item 14 exhibits financial statement schedules reports form 8k signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunder duly authorized report independent certified public accountants shareholders board directors captain tonys pizza inc subsidiary audited accompanying consolidated balance sheets captain tonys pizza inc subsidiary june 30 1996 1995 related consolidated statements operations changes shareholders equity cash flows three years period ended june 30 1996 financial statements responsibility companys management responsibility express opinion consolidated financial statements based audits conducted audits accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects consolidated financial position captain tonys pizza inc subsidiary june 30 1996 1995 consolidated results operations consolidated cash flows three years period ended june 30 1996 conformity generally accepted accounting principles also audited schedule listed index item 14 schedule ii three years period ended june 30 1996 opinion schedule presents fairly material respects information required set forth therein mangel metzger barr co llp rochester new york july 18 1996 except note j date august 2 1996 f1 captain tonys pizza inc subsidiary consolidated balance sheets accompanying notes integral part consolidated financial statements f2 captain tonys pizza inc subsidiary consolidated statements operations accompanying notes integral part consolidated financial statements f3 captain tonys pizza inc subsidiary consolidated statements changes shareholders equity years ended june 30 1996 1995 1994 accompanying notes integral part consolidated financial statements f4 captain tonys pizza inc subsidiary consolidated statements cash flows accompanying notes integral part consolidated financial statements f5 captain tonys pizza inc subsidiary notes consolidated financial statements june 30 1996 1995 1994 note summary significant accounting policies company captain tonys pizza inc company incorporated laws state new york september 10 1985 formed franchise operate restaurants name captain tonys pizza pasta emporium estimates preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting periods actual results could differ estimates consolidation accompanying consolidated financial statements include accounts company whollyowned subsidiary ctp equipment inc ctp intercompany transactions balances eliminated consolidation concentration credit risk company maintains cash balances primarily one financial institution located state florida balances insured federal deposit insurance corporation 100000 cash flow reporting purposes company considers highly liquid investments maturity three months less purchased cash equivalents inventories consisted unprocessed food supplies beverages packaging supplies resale merchandise valued cost firstin firstout method lower market equipment recorded basis cost depreciation provided using straightline accelerated methods assets estimated useful lives range 5 7 years major renewals betterments capitalized repairs maintenance charged operations incurred upon sale retirement related cost accumulated depreciation removed accounts related gain loss reflected operations preferred stock shareholders company authorized issuance 950000000 nonvoting shares preferred stock terms established board directors shares preferred stock issued company present plan issuance sale shares part authorization shareholders voted amend certificate incorporation allow issuance preferred shares however amendment filed yet f6 captain tonys pizza inc subsidiary notes consolidated financial statements contd june 30 1996 1995 1994 note summary significant accounting policies contd franchise fee revenues company recognizes initial franchise fees material services conditions relating sale substantially performed normally upon opening franchise unit services consist various elective services including facilities equipment design selection training franchisees management staff operations management franchise direct incremental costs associated services primarily travel expenses deferred related revenue recognized franchise royalty fees whether based percentage sales reported franchisees fixed amount recognized revenue cash payments received company may enter master franchise agreements grant master franchisees exclusive right develop operate specific numbers captain tonys locations within territories fee fees master franchises recognized based terms conditions agreement initial services must performed company master franchise fee relates number area outlets master franchise fee generally deferred recognized ratably units opened however substantial performance required company fees nonrefundable relate number area outlets fees generally recognized income agreement signed certain instances involving individual master franchises company may receive portion franchise fees notes personally guaranteed individuals whose net worths exceed company requirements facts circumstances support collectibility note portion fees represented notes also recognized income otherwise fees recognized income installment basis cash received generally master franchise agreements provide initial franchise fee franchise unit opened master franchise agreement part payable company fees nonrefundable recognized income material services required company substantially performed normally upon opening franchise unit institutional food sales company sells pizza wholesale basis commercialcorporate customers primarily resale customers cafeterias purchases pizza franchises sales occurred since april 1 1995 equipment sales company whollyowned subsidiary ctp equipment inc ctp sells restaurant equipment company franchisees company franchisees obligated purchase equipment ctp often equipment inventory maintained company franchisee orders equipment must accompanied receipt cash payment company orders equipment thirdparty vendor company charges franchisees direct cost equipment plus reasonable profit margin f7 captain tonys pizza inc subsidiary notes consolidated financial statements contd june 30 1996 1995 1994 note summary significant accounting policies contd commissions 1996 company discontinued purchasing reselling food items franchisees instead company receives commissions food purchases franchisees make specific vendor advertising costs company expenses advertising promotion costs incurred advertising promotion costs years ended june 30 1996 1995 1994 2181 16 1607 respectively income taxes deferred income tax assets liabilities arise temporary differences associated differences financial statement tax basis assets liabilities measured enacted tax rates expected effect differences reverse deferred tax assets liabilities classified current noncurrent depending classification assets liabilities relate deferred tax assets liabilities related asset liability classified current noncurrent depending periods temporary differences expected reverse principal type temporary difference assets liabilities financial statement tax return purposes net operating loss carryforwards per share data per share data based weighted average number common shares outstanding periods note b franchise operations fiscal year 1994 company opened four additional franchised units located ohio 1 arizona 1 part california master franchise agreement london england 2 three franchised units closed year units located london england june 30 1994 total eighteen franchised units open initial franchise fees relating four additional units opened 1994 amounted 10663 also fiscal 1994 company negotiated new arrangements three ohio franchisees call flat monthly fees aggregating 685 commencing july 1994 addition due termination united kingdom master franchisee five franchisees united kingdom offered opportunity continue franchisees signing agreements calling fixed escalating royalties three five signed agreements providing annual payments approximating 14000 fiscal year 1995 four franchised units closed leaving total fourteen remaining june 30 1995 one unit transferred ownership resulting transfer franchise fee revenue 2500 fiscal year 1996 four franchise units closed leaving total ten remaining june 30 1996 two units transferred ownership resulting transfer franchise fee revenue 5000 f8 captain tonys pizza inc subsidiary notes consolidated financial statements contd june 30 1996 1995 1994 note c income taxes company net operating loss carryforwards approximately 650000 available offset future taxable income expire various dates year 2010 deferred tax asset june 30 1996 1995 approximately 140000 relating aforementioned net operating loss carryforwards entirely offset valuation allowance amount reconciliation income taxes year ended june 30 1996 follows note related party transactions june 30 1996 company one franchise unit owned operated related party franchise owned major shareholder officer company pay franchise fees sales year ended june 30 1996 company issued 10000 shares common stock director company services rendered stock valued 01 per share based upon independent appraisal years ended june 30 1995 1994 company purchased pizza franchises owned related parties resale commercialcorporate customers years ended june 30 1995 1994 entire cost institutional food sales resulted purchases institutional food sales since april 1 1995 note e commitments company lease agreement office space unrelated party expired november 30 1995 company lease agreement restaurant space unrelated party expired fiscal 1995 agreements classified operating leases following summary rental expenses operating leases f9 captain tonys pizza inc subsidiary notes consolidated financial statements contd june 30 1996 1995 1994 note f settlement claim july 1992 former franchisee filed claim company seeking judgment company recover certain losses well punitive damages matter settled fiscal year 1994 amount 4000 note g supplemental cash flow information cash payments income taxes years ended june 30 1996 1995 1994 interest paid years ended june 30 1996 1995 1994 0 1384 2270 respectively note h segment major customer information company currently operates generally three industry segments franchising restaurant equipment sales institutional food sales financial information industry segment follows cash office equipment assets cannot identified particular segment assets identified franchising segment exclusively fiscal 1995 1994 company customer derived 10 consolidated revenues sales customer represented 100 62 sales institutional food sales segment approximately 25 20 consolidated revenues fiscal 1995 1994 respectively f10 captain tonys pizza inc subsidiary notes consolidated financial statements contd june 30 1996 1995 1994 note matters april 1995 board directors approved submission vote shareholders annual meeting june 5 1995 purchase sale agreements hereinafter described may 10 1995 company executed stock purchase sale agreement provided sale 5000000 shares companys authorized unissued common stock unrelated party cash consideration 50000 asset purchase sale agreement provided sale substantially operating assets company except cash certain assets including among assets franchise contracts officershareholder company consideration 10500 consisting 1050000 shares companys issued outstanding common stock owned officershareholder agreement also provided assumption certain liabilities related operating assets sold company received independent opinion fairness consideration paid operating assets prior vote unrelated party exercised right cancel stock purchase sale agreement threat dissenting action single shareholder pursuant certain provisions new york business corporation law asset purchase sale agreement approved shareholders extended six months enable company find substitute party agree similar terms contained cancelled stock purchase sale agreement party found june 30 1996 asset purchase sale agreement expired note j subsequent event august 2 1996 board directors company approved signing letters intent acquire two privatelyheld corporations stockforstock exchange would result shareholders acquired corporations owning initially approximately 95 98 companys outstanding common stock final agreement proposed merger subject among things satisfactory completion due diligence reviews approval shareholders f11 captain tonys pizza inc schedule ii valuation qualifying accounts item 7 managements discussion analysis financial condition results operations liquidity financial condition companys cash position increased 36644 june 30 1995 balance 47369 june 30 1996 due primarily net income current year companys balance sheet reflects cash asset june 30 1996 balance along receipt continuing franchise royalties sufficient pay expenses operating business current mode working capital increased 43176 june 30 1996 33731 june 30 1995 ratio current assets current liabilities increased 107 1 compared 48 1 june 30 1995 companys financial position june 30 1996 liquid assets form cash noted merger agreements approved shareholders september 18 1996 provides remaining cash time paid bonus president michael j martella provides infusion 2000000 cash capital marketing new franchises capital resources possibility successful merger became realizable company contemplate material future commitments capital expenditures nature franchising business companys current concentration require large amounts capital invested equipment real estate however capital received result approved merger ownership operation company stores may become part managements strategic direction marketing new franchises master franchise agreements requires significant amounts advertising travel results operations company earned net income 8679 fiscal 1996 compared loss 43019 fiscal 1995 loss 21085 fiscal 1994 changes profitability attributed following significant factors results operations results operations following illustrates recent history changes number franchisees resulting royalty income last three years opinion management efforts sell new franchises throughout last three years hindered lack capital financing expansion uncertainties caused lack consumer confidence economy companys lack name recognition industry dominated much larger national chains quick service restaurants result initial franchise fees equipment sales food merchandise sales remained flat decreased new franchises create recurring royalty income usually generate additional equipment product merchandise sales company certain delinquent royalty situations ohio england corrected 1995 agreeing fixed fee contracts fixed fees reduce administrative cost verifying royalties based sales tend encourage regular timely payment addition starting fiscal 1995 franchisees purchasing pizza ingredients direct supplier relieving company extending credit purchases fiscal 1996 four franchisees closed stores ohio california england august 1996 one additional store california closed bringing current total nine existing franchisees company currently engaged dispute ohio franchisee involving nonpayment royalties dispute could result litigation pursued institutional food sales decreased 60948 fiscal 1994 reflecting end sales eastman kodak companys food service operation offset addition university rochester customer providing net increase volume 39726 however u r monthtomonth contract terminated customer effective april 1 1995 since company similar food service contracts would enter interested party agreeable terms company formally discontinued institutional food service business inquiries quotations continue handled routinely thus far resulted contracts similarly equipment sales would contracted requested franchisees decline revenues management taking necessary steps reduce fixed overhead cutting occupancy costs office personnel accounting legal fees administrative expenses operating general administrative expenses decreased 55 current year versus prior year trends outlook management continues seek new franchisees increase companys revenues effectively containing expenses moreover continuing efforts made increase collections royalties existing franchisees significant decline number franchisees need capital infusion expand franchising business management sought viable merger acquisition candidates believes acquisitions approved special shareholders meeting september 181996 enhance value shareholders investments provide capital resources profitability grow company item 8  item 8 financial statements supplementary data items contained elsewhere report item 9 