10-Q 1 a2039420z10-q.txt 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 December 31, 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 ------------------------------- (IRS 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 December 31, 2000, there were 1,663,776 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 AND SIX MONTHS ENDED DECEMBER 31, 2000 AND 1999

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 FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2000 AND 1999

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 SIX MONTHS ENDED DECEMBER 31, 2000 AND 1999

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 SIX MONTHS ENDED DECEMBER 31, 2000 AND 1999

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 AND SIX MONTHS ENDED DECEMBER 31, 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 December 31, 2000 and the results of its operations and changes in its cash flows for the three and six 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 annual consolidated 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 The Board of Directors approved a reverse stock split of 50 (fifty)-to-1 (one) for the Company's common stock, effective as of December 15, 2000. A 50-for-1 reverse split became effective as of December 15, 2000. The Company's new symbol is NUPZ and the new Cusip number is 629432204. The Board of Directors issued options to three key employees and one consultant to purchase a total of 1.6 Million post-split shares (400,000 per individual) at an exercise price of $.10 post-split. During the period ended December 31, 2000, there were 5,500 shares of preferred stock, series B, converted to 240,496 shares of common stock. The Company has appointed Wall Street Marketing Group, Inc. (WSMG) as investor relations firm. The primary strategic objective is to help 8 increase shareholder value and the stock price of the company. Wall Street Marketing Group, Inc. will also assist the Company in raising capital and developing and acquiring new growth vehicles. WSMG has received as a payment 400,000 shares of 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. 2. Ventura Taft vs. N. U. Pizza Holding Corporation, Van Nuys Superior Court Case No. LC042907. During the year ended June 30, 1999, a landlord of a leased restaurant location that the Company subleased to a franchisee who subsequently vacated the premises filed an action for breach of contract against the Company, as lessee. 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 compensatory and punitive damages and other relief based on claims of breach of contract, breach of 9 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 the Company terminated his franchise. 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 been set to be in 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 10 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 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 11 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. Note 4. Income Taxes The Company's federal income tax provisions for the three and six-month periods presented have been eliminated by the utilization of net operating loss carry-forwards. The Company would have been required to pay additional federal income taxes in these periods had it not been able to utilize these carry-forwards. A provision for minimum state income taxes has been provided in the consolidated financial statements. Note 5. Election and Resignation of Director The Company has elected Allen Chung to its Board of Directors, effective on November 21, 2000. At a Board of Directors meeting held on December 14, 2000, Director Michael L. Lorella resigned his directorship with the Company and the Company accepted his resignation effective as of 12:00 A.M. on December 15, 2000. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SIX MONTHS ENDED DECEMBER 31, 2000: LIQUIDITY AND CAPITAL RESOURCES. For the six months ended December 31, 2000, the Company had negative cash flow of $9,200. The Company has continued to make some of the principal payments on its long-term debt. Cash and cash equivalents at December 31, 2000 were $34,000. OPERATING ACTIVITIES. Accounts payable and accrued expenses decreased $3,400 to $16,700 at December 31, 2000. INVESTING ACTIVITIES: Notes receivable - franchisees decreased $41,800 to $597,400 at December 31, 2000 due to the collection of outstanding amounts due to the Company. 12 No advances were made to affiliate corporations during the six moths ended December 31, 2000. FINANCING ACTIVITIES. Long-term debt decreased $63,000 to $257,700 at December 31, 2000 due to principal payments made by the Company. Common stock and additional paid-in capital increased $700 and $14,800, respectively, to $52,600 and $6,298,400, respectively, at December 31, 2000. The Company issued 400,000 shares of common stock in connection with an agreement entered into on November 2000. RESULTS OF OPERATIONS. SIX MONTHS ENDED DECEMBER 31, 2000 AS COMPARED TO SIX MONTHS ENDED DECEMBER 31, 1999 FRANCHISE OPERATIONS. For the six months ended December 31, 2000, the Company recognized initial franchise fees of $5,000, as compared to 19,500 during the six months ended December 31, 1999. The Company recognized $203,700 of royalty income during the six months ended December 31, 2000, a $28,100 (16%) increase from royalty income of $175,600 recognized for the comparable period in 1999. The increase was due primarily to an increase in the total number of operating franchised restaurants making timely payments during the three months ended December 31, 2000 as compared to the same period in 1999. No rental income was recognized during the six months ended December 31, 2000. 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 $6,100 (33%) to $24,400 for the six months ended December 31, 2000 as compared to $18,300 for the six months ended December 31, 1999. The increase was due primarily to an increase in the total number of operating franchised restaurants making timely payments during the three months ended December 31, 2000 as compared to the same period in 1999. Rebate income increased $5,800 (8.5%) to $73,800 during the six months ended December 31, 2000 as compared to $68,000 for the six months ended December 31, 1999, due to the favorable renegotiations of certain rebate agreements. Other income decreased $100,000 (71.4%) to $40,100 for the six months ended December 31, 2000 due primarily to the one-time receipt during the six months ended December 31, 1999 from a promotion Company to be used 13 exclusively. The Company recognized no forgiveness of debt income for the six months ended December 31, 2000 as compared to $5,600 during the six months ended December 31, 1999. General and administrative expenses decreased $64,300 (15%) to $371,100 during the six months ended December 31, 2000 as compared to the six months ended December 31, 1999. Interest expense increased $2,900 (19%) to $18,200 for the six months ended December 31, 2000 as compared to the six months ended December 31, 1999 due to an increase in the Company's long-term debt. COMPANY-OWNED RESTAURANT OPERATIONS. There were no Company-owned restaurant operations during the six months ended December 31, 2000 and 1999. THREE MONTHS ENDED DECEMBER 31, 2000 AS COMPARED TO THREE MONTHS ENDED DECEMBER 31, 1999 FRANCHISE OPERATIONS. For the three months ended December 31, 2000, the Company recognized no initial franchise fees as compared to $9,800 in initial franchise fees for the three months ended December 31, 1999. The Company recognized $98,100 of royalty income during the three months ended December 31, 2000, a $9,100 (10%) increase from royalty income of $89,000 recognized for the comparable period in 1999. The increase was due primarily to an increase in the total number of operating franchised restaurants making timely payments during the three months ended December 31, 2000 as compared to the same period in 1999. No rental income was recognized during the three months ended December 31, 2000. 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 $1,900 (19%) to $12,100 for the three months ended December 31, 2000 as compared to $10,200 for the three months ended December 31 1999. This increase is due to an increase in interest bearing notes receivable outstanding during the three months ended December 31, 2000. Rebate income increased $11,300 (33%) to $45,600 during the three months ended December 31, 2000 as compared to $34,300 during the three months ended December 31, 1999, due to the favorable renegotiations of certain rebate agreements and fluctuations in payments received from the Company's exclusive soft drink supplier. 14 Other income increased $7,000 (35%) to $27,000 for the three months ended December 31, 2000. The increase in other income is primarily related to transfer fees received. The Company recognized $5,600 of forgiveness of debt income for the three months ended December 31, 1999 due to the write-off of previously accrued accounts payable. There were no such write-offs during the three months ended December 31, 2000. General and administrative expenses consist of corporate payroll and related benefits, insurance, legal and professional fees, license fees and depreciation and amortization. These expenses increased $29,300 (19%) to $186,700 for the three months ended December 31, 2000 as compared to $157,400 for the three months ended December 31 1999. This increase is due primarily to an overall increase in legal and professional fees. Interest expense increased $200 (2%) to $9,200 for the three months ended December 31, 2000 as compared to $9,000 for the three months ended December 31. COMPANY-OWNED RESTAURANT OPERATIONS. There were no Company-owned restaurant operations during the three months ended December 31, 2000 and 1999 PRESIDENT'S COMMENTS: The Company has entered into negotiations about developing a nine-state region for Red River Roadhouse Grill. With Red River Roadhouse Grill volumes, profit margins and history, this is a very positive opportunity for the Company. The Company has also entered preliminary agreements with a Korean Investment group to develop some Korean coffeehouses and other projects, both domestically and internationally. The Company feels that these deals should come together in March 2001. The two new Take-out and delivery concepts have shown that they are successful and profitable. This will be one of the new growth vehicles for the Company. 15 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 February 16, 2001. N. U. PIZZA HOLDING CORPORATION By: /s/Daniel A. Rouse --------------------------------------------- Dan 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. /s/Daniel A. Rouse Dated: 2/16/01 ------------------------ ------- Daniel A. Rouse Chairman of the Board, President, Treasurer, Secretary and Director /s/Allen Chung Dated: 2/16/01 --------------------------- ------- Allen Chung Director 16

N U PIZZA HOLDING CORP 10-Q