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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 1998
Commission File Number: 0-27008
SCHLOTZSKY'S, INC.
(Exact name of registrant as specified in its charter)
Texas 74-2654208
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
203 Colorado Street
Austin, Texas 78701
(address of principal executive offices)
(512) 236-3600
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by the Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days:
YES X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Shares Outstanding at May 1, 1998
Common Stock, no par value 7,391,727
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INDEX
PART I. FINANCIAL INFORMATION Page No.
--------
Item 1. Consolidated Financial Statements
Condensed Consolidated Balance Sheets --
March 31, 1998 and December 31, 1997 2
Condensed Consolidated Statements of
Income -- Three Months Ended
March 31, 1998 and March 31, 1997 3
Condensed Consolidated Statements of
Stockholders' Equity -- Three Months Ended
March 31, 1998 and the year ended December 31, 1997 4
Condensed Consolidated Statements of
Cash Flows -- Three Months Ended
March 31, 1998 and March 31, 1997 5
Notes to Condensed Consolidated
Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SCHLOTZSKY'S, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
Assets
Current assets:
Cash and cash equivalents $23,292,269 $31,254,048
Restricted certificate of deposit 18,000 18,000
Receivable from sales of Turnkey Program
development 6,394,469 6,054,337
Royalties receivable 1,073,205 809,125
Other receivables 5,022,852 2,005,760
Prepaid expenses and other assets 523,588 584,510
Turnkey Program development 8,940,208 6,950,595
Notes receivable, current portion 3,401,133 2,574,588
Notes receivable from related parties, current
portion 50,000 50,000
----------- ------------
Total current assets 48,715,724 50,300,963
Property, equipment and leasehold improvements,
net 10,787,473 9,998,630
Real estate held for sale 1,063,592 1,063,592
Notes receivable, less current portion 1,763,113 1,972,470
Notes receivable from related parties, less
current portion 2,581,444 2,565,399
Investments and advances 1,452,297 1,456,790
Deferred federal income tax asset 786,925 580,460
Intangible assets, net 11,393,739 11,113,213
Other noncurrent assets 469,069 469,069
----------- ------------
Total assets $79,013,376 $79,520,586
----------- ------------
----------- ------------
Liabilities and Stockholder's Equity
Current liabilities:
Current maturities of long-term debt $ 237,795 $ 250,625
Accounts payable 1,128,109 6,002,920
Accrued liabilities 2,526,010 1,457,242
Federal income taxes payable 978,938 27,473
----------- ------------
Total current liabilities 4,870,852 7,738,260
Deferred revenue, net 3,419,612 2,855,380
Long-term debt, less current maturities 1,936,387 1,936,387
----------- ------------
Total liabilities 10,226,851 12,530,027
Commitments and contingencies
Stockholders' equity:
Preferred stock:
Class C--no par value; authorized--1,000,000
shares; issued--none
Common stock, no par value, 30,000,000 shares
authorized, 7,334,416 and 7,383,727 issued and
outstanding at December 31, 1997 and March 31,
1998, respectively 62,695 62,202
Additional paid-in capital 57,117,464 56,664,104
Retained earnings 11,606,366 10,264,253
----------- ------------
Total stockholders' equity 68,786,525 66,990,559
----------- ------------
Total liabilities and stockholders' equity $79,013,376 $79,520,586
----------- ------------
----------- ------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS.
2
SCHLOTZSKY'S, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
--------------------------
MARCH 31, MARCH 31,
1998 1997
------------ ----------
Revenues
Royalties $ 4,259,018 $ 3,277,560
Franchise fees 340,000 352,500
Restaurant sales 1,616,257 1,323,650
Brand contribution 860,316 534,646
Turnkey development 1,125,017 685,490
Other fees and revenue 253,684 160,705
----------- -----------
Total revenues 8,454,292 6,334,551
Expenses
Service Costs:
Royalties 1,620,621 1,202,722
Franchise fees 171,250 180,000
Restaurant Operations:
Cost of sales 534,352 397,729
Labor cost 754,886 529,567
Operating expenses 499,823 398,728
General and administrative 2,915,701 2,010,205
Depreciation and amortization 315,817 249,740
----------- -----------
Total expenses 6,812,450 4,968,691
----------- -----------
Income from operations 1,641,842 1,365,860
Other
Interest income, net 504,281 58,399
----------- -----------
Income before income taxes 2,146,123 1,424,259
Provision for federal and state income taxes 804,010 535,684
----------- -----------
Net Income $ 1,342,113 $ 888,575
----------- -----------
----------- -----------
Income per common share - basic:
Income per common share $.18 $.16
----------- -----------
----------- -----------
Weighted average shares outstanding 7,349,309 5,540,691
----------- -----------
----------- -----------
Income per common share - diluted:
Income per common share $.18 $.16
----------- -----------
----------- -----------
Weighted average shares outstanding 7,616,946 5,667,640
----------- -----------
----------- -----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS.
3
SCHLOTZSKY'S, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
Common Stock
---------------------
Stated Additional Total
Shares Capital Paid-In Retained Stockholders'
Outstanding Amount Capital Earnings Equity
----------- -------- ----------- ------------ ------------
Balance, January 1, 1997 5,539,922 $ 44,257 $ 26,493,165 $ 5,774,599 $ 32,312,021
Public sale of stock 1,731,825 17,318 29,615,201 - - 29,632,519
Options exercised 57,201 572 485,802 40,239 526,613
Warrants exercised 5,468 55 69,936 - - 69,991
Net income - - - - - - 4,449,415 4,449,415
--------- -------- ------------ ------------ ------------
Balance, December 31, 1997 7,334,416 62,202 56,664,104 10,264,253 66,990,559
Options exercised 25,874 259 228,599 - - 228,858
Warrants exercised 23,437 234 224,761 - - 224,995
Net income - - - - - - 1,342,113 1,342,113
--------- -------- ------------ ------------ ------------
Balance, March 31, 1998 7,383,727 $ 62,695 $ 57,117,464 $ 11,606,366 $ 68,786,525
--------- -------- ------------ ------------ ------------
--------- -------- ------------ ------------ ------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THE CONSOLIDATED FINANCIAL STATEMENTS.
4
SCHLOTZSKY'S, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
-----------------------------
MARCH 31, MARCH 31,
1998 1997
------------- ------------
Cash flows provided by/(used for) operating activities $ (6,373,921) $ 2,942,795
Cash flows from investing activities:
Issuance of notes receivable (less collections) (674,610) (535,824)
Acquisition of intangibles (176,148) (653,209)
Purchase of property, equipment and leasehold
improvements (991,078) (820,236)
Other (186,552) (13,458)
------------ ------------
Net cash used for investing activities (2,028,388) (2,022,727)
Cash flows from financing activities:
Proceeds from issuance of long term debt - - 154,361
Principal payments on long term debt (12,830) (111,498)
Proceeds from exercises of options and warrants 453,360 40,000
------------ ------------
Net cash provided by financing activities 440,530 82,863
------------ ------------
Net increase/(decrease) in cash and cash equivalents (7,961,779) 1,002,931
Cash and cash equivalents at beginning of period 31,254,048 5,638,958
------------ ------------
Cash and cash equivalents at end of period $ 23,292,269 $ 6,641,889
------------ ------------
------------ ------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THE CONSOLIDATED FINANCIAL STATEMENTS.
5
SCHLOTZSKY'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 1998
NOTE 1. -- BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments, consisting of normal recurring accruals, considered
necessary for a fair presentation have been included. Operating results for
the three months ended March 31, 1998, are not necessarily indicative of the
results that may be expected for the year ended December 31, 1998. This
information should be read in connection with the consolidated financial
statements and footnotes thereto incorporated by reference in the
Schlotzsky's, Inc. Annual Report on Form 10-K/A for the year ended December
31, 1997.
NOTE 2. -- SIGNIFICANT ACCOUNTING POLICIES
NOTES RECEIVABLE
Schlotzsky's Inc. and its subsidiaries (the "Company") obtains annual
valuations of all Area Developer and Master Licensee promissory notes
receivable from an independent financial services institution. As of
December 31, 1997 and March 31, 1998, the Company had recorded a valuation
allowance of approximately $443,000 and $468,000, respectively, to adjust the
cost basis of the promissory notes to the lower of cost or respective
appraised fair value.
TURNKEY PROGRAM DEVELOPMENT
Under the Turnkey Program, the Company works independently or with an area
developer to identify superior store sites within a territory. The Company
typically purchases or leases a selected site, designs and constructs a
Schlotzsky's Deli restaurant on the site and sells, leases or subleases the
completed store to a franchisee. Where the Company does not sell the
property to a franchisee, the Company sells the improved property, or, in the
case of a leased property, assigns the lease and any sublease, to an
investor. Additionally, the Company may sell the site or assign its earnest
money contract and lease with its franchisee to a third party investor who
then assumes responsibility for developing the store. The Company typically
provides a credit enhancement on the franchisee's lease on leased locations.
Upon sale of the site or assignment of its earnest money contract, the
Company realizes revenue based on the excess of the sales price over its cost
of securing or developing the property if it has provided no credit
enhancement on the lease. When a guaranty exists, the Company defers revenue
and related costs of the site to a date when the guaranty is terminated or
the Company's exposure to loss under the guaranty has passed. The third-party
investor may contract with the Company in a separate agreement to manage
construction of the Schlotzsky's Deli restaurant on the site. The Company
typically charges a construction management fee, plus interim interest on the
Company's monies outstanding during construction. The cost of construction,
interim interest and the management fee are collected upon completion of the
restaurant. The Company believes the Turnkey Program enhances the Company's
ability to recruit qualified franchisees by securing and developing high
profile sites and achieving critical mass for advertising purposes more
quickly in selected markets.
Turnkey Program development is stated at the lower of cost or estimated
net realizable value. Land, site development, building and equipment costs,
including capitalized carrying costs (primarily interest incurred and
property taxes), are accumulated and accounted for on a site specific basis.
Construction costs incurred in connection with the development of properties
are capitalized and accounted for with respect to each project. Generally,
interest incurred and property taxes are capitalized until the related
properties are ready for sale. Thereafter, such costs are charged to expense
as they are incurred.
6
Turnkey development revenue consisted of the following:
THREE MONTHS ENDED
----------------------------
MARCH 31, MARCH 31,
1998 1997
------------ -----------
Sales to investors and franchisees $ 5,184,236 $ 5,899,464
Development and construction management fees 55,000 50,000
------------ -----------
Gross Turnkey Program 5,239,236 5,949,464
Turnkey Program costs (3,584,335) (5,441,043)
------------ -----------
Net revenue from Turnkey Program projects 1,654,901 508,421
Rental income 21,800 177,069
Interim construction interest 38,217 - -
Less: Deferred revenue, net (589,901) - -
------------ -----------
Total Turnkey Program revenue $ 1,125,017 $ 685,490
------------ -----------
------------ -----------
The following table reflects system performance of the Turnkey Program.
NUMBER OF UNITS
--------------------
MARCH 31, DECEMBER 31,
1998 1997
-------- ------------
Sites in process at beginning of period 78 30
Sites beginning development during the period 34 90
Sites completed as Company-owned stores -- (1)
Sites inventoried as real estate held for sale -- --
Sites sold - revenue recognized (9) (12)
Sites sold - revenue deferred (6) (28)
Other -- (1)
------ ------
Sites in process at end of period 97 78
------ ------
------ ------
INVESTED AT
MARCH 31, 1998
--------------
Opened (receiving rent & royalties) 2 2 $ 1,725,000
Investment Sites (under construction) 8 3 4,706,000
Predevelopment Site (prequalification) 87 73 2,509,000
------ ------ -----------
97 78 $ 8,940,000
------ ------ -----------
------ ------ -----------
Turnkey Program sites in process at the end of a period are classified
as current assets as management expects to complete and sell such sites
within the next year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
RECENT PRONOUNCEMENTS
In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures and
Pensions and Other Postretirement Benefits", which significantly changes
current financial statement disclosure requirements from those that were
required under SFAS No. 87, "Employers' Accounting for Pensions", SFAS No.
88, "Employers' Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits", and SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions". SFAS
No. 132 does not change the existing measurement of recognition provisions of
SFAS Nos. 87, 88 or 106. SFAS No. 132 is effective for fiscal years beginning
after December 15, 1997.
Management does not believe the implementation of this recent accounting
pronouncement will have a material effect on its consolidated financial
statements.
7
NOTE 4. -- STOCKHOLDERS' EQUITY
During 1997, the Company sold in a public offering 1,731,825 shares of
its Common Stock which generated net proceeds of approximately $29.6 million.
A portion of the proceeds were used to repay debt owed to financial
institutions and corporations. The balance of the proceeds are being used to
finance the development of several Company-owned restaurants and to develop
restaurants under the Turnkey Program.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998, COMPARED TO THREE MONTHS ENDED MARCH 31,
1997
REVENUES. Total revenues increased 33.4% from $6,335,000 to $8,454,000.
Royalties increased 29.9% from $3,278,000 to $4,259,000. This increase was
due to the addition of 121 restaurants opened during the period from April 1,
1997 to March 31, 1998. Also driving the increase was the growing influence of
larger freestanding units with higher visibility, a 12.1% increase in average
weekly sales and a 6.2% increase in same store sales.
Franchise fees decreased 3.7% from $353,000 to $340,000. This slight
decrease was a result of a lower average franchise fee per unit opened during
the three-month period ended March 31, 1998. A higher number of secondary
restaurants, which have a lower franchise fee, were opened during the first
quarter of 1998 than during the corresponding period in 1997.
Restaurant sales increased 22.1% from $1,324,000 to $1,616,000. This
increase was attributable to an 11.0% increase in sales volume of the
Company's Flagship restaurant and the relocation of two units in the Austin,
Texas market which were closed or underperforming during the first quarter of
1997. It is contemplated that four stores currently operated by the Company
will remain Company-owned stores. It is the Company's intention to re-market
certain units acquired from franchisees once their operations and
profitability have improved. Management has not established a timeframe to
re-market these other restaurants.
Brand contributions, or private label licensing fees, increased 60.7%
from $535,000 to $860,000. The increase was the result of the increasing
volume of system-wide sales, which generate more purchases of private label
products, and greater franchisee participation in the Company's purchasing
programs.
Turnkey development revenue increased 64.2% from $685,000 to $1,125,000.
Cash received in excess of costs allocable to 1998 Turnkey Program
transactions in which the Company provided credit enhancement on franchisees'
leases was treated as deferred revenue, and accordingly, did not impact the
current period's revenue or net income. Revenue which did impact 1998
included approximately $22,000 of rental revenue from sites completed and
under lease. Fifteen sites developed under the Turnkey Program were sold
during 1998, nine of which had no credit enhancement associated with the
transaction and the revenues from that activity comprise the balance of
Turnkey development revenue generated during this period.
Other fees and revenues increased 57.8% from $161,000 to $254,000. This
change was primarily due to the increased level of supplier contributions to
the Company's annual convention to be held in July 1998.
8
The following table reflects the growth of the franchise system for the
three months ended March 31, 1998 and 1997, which has been principally
responsible for the increased revenue as discussed above.
SYSTEM PERFORMANCE THREE MONTHS ENDED
-----------------------------
MARCH 31, MARCH 31,
1998 1997
--------- ---------
Units Opened
Domestic
Freestanding 19 22
End Cap 9 4
Other 0 2
------- -------
Total Domestic Openings 28 28
International 2 1
------- -------
Total Openings 30 29
Units Closed 5 8
------- -------
Net Unit Growth 25 21
------- -------
------- -------
System-wide Sales (in thousands) $78,043 $60,968
Average Weekly Sales $9,260 $ 8,262
Change in Average Weekly Sales 12.1% 18.5%
Stores in Operation 698 594
Change in Same Store Sales 6.2% 3.0%
COSTS AND EXPENSES. Royalty service costs increased 34.7% from
$1,203,000 to $1,621,000. This increase was a direct result of the increase
in royalty revenue for the three months ended March 31, 1998, as compared to
the same period in the prior year. Royalty service costs as a percentage of
royalties grew from 36.7% to 38.1%. This increase reflects the growing
percentage of restaurants serviced by the area developer system. Area
developers receive approximately 42% of the royalties from stores in their
territories.
Restaurant cost of sales, which consists of food, beverage and paper
costs, increased 34.2% from $398,000 to $534,000, and as a percentage of
restaurant sales increased from 30.1% to 33.0%. Likewise, restaurant labor
costs increased 42.5% from $530,000 to $755,000, and as a percentage of
restaurant sales increased from 40.0% to 46.7% for the same quarter in 1997.
Restaurant operating expenses have increased 25.3% from $399,000 to $500,000,
and as a percentage of restaurant sales increased from 30.1% to 30.9% for the
three months ended March 31, 1998, as compared to the corresponding period in
1997. These percentage increases in restaurant cost of sales, restaurant
labor cost and restaurant operating expenses were primarily attributable to
pre-opening costs and operating inefficiencies related to the relocation of
two Company-owned restaurants during the three months ended March 31, 1998.
General and administrative expenses grew 45.1% from $2,010,000 to
$2,916,000 and as a percentage of total revenues increased from 31.7% to
34.5%. These increases are principally the result of additional personnel to
support the growth at the corporate office to support the growing franchise
system, including certain one time expenses related to the hiring and
relocation of the individuals.
Depreciation and amortization increased 26.4% from $250,000 to $316,000,
but as a percentage of total revenues decreased from 3.9% to 3.7%. The
dollar increase was principally due to amortization of goodwill and other
intangibles acquired in late 1997 and depreciation related to the additional
Company-owned restaurants.
OTHER. Net interest income increased from $58,000 to $504,000. This
increase was a result of the higher level of funds invested during the more
recent period because of the secondary offering.
INCOME TAX EXPENSE. Income tax expense reflects a combined federal and
state effective tax rate of 37.5% for the three months ended March 31, 1998,
which is slightly lower than the effective combined tax rate for the
comparable period in 1997. Based on projections of taxable income, the
Company anticipates that its effective combined rate for federal and state
taxes will be approximately 37.5% for 1998.
9
LIQUIDITY AND CAPITAL RESOURCES
Net cash used by operating activities was $6,374,000 for the first three
months of 1998. Cash used to purchase and develop Turnkey Program properties
exceeded the proceeds generated from the sale of Turnkey Program properties,
and was the primary reason for the net use of cash. Net cash of $2,028,000
was used in investing activities primarily consisting of expenditures of
$991,000 on the completion of the relocation of two Company-owned stores.
Also, the Company used $176,000 to re-acquire the development rights to a
domestic territory and to fund the costs associated with the establishment of
a mortgage financing program for franchisees.
During the first quarter of 1998, financing activities provided net cash
of approximately $441,000 due primarily to the exercise of stock options and
warrants.
At March 31, 1998, the Company had approximately $2,174,000 of debt
outstanding. The Company guaranties certain real estate leases, equipment
leases and other obligations of franchisees. At March 31, 1998, these
contingent liabilities totaled approximately $25,213,000. Included in this
amount is a construction loan for a limited partnership in which the Company
and its subsidiary, Schlotzsky's Real Estate, Inc., own a combined 40%
interest in capital and profits. The loan, for which the Company is liable
for the full amount, had a balance of $1,110,000 at March 31, 1998, bears
interest at prime plus 1.25% and matures April 2001. Monthly payments are
being made by the limited partnership.
The Company continues to expand and refine its Turnkey Program and expects
that it will have 50 to 100 sites under contract or at various stages of
development at any given time. The Company has used the net proceeds from its
public offerings and the proceeds from sites sold and contracts assigned to
finance the activity of the Turnkey Program. With the anticipated growth in
the Turnkey Program, the capital required to finance the Turnkey Program will
increase significantly. Ninety-seven properties were under contract or in
various stages of development at March 31, 1998. The tables below provide a
summary of the Turnkey Program activity for the first quarter of 1997 and
1998.
Turnkey Program revenue consisted of the following:
THREE MONTHS ENDED
-----------------------------
MARCH 31, MARCH 31,
1998 1997
----------- -----------
Sales to investors and franchisees $ 5,184,236 $ 5,899,464
Development and construction management fees 55,000 50,000
----------- -----------
Gross Turnkey Program revenue 5,239,236 5,949,464
Turnkey Program development costs (3,584,335) (5,441,043)
----------- -----------
Net revenue from Turnkey Program projects 1,654,901 508,421
Rental income 21,800 177,069
Interim construction interest 38,217 - -
Less: deferred revenue, net (589,901) - -
----------- -----------
Total Turnkey Program revenue $ 1,125,017 $ 685,490
----------- -----------
----------- -----------
10
The following table reflects system performance of the Turnkey Program
since January 1, 1997.
NUMBER OF UNITS
-----------------------
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
Sites in process at beginning of period 78 30
Sites beginning development during the period 34 90
Sites completed as Company-owned stores -- (1)
Sites inventoried as real estate held for sale -- --
Sites sold - revenue recognized (9) (12)
Sites sold - revenue deferred (6) (28)
Other -- (1)
----- -----
Sites in process at end of period 97 78
----- -----
----- -----
INVESTED AT
MARCH 31, 1998
--------------
Opened (receiving rent & royalties) 2 2 $ 1,725,000
Investment Sites (under construction) 8 3 4,706,000
Predevelopment Site (prequalification) 87 73 2,509,000
----- ----- -----------
97 78 $ 8,940,000
----- ----- -----------
----- ----- -----------
The Company currently has a line of credit available from a financial
institution to finance Turnkey Program capital requirements. The line of
credit can be drawn upon to fund up to $12,000,000, bears interest at the
bank's prime lending rate and expires April 2000. As of March 31, 1998, the
Company had not drawn upon this line of credit.
The Company believes that cash flow from operations, together with the
proceeds of the Turnkey Program, collections from notes receivable and
borrowings under existing credit facilities described above and the proceeds
from its secondary offering will be sufficient to meet the Company's
anticipated cash needs for the foreseeable future. To the extent that the net
proceeds from the Turnkey Program, credit facilities, cash flow from
operations and the proceeds from its secondary offering are insufficient to
finance the Company's future expansion plans, the Company intends to seek
additional funds for this purpose from future debt financings or additional
offerings of equity securities, although there can be no assurance of the
availability of such funds on acceptable terms in the future.
FORWARD LOOKING STATEMENTS
This report contains forward looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, that are not historical facts.
Such statements may include, but not be limited to, projections of revenues,
income, capital expenditures, plans for future operations, financing needs or
plans, and plans relating to products or services of the Company, as well as
assumptions relating to the foregoing. These statements involve management
assumptions and are subject to risks and uncertainties, along with factors
set forth in the Company's Annual Report on Form 10-K/A in "Business," pages
1-15.
11
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
Exhibit Sequentially
No. Numbered Page
------- -------------
11.1 Statement regarding computation of per
share earnings. 14
27 Financial Data Schedule. 15
b. Current Reports on Form 8-K:
None
12
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SCHLOTZSKY'S, INC.
By: /s/ John C. Wooley
-----------------------------
John C. Wooley, President
and Chief Executive Officer
By: /s/ Monica Gill
-----------------------------
Monica Gill
Chief Financial Officer
Austin, Texas
May 14, 1998
13