in excess of certain amounts. Many leases also provide that the Company shall pay all, or a portion of, the real estate taxes, insurance charges and maintenance expenses related to the leased premises. The Company has historically acquired locations for Company-owned restaurants through a variety of methods including direct leases, assignments of subleases of existing facilities and build-to-suit leases. In many cases, the Company is able to lease or sublease existing buildings that have previously been used for restaurants. In connection with the opening of new restaurants, the Company has historically made capital improvements and incurred expenses of 7 approximately $150,000 to $250,000 per restaurant. These costs consisted of leasehold improvements, inventory, fixtures, equipment, furniture, signs, pre-opening costs and, in some cases, lease acquisition costs. Historically, Company-owned restaurants were either located in or adjacent to shopping centers of varying sizes and had adjacent parking facilities or were freestanding with parking that was specific to the location. Restaurants generally operated from 11:00 a.m. to 9:00 p.m., Sunday through Thursday, and 11:00 a.m. to 11:00 p.m. on Friday and Saturday. Particular location schedules varied slightly. CORPORATE OFFICE The Company relocated its corporate offices during the year ended June 30, 2000 and currently leases space located at 3550 Wilshire Boulevard, Suite 1725, Los Angeles, California. The space is approximately 1,000 square feet and there are approximately six months remaining on the lease. ITEM 3. LEGAL PROCEEDINGS PENDING 1. N.U. PIZZA HOLDING CORPORATION VS. RENO IANNINI, ET AL, U.S. BANKRUPTCY COURT, CENTRAL DISTRICT OF CALIFORNIA, ADVERSARY NO. 00-01563. In September, 1998, The Company entered into a lease, as lessee, for property located in Laguna Niguel, CA. In December 1999, the Company entered into an agreement whereby the defendant agreed to take over the operation of the restaurant, assume the real property lease and assume two equipment leases under which the Company was liable. On February 1, 2000, The defendant took over physical possession of the real property and, breached the terms of the agreement with the Company by failing, among other things, to pay the landlord and equipment lessors. The Company initiated an adversary action on October 10, 2000 against the defendant, seeking damages according to proof, no less than $50,000 plus exemplary and punitive damages. A Status Conference is scheduled for December 21, 2000. 2. VENTURA TAFT VS. N. U. PIZZA HOLDING CORPORATION, VAN NUYS SUPERIOR COURT CASE NO. LC042907. During the year ended June 30, 1999, an action was filed for breach of contract against the Company, as lessee, by a landlord of a leased restaurant location that the Company subleased to a franchisee who subsequently vacated the premises. The plaintiff is claiming damages of $80,000. The Company had reached a tentative settlement of $65,000 with the plaintiff which is being renegotiated by the parties. Management was confident that settlement of the matter will not be materially different than $65,000 which has been recorded in accrued litigation settlements at June 30, 2000. 3. JASVIR SINGH BASI AKA DAVID BASI, RAVINDER K. BASI AKA LINDA BASI, AND BASI FOOD COMPANY, INC. VS. RONALD J. GELET, NUMERO UNO 8 FRANCHISE CORPORATION, NUMERO UNO, INC., GREGORY GOLEM AND DOES 1 THROUGH 100, INCLUSIVE, Superior Court of the State of California for the County of Los Angeles, Case No. LC023294. In October 1985, the Company entered into a franchise agreement with Jasvir Singh Basi and Ravinder Kaur Basi for a full service restaurant located in Winnetka, California. In or about June 1993, a dispute arose between the Basis and the Company relating to the nature of the Basis' delivery rights and the geographic territory originally allocated to them. Pursuant to the franchise agreement, the Basis' right to delivery into the originally allocated area was non-exclusive and, upon the occurrence of certain conditions was subject to termination followed by renegotiation of an alternate delivery area with a new one. The Basis denied that they had agreed to a replacement delivery area and, further alleged that, by separate agreement, their delivery area was expressly agreed to. The Basis responded with a cross-complaint which sought compensatory and punitive damages and other relief based on claims of breach of contract, breach of covenant of good faith and fair dealing, intentional interference with prospective advantage, intentional infliction of emotional distress and violations of the Racketeer Influenced and Corrupt Organizations Act ("R.I.C.O."). The Company filed a demurrer to the cross complaint and the Basis filed a first amended cross complaint in January 1994. On September 27, 1994, the parties settled the lawsuit. The Company agreed to a royalty abatement which commenced on October 1, 1994 and continues for five years thereafter. The Company also agreed to a one-time waiver of the transfer fee should the franchisee decide to sell its franchise. In addition, the parties established the boundaries of the franchisee's geographic territory and delivery rights. As part of the settlement agreement, one of the plaintiffs entered into a new franchise agreement with the Company in October 1995. Subsequently, the plaintiff breached his obligations under the franchise agreement by failing to pay required fees and his franchise was terminated by the Company. The plaintiff refused to vacate the restaurant he was subleasing from the Company, continued to use Company trademarks and breached his building lease with the landlord by failing to pay rent which was due. The Company was forced to pay back rent to the landlord and utilities. The plaintiff and the Company agreed to arbitrate their claims. The plaintiff filed a claim against the Company and its former president for fraud, intentional infliction of emotional distress and breach of fiduciary duty in the amount of $418,000. The Company filed a cross claim against the plaintiff for breach of contract and trademark infringement for $100,000. The Company is also seeking indemnification for rents and utilities paid on behalf of the plaintiff and damages for trademark infringement and unfair competition claims in the amount of $7,000. Management believes that the Company will prevail in arbitration, because the plaintiff's claims are without merit, and at best the plaintiff can only seek damages for breach of his franchise agreement since the September 1994 settlement agreement was reached between the parties. Management also believes that the outcome will not have a 9 material adverse effect on the Company's financial position. A trial date for this arbitration has not been set, but is presently anticipated to be in January or February 2001. 4. MICHAEL MCDONNELL AND SANDRA MCDONNELL VS. N.U. PIZZA HOLDING CORPORATION, NUMERO UNO FRANCHISE CORPORATION, DAN ROUSE, ET AL., in the Circuit Court of the State of Oregon for the County of Marion, Case No. 97C13097. During the year ended June 30, 1999, an action was filed against the Company in the State of Oregon for breach of contract, violation of The Franchise Act and fraud. The plaintiff is seeking $100,000 plus attorney's fees. At June 30, 2000, the plaintiff was not moving forward with the case and is presently in bankruptcy. The Company intends to file a motion for summary judgment, and management believes that the Company will ultimately prevail at trial should a summary judgment not be granted. SETTLED 5. SALEEM BAAKZA VS. RONALD J. GELET, NUMERO UNO FRANCHISE CORPORATION AND N. U. PIZZA HOLDING CORPORATION, Superior Court of the State of California, County of Ventura Case No. SC021983. During the year ended June 30, 1996, the Company purchased a restaurant in exchange for shares of its common stock. The seller (plaintiff) was unable to subsequently sell the Company's common stock at the value established by the parties in connection with the Company's acquisition of the restaurant. During the year ended June 30, 1999, the plaintiff filed an action against the Company alleging breach of contract, fraud and various other causes of action. In May 1999, the parties resolved their differences by entering into a settlement agreement. Pursuant to the terms of the settlement agreement, the Company has agreed to pay the plaintiff a total sum of $158,500, consisting of two monthly payments of $29,250 which were made in May and June, 1999 and the balance of $100,000 in twenty-five monthly installments of $4,000 plus interest at 9% per annum. Pursuant to the settlement agreement, the Company made its initial $4,000 payment to the plaintiff on May 1, 1999 and made monthly payments from August 1, 1999 through December 31, 1999. The remaining unpaid balance is subject to the outcome of the bankruptcy filing. 6. FEIRING VS. N. U. PIZZA HOLDING CORPORATION, NUMERO UNO FRANCHISE CORPORATION, RON GILLETTE, DAN ROUSE, ET AL., in the Circuit Court of the State of Oregon for the County of Polk, Case No. 97P1233. During the year ended June 30, 1999, an action was filed against the Company in the Circuit Court of the State of Oregon alleging breach of contract, violation of The Franchise Act and fraud. The plaintiff sued for $100,000 plus attorney's fees. The Company settled the matter for $15,000 which was paid during the year ended June 30, 2000. 7. FILET MENU, INC. VS. NUMERO UNO, INC., GELET ENTERPRISES, INC. AND RONALD J. GELET, Los Angeles Superior Court Case No. DC114313. 10 This is an action filed on October 12, 1994 against the Company for breach of a settlement agreement. This matter arose out of the settlement of a previously filed lawsuit filed by the plaintiff against the Company in 1987. As part of that settlement agreement, the Company entered into a written agreement with the plaintiff for the purchase and payment of merchandise. The plaintiff alleged that the Company breached that agreement by failing to purchase all the required items and also failed to pay for some items which were delivered under the settlement agreement. The Company contended that Filet Menu breached the settlement agreement. The Company answered the complaint and the Superior Court referred the matter to the Joint Association Settlement Program. After a settlement conference was held, the parties settled the matter. As part of the second settlement agreement, the Company agreed to pay the plaintiff an irrevocable consulting fee of $500,000, payable in monthly installments of $4,167 for a period of ten years commencing on June 15, 1996 and to use the plaintiff as exclusive supplier of various paper products used by the Company in Numero Uno restaurants for a period of five years. Subsequently, Numero Uno Franchise Corporation filed a Demand for Arbitration before JAMS/Endispute, Inc. alleging that Filet Menu violated the terms of the second settlement agreement. In November 1996, the parties entered into a new third settlement agreement which superseded both previous agreements referenced above. This final settlement agreement required the Company to pay the supplier a total of $238,000 consisting of immediate cash payment of $101,000, subsequent installment payments totaling $37,000 plus interest of 8% on or before November 1, 1998 and $100,000 (reduced by the plaintiff to $75,000 during the year ended June 30, 1998) payable in sixty monthly installments of $1,250. During the year ended June 30, 2000, the Company made monthly payments of $1,250 through December 1999. The remaining unpaid balance is subject to the outcome of the bankruptcy filing. 8. MAURICE PACK VS. MISSION GORGE PIZZA, INC., NUMERO UNO FRANCHISE CORPORATION AND N. U. PIZZA HOLDING CORPORATION, Los Angeles Superior Court Case No. LC033111. This was a complaint filed on July 21, 1995 for $50,943 due on a promissory note and guarantees. The Company guaranteed a franchisee's note payments. The franchisee defaulted on payments under the promissory note due to the plaintiff beginning in April 1995 and continuing thereafter. A status conference had been set for May 17, 1996 but was taken off the calendar when the parties settled the matter. The Company agreed to pay the plaintiff $56,723 in monthly installments which were paid in full during the year ended June 30, 1999. 9. JANET TSENG-LAW AND RONALD E. LAW VS. NUMERO UNO FRANCHISE CORPORATION, N. U. PIZZA HOLDING CORPORATION AND NUMERO UNO TAKEOUT AND DELIVERY, INC., Whittier Municipal Court Case No. 95C03094. This is an action for breach of contract for failure of Numero Uno Takeout and Delivery, Inc. to make payments on a promissory note. The plaintiffs are seeking $12,604. The action was filed on September 28, 1995 and an answer was filed on behalf of Numero Uno Franchise Corporation and N. U. Pizza Holding Corporation on December 6, 1995. The Company 11 subsequently made a settlement offer to the plaintiffs but the plaintiffs' counsel has not pursued settlement. The Court on its own motion dismissed the case without prejudice for failure to prosecute the action by plaintiffs on April 10, 1998. As a result, forgiveness of debt income for approximately $12,900 was recorded during year ended June 30, 2000. 10. ROBERT AND FRANCES CLAYTON VS. NUMERO UNO TAKEOUT AND DELIVERY, INC., GELET ENTERPRISES, INC., NUMERO UNO FRANCHISE CORPORATION, RONALD J. GELET, GREGORY R. GOLEM AND BRADLEY HARRINGTON, Orange County Superior Court Case No. 749134. This action for breach of lease was filed June 26, 1995 by the landlord of premises leased by Numero Uno Takeout and Delivery in Huntington Beach, California. In March 1995, Numero Uno Takeout and Delivery vacated the premises. The plaintiffs sought rent in the amount of $20,512 and other amounts for damages according to proof. The Company contended that Numero Uno Takeout and Delivery was a defunct entity and there was no contractual liability on behalf of the Company and other named defendants. Defendants Gelet Enterprises, Inc., Numero Uno Franchise Corporation, Ronald J. Gelet and Gregory R. Golem answered the complaint on August 16, 1995. After some discovery, the Court assigned the case to non binding arbitration. An arbitration hearing was held on June 20, 1996 and the arbitrator awarded the plaintiffs $31,781. Numero Uno Franchise Corporation did not agree with the award and filed a Request For Trial De Novo with the Court and a court date was set for October 28, 1996. Prior to trial, the parties entered into a settlement agreement which provides for a stipulation for judgment should the Company fail to pay installments pursuant to the terms of the settlement agreement. The Company agreed to pay $16,500 plus interest in monthly installments which were paid in full during the year ended June 30, 1998. 11. BRIAN MOORE AND LINDA MOORE VS. NUMERO UNO FRANCHISE CORPORATION AND N. U. PIZZA HOLDING CORPORATION, Orange County Superior Court Case No. 752894. This action was filed on September 18, 1995 for breach of a promissory note and security agreement made by the Company to Brilinca Corporation. The plaintiffs, Brian and Linda Moore are the assignees of Brilinca Corporation. The Moores alleged that the Company defaulted on amounts owing to them of $77,917. In addition to Numero Uno Franchise Corporation, the plaintiffs have sued N. U. Pizza Holding Corporation as guarantor of Numero Uno Franchise Corporation's obligations. A tentative settlement was reached with the Moores' attorney but the Moores did not agree with the terms. Because the parties were in settlement negotiations, the Court took the hearing on the Right to Attach Order and the Settlement Conference off the calendar. The Settlement Conference, however, was held on June 28, 1996. The parties were unable to settle the matter and a trial date was scheduled for October 16, 1996. Prior to the trial date, the parties settled the matter with the Company agreeing to pay approximately $54,500 plus interest at 10% per annum in monthly installments which were paid in full during the year ended June 30, 1999. 12 ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS No matter was submitted during the fourth quarter of the fiscal year covered by this report to a vote of the Company's security holders. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS On December 30, 1993, the Company's common stock was authorized for trading in the over-the-counter market on the "Electronic Bulletin Board" under the symbol "NUZA." The Company's common stock is not listed on NASDAQ. The Company's common stock did not start to trade on the over-the-counter market until January 1995. The following table shows the range of high and low bid quotations of the Company's common stock as traded in the over-the-counter market:

The above quotations were reported by the National Daily Quotation Service and were furnished by the National Quotation Bureau, Inc. The quotations represent prices between dealers, do not include retail markups, markdowns or commissions and do not necessarily represent prices at which actual transactions were or could have been effected. HOLDERS As of October 2, 2000, the total number of shareholders was 521. DIVIDENDS The Company has not declared dividends on its common stock since its inception, and the Company does not anticipate paying dividends in the foreseeable future. The Company's Preferred Series B Stock bears a coupon rate of 9% which is cumulative. Since the Company has not declared dividends, this 13 amount is accumulating and will accumulate until such time as dividends are paid. The Company's Preferred Series C Stock bears a coupon rate of 10% which is cumulative and provides an option to convert the Preferred Stock to Common Stock at $.50 per share. Since the Company has not declared dividends, this amount is accumulating and will accumulate until such time as dividends are paid. Dividends in arrears at June 30, 2000 totaled $6,600. ITEM 6. SELECTED FINANCIAL DATA

14 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This analysis of the Company's financial condition, capital resources and operating results should be viewed in conjunction with the accompanying consolidated financial statements, including the notes thereto. LIQUIDITY AND CAPITAL RESOURCES At June 30, 2000, the Company has an deficit of $7,301,200 and a working capital deficit of $587,300. There has been a minimal return on assets. During the year ended June 30, 2000, the Company incurred a net loss of $250,300 before fourth quarter adjustments to increase the allowance for possible losses on franchisee notes receivable and to write off uncollectible subscription notes receivable. After these adjustments, the Company's net loss increased $232,100 to $482,400. For the years ended June 30, 2000, 1999 and 1998, the Company's business generated negative or minimal cash flows from operations. At June 30, 2000, there were no Company-owned restaurants. The Company's franchise operations lost $481,600 in the current year. Principal payments on long-term debt of approximately $127,800 also reduced the Company's cash resources. The Company is continuing to reduce its operating costs primarily as a result of staff reductions, fewer lease commitments and the settlement of significant lawsuits during the year ended June 30, 2000. The amount of cash required to support its operations has been substantially reduced as the Company owned no restaurants at June 30, 1999 and 2000. The Company is reevaluating its existing product lines and intends to keep only those menu items which have been historically profitable. Many existing items will be dropped from the Company's current menu and will be replaced with new products. The Company will also lower its prices and offer larger sizes of its products. The Company is also expanding its marketing approach and is developing Internet delivery zones. The Company is attempting to generate significantly higher sales at a low cost and is currently contracting with independent pizza parlors to direct orders received from customers on the Internet to the nearest location for a fee. During the year ended June 30, 2000, the Company received principal payments on notes receivable from franchisees of $26,300. The Company 15 also continued to reduce its liabilities by the payment of obligations from this source of cash flow. The Company's cash outflow for capital expenditures was $0 and $1,100, respectively, for the years ended June 30, 2000 and 1999. This reduction in capital expenditures is due to the disposition of Company-owned restaurants in recent years. Property and equipment of $573,900 were sold during the year ended June 30, 1998 in exchange for notes receivable. The Company has continued to make required principal payments on its long-term debt requirements until December 1999. During the year ended June 30, 2000, principal payments on long-term debt totaled $127,800 compared to $167,900 for the year ended June 30, 1999. Collections on notes receivable totaled $273,300 for the year ended June 30, 2000. In August 1999, the Company's Board of Directors approved an increase from 50,000,000 to 100,000,000 authorized shares of common stock. On July 23, 1999, the Company entered into agreements with two consultants. The agreements are for a fourteen month period and expired on September 30, 2000. The consultants assisted the Company with the expansion of its operations by identifying, evaluating and structuring acquisitions of other companies. The consultants also provided ongoing consulting services in the areas of management, strategic planning, corporate financing and marketing in connection with the Company's line of business. In consideration for their efforts, the Company granted each consultant an option to purchase 2,000,000 shares of the Company's common stock at an exercise price of $.03 per share. On September 22, 1999, one of the consultants exercised his option by paying the Company $30,000 in exchange for 1,000,000 shares of the Company's common stock. On February 28, 2000, the second consultant exercised his option by paying the Company $60,000 in exchange for 2,000,000 shares of the Company's common stock. OPERATING ACTIVITIES Accounts receivable have decreased $75,100 to $0 at June 30, 2000. There is no inventory on hand at June 30, 2000 as the Company-owned restaurant at June 30, 1998 was sold during the year ended June 30, 1999. Prepaid expenses decreased $15,700 to $0 at June 30, 2000. Deposits decreased $21,600 to $1,300 at June 30, 2000 due to the fewer lease commitments during the year ended June 30, 2000. Accounts payable and accrued expenses decreased $347,800 to $2,700 at 16 June 30, 2000. This was due primarily to the Company's filing of voluntary petition under Chapter 11 of the United States Bankruptcy Code with the United States Bankruptcy Court for the Central District of California. The unpaid obligations are subject to outcome of the bankruptcy filing. Deferred franchise fee income realized decreased $22,900 to $0 during the year ended June 30, 2000. Accrued franchise advertising payable decreased $52,400 to $0 at June 30, 2000. Restricted cash increased $5,300 to $22,100 and franchisee advertising receivable have decreased 35,600 to $0, at June 30, 2000. INVESTING ACTIVITIES No advances were made to affiliated corporations during the year ended June 30, 2000. Notes receivable - franchisees and notes receivable from related parties increased $167,300 to $1,086,500 at June 30, 2000. The Company received a $263,500 note during the year ended June 30, 2000. Net intangible asset decreased $8,300 to $0 at June 30, 2000 due to the sale of the intangible asset. FINANCING ACTIVITIES Long-term debt decreased $26,500 to $354,800 due to a combination of payments on loans and new notes payable during the year ended June 30, 2000. Litigation settlements decreased $241,300 to $0. Accrued settlements of $241,300 were offset by payments of $15,000 during the year ended June 30, 2000. The remaining unpaid balance is subject to the outcome of the bankruptcy filing. Loans payable to related parties increased $106,400 to $592,800 at June 30, 2000. Common stock and additional paid-in capital increased $3,000 and $87,000 to $51,400 and $6,269,100, respectively, at June 30, 2000. RESULTS OF OPERATIONS YEAR ENDED JUNE 30, 2000 AS COMPARED TO THE YEAR ENDED JUNE 30, 1999 FRANCHISE OPERATIONS Initial franchise fees decreased $31,700 to $28,300 (52.8%) as compared to $60,000 for the year ended June 30, 1999. The Company recognized $22,900 previously deferred franchise fees and received no transfer fees on franchises that were sold during the year ended June 17 30, 2000. No new international development agreements were made during the year ended June 30, 2000. For the year ended June 30, 2000, the Company earned royalty income of $344,300, a decrease of $48,900 (12.4%) as compared to royalty income of $393,200 for the year ended June 30, 1999. This decrease is due primarily to a continued decline in system-wide sales. Rental income for the year ended June 30, 2000 decreased $20,300 (100.0%) to $0 as compared to $20,300 for the year ended June 30, 1999. This decrease is due to the continued increase in the number of franchisees paying their rent directly to the landlord instead of rents being passed through the Company as in prior years. Interest income decreased $13,400 (30.1%) to $31,100 for the year ended June 30, 2000 as compared to $44,500 for the year ended June 30, 1999. This decrease is due to interest bearing notes receivable deemed uncollectible during the year ended June 30, 2000. Rebate income decreased $22,600 (16.2%) to $117,100 for the year ended June 30, 2000 as compared to $139,700 for the year ended June 30, 1999. This decrease is due primarily to an overall decrease in system-wide sales for the year ended June 30, 2000. Other income increased $71,300 (103.8%) to $140,000 for the year ended June 30, 2000 as compared to $68,700 for the year ended June 30, 1999 primarily due to the receipt, during the year ended June 30, 2000, of a one-time payment of $120,000 from a promotion company to be used exclusively. The Company recognized $12,900 and $3,200 of forgiveness of debt income for the years ended June 30, 2000 and 1999, respectively, due to the write off of previously accrued accounts payable and notes payable. Rent expense increased $43,000 (80.5%) to $96,400 for the year ended June 30, 2000 as compared to $53,400 for the year ended June 30, 1999. This increase is due primarily in rents paid for closed restaurants and storage space for equipments. General and administrative expenses consist of corporate payroll and related benefits, insurance, professional fees, license fees and depreciation and amortization. These expenses decreased $156,200 (22.5%) to $538,200 for the year ended June 30, 2000 as compared to $694,400 for the year ended June 30, 1999. This decrease is due primarily to an overall reduction in administrative and management staff expenses. Bad debt expense decreased $721,900 (75.7%) to $232,100 for the year ended June 30, 2000 as compared to $954,000 for the year ended June 30, 1999. The Company wrote off substantially more uncollectible accounts receivable, notes receivable - franchisees and subscription notes receivable than during the year ended June 30, 1999. 18 During the year ended June 30, 2000, the Company's consulting expense increased $2,500 (3.7%) to $70,000 as compared to $67,500 for the year ended June 30, 1999. Interest expense increased by $45,200 (82.0%) to $100,300 for the year ended June 30, 2000 as compared to $55,100 for the year ended June 30, 1999 due to an increase in the amount of notes payable. The Company recorded no litigation settlements during the year ended June 30, 2000. The Company recorded $71,800 of discounts on notes receivable to reduce the carrying value of noninterest bearing notes receivable to their fair value at June 30, 2000. An imputed interest rate of 8% was applied to the future cash flows of noninterest bearing notes receivable to determine the discount. The Company recognized no income on the sale of restaurants and equipment during the year ended June 30, 2000 as compared to a $3,100 loss on the sales of restaurant equipment and leasehold improvements during the year ended June 30, 1999. During the year ended June 30, 2000, the Company recorded no loss on investments in affiliated corporations as compared to a $473,500 loss during the year ended June 30, 1999, when the Company determined that the carrying value of its investments was not recoverable due to certain factors that now exist regarding the investees' financial condition and the industry in which they operate. COMPANY-OWNED RESTAURANT OPERATIONS Company-owned restaurant revenues decreased $192,700 (100.0%) to $0 for the year ended June 30, 2000 as compared to $192,700 for the year ended June 30, 1999. The decrease was due to the sale and closure of the Company's restaurants during the year ended June 30, 1998. The Company, as lessee on the leases of two restaurant locations, was forced to take back and operate the restaurants during the year ended June 30, 1999 when the current franchisees failed to meet their obligations. At June 30, 1999, all Company-owned restaurants had been closed or sold. During the year ended June 30, 2000, there was no Company owned or operated restaurants. Overall Company-owned restaurant expenses decreased $156,200 (100.%) to $0 for the year ended June 30, 2000 compared to $156,200 for the year ended June 30, 1999 due to the dispositions of the Company-owned restaurants. YEAR ENDED JUNE 30, 1999 AS COMPARED TO THE YEAR ENDED JUNE 30, 1998 FRANCHISE OPERATIONS Initial franchise fees increased $11,000 to $60,000 (22.4%) as 19 compared to $49,000 for the year ended June 30, 1998. The Company recognized $44,000 of previously deferred franchise fees and received $16,000 of transfer fees on franchises that were sold during the year ended June 30, 1999. No new international development agreements were made during the year ended June 30, 1999. For the year ended June 30, 1999, the Company earned royalty income of $393,200, a decrease of $98,000 (20.0%) as compared to royalty income of $491,200 for the year ended June 30, 1998. This decrease is due primarily to a continued decline in system-wide sales and the closure of a total of seventeen Numero Uno and Sandwich Express franchises. Rental income for the year ended June 30, 1999 decreased $48,800 (70.6%) to $20,300 as compared to $69,100 for the year ended June 30, 1998. This decrease is due to the continued increase in the number of franchisees paying their rent directly to the landlord instead of rents being passed through the Company as in prior years. Interest income increased $4,000 (9.9%) to $44,500 for the year ended June 30, 1999 as compared to $40,500 for the year ended June 30, 1998. This increase is due to an increase in interest bearing notes receivable outstanding during the year ended June 30, 1999. Rebate income decreased $14,600 (9.5%) to $139,700 for the year ended June 30, 1999 as compared to $154,300 for the year ended June 30, 1998. This decrease is due primarily to an overall decrease in system-wide sales for the year ended June 30, 1999. Other income decreased $64,400 (48.4%) to $68,700 for the year ended June 30, 1999 as compared to $133,100 for the year ended June 30, 1998 primarily due to the receipt, during the year ended June 30, 1998, of a one-time payment of $83,000 from a vendor when the Company agreed to change its sole supplier of soft drink products. The Company recognized $3,200 and $137,400 of forgiveness of debt income for the years ended June 30, 1999 and 1998, respectively, due to the write off of previously accrued accounts payable. Rent expense decreased $15,300 (22.3%) to $53,400 for the year ended June 30, 1999 as compared to $68,700 for the year ended June 30, 1998. This decrease is due primarily to an increase in rents paid directly to the landlord by franchisees instead of rents being passed through the Company. General and administrative expenses consist of corporate payroll and related benefits, insurance, professional fees, license fees and depreciation and amortization. These expenses decreased $123,400 (15.1%) to $694,400 for the year ended June 30, 1999 as compared to $817,800 for the year ended June 30, 1998. This decrease is due primarily to an overall reduction in administrative and management staff expenses. Bad debt expense increased $617,100 (183.2%) to $954,000 for the year ended June 30, 1999 as compared to $336,900 for the year ended June 20 30, 1998. The Company wrote off substantially more uncollectible accounts receivable, notes receivable - franchisees and subscription notes receivable than during the year ended June 30, 1998. During the year ended June 30, 1999, the Company's consulting expense increased $63,800 (172.4%) to $67,500 as compared to $3,700 for the year ended June 30, 1998. In December 1998, the Company entered into a consulting agreement with its former president and agreed to pay fees of $10,000 per month resulting in the increase. Interest expense increased by $8,800 (19.0%) to $55,100 for the year ended June 30, 1999 as compared to $46,300 for the year ended June 30, 1998 due to an increase in the amount of notes payable. The Company recorded $238,500 of litigation settlements during the year ended June 30, 1999. The Company recorded $267,000 of discounts on notes receivable to reduce the carrying value of noninterest bearing notes receivable to their fair value at June 30, 1998. An imputed interest rate of 8% was applied to the future cash flows of noninterest bearing notes receivable to determine the discount. The Company recognized a $3,100 loss on the sale of restaurants and equipment during the year ended June 30, 1999 as compared to a $369,200 gain on the sales of restaurant equipment and leasehold improvements during the year ended June 30, 1998. A larger number of Company-owned restaurants were sold during the year ended June 30, 1998. During the year ended June 30, 1999, the Company recorded a loss on investments in affiliated corporations of $473,500 when the Company determined that the carrying value of its investments was not recoverable due to certain factors that now exist regarding the investees' financial condition and the industry in which they operate. During the year ended June 30, 1999, the $155,000 unamortized balance of the "Oregon's Original Sandwich Express and Bakery" intangible assets purchased from the DAS Group, Inc. during the year ended June 30, 1997, were written off. COMPANY-OWNED RESTAURANT OPERATIONS Company-owned restaurant revenues decreased $917,100 (82.6%) to $192,700 for the year ended June 30, 1999 as compared to $1,109,800 for the year ended June 30, 1998. The decrease was due to the sale and closure of the Company's restaurants during the year ended June 30, 1998. The Company, as lessee on the leases of two restaurant locations, was forced to take back and operate the restaurants during the year ended June 30, 1999 when the current franchisees failed to meet their obligations. At June 30, 1999, all Company-owned restaurants had been closed or sold. As a result of restaurant disposals, gross profit decreased $611,000 21 (82.5%) from $740,700 for the year ended June 30, 1998 to $129,700 for the year ended June 30, 1999. Gross profit, as a percentage of sales increased insignificantly from 66.7% for the year ended June 30, 1998 to 67.3% for the year ended June 30, 1999. Overall Company-owned restaurant expenses decreased $833,700 (84.2%) to $156,200 for the year ended June 30, 1999 compared to $989,900 for the year ended June 30, 1998 due to the dispositions of the Company-owned restaurants. During the year ended June 30, 1999, the Company incurred a net loss of $1,993,100 as compared to a net loss of $348,300 for the year ended June 30, 1998. The increase in loss of $1,644,800 resulted from additional losses on interest bearing notes receivable and stock subscription notes receivable, litigation settlements and the write offs of Formaggi Inc.'s net assets and investments in affiliated corporations. PRESIDENT'S COMMENTS The results for the fiscal year ending June 30, 2000 were promising. Since filing, the Company has been working diligently to develop a plan to come out of chapter 11. Because of an unresolved pending lawsuit identified in this filing and previous filings, we do not anticipate that we will be able to present a plan to the bankruptcy court before mid 2001. In addition to working on the bankruptcy, we have spent a great deal of time with various investors and investment groups trying to raise capital for growth and to take the Company out of chapter 11. While there have been several indications of interest, no definite commitments have been obtained and probably will not be obtained until we resolve the outstanding legal matter. The Company is also exploring several opportunities to help it grow both within and outside the State of California. Needless to say, the past year has been a difficult one for the Company. We are optimistic that once the pending lawsuit is resolved, regardless of the outcome, we will then be able to present a plan that will result in the survival of the Company, and, more importantly, give the Company an opportunity to prosper and grow. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and related information required to be filed hereunder are indexed on Page F-1 of this report and are incorporated herein by reference. 22 PART III ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The Board of Directors of N.U. Pizza Holding Corporation (the "Company") voted to dismiss Bennett Block Accountancy Corporation ("BBAC") as its independent certified public accountant. None of the BBAC reports on the Company's financial statements for the prior fiscal years contained an adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles. The decision to change accountants was recommended by the Company's Audit Committee and approved by the Company's Board of Directors. For the prior fiscal years, and through the date of this Annual Report on Form 10-K, the Company is unaware of any disagreement with BBAC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement if not resolved to their satisfaction, would have caused said accountants to make a reference to the subject matter of the disagreement in connection with any report issued by same. The Company has engaged a new accounting firm, Grobstein, Horwath & Company LLP, to act as certifying accountants for the year ended June 30, 2000. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers and other significant employees of the Company are listed below, together with certain information concerning them. None of the executive officers or other significant employees have an employment agreement with the Company.

The term of the Directors listed above expires on January 1, 2001. BUSINESS EXPERIENCE The following is a brief account of the business experience during the last five years of the Company's directors and executive officers: DANIEL A. ROUSE was the Vice President of Operations and a Director of the Company from 1994 to December 31, 1998. On January 1, 1999, Mr. Rouse became president of the Company. Prior to joining the Company, Mr. Rouse was the Western Regional Franchise Director for Domino's Pizza from 1985 - 1989. He was responsible for overseeing 429 franchised units throughout California, Nevada, Arizona and Hawaii. From 1981 - 1985, Mr. Rouse served as Director of Operations for Giordano's International Franchise Company with operational responsibility for 30 company-owned and franchised restaurants with total sales in excess of $45 million. DEBORAH MURPHY has been the administrative assistant for the past fourteen years. Prior to her employment with the Company, she was a legal secretary for many years. JANE YENNIE was relieved of her responsibility of Corporate Controller and was let go on April 15, 2000. MICHAEL LORELLA has owned a restaurant and supermarket equipment company for the past 20 years. ITEM 11. EXECUTIVE COMPENSATION The following table shows all cash compensation incurred by the Company for services rendered during the year ended June 30, 2000, to each of the Company's directors and executive officers and to all executive officers as a group:

In addition, $13,800 was paid for Mr. Gelet's family's medical insurance. 24 COMPENSATION UNDER PLANS None. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

(1) Gloria A. Gelet is the beneficial owner of Mr. Gelet's stock. Mr. Gelet disclaims beneficial ownership of 1,400,000 shares held by his brother, Stephen R. Gelet. 25 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS On September 3, 1999, the Company signed a Promissory Note of $592,800 to its former President. The Promissory Note is consolidating all monies owed to the former President and is secured by all of the assets of the Company, bears interest at 6% per annum and is due on demand. During the year ended June 30, 1999, the Company issued 16,025,000 shares of common stock at $.01 per share as a payment on loans due to Mr. Gelet, former president of the Company. During the year ended June 30, 1999, the Company made total noninterest bearing advances of $42,400 to Dual Concept I, Inc. and NUDAR, Inc., companies that are controlled by the president of the Company. During the year ended June 30, 1999, the Company entered into a five-year consulting agreement with Mr. Gelet. Mr. Gelet agreed to perform forty hours per month of consulting services in exchange for a fee of $10,000 per month plus contingent annual adjustment increases, all out of pocket expenses, insurance coverage for Mr. Gelet and his family for the rest of their lives, and a warrant to purchase 4,000,000 shares of common stock at prices ranging from $.01 to $.04 per share. At June 30, 1999, $60,000 of compensation had been accrued in connection with this agreement. On July 1, 1993, the Company entered into a licensing agreement with Mr. Gelet, assuring the Company and its franchisees exclusive use of his dough recipes and products in California and internationally. The initial term of the agreement was five years and the fee payable to the former president was $300,000, which has been fully amortized. The initial term of the agreement was scheduled to expire on June 30, 1998, but it has been extended by Mr. Gelet. Pursuant to the original agreement, the Company has ten additional five year options to renew the licensing agreement under the same terms. Since July 1, 1998, the original terms of the agreement have remained in effect. The Company has exercised its first five-year renewal option but is still in negotiations with Mr. Gelet regarding changes to the renewal terms of the agreement. The Company and its franchisees also are required to pay Mr. Gelet a $.02 per pound royalty on the dough products used in operations. Pursuant to the terms of the original agreement, the Company incurred royalty expense of $30,000 in each of the three years ended June 30, 1999, 1998 and 1997. At June 30, 1999, $20,000 was accrued as payable to Mr. Gelet for dough royalties. During the year ended June 30, 1998, the Company issued 1,000,000 shares of common stock at $.05 per share to Mr. Gelet's brother, Stephen R. Gelet, which the Company applied as a payment of $50,000 on a loan payable to Mr. Gelet. During the year ended June 30, 1998, the Company sold one of its 26 Company-owned restaurants to RJM, Inc., an affiliated corporation, in exchange for a noninterest bearing note receivable of $262,000. The net book value of the restaurant equipment, leasehold improvements and other current assets sold was $260,600 and the Company recognized a gain on the sale of $1,400. During the years ended June 30, 1998 and 1999, principal payments of $10,600 and $4,400, respectively, were collected on this note. The noninterest bearing note receivable was discounted by $110,300 during the year ended June 30, 1998 and an allowance for possible future losses of $40,000 was recorded during the year ended June 30, 1999. At June 30, 1999, the balance of this note receivable, net of allowances was $96,700. During the year ended June 30, 1998, the Company exchanged one of its Company-owned restaurants for 4,000,000 shares (25%) of the common stock of NUN, Inc., a company that Mr. Gelet controls. The investment was recorded at $245,200 which was the net book value of the restaurant equipment and leasehold improvements transferred of $211,600 plus other current assets transferred of $33,600. During the year ended June 30, 1998, the affiliated corporations in which the Company has common stock investments, NUN, Inc. and FCA, Inc., incurred immaterial losses. At June 30, 1998, the cost of these investments was not adjusted as the carrying value of the investments approximated their estimated recovery value. During the year ended June 30, 1999, after having contributed another $46,200 in cash and $165,100 in restaurant equipment to NUN, Inc., the Company determined that the carrying value of its investment, $456,500, was not recoverable and wrote off the entire balance. The Company wrote off its $17,000 investment in FCA, Inc. during the year ended June 30, 1999 when Formaggi Inc. ceased operations. This investment was also determined to not be recoverable. During the year ended June 30, 1997, an affiliated corporation, CMG Sales, Inc., sold the Company a restaurant for a note receivable of $95,000. The note bears interest at 5% per annum and is due on demand. The Company made no principal payments on the note during the years ended June 30, 1998 and 1999. During the year ended June 30, 1997, Mr. Gelet loaned the Company $45,600. This loan was noninterest bearing and due on demand. During the year ended June 30, 1998, Mr. Gelet loaned the Company an additional $9,600, earned unpaid officer compensation of $152,900 and was repaid $50,000 through a common stock issuance. During the year ended June 30, 1999, Mr. Gelet loaned the Company an additional $267,900, earned unpaid consulting fees of $60,000 and was repaid $32,600 in cash and $81,800 through the issuance of common stock. The balance due on these obligations at June 30, 1999 was $371,600. 27 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K (a)(1) Financial Statements. Reference is made to the Index to Financial Statements of the Company on page F-1 of this Annual Report on Form 10-K. (a)(2) Financial Statement Schedule. The following financial statement schedule is submitted herewith: Schedule II - Valuation and Qualifying Accounts on page F-37 All other schedules are omitted because they are not required, inapplicable or the information is otherwise shown in the financial statements or notes thereto. (a)(3) Exhibits. The following documents are exhibits to this Annual Report on Form 10-K:

* By this reference incorporated herein and made a part hereof. 29 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California on November 13, 2000. Date: November 13, 2000 N. U. Pizza Holding Corporation By: /s/ DANIEL A. ROUSE ---------------------------- Daniel A. Rouse, President Pursuant to requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date: November 13, 2000 /s/ DANIEL A. ROUSE ------------------------------------- Daniel A. Rouse, Chairman of the Board, President, Treasurer, Secretary and Director Date: November 13, 2000 /s/ MICHAEL LORELLA ------------------------------------- Michael Lorella, Director 30 N.U. PIZZA HOLDING CORPORATION AND SUBSIDIARIES (DEBTOR IN POSSESSION) CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2000, 1999, AND 1998 -------------------------------------------------------------------------------- N. U. PIZZA HOLDING CORPORATION AND SUBSIDIARIES (DEBTOR IN POSSESSION) TABLE OF CONTENTS --------------------------------------------------------------------------------

INDEPENDENT AUDITORS' REPORT To the Stockholders and Board of Directors N. U. Pizza Holding Corporation and Subsidiaries (Debtor in Possession) We have audited the accompanying consolidated balance sheet of N. U. Pizza Holding Corporation and Subsidiaries (Debtor in Possession) as of June 30, 2000, and the related consolidated statements of operations, stockholders' deficit and cash flows for the year then ended. We have also audited the consolidated financial statement schedule listed in the index at Item 14. These consolidated financial statements and consolidated financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and consolidated financial statement schedule based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of N. U. Pizza Holding Corporation and Subsidiaries (Debtor in Possession) as of June 30, 2000, and the results of their operations and cash flows for the year then ended, in conformity with generally accepted accounting principles. Also in our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects, the information set forth therein. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, on February 4, 2000, the Company filed a voluntary petition for reorganization under Chapter 11 ("Chapter 11"), Title 11 of the United States Bankruptcy Code. The Company is currently operating its business under the jurisdiction of Chapter 11 and the United States Bankruptcy Court in the Central District of California, San Fernando Valley Division, (the "Bankruptcy Court"), and continuation of the Company as a going concern is contingent upon, among other things, the ability to formulate a plan of reorganization which will gain approval of the requisite parties under the United States Bankruptcy Code and confirmation by the Bankruptcy Court and the Company's ability to return to profitability, generate sufficient cash from operations and obtain financing sources to meet its future obligations. In addition, the Company has experienced operating losses, and negative operating cash flows and is currently in default under substantially all of its pre-petition debt agreements. These matters raise substantial doubt about the Company's ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classifications of liabilities that might result from the outcome of these uncertainties. Grobstein, Horwath & Company LLP Sherman Oaks, California November 3, 2000 F-1 INDEPENDENT AUDITOR'S REPORT To the Stockholders and Board of Directors N. U. Pizza Holding Corporation and Subsidiaries I have audited the accompanying consolidated balance sheet of N. U. Pizza Holding Corporation and Subsidiaries as of June 30, 1999, and the related consolidated statements of operations, stockholders' (deficit) equity and cash flows for each of the years in the two year period ended June 30, 1999. I have also audited the consolidated financial statement schedule listed in the index at Item 14. These consolidated financial statements and consolidated financial statement schedule are the responsibility of the Company's management. My responsibility is to express an opinion on these consolidated financial statements and consolidated financial statement schedule based on my audits. I conducted my audits in accordance with generally accepted auditing standards. Those standards require that I plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. I believe that my audits provide a reasonable basis for my opinion. In my opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of N. U. Pizza Holding Corporation and Subsidiaries as of June 30, 1999, and the results of their operations and their cash flows for each of the years in the two-year period ended June 30, 1999, in conformity with generally accepted accounting principles. Also, in my opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects, the information set forth therein. The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company has suffered recurring losses from operations and has negative working capital at June 30, 1999. As discussed in Note 3 to the consolidated financial statements, these factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Bennett Block Accountancy Corporation Torrance, California September 22, 1999 F-2 -------------------------------------------------------------------------------- N. U. PIZZA HOLDING CORPORATION AND SUBSIDIARIES (DEBTOR IN POSSESSION) CONSOLIDATED BALANCE SHEETS -------------------------------------------------------------------------------- ASSETS

See accompanying independent auditors' reports and notes. F-3 -------------------------------------------------------------------------------- N. U. PIZZA HOLDING CORPORATION AND SUBSIDIARIES (DEBTOR IN POSSESSION) CONSOLIDATED BALANCE SHEETS (CONTINUED) -------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' DEFICIT

See accompanying independent auditors' reports and notes. F-4 -------------------------------------------------------------------------------- N. U. PIZZA HOLDING CORPORATION AND SUBSIDIARIES (DEBTOR IN POSSESSION) CONSOLIDATED STATEMENTS OF OPERATIONS --------------------------------------------------------------------------------

See accompanying independent auditors' reports and notes. F-5 -------------------------------------------------------------------------------- N. U. PIZZA HOLDING CORPORATION AND SUBSIDIARIES (DEBTOR IN POSSESSION) CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED) --------------------------------------------------------------------------------

See accompany independent auditors' reports and notes. F-6 -------------------------------------------------------------------------------- N. U. PIZZA HOLDING CORPORATION AND SUBSIDIARIES (DEBTOR IN POSSESSION) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) FOR THE YEARS ENDED JUNE 30, 2000, 1999 AND 1998 --------------------------------------------------------------------------------

See accompanying independent auditors' reports and notes. F-7 -------------------------------------------------------------------------------- N. U. PIZZA HOLDING CORPORATION AND SUBSIDIARIES (DEBTOR IN POSSESSION) CONSOLIDATED STATEMENTS OF CASH FLOWS --------------------------------------------------------------------------------

See accompanying independent auditors' reports and notes. F-8 -------------------------------------------------------------------------------- N. U. PIZZA HOLDING CORPORATION AND SUBSIDIARIES (DEBTOR IN POSSESSION) CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) --------------------------------------------------------------------------------

See accompanying independent auditors' reports and notes. F-9 -------------------------------------------------------------------------------- N. U. PIZZA HOLDING CORPORATION AND SUBSIDIARIES (DEBTOR IN POSSESSION) CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) --------------------------------------------------------------------------------

See accompanying independent auditors' reports and notes. F-10 -------------------------------------------------------------------------------- N. U. PIZZA HOLDING CORPORATION AND SUBSIDIARIES (DEBTOR IN POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 AND 1999 -------------------------------------------------------------------------------- NOTE 1 - ORGANIZATION N. U. Pizza Holding Corporation (Debtor in Possession) was incorporated in Nevada in 1981 as Gelet Enterprises, Inc. In April 1993, Gelet Enterprises, Inc. changed its name to N. U. Pizza Holding Corporation. On January 7, 1997, N. U. Pizza Holding Corporation (Debtor in Possession) consummated an Asset Purchase Agreement ("the Agreement") whereby it bought certain assets from the DAS Group, Inc., the owner of a bakery and the franchisor of Oregon's Original Sandwich Express and Bakery restaurants, for consideration of $200,000 in cash. Upon the closing of the Agreement, N. U. Pizza Holding Corporation contributed the $200,000 of assets purchased from the DAS Group, Inc. to its wholly-owned subsidiary, Formaggi, Inc., a Nevada corporation, in exchange for 2,000,000 shares of Formaggi, Inc.'s common stock. During the year ended June 30, 1998, Formaggi, Inc. closed its Company-owned operations and, due to recurring losses incurred during the year ended June 30, 1999, ceased all franchising of Oregon's Original Sandwich Express and Bakery restaurants and wrote off its remaining unamortized intangible assets. N. U. Pizza Holding Corporation (Debtor in Possession) also owns a wholly-owned subsidiary, Numero Uno Franchise Corporation, which was incorporated in 1975 to franchise Numero Uno Pizzeria restaurants. On July 15, 1998, Numero Uno Franchise Corporation assigned all of its assets, including franchise agreements then in effect, and certain trademarks to N. U. Pizza Holding Corporation (Debtor in Possession) in exchange for N. U. Pizza Holding Corporation's (Debtor in Possession) assumption of specific liabilities of Numero Uno Franchise Corporation. In January 1999, the officers and directors of Numero Uno Franchise Corporation resigned. Numero Uno Franchise Corporation is inactive. N. U. Pizza Holding Corporation (Debtor in Possession) is currently managing the Company's franchising operations. N. U. Pizza Holding Corporation (Debtor in Possession) and its inactive Subsidiaries ("the Company") plan to continue to develop the Numero Uno and Salsa Fresh restaurant concepts within a significant portion of California by introducing new products, retaining existing profitable products and by eliminating unprofitable menu items. F-11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 1 - ORGANIZATION (CONTINUED) The Company intends to concentrate its marketing efforts through the use of Internet marketing which management believes is a cost effective approach to expanding its customer base. Franchised and Company-owned restaurants for the years ended June 30, 2000, 1999 and 1998 are as follows:

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of N. U. Pizza Holding Corporation and its wholly-owned inactive subsidiaries, Formaggi, Inc. and Numero Uno Franchise Corporation. All material intercompany transactions and balances have been eliminated in consolidation. USE OF ESTIMATES The preparation of the Company's consolidated financial statements in conformity with generally accepted accounting principles necessarily 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. F-12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) FRANCHISE OPERATIONS The Company recognizes fifty percent of revenue earned from the sale of all individual and area franchises at the opening of each restaurant. The balance of the revenue is recognized over the sixty month period subsequent to the opening of the restaurant. Management is also committed and obligated to provide certain supervisory functions to franchisees over the sixty months subsequent to the execution of the licensing agreement. ROYALTY FEES Royalties are charged to most franchisees based upon either a percentage of gross receipts or a fixed fee, depending on the terms of the individual franchise agreement, and are recognized as earned. During the years ended June 30, 1999 and 1998, in order to sell some Company-owned restaurants, the Company enticed potential buyers by offering to reduce or defer payment of royalties. ADVERTISING COSTS AND FEES Direct-response advertising costs are capitalized and are amortized over the period during which the future benefits are expected to be received; all other advertising costs are expensed as incurred. Advertising costs for the years ended June 30, 2000, 1999 and 1998 were $23,800, $8,600, and $38,100, respectively. An advertising fee is charged and billed to franchisees for use in creating, developing and purchasing local, regional and national advertising, public relations and promotional campaigns. Any unexpended advertising fees collected are deposited in a restricted bank account and recorded, along with uncollected advertising receivables, as a current liability. CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash on hand and on deposit and highly liquid investments with a maturity of ninety days or less when purchased. INTANGIBLE ASSETS Intangible assets at June 30, 1999 consisted of a liquor license acquired at a cost of $11,900. The liquor license was sold during the year ended June 30, 2000 for $10,500. A gain of $3,400 was recognized on the sale. F-13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INTANGIBLE ASSETS (CONTINUED) At June 30, 1998, intangible assets consisted of $200,000 of assets purchased from DAS Group, Inc. which included worldwide franchising rights ($20,000), a covenant not to compete ($36,000) and goodwill ($144,000). Goodwill represented the excess of the purchase price of the net assets of the DAS Group, Inc. over their fair value at the date of acquisition, January 7, 1997. Intangible assets at June 30, 1998 also included the licensing rights to pizza dough recipes acquired at a cost of $300,000, which have been fully amortized, and the liquor license acquired at a cost of $11,900. During the year ended June 30, 1999, the unamortized balance of the assets purchased from the DAS Group, Inc. of $155,000 was written off to franchise operations by the Company. Goodwill was being amortized on the straight-line method over fifteen years. All other intangible assets are amortized over five years. Amortization expense of $8,300, $15,000 and $80,800 related to these assets, was charged to operations during the years ended June 30, 2000, 1999, and 1998, respectively. FAIR VALUE OF FINANCIAL STATEMENT INSTRUMENTS Statement of Financial Accounting Standards (SFAS) No. 107, "Disclosures About Fair Value of Financial Instruments," requires that the Company disclose estimated fair values for its financial statement instruments. The carrying amount of cash and cash equivalents is assumed to be its fair value because of the liquidity of the instrument. Accounts receivable, accounts payable and accrued expenses approximate fair value because of the short maturity of these instruments. The carrying amounts of interest bearing notes receivable from franchisees and long-term debt are assumed to be recorded at fair value since the rates specified in the notes and long-term debt approximate current market rates. Noninterest bearing notes receivable from franchisees (including a related party) have been discounted to fair value. It was not practicable to estimate the fair value of the interest bearing notes receivable from and notes payable to related parties as payments on these instruments are not based on fixed payment terms. INCOME TAXES N. U. Pizza Holding Corporation (Debtor in Possession) files consolidated federal and state income tax returns with its wholly-owned subsidiary Numero Uno Franchise Corporation. Formaggi, Inc. files separate federal and state income tax returns. F-14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INCOME TAXES (CONTINUED) The Company records its taxes in accordance with SFAS No. 109, "Accounting for Income Taxes." Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year end based on enacted tax laws and statutory rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable for the period and the change during the period in deferred tax assets and liabilities. The Company accounts for its investment tax credits using the flow through method. Under this method, investment tax credits are accounted for as a reduction of Federal income tax expense in the period in which the credits are utilized. IMPAIRMENT OF LONG-LIVED ASSETS The Company has historically complied with SFAS No. 121, "Accounting for the Impairment of Long- Lived Assets and Long-Lived Assets to Be Disposed Of." This statement requires that long-lived assets and certain identifiable intangibles that are held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Also, in general, long-lived assets and certain identifiable intangibles to be disposed of should be reported at the lower of carrying amount or fair value less cost to sell. During the year ended June 30, 1999, the Company wrote off the unamortized intangible assets of Formaggi, Inc. and its investments in affiliated corporations in accordance with SFAS No. 121. ACCOUNTING FOR STOCK-BASED COMPENSATION In December 1996, the Company established Employee Stock Option Based Compensation Plans whereby it authorized the grant of stock options totaling 6,800,000 shares of common stock to its former president and other key employees. The former president's authorized option is for 4,000,000 shares and is exercisable at a price of $0.12 per share. All other authorized employee options are exercisable at $0.10 per share. As of June 30, 2000, none of the options authorized had been issued. F-15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) ACCOUNTING FOR STOCK-BASED COMPENSATION (CONTINUED) Employee stock options are accounted for under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," which requires the recognition of expense when the option price is less than the fair market value of the common stock at the date of grant. Under the current terms of the Company's plans, the exercise price of each option is equal to the fair market value of the Company's common stock at the date of grant. The Company adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" during the year ended June 30, 1997. The adoption of SFAS No. 123 disclosure-only provisions had no effect on either the Company's financial position or its results of operations. EARNING PER SHARE SFAS No. 128, "Earnings per Share," was adopted by the Company during the year ended June 30, 1998. This pronouncement provides a different method of calculating earnings per share than was previously used in accordance with Accounting Principles Board (APB) No. 15, "Earnings per Share." SFAS No. 128 provides for the calculation of basic and diluted earnings per share. Basic earnings per share includes no dilution and is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities that could share in the earnings of an entity, similar to fully diluted earnings per share. Because of prior period losses, other potentially dilutive securities have an antidilutive effect in all periods. Accordingly, calculations reflected in the Consolidated Financial Statements under the new standard were not different from those calculated under the APB No. 15 method. Net loss per basic and diluted share are calculated based on the weighted average number of common stock shares outstanding during each period. COMPREHENSIVE INCOME SFAS No. 130, "Reporting Comprehensive Income," was adopted by the Company in the year ended June 30, 1999. SFAS No. 130 established standards for reporting and displaying comprehensive income and its components in a full set of general purpose consolidated financial statements. In addition to net income, comprehensive income includes changes in equity during a period, except those resulting from investments by and distributions to owners. The implementation of SFAS No. 130 did not have any effect on the reporting and display of the Company's financial position or results of operations. F-16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) SEGMENT INFORMATION SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," established standards for reporting information about operating segments in annual and interim Consolidated Financial Statements and was adopted during the year ended June 30, 1999. SFAS No. 131 also established standards for related disclosures about products and services, geographic areas and major customers. Reporting and disclosures under SFAS No. 131 are not materially different from reporting and disclosures made by the Company prior to the adoption of SFAS No. 131. RECENT ACCOUNTING PRONOUNCEMENTS There are no pending accounting pronouncements that are anticipated to have a material impact on the Company's financial position or results of operations. RECLASSIFICATION OF PRIOR YEAR BALANCES Certain prior year balances have been reclassified to conform to the current year's presentation. NOTE 3 - GOING CONCERN GENERAL On February 4, 2000, (the "Petition Date") N. U. Pizza Holding Corporation (the "Debtor") filed a voluntary petition for relief under Chapter 11 ("Chapter 11"), Title 11 of the United States Code, U.S.C. Sections 101-1330 as amended (the "Bankruptcy Code"), with the United States Bankruptcy Court for the Central District of California (the "Bankruptcy Court"). The bankruptcy case of the Debtor is being administered before the Bankruptcy Court under Case No. SV00-11215 GM. Pursuant to Sections 1107 and 1108 of the Bankruptcy Code, N. U. Pizza Holding Corporation, as Debtor and Debtor-in-Possession, has continued to manage and operate its assets and businesses pending the confirmation of a reorganization plan and subject to the supervision and orders of the Bankruptcy Court. REORGANIZATION PLAN PROCEDURES The Debtor expects to reorganize its affairs under the protection of Chapter 11 and to propose a plan of reorganization. Although management expects to file a plan of reorganization during 2001 which would contemplate emergence in 2001, there can be no assurance at this time that a plan of reorganization proposed by the Debtor will be approved or confirmed by the Bankruptcy Court, or that such plan will be consummated. The consummation of a plan of reorganization is the principal objective F-17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 3 - GOING CONCERN (CONTINUED) REORGANIZATION PLAN PROCEDURES (CONTINUED) of the Company's Chapter 11 case. A plan of reorganization sets forth the means for satisfying the Debtor's claims and interests, including the liabilities subject to compromise. The consummation of a plan of reorganization for the Debtor will require the requisite vote of impaired creditors and stockholders under the Bankruptcy Code and confirmation of the plan by the Bankruptcy Court. The consolidated financial statements have been presented in accordance with the American Institute of Certified Public Accountants Statement of Position 90-7, "Financial Reporting by Entities in Reorganization under the Bankruptcy Code" ("SOP 90-7") and have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which principles, except as otherwise disclosed, assume that assets will be realized and liabilities will be discharged in the ordinary course of business. As a result of the Chapter 11 cases and circumstances relating to this event, default on all pre-petition debt, negative cash flows, its recurring losses, and current economic conditions, such realization of assets and liquidation of liabilities are subject to significant uncertainty. While under the protection of Chapter 11, the Debtor may sell or otherwise dispose of assets, and liquidate or settle liabilities, for amounts other than those reflected in the consolidated financial statements. Additionally, the amounts reported on the consolidated balance sheet as of June 30, 2000 could materially change because of changes in business strategies and the effects of any proposed plan of reorganization. The appropriateness of using the going concern basis of accounting is dependent upon, among other things, confirmation of a plan of reorganization, future profitable operations, and the ability to generate sufficient cash from operations and to meet obligations. In the Chapter 11 case, substantially all unsecured liabilities as of the Petition Date are subject to compromise or other treatment under a plan of reorganization which must be confirmed by the Bankruptcy Court after submission to any required vote by affected parties. For financial reporting purposes, those liabilities and obligations whose treatment and satisfaction is dependent on the outcome of the Chapter 11 cases, have been segregated and classified as liabilities subject to compromise under reorganization proceedings in the June 30, 2000 consolidated balance sheet. Generally, all actions to enforce or otherwise effect repayment of pre-Chapter 11 liabilities as well as all pending litigation against the Debtor are stayed while the Debtor continues its business operations as debtor-in-possession. Unaudited schedules have been filed by the Debtor F-18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 3 - GOING CONCERN (CONTINUED) REORGANIZATION PLAN PROCEDURES (CONTINUED) with the Bankruptcy Court setting forth the assets and liabilities of the Debtor as of the Petition Date as reflected in the Debtor's accounting records. The ultimate amount of and settlement terms for such liabilities are subject to an approved plan of reorganization and accordingly are not presently determinable. CONSOLIDATED STATEMENTS OF OPERATIONS Pursuant to SOP 90-7, revenues and expenses, realized gains and losses, and provisions for losses resulting from the reorganization of the business are reported in the Consolidated Statement of Operations for the year ended June 30, 2000 separately as reorganization items. Professional fees are expensed as incurred. Interest expense is reported only to the extent that it will be paid during the cases or that it is probable that it will be an allowed claim. Reorganization items, if material, are reported separately within the operating, investing and financing categories of the Consolidated Statement of Cash Flows for the year ended June 30, 2000. NOTE 4 - NOTES RECEIVABLE Notes receivable are primarily derived from the sale of franchise rights and restaurants and consist of various installment notes due from franchisees. The notes are generally collateralized by franchise rights, restaurant equipment and leasehold improvements. Payments on interest bearing notes from franchisees are due in monthly installments and bear interest at per annum rates which range from 3% to 11%. During the years ended June 30, 1999 and 1998, the Company sold Company-owned restaurants in exchange for notes receivable and changed franchisees at several locations. At June 30, 2000, the Company had noninterest bearing notes receivable from franchisees with a carrying value of $303,800. The notes were discounted to their estimated fair value of $232,000 by applying an imputed interest rate of 8% to their future cash flows. The interest rate used was the current interest rate at which the Company negotiated similar transactions with other borrowers. The Company intends to hold these notes to maturity and recorded an allowance of $187,700 at June 30, 2000. At June 30, 1998, the Company had noninterest bearing notes receivable from franchisees, including a related party, and the buyers of Company-owned restaurants with a carrying value of $687,700. The notes were discounted to their estimated fair value of $420,700 by applying an imputed interest rate of 8% to their future cash flows. The interest rate used was the current interest rate at which the Company negotiated F-19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 4 - NOTES RECEIVABLE (CONTINUED) similar transactions with other borrowers. The Company intended to hold these notes to maturity and recorded an allowance of $267,000 at June 30, 1998. During the year ended June 30, 1999, the Company wrote off $185,500 of noninterest bearing notes receivable that had an allowance against them of $134,800 at June 30, 1998. The Company has also provided an allowance for possible future losses of $375,500 and $432,400, respectively, on interest and noninterest bearing notes receivable at June 30, 2000 and 1999. Management believes that the Company's collateral is sufficient to recover any past due balances on notes receivable. During the year ended June 30, 1997, the Company sold 5,300,000 shares of common stock at $.10 per share, 1,000,000 shares of common stock at $.07 per share and 650,000 shares of common stock at $.08 per share in exchange for noninterest bearing subscription notes receivable totaling $652,000. At June 30, 1997, $137,000 had not been collected on these notes and was recorded as a reduction of stockholders' equity. During the years ended June 30, 1999 and 1998, the uncollected balance of the note receivable was written off as uncollectible in the amounts of $52,000 and $85,000, respectively. During the year ended June 30, 1996, the Company agreed to sell 1,000,000 shares of common stock at $.31 per share and 1,000,000 shares of common stock at $.21 per share, respectively, in exchange for noninterest bearing subscription notes receivable in the amounts of $310,000 and $210,000. At June 30, 1998 and 1997, $350,000 remained unpaid on these notes receivable which was recorded as a charge to stockholders' equity. At June 30, 1999, the remaining unpaid balance of $350,000 on the notes receivable was written off as uncollectible. Notes receivable before allowances are scheduled to be received over the next five years as follows:

F-20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 5 - RELATED-PARTY TRANSACTIONS The Company has various transactions with its former president, Ronald J. Gelet, affiliated corporations that he controls, affiliated corporations that are controlled by certain officers of the Company and an employee. The total amount payable to these related parties consists of the following:

F-21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 5 - RELATED-PARTY TRANSACTIONS (CONTINUED) The Company issued 16,025,000 shares of common stock at $.01 per share ($160,300) and 1,000,000 shares of common stock at $.05 per share ($50,000) during the years ended June 30, 1999 and 1998, respectively, as payment on amounts due to a former officer. During the year ended June 30, 1999, the Company made noninterest bearing advances of $42,400 to two affiliated corporations that are controlled by the former president of the Company. During the year ended June 30, 1998, the Company sold one of its Company-owned restaurants to an affiliated corporation in exchange for a noninterest bearing note receivable of $262,000. The net book value of restaurant equipment, leasehold improvements and other current assets transferred was $260,600 and the Company recognized a gain on the sale of $1,400. The noninterest bearing note receivable was discounted by $110,300. On January 1, 1998, the Company exchanged one of its Company-owned restaurants for 4,000,000 shares (25%) of the common stock of an affiliated corporation controlled by the former president of the Company. The investment was recorded at $245,200 which was the net book value of the restaurant equipment and leasehold improvements transferred of $211,600 plus other current assets transferred of $33,600. During the year ended June 30, 1999, the Company contributed an additional $46,200 in cash and $165,100 in restaurant equipment to the affiliated corporation. At June 30, 1999, the Company determined that the carrying value of its investments in two affiliated corporations, which totaled $473,500, was not recoverable due to certain factors that now exist regarding the investees' poor financial condition and the industry in which they operate. Accordingly, the Company wrote off the entire carrying value of the investments to franchise operations. On July 1, 1993, the Company entered into a licensing agreement with its former president assuring the Company and its franchisees exclusive use of the former president's dough recipes and products in California and internationally. The initial term of the agreement was five years and the fee payable to the former president was $300,000. The initial term of the agreement was scheduled to expire on June 30, 1998, but it has been extended by the Company's former president. Pursuant to the original agreement, the Company has ten additional five year options to renew the licensing agreement under the same terms. Since July 1, 1998, the original terms of the agreement have remained in effect. At September 22, 1999, the Company had F-22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 5 - RELATED-PARTY TRANSACTIONS (CONTINUED) exercised its first five-year renewal option. On March 20, 2000, the Company entered into a new licensing agreement with its former president expiring July 31, 2000. The agreement provides for renewal periods every six months. As of July 31, 2000, the Company renewed the agreement for the six months ending January 31, 2001. Under the terms of the agreement, the Company is required to pay the former president $2,000 per month. Prior to March 20, 2000, the Company and its franchisees were required to pay the former president a $.02 per pound royalty on the dough products used in operations. During the years ended June 30, 2000, 1999 and 1998, the Company incurred royalty expense of $25,500, $30,000 and $30,000, respectively in connection with this agreement. On December 30, 1998, the Company entered into an agreement with its former president whereby he agreed to perform forty hours per month of consulting services for the Company for a term of five years beginning January 1, 1999. During the five year term of the agreement, each January 1 the agreement will be automatically extended for successive one year periods unless the Company gives its former president several months written notice of its intention to terminate the agreement. Under the terms of the agreement, the Company will pay its former president $10,000 per month, adjusted annually in an amount equal to 50% of the increase of the highest paid officer of the Company's total compensation package. Forty percent of each month's payment was to be paid on the first and fifteenth day of the month and the remaining 20% was to be paid in either cash or common stock at $.05 per share, at the former president's option, within thirty days following the Company's fiscal year end. If the former president requests cash and the Company is unable to pay, the former president has the option to be paid in common stock at $.02 per share or to be issued a one year note payable bearing interest at 10% per annum which is convertible into common stock at $.025 per share. Under the terms of the agreement, the Company will also pay all of the former president's expenses related to performing the consulting services as well as all costs to maintain insurance policies on the former president and his spouse for the remainder of their lives. In addition, the Company issued a warrant to its former president to purchase 4,000,000 shares of common stock on January 1, 1999 as follows: 1,000,000 shares at $.01 per share; 1,000,000 shares at $.02 per share; 1,000,000 shares at $.03 per share; and 1,000,000 shares at $.04 per share. At June 30, 2000, the warrant had not been exercised and the Company had expensed and accrued $60,000 of prior months' consulting fees due to its former president. At June 30, 1999, there was no accrual for additional consulting fees. There was no annual adjustment increase in fees as the provisions for an increase had not been achieved. F-23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 6 - DEPENDENCE ON MAJOR VENDOR During the year ended June 30, 2000, the Company paid $70,000 to its former president for consulting fees. During the years ended June 30, 1999 and 1998, purchases from one vendor represented approximately 5.6% and 9.6%, of the costs and expenses of the Company owned restaurant operations, respectively. Management believed that the Company was not dependent on this vendor. NOTE 7 - LONG-TERM DEBT Long-term debt consists of the following:

Long-term debt is scheduled to mature as follows:

F-24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 7 - LONG-TERM DEBT (CONTINUED) LIABILITIES SUBJECT TO COMPROMISE The principal categories of obligations classified as liabilities subject to compromise under reorganization cases are identified below. The amounts below in total may vary significantly from the stated amount of proofs of claim that will be filed with the Bankruptcy Court and may be subject to future adjustment depending on Bankruptcy Court action, further developments with respect to potential disputed claims, determination as to the value of any collateral securing claims, or other events. Additional claims may arise from the rejection of additional real estate leases and executory contracts by the Debtor. Unsecured notes payable $ 216,200 Loans payable to related parties 65,600 Trade accounts payable 341,600 Accrued franchise advertising 22,100 Other 78,300 ------------- $ 723,800 =============

As a result of the Chapter 11 filing, no principal or interest payments will be made on unsecured prepetition debt without Bankruptcy Court approval or until a plan of reorganization providing for the repayment terms has been confirmed by the Bankruptcy Court and becomes effective. Therefore, interest on prepetition unsecured obligations has not been accrued after the Petition Date. NOTE 8 - COMMITMENTS AND CONTINGENCIES COMMITMENTS The Company is obligated, under various noncancellable operating leases for the rental of restaurant sites, to pay either the monthly fixed rent or the base rent plus a percentage rent based upon sales, depending upon the individual lease agreement for the location. In some instances, the Company is also responsible for the payment of property taxes, insurance and other charges. The majority of the leased properties are subleased to the Company's franchisees for the full term of the lease and at aggregate rentals equal to the aggregate rentals paid by the Company. F-25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED) COMMITMENTS (CONTINUED) Additionally, the Company leases certain executive office space under a noncancellable operating lease. Future minimum lease payments are as follows over the next five years:

Total minimum future rental payments shown above have not been reduced by $303,900 of sublease rentals to be received in the future under noncancellable operating subleases. Following is a summary of rental expense for franchise operations and Company-owned restaurant operations:

During the year ended June 30, 2000, the Company leased restaurant equipment under capitalized leases expiring through March 2004. The restaurant equipment with a cost of $263,500 was sold to new franchisees in exchange for notes receivable (Note 4). F-26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED) COMMITMENTS (CONTINUED) During the year ended June 30, 1999, the Company began leasing restaurant equipment under capitalized leases expiring through November 1, 2003. The restaurant equipment was initially recorded at $165,100, the present value of minimum lease payments. The equipment was not used in the Company's business as it was contributed to an affiliated corporation during the year ended June 30, 1999 and was recorded as an investment in the affiliated corporation. At June 30, 1999, the carrying value of the restaurant equipment was written off as management determined that the assets were not recoverable by the Company due to the poor financial condition of the affiliated corporation. Minimum future lease payments on the capitalized lease obligations incurred in connection with the restaurant equipment as of June 30, 2000 for each of the next five years are as follows:

The Company is in the process of reviewing its leases in the Chapter 11 cases to determine whether they should be rejected, assumed or assigned. PENDING LITIGATION During the year ended June 30, 1999, an action was filed for breach of contract against the Company, as lessee, by a landlord of a leased restaurant location that the Company subleased to a franchisee who subsequently vacated the premises. The plaintiff is claiming damages of $80,000. The Company had reached a tentative settlement of $65,000 with the plaintiff which is being renegotiated by the parties. Management was confident that settlement of the matter will not be materially different than $65,000 which has been recorded in accrued litigation settlements at June 30, 2000 and 1999. F-27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED) PENDING LITIGATION (CONTINUED) During the year ended June 30, 1999, an action was filed against the Company in the State of Oregon for breach of contract, violation of The Franchise Act and fraud. The plaintiff is seeking $100,000 plus attorney's fees. At June 30, 2000, the plaintiff was not moving forward with the case and is presently in bankruptcy. The Company intends to file a motion for summary judgment, and management believes that the Company will ultimately prevail at trial should a summary judgment not be granted. In June 1993, a dispute arose between a franchisee and the Company relating to the termination of the franchisee's delivery rights and the exclusivity of the franchisee's original geographic territory. The plaintiff franchisee sought compensatory and punitive damages of approximately $130,000, alleging that its geographic territory was exclusive and its delivery rights non terminable by the Company. The Company strongly disagreed and contended that the geographic territory assigned to the franchisee was nonexclusive and terminable by the Company and that a replacement delivery area was agreed to by the franchisee. In September 1994, the parties settled the matter. The settlement agreement granted the franchisee an abatement of the payment of royalties to the Company for a five year period and a one-time waiver of the transfer fee should the franchisee decide to sell its franchise. The parties established the boundaries of the franchisee's geographic territory and delivery rights. As part of the settlement agreement, one of the plaintiffs entered into a new franchise agreement with the Company in October 1995. Subsequently, the plaintiff breached his obligations under the franchise agreement by failing to pay required fees and his franchise was terminated by the Company. The plaintiff refused to vacate the restaurant he was subleasing from the Company, continued to use Company trademarks and breached his building lease with the landlord by failing to pay rent which was due. The Company was forced to pay back rent to the landlord and utilities. The plaintiff and the Company agreed to arbitrate their claims. The plaintiff filed a claim against the Company and its former president for fraud, intentional infliction of emotional distress and breach of fiduciary duty in the amount of $418,000. The Company filed a cross claim against the plaintiff for breach of contract and trademark infringement for $100,000. The Company is also seeking indemnification for rents and utilities paid on behalf of the plaintiff and damages for trademark infringement and unfair competition claims in the amount of $7,000. F-28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED) PENDING LITIGATION Management believes that the Company will prevail in arbitration, because the plaintiff's claims are without merit, and at best the plaintiff can only seek damages for breach of his franchise agreement since the September 1994 settlement agreement was reached between the parties. Management also believes that the outcome will not have a material adverse effect on the Company's financial position. In September 1995, an action was filed against the Company for breach of contract for failure to make payments on a Promissory Note totaling approximately $12,800. The Company filed an answer on December 6, 1995 and made a settlement offer to the plaintiffs but the plaintiffs' counsel has not pursued settlement. In April 1998, the court dismissed the case. The Company wrote off the note payable of $12,900 during the year ended June 30, 2000. LITIGATION SETTLEMENTS During the year ended June 30, 1996, the Company purchased a restaurant in exchange for shares of its common stock. The seller (plaintiff) was unable to subsequently sell the Company's common stock at the value established by the parties in connection with the Company's acquisition of the restaurant. During the year ended June 30, 1999, the plaintiff filed an action against the Company alleging breach of contract, fraud and various other causes of action. In May 1999, the parties resolved their differences by entering into a settlement agreement. Pursuant to the terms of the settlement agreement, the Company has agreed to pay the plaintiff a total sum of $158,500, consisting of two monthly payments of $29,250 which were made in May and June, 1999 and the balance of $100,000 in twenty-five monthly installments of $4,000 plus interest at 9% per annum. Pursuant to the settlement agreement, the Company made its initial $4,000 payment to the plaintiff on May 1, 1999 and made monthly payments from August 1, 1999 through December 1999. The remaining unpaid balance is subject to the outcome of the bankruptcy proceedings. During the year ended June 30, 1999, an action was filed against the Company in the Circuit Court of the State of Oregon alleging breach of contract, violation of the Franchise Act and fraud. The plaintiff sued for $100,000 plus attorney's fees. The Company settled the matter for $15,000 which was recorded in accrued litigation settlements at June 30, 1999 and paid during the year ended June 30, 2000. F-29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED) LITIGATION SETTLEMENTS (CONTINUED) During the year ended June 30, 1994, an action was filed by a vendor against the Company for breach of a 1987 settlement agreement which obligated the Company to purchase certain restaurant supply items exclusively from the vendor and to pay for some items which were delivered under the 1987 settlement agreement. During the year ended June 30, 1996, the parties settled the matter out of court and the Company agreed to pay the vendor an irrevocable consulting fee of $500,000, payable in monthly installments of $4,200 for a period of ten years which began on June 15, 1996. The Company also agreed to use the plaintiff vendor as the exclusive supplier of various paper products used in its restaurants for a five year period. The former president of the Company personally guaranteed the Company's obligations under the agreement. During the year ended June 30, 1997, the Company filed a demand for arbitration alleging that the vendor violated the terms of the settlement agreement reached during the year ended June 30, 1996. In November, 1996, the parties entered into a third settlement agreement which superseded both previous agreements. Pursuant to the terms of the new final settlement agreement, the Company was required to pay the plaintiff a total sum of $238,000 consisting of an immediate lump sum payment of $101,000 to the vendor, monthly installment payments totaling $37,000 plus interest at 8% per annum through November 1, 1998 and $100,000 (reduced to $75,000 by the plaintiff during the year ended June 30, 1998) payable in sixty monthly installments of $1,250. During the year ended June 30, 2000, the Company made the monthly payments of $1,250 through December 1999. The remaining unpaid balance is subject to the outcome of the bankruptcy proceedings. In May 1987, the Company guaranteed the payments on a note payable to a former franchisee by the party to whom the franchise was sold. In April 1995, the outside party defaulted on the note payable and the plaintiff note holder filed a complaint for approximately $50,900, the balance remaining on the note. The parties settled the matter; the Company agreed to pay the plaintiff $56,700 in monthly installments of $2,500 and the entire balance was paid in full during the year ended June 30, 1999. F-30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED) LITIGATION SETTLEMENTS (CONTINUED) In June 1995, the landlord of premises leased by Numero Uno Takeout and Delivery Corporation filed a complaint against the Company and other defendants for breach of a lease agreement in the amount of approximately $20,500. The plaintiffs contend that the premises were vacated in March 1995 and that the Company and other defendants are responsible for the unpaid rent. The Company contends that Numero Uno Takeout and Delivery Corporation is a defunct entity and that there is no contractual liability on behalf of the Company and the other named defendants. After the discovery stage, the Court assigned the case to nonbinding arbitration which was held on June 20, 1996. Thereafter, the arbitrator awarded the plaintiffs the sum of $31,800. The Company did not agree with the award of the arbitrator and filed a Request For Trial De Novo with the Court. Subsequently, the Court set a trial date for March 31, 1997. Prior to trial, the parties entered into a settlement agreement which provides for a stipulation for judgment should the Company fail to pay installments pursuant to the terms of the settlement. The Company agreed to pay $16,500 plus interest in monthly installments which was paid in full during the year ended June 30, 1998. In September 1995, an action was filed against the Company for breach of contract for failure to make payments under the terms of a promissory note and Security Agreement. The plaintiffs alleged that the Company defaulted on amounts due them totaling approximately $77,900. A tentative settlement was reached with the plaintiff's attorney but the plaintiffs did not agree to the terms. A Settlement Conference was held on June 28, 1996. The parties were unable to settle the matter at the Conference and the Court scheduled a trial date for October 16, 1996. However, prior to the trial date, the parties settled the matter with the Company agreeing to pay the sum of approximately $54,500 plus interest at 10% per annum in monthly installments until paid in full. The Company made regular monthly installment payments and the unpaid balance was paid in full during the year ended June 30, 1999. NOTE 9 - PREFERRED STOCK The Company authorized the issuance of 80,000 shares of Series B preferred stock to its president in April 1994 as part of the merger agreement with Woodbury, Inc. These shares were issued June 22, 1994. The shares are fully voting, bear a coupon rate of 9% per annum, are cumulative, have a liquidation preference of $5.00 per share and are convertible at a rate of one share of common for each share of preferred stock. The shares are redeemable by the Company upon thirty days written notice to the shareholder. On December 8, 1995, the Company's Board of Directors approved an increase in the Company's authorized Series B preferred shares from 1,000,000 to 10,000,000 shares. F-31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 9 - PREFERRED STOCK (CONTINUED) In June 1995, the Board of Directors authorized the issuance of 44,000 shares of Series C preferred stock at $1.00 per share ($.10 par value) and granted an option to acquire 40,000 shares of common stock at $.10 per share to an individual note holder in exchange for the cancellation of a $40,000 note payable plus accrued interest of $4,000. As the preferred shares issued were restricted securities for which market quotations are not available, the valuation of preferred shares and the option to acquire common shares was based upon the estimated fair market value of the Company's restricted Section 144 common shares at the date of the exchange transaction. The valuation of restricted shares and options issued was reduced from the quoted market price for unrestricted shares in June 1995 of approximately $1.25 per share to $1.00 per share because of their lack of liquidity. The shares are nonvoting, bear a coupon rate of 10% per annum, are cumulative, have a liquidation preference of $5.00 per share and are convertible into common shares at $.50 per share. The preferred stock does not have the right of redemption at the shareholder's option. No dividends were paid to the shareholder or former note holder during the years ended June 30, 2000, 1999, or 1998. Dividends in arrears on preferred stock were approximately $6,600 at June 30, 2000. NOTE 10 - COMMON STOCK In November 1994, the Company's Board of Directors approved an increase in the Company's authorized common shares from 10,000,000 to 20,000,000 shares. In December 1995, the Company's Board of Directors approved another increase from 20,000,000 to 50,000,000 authorized shares. In August 1999, the Company's Board of Directors approved an additional increase from 50,000,000 to 100,000,000 authorized shares. During the year ended June 30, 2000, the Company issued 3,000,000 shares of its common stock to a third party at $0.03 per share ($90,000) as payment for consulting services in the areas of management, strategic planning, corporate financing and marketing in connection with the Company's line of business. During the years ended June 30, 1999 and 1998, the Company issued 16,025,000 shares of its common stock at $.01 per share ($160,300) and 1,000,000 shares of its common stock at $.05 per share ($50,000), respectively, as payments on a loan to a former officer of the Company. F-32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 10 - COMMON STOCK (CONTINUED) During the year ended June 30, 1997, the Company raised approximately $515,000 from Regulation S stock offerings. In addition, the Company issued 150,000 shares of its common stock at $.10 per share to a consultant in exchange for $15,000 of future consulting services. At June 30, 1997, prepaid consulting services totaled $3,800 which were charged to operations during the year ended June 30, 1998. During the year ended June 30, 1997, the Company agreed to sell 5,300,000 shares of common stock at $.10 per share, 1,000,000 shares of common stock at $.07 per share and 650,000 shares of common stock at $.08 per share in exchange for noninterest bearing subscription notes receivable totaling $652,000. At June 30, 1997, $137,000 had not been collected on these notes and was recorded as a reduction of stockholders' equity. During the year ended June 30, 1998, $85,000 was written off as uncollectible on one note receivable and $52,000 remained unpaid on another note receivable and was recorded as a reduction of stockholders' equity at June 30, 1998. The $52,000 note receivable was written off as uncollectible during the year ended June 30, 1999. The Company also entered into a subscription agreement during the year ended June 30, 1996, whereby the Company would issue 1,000,000 shares of common stock at $.21 per share and 1,000,000 shares of common stock at $.31 per share in exchange for subscription notes receivable of $210,000 and $310,000, respectively. At June 30, 1998 and 1997, $350,000 of these subscription notes receivable had not been collected and were recorded as a charge to stockholders' equity. The entire amount of these notes receivable was written off as uncollectible during the year ended June 30, 1999. NOTE 11 - FOREIGN CURRENCY TRANSACTIONS All transactions with foreign franchises are conducted in U. S. Dollars. There is no material currency gain or loss. NOTE 12 - INCOME TAXES Due to recurring net losses, the Company's income tax liability has been limited to the minimum California and Oregon franchise taxes. These taxes were $800, $1,700 and $2,500 for the years ended June 30, 2000, 1999 and 1998, respectively. F-33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 12 - INCOME TAXES (CONTINUED) At June 30, 2000, the Company had Federal net operating loss carryforwards of approximately $6,965,600 for tax purposes. Net operating losses are scheduled to expire as follows:

These operating losses may be subject to limitations imposed by the Internal Revenue Code because of changes in the Company's stock ownership. The Company does not anticipate that these limitations will affect the utilization of the net operating loss carryforwards prior to their expiration. The tax effects of temporary differences that give rise to significant portions of the Company's deferred tax benefit arise from deferred tax assets which consist of net operating loss carryforwards, the allowance for possible future losses on accounts and notes receivable, allowance for discounting the carrying value of noninterest bearing notes receivable, accrued litigation settlements, accrued officer compensation, and depreciable assets (the use of different depreciation methods and lives for financial statement and income tax purposes). Deferred tax liabilities are attributable to differences in the recognition of franchise fee income and the recognition of gains and losses from restaurant and equipment installment sales. The Company's deferred tax benefit is approximately $2,368,300 at June 30, 2000. The Company has provided a valuation allowance in that amount as it is the opinion of management that, due to the nature of the items generating the operating loss carryforwards, it is more likely than not that these items will expire before the Company is able to realize their benefit. F-34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 12 - INCOME TAXES (CONTINUED) Expected Federal tax benefits for the years ended June 30, 2000, 1999 and 1998 were approximately $136,100, $583,400, and $132,300, respectively. Due to the current year's increase in tax net operating losses, the likelihood of realizing future tax benefits is lower than at June 30, 1999. Accordingly, the valuation allowance has been increased at June 30, 2000 by $136,100, the entire amount of the expected increase in tax benefits. Due to the increase in tax net operating losses during the year ended June 30, 1999, the likelihood of realizing future tax benefits was lower than at June 30, 1998. Accordingly, the valuation allowance was increased at June 30, 1999 by $583,400, the entire amount of the expected increase in tax benefits. Due to the increase in tax net operating losses during the year ended June 30, 1998, the likelihood of realizing future tax benefits was lower than at June 30, 1997. Accordingly, the valuation allowance was increased at June 30, 1998 by $132,300, the entire amount of the expected increase in tax benefits. NOTE 13 - FOURTH QUARTER ADJUSTMENTS During the fourth quarter of the years ended June 30, 2000 and 1999, the Company recorded significant adjustments to its accounts which resulted in increasing net loss by approximately $232,100 and $1,821,000, respectively. The adjustments for the years ended June 30, 2000 were attributable to the write off of uncollectible franchise notes receivable and increasing the allowance for possible losses on franchise notes receivable. The adjustments for the year ended June 30, 1999 were principally attributable to increasing the allowance for possible losses on franchisee notes receivable, the write off of uncollectible subscription notes receivable, the write off of the unrecoverable carrying amount of investments in affiliated corporations and the recording of accrued litigation settlements. NOTE 14 - INDUSTRY SEGMENTS The Company operates principally in the food service industry, and has operated two segments: franchising and Company-owned restaurants. The franchising segment sells individual, multi- unit and territorial restaurant franchise licenses. The Company- owned restaurant segment operated full-service and takeout and delivery Numero Uno pizza restaurants. Total revenues, by segment, include sales to unaffiliated customers, as reported in the Company's consolidated statements of operations. Operating income (loss) is total revenue, less operating expenses. F-35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 14 - INDUSTRY SEGMENTS (CONTINUED) Segment information is as follows:

F-36 -------------------------------------------------------------------------------- N. U. PIZZA HOLDING CORPORATION AND SUBSIDIARIES (DEBTOR IN POSSESSION) SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS --------------------------------------------------------------------------------

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N U PIZZA HOLDING CORP 10-K