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 March 31, 1997
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
1099 18th Street, Suite 2850
Denver, Colorado 80202
Registrant's Telephone Number Is (303) 291-0999
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 April 16, 1997
Common Stock, $0.001 par value 2,865,746 shares
THE QUIZNO'S CORPORATION
Commission File Number: 000-23174
Quarter Ended March 31, 1997
FORM 10-QSB
Part I FINANCIAL INFORMATION
Consolidated Statements of Operations Page 1
Consolidated Balance Sheets Page 3
Consolidated Statements of Cash Flows Page 5
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 9
THE QUIZNO'S CORPORATION AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
<S> <C> <C>
FRANCHISE OPERATIONS:
Revenue
Royalty fees $ 469,125 $ 318,935
Initial franchise fees 174,501 255,000
Area director marketing fees 425,423 250,486
Other 105,309 55,170
Interest revenue 45,102 40,814
Total revenue 1,219,460 920,405
Expenses
Sales and royalty commissions (257,512) (133,726)
Advertising and promotion (31,057) (56,741)
General and administrative
expenses (923,619) (736,167)
Total expenses (1,212,188) (926,634)
Income (loss) from franchise
operations 7,272 (6,229)
COMPANY STORE OPERATIONS:
Sales by Company owned stores 612,740 627,992
Expenses
Cost of sales at Company stores (216,447) (218,694)
Cost of labor at Company stores (165,449) (191,013)
Other Company store expenses (229,878) (208,718)
Total Expenses (611,774) (618,425)
Net income (loss) from Company
stores 966 9,567
OTHER INCOME (EXPENSE):
Research & development and new
programs
Direct retail advertising (3,053) (31,832)
Research and development (17,829) --
Other
Sales by stores held for resale 74,002 16,946
Expenses related to stores held
for resale (98,542) (30,529)
Provision for bad debts (10,500) (2,100)
Other (17,981) (60,079)
Depreciation and amortization (76,809) (71,643)
Interest expense (75,432) (17,149)
Total other expense (226,144) (196,386)
Net loss (217,906) (193,048)
Preferred stock dividends (14,235) (14,235)
Net loss applicable to
common shareholders $(232,141) $(207,283)
Net loss per share of common
stock $ (0.08) $ (0.07)
Weighted average common shares
outstanding 2,865,746 2,864,757
</TABLE>
See notes to financial statements.
THE QUIZNO'S CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,639,609 $ 2,127,330
Restricted cash -- 16,748
Accounts receivable, net of
allowance for doubtful
accounts of $61,577 in 1997 and
$51,077 in 1996 443,953 363,602
Current portion of notes receivable 374,996 501,255
Other current assets 232,633 147,856
Assets of stores held for resale 248,407 116,229
Total current assets 2,939,598 3,273,020
Property and equipment, at cost,
net of accumulated depreciation
and amortization of $278,560 in
1997 and $218,270 in 1996 1,557,331 1,458,979
OTHER ASSETS:
Intangible assets, net of
accumulated amortization of
$512,597 in 1997 and $496,317
in 1996 579,511 557,483
Deferred assets 1,168,051 937,450
Deposits 59,258 37,630
Notes receivable, net of
allowance for doubtful accounts
of $140,000 in 1997 and 1996 539,713 575,222
Total other assets 2,346,533 2,107,785
$6,843,462 $6,839,784
CURRENT LIABILITIES:
Accounts payable $ 1,165,377 $ 1,053,028
Accrued liabilities 144,122 75,728
Line of credit and notes payable -- 100,000
Current portion of long term
obligations 143,056 375,595
Provision for litigation
settlement 95,000 95,000
Total current liabilities 1,517,555 1,699,351
Line of credit -- 120,239
Long term obligations 174,340 203,801
Convertible subordinated debt 2,000,000 2,000,000
Deferred initial franchise fees 2,139,530 1,575,471
Total liabilities 5,831,425 5,598,862
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 1997 and in 1996 146 146
Common stock, $.001 par value,
9,000,000 shares authorized,
issued and outstanding 2,865,746
in 1997 and 2,864,757 1996 2,866 2,865
Capital in excess of par value 3,222,435 3,233,415
Accumulated deficit (2,213,410) (1,995,504)
Total stockholders' equity 1,012,037 1,240,922
$ 6,843,462 $ 6,839,784
</TABLE>
See notes to financial statements.
THE QUIZNO'S CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (217,906) $ (193,048)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 82,553 73,722
Provision for losses on accounts
receivable 10,500 2,100
Reserve for losses on stores sold -- (19,609)
Issuance of stock for services 3,256 --
Promissory notes accepted for
area director fees (65,319) (178,986)
Changes in assets and liabilities:
Restricted cash 16,748 (3,600)
Accounts receivable (90,851) (100,454)
Other current assets (84,772) (70,586)
Accounts payable 112,349 (41,517)
Accrued liabilities 38,394 24,018
Deferred franchise costs (223,411) 112,253
Deferred initial franchise fees 564,059 49,493
Other -- (9,875)
Net cash provided by (used in)
operations 146,600 (356,089)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (160,381) (93,600)
Purchase of Company owned stores (133,261) --
Acceptance of notes receivable (5,155) (119,611)
Principle payments received on notes
receivable 232,242 50,117
Intangible assets (38,308) (23,357)
Other assets (21,627) 10,910
Net cash used in investing
activities (126,490) (175,541)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable -- 5,000
Principle payments on long term
obligations (262,000) (50,544)
Principle payments on lines of credit (220,239) (55,000)
Loan costs (10,357) --
Dividends paid (14,235) (14,235)
Net cash used in financing
activities (506,831) (114,779)
Net increase (decrease) in cash (487,721) (646,409)
Cash, beginning of period 2,127,330 1,684,422
Cash, end of period $ 1,639,609 $ 1,038,013
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the period for
interest $ 75,432 $17,149
</TABLE>
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
During the first quarter of 1997, the Company took back and
began operating as Company owned a restaurant in Michigan
that had been subleased in the first quarter of 1996 to a
franchisee with an option to purchase the assets. The
option was not exercised and the sublease was cancelled by
the franchisee in January of 1997. The restaurant has been
operated as a store held for resale since then. 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 franchisee's option price.
See notes to financial statements.
THE QUIZNO'S CORPORATION AND SUBSIDIARIES
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
Dec. 31,
1995 146,000 146 2,864,757 2,865 3,290,355 (976,536)
Preferred
stock
dividends -- -- -- -- (56,940) --
Net loss -- -- -- -- -- (1,018,968)
Balances at
Dec. 31,
1996 146,000 146 2,864,757 2,865 3,233,415 (1,995,504)
Issuance of
common stock
pursuant to
employee
benefit plan -- -- 989 1 3,255 --
Preferred
stock
dividends -- -- -- -- (14,235) --
Net loss -- -- -- -- -- (217,906)
Balances at
March 31,
1997 146,000 $146 2,865,746 $2,866 $3,222,435 $(2,213,410)
</TABLE>
See notes to financial statements.
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 month periods ended March 31, 1997 and March 31, 1996 (b)
the consolidated financial position at March 31, 1997 (c) the
statements of cash flows for the three month periods ended March
31, 1997 and March 31, 1996 and (d) the consolidated changes in
stockholders' equity for the three month period ended March
31,1997 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, 1996, included in the Company's
Annual Report on Form 10-QSB to the Securities and Exchange
Commission filed on March 29, 1997.
3. The results for the three month period ended March 31, 1997
are not necessarily indicative of the results for the entire
fiscal year of 1997.
THE QUIZNO'S CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION OR PLAN OF OPERATION
Overview
For the first quarter of 1997 the Company had income from
franchise operations of $7,272 and income from Company owned
store operations of $966, less other charges totaling $226,144,
resulting in a loss for the quarter of $217,906. Other charges
include the costs of new programs introduced in 1996, research
and development, depreciation and amortization expense, interest
expense, and certain other cost, which are discussed in more
detail below.
The Company's primary business is the franchising of Quizno's
Restaurants. As a franchisor, revenue is derived from: (1) area
director marketing fees, (2) initial franchise fees, and (3)
royalties paid by its 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
remaining available 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 increase as the number of franchised
restaurants open increase. Each of these sources of revenue
contribute 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 fees and royalties
will generate proportionately more revenue than area director
marketing fees.
The following chart reflects the Company's revenue growth by
source and the Company's restaurants for the first quarter of
1997 compared the first quarter of 1996:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
<S> <C> <C>
Royalty fees $ 469,125 $318,935
Initial franchise fees 174,501 255,000
Area director fees 425,423 250,486
Other 105,309 55,170
Interest 45,102 40,814
Total franchise revenue 1,219,460 920,405
Sales by Company owned stores 612,740 627,992
Sales by Stores held for resale 74,002 16,946
Total revenue $1,906,202 $1,565,343
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
<S> <C> <C>
Restaurants open, beginning 156 105
New restaurants opened 16 13
Restaurants closed (1) (2)
Restaurants closed, scheduled to reopen (1) --
Restaurants open, end 170 116
New franchises sold 42 24
Initial franchise fees collected $791,000 $425,000
Systemwide sales $9.5 million $7.2 million
Average unit volume for 1996 $300,580 (1)
Same store sales (2) (3) Down .4% Down 8.9%
</TABLE>
(1) Excludes non-traditional units located in convenience stores
and gas stations, and includes only units open all of 1996.
(2) Same stores sales is based on 61 stores open since the
beginning of 1996. Stores which transferred ownership
during this period, or are in substantial default of the
franchise agreement, are excluded.
(3) Because of the Company is and will continue to be in an
aggressive growth mode over the next few years, it is
anticipated that same store sales will fluctuate as units
are included from more start up markets. The Company will
continue to concentrate on its overall rapid growth as a
primary goal and to provide interpretation of changes from
year to year.
Results of Operations
Comparison of the first quarter of 1997 with the first quarter of
1996
Franchise revenue increased 32% in the first quarter of 1997 to
$1,219,460 from $920,405 in the same quarter last year. Total
revenue increased 22% in the first quarter of 1997 to $1,906,202
from $1,565,343 in the same quarter last year.
Royalty fees increased 47% in the first quarter of 1997 to
$469,125 from $318,935 in the first quarter of 1996. Royalty
fees are a percentage of each franchisee's sales paid to the
Company weekly or monthly and will increase as new franchises
open, as the average royalty percentage increases, and increase
or decrease based on average unit sales. At March 31,1997 there
were 161 franchises open as compared to 108 March 31, 1996. The
royalty was increased to 6% for all franchise agreements entered
into after February 10, 1995. The royalty for Quizno's Express
units is 8%. The Company has no immediate plans to further
increase the royalty percent.
The Company believes it is on track to reach a level of
franchised units open in 1997 where royalty fees will begin to
equal and then exceed its basic general and administrative
expenses.
Initial franchise fees decreased 32% in the first quarter of 1997
to $174,501 from $255,000 in the same quarter last year. Initial
franchise fees are one time fees paid by franchisees as the time
the franchise is purchased. Initial franchise fees 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 quarter of 1997, the Company
opened one Company owned and 15 franchises as compared to 13
franchises opened in the same quarter last year. The Company's
initial franchise fee has been $20,000 since 1994. Franchisees
may purchase a second franchise for $15,000 and third and
subsequent franchises for $10,000. The initial franchise fee for
a Quizno's Express franchise is $10,000 for the first, $7,500 for
the second, and $5,000 for the third and additional franchises
purchased by the same franchisee.
For four months during 1996 the Company offered approved existing
franchisees the right to purchase one additional franchise for
every currently effective franchise agreement for an initial fee
of $1,000. All such franchises are required to be open in 1997.
The Company sold 75 such franchises, two of which opened in the
first quarter of 1997 and four of which were opened in 1996.
Initial franchise fees collected by the Company are recorded as
deferred initial franchise fees until the related franchise
opens. Deferred initial franchise fees at March 31, 1997 were
$2,139,530 and represent 185 franchises sold but not yet in
operation, compared to $1,575,471 at March 31, 1996 representing
77 franchises sold but not open. Direct costs related to the
sale, primarily sales commissions paid or due to area directors,
are deferred on the books of the Company and recorded as an
expense at the same time as the related initial franchise fee is
recorded as income. Deferred costs paid and due at the time of
opening with respect to initial franchise fees deferred at March
31, 1997 were $846,615 ($492,764 at March 31, 1996).
Approximately 50% of all initial franchisee fees received by the
Company are paid to area directors for sales and opening
commissions.
The average franchise fee per unit opened decreased in 1997 due
to a greater number of openings of Quizno's Express units, second
or third units, and franchises sold for a special discount in
1996 to operating franchisees.
Area Director Marketing Fees increased 70% in the first quarter
of 1997 to $425,423 from $250,486 in the same quarter last year.
Area director marketing fees are one time fees paid to the
Company for the right to sell franchises in a designated, non-
exclusive area. The fee was $.03 per person in the designated
area through June 1996, $0.35 from July 1996 through March 1997,
and $.05 beginning April 1, 1997. In addition, each area
director is required to pay a training and equipment fee of
$15,000 ($10,000 through June, 1996). The population based
portion of the fee is deemed fully earned by the Company when the
area director marketing agreement is signed and is recognized as
income in that period. In the first quarter of 1997 the Company
sold 14 new area directorships including six existing area
directors who purchased additional territory, as compared to four
area directorships sold in the first quarter of 1996. At March
31, 1997, the Company had a total of 66 area directors who owned
areas encompassing approximately 56.7% of the population of the
United States.
The Company offers area director applicants financing 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 depending on the personal
financial strength of the area director, secured by collateral
unrelated to the area directorship, usually a second mortgage on
the area director's home. Of the 14 area directorships sold in
the first quarter of 1997, three used this financing for $69,068,
representing 16% of the area director marketing fees recognized
in the first quarter of 1997. In the first quarter of 1996, a
total of $22,500 was financed representing 9% of area director
fee revenue.
Other revenue increased by 91% in the first quarter of 1997 to
$105,309 from $55,170 in the same quarter last year. Other
revenue is primarily bookkeeping fees charged franchisees for
whom the Company provided bookkeeping services. Since 1995 the
Company's franchise agreement requires all new franchisees to
utilize the Company's bookkeeping services for their first 12
months of operations. The fee per store is currently $350 per
month.
Sales and royalty commissions expense increased 93% to $257,512
in the first quarter of 1997 from $133,726 in the same quarter
last year. Sales and royalty commissions are amounts paid to the
area directors of the Company under its area director program.
The Company's area directors receive commissions equal to 50% of
the initial franchise fees and 40% of royalties received by the
Company from franchise sold, opened, and operating 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 opening assistance to new
owners, and perform monthly quality control reviews at each
franchise open in the area director's territory.
Sales and royalty commissions expense will increase in direct
proportion to initial franchise fee revenue and royalty revenue,
and may ultimately reach 50% and 40% of such revenue amounts,
respectively.
The Company has, and expects it will continue to benefit from its
area director program, including the commission amounts paid to
area directors, from both accelerated growth and a reduction in
employee costs, travel costs, and other overhead costs the
Company would incur if it were required to perform the area
directors functions.
Advertising and promotion expense decreased $25,684 to $31,057 in
the first quarter of 1997 from $56,741. Advertising and
promotion expense represents national advertising of the
Company's franchise opportunity combined with the costs of
regularly scheduled orientation and discovery days for franchise
and area director candidates.
General and administrative expenses increased 25% to $923,619 in
the first quarter of 1997 from $736,167 in the same quarter last
year. General and administrative expenses include all the
operating costs of the Company. The increase is primarily due to
the addition of employees to service the rapidly growing network
of Quizno's franchises and area directors. Although general and
administrative expenses will likely continue to increase as the
Company grows, management expects the rate of increase to
decline.
The Company believes its general and administrative expenses are
adequate and are not in excessive in relation to the size and
growth of the Company.
Sales by Company owned stores decreased 2.4% in the first quarter
of 1997 to $612,740 from $627,992 in the first quarter of 1996.
During the first quarter of 1997 the Company operated 7 stores
for the full 3 months, a total of 21 store operating months. In
the first quarter of 1996, the Company also had a total of 21
store operating months. During the first quarter of 1997, the
Company earned a profit of $966 at Company stores compared to a
profit of $9,567 in the same quarter last year. At March 31,
1997, the Company had eight operating Company stores plus one
store which operates only during baseball season.
Research and development was $17,829 in the first quarter of 1997
compared to $0 in the same quarter last year. Research and
development are costs incurred to research, test, and evaluate
new
concepts, products and menu items. The Company established a
full time research and development function in the fourth quarter
of 1996.
Sales by stores held for resale increased to $74,002 in the first
quarter of 1997 compared to $16,946 in the same quarter last
year. In the first quarter of 1997, the Company operated two
stores held for resale, one store which was sold to franchisee in
April of 1997 and one which is offered for sale.
The Company has in the past and may continue in the future to
acquire or takeover franchised stores from franchisees who have
been unable to operate successfully for reasons unrelated to the
location or the market. In such cases, the Company will
typically operate the restaurant, make any required improvements
and repairs, re-staff, begin local store marketing, and
ultimately transfer the restaurant to a new qualified franchisee.
Occasionally the Company may in the future, as it has in the
past, incur short term operating losses in cases where it takes
over and remarkets a franchised store. However, the royalties
paid over the long term by the new franchisee will normally
offset or exceed such losses.
Expenses related to stores held for resale increased to $98,542
in the first quarter of 1997 compared to $30,529 in the same
quarter of last year. The expense includes costs of sales,
labor, and other operating costs incurred at stores temporarily
held and operated by the Company.
Liquidity and Capital Resources
Net cash provided by operating activities was $145,600 in the
first quarter of 1997 compared to cash used by investing
activities of $356,089 in the same quarter of last year.
Cash used by investing activities for both quarters was primarily
related to the acquisition or development of Company owned stores
and the purchase of property and equipment.
Net cash used in financing activities was $506,831 in the first
quarter of 1997 compared to cash used in financing activities of
$114,779 in the same quarter last year. Debt was reduced by
$482,239 in the first quarter of 1997 compared to $105,544 in the
same quarter last year.
On December 31, 1996, the Company completed a debt financing for
$2 million. The loan is payable interest only at 12.75%, $21,250
per month, through June 1998, interest and principal payments of
$45,251 from July 1998 through November 2001, and a final balloon
payments of $783,060 on December 31, 2001. Any outstanding
balance on the loan is due in full if the Company has a secondary
public offering of its stock. In connection with the loan, the
lender has the right to purchase 372,847 shares of the Company's
common stock for $3.10 per share.
The proceeds of the loan are directed to be used $1,150,000 for a
"turn key" development program, or a similar program resulting in
the opening of additional Quizno's units, $400,564 to pay off
existing debt outstanding at December 31, 1996, $80,000 for costs
related to the financing, and $369,436 available for working
capital.
The "turn key" program commenced in 1997 with the first such
units scheduled to open in June, 1997. Under the turn key
program, funds will be used to procure, secure and develop new
locations which, upon completion, will be sold to franchisees.
The franchisee will reimburse the Company in full 100% of its
development costs, plus pay a franchise fee of $20,000 and a
development fee of $10,000. It is expected that franchisees will
be able to borrow up to 70% of this amount from traditional small
business lenders, and the remaining 30% will be the cash equity
provided by the franchisee.
The lender has agreed to subordinate its security interests to
other lenders, including a line of credit lender, for amounts up
to a total of $700,000. At March 31, 1997, the Company had
$214,467 of such "senior" debt outstanding, thus leaving another
$485,533 available. The Company intends to arrange a working
capital line of credit for this amount.
The working capital portion of the proceeds of the loan is
unrestricted and may be used by the Company as required.
In April of 1997, the Company purchased three submarine sandwich
shop restaurants in Seattle, Washington from a competitor for a
cash payment of $70,000 and the assumption of debt for $15,000.
The competitor has the right to repurchase the restaurants by
paying the Company $70,000 prior to May 16, 1997. If the
restaurants are not repurchased, the Company plans to remodel
these stores to meet Quizno's standards and specifications, and
then sell the stores to franchisees. The remodeling costs are
expected to cost a total of approximately $120,000.
In April of 1997, the Company entered into a letter of intent to
purchase two Quizno's restaurants in Denver, Colorado from a
franchisee. The total purchase price is $204,000 to be paid
$40,000 in cash, $44,000 in a promissory note due the seller, and
$120,000 in the Company's common stock.
Other than the above, the Company does not have any commitments
or contract to build, acquire, or sell any additional Company
owned stores.
The Company's restaurant sales, and therefore royalties, during
the months of November through February are generally lower due
to the location of most of its restaurants.
Forward-Looking Statements
Certain of the information discussed in this annual report, and
in particular in this section entitled "Management's Discussion
and Analysis of Plan of Operations," are forward-looking
statements that involve risks and uncertainties that might
adversely affect the Company's operating results in the future in
a material way. Such risks and uncertainties include, without
limitation, the effect of national and regional economic and
market conditions, costs of labor and employee benefits, costs of
marketing, costs of food and non-food items used in the operation
of the Restaurants, intensity of competition for locations as
well as customers, perception of food safety, legal claims, and
the availability of financing for the Company and its
franchisees. Many of these risk are beyond the control of the
Company. In addition, specific reference is made to the "Risk
Factors' contained in the Company's Prospectus, dated February 1,
1994, included in the Registration Statement filed by the Company
in connection with its initial public offering (Registration No.
33-72378-D)".
As described earlier, the Company's principal sources of income
are royalty fees, initial franchise fees, and area director
marketing fees. These sources are subject to a variety of
factors that could adversely impact the profitability of the
Company in the future, including those mentioned in the preceding
paragraph. The continued strength of the U.S. economy is a key
factor in the restaurant business because consumers tend to
immediately reduce their discretionary purchases in economically
difficult times. An economic downturn would adversely affect all
three of the above identified sources of income. Because of the
Company's franchises are still concentrated in a few regional of
the U.S., regional economic factors could adversely affect the
Company's profitability. Weather, particularly severe winter
weather, will adversely affect royalty income and could affect
the other sources cited above. Culinary fashions among Americans
will also impact the Company's profitability. As eating habits
change and types of cuisine move in and out of fashion, the
Company's challenge will be to formulate a menu within the
Company's distinctive culinary style that appeals to an
increasing market share. Finally, the intense competition in the
restaurant industry continues to challenge participants in all
segments of this industry.
THE QUIZNO'S CORPORATION
Commission File Number: 000-23174
Quarter Ended March 31, 1997
Form 10-QSB
PART II OTHER INFORMATION
Item 1. Legal Proceedings
None.
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 on Form 8-K
April 22, 1997 Press release regarding 1996
operating results
January 21, 1997 Press release regarding
financing agreement
THE QUIZNO'S CORPORATION
Commission File Number: 000-23174
Quarter Ended March 31, 1997
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
May 14, 1997
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