UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
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 000-23174
THE QUIZNO'S CORPORATION
Colorado 84-1169286
7555 East Hampden Avenue, Suite 601
Denver, Colorado 80231
Registrants' Telephone Number Is (303) 368-9424
Check whether issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the
past 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
State the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Outstanding at
Class
November 8, 1996
Common Stock, $0.001 par value
2,864,757 shares
THE QUIZNO'S CORPORATION
Commission File Number: 000-23174
Quarter Ended September 30, 1996
FORM 10-QSB
Part I FINANCIAL INFORMATION
Consolidated Statements of Operations Page 1
Consolidated Balance Sheets Page 2
Consolidated Statements of Cash Flows Page 4
Consolidated Statement of Stockholders' Equity Page 7
Notes to Consolidated Financial Statements Page 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations Page 10
THE QUIZNO'S CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
REVENUE:
Royalty fees $ 424,349 $ 296,110 $ 1,138,570 $ 759,838
Initial franchise fees 338,000 215,000 835,500 390,000
Area director marketing fees 210,382 311,325 1,098,037 758,423
Sales by Company owned stores 770,895 854,000 2,108,145 2,305,805
Sales by stores held for resale -- -- 20,572 142,525
Interest Income 33,113 32,607 116,662 118,495
Other 66,286 39,413 181,924 137,557
1,843,025 1,748,455 5,499,410 4,612,643
EXPENSES:
Sales and royalty commissions 235,403 80,979 594,591 161,492
Advertising and promotion 105,779 34,059 269,565 51,216
General and administrative
expenses 944,119 686,658 2,644,552 1,887,737
Cost of sales at Company stores 274,980 281,267 753,054 764,139
Cost of labor at Company stores 230,570 283,709 618,273 821,226
Other Company store expenses 211,723 279,810 656,418 764,891
Stores held for resale expenses -- -- 39,361 227,963
Other 16,301 -- 88,918 --
Depreciation and amortization 71,861 50,111 211,433 160,987
Interest expense 17,420 25,143 56,078 89,824
Provision for loss on stores
held for resale -- -- -- --
2,108,156 1,721,733 5,932,243 4,929,475
Net income (loss) (265,131) 26,719 (432,833) (316,832)
Preferred stock dividends (14,235) (14,235) (42,705) (42,705)
Net income (loss) applicable to
common shareholders $ (279,366) $ 12,484 $ (475,538) $ (359,537)
Net income (loss) per
share of common stock $ (0.10) $ 0.00 $ (0.17) $ (0.13)
Weighted average common shares
outstanding 2,864,757 2,863,748 2,864,757 2,863,130
</TABLE>
THE QUIZNO'S CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 445,739 $ 1,684,422
Restricted cash 16,544 15,927
Current portion of notes receivable 444,005 304,918
Accounts receivable, net of allowance for
doubtful accounts of $17,200 in 1996 and
$11,777 in 1995 286,966 276,522
Other current assets 228,387 155,973
Assets of stores held for resale -- 144,499
Total current assets 1,421,641 2,582,261
Property and equipment, at cost, net of
accumulated depreciation and amortization of
$159,963 in 1996 and $144,561 in
1995 1,595,331 1,083,476
OTHER ASSETS:
Intangible assets, net of accumulated
amortization of $517,996 in 1996 and
$414,500 in 1995 523,097 537,149
Deferred assets 547,992 588,051
Deposits 47,088 31,454
Notes receivable 744,095 528,484
Total other assets 1,862,272 1,685,138
$ 4,879,244 $ 5,350,875
</TABLE>
(continued on next page)
THE QUIZNO'S CORPORATION
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 459,646 $ 713,446
Accrued liabilities 64,084 53,168
Line of credit and notes payable 260,000 160,000
Current portion of long term
obligations 207,228 171,217
Provision for loss on stores sold 8,988 58,000
Total current liabilities 999,946 1,155,831
Line of credit 140,502 215,505
Long term obligations 243,701 341,453
Other liabilities 2,226 12,101
Deferred initial franchise fees 1,651,577 1,309,155
Total liabilities 3,037,952 3,034,045
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, liquidation
value of $6 per share plus unpaid and
accumulated dividends, 1,000,000 authorized,
issued and outstanding 146,000 in 1996 and
in 1995 146 146
Common stock, $.001 par value, 9,000,000 shares
authorized, issued and outstanding 2,864,757 in
1996 and 2,864,757 in 1995 2,865 2,865
Capital in excess of par value 3,247,650 3,290,355
Accumulated deficit (1,409,369) (976,536)
Total stockholders' equity 1,841,292 2,316,830
$ 4,879,244 $ 5,350,875
</TABLE>
THE QUIZNO'S CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
Nine Months Ended
September 30,
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (432,833)
$ (316,832)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 211,436 160,987
Provision for losses on accounts receivable 6,300
4,977
Reserve for losses on stores sold(49,012) (43,226)
Promissory notes accepted for area director fees(157,494)
(252,595)
Changes in assets and liabilities:
Restricted cash (617) (1,140)
Accounts receivable (80,291) (147,416)
Other current assets (72,413) (36,048)
Accounts payable 28,387 233,857
Accrued liabilities 10,915 20,598
Deferred franchise costs (242,128) (63,592)
Deferred initial franchise fees 342,422 238
,408
Other (9,876)
(2,600)
Net cash used by operating activities (445,204) (20
4,622)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (204,737) (721,510)
Purchase of Company owned stores (353,589) --
Proceeds from sales of stores held for resale --
15,000
Acceptance of notes receivable (416,693) (134,205)
Principal payments received on notes receivable 283,036
61,403
Intangible assets (9,214) (20,445)
Change in deposits (12,834) 5,298
Investment in stores under development --
(74,975)
Net cash used in investing activities (714,031) (86
9,434)
</TABLE>
(continued on next page)
THE QUIZNO'S CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued from previous page)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
1996 1995
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable$ 239,510 $
25,996
Principle payments on long term obligations (91,250)
(347,672)
Principle payments on lines of credit(185,003) (50,000)
Proceeds from issuance of common stock-- --
Dividends paid (42,705) (42,705)
Net cash used in financing activities (79,448)
(414,381)
Net decrease in cash (1,238,683) (1,488,437)
Cash, beginning of period 1,684,422 3,112,575
Cash, end of period $ 445,739 $ 1,624,138
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest$ 56,078 $
89,824
</TABLE>
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
During the third quarter of 1996, the Company purchased two
Company owned restaurants from franchisees for cash and a
promissory note. The acquisitions were accounted for as
follows:
<TABLE>
<CAPTION>
<S> <C>
Inventory $ 4,546
Equipment 80,000
Leasehold improvements 192,200
Security deposits 2,800
Goodwill 65,454
Other 8,589
Total 353,589
Cash paid (148,589)
Promissory note due in 4th quarter, 1996 $ 205,000
</TABLE>
(continued on next page)
THE QUIZNO'S CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued from previous page)
During the first quarter of 1996, the Company subleased a
Company owned restaurant and granted the sublessee an option
to purchase the restaurant through December 31, 1996 for
$135,000. During the first quarter of 1996, the assets of
the restaurant were reclassified from Assets of Stores Held
for Resale to Property and Equipment, and written down to
the amount of the option price, with the loss, which had
been accrued at December 31, 1995, charged to Provision for
Loss on Stores Held for Resale.
During the first quarter of 1995, the Company issued 2,500
shares of its $.001 par value common stock to Berger
Restaurant Corporation in exchange for the general partner's
interest in Quiz One Limited Partnership owned by Berger
Restaurant Corporation. The shares and the general
partner's interest were valued at $10,000.
(Remainder of page intentionally left blank)
THE QUIZNO'S CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Convertible Additional
Preferred Stock Common Stock Paid-In
Accumulated
Shares Amount Shares Amount
Capital Deficit
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1995
146,000 $ 146 2,860,000 $ 2,860$ 3,339,495 $ (684,964)
Issuance of common stock
in exchange for general
partnership interest-- -- 2,500 3 9,997 --
Purchase price paid for Quiz
One Limited Partnership
general partner's interest
over historical book value
(goodwill) -- -- -- -- (10,000) --
Issuance of common stock
pursuant to employee
benefit plan -- -- 2,257 2 7,803 --
Preferred stock dividends-- -- -- -- (56,940) --
Net loss -- -- -- --
(291,572)
Balances at December 31, 1995
146,000 1462,864,757 2,865 3,290,355 (976,536)
Preferred stock dividends-- -- -- -- (42,705) --
Net loss -- -- -- --
- -- (432,833)
Balances at Sept. 30, 1996 146,000$ 146 2,864,757 $ 2,865$ 3,247,650
$(1,409,369)
</TABLE>
THE QUIZNO'S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of management, all adjustments, consisting
only of normal recurring adjustments necessary for a fair
statement of (a) the results of consolidated operations for the
three and nine month periods ended September 30, 1996 and
September 30, 1995, (b) the consolidated financial position at
September 30, 1996, (c) the statements of cash flows for the nine
month periods ended September 30, 1996 and September 30, 1995,
and (d) the consolidated changes in stockholders' equity for the
nine month period ended September 30, 1996, have been made.
2. The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted
accounting principles for interim financial information.
Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles
for financial statements. For further information, refer to the
audited consolidated financial statements and notes thereto for
the year ended December 31, 1995, included in the Company's
Annual Report on Form 10-KSB to the Securities and Exchange
Commission filed on March 29, 1996.
3. The results for the three and nine month periods ended
September 30, 1996 are not necessarily indicative of the results
for the entire fiscal year of 1996.
4. RELATED PARTY TRANSACTIONS
In 1995, the Company sold the Detroit area directorship to
Michigan Restaurant Development Corp., which is 100% owned by a
director and major stockholder of the Company, for $150,000 paid
in cash.
Two directors of the Company, one of whom is a major
stockholder, own more than 50% of the outstanding shares of
Illinois Food Managers, Inc, which owns the Chicago area
directorship and owned two operating franchises in Chicago, one
of which was sold to an unrelated franchisee in June of 1996, and
one which was closed in September, 1996.
Two directors and major stockholders of the Company own 55%
of SK Food Services Corporation, which was a franchisee until
such franchise was sold in October, 1995.
Two directors and major stockholders of the Company loaned
Schaden & Schaden, Inc. (Schaden) $99,243 in 1991 and another
$62,000 in 1994 under notes payable agreements. The notes were
assumed by the Company when it acquired Schaden in 1994.
THE QUIZNO'S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Summarized below is a recap of related party transactions
included in the financial statements as of September 30:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Assets
Accounts receivable $34,116 $ 56,694
Current portion of notes receivable
24,336 8,628
Notes receivable 46,224 19,832
Liabilities
Current portion of long
term obligations 7,172 36,203
Long term obligations 3,161 13,035
Revenue
Royalty fees 16,773
43,750
Interest income 4,172 2,773
Other income 7,950
22,050
Expenses
Sales and royalty commissions 41,472
36,783
Preferred stock dividend 42,705 42,705
</TABLE>
5. LITIGATION
On May 24, 1996, an area director filed suit against the
Company seeking damages in connection with the termination of
their area director agreement. The Company denies all claims and
is vigorously defending this action. The case has not yet
reached the discovery stage and the Company has not been able to
assess all merits of the area director's claims, but, based on
the information available at this time, Management believes the
resolution of this matter will not have a material adverse effect
on the financial condition of the Company.
THE QUIZNO'S CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
At the current time, one time fees from the sale of area
directorships continue to represent a substantial portion of the
Company's revenue and can materially effect the net income of the
Company from quarter to quarter. These fees have historically
varied materially from quarter to quarter. The goal of the
Company is to continue to build its revenue stream from royalties
and franchise fees which ultimately will become the largest part
of the Company's revenue. In the third quarter of 1996, the
Company focused its resources on both franchise sales and
openings, and achieved record results. A record 92 new
franchises were sold for $550,750, a record 19 new franchises
opened resulting in the recognition of a record $338,000 in
initial franchise fees, and the Company's continuing royalty
revenue stream reached a record $424,349. The Company will
continue to focus primarily on rapidly building its royalty
stream and its initial fee revenue by focussing on rapidly
developing franchised units.
As described above, The Company's primary business, and the focus
of its organizational structure, continues to be franchising
QUIZNO'S restaurants. As a franchisor, revenue is derived from:
(1) area director marketing fees, (2) initial franchise fees, and
(3) royalties paid by franchisees. Area director fees occur only
once for each exclusive area sold. Although the Company believes
there are a substantial number of markets remaining to be sold,
eventually such fees are expected to decline as the number of
available remaining markets declines. Initial franchise fees are
one time fees paid upon the sale of a franchise and vary directly
with the number of franchises the Company can sell and open.
Royalties, on the other hand, are ongoing fees paid by every
franchised restaurant and will increase as the number of
franchised restaurants increase. Each of these sources of
revenue contributes to the profitability of the Company, but the
relative contribution of each source will vary as the Company
matures. The Company expects that over time initial franchise
fees and royalties will generate proportionally more revenue than
area director marketing fees.
The following chart reflects the Company's growth in terms of
units, franchise sales, and systemwide sales.
THE QUIZNO'S CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Restaurants open, beginning128 81 105 66
New restaurants opened 19 13 45
28
Restaurants closed (4) - (5)
- -
Restaurants closed, expected to reopen (2) -
(4) -
Restaurants open, end 141 94 141
94
New franchises sold 92 12 146
29
Initial franchise fees collected$550,750 $230,000$1,318,750
$555,500
As of September 30,
1996 1995
Franchises sold, not open 156
61
Area Directors 60
36
Company Stores 10
10
Stores held for resale -
- -
</TABLE>
Results of Operations
Comparison of the First Three quarters of 1966 with the First
Three quarters of 1995 and the Third Quarter of 1996 with the
Third Quarter of 1995
Total revenue increased 5% in the third quarter of 1996 to
$1,843,025 from $1,748,455 for the same period last year. In the
first three quarters, revenue increased 19% to $5,499,411 from
$4,612,643 in the first three quarters of 1995.
Franchise related revenue (royalties, franchise and area
director fees) increased 18% in the third quarter and 60% in the
first three quarters.
Royalty fees increased 43% in the third quarter of 1996 to
$424,349 from $296,110 in the same period last year. For the
first three quarters, royalty fees increased 50% compared to the
first THE QUIZNO'S CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
three quarters of 1995. Royalty fees are a percentage of each
franchisee's sales paid to the Company weekly or monthly and will
increase as new franchises open, sales increase, and as the
average royalty percentage increases. Company owned stores do
not pay royalties. At September 30, 1996, there were 131
franchises open as compared to 84 at September 30, 1995. The
royalty fee is between 4% and 6%, depending on when the franchise
was purchased (8% for non-traditional units). The Company has no
immediate plans to further increase its royalty fee.
Initial franchise fees increased 57% in the third quarter of
1996 to $338,000 from $215,000 in the same period last year, due
to a record number of new franchise openings. For the first
three quarters, initial franchise fees increased 114% compared to
the first three quarters of 1995. Initial franchise fees are one
time fees paid by franchisees at the time the franchise is sold,
and are not recognized as income until the period in which all of
the Company's obligations relating to the sale have been
substantially performed, which generally occurs when the
franchise opens. In the first three quarters of 1996, the
Company opened 45 franchises as compared to 28 franchises opened
in the same period in 1995. The Company's initial franchise fee
has been $20,000 since November 1, 1994. Some of the franchises
opened in the first quarter of 1996 purchased the franchise
before November 1, 1994 and paid an initial franchise fee less
than $20,000. In 1996, the Company began offering existing
franchisees a second franchise for $15,000, and a third for
$10,000. For franchises to be operated in non-traditional
locations, the initial franchise fee per location, depending on
the number of locations purchased and other factors, is between
$2,000 and $10,000.
From June 1, 1996 through September 30, 1996, the Company
offered approved existing franchisees the right to purchase one
additional franchise for every currently effective franchise
agreement for an initial franchise fee of $1,000. If the
purchaser does not have a franchise currently open, the first
franchise must be open by December 31, 1996 and the second
franchise, purchased under this discount program, must be opened
by December 31, 1997. The Company sold 73 such franchises, none
of which had opened as of September 30, 1996.
Area director marketing fees decreased 32% in the third
quarter of 1996 to $210,382 from $311,325 in the third quarter of
1995. For the first three quarters, area director marketing fees
increased 44% compared to the first three quarters of 1995. Area
director marketing fees are one time fees paid to the Company for
the right to sell franchises in a designated, non-exclusive,
geographical area. The fee is $.035 ($.03 prior to July 1, 1996)
per person in the designated area, plus a training fee of $15,000
($12,500 prior to July 1, 1996). The population based portion of
the fee is deemed fully earned by the Company when the area
director marketing agreement is signed and THE QUIZNO'S
CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
is recognized as income in that period. During the third
quarter, two area directorships were sold and two existing area
directors expanded their territory, compared to seven in the
third quarter of 1995. In the first three quarters of 1996, the
Company sold 21 area directorships as compared to 14 area
directorships sold in the first three quarters of 1995. At
September 30, 1996, the Company had a total of 60 area directors
who owned areas encompassing a population base equal to
approximately 52% of the population of the United States.
In 1995, the Company began offering long term financing to
certain area director candidates for up to 50% of the area
director marketing fee. The amount financed is required to be
paid to the Company in installments over five years at 15%
interest. The promissory notes are personally signed by the area
director and secured by collateral unrelated to the area
directorship, usually a mortgage in the area director's home. Of
the 21 area directorships sold in the first three quarters of
1996, three used this financings for $112,019.
Sales by Company owned stores decreased because in the third
quarter of 1996, the Company operated stores for a total of 26
store operating months, compared to 30 store operating months in
the same quarter last year. Sales decreased by 10% in the third
quarter of 1996 to $770,895 from $854,000 in the third quarter of
1995. For the first three quarters, sales by Company owned store
decreased by 9% from the first three quarters of 1995. For the
third quarter, Company stores earned a profit of $53,622 compared
to a profit of $9,214 in the same quarter last year. During the
first three quarters of 1996, the Company earned a profit of
$80,400 at Company stores compared to a loss of $44,451 in the
same period last year. Management does not expect to acquire or
sell a significant number of Company stores in 1996.
Stores held for resale lost $18,789 in the first three
quarters of 1996 versus $85,438 for the same period last year.
The 1996 loss is attributable to one store taken over during the
first quarter from a franchisee and operated by the Company until
it was resold to a new franchisee in April, 1996. The 1995 loss
was attributable to two stores resold to franchisees in the
second quarter of 1995.
Sales and royalty commissions expense was $235,403 in the
third quarter of 1996 compared to $80,979 in the third quarter of
1995. For the first three quarters, sales and royalty commission
was $594,591 compared to $161,492 in the same period last year.
Sales and royalty commissions represent amounts paid to the area
directors of the Company under the area director program
implemented in March of 1995. Since this program was not
implemented until the end of the first quarter of 1995, the
related expenses for the first three quarters of 1995 were small.
Area directors THE QUIZNO'S CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
receive a sales commission equal to 50% of the initial franchise
fees received by the Company for franchises sold and opened in
the area director's territory. Area directors also are paid 40%
of the royalties received by the Company from franchises open in
the area director's territory. In exchange for these payments,
the area director is required to market and sell franchises,
provide location selection assistance, provide on-site opening
assistance to new franchisees, and perform monthly quality
control reviews at each franchise open in the area director's
territory. Sales and royalty commission expense is expected to
continue to increase in direct proportion to the number of
franchise openings and the increase in royalty fee revenue.
Advertising and promotion expenses increased to $105,779 in
the third quarter of 1996 from $34,059 in the third quarter of
1995, and increased to $269,565 in the first three quarters
compared to $51,216 in the first three quarters of 1995. The
increase reflects the Company's commitment to an aggressive and
rapid franchise sales and development program, which includes
consistent and regular national advertising of the Company's
franchise opportunity combined with regularly scheduled
orientation and discovery days for franchise and area director
candidates. Management believes this program contributed greatly
to the record franchise sales by the Company in the third quarter
of 1996. Included are one time expenses of $101,239 for the
first three quarters of 1996 ($51,760 in the third quarter) for
direct retail advertising on behalf of franchised stores. The
Company had no direct retail advertising expenses in 1995 and has
no current plans for any such expenses in the future.
General and administrative expenses increased 37% to
$944,119 for the third quarter of 1996 from $686,658 in the same
period last year. For the first three quarters, general and
administrative expenses increased 40% from the same period last
year. General and administrative expenses include all of the
operating expenses of the Company. The increase in general and
administrative expenses is primarily due to the addition of
employees to service the rapidly growing network of Quizno's
franchisees and area directors. The expenses of the Company have
increased to support increases of 50% in units open, 155% in
units sold not open, and a 67% increase in area directors.
Wages, indirect labor costs, and the travel associated with added
franchise support and franchise development personnel represent a
substantial portion of the increase. The Company believes its
general and administrative expenses are adequate and are not
excessive in relation to the size of the Company.
Other expenses were $88,918 in the first three quarters of
1996. The expense is primarily related to a franchised store in
Missouri that was taken over by the Company from a franchisee and
THE QUIZNO'S CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
sold to a new franchisee, all within the first quarter of 1996.
In addition, the Company has incurred subleasing expenses related
to two Company owned stores sold to franchisees.
Systemwide Data
Systemwide sales for the third quarter were up 36% to $9.5
million compared to $7.0 million for the same quarter last year.
Year to date systemwide sales were up 35% to $25.8 million over
$19.0 million for the first nine months of 1995. Systemwide
sales are the total retail sales of all Quizno's restaurants,
including Company owned restaurants.
Same store sales were down 3.2% for the third quarter of
1996 compared to same quarter last year. The decrease is
attributable, in large part, to the fact that included in the mix
are the Company's top volume stores in Colorado which are
approaching their maturity after several years of double digit
growth. Same store sales is based on 39 stores open all of the
third quarter of 1996 and the third quarter of 1995. The Company
has changed its method of calculating same store sales to exclude
nontraditional units, units in default of their franchise
agreement for which such default is unlikely to be cured, units
being sold, and the first three months of operations for new
units. Because the Company will continue to be in an aggressive
growth mode for the next few years, it is anticipated that same
store sales will fluctuate as units operating in evolving markets
are tracked. The Company will continue to concentrate on its
overall rapid growth as a primary goal and to provide
interpretation of same store sales from year to year.
Average unit volume for the 1995 calendar year was $321,000,
compared to $363,000 for the 1994 calendar year. In 1994, the
Quizno's restaurant was significantly redesigned to reduce
initial costs, reduce breakeven sales levels, and to fit the
units in spaces 50% to 60% smaller than previously required. The
Company expected reduced sales at these smaller locations, along
with a corresponding reduction in operating costs, including
rent, labor and utilities. Although volumes are lower, the
breakeven point is also lower, resulting in approximately the
same return on sales and a higher return on investment for such
locations.
THE QUIZNO'S CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Liquidity and Capital Resources
Cash provided from the sale of franchises was $1,318,750 for
146 franchises for the first three quarters of 1996, and $550,750
for 92 franchises for the third quarter of 1996, compared to
$555,000 for 20 franchises and $230,000 for 12 franchises,
respectively, in the same period last year. Although the Company
has the use of the cash, these amounts are deferred on the books
of the Company until the related franchise opens for business in
a future period. The net difference between the amount of cash
collected and the amount recorded as revenue on opening is
included in Net Cash Used by Operating Activities.
Net cash used by operating activities in the first three
quarters of 1996 was $445,204 compared to cash used in operating
activities of $204,622 in the same period last year.
Net cash used in investing activities in the first three
quarters of 1996 was $714,031 compared to cash used in investing
activities of $869,434 in the first three quarters of 1995. Cash
used by investing activities in the first three quarters of 1996
is primarily related to the issuance of notes receivable of
$416,693, including $225,350 loaned to Quizno's advertising
funds, and the purchase of two Company stores from franchisees,
$353,589. In the first three quarters of 1995 the Company used
cash to build three new Company stores, $609,000, and for the
turnkey development of two new franchised stores, $148,000.
Cash used by financing activities in the first three
quarters of 1996 was $79,448 compared to cash used by financing
activities of $414,381 in the same period last year. The amounts
for both years represent primarily cash used for the reduction of
debt and the payment of preferred stock dividends.
The Company had cash and cash equivalents of $445,739 and
positive working capital of $421,695 at September 30, 1996.
The Company's operations as a franchisor are not capital
intensive. The Company has been able to finance its operations
and growth, excluding Company owned stores, through initial
franchise fees, area director fees, and royalties. The Company
is currently negotiating with unrelated parties to increase its
lines of credit and to provide long term debt financing which the
Company would use to retire a portion of existing long term debt,
increase working capital, and provide capital for certain growth
programs in 1997.
THE QUIZNO'S CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
The Company does not expect seasonality to effect its
operations in a materially adverse manner. However, the
Company's restaurant sales, and therefore royalties, during the
months of November through February are generally lower due to
the location of a majority of its restaurants.
(Remainder of page intentionally left blank)
THE QUIZNO'S CORPORATION
Commission File Number: 000-23174
Quarter Ended September 30, 1996
Form 10-QSB
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Previously reported in Form 8-K of the Registrant filed
with the SEC on September 19, 1996.
Item 2. Changes in Securities
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
(a) Exhibits
None.
(b) Reports of Form 8-K
None.
THE QUIZNO'S CORPORATION
Commission File Number: 000-23174
Quarter Ended September 30, 1996
Form 10-QSB
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
THE QUIZNO'S CORPORATION
By: Original signed by John L. Gallivan
John L. Gallivan
Chief Financial Officer
(Principal Financial and Accounting Officer)
Denver, Colorado
November 14, 1996
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 445,739
<SECURITIES> 0
<RECEIVABLES> 304,166
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