<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 1996
Commission File Number: 0-27008
SCHLOTZSKY'S, INC.
(Exact name of registrant as specified in its charter)
Texas 74-2654208
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
200 West Fourth Street
Austin, Texas 78701
(address of principal executive offices)
(512) 469-7500
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by the 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:
YES X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Shares Outstanding at August 1, 1996
Common Stock, no par value 5,536,172
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets --
June 30, 1996 and December 31, 1995 2
Condensed Consolidated Statements of
Income -- Three and Six Months Ended
June 30, 1996 and June 30, 1995 3
Condensed Consolidated Statements of
Stockholders' Equity -- Six Months Ended
June 30, 1996 and the year ended December 31, 1995 4
Condensed Consolidated Statements of
Cash Flows -- Six Months Ended
June 30, 1996 and June 30, 1995 5
Notes to Condensed Consolidated
Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changed in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
1
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SCHLOTZSKY'S, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30,
1996 December 31,
(Unaudited) 1995
----------- ---------------
Assets
Current assets:
Cash and cash equivalents $ 7,106,999 $12,344,682
Restricted certificates of deposit 80,208 78,983
Royalties receivable 460,290 304,649
Other receivables 887,399 597,536
Notes receivable, current portion 2,570,257 2,325,965
Notes receivable - affiliates,
current portion 292,812 221,402
Real estate development 8,963,956 5,717,049
Prepaid expenses & other assets 321,629 292,880
----------- ------------
Total current assets 20,683,550 21,883,146
Other assets:
Property, equipment & leasehold
improvements, net 4,320,627 4,139,619
Notes receivable, less
current portion 2,299,348 1,474,311
Notes receivable - affiliates,
less current portion 815,205 867,687
Investments and advances 974,527 1,210,635
Deferred federal income tax asset 489,527 531,870
Intangible assets, net 7,559,661 6,601,099
----------- ------------
Total Assets $37,142,445 $36,708,367
----------- ------------
----------- ------------
Liabilities and Stockholder's Equity
Current liabilities:
Notes payable $ 10,968
Current maturities of
long-term debt $ 136,523 902,947
Account payable 375,546 589,532
Accrued liabilities 1,603,695 1,010,331
Federal income tax payable (45,536) 619,382
---------- -----------
Total current liabilities 2,070,228 3,133,160
Other liabilities:
Deferred revenue, net 1,438,682 1,572,325
Long-term debt, less current
portion 3,152,560 3,028,517
---------- -----------
Total Liabilities 6,661,470 7,734,002
Stockholders' Equity
Common stock, no par value,
30,000,000 shares authorized,
5,509,998 and 5,536,172 issued
and outstanding at December 31,
1995 and June 30, 1996 44,220 43,958
Additional paid in capital 26,401,869 26,238,964
Retained earnings 4,034,886 2,691,443
----------- ------------
Total Stockholders' Equity 30,480,975 28,974,365
----------- ------------
Total Liabilities and
Stockholders' Equity $37,142,445 $36,708,367
----------- ------------
----------- ------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
2
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SCHLOTZSKY'S, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
---------- ----------- ---------- ----------
Revenues
Royalties $2,674,835 $1,858,121 $4,920,512 $3,333,973
Franchise fees 475,000 390,000 822,500 757,500
Developer fees 415,750 324,000 1,010,750 611,000
Restaurant sales 809,677 79,565 1,375,945 155,870
Other fees and
revenue 595,382 357,270 957,806 460,665
---------- ----------- ---------- ----------
Total revenues 4,970,644 3,008,956 9,087,513 5,319,008
Expenses
Royalty service costs 926,430 646,018 1,673,165 1,040,804
Franchise fee
development 249,250 173,500 448,250 364,000
Restaurant cost of
sales 251,599 20,714 461,606 55,298
Operating, general and
administrative 2,320,303 1,629,122 4,229,131 2,983,267
Depreciation and
amortization 197,024 96,980 393,909 185,715
---------- ---------- ---------- ----------
Total expenses 3,944,606 2,566,334 7,206,061 4,629,084
---------- ---------- ---------- ----------
Income from operations 1,026,038 442,622 1,881,452 689,924
Other
Interest income
(expense), net 116,911 (29,835) 270,888 (46,092)
---------- ----------- ---------- -----------
Income before income
taxes and
extraordinary gain 1,142,949 412,787 2,152,340 643,832
---------- ---------- ---------- -----------
Provision for federal
and state income
taxes 428,606 168,407 808,897 259,083
---------- ---------- ---------- ----------
Income before
extraordinary item 714,343 244,380 1,343,443 384,749
Gain on
extinguishment of
debt, net of
applicable taxes
of $18,271 at
June 30, 1995 -0- -0- -0- 38,307
---------- ---------- ---------- ---------
Net Income 714,343 244,380 1,343,443 423,056
Redeemable preferred
stock dividends (140,000) (280,000)
---------- ---------- ---------- ----------
Net income available
to common
shareholders $ 714,343 $ 104,381 $1,343,443 $ 143,056
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Income per common
share - primary:
Income before
extraordinary item $ .13 $ .04 $ .24 $ .04
Extraordinary item --- --- --- .02
---------- ---------- ---------- ----------
Income per common
share $ .13 $ .04 $ .24 $ .06
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
Weighted average
shares outstanding 5,674,357 2,334,308 5,669,226 2,333,959
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
Income per common
share - fully diluted:
Income before
extraordinary item $ .13 $ .04 $ .24 $ .04
Extraordinary item --- --- ---- .02
---------- ---------- ----------- -----------
Income per common
share .13 .04 .24 .06
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Weighted average
shares outstanding 5,674,357 2,369,103 5,679,872 2,368,946
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
3
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SCHLOTZSKY'S, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
--------------------------- Additional Total
Shares Paid-In Retained Stockholders'
Outstanding Amount Capital Earnings Equity
-------------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 2,187,500 $10,733 $1,602,820 $ 1,613,553
Redeemable preferred stock dividends (544,274) (544,274)
Public sale of stock 1,850,000 18,500 17,575,264 17,593,764
Conversion of redeemable preferred stock 1,354,167 13,542 7,964,883 7,978,425
Conversion of redeemable preferred
stock dividends 118,331 1,183 698,817 700,000
Net income 1,632,897 1,632,897
------------ ---------- ---------- ------------ ------------
Balance, December 31, 1995 5,509,998 43,958 26,238,964 2,691,443 28,974,365
Options exercised 26,174 262 162,905 -0- 163,167
Net Income 1,343,443 1,343,443
------------ ---------- ----------- ------------ ------------
Balance, June 30, 1996 5,536,172 $44,220 $26,401,869 $4,034,886 $30,480,975
------------ ---------- ----------- ------------ ------------
------------ ---------- ----------- ------------ ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
4
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SCHLOTZSKY'S, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30, June 30,
1996 1995
--------- ----------
Cash flows from operating activities: $ 240,373 $ 749,873
Cash flows from investing activities:
Purchase of real estate held for sale (3,246,907) (2,356,196)
Issuance of notes receivable (525,409) (286,671)
Acquisition of intangibles (1,118,628) (355,548)
Other 3,811 (682,792)
----------- -----------
Net cash used for investing activity (4,887,133) (3,681,207)
Cash flows from financing activities:
Proceeds from issuance of long term debt 169,043 3,242,041
Principal payments on long term debt (819,342) (1,198,432)
Proceeds from exercises of options 59,376 -0-
----------- -----------
Net cash provided by financing activities (590,923) 2,043,609
----------- -----------
Net decrease in cash (5,237,684) (887,725)
Cash and cash equivalents at beginning
of period 12,344,682 1,052,744
----------- -----------
Cash and cash equivalents at end of period $ 7,106,999 $ 165,019
------------ -----------
------------ -----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
5
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SCHLOTZSKY'S, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
June 30, 1996
NOTE 1. -- BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments, consisting of normal recurring accruals, considered
necessary for a fair presentation have been included. Operating results for
the three and six months ended June 30, 1996, are not necessarily indicative
of the results that may be expected for the year ended December 31, 1996.
For further information, refer to the consolidated financial statements and
footnotes thereto incorporated by reference in the Schlotzsky's, Inc. Annual
Report on Form 10-K for the year ended December 31, 1995.
NOTE 2. -- SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
REAL ESTATE DEVELOPMENT
Under the Turnkey Program, following the identification of a site by the
Company and an Area Developer, the Company typically purchases or leases the
site, designs, constructs and equips a Schlotzsky's Deli Restaurant on the
site and leases or subleases the completed store to a franchisee. The
Company will typically then sell the improved property and assign its lease
to third party investors, or, in the case of a leased property, assign the
lease and sublease to a franchisee. Currently, the Company has completed
thirteen properties under the Turnkey Program, seven of which have been sold
and two others which sold subsequent to June 30, 1996. To date, these
properties have been developed and sold within one year of property
acquisition.
NEW ACCOUNTING STANDARDS
In October 1995, the FASB issued Statement 123, "Accounting for Stock-Based
Compensation" ("Statement 123"), which establishes fair value-based
accounting and have implemented reporting standards for all transactions in
which a company acquires goods or services by issuing its equity securities.
As such, Statement 123 covers stock-based compensation plans including all
arrangements under which employees receive shares of stock. Statement 123
encourages employers to adopt its prescribed fair value-based method to be
adopted but employers must comply with the disclosure requirements set forth
in the statement. Statement 123 has an effective date of December 31, 1995.
The Company has adopted only the reporting standards of Statement 123.
6
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In March 1995, the FASB issued Statement 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("Statement
121"), which addresses the accounting for the impairment of long-lived
assets, certain identifiable intangibles and goodwill related to those assets
to be held and used. It also addresses the accounting for long-lived assets
and certain identifiable intangibles to be disposed of. Statement 121 has an
effective date of January 1, 1996. The Company has adopted Statement 121
which did not result in a significant impact upon the Company's financial
statements.
NOTE 3. -- FINANCING ARRANGEMENTS
In January 1996, the Company retired a note payable to a Trust with a
$650,000 balance. The note was convertible into 100,000 shares of common
stock and collateralized by royalties from certain franchises. The
retirement relieved both the conversion and collateral agreements.
NOTE 4. -- RESTATEMENT OF INTERIM FINANCIAL INFORMATION
Net income for the three months ended June 30, 1995 has been restated from
that which was disclosed in the Form S-1 filing. Net income changed from
$320,000 to $244,380 as a result of the recalculation of federal income tax
expense for the period. The restatement had no effect on net income for the
six months ended June 30, 1996.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996, COMPARED TO THREE MONTHS ENDED JUNE 30, 1995
REVENUES. Total revenues increased 65.2% from $3,009,000 to $4,971,000.
Royalties increased 44.0% from $1,858,000 to $2,675,000. This
increase was due to the addition of 112 restaurants opened during the period
from July 1, 1995, to June 30, 1996. Also driving the increase was the
growing influence of larger freestanding units with higher visibility, a
14.6% increase in average weekly sales and a 4.6% increase in same store
sales.
Franchise fees increased 21.8% from $390,000 to $475,000. This
increase was a result of six additional unit openings, coupled with a higher
average franchise fee, for openings during the three-month period ended June
30, 1996, as compared to the three months ended June 30, 1995.
Developer fees increased 28.3% from $324,000 to $416,000. This
increase is primarily due to the reacquisition and sale of the rights to two
domestic development areas and the sale of the rights to two international
markets.
Restaurant sales increased 918% from $80,000 to $810,000. This
increase was due to the opening of the Company's flagship store in Austin,
Texas during November 1995, and the Company's purchase and operation of two
restaurants from franchisees during the quarter ended June 30, 1996.
Other fees and revenues increased 66.6% from $357,000 to $595,000.
This change was primarily due to an increase in private label income and the
timing of vendor contributions to the Company's annual franchise convention.
The following table reflects a comparison of system performance for
the three months ended June 30, 1996 and June 30, 1995. The information
reflects the growth of the franchise system, which has been principally
responsible for the increased revenue as discussed above.
SYSTEM PERFORMANCE THREE MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995
--------- ----------
Units Opened:
Domestic
Freestanding 18 14
End Cap 9 8
Other 4 4
------- ------
Total Domestic Openings 31 26
International 2 1
------- ------
Total Openings 33 27
Units Closed: 2 2
------- ------
Net Unit Growth 31 25
------- ------
------- ------
Sales:
System Wide Sales (in thousands) $49,948 $34,764
Average Weekly Sales $ 7,973 $ 6,956
Change in Average Weekly Sales 14.6% 8.2%
Stores in Operation 516 404
Change in Same Store Sales 4.6% 1.3%
8
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COSTS AND EXPENSES. Royalty service costs increased 43.4% from
$646,000 to $926,000. This increase was a direct result of the increase in
royalty revenue for the three months ended June 30, 1996, as compared to the
same period in the prior year. Royalty service costs as a percentage of
royalties remained relatively constant at 34.6%.
Restaurant cost of sales, which consists of food, beverage and paper
costs, increased from $21,000 to $252,000, and as a percentage of restaurant
sales increased to 31.1% from 26%. This increase was primarily due to the
November 1995 opening of the Company's flagship store in Austin, Texas, and
the acquisition of two restaurants from franchisees in the second quarter of
1996. The increase in the percentage is primarily attributable to the
Company's flagship store which conducts product testing and training, in
addition to ordinary restaurant operations.
Operating, general and administrative expenses increased 42.4% from
$1,629,000 to $2,320,000. The opening of the Company's flagship unit in
Austin, Texas, and the acquisition of two restaurants from franchisees
accounted for $514,000 of this increase. The remaining 12% increase resulted
from additional staffing at the corporate office and a one-time charge
related to the exercise of certain stock options by a former employee.
Depreciation and amortization increased from $97,000 to $197,000 and
as a percentage of total revenues increased from 3.2% to 4.0%. The increase
was principally due to depreciation of improvements and equipment at the
Company's flagship store and the acquisition of two restaurants from
franchisees. Amortization of pre-opening costs for that store and the
royalty value related to remarketing the stores in Omaha and Albuquerque were
the primary factors contributing to the increase in amortization expense.
OTHER. A portion of the proceeds from the Company's initial public
offering were used to retire debt and with the remainder invested in
short-term liquid securities (See Liquidity and Capital Resources below). As
a result, net interest income was $117,000 for the period ended June 30,
1996, a $147,000 improvement from the net interest expense of $30,000
incurred during the same period in 1995.
INCOME TAX EXPENSE. Income tax expense reflects a combined federal
and state effective tax rate of 38% for the three months ended June 30, 1996,
which is consistent with the effective combined tax rate for the comparable
period in 1995, giving consideration to the extraordinary item and its tax
impact in that period. Based on projections of taxable income, the Company
anticipates that its effective combined rate for federal and state taxes will
between 37% and 38% for 1996.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996, COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
REVENUES. Total revenues increased 70.9% from $5,319,000 to $9,088,000.
Royalties increased 47.6% from $3,334,000 to $4,921,000. This
increase was due to the addition of 112 restaurants opened during the period
from July 1, 1995 to June 30, 1996. Also driving the increase was the
growing influence of larger freestanding units with higher visibility, a
13.3% increase in average weekly sales and a 2.8% increase in same store
sales.
Franchise fees increased 8.6% from $758,000 to $823,000. This
increase was a result of a higher average franchise fee for openings, during
the six-month period ended June 30, 1996, as compared to the six months ended
June 30, 1995.
Developer fees increased 65.4% from $611,000 to $1,011,000. This
increase was primarily due to the reacquisition and sale of the rights to
three domestic development areas.
Restaurant sales increased 783% from $156,000 to $1,376,000. This
increase was due to the opening of the Company's flagship store in Austin,
Texas during November 1995, and the Company's purchase and operation of two
restaurants from franchisees during the quarter ended June 30, 1996.
9
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Other fees and revenues increased 108% from $461,000 to $958,000.
This change was primarily due to an increase in private label income.
The following table reflects a comparison of system performance for
the six months ended June 30, 1996 and June 30, 1995. The information
reflects the growth of the franchise system, which has been principally
responsible for the increased revenue as discussed above.
SYSTEM PERFORMANCE SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995
--------- ----------
Units Opened:
Domestic
Freestanding 32 30
End Cap 16 16
Other 8 12
------- ------
Total Domestic Openings 56 58
International 5 1
------- ------
Total Openings 61 59
Units Closed: 8 5
------- ------
Net Unit Growth 53 54
------- ------
------- ------
Sales:
System Wide Sales (in thousands) $91,392 $64,134
Average Weekly Sales $ 7,671 $ 6,771
Change in Average Weekly Sales 13.3% 9.3%
Stores in Operation 516 404
Change in Same Store Sales 2.8% 2.0%
10
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COSTS AND EXPENSES. Royalty service costs increased 60.8% from
$1,041,000 to $1,673,000. This increase was a direct result of the growth in
royalty revenue and the increasing percentage of Schlotzsky's restaurants
under the area developer program for the six months ended June 30, 1996, as
compared to the same period in the prior year. Likewise, royalty service
costs as a percentage of royalties increased from 31.2% to 34.0%.
Restaurant cost of sales, which consists of food, beverage and paper
costs, increased 734.8% from $55,000 to $462,000. This increase was
primarily due to the November 1995 opening of the Company's flagship store in
Austin, Texas, and the acquisition and operation of two restaurants from
franchisees in the second quarter of 1996.
Operating, general and administrative expenses increased 41.8% from
$2,983,000 to $4,229,000. This increase was primarily due to the opening of
the Company's flagship unit in Austin, Texas, the acquisition of two
restaurants from franchisees, the addition of staff at the corporate office,
and other administrative costs. In addition, a one-time cost related to the
exercise of certain stock options by a former employee was experienced in
the six month period ending June 30, 1996.
Depreciation and amortization increased from $186,000 to $394,000.
The increase was primarily due to depreciation of improvements and equipment
at the Company's flagship store and the acquisition of two restaurants from
franchisees. Amortization of pre-opening costs for that store and the
royalty value related to remarketing the stores in Omaha and Albuquerque were
the primary factors contributing to the increase in amortization expense.
OTHER. A portion of the proceeds from the Company's initial public
offering were used to retire debt and with the remainder invested in
short-term liquid securities (See Liquidity and Capital Resources below). As
a result, net interest income was $270,900 for the six month period ended
June 30, 1996, a $317,000 improvement from the net interest expense incurred
during the same period in 1995.
INCOME TAX EXPENSE. Income tax expense for the six months ending
June 30, 1996, reflects a combined federal and state effective tax rate of
37.6%. This is comparable to the rate of 38.0% for the same period in 1995,
giving consideration to the extraordinary item and its tax impact in that
period. Based on projections of taxable income, the Company anticipates that
its effective combined rate for federal and state taxes will be between 37%
and 38% for 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial position improved significantly as the
result of its initial public offering of Common Stock in December 15, 1995.
The Company sold 1,850,000 shares of the total 2,250,000 shares offered to
the public at a per share price of $11. After expenses associated with the
offering, the Company generated cash proceeds of $17,594,000. The Company
applied $6,027,000 of the cash proceeds to retire outstanding obligations.
The Company began the year with cash reserves of $12,423,665.
11
<PAGE>
The Company financed $1,054,000 of developer fees generated during
the six-month period ended June 30, 1996, resulting in cash provided from
operations of $240,000. Cash decreased by $5,238,000 during the six months
ended June 30, 1996. The three most significant uses of cash were the
acquisition of intangibles in the amount of $1,119,000 related to the
purchase of two restaurants, repayment of $819,000 of long-term debt and
$3,247,000 used to acquire real estate for the turnkey program.
Bee Cave/Westbank, Ltd., a limited partnership in which the Company
and its subsidiary, Schlotzsky's Real Estate, Inc., own a combined 40%
interest in capital and profits, obtained an interim loan of $1,150,000 from
a bank in December 1994 to finance the construction of a retail shopping
center. The Company is liable for the full amount of this loan. The loan,
which had an outstanding balance of $1,150,000 on June 30, 1996, bore
interest at the bank's base rate (11% on December 31, 1995), was payable in
unequal installments and matured in July 1996. The limited partnership is
currently seeking to obtain permanent financing for this project from a
financial institution, such financing to be without recourse to the Company
and Schlotzsky's Real Estate, Inc. While management believes such financing
will be available on favorable terms, there can be no assurance in this
regard.
The Company believes that cash flow from operations, cash reserves,
collections from notes receivable and borrowings under existing credit
facilities described above, will be sufficient to meet the Company's
anticipated cash needs through the end of 1996. Thereafter, the Company
believes that new store openings will result in increasing cash flow from
operations which, together with borrowings under credit facilities, should be
sufficient to meet the Company's anticipated cash needs, although there can
be no assurance in this regard. Substantially all of the Company's royalties
have been pledged to secure Company debt in the past. However, the proceeds
of its offering were used to repay most of these obligations. Accordingly,
these royalties are available to secure future financing. The Company
guarantees certain leases of its franchisees for limited periods of time,
which may affect its ability to obtain financing in the future. To the
extent that the remaining net proceeds from the initial public offering,
credit facilities, and cash flow from operations are insufficient to finance
the Company's future expansion plans, the Company intends to seek additional
funds for this purpose from future debt financing or additional offerings of
equity securities, although there can be no assurance of the availability of
such funds on acceptable terms in the future.
12
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
For a description of the significant legal proceedings involving the Company,
reference is made to Item 3 of the Company's Annual Report on Form 10-K for
the period ended December 31, 1995.
ITEM 2. CHANGES IN SECURITIES.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Annual Meeting of the Shareholders of the Company was held on May 30,
1996. At the meeting, one director, Raymond A. Rodriguez, whose term expired
at the Meeting was re-elected by a vote of 4,095,408 "for" and 1,414,590
withheld or abstained. In addition, the shareholders ratified the Board of
Directors' selection of Coopers & Lybrand, L.L.P. as the Company's auditors
for the fiscal year ending December 31, 1996, by a vote of 4,095,408 "for"
and 1,414,590 withheld or abstained.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits
Exhibit Sequentially
No. Numbered Page
------- -------------
11.1 Statement regarding computation of
per share earnings. 15
27 Financial Data Schedule. 16
b. Current Reports on Form 8-K: None
13
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SIGNATURE
Pursuant to the requirements 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.
SCHLOTZSKY'S, INC.
By: /s/ Charles E. Harvey, Jr.
____________________________
CHARLES E. HARVEY, JR.
Executive Vice President and
Chief Financial Officer
Austin, Texas
August 13, 1996
14
<PAGE>
SCHLOTZSKY'S, INC. AND SUBSIDIARIES
COMPUTATION OF INCOME(LOSS) PER COMMON SHARE
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Computation of income (loss) per
common share-primary:
Net income(loss) $ 714,343 $ 244,381 $1,343,443 $ 423,056
Redeemable preferred stock dividends 0 (140,000) 0 (280,000)
------------- ------------- ------------- -----------
Income (loss) available to
common shareholders 714,343 104,381 1,343,443 143,056
------------- ------------- ------------- -----------
------------- ------------- ------------- -----------
Weighted average number of shares outstanding 5,518,057 2,187,500 5,518,057 2,187,500
Common shares issuable under stock option plan 537,332 487,500 560,852 487,500
Common stock warrants outstanding 23,438 28,906 23,438 28,906
Less shares assumed repurchased (404,470) (369,598) (433,121) (369,947)
------------- ------------- ------------- -----------
5,674,357 2,334,308 5,669,226 2,333,959
------------- ------------- ------------- -----------
------------- ------------- ------------- -----------
Income (loss) per common share:
Income (loss) before extraordinary item $0.13 $0.04 $0.24 $0.04
Extraordinary item 0.00 0.00 0.00 0.02
------------- ------------- ------------- -----------
$0.13 $0.04 $0.24 $0.06
------------- ------------- ------------- -----------
------------- ------------- ------------- -----------
Computation of income (loss) per common
share-fully diluted:
Net income(loss) $ 714,343 $ 244,381 $1,343,443 $ 423,056
Redeemable preferred stock dividends 0 (140,000) 0 (280,000)
Interest Add-back 0 0 5,521 0
------------- ------------- ------------- -----------
Income (loss) available to
common shareholders 714,343 104,381 1,348,964 143,056
------------- ------------- ------------- -----------
------------- ------------- ------------- -----------
Weighted average number of shares outstanding 5,518,057 2,187,500 5,518,057 2,187,500
Common shares issuable under stock option plan 537,332 487,500 560,852 487,500
Common stock warrants outstanding 23,438 30,469 23,438 30,469
Convertible securities 0 35,048 10,646 35,242
Less shares assumed repurchased (404,470) (371,414) (433,121) (371,765)
------------- ------------- ------------- -----------
5,674,357 2,369,103 5,679,872 2,368,946
------------- ------------- ------------- -----------
------------- ------------- ------------- -----------
Income (loss) per common share:
Income (loss) before extraordinary item $0.13 $0.04 $0.24 $0.04
Extraordinary item 0.00 0.00 0.00 0.02
------------- ------------- ------------- -----------
$0.13 $0.04 $0.24 $0.06
------------- ------------- ------------- -----------
------------- ------------- ------------- -----------
</TABLE>
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEETS AND CONDENSED CONSOLIDATED STATEMENTS OF
INCOME ON PAGES 2 AND 3 OF THE COMPANY'S FORM 10-Q FOR THE YEAR-TO-DATE, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 7,187,207
<SECURITIES> 0
<RECEIVABLES> 4,210,758
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 20,683,550
<PP&E> 5,003,417
<DEPRECIATION> 682,790
<TOTAL-ASSETS> 37,142,445
<CURRENT-LIABILITIES> 2,070,228
<BONDS> 0
0
0
<COMMON> 44,220
<OTHER-SE> 30,436,755
<TOTAL-LIABILITY-AND-EQUITY> 37,142,445
<SALES> 1,375,945
<TOTAL-REVENUES> 9,087,513
<CGS> 461,606
<TOTAL-COSTS> 7,206,061
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (270,888)
<INCOME-PRETAX> 2,152,340
<INCOME-TAX> 808,897
<INCOME-CONTINUING> 1,343,443
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,343,443
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
</TABLE>
