10-Q 1 a2031310z10-q.txt EXHIBIT 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 /X/ Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2000. or / / Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from __________ to __________. Commission file number 0-19522 N. U. PIZZA HOLDING CORPORATION ------------------------------- (Exact name of registrant as specified in its charter) NEVADA ------------------------------- (State or other jurisdiction of incorporation or organization) 95-3656327 ------------------------------- (I.R.S. Employer Identification No.) 3550 WILSHIRE BLVD., SUITE 1725 LOS ANGELES, CA 90010 ------------------------------------------------------- (Address of principal executive offices) (Zip Code) (213) 252-9991 ------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. /X/ Yes / / No As of September 30, , there were 51,164,008 shares of common stock outstanding. Par value is $.001. 1 Part I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS N. U. PIZZA HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

See accompanying notes to financial statements and management's discussion and analysis of financial condition and results of operations. 2 N. U. PIZZA HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONTINUED)

See accompanying notes to financial statements and management's discussion and analysis of financial condition and results of operations. 3 N. U. PIZZA HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998

See accompanying notes to financial statements and management's discussion and analysis of financial condition and results of operations. 4 N. U. PIZZA HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT (CONTINUED) FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998

See accompanying notes to financial statements and management's discussion and analysis of financial condition and results of operations. 5 N. U. PIZZA HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998

See accompanying notes to financial statements and management's discussion and analysis of financial condition and results of operations. 6 N. U. PIZZA HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998

See accompanying notes to financial statements and management's discussion and analysis of financial condition and results of operations. 7 N. U. PIZZA HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (Unaudited) In the opinion of management of N. U. Pizza Holding Corporation and Subsidiaries (the "Company"), the accompanying unaudited consolidated financial statements reflect all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position of the Company as of September 30, 2000 and the results of its operations and changes in its cash flows for the three month periods presented. The consolidated financial statements and notes are presented as permitted by Form 10-Q and do not contain certain information included in the consolidated annual financial statements and notes. These unaudited consolidated financial statements should be read in conjunction with the Company's annual report on Form 10-K for the year ended June 30, 2000. Note 1. A summary of significant accounting policies is currently on file with the Securities and Exchange Commission on Form 10-K. The accompanying consolidated financial statements include the accounts of N. U. Pizza Holding Corporation and its wholly-owned inactive subsidiaries, Numero Uno Franchise Corporation and Formaggi, Inc.. Intercompany transactions have been eliminated in consolidation. Certain prior period balances have been reclassified in the consolidated financial statements to conform to the current period's presentation. Note 2. 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 8 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. Note 3. Litigation 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 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 9 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 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. 10 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 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. 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 11 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. 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 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. 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 12 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. Note 4. Income Taxes The Company's federal income tax provisions for the three month periods presented have been eliminated by the utilization of net operating loss carryforwards. The Company would have been required to pay federal income taxes in these periods had it not been able to utilize these carryforwards. A provision for minimum state income taxes has been provided in the consolidated financial statements. 13 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 2000: LIQUIDITY AND CAPITAL RESOURCES For the three months ended September 30, 2000, the Company had negative cash flow of $11,500. The Company has continued to make some of the principal payments on its long-term debt. Cash and cash equivalents at September 30, 2000 were $31,700. OPERATING ACTIVITIES Accounts payable and accrued expenses increased $17,400 to $20,100 at September 30, 2000. INVESTING ACTIVITIES No advances were made to affiliated corporations during the three months ended September 30, 2000. Notes receivable - franchisees decreased $20,200 to $619,000 at September 30, 2000 due to the collection of outstanding amounts due to the Company. FINANCING ACTIVITIES Long-term debt decreased $34,100 to $320,700 at September 30, 2000 due to principal payments made by the Company. Common stock and additional paid-in capital increased $500 and $14,500, respectively, to $51,900 and $6,283,600, respectively, at September 30, 2000. The Company issued 1,000,000 shares of common stock at $.03 per share upon the exercise of an option granted in connection with a consulting agreement entered into on July 23, 1999. RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 2000 AS COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1999 FRANCHISE OPERATIONS For the three months ended September 30, 2000, the Company recognized initial franchise fees of $5,000 from one domestic license agreement as compared to $9,800 in initial franchise fees for the three months ended September 30, 1999, a 49.0% decrease in fees. The Company recognized $87,000 of royalty income during the three 14 months ended September 30, 2000, a $2,000 (2.2%) decrease from royalty income of $89,000 recognized for the comparable period in 1999. The decrease was due primarily to a reduction in the total number of operating franchised restaurants during the three months ended September 30, 2000 as compared to the same period in 1999. No rental income was recognized during the three months ended September 30, 2000 and 1999. This is due to the franchisees paying their rent directly to the landlord instead of rents being passed through the Company as in prior years. Interest income increased $11,700 (114.7%) to $21,900 for the three months ended September 30, 2000 as compared to $10,200 for the three months ended September 30, 1999. Rebate income decreased $6,200 (18.1%) to $28,100 for the three months ended September 30, 2000 as compared to $34,300 for the three months ended September 30, 1999 due primarily to a reduction in the total number of operating franchised restaurants during the three months ended September 30, 2000 as compared to the same period in 1999. Other income decreased $6,900 (34.5%) to $13,100 for the three months ended September 30, 2000 as compared to $20,000 for the three months ended September 30, 1999. The decrease in other income is primarily related to fluctuations in payments received from the Company's exclusive soft drink supplier. The Company recognized no forgiveness of debt income for the three months ended September 30, 2000 as compared to $5,600 of forgiveness of debt income for the three months ended September 30, 1999. General and administrative expenses consist of corporate payroll and related benefits, insurance, professional fees, license fees and depreciation and amortization. These expenses increased $26,900 (17.1%) to $184,300 for the three months ended September 30, 2000 as compared to $157,400 for the three months ended September 30, 1999. This increase is due primarily to an increase in legal and professional fees. Interest expense increased by $6,600 (287.0%) to $8,900 for the three months ended September 30, 2000 as compared to $2,300 for the three months ended September 30, 1999 due to an increase in the amount of interest-bearing notes payable. COMPANY-OWNED RESTAURANT OPERATIONS There were no Company-owned restaurant operations during the three months ended September 30, 2000 and 1999. PRESIDENT'S COMMENTS 15 This quarter the Company focused on implementing a new accounting system. Management increased chain wide advertising to help build customer awareness and sales. One new Numero Uno unit opened in West Hills California. The new store is smaller in size and geared towards take-out and delivery business. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - None Part II. OTHER INFORMATION Item 1. Legal Proceedings - None Item 2. Changes in Securities and Use of Proceeds - None Item 3. Defaults Upon Senior Securities - None Item 4. Submission of Matters to a Vote of Security Holders - None Item 5. Other Information - None Item 6. Exhibits and Reports on Form 8-K - None 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 14, 2000. N. U. Pizza Holding Corporation By: /s/ Daniel A. Rouse --------------------------- Daniel A. Rouse, President 16 Pursuant to requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ DANIEL A. ROUSE Dated: November 14, 2000 ------------------------------ ----------------- Daniel A. Rouse, Chairman of the Board, President, Treasurer, Secretary and Director /s/ MICHAEL LORELLA Dated: November 14, 2000 ------------------------------- ----------------- Michael Lorella, Director 17

N U PIZZA HOLDING CORP 10-Q