UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported)
November 16, 1999
THE QUIZNO'S CORPORATION
(Exact name of registrant as specified in its charter)
COLORADO 000-23174 84-1169286
- -------------------- ----------------------- --------------------
(State or other (Commission File Number (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
1415 Larimer Street
DENVER, COLORADO 80202
----------------------
(Address of principal executive offices)
(303) 291-0999
(Registrant's telephone number, including area code)
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) The registrant is filing the required financial statements in connection
with its acquisition of certain assets of ASI-DIA, L.P. on November 16,
1999 on this amendment to Form 8-K.
(b) The registrant is also filing the required pro forma information in
connection with the acquisition described in Item 7a above on this
amendment to Form 8-K.
<PAGE>
SIGNATURES
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 hereunto duly authorized.
THE QUIZNO'S CORPORATION
DATE: JANUARY 21, 2000 BY:/S/ JOHN L. GALLIVAN
--------------------
John L. Gallivan
Chief Financial Officer
<PAGE>
ASI-DIA, L.P.
TABLE OF CONTENTS
PAGE
----
Independent Auditors' Report.............................................F - 1
Financial Statements
Balance Sheets......................................................F - 2
Statements of Operations............................................F - 3
Statements of Cash Flows............................................F - 4
Notes to Financial Statements............................................F - 5
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Partners
ASI-DIA, L.P.
Denver, Colorado
We have audited the accompanying balance sheet of ASI-DIA, L.P. as of December
31, 1998, and the related statements of operations, stockholders' equity, and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ASI-DIA, L.P. at December 31,
1998 and the results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.
/s/Ehrhardt Keefe Steiner & Hottman PC
Ehrhardt Keefe Steiner & Hottman PC
October 28, 1999
Denver, Colorado
<PAGE>
ASI-DIA, L.P.
BALANCE SHEETS
September 30,
December 31, ---------------------------
1998 1998 1999
------------ ------------ ------------
ASSETS (NOTE 6) (Unaudited)
Current assets
Cash ........................ $ 66,802 $ 80,737 $ 227,562
Accounts receivable, net of
allowance of $10,747
(Note 3) 55,442 64,971 116,024
Inventories ................. 55,524 48,721 54,980
Prepaid expenses ............ 13,662 260,655 28,653
----------- ----------- -----------
Total current assets ...... 191,430 455,084 427,219
----------- ----------- -----------
Property and equipment (Note 4) 1,221,970 864,737 1,190,798
----------- ----------- -----------
Other assets
Intangible assets, net ...... 176,136 43,749 144,059
Other assets ................ 60,402 60,402 --
----------- ----------- -----------
Total other assets ........ 236,538 104,151 144,059
----------- ----------- -----------
Total assets .................. $ 1,649,938 $ 1,423,972 $ 1,762,076
=========== =========== ===========
LIABILITIES AND PARTNERSHIP
CAPITAL
Current liabilities
Accounts payable ............ $ 135,789 $ 111,670 $ 162,352
Accrued liabilities ......... 167,109 109,687 120,850
Current portion of capital
lease obligations (Note 5) . 11,313 207,717 308,715
Current maturities of
long-term debt (Note 6)..... 152,672 120,389 80,325
Line-of-credit (Note 6) ..... 135,000 -- --
Current portion of deferred
rent (Note 5) 55,000 41,565 46,926
Income taxes payable ........ 35,000 23,082 33,068
----------- ----------- -----------
Total current liabilities . 691,883 614,110 752,236
Capital lease obligations
(Note 5) ..................... 24,160 -- --
Long-term debt (Note 6) ....... 370,313 292,009 194,833
Other liabilities (Note 2) .... 1,639 72,139 3,249
Deferred rent (Note 5) ........ 245,485 185,520 209,449
----------- ----------- -----------
Total liabilities ......... 1,333,480 1,163,778 1,159,767
----------- ----------- -----------
Commitments and contingencies
(Notes 5 and 8)
Partnership capital (Note 7)
General partner ............. (205,567) (243,545) 30,009
Limited partners ............ 522,025 503,739 572,300
----------- ----------- -----------
Total partnership capital . 316,458 260,194 602,309
----------- ----------- -----------
Total liabilities and
partnership capital ......... $ 1,649,938 $ 1,423,972 $ 1,762,076
=========== =========== ===========
See notes to financial statements.
F - 2
<PAGE>
ASI-DIA, L.P.
STATEMENTS OF OPERATIONS
For the Nine Months Ended
September 30,
December 31, --------------------------
1998 1998 1999
----------- ----------- -----------
(Unaudited)
Revenues
Food and beverage sales ......... $2,736,966 $1,952,297 $3,028,034
Contract income, net ............ 49,517 46,109 26,412
Catering sales and other ........ 25,520 16,519 14,217
---------- ---------- ----------
Total revenues ................. 2,812,003 2,014,925 3,068,663
Cost of sales ..................... 683,500 489,212 725,717
---------- ---------- ----------
Gross profit ...................... 2,128,503 1,525,713 2,342,946
Operating expenses ................ 1,817,319 1,289,306 1,852,425
---------- ---------- ----------
Income from operations ............ 311,184 236,407 490,521
Interest expense .................. 63,903 45,389 44,202
---------- ---------- ----------
Net income ........................ $ 247,281 $ 191,018 $ 446,319
========== ========== ==========
See notes to financial statements.
F - 3
<PAGE>
ASI-DIA, L.P.
STATEMENTS OF CASH FLOWS
For the Nine Months
Ended
September 30
December 31, -----------------------
1998 1998 1999
----------- ---------- ----------
(Unaudited)
Cash flows from operating
activities
Net income ......................... $ 247,281 $ 191,018 $ 446,319
--------- --------- ---------
Adjustments to reconcile net
income to net cash provided
by (used in) operating activities
Depreciation and amortization 82,054 53,604 101,816
Allowance for doubtful accounts.... 10,747
Changes in assets and liabilities
Accounts receivable .............. 20,341 21,559 (49,834)
Inventory ........................ (8,336) (1,533) 544
Prepaids ......................... (5,721) (254,226) (19,402)
Accounts payable ................. 43,771 19,652 27,706
Accrued expenses ................. 24,845 (32,581) (46,257)
Income taxes payable ............. (7,930) (19,848) (1,932)
Other liabilities ................ (4,002) -- --
--------- --------- ---------
155,769 (213,373) 12,641
--------- --------- ---------
Net cash provided by (ised in)
operating activities............ 403,050 (22,355) 458,960
--------- --------- ---------
Cash flows from investing activities
Purchase of property and equipment.. (410,544) (11,714) (35,302)
Proceeds from sale of property
and equipment...................... 22,405 -- --
Distributions to Partners .......... (20,000) (20,000) (171,215)
Acquisition of intangible assets.... (126,524) (2,042) --
Release of portion of rent
guarantee bond service... ......... 41,730 60,404 60,402
--------- --------- ---------
Net cash (used in) provided by
investing activities............ (492,933) 26,648 (146,115)
--------- --------- ---------
Cash flows from financing activities
Proceeds from long-term debt ....... 35,473 79,173 2,611
Repayment of long-term debt ........ (168,544) (137,588) (123,089)
Net proceeds (borrowings) on
line-of-credit..................... 135,000 (15,000) 12,500
Additions to deferred rents, net
of repayments of 20,723 ........... 64,996 60,099 (44,107)
--------- --------- ---------
Net cash provided by (used in)
financing.......... ............ 66,925 (13,316) (152,085)
--------- --------- ---------
Net change in cash ................... (22,958) (9,023) 160,760
Cash at beginning of period .......... 89,760 89,760 66,802
--------- --------- ---------
Cash at end of period ................ $ 66,802 $ 80,737 $ 227,562
========= ========= =========
Supplemental disclosure of cash flow information
Cash paid for interest for the year ended December 31, 1998 and the nine months
ended September 30, 1998 and 1999, was $63,903, $45,389 and $44,202,
respectively.
See notes to financial statements.
F - 4
<PAGE>
ASI-DIA, L.P.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------
Organization
- ------------
ASI-DIA, L.P. ("ASI-DIA" or "the Company") is a Colorado Limited Partnership
that operates food and beverage operations at Denver International Airport
("DIA"). Food service operations are operated as franchised Quizno's Classic Sub
restaurants. The Company also OPERATES A BROTHERS GOURMET COFFEE BAR AND
OPERATES THE WWW.COWBOY Bar in the airport, which opened in October 1998.
Cash and Cash Equivalents
- -------------------------
The Company considers all highly liquid investments and debt instruments with
original maturities of three months or less to be cash equivalents.
Inventories
- -----------
Inventories are valued at the lower of first-in, first-out cost or market value.
Inventories consist of food and liquor products at the Company restaurant
locations and smallwares including glassware and other utensils.
Depreciation and Amortization
- -----------------------------
Depreciation and amortization of property and equipment are provided using both
the straight line and accelerated methods over the estimated useful lives of the
assets. Leasehold improvements are amortized using the straight line method over
31 to 39 years. All other assets are depreciated using accelerated methods of
depreciation over three to seven years. Amortization of initial franchise fees
are provided on the straight line basis over the term of corresponding lease
agreements. Certain bank loan fees and pre-opening expenses are amortized over a
term of five years.
Income Taxes
- ------------
No income tax provision has been included in the financial statements since
income or loss of the Partnership is required to be reported by the partners on
their respective income tax returns.
Intangible Assets
- -----------------
Intangibles are recorded at cost and are amortized on the straight-line basis
over the contractual or estimated useful lives as follows:
Franchise agreements 12 years
Trademarks and other intangibles 3-15 years
F - 5
<PAGE>
ASI-DIA, L.P.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- --------------------------------------------------------------------------------
Intangible Assets (continued)
- ----------------------------
Franchise agreements represent the cost associated with becoming a Quizno's
Classic Sub Restaurant franchisee.
Advertising Costs
- -----------------
Advertising costs, which totaled $42,994 for the year ended December 31, 1998
were expensed as incurred.
Fair Value of Financial Instruments
- -----------------------------------
The carrying amounts of financial instruments including cash, receivables,
accounts payable and accrued liabilities approximate their fair values as of
December 31, 1998 because of the relatively short maturity of these instruments.
The carrying amount of the note payable outstanding approximates its fair value
as of December 31, 1998 because the interest rate approximates the interest rate
on debt with similar terms available to the Company.
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 report amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
NOTE 2 - RELATED PARTY TRANSACTIONS
- -----------------------------------
The general partner of ASI-DIA is Airport Services, Inc. ("ASI"), the
predecessor operator from May 1993 until January 1, 1996. Effective January 1,
1996, the net assets of ASI were transferred to the partnership for a 67.5%
interest. ASI-DIA has a continuing management contract with Airport Services to
provide employment services for ASI-DIA operations. Under this agreement, ASI is
responsible for providing all employees who worked at ASI-DIA's operations and
for the payment of wages and related taxes. ASI receives compensation equal in
amount to the gross payroll of these employees and all related tax costs. Other
than income from its partnership interest in the profit and losses of ASI-DIA
and its management contract with ASI-DIA, ASI has no other operations or sources
of income. During 1998, ASI-DIA paid $980,666 to ASI as compensation under its
management agreement.
F - 6
<PAGE>
ASI-DIA, L.P.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - RELATED PARTY TRANSACTIONS (CONTINUED)
- ----------------------------------------------
Certain compensation for an officer of the general partner was deferred in prior
years. The remaining balance due to that officer was approximately $1,600 at
December 31, 1998 and is included on the balance sheet as other liabilities.
During the year ended December 31, 1998, $4,000 was repaid to the officer.
NOTE 3 - ACCOUNTS RECEIVABLE
- ----------------------------
Accounts receivable consists primarily of amounts due from various national and
regional airlines for passenger vouchers issued for redemption at the Company's
food service operations. Other receivables include amounts due for catering
services, office expense sharing, credit cards and other miscellaneous
non-recurring transactions.
NOTE 4 - PROPERTY AND EQUIPMENT
- -------------------------------
December 31,
1998
-----------
Leasehold improvements ........... $ 1,158,256
Restaurant machinery and equipment 424,258
Signs ............................ 9,340
Office equipment ................. 41,121
Vehicles ......................... 3,967
-----------
1,636,942
Accumulated depreciation ......... (414,972)
-----------
Property and equipment, net ...... $ 1,221,970
===========
Included in property and equipment are capitalized equipment leases in the
amount of $38,240 (net of accumulated amortization of $1,643).
F - 7
<PAGE>
ASI-DIA, L.P.
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - LEASES
- ---------------
The Company is the prime lessee under operating leases for its food and beverage
operations and storage space at DIA. The leases have initial terms ranging from
five to ten years and expire in 2000 through 2005 for operations space and 2000
through 2004 for related storage spaces. The Company has options to renew these
leases and is currently in the process of exercising those options. When
exercised, the terms will be extended to 2004 and 2005 for all leased space. The
lease agreements provide for monthly minimum rentals of $14,597 on "A"
concourse, $5,297 on the "B" concourse, $6,151 FOR THE WWW.COWBOY Bar, and
$1,247 for storage spaces. The leases for its operating space provide for
additional rent equal to a percentage of food and liquor sales in excess of
minimum amounts. The Company is responsible for taxes and insurance on
improvements to the concession space and any equipment located thereon. The
Company is also obligated under office, auto and storage leases with terms from
one to three years at minimum monthly rentals of $1,300.
The Company is obligated under certain equipment leases which have been
capitalized. These leases have terms from two to three years and have minimum
purchase options at expiration. Implicit interest rates range from 10.1% to
14.4%.
As part of certain rent relief provisions granted to the Company during 1995,
the minimum and/or portions of the required percentage rentals due under the
lease agreements for all the Company's airport operations were deferred or
waived. The balance at December 31, 1998 of deferred rent amounted to $300,485.
Monthly payments ranging from $6,014 to $2,861 in later years, are required for
periods coincidental with the remaining terms (including option periods) of the
Company's operating leases at Denver International Airport.
The minimum future lease payments under the Company's capital and operating
lease arrangements (including option periods currently being extended) and its
obligations under repayment terms for deferred rent are as follows:
Minimum Deferred Capital
December 31, Rentals Rent Leases
------------ ----------- ----------- -----------
1999 .................... $ 326,658 $ 54,996 $ 17,115
2000 .................... 326,658 47,780 14,530
2001 .................... 326,658 47,124 10,021
2002 .................... 326,658 47,124 --
2003 .................... 271,139 38,544 --
Thereafter .............. 480,207 64,917 --
----------- ----------- -----------
Total minimum payments .. $ 2,057,978 300,485 41,666
===========
Less amount representing
interest ............... -- (6,193)
----------- -----------
Present value of minimum
lease payments.......... 300,485 35,473
Current maturities ...... (55,000) (11,313)
----------- -----------
Capital lease obligations $ 245,485 $ 24,160
=========== ===========
F - 8
<PAGE>
ASI-DIA, L.P.
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - LEASES (CONTINUED)
- ---------------------------
Net rental expense consists of the following for the year ended December 31,
1998:
Minimum rentals $260,917
Contingent rentals 188,234
--------
Total rental expense $449,151
========
NOTE 6 - LONG-TERM DEBT
- -----------------------
Long-term debt consists of the following:
December 31,
1998
------------
Bank loan guaranteed by the Small Business Administration
with interest at 10%, monthly principal payments of $6,250,
due June 2002, collateralized by all assets of the Company
and personally guaranteed by the President of the general
partner and the Secretary of the general partner. $ 266,673
Bank loan guaranteed by the Small Business Administration
with interest at 10%, monthly principal payments of $2,500,
due March 2002, collateralized by all assets of the Company
and personally guaranteed by the President of the general
partner and the Secretary of the general partner. 97,500
Loan payable to the City and County of Denver, a municipal
corporation of the State of Colorado, with interest at 5%
per annum, monthly payments of $4,319 including interest,
due May 2002, collateralized by all assets of the Company
located upon or used in connection with operations at DIA
and personally guaranteed by the President of the general
partner. 158,812
---------
522,985
Current maturities (152,672)
---------
$ 370,313
=========
F - 9
<PAGE>
ASI-DIA, L.P.
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - LONG-TERM DEBT (CONTINUED)
- -----------------------------------
The Company has a revolving line-of-credit in the amount of $250,000. The
line-of-credit is due June 1999, bears interest at the bank prime rate plus .5%,
and is collateralized by all tangible personal property of the Company and its
accounts receivable. The note requires monthly interest payments with the entire
principal advanced due at maturity. At December 31, 1998, $135,000 had been
advanced under the line-of-credit.
The Company has placed a letter-of-credit totaling $60,402 to secure certain
performance bonds required under its lease agreements with DIA. To secure this
letter-of-credit, the Company has provided the issuing bank a certificate of
deposit in the amount of $60,402 as collateral. This certificate of deposit is
reflected on the Balance Sheets as "Rent Guarantee Bond Reserve" with interest
payable to the Company at 5 1/4% per annum and maturing in April 1999. The
Company has also issued a letter-of-credit in connection with certain litigation
in the amount of $3,000. This letter-of-credit has been issued without
collateral.
At December 31, 1998, the principal amounts of long-term debt due during each of
the four succeeding years (excluding Capital Leases which are included with
lease obligations in Note 5) were $152,672, $152,199, $154,614, and $63,500,
respectively.
The Company incurred interest of $63,903 for the year ended December 31, 1998,
all of which was expensed and none of which was capitalized.
NOTE 7 - PARTNERSHIP CAPITAL
- ----------------------------
ASI-DIA is a Colorado Limited Partnership. The partnership interests contributed
effective as of January 1, 1996 were the net assets of ASI by the general
partner and cash by the limited partners.
The following table summarizes changes in partnership capital for the year ended
December 31, 1998:
The
General Limited Partnership
Partner Partners Capital
--------- --------- ----------
Balance at December 31, 1997 ...... $(366,481) $ 455,658 $ 89,177
Distributions to Partners.... (6,000) (14,000) (20,000)
Net income................... 166,914 80,367 247,281
--------- --------- ---------
Balance at December 31, 1998 ...... $(205,567) $ 522,025 $ 316,458
========= ========= =========
F - 10
<PAGE>
ASI-DIA, L.P.
NOTES TO FINANCIAL STATEMENTS
NOTE 8 - CONTINGENCIES AND COMMITMENTS
- --------------------------------------
The Company is a party to certain litigation instituted by a group of DIA
concessionaires against the City and County of Denver ("the City") over the
requirement to provide audited sales information under their lease agreements
with the City. In connection with that litigation, the City has prevailed in a
lower court decision and that decision is now under appeal. The Company has
posted a $3,000 letter-of-credit in connection with the appeal. The potential
contingency in connection with this litigation is the cost of providing such
audited sales results and is not considered material to the Company's ongoing
operations.
In connection with its acquisition of the lease space at DIA for its WWW.COWBOY
Bar operation in 1998, the Company entered into an agreement with the former
lessee regarding the assignment of that lease agreement. As part of that
agreement, the Company committed to provide 20% of the earnings before interest,
taxes, depreciation and amortization from the operation of the Cowboy Bar, to
the former lessee in an amount totaling $108,914, which represents the former
lessee's depreciated value of invested costs. This payment would begin after the
Company recovers its out-of-pocket investment in the location, together with an
annual interest factor of 10%. It is not determinable at this date whether the
Company will ever be required to perform under that portion of the agreement and
no provision has been provided in the financial statements for this contingent
liability.
F - 11
<PAGE>
UNAUDITED PRO FORMA COMBINED
INCOME (LOSS) AND UNAUDITED PRO FORMA
COMBINED BALANCE SHEETS
The following unaudited pro forma combined statements of income (loss) for the
year ended December 31, 1998 and the nine month period ended September 30, 1999
and the unaudited pro forma combined balance sheet as of September 30, 1999 give
effect to The Quizno's Corporation and Subsidiary's purchase of certain assets
of ASI-DIA, L.P. effective November 16, 1999, including the related pro forma
adjustments described in the note thereto. The unaudited pro forma statements of
income (loss) have been prepared as if the proposed transactions occurred on
January 1, 1998. The unaudited pro forma balance sheet has been prepared as if
the proposed transactions occurred September 30, 1999. These pro forma
statements are not necessarily indicative of the results of operations or the
financial positions as they may be in the future or as they might have been had
the transaction become effective on the above mentioned date.
The unaudited pro forma combined statement of income (loss) for the year ended
December 31, 1998 and the nine month period ended September 30, 1999 includes
the results of operation of The Quizno's Corporation and Subsidiary and ASI-DIA,
L.P.
The unaudited pro forma combined statements of operations and the unaudited pro
forma combined balance sheets should be read in conjunction with the separate
historical financial statements and notes thereto of The Quizno's Corporation
and Subsidiary and ASI-DIA, L.P.
F - 12
<PAGE>
Notes to Unaudited Pro Forma Combined Financial Statements
The following notes and adjustments are related to the Quizno's Corporation and
Subsidiary's (Quiznos) purchase of certain assets of ASI-DIA, L.P.
1. This entry records the acquisition of ASI-DIA assets for $4,875,000 in
exchange for cash. The purchase price has been allocated as follows:
Assets Category Valuation
----------
Property and equipment $1,700,000
Intangible assets 3,175,000
----------
$4,875,000
==========
2. This entry eliminates assets, liabilities and stock not acquired by Quiznos.
3. This entry records debt incurred by the Quizno's Corporation to complete this
transaction.
4. This entry eliminates expenses related to assets and liabilities which were
not purchased or assumed as part of this acquisition.
5. This entry records depreciation and amortization on fixed assets and
intangibles acquired. Fixed assets are depreciated over seven years and
goodwill is amortized over fifteen years.
6. This entry records interest expense on the debt incurred by Quizno's
Corporation at 10.1% per annum.
7. Pro forma income tax adjustment calculated to reflect a flat 35% effective
tax rate for 1998 and 1999.
F - 13
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET AS OF SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Pro Form Adjustments
The Quizno's -------------------------------------
Corporation ASI-DIA Total Debit Credit Combined
------------- ------------ ------------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash
equivalents ........ $ 626,828 $ 227,562 $ 854,390 $ 4,875,000 (3) $ (4,875,000) (1) $ 626,828
(227,562) (2)
Short term
investments ........ 4,263,877 -- 4,263,877 -- -- 4,263,877
Accounts receivable,
net ................ 1,047,438 116,024 1,163,462 -- (116,024) (2) 1,047,438
Inventory ........... -- 54,980 54,980 -- (54,980) (2) --
Current portion of
notes receivable.... 519,994 -- 519,994 -- -- 519,994
Deferred tax asset .. 128,718 128,718 128,718
Other current assets 373,578 28,653 402,231 -- (28,653) (2) 373,578
Assets of stores
held for resale..... 1,082,310 -- 1,082,310 -- -- 1,082,310
------------ ------------ ------------ ------------ ------------ ------------
Total current
assets ........... 8,042,743 427,219 8,469,962 4,875,000 (5,302,219) 8,042,743
------------ ------------ ------------ ------------ ------------ ------------
Property and equipment
at cost, net.......... 4,804,051 1,190,798 5,994,849 1,700,000 (1) (1,190,798) 6,504,051
------------ ------------ ------------ ------------ ------------ ------------
Other assets
Intangible assets,
net ................ 1,662,265 144,059 1,806,324 3,175,000 (1) (144,059) (2) 4,837,265
Other deferred
assets ............. 1,726,984 -- 1,726,984 -- -- 1,726,984
Deferred tax asset .. 3,507,213 3,507,213 3,507,213
Deposits and
other assets ....... 361,189 -- 361,189 -- -- 361,189
Notes redeivable,
net................. 1,670,329 -- 1,670,329 -- -- 1,670,329
------------ ------------ ------------ ------------ ------------ ------------
Total other assets 8,927,980 144,059 9,072,039 3,175,000 (144,059) 12,102,980
------------ ------------ ------------ ------------ ------------ ------------
Total assets .......... $ 21,774,774 $ 1,762,076 $ 23,536,850 $ 9,750,000 (6,637,076) $ 26,649,774
============ ============ ============ ============ ============ ============
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable .... $ 1,219,157 $ 162,352 $ 1,381,509 $ 162,352 (2) $ -- $ 1,219,157
Accrued liabilities . 544,476 120,850 665,326 120,850 -- 544,476
Current portion of
long-term
obligations ....... 337,642 33,068 370,710 33,068 (2) -- 337,642
Current portion of
subordinated debt... 218,546 -- 218,546 -- -- 218,546
Income taxes payable. 851,469 308,715 1,160,184 308,715 (2) -- (3) 851,469
------------ ------------ ------------ ------------ ------------ ------------
Total current
liabilities ..... 3,171,290 624,985 3,796,275 624,985 3,171,290
------------ ------------ ------------ ------------ ------------ ------------
Long term obligations . 1,268,504 278,407 1,546,911 278,407 (2) (4,875,000) (3) 6,143,504
Convertible subordinated
debt ................. 1,498,791 -- 1,498,791 -- -- 1,498,791
Deferred revenue ...... 13,722,331 -- 13,722,331 -- -- 13,722,331
Other long-term
liabilities.. ........ -- 256,375 256,375 256,375 (2) -- --
------------ ------------ ------------ ------------ ------------ ------------
Total liabilities. 19,660,916 1,159,767 20,820,683 1,159,767 (4,875,000) 24,535,916
------------ ------------ ------------ ------------ ------------ ------------
Minority interest...... -- -- -- -- -- --
Stockholders' equity
Preferred stock
Series A ........... 146 -- 146 -- -- 146
Series B ........... -- -- -- -- -- --
Series C ........... 167 -- 167 -- -- 167
Common stock ........ 3,074 -- 3,074 -- -- 3,074
Capital in excess
of par value ....... 4,485,949 -- 4,485,949 -- -- 4,485,949
Accumulated deficit.. (2,375,478) -- (2,375,478) -- -- (2,375,478)
Partnership capital.. -- 602,309 602,309 602,309 -- --
------------ ------------ ----------- ----------- ------------ -----------
Total
stockholders'
equity............ 2,113,858 602,309 2,716,167 602,309 -- 2,113,858
------------ ------------ ----------- ----------- ------------ -----------
Total liabilities
and shareholders'
equity................ $ 21,774,774 $ 1,762,076 $23,536,850 $ 1,762,076 $ (4,875,000) $26,649,774
============ ============ =========== =========== ============ ===========
</TABLE>
F - 14
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME (LOSS)
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Pro Forma Adjustments
The Quizno's ----------------------------------
Corporation ASI-DIA Total Debit Credit Combined
------------ ----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Franchise operations
Continuing fees ....... $ 5,836,822 $ -- $ 5,836,822 $ -- $ -- $ 5,836,822
Initial franchise
fees ................. 2,883,650 -- 2,883,650 -- -- 2,883,650
Area director
marketing fees ....... 3,022,276 -- 3,022,276 -- -- 3,022,276
Other ................. 604,172 -- 604,172 -- -- 604,172
Interest .............. 259,193 -- 259,193 -- -- 259,193
------------ ------------ ------------ ------------ ------------ ------------
Total revenue ........ 12,606,113 -- 12,606,113 -- -- 12,606,113
------------ ------------ ------------ ------------ ------------ ------------
Expenses
Sales and royalty
commissions .......... (4,266,024) -- (4,266,024) -- -- (4,266,024)
Advertising and
promotion ............ (191,755) -- (191,755) -- -- (191,755)
General and
administrative........ (6,201,857) (6,201,857) (6,201,857)
------------ ------------ ------------ ------------ ------------ -----------
Total expenses ....... (10,659,636) (10,659,636) (10,659,636)
------------ ------------ ------------ ------------ ------------ -----------
Net income from
franchise operations ... 1,946,477 -- 1,946,477 -- -- 1,946,477
------------ ------------ ------------ ------------ ------------ -----------
Company store operations
Sales by Company
owned stores ......... 6,848,737 2,812,003 9,660,740 -- -- 9,660,740
------------ ------------ ------------ ------------ ------------ -----------
Expenses
Cost of sales at
Company stores ....... (2,042,092) (683,500) (2,725,592) -- -- (2,725,592)
Cost of labor at
Company stores ....... (1,683,225) (738,491) (2,421,716) -- -- (2,421,716)
Other Company
store expenses......... (2,562,540) (996,774) (3,559,314) -- -- (3,559,314)
------------ ------------ ------------ ------------ ------------ -----------
Total expenses ....... (6,287,857) (2,418,765) (8,706,622) -- -- (8,706,622)
------------ ------------ ------------ ------------ ------------ -----------
Net income from
Company stores ......... 560,880 393,238 954,118 -- -- 954,118
Other income (expense)
Research & development
and new programs
Other
Sales by stores
held for resale ...... 1,281,904 -- 1,281,904 -- -- 1,281,904
Loss and expenses
related to stores
held for resale ...... (1,541,957) -- (1,541,957) -- -- (1,541,957)
Loss on sale or
closure of Company
stores ............... (47,505) -- (47,505) -- -- (47,505)
Provision for bad
debts ................ (285,308) -- (285,308) -- -- (285,308)
Other expenses ........ (47,838) -- (47,838) -- -- (47,838)
Depreciation
and amortization ..... (781,977) (82,054) (864,031) (454,524)(5) 82,054 (4) (1,236,501)
Interest expense ...... (340,614) (63,903) (404,517) (492,375)(6) 63,903 (4) (832,989)
----------- ------------ ----------- ------------- ------------ -----------
Total other expense .. (1,763,295) (145,957) (1,909,252) (946,899) 145,957 (2,710,194)
Net income (loss)
before income taxes..... 744,062 247,281 991,343 (946,899) 145,957 190,401
Income tax benefit
(provision) ............ 368,553 -- 368,553 (435,193)(7) -- (66,640)
----------- ------------ ----------- ------------- ------------ -----------
Net income (loss) ....... 1,112,615 247,281 1,359,896 (1,382,092) 145,957 123,761
Preferred stock dividends (220,890) -- (220,890) -- -- (220,890)
----------- ------------ ----------- ------------- ------------ -----------
Net income (loss)
applicable to common
shareholders ........... 891,725 247,281 1,139,006 $ (1,382,092) $ 145,957 (97,129)
=========== ============ =========== ============= ============ ===========
Diluted net income (loss)
per share of common
stock $ .26 $ (.03)
=========== ===========
Diluted weighted
average common shares
outstanding ............ 3,445,972 3,445,972
=========== ===========
</TABLE>
F - 15
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME (LOSS)
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Pro Forma Adjustments
The Quizno's ----------------------------
Corporation ASI-DIA Total Debit Credit Combined
------------ ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Franchise operations
Continuing fees ............ $ 8,682,783 $ -- $ 8,682,783 $ -- $ -- $ 8,682,783
Initial franchise fees ..... 2,722,959 -- 2,722,959 -- -- 2,722,959
Area director marketing
fees ...................... 776,523 -- 776,523 -- -- 776,523
Other ...................... 370,374 -- 370,374 -- -- 370,374
Interest ................... 238,790 -- 238,790 -- -- 238,790
------------ ----------- ------------ ------------ ------------ ------------
Total revenue ............. 12,791,429 -- 12,791,429 -- -- 12,791,429
------------ ----------- ------------ ------------ ------------ ------------
Expenses
Sales and royalty
commissions ............... (3,877,691) -- (3,877,691) -- -- (3,877,691)
Advertising and promotion .. (53,943) -- (53,943) -- -- (53,943)
General and
administrative ............ (6,509,444) -- (6,509,444) (6,509,444)
------------ ------------ ------------ ------------ ------------- ------------
Total expenses ............ (10,441,078) -- (10,441,078) (10,441,078)
------------ ------------ ------------ ------------ ------------- ------------
Net income (loss) from
franchise operations......... 2,350,351 -- 2,350,351 -- -- 2,350,351
------------ ------------ ------------ ------------ ------------- ------------
Company store operations
Sales by Company owned
stores .................... 6,420,563 3,068,663 9,489,226 -- -- 9,489,226
------------ ------------ ------------ ------------ ------------- ------------
Expenses
Cost of sales at Company
stores .................... (1,969,433) (725,717) (2,695,150) -- -- (2,695,150)
Cost of labor at Company
stores .................... (1,747,029) (723,878) (2,470,907) -- -- (2,470,907)
Other Company store
expenses .................. (2,169,465) (1,026,731) (3,196,196) (3,196,196)
------------ ------------ ------------ ------------ ------------- ------------
Total expenses............ (5,885,927) (2,476,326) (8,362,253) (8,362,253)
------------ ------------ ------------ ------------ ------------- ------------
Net income from Company
stores....................... 534,636 592,337 1,126,973 -- -- 1,126,973
------------ ------------ ------------ ------------ ------------- ------------
Other income (expense)
Research & development
and new programs
Other
Sales by stores held for
resale .................... 566,841 -- 566,841 -- -- 566,841
Loss and expenses related
to stores held for sale ... (777,594) -- (777,594) -- -- (777,594)
Loss on sale or closure
of Company stores ......... (80,304) -- (80,304) -- -- (80,304)
Sale of Japan master
franchise ................. 1,168,801 -- 1,168,801 -- -- 1,168,801
Provision for bad debts .... (220,536) -- (220,536) -- -- (220,536)
Other expenses ............. (26,287) -- (26,287) -- -- (26,287)
Depreciation and
amortization .............. (921,300) (101,816) (1,023,116) (340,893) (5) 101,816 (4) (1,262,193)
Privatization costs ........ (265,472) -- (265,472) -- -- (265,472)
Interest expense ........... (240,827) (44,202) (285,029) (433,333) (6) 44,202 (4) (674,160)
------------ ------------ ------------ ------------ ----------- -----------
Total other expense ....... (796,678) (146,018) (942,696) (774,226) 146,018 (1,507,904)
------------ ------------ ------------ ------------ ----------- -----------
Net income (loss) before
income taxes................. 2,088,309 446,319 2,534,628 (774,226) 146,018 1,906,420
Income tax (provision)
Benefit............ ......... (721,688) -- (721,688) -- 54,441 (7) (667,247)
------------ ------------ ------------ ------------ ----------- -----------
Net income (loss) before
preferred dividends and
cumulative effect of
changes in accounting
principle........ .......... 1,366,621 446,319 1,812,940 (774,226) 200,459 1,239,173
Preferred stock dividends...... (124,230) -- (124,230) -- -- (124,230)
------------- ------------- ------------- ------------ ----------- -----------
Net income before
cumulative effect of a
change in accounting princple. 1,242,391 446,319 1,688,710 (774,226) 200,459 1,114,943
Cumulative effect of a change
in accounting principle
(net of taxes)................ (2,769,592) -- (2,769,592) -- -- (2,769,592)
------------ ------------ ------------ ------------ ----------- -----------
Net income (loss) applicable
to common stockholders........ $ (1,527,201) $ 446,319 $ (1,080,882) $ (774,226) $ 200,459 $(1,654,649)
============= ============= ============= ============ =========== ============
Diluted net income (loss)
per share of common
stock......................... $ (.55) $ (.59)
============= ===========
Diluted wighted average
common shares outstanding.... 3,816,549 3,816,549
============= ===========
</TABLE>
F - 16
