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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                            ------------------------

                                   FORM 10-K

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<C>        <S>
   /X/     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934

              FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

                                  OR

   / /     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934
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                         COMMISSION FILE NUMBER 0-27008

                            ------------------------

                               SCHLOTZSKY'S, INC.

             (Exact name of registrant as specified in its charter)

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<S>                                    <C>
             TEXAS                           74-2654208
(State or other Jurisdiction of             (IRS Employer
incorporation or organization)           Identification No.)
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                    203 COLORADO STREET, AUSTIN, TEXAS 78701

              (Address of principal executive offices) (Zip Code)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (512) 236-3600

          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

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<S>                                              <C>
                                                              Name of each exchange
              Title of each class                              on which registered
          COMMON STOCK, NO PAR VALUE                         NASDAQ NATIONAL MARKET
</Table>

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                        PREFERRED STOCK PURCHASE RIGHTS

                            ------------------------

    Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by 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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K /X/.

    The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 26, 2002, was approximately $32,780,642 based upon the
last sales price on March 26, 2002, on the Nasdaq National Market System for the
Company's common stock. Registrant had 7,284,164 shares of Common Stock
outstanding on March 26, 2002.

                      DOCUMENTS INCORPORATED BY REFERENCE

    Portions of the registrant's definitive proxy statement to be filed with the
Securities and Exchange Commission not later than 120 days after the close of
the registrant's fiscal year are incorporated by reference into Part III of this
Form 10-K.

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                               SCHLOTZSKY'S, INC.

                               INDEX TO FORM 10-K
                          YEAR ENDED DECEMBER 31, 2001

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<Caption>
                                                                                PAGE NO.
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<S>               <C>                                                           <C>
PART I

Item 1.           Business....................................................      1
Item 2.           Properties..................................................     17
Item 3.           Legal Proceedings...........................................     17
Item 4.           Submission of Matters to a Vote of Security Holders.........     18

PART II

Item 5.           Market for Registrant's Common Equity and Related
                  Stockholder Matters.........................................     19
Item 6.           Selected Consolidated Financial Data........................     19
Item 7.           Management's Discussion and Analysis of Financial Condition
                  and Results of Operations...................................     21
Item 7A.          Quantitative and Qualitative Disclosures about Market
                  Risk........................................................     32
Item 8.           Financial Statements and Supplementary Data.................     33
Item 9.           Changes in and Disagreements with Accountants on Accounting
                  and Financial Disclosure....................................     33

PART III

Item 10.          Directors and Executive Officers of the Registrant..........     34
Item 11.          Executive Compensation......................................     34
Item 12.          Security Ownership of Certain Beneficial Owners and
                  Management..................................................     34
Item 13.          Certain Relationships and Related Transactions..............     34

PART IV

Item 14.          Exhibits, Financial Statement Schedules and Reports on
                  Form 8-K....................................................     35
</Table>
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                                     PART I

ITEM 1. BUSINESS

                                  INTRODUCTION

    Schlotzsky's, Inc., a Texas corporation and successor to a business founded
in 1971, is a franchisor and operator of fast casual upscale specialty sandwich
restaurants that feature made-to-order sandwiches with unique sourdough buns.
Schlotzsky's operates through a network, as of December 31, 2001, of
674 franchised and Company-owned restaurants which generated systemwide sales of
approximately $423.2 million for the year ended December 31, 2001.

    Schlotzsky's-Registered Trademark- Deli restaurants offer a menu of
distinctive, high quality foods featuring Schlotzsky's proprietary breads,
complemented by excellent customer service in a visually appealing setting. Our
bread is baked fresh from scratch every day for every restaurant. Our menu
includes a minimum of 15 sandwiches on four types of buns, a minimum of ten
sourdough crust pizzas, chips, salads, soups and other side items, fresh baked
cookies and other desserts, and beverages.

    Schlotzsky's operates through two business segments:

    - Restaurant Operations, which includes long-term portfolio restaurants
      operated by the Company for the purposes of market leadership and
      redevelopment of certain markets, demonstrating profit potential and key
      operating metrics, operational leadership of franchise system, product
      development, concept refinement, product and process testing, training,
      building brand awareness, and available for sale restaurants developed for
      or acquired from franchisees.

    - Franchise Operations, which encompasses franchising of restaurants,
      assisting franchisees in the development of restaurants, providing
      franchisee training and operating the national training center,
      communications with franchisees, conducting regional and national
      franchisee meetings, developing and monitoring supplier and distributor
      relationships, planning and coordinating advertising and marketing
      programs and the licensing of Schlotzsky's-Registered Trademark- Deli
      brand products for sale to the franchise system and retailers.

See Note 16 to the Consolidated Financial Statements for financial information
regarding the Company's business segments.

    As used in this report, the terms "Company" and "Schlotzsky's" refer to
Schlotzsky's, Inc. and its subsidiaries unless the context indicates otherwise.

    The Company's principal executive offices are located at 203 Colorado
Street, Austin, Texas 78701, and its telephone number is (512) 236-3600.

    Schlotzsky's, Inc. was formed effective January 1, 1993, when several
predecessor entities were merged into the Company and two wholly-owned
subsidiaries, Schlotzsky's Restaurants, Inc. and Schlotzsky's Real
Estate, Inc., both Texas corporations. The Company's other subsidiaries, which
are directly or indirectly wholly-owned, are Schlotzsky's Brands, Inc., SGC
Construction Corporation, DFW Restaurant Transfer Corp., 56th and 6th, Inc. and
RAD Acquisition Corp. (all Texas corporations) and SREI Turnkey Development,
L.L.C., a Texas limited liability company, Schlotzsky's Brands I, L.L.C., a
Delaware limited liability company, and Schlotzsky's Brand Products, L.P., a
Texas limited partnership.

                 SCHLOTZSKY'S-REGISTERED TRADEMARK- DELI SYSTEM

    At December 31, 2001, the Schlotzsky's-Registered Trademark- Deli system
included 33 Company-owned restaurants and 641 franchised restaurants located in
38 states, the District of Columbia and eight foreign countries. Of the
Company-owned restaurants, there were 15 restaurants that the Company intends to
own and operate on a long-term basis, including two restaurants opened in the
Austin area in the fourth quarter of 2001. The

                                       1
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other 18 restaurants were developed for or acquired from franchisees and are
being operated as available for sale until they are re-franchised or
incorporated into the Company's long-term restaurant portfolio. The Company's
revenues were approximately $61.9 million for 2001 and $59.2 million for 2000.
Systemwide sales for all restaurants were approximately $423.2 million for 2001
and $429.4 million for 2000. Systemwide sales are based on reported sales of
franchised restaurants, as well as Company-owned restaurants, and are a
principal driver of Company revenue because royalty revenue is based on the
sales of franchised restaurants. Weighted average annual store sales for all
restaurants in the system were approximately $606,000 and $594,000 for 2001 and
2000, respectively. Weighted average annual store sales for Company-owned
restaurants were approximately $994,000 and $979,000 in 2001 and 2000,
respectively. Weighted average annual store sales for
Schlotzsky's-Registered Trademark- Deli restaurants in the Company's long-term
portfolio group were approximately $1,491,000 and $1,433,000 in 2001 and 2000,
respectively.

                                    STRATEGY

    The Company's primary objective is to become a leader in the fast casual
upscale sandwich segment of the restaurant industry in the United States. The
key elements of its strategy are to: offer a differentiated menu of distinctive,
high quality foods featuring the Company's proprietary breads, continually
updated through menu engineering, complemented by excellent customer service;
assist its franchisees to develop visually appealing and well designed
restaurants, with well engineered kitchens, in high visibility locations in a
variety of designs; develop a strong network of motivated franchisees; increase
awareness of the Schlotzsky's-Registered Trademark- brand through enhanced
marketing and Schlotzsky's-Registered Trademark- Deli brand products; and
further develop the concept and provide leadership in selected markets through a
limited number of Company-owned restaurants. The
Schlotzsky's-Registered Trademark- Deli system initiated national television
advertising in the Spring of 1999.

    MENU OF DISTINCTIVE, HIGH QUALITY PRODUCTS.
Schlotzsky's-Registered Trademark- Deli restaurants offer a differentiated menu
of distinctive, high quality foods featuring the Company's proprietary breads,
complemented by excellent customer service. The menu features made-to-order
sandwiches with buns that are baked fresh from scratch every day for every
restaurant. The Schlotzsky's-Registered Trademark- Original sandwich, which was
introduced in 1971, is a variation of the muffaletta sandwich made with three
meats (lean ham, Genoa salami and cotto salami), three cheeses (mozzarella,
cheddar and parmesan), garlic sauce, mustard, marinated black olives, onion,
lettuce and tomato on a toasted sourdough bun. The
Schlotzsky's-Registered Trademark- Original sandwich continues to be the most
popular item on the restaurant menu. Schlotzsky's-Registered Trademark- Deli
restaurants now offer an expanded menu with a minimum of 15 sandwiches on four
types of buns, a minimum of ten sourdough crust pizzas, salads, soups, chips and
other side items, fresh baked cookies and other desserts, and beverages. All
menu items are available for dine-in and carry-out customers. Many restaurants
also offer drive-thrus and catering. The menu has been engineered to provide
excellent price value to the customer while maintaining competitive cost of
sales percentages. While pricing is determined by each restaurant operator, at
most locations, small sandwiches generally range in price from $3.07 to $4.04,
regular sandwiches generally range in price from $4.04 to $5.04, and eight-inch
pizzas are generally priced between $3.89 and $4.79.

    VISUALLY APPEALING RESTAURANTS.  The Company has developed well-designed
standard restaurant plans that promote a visually appealing exterior and
comfortable interior. The plans provide for a well-engineered kitchen and a
state-of-the art point-of-sale system that enhances speed of service for made to
order sandwiches and pizzas. The plans accommodate a variety of restaurant
environments and sizes, including 2,800 to 3,200 square foot shopping center
locations and 3,200 to 3,700 square foot freestanding buildings. The plans
accommodate drive-thrus and Cool Deli-Registered Trademark- stations, which
provide free computer and Internet access for customers. The Company encourages
franchisees to develop restaurants with high visibility and easy access. The
Company believes the location of a restaurant is important to its success and
works with area developers and franchisees to identify superior restaurant
locations. Current designs for new Schlotzsky's-Registered Trademark- Deli
freestanding restaurants are typically 3,200 square feet and generally include
drive-

                                       2
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thrus. Current designs for new shopping center locations are approximately 2,800
to 3,200 square feet and incorporate most of the features of the freestanding
restaurants. The Company had implemented its Turnkey program in 1995 as a means
of accelerating the development of high visibility freestanding restaurants and
capitalizing on the Company's experience in evaluating restaurant sites by
providing a variety of services, from securing the site to development and
construction of the restaurant. The Turnkey program provided development
assistance and financing. The Turnkey program was terminated in 2000.

    AREA DEVELOPERS.  The Company has 24 area developers as well as one regional
service representative trained to assist the Company in maintaining its system
of franchised restaurants in the United States. Historically, area developers
have been required to recruit franchise candidates and meet specific restaurant
opening schedules in order to maintain their development rights. Area
developers' compensation is generally based on a portion of franchise fees and
royalties from restaurants in their territories and, thus, area developers are
motivated to help develop their markets and monitor operating performance. Over
the past three years, the Company has contracted with several area developers to
reduce their compensation, which is usually based on a portion of franchise fees
and royalties, in return for cash or the combination of cash and a promissory
note, to focus their efforts on franchise services rather than franchise sales.
As a result, restaurant opening schedules for these area developers were
eliminated and certain service requirements were reduced. By utilizing its area
developer network, the Company believes that it can effectively support a
growing number of franchised restaurants while controlling its overhead costs.
Generally, area developers whose agreements were not revised are required to
recruit franchisee candidates and meet specific restaurant opening schedules in
order to maintain their development rights.

    MOTIVATED FRANCHISEES.  The Company has focused on developing a strong
network of owner-operator franchisees. The Company believes that a motivated
franchisee is an essential key to the success of a restaurant. The
Schlotzsky's-Registered Trademark- Deli system consists primarily of franchised
restaurants, owned and managed by entrepreneurial franchisees. The Company has
sought franchisees who are committed to providing on-site supervision of
restaurant operations. As the Schlotzsky's-Registered Trademark- Deli concept
has developed, in addition to owner-operator franchisees, the Company also seeks
experienced multi-unit operators who will operate several restaurants in a
market. As of December 31, 2001, out of approximately 425 franchisees with
operating restaurants, six franchisees have more than five restaurants each and,
in the aggregate, account for approximately 7.0% of the franchised restaurants
in the system.

    INCREASED BRAND AWARENESS.  The Company seeks to become a well-known
national brand. Through the Schlotzsky's National Advertising
Association, Inc., the Company utilizes national network television and cable
advertising, as well as freestanding inserts and direct mail to present its
message to consumers. The national network television and cable advertising
began in Spring 1999. Local advertising groups also perform advertising and
marketing activities in their local markets. The Company also enhances brand
awareness through a line of Schlotzsky's-Registered Trademark- Deli brand
products which are used by the restaurants in the system in preparing food and,
in some cases, sold in the restaurants for home consumption.
Schlotzsky's-Registered Trademark- Deli brand products, including potato chips,
meats, cheeses, soups and condiments, are available for retail purchase in the
Walmart Superstores, certain Costco wholesale club stores, as well as certain
grocery and other retail chains. The Company is continuing to seek increased
brand awareness through distribution in additional retail outlets and markets
and is exploring additional products for inclusion in this program.

    COMPANY-OWNED RESTAURANTS.  The Company opened its Marketplace restaurant
and national training center in Austin, Texas in 1995, and it has continued to
expand its portfolio of Company-owned and operated locations over the past few
years, particularly as the result of the 1999 acquisition of certain stores in
Austin, Texas, and the rights to develop that market. The Company operates, as
of December 31, 2001, 15 restaurants that it intends to own and operate on a
long-term basis. These restaurants are operated primarily for market leadership,
product and process development, concept refinement, training, and building
brand awareness. Eleven of these restaurants are in the Austin area; two in
College Station,

                                       3
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Texas; one in Houston, Texas; and one in suburban Atlanta, Georgia. Three of
these restaurants (two in Austin and one in Houston) are Marketplace
restaurants, which are operated for research and development and training and,
along with a Schlotzsky's-Registered Trademark- Deli, include a full bakery
producing pastries, muffins and other baked goods for sale in the Marketplace
restaurant and in the coffee bar section of certain other Company-owned
restaurants. The Company expects to open additional Company-owned restaurants
for market leadership purposes, beginning with key markets in its home state of
Texas.

    The Company also operates 18 other restaurants developed for or acquired
from franchisees on a purchase or lease basis, which it does not currently
consider to be part of its long-term portfolio of Company-owned units. These
restaurants are classified as "Restaurants Available for Sale". Four of these
restaurants are located in Georgia, three in Texas, two in Minnesota and one
each in Utah, Alabama, Arizona, Arkansas, New Mexico, Mississippi, North
Carolina, Tennessee, and New York. In the normal course of business, the Company
expects to acquire additional restaurants from franchisees and refranchise
certain of these restaurants.

          SCHLOTZSKY'S-REGISTERED TRADEMARK- DELI RESTAURANT LOCATIONS

    At December 31, 2001, the Schlotzsky's-Registered Trademark- Deli system
consisted of 674 restaurants open and operating in 38 states, the District of
Columbia, and eight foreign countries. At December 31, 2000 and 1999, the system
included 711 and 743 restaurants open and operating, respectively.

                  RESTAURANT LOCATIONS AS OF DECEMBER 31, 2001

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<Caption>
                                                               NUMBER OF
LOCATION                                                      RESTAURANTS
--------                                                      -----------
<S>                                                           <C>
UNITED STATES:
Texas.......................................................      197
Georgia.....................................................       30
North Carolina..............................................       30
Tennessee...................................................       28
Arizona.....................................................       27
Illinois....................................................       25
Wisconsin...................................................       22
Michigan....................................................       21
Indiana.....................................................       20
Colorado....................................................       20
Florida.....................................................       18
Oklahoma....................................................       18
Alabama.....................................................       16
South Carolina..............................................       16
California..................................................       14
Kansas......................................................       13
Missouri....................................................       13
Minnesota...................................................       11
New Mexico..................................................       11
Ohio........................................................       10
Arkansas....................................................        9
Louisiana...................................................        9
Oregon......................................................        9
Utah........................................................        9
Nevada......................................................        8
Virginia....................................................        7
</Table>

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<Table>
<Caption>
                                                               NUMBER OF
LOCATION                                                      RESTAURANTS
--------                                                      -----------
<S>                                                           <C>
Mississippi.................................................        6
Washington..................................................        6
Idaho.......................................................        5
Kentucky....................................................        5
Nebraska....................................................        5
West Virginia...............................................        4
South Dakota................................................        3
North Dakota................................................        2
Pennsylvania................................................        2
Alaska......................................................        1
District of Columbia........................................        1
Hawaii......................................................        1
New York....................................................        1
                                                                  ---
TOTAL DOMESTIC..............................................      653
                                                                  ---

INTERNATIONAL:
Turkey......................................................        6
Malaysia....................................................        4
China.......................................................        3
Argentina...................................................        2
Guatemala...................................................        2
Morocco.....................................................        2
Canada......................................................        1
Germany.....................................................        1
                                                                  ---
TOTAL INTERNATIONAL.........................................       21
                                                                  ---
TOTAL DOMESTIC & INTERNATIONAL..............................      674
                                                                  ===
</Table>

                             RESTAURANT DEVELOPMENT

    The Company maintains a Real Estate Services group that performs market
development planning, restaurant site analysis, restaurant design and cost
analysis. This group also serves as construction manager for new Company-owned
restaurants.

    Restaurant development is generally the responsibility of the restaurant
operators, whether a franchisee or the Company for Company-owned restaurants.
The Company had instituted the Turnkey program, which was terminated in 2000, to
assist franchisees in obtaining sites and to achieve more rapid development of
new restaurants, especially in selected major markets. Under the Turnkey
program, the Company would typically perform various services including site
selection, feasibility analysis, environmental studies, site work, permitting,
and construction management, receiving a fee for these services. The Company at
times would assign its earnest money contract on a site to a franchisee, an area
developer, or a third-party investor, who then assumed responsibility for
developing the restaurant. The Company would at other times purchase or lease a
selected site, construct a Schlotzsky's-Registered Trademark- Deli restaurant on
the site and sell, lease or sublease the completed restaurant to a franchisee,
or sell the restaurant to an investor who leased the restaurant to the
franchisee. Approximately 125 restaurants developed under the Turnkey program
were in operation at December 31, 2001.

    Through 1997, the Company often provided credit enhancement in the form of
limited guarantees on franchisees' leases for leased locations sold to investors
under the Turnkey program.

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    Beginning in 1998, the Company encouraged ownership of the real estate by
its franchisees through a mortgage loan program provided under the Turnkey
program. Under the mortgage program, the Company sometimes provided interim
financing to the franchisee to purchase a restaurant built under the Turnkey
program or to purchase land and construct the building for a new restaurant. The
interim loan was typically either sold to, or refinanced by, an institutional
lender. The Company typically provided credit enhancement for the franchisee in
the form of a limited guaranty in favor of the lender. The Company sometimes
also made a long-term loan to the franchisee for a portion of the cost of the
restaurant. These loans were usually subordinated to the institutional lenders.

    Although the Turnkey program has been cancelled, the Company expects that it
may provide, in certain instances, guarantees or loans or take on an equity
interest in franchisees, particularly those who purchase restaurants available
for sale from the Company.

                                  FRANCHISING

    The Company has generally adopted the strategy of franchising, rather than
owning, most restaurants. The Company believes that franchisees who own and
operate restaurants are typically more highly motivated and are generally able
to manage stores more efficiently than manager-employees. Moreover, franchising
allows the Company to expand the number of restaurants and penetrate markets
more quickly and with less capital than developing Company-owned restaurants.
Area developers play a role in the Company's franchising program in certain
territories by recruiting qualified franchisees and by monitoring and providing
support to franchised restaurants.

    AREA DEVELOPERS.  The Company's 16 area developers who have retained their
original service obligations recruit and qualify franchisees according to
criteria developed by the Company. Once a franchisee is approved by the Company,
the area developer works with the Company to assist the franchisee in site
selection, training, restaurant design and layout, construction, and obtaining
financing. Such area developers provide restaurant opening assistance, monitor
restaurant performance and compliance with product and service quality standards
established by the Company, and help to coordinate cooperative advertising
within their territories. The Company typically pays compensation to area
developers who retained their original service obligations based on 50% of all
franchise fees paid by franchisees in their territories. In addition, the
Company also pays these area developers compensation generally based on 2.5% of
franchisees' restaurant sales, constituting approximately 42% of the royalties
received under franchise agreements providing for 6% royalties.

    Compensation payable to the other 8 area developers have been reduced to
approximately 1.25% of franchisees' restaurant sales, or approximately 21% of
royalties, as a result of several transactions completed over the past three
years to reduce the area developers' royalty rights and duties. During 1999, the
Company assumed territory management responsibility for its largest area
developer in conjunction with an option to buy its territories. Under this
arrangement, as amended, net compensation paid to the area developer was reduced
to 1% of franchisees' restaurant sales effective October 31, 1999, and escalate
to 2% by June 30, 2002, compared to the former 2.5% rate. The Company may enter
into additional transactions with area developers as opportunities become
available and the economics of the transactions are appropriate, but there can
be no assurance that such transactions will occur.

    Area developers are not required to own or operate restaurants, although
some of them are also franchisees, or have investments in franchisees under
separate franchise agreements. Area developers are granted exclusive rights to
one or more market territories in the United States, typically for a term of
50 years. Each area developer has paid the Company a nonrefundable fee for the
development rights for a market, generally with a cash down payment and the
balance of the fee represented by a note.

    Area development agreements are assignable only with the prior written
consent of the Company, and consents have been granted from time to time. The
Company retains a right of first refusal with respect to any proposed sale of
rights by the area developer. Area developers typically commit to a restaurant

                                       6
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opening schedule for each territory. The Company has agreed to extend or waive
restaurant opening schedules for certain area developers under certain
conditions, and has eliminated the schedules for those whose compensation is
reduced. If an area developer fails to meet its obligations, the Company can
terminate or repurchase its territory.

    In addition to the area developers, the Company has appointed a regional
service representative to provide certain ongoing services to franchisees in
certain territories.

    FRANCHISEES.  The Company believes the full-time involvement of owners in
daily restaurant operations is critical to the success of a franchise. The
Company has focused on franchisees who would operate no more than four
restaurants, located within a single market. The Company prefers on-premise
owner-operators as franchisees rather than passive investors. As the
Schlotzsky's-Registered Trademark- Deli concept has developed, in addition to
owner-operator franchisees, the Company also seeks experienced, well-capitalized
multi-unit operators who will operate a larger number of restaurants.
Franchisees are selected on the basis of various factors, including business
background, experience and financial resources. Because the cost of building and
equipping a Schlotzsky's-Registered Trademark- Deli restaurant is substantial,
franchisees must make certain minimum investments in their restaurants and
typically must have substantial cash resources or a relatively high net worth to
obtain financing to build and equip restaurants. While certain area developers
identify and recruit potential franchisees, all franchisees must be approved by
the Company.

    FRANCHISE AGREEMENTS.  The Company enters into an agreement with each
franchisee granting the franchisee the right to develop a restaurant within a
defined area market over a defined period of time. In most cases, the Company
has reserved the right to license sales of sandwiches, pizzas and other products
in alternative retail outlets or special event venues. Once a site for a
restaurant has been selected by the franchisee and accepted by the Company,
additional documentation specifying that site is signed. Under the Company's
current standard franchise agreement, the franchisee is required to pay a
franchise fee of $30,000 for the franchisee's first restaurant and $20,000 for
any additional restaurant. The initial franchise fee is payable at the time of
signing the agreement. The current standard franchise agreement provides for a
term of 20 years (with one ten-year renewal option) and payment of a royalty of
6% of sales. The Company is offering an incentive program to its existing
franchisees which provides for a franchise fee of $1,000 and reduced royalties
for varying periods for franchisees who commit to a site for a new restaurant in
2002 and open that restaurant by March 31, 2003. As of December 31, 2001,
approximately 9% of domestic franchised restaurants operated under older
franchise agreements and were paying a royalty of 4% of sales.

    The Company has the right to terminate any franchise agreement for certain
specific reasons, including a franchisee's failure to make payments when due or
failure to adhere to the Company's policies and standards. Many state franchise
laws, however, limit the ability of a franchisor to terminate or refuse to renew
a franchise. See "Government Regulation."

    FRANCHISEE TRAINING AND SUPPORT.  Each franchisee is required to have a
principal operator approved by the Company who satisfactorily completes the
Company's training program and who devotes full business time and efforts to the
operation of the franchisee's restaurants. Franchisees may also enroll each
restaurant manager in the Company's training program. The Company provides
training at operating Schlotzsky's-Registered Trademark- Deli restaurants in
various locations and at its flagship Schlotzsky's-Registered Trademark-
Marketplace restaurant in Austin, Texas, which includes classroom facilities.
Franchisees are required to pass a minimum skills test before they begin
operating their first restaurant. An on-site training crew is provided by the
Company or an area developer for three days before and two days after the
opening of a franchisee's first restaurant. The Company and its area developers
maintain ongoing communication with franchisees, by providing updated operating
and marketing information.

    FRANCHISED RESTAURANT OPERATIONS.  All franchisees are required to operate
their restaurants in compliance with the Company's policies, standards and
specifications, including matters such as menu

                                       7
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items, ingredients, materials, supplies, services, fixtures, furnishings, decor
and signs. Food preparation is standardized and includes baking buns, slicing
meat, cheese and produce, and heating sandwiches and pizzas. Franchisees are
expected to be actively involved in monitoring operations at each of their
restaurants. Although the Company suggests menu pricing, each franchisee has
full discretion to determine the prices to be charged to its customers.
Franchised restaurants are periodically inspected by area developers and the
Company's field service representatives to monitor compliance with the Company's
standards and specifications as set forth in the franchise agreement and the
Company's manuals.

    REPORTING.  Most Schlotzsky's-Registered Trademark- Deli franchisees are
required to report weekly sales and other data to the Company. Other franchisees
are required to report monthly. Generally, 6% royalties are payable weekly by
automatic bank drafts and 4% royalties are payable monthly by check under the
applicable franchise agreements. Although the Company has the right to audit
franchisees, and does so occasionally, it relies primarily on voluntary
compliance by franchisees to accurately report sales and remit royalties.

    INTERNATIONAL MASTER LICENSEES.  The Company has granted nonassignable
rights to develop restaurants in certain foreign countries to master licensees.
A master licensee is typically licensed for 50 years to use the Schlotzsky's
trademarks in a designated territory and may grant area development rights and
franchises in that territory. Unlike area developers, master licensees contract
directly with franchisees, and the Company delegates the selection of
franchisees and approval of sites to the master licensees. When a master license
is granted, the master licensee pays the Company a negotiated, nonrefundable
license fee. The Company has typically received a portion of the master license
fee in cash when the master license is signed, with the balance payable with
interest under a promissory note. Typically, under its master license
agreements, the Company receives one-third to one-half of any sublicense and
franchise fees and one-third of any royalties received by the master licensee.
All amounts payable to the Company by the master licensees must be paid in
U.S. dollars. As of December 31, 2001, master licenses were in effect covering
26 foreign countries. As with area developers, if master licensees fail to meet
their obligations, the Company can terminate their rights or repurchase their
territories. Master licensees are subject to various laws and regulations
regarding franchising in their territories and are responsible for complying
with these laws and regulations.

                         RESTAURANT LOCATION AND DESIGN

    The Company and its area developers often assist franchisees in selecting
restaurant sites. Franchisees are responsible for selecting restaurant locations
acceptable to the Company. Site selection criteria are based on accessibility
and visibility of the site and selected demographic factors, including
population, residential and commercial density, income, age and traffic
patterns. The Company prefers that franchisees select sites to maximize
restaurant visibility and sales potential. The Company has developed plans to
accommodate a variety of restaurant environments and sizes. The table below
indicates the mix of restaurant site types over the past five years:

<Table>
<Caption>
                                                    RESTAURANTS OPENED
                                RESTAURANTS IN            BETWEEN            RESTAURANTS IN
                               OPERATION AS OF      JANUARY 1, 1997 AND     OPERATION AS OF
RESTAURANT TYPE               DECEMBER 31, 1996      DECEMBER 31, 2001     DECEMBER 31, 2001
---------------               ------------------   ---------------------   ------------------
<S>                           <C>                  <C>                     <C>
Freestanding................         40.5%                 76.3%                  59.2%
Shopping Center.............         45.9                  15.5                   31.3
Other.......................         13.6                   8.2                    9.5
                                    -----                 -----                  -----
Total.......................        100.0%                100.0%                 100.0%
                                    =====                 =====                  =====
</Table>

    The Company has developed a variety of standard restaurant designs and
specifications for freestanding and shopping center restaurants which it makes
available for use by franchisees. These designs may be adapted to existing
restaurants and other retail spaces. Franchisees must obtain the

                                       8
<Page>
Company's authorization before building a restaurant, which must comply with the
Company's standard designs.

                                RESTAURANT COST

    The cost to a franchisee of developing a standard 3,200 square foot
Schlotzsky's-Registered Trademark- Deli restaurant with drive-thru is
approximately $1,600,000, including land, building, equipment and fixtures, with
the largest variable being land development cost (land and site work). Shopping
center restaurants cost approximately $400,000 (assuming landlord contribution
of $36,000) and vary based on the level of landlord contribution to construction
costs. Capital requirements to open a restaurant vary depending on whether the
restaurant is owned or leased and on the specific terms of the related loan or
lease agreement.

                              FRANCHISEE FINANCING

    The Company is not obligated to, and does not intend to, provide financing
to franchisees for the costs of developing and opening restaurants. Both the
Company and area developers may assist franchisees in obtaining financing by
identifying potential third-party financing sources. Certain institutional
lenders have designed loan and leasing programs specifically for
Schlotzsky's-Registered Trademark- Deli franchisees. The Company has also
identified certain Small Business Administration and conventional lenders which
have made loans to Schlotzsky's-Registered Trademark- Deli franchisees. No
lenders are committed to provide any financing to franchisees and there can be
no assurance that franchisees will be able to finance their costs of developing
restaurants on suitable terms.

    The Company may from time to time agree to guarantee certain franchisees'
obligations to lenders or lessors or subordinate all or a portion of royalties
or notes receivable from such franchisees to the obligations of franchisees on
such loans or leases. The guarantees may provide for a limited number of
payments or limited time period during which the Company may be required to
perform on its guarantee.

    As of December 31, 2001, the Company had guaranteed an aggregate of
approximately $25.6 million of franchisee obligations, which is principally
comprised of real estate leases and mortgages, as well as equipment leases and
other obligations of its franchisees.

                                   PURCHASING

    The Company develops specifications and approves suppliers for equipment,
furniture, merchandising displays, food and other supplies. Approximately 78% of
overall purchases of goods used in daily operations by the
Schlotzsky's-Registered Trademark- Deli restaurants are available from
International Multifoods Corporation. The Company believes that comparable goods
would be available to the Schlotzsky's-Registered Trademark- Deli system at
competitive prices from numerous other suppliers.

             SCHLOTZSKY'S-REGISTERED TRADEMARK- DELI BRAND PRODUCTS

    The Company has licensed certain manufacturers to produce
Schlotzsky's-Registered Trademark- Deli brand meats, cheeses, potato chips and
other products. The Company receives licensing fees from these manufacturers
based on their sales of brand products to distributors, who in turn sell to
Schlotzsky's-Registered Trademark- Deli restaurants. While franchisees are not
required to purchase brand products, other than the Company's proprietary flour
mixes and paper products, the Company believes that most franchisees prefer them
because they are of equal or superior quality compared to other brand name
products and generally are less expensive than the products available from other
approved sources. In addition, some brand products can be sold at restaurants
for home consumption, enhancing brand awareness and providing franchisees with
additional sales opportunities.

    Since 1999, the Company has also licensed certain brand products for sale
outside of the restaurant system. Schlotzsky's-Registered Trademark- Deli brand
potato chips, meats, cheeses, soups and condiments are available for

                                       9
<Page>
distribution in the retail sector. As of December 31, 2001, potato chips,
packaged meats and cheeses, soups and condiments are available in the domestic
superstore division of one of the world's largest retailers and in certain
locations of a national warehouse club, several regional supermarket chains and
other retail outlets in selected markets. The Company is continuing to seek
distribution in additional retail outlets and markets and is exploring
additional products for inclusion in this program.

                                   MARKETING

    Domestic franchised and Company-owned restaurants contribute 1% of gross
sales to Schlotzsky's N.A.M.F., Inc. ("NAMF"), a non-profit corporation
administered by the Company. NAMF funds are used as a production fund to develop
and produce radio and television commercials and print advertising for use in
national and local marketing, and for in-store graphics and promotions. Any
excess funds are utilized to purchase media placement. NAMF has developed
advertising campaigns for use by franchisees centered around various slogans,
such as FUNNY NAME. SERIOUS SANDWICH.-Registered Trademark- NAMF's contract
field marketing representatives coordinate local and regional advertising
campaigns and promotions for area developers and franchisees.

    In addition, franchisees are required by the terms of their franchise
agreements to spend at least 3% of their restaurant's gross sales on advertising
and the Company encourages them to spend more than the minimum. Effective
January 1, 1999, the Company began collecting 1.75% of such 3% for national
television advertising provided through Schlotzsky's National Advertising
Association, Inc. ("NAA"), a non-profit corporation also administered by the
Company. National advertising was initiated during the Spring of 1999. Effective
January 1, 2001, NAA began collecting 2% of gross sales and also provided a
national free-standing newspaper insert program along with national television
advertising, and in 2002 will commence direct mail programs. The remainder of
the 3% is spent locally by individual franchisees or by local advertising groups
formed in order to maximize the benefits of local advertising for members.
Company-owned restaurants contribute to NAA and to local advertising groups on
the same basis as franchised restaurants.

                                  COMPETITION

    The food service industry is intensely and increasingly competitive with
respect to concept, price, location, food quality and service. There are many
well-established competitors with substantially greater financial strength,
market share, media presence, points of distribution and other resources than
the Company. Such competitors include a large number of national, regional and
local food service companies, including fast food and quick-service restaurants,
fast casual dining restaurants, casual dining restaurants, delicatessens, pizza
restaurants and other dining establishments. There are also new and growing
competitors in the fast casual upscale sandwich category in which the Company
primarily operates. Some of the Company's competitors have been in business
longer than the Company and are better established in markets where
Schlotzsky's-Registered Trademark- Deli restaurants are or may be located. The
Company believes that it competes for franchisees with franchisors of other
restaurants and various concepts.

    Schlotzsky's-Registered Trademark- Deli restaurants compete primarily on the
basis of distinctive, high quality food, comfortable atmosphere and convenience,
complemented by excellent customer service. The Company believes that
Schlotzsky's-Registered Trademark- Deli restaurants provide the quick service
and convenience of fast food restaurants while offering more distinctive food
and a more comfortable atmosphere. Pricing is designed so that customers
perceive good value (high quality food at reasonable prices), even though
Schlotzsky's-Registered Trademark- Deli menu prices are typically higher than
certain competitors' prices.

    Competition in the food service business is affected by changes in consumer
taste, economic and real estate conditions, demographic trends, traffic
patterns, the cost and availability of qualified labor, product availability and
local competitive factors. The Company and its area developers attempt to assist
franchisees in managing or adapting to these factors, but no assurance can be
given that some or all of these factors will not adversely affect some or all
Schlotzsky's -Registered Trademark- Deli restaurants.

                                       10
<Page>
                          TRADEMARKS AND TRADE SECRETS

    The Company owns several trademarks registered with the United States Patent
and Trademark Office, including the name "Schlotzsky's"-Registered Trademark-.
The Company has also registered or applied to register trademarks in several
foreign countries. The potential duration of trademarks is generally unlimited,
subject to continued use and registration renewals. The flour and bread recipes
and techniques currently used in Schlotzsky's-Registered Trademark- Deli
restaurants are based on a modification of the Company's original recipe
developed jointly by the Company and Pillsbury Company. These and other recipes
and techniques are protected by the Company and its suppliers as trade secrets.
The Company has not sought patent protection for these recipes, and it is
possible that competitors could develop recipes and techniques that duplicate or
closely resemble those of the Company. The Company considers its trademarks and
trade secrets to be materially important to its business and a key to its
strategy of differentiation.

                             GOVERNMENT REGULATION

    The Company must comply with regulations adopted by the Federal Trade
Commission (the "FTC") and with several state laws that apply to the offer and
sale of franchises, including those requiring that prospective franchisees
receive a franchise offering circular containing certain prescribed information.
The Company must also comply with several state laws that regulate certain
substantive aspects of the franchisor-franchisee relationship, including those
requiring the franchisor to deal with its franchisees in good faith; prohibiting
interference with a right of free association among franchisees; regulating
discrimination among franchisees with regard to charges; restricting the
development of new restaurants within certain distances from existing franchised
restaurants; or restricting a franchisor's rights to terminate a franchise
agreement by requiring "good cause" to exist, advance notice given to the
franchisee, an opportunity to cure any default, or repurchase the franchisee's
inventory or other compensation. To date, these laws have not precluded the
Company from seeking franchisees in any state and have not had a material
adverse effect on the Company's franchise operations.

    The Company and its franchisees, in the operation of their
Schlotzsky's-Registered Trademark- Deli restaurants, must comply with federal,
state and local laws and regulations regarding health, sanitation, safety, fire,
zoning, environment, wages, working hours, working conditions, disabilities, and
alcoholic beverages (where applicable). Any failure to comply with such laws or
to obtain or maintain applicable permits can adversely impact or prevent the
opening or continued operation of a restaurant. To date, the business of the
Company has not been materially affected by any such noncompliance. Compliance
with environmental and other laws has impacted the cost of new restaurants, but
the Company believes it has not prevented development of new restaurants. Many
employees in Schlotzsky's-Registered Trademark- Deli restaurants receive
compensation at rates related to the federal minimum wage and, accordingly,
increases in the minimum wage increase labor costs at those locations.

                                   EMPLOYEES

    As of December 31, 2001, the Company employed 142 full-time equivalent
personnel at its corporate headquarters or as field personnel and 855 personnel
at Company-owned restaurants. None of the Company's employees is covered by a
collective bargaining agreement or is represented by a labor union. The Company
believes its relationship with its employees is good.

                           FORWARD-LOOKING STATEMENTS

    This report contains statements that are not historical information and are
considered "forward-looking statements," as defined under the federal securities
laws. Forward-looking statements may also be included from time to time in other
written and oral communications by the Company and its authorized
representatives. Forward-looking statements include, but are not limited to,
those related to: the Company's business and growth strategies; new restaurant
development; sales, costs and earnings

                                       11
<Page>
projections; the sufficiency of operating cash flows, working capital and
borrowings for the Company's future liquidity and capital resource needs; the
results of pending or threatened legal proceedings; the future declaration and
payment of dividends; the disposition of restaurants available for sale; the
availability of financing for the Company and its franchisees; future
distribution of Schlotzsky's-Registered Trademark- Deli brand products; and the
expected recruitment of multi-unit operators as franchisees. Although forward-
looking statements reflect the Company's expectations based on then-current
information, shareholders and prospective investors are cautioned not to place
undue reliance on such forward-looking statements. The Company undertakes no
obligation to update any forward-looking statements. There can be no assurance
that forward-looking statements will actually be achieved. Actual future results
may be materially different from the forward-looking statements because of
various risks and uncertainties, including but not limited to those identified
in this report under the heading "Risk Factors."

                                  RISK FACTORS

    In addition to the other information contained in this report, the following
factors should be considered carefully in evaluating the Company:

    NEW RESTAURANT STRATEGY.  The Company has initiated several measures to
encourage the opening of new Schlotzsky's-Registered Trademark- Deli restaurants
by its franchisees, including an updated shopping-center model restaurant, a
special incentive program offering reduced franchise fees and royalties for
certain new restaurants opened by existing franchisees, and increased
advertising aimed at prospective franchisees. Although the Company believes
these actions are appropriate, there can be no assurance they will result in the
opening of more restaurants. During 1999, 2000 and 2001, the Company and its
franchisees opened 66, 32 and 18 new Schlotzsky's-Registered Trademark- Deli
restaurants, respectively. The number of openings and the performance of new
restaurants will depend on various factors, including: the availability of
suitable sites for new restaurants; the ability to recruit financially and
operationally qualified franchisees; the ability of franchisees to negotiate
acceptable lease or purchase terms, obtain required capital, meet construction
schedules, and hire and train qualified store personnel; the establishment of
brand awareness in new markets; and the ability of the Company to manage
anticipated growth. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Overview."

    RELIANCE ON AREA DEVELOPERS.  The Company relies on certain area developers
along with its own staff to recruit qualified franchisees and to perform quality
inspections of franchised restaurants. Area developers are independent
contractors, and are not employees of the Company. Although most area developer
agreements originally specified a schedule for opening restaurants in their
territories, the Company eliminated the development schedule for several area
developers in connection with the negotiated reduction of their percentage of
future franchise fees and royalties, and the Company has also agreed in the past
to extend or waive development schedules for certain other area developers. The
Company provides training and support to area developers, but the quality of
restaurant operations in their territories may be diminished by certain area
developers' lack of restaurant operations experience. It may be difficult for
the Company to enforce or terminate its area development agreements with area
developers who fail to meet development schedules, inspection standards or other
requirements, limiting the ability of the Company to succeed in the territories
of such area developers. In the past three years, the Company has negotiated
transactions with certain area developers to reacquire their territories or to
reduce their responsibilities along with their percentage of fees and royalties.
As a result, the Company's success in those territories increasingly depends on
its ability to perform functions that it had previously relied upon or shared
with area developers to perform. See "Business--Franchising."

    DEPENDENCE ON FRANCHISING CONCEPT.  Because royalties from franchised
restaurants are a principal component of the Company's revenue base, the
Company's performance depends upon the ability of its franchisees to capitalize
on and properly execute the Schlotzsky's-Registered Trademark- Deli concept. The
operation of a Schlotzsky's-Registered Trademark- Deli restaurant requires a
franchisee's significant and continued effort in areas such as

                                       12
<Page>
product quality, customer service, employee training, local marketing and cost
controls. The Company believes that the costs for a franchisee to open a
Schlotzsky's-Registered Trademark- Deli restaurant, including the cost to
purchase or lease real estate that meets the Company's site selection criteria,
are higher than the restaurant opening costs of certain competing concepts. This
necessarily limits the number of persons who are qualified to be franchisees of
the Company. The Company has established criteria to use in evaluating
prospective franchisees, as well as training programs to assist in the
operations of restaurants by franchisees, but there can be no assurance that
franchisees will successfully open and operate
Schlotzsky's-Registered Trademark- Deli restaurants consistent with the
Company's expectations. Since franchisees are independent business owners, they
make their own decisions regarding new restaurant openings and whether to close
existing restaurants. There can be no assurance that franchisees will open
additional restaurants or continue operations of existing restaurants. During
2001, 2000 and 1999 franchisees closed 73, 91 and 61 restaurants, respectively.
See "Business--Franchising."

    The Company is subject to various state and federal laws relating to the
franchise relationship. The failure by the Company to comply with these laws
could subject the Company to liability to franchisees and sanctions by
governmental authorities. The Company believes that the franchising industry is
experiencing an increasing trend of franchisees filing complaints with
government authorities and instituting lawsuits against franchisors, claiming
unlawful or unfair trade practices or breach of express or implied agreements.
While the Company's experience is consistent with the trends in the industry,
the Company believes that it is in material compliance with these laws and
regulations and its agreements with franchisees. See "Business--Government
Regulation" and "Legal Proceedings."

    SCHLOTZSKY'S-REGISTERED TRADEMARK- DELI BRAND LICENSING FEES.  During the
past four years, the Company's revenue from Schlotzsky's-Registered Trademark-
Deli brand licensing fees (brand contribution) has increased significantly as
the volume of systemwide sales has increased, terms with certain major suppliers
have been renegotiated, and franchisees have increased their voluntary
participation in the Company's purchasing programs. In addition,
Schlotzsky's-Registered Trademark- Deli brand potato chips, meats, cheeses,
soups and other products have been licensed for sale in grocery stores and other
retail outlets. The Company will continue to explore other retail channels or
areas of distribution for some of its brand products, but there can be no
assurance that the Company will achieve any significant or consistent revenue
from such sources. In addition, some franchisees may object to
Schlotzsky's-Registered Trademark- Deli brand licensing fees as a source of
revenue to the Company and may reduce their future voluntary purchases of
Schlotzsky's-Registered Trademark- Deli brand products through the Company's
purchasing programs. See "Business--Schlotzsky's-Registered Trademark- Deli
Brand Products" and "Legal Proceedings."

    OPERATION OF COMPANY-OWNED RESTAURANTS.  The Company's revenue from
Company-owned and operated restaurants has increased significantly over the past
four years as the Company has increased the number of restaurants it operates.
Restaurant operations have different financial characteristics, including higher
capital requirements and lower operating margins, than the Company's franchising
operations. In addition, a majority of the restaurants operated by the Company
were developed for or acquired from franchisees who, in many cases, did not
operate these restaurants with consistent profitability. The Company expects to
further increase the number of restaurants it operates, both in its long-term
portfolio and in its available for sale portfolio. There can be no assurance
that the Company will achieve consistent profitability in its operation of
restaurants that it has or will acquire from franchisees in the future. See
"Business Strategy."

    INVESTMENTS IN INTANGIBLE ASSETS.  The Company has substantial investments
in intangible assets with a carrying value of $43.1 million as of December 31,
2001. The carrying amount of such investments is dependent, in part, on
projected cash flows for the related business activities. Such projected cash
flows can be impacted by factors both within and without management's control
and projection of cash flows requires the exercise of judgment. There can be no
assurance that factors adversely impacting these projected cash flows will not
occur or that management's judgments will not change in the future.

                                       13
<Page>
    CREDIT RISK AND CONTINGENCIES.  The Company has charged its area developers
and master licensees a fee ("developer fee") for the rights to develop a defined
territory and has typically accepted a portion of the developer fee in the form
of a promissory note. As of December 31, 2001, the Company held notes receivable
from area developers and master licensees in an aggregate principal amount of
approximately $2.2 million. In addition, at December 31, 2001, there was
$1.8 million of deferred revenue related to sales of these rights. The Company
also holds notes receivable from certain franchisees related to their purchase
of restaurants and certain other obligations. As of December 31, 2001, the
outstanding principal amount of these notes was approximately $8.3 million.
While the Company considers it unlikely that there will be significant
noncollection on the notes described above, such noncollection could adversely
affect the Company's financial condition. Parties controlled by or related to
directors, officers and principal shareholders of the Company have provided
financing to certain area developers and master licensees and have guaranteed
obligations of certain area developers and master licensees to the Company. See
"Business--Franchising" and "Business--Franchisee Financing."

    The Company has guaranteed a bank term note for which Schlotzsky's National
Advertising Association, Inc. and Schlotzsky's N.A.M.F., Inc. are co-borrowers,
with an outstanding balance of approximately $2.9 million at December 31, 2001
and a $500,000 line of credit for the same co-borrowers which has no outstanding
balance at December 31, 2001.

    The Company guarantees certain loans, leases and other obligations of
certain franchisees. The Company entered into most of these guarantees in
connection with restaurants developed under the former Turnkey program. At
December 31, 2001, the Company was contingently liable for approximately
$25.6 million of franchisees' obligations, which was principally comprised of
guarantees on real estate leases and mortgages, equipment leases, and loans of
franchisees. The Company has, from time-to-time, been called upon to perform
under such guarantees and there can be no assurance that it will not be so
called upon in the future. See "Business--Franchisee Financing" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources."

    Directly and through a wholly owned subsidiary, the Company is the general
partner and a limited partner in a limited partnership that owns a retail
shopping center in the Austin, Texas area. The Company has guaranteed, subject
to certain conditions, the repayment of a loan for this project in the principal
amount of approximately $2.0 million due in October 2009 (the Company's
subsidiary received the proceeds of the loan in repayment of its loan to the
partnership). The Company does not consider its investment in the retail
shopping center to represent a separate line of business. The Company has also
guaranteed a loan, in the principal amount of approximately $2.2 million due in
January 2016, of a limited liability company in which a subsidiary of the
Company owns a 50% interest (the Company's subsidiary also received the proceeds
of this loan in payment for the restaurant purchased by the limited liability
company). See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."

    The Company is subject to various lawsuits and claims arising from its
business operations. In the past, the Company has obtained liability insurance
to cover certain types of claims, subject to significant deductibles, retentions
and other limitations. There can be no assurance that such insurance will be
available to the Company in the future on acceptable terms or that the insurance
obtained will be adequate to pay applicable claims. See "Legal Proceedings."

    GEOGRAPHIC CONCENTRATION.  Of the 674 restaurants in the
Schlotzsky's-Registered Trademark- Deli system at December 31, 2001, 197 were
located in Texas. A downturn in the regional economy or other significant
adverse events in Texas could have a material adverse effect on the Company's
financial condition and results of operations. See
"Business--Schlotzsky's-Registered Trademark- Deli Restaurant Locations."

    FACTORS AFFECTING THE RESTAURANT INDUSTRY.  The Company and its franchisees
may be affected by risks inherent in the restaurant industry, including: adverse
changes in national, regional or local economic conditions; availability and
cost of labor (including increases in the minimum wage); dependence on

                                       14
<Page>
distributors to deliver supplies; increased costs of food products; limited
alternative uses for properties and equipment; changing consumer tastes, habits
and spending priorities; changing demographics; the cost and availability of
insurance coverage; weather conditions; and health and safety concerns. The
restaurant industry is subject to numerous federal, state and local governmental
regulations, including those relating to food preparation, zoning and building
requirements. The Company may also be adversely affected by publicity resulting
from food quality, illness, injury or other health concerns or operating issues
or allegations resulting from one restaurant or a limited number of restaurants
in the Schlotzsky's-Registered Trademark- Deli system or in other restaurant
chains. None of these factors can be predicted with any degree of certainty, and
any one or more of these factors could have a material adverse effect on the
Company's financial condition and results of operations. See
"Business--Competition" and "Business--Government Regulation."

    COMPETITION.  The food service industry is intensely and increasingly
competitive with respect to concept, price, location, food quality and service.
There are new competitors as well as many well-established competitors with
substantially greater financial and other resources than the Company. These
competitors include a large number of national, regional and local food service
companies, including fast food and quick-service restaurants, fast casual dining
restaurants, casual dining restaurants, delicatessens, pizza restaurants and
other convenience dining establishments. Some of the Company's competitors have
been in business longer than the Company and may be better established in
markets where Schlotzsky's-Registered Trademark- Deli restaurants are or may be
located. There are also new and growing competitors in the fast casual upscale
sandwich category in which the Company primarily operates. The Company provides
training and other assistance to its franchisees in adapting to these factors,
but no assurance can be given that some or all of these factors will not
adversely affect some or all of Schlotzsky's-Registered Trademark- Deli
restaurants. The Company also believes that it competes for franchisees with
franchisors of other restaurants and various concepts. See
"Business--Competition."

    CONTROL BY PRINCIPAL SHAREHOLDERS.  As of December 31, 2001, John C. Wooley
and Jeffrey J. Wooley (who are officers and directors of the Company)
beneficially owned an aggregate of approximately 13.1% of the outstanding Common
Stock. Additionally, companies of which Floor Mouthaan (a director of the
Company) is managing director, beneficially owned an aggregate of 6.2% of the
outstanding Common Stock. As a result, these shareholders, if they were to act
in concert, would have the ability to influence the outcome of any issue
submitted to a vote of the shareholders. To the Company's knowledge, there are
no agreements or understandings among these shareholders regarding the voting of
their shares, but to date they have voted consistently on matters submitted to a
vote of the shareholders. See "Security Ownership of Certain Beneficial Owners
and Management."

    DEPENDENCE ON MANAGEMENT AND KEY PERSONNEL.  The Company's success is very
dependent upon the efforts of its management and key personnel, including its
Chairman of the Board, President and Chief Executive Officer, John C. Wooley.
The Company has employment agreements with John C. Wooley and Jeffrey J. Wooley,
which include certain noncompetition provisions that survive the termination of
employment. The employment agreements were amended and restated effective
January 1, 2001, and will automatically extend for rolling four-year terms. The
Company also has employment agreements with several other members of management
and key personnel, which include noncompetition provisions. However, there can
be no assurance that such noncompetition agreements will be enforceable in any
particular situation. The loss of the services of John C. Wooley or other
management or key personnel could have a material adverse effect on the Company.
The Company does not carry key man life insurance on any of its officers. See
"Directors and Executive Officers of the Registrant."

    ABSENCE OF DIVIDENDS.  The Company has never paid cash dividends on its
Common Stock and, while it is evaluating this issue, does not have current plans
to do so.

    VOLATILITY OF STOCK PRICE AND VOLUME.  There have been periods of
significant volatility in the market price and trading volume of the Company's
Common Stock, which in many cases were unrelated to the

                                       15
<Page>
operating performance of, or announcements concerning, the Company. General
market price declines or market volatility in the future could adversely affect
the price of the Common Stock. In addition, the trading price of the Common
Stock has been or is likely to continue to be subject to significant
fluctuations in response to variations in quarterly operating results, changes
in management, competitive factors, regulatory changes, general trends in the
industry, recommendations by securities industry analysts and other events or
factors. This volatility has been exacerbated by the low volume of public
trading in the Common Stock. There can be no assurance that an adequate trading
market can be maintained for the Common Stock.

    As of December 31, 2001, the Company had 7,463,990 shares of Common Stock
issued, of which 186,300 shares were held in treasury, and the Company had
outstanding an aggregate of 794,383 stock options and warrants that were
exercisable. A substantial number of shares may become available for sale in the
public market at various times. No predictions can be made as to the effect, if
any, that market sales or the availability of shares for future sale will have
on the market price of the Common Stock. Sales of substantial amounts of Common
Stock in the public market, or the perception that such sales may occur, could
adversely affect the market price for the Common Stock and could impair the
Company's ability to raise capital through a public offering of equity
securities. See "Market for Registrant's Common Equity and Related
Stockholder Matters."

    ANTI-TAKEOVER PROVISIONS.  The Texas Business Combination Law restricts
certain transactions between a public corporation and affiliated shareholders.
The statute may have the effect of inhibiting a non-negotiated merger or other
business combination involving the Company.

    The Company's Articles of Incorporation and Bylaws include certain
provisions that may have the effect of discouraging or delaying a change in
control of the Company. Directors are elected to staggered three-year terms,
which has the effect of delaying the ability of shareholders to replace specific
directors or effect a change in a majority of the Board of Directors. The Bylaws
provide that a director may only be removed for cause by vote of the holders of
at least two-thirds of the shares present in person or by proxy at a meeting of
shareholders called expressly for that purpose. All other shareholder action
must be effected at a duly called annual or special meeting and shareholders
must follow an advance notification procedure for certain shareholder proposals
and nominations to the Board of Directors.

    The Board of Directors has the authority, without further action by the
shareholders, to issue up to 1,000,000 shares of Preferred Stock in one or more
series and to fix the rights, preferences, privileges and restrictions thereof,
and to issue additional authorized, unissued shares of Common Stock. The
issuance of Preferred Stock or additional shares of Common Stock could adversely
affect the voting power of the Common Stockholders and could have the effect of
delaying, deferring or preventing a change in control of the Company. The
issuance of Preferred Stock could have other adverse effects on Common
Stockholders, including creation of a preference upon liquidation or the payment
of dividends in favor of the holders of Preferred Stock.

    The Board of Directors has adopted a Shareholders' Rights Plan, pursuant to
which certain rights would become exercisable upon the occurrence of certain
events, such as a purchase, tender offer, or exchange offer that would result in
a person obtaining 20% or more of the Company's outstanding shares of Common
Stock. Upon becoming exercisable, the Rights may entitle the holder to purchase
the Company's Common Stock or an acquiring company's stock for less than market
value or to receive cash. The Rights have certain anti-takeover effects,
including the substantial dilution of value incurred by such a person who
acquires 20% or more of the Company's Common Stock. Accordingly, the existence
of the Rights may deter certain persons from making takeover proposals or tender
offers. Of the 1,000,000 shares of Preferred Stock that are authorized,
200,000 shares have been reserved for issuance under the Shareholders' Rights
Plan as Class C Series A Junior Participating Preferred Stock.

    The Company holds an Option Agreement to reacquire the territories of its
largest area developer, which provides that if there is a change in control of
the Company (defined to include the acquisition of at

                                       16
<Page>
least 20% of the outstanding Common Stock by someone other than John C. Wooley
or Jeffrey J. Wooley), the Company is obligated to pay between $2.8 million and
$3.8 million to prevent the option from lapsing. Such payment would be
applicable to the exercise price, if and when paid. The Company also has a
Credit Agreement with its banks, which provides that the acquisition of
beneficial ownership of more than 33% of the outstanding stock of the Company by
a person or group of related persons constitutes a default, resulting in the
possible acceleration of outstanding indebtedness.

    STOCK REPURCHASE PROGRAM.  In January 2001, the Board of Directors increased
the existing authorization to repurchase shares of the Company's outstanding
Common Stock to 1,000,000 shares. During 2001, the Company repurchased
176,300 shares at a total cost of approximately $718,000. Under the Credit
Agreement with its bank group, the Company is limited to spending an aggregate
of $1.0 million for all stock repurchases. There can be no assurance that the
Company will repurchase shares of Common Stock in the future.

    OPTION TO PURCHASE AREA DEVELOPER TERRITORIES.  The Company has made
nonrefundable payments of $4.6 million for an option to reacquire the
territories from its largest area developer. If the Company does not exercise
the option by June 30, 2002, it must pay an additional fee of $1.7 million. To
exercise the option, the Company must pay $3.5 million in cash and execute a
promissory note for $20,118,000. The note terms would provide interest at 8% per
year, four $2.0 million semi-annual payments commencing June 30, 2003, and
payment in full on June 30, 2005. The Company will need to negotiate amendments
to its bank Credit Agreement, or refinance the Credit Agreement with alternative
financing, to fund the exercise of the option and revise certain financial
covenants. Although the Company has been able to obtain amendments or waivers of
Credit Agreement provisions in the past, there can be no assurance that such
amendments will be obtained in the future. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."

ITEM 2. PROPERTIES

    The Company leases its corporate headquarters facility in Austin from a
company owned by John C. Wooley and Jeffrey J. Wooley. This lease will expire in
2007. The facility consists of approximately 41,000 square feet of office and
storage space.

    The Company operates 33 restaurants in 12 states. Fifteen of these
restaurants are in the Company's portfolio of restaurants to be operated for the
long term. Of these units, 14 are in Texas and one is in Georgia. The remaining
18 restaurants are considered available for sale. These locations include four
in Georgia, three in Texas, two in Minnesota, and one each in Alabama, Arkansas,
Utah, Mississippi, Arizona, New Mexico, North Carolina, Tennessee, and
New York. The properties consist of land, building, leasehold improvements, and
restaurant equipment. The equipment is typically owned, and the land and
building are either owned or leased. In addition, the Company has certain excess
undeveloped or partially developed real estate available for sale.

ITEM 3. LEGAL PROCEEDINGS

    LONE STAR LADIES INVESTMENT CLUB, A TEXAS GENERAL PARTNERSHIP, ET AL., ON
BEHALF OF THEMSELVES AND ALL OTHERS SIMILARLY SITUATED V. SCHLOTZSKY'S, INC.,
JOHN C. WOOLEY, JEFFREY J. WOOLEY, JOHN M. ROSILLO, AND MONICA GILL, (CASE
NO. A-98CA-550-JN), was filed in the United States District Court, Western
District of Texas, Austin Division on February 8, 1999, as a class action
lawsuit, amending and consolidating four cases previously filed on behalf of
certain shareholders against the Company and certain of its past and present
officers and directors, seeking remedies under the Securities Act of 1933 and
the Securities Exchange Act of 1934 based upon statements made by the Company in
its Registration Statement and Prospectus issued in connection with the
Company's Secondary Public Offering, which became effective on September 24,
1997, and subsequent press releases. The Company filed a motion to dismiss for
failure to state a claim, which was granted, with prejudice, by the District
Court on August 5, 1999. On appeal, the Fifth Circuit

                                       17
<Page>
reversed the District Court's denial of leave to amend and remanded the case on
January 9, 2001 to allow Plaintiffs leave to file an amended complaint in March
of 2001. The amended complaint sought relief under the 1933 Act claims only.
Without conceding the facts that formed the basis of Plaintiffs' claims, the
Company entered into a stipulation of settlement on January 26, 2002, settling
all claims, with prejudice, for the sum of $2 million, the entirety of which
will be paid by the Company's insurer. On February 19, 2002 the District Court
entered its preliminary approval and set the matter for final settlement hearing
on April 2, 2002, at which time the Court will determine whether the proposed
settlement is fair to the settlement class and should be approved by the Court.
There can be no assurance that the Court will grant final approval or that a
significant number of the settlement class will not "opt-out" of the
proposed settlement.

    In addition to the lawsuit discussed above, the Company is a defendant in
various other legal proceedings arising from its business. The ultimate outcome
of these pending proceedings cannot be projected with certainty. However, based
on its experience to date, the Company believes such proceedings will not have a
material effect on its business or financial condition.

    From time to time, the Company has settled various legal proceedings arising
from its business. In certain cases, the Company's insurers have made payments
with regard to these settlements. There has been no material adverse impact to
the Company relating to these settlements. There can be no assurance, however,
that future settlements will not occur which could be material or outside of the
Company's insurance coverages.

    The Company may also be subject to various additional lawsuits, claims,
government agency actions, and other legal proceedings arising from its business
from time to time. Set forth below is a brief description of some of the more
significant categories of such proceedings:

    FRANCHISEES AND AREA DEVELOPERS.  In the course of contractual
relationships, various disputes arise between the Company and its franchisees
and area developers, including but not limited to those regarding: enforcement
of quality, service and cleanliness standards; default and termination of
contracts; delinquent royalties and other payments; administration of
advertising funds; payments from suppliers (including
Schlotzsky's-Registered Trademark- Deli brand license fees); and the Company's
former Turnkey program.

    EMPLOYEES.  In the course of employing hundreds of people, issues and
disputes arise regarding hiring and termination of employment decisions, wages
and hours, discrimination and harassment allegations, and other matters.

    SUPPLIERS.  In the course of relationships with companies who have been
authorized to manufacture or distribute Schlotzsky's-Registered Trademark- Deli
brand or other products to the restaurants or in retail channels, disputes can
arise regarding product standards and specifications, contractual terms, and
other issues.

    CUSTOMERS.  In the course of serving customers at Company-owned and
franchised restaurants, the Company becomes involved in claims and disputes
involving products, services, accidents and other matters.

    INTELLECTUAL PROPERTY.  In the course of owning trademarks, copyrights and
other intellectual property, the Company occasionally is involved in proceedings
to defend or protect such property.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

    Not applicable.

                                       18
<Page>
                                    PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

    The authorized capital stock of the Company consists of 30,000,000 shares of
Common Stock, no par value, and 1,000,000 shares of Class C Preferred Stock, no
par value (including 200,000 shares of Class C Series A Junior Participating
Preferred Stock reserved for issuance under the Company's Shareholders' Rights
Plan). The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "BUNZ". As of March 26, 2002, 7,284,164 shares of outstanding Common
Stock were owned by approximately 5,200 beneficial owners and 278 shareholders
of record.

    The following table shows, for the Company's Common Stock in each fiscal
quarter in the last two years, the highest and lowest sales price (reflecting
actual transactions reported by Nasdaq).

<Table>
<Caption>
                                                                 SALES PRICES
                                                              -------------------
                                                                HIGH       LOW
                                                              --------   --------
<S>                                                           <C>        <C>
FISCAL 2000
    First Quarter...........................................   $9.00      $5.75
    Second Quarter..........................................    6.75       5.00
    Third Quarter...........................................    6.00       3.38
    Fourth Quarter..........................................    4.88       2.06

FISCAL 2001
    First Quarter...........................................   $4.50      $2.38
    Second Quarter..........................................    5.80       3.67
    Third Quarter...........................................    9.00       4.29
    Fourth Quarter..........................................    6.50       4.25
</Table>

    The Company has never paid cash dividends on its Common Stock and, while it
is evaluating this issue, does not have current plans to do so. The declaration
and payment of future dividends will be at the sole discretion of the Board of
Directors and will depend on the Company's profitability, financial condition,
capital needs, future prospects, financing restrictions and other factors deemed
relevant by the Board of Directors.

    The Transfer Agent and Registrar for the Company's Common Stock is
Computershare Investor Services, LLC.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

    The following table sets forth selected consolidated financial data for the
Company for the periods and the dates indicated. The consolidated balance sheet
data as of December 31, 2001 and 2000 and the consolidated statement of
operations data as of and for the years ended December 31, 2001, 2000 and 1999
have been derived from the audited consolidated financial statements of the
Company, included elsewhere herein. The consolidated balance sheet data as of
December 31, 1999, 1998 and 1997 and consolidated statement of operations data
as of and for the years ended December 31, 1998 and 1997 have been derived from
the Company's audited financial statements not included or incorporated herein.
The selected financial data should be read in conjunction with, and are
qualified in their entirety by, the Consolidated Financial Statements of the
Company and related Notes and other financial information included elsewhere in
this report.

                                       19
<Page>

<Table>
<Caption>
                                                        FISCAL YEARS ENDED DECEMBER 31,
                                              ----------------------------------------------------
                                                2001       2000       1999       1998       1997
                                              --------   --------   --------   --------   --------
                                                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                           <C>        <C>        <C>        <C>        <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue:
  Royalties.................................  $ 21,765   $ 22,478   $ 21,547   $ 18,885   $ 14,561
  Franchise fees............................       348        511        843      1,365      1,555
  Developer fees (1)........................       455        740      1,058        270        325
  Restaurant sales..........................    29,906     25,738     18,533      9,200      6,186
  Brand contribution........................     7,397      7,142      6,173      4,003      2,915
  Other fees and revenue....................     1,981      2,566      3,254      9,604      2,444
                                              --------   --------   --------   --------   --------
      Total revenue.........................    61,852     59,175     51,408     43,327     27,986
                                              --------   --------   --------   --------   --------
Expenses:
  Service costs:
    Royalties...............................     4,745      5,295      6,601      7,226      5,373
    Franchise fees..........................       149        216        389        697        813
                                              --------   --------   --------   --------   --------
                                                 4,894      5,511      6,990      7,923      6,186
                                              --------   --------   --------   --------   --------
  Restaurant operations:
    Cost of sales...........................     8,363      7,353      5,457      3,043      1,952
    Personnel and benefits..................    12,515     10,693      7,374      3,976      2,493
    Operating expenses......................     6,945      5,661      4,233      2,627      1,952
                                              --------   --------   --------   --------   --------
                                                27,823     23,707     17,064      9,646      6,397
                                              --------   --------   --------   --------   --------
  Equity loss on investments................       109         55         --         --         --
                                              --------   --------   --------   --------   --------
  General and administrative................    18,721     27,865     18,078     15,831      7,938
                                              --------   --------   --------   --------   --------
  Depreciation and amortization.............     4,224      3,771      3,186      2,007      1,155
                                              --------   --------   --------   --------   --------
      Total expenses........................    55,771     60,909     45,318     35,407     21,676
                                              --------   --------   --------   --------   --------
      Income (loss) from operations.........     6,081     (1,734)     6,090      7,920      6,310
Other:
  Interest income...........................       943      2,265      3,097      2,296      1,050
  Interest expense..........................    (2,822)    (3,586)    (2,316)      (281)      (297)
                                              --------   --------   --------   --------   --------
      Income (loss) before income taxes and
        cumulative effect of change in
        accounting principle................     4,202     (3,055)     6,871      9,935      7,063
Provision (credit) for income taxes.........     1,713       (744)     2,525      3,729      2,614
                                              --------   --------   --------   --------   --------
      Net income (loss) before cumulative
        effect of change in accounting
        principle...........................     2,489     (2,311)     4,346      6,206      4,449
Cumulative effect of change in accounting
 principle, net of tax (1)..................        --         --     (3,820)        --         --
                                              --------   --------   --------   --------   --------
      Net income (loss).....................  $  2,489   $ (2,311)  $    526   $  6,206   $  4,449
                                              ========   ========   ========   ========   ========
Earnings per share--basic, before cumulative
 effect.....................................  $   0.34   $  (0.31)  $   0.59   $   0.84   $   0.74
Earnings per share--basic...................  $   0.34   $  (0.31)  $   0.07   $   0.84   $   0.74
Earnings per share--diluted, before
 cumulative effect..........................  $   0.33   $  (0.31)  $   0.58   $   0.82   $   0.71
Earnings per share--diluted.................  $   0.33   $  (0.31)  $   0.07   $   0.82   $   0.71
CONSOLIDATED BALANCE SHEET DATA:
Total assets................................  $114,149   $113,501   $132,759   $104,228   $ 79,521
Long-term debt, less current maturities.....  $ 25,897   $ 26,251   $ 21,275   $  9,219   $  1,936
Stockholders' equity........................  $ 74,402   $ 72,522   $ 74,735   $ 73,963   $ 66,991
</Table>

------------------------------

(1) Effective January 1, 1999, the Company implemented a change in accounting
    principle regarding revenue recognition of developer fees. See Notes to
    Consolidated Financial Statements.

                                       20
<Page>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

                                    OVERVIEW

    The Company derives approximately 95% of its revenue from three recurring
sources: royalties from franchisees, restaurant sales at Company-owned and
operated restaurants and brand contribution (license fees from the sales of
Schlotzsky's-Registered Trademark- Deli brand products to the restaurant system
and in the retail sector).

    During 2001, the Company returned to profitability after a loss in 2000 due
to charges related to the termination of its former Turnkey program (as
discussed below). The Company's focus during 2001 was on infrastructure
improvements. During the year, general and administrative costs were reduced;
strategic alliances were completed with suppliers of point-of-sale software and
hardware; and the design and operating system of the Company's standard 3,200
square foot freestanding restaurant was adapted to a shopping center
environment, which provides a lower cost restaurant development opportunity for
franchisees while still maintaining a consistent representation of the brand.

    During 2002, the Company intends to focus its efforts on: increasing the
number of Company-owned restaurants, including developing market leadership
restaurants in Texas; expanding the number of domestic franchised restaurants by
utilizing the new shopping center restaurant designs, offering an incentive
program for existing franchisees to commit to additional locations in 2002, and
increasing advertising to attract new qualified franchisees; expanding the scope
of Schlotzsky's-Registered Trademark- Deli brand product sales in the retail
sector; continuing to control general and administrative expenses; and
rearranging its credit facilities to accommodate the exercise of the option to
reacquire its largest area developer's territory rights and to fund the growth
in Company-owned restaurants.

    The Company terminated its former Turnkey program in 2000. This program had
been initiated in 1995 to support the Company's growth through the development
of larger, freestanding restaurants by franchisees. While the Turnkey program
was successful in increasing systemwide sales, restaurant count and average
weekly unit sales, the program involved the Company undertaking significant real
estate development and credit risks. As a result of the termination of the
Turnkey program, a non-cash, pre-tax charge of approximately $5,340,000 was
recorded in the second quarter of 2000.

                          CRITICAL ACCOUNTING POLICIES

    The Company's reported results of operations are impacted by the application
of certain policies that require subjective judgments. These judgments involve
estimates about the effect of matters that are inherently uncertain and may
significantly impact our results of operations and financial condition. Changes
in the estimates and judgments could significantly impact our results of
operations and financial condition in future periods. The most significant
policies require:

    - Determination of appropriate valuation allowances for accounts and notes
      receivable.

    - Determination of appropriate valuation allowances for real estate
      available for sale.

    - Determination of appropriate valuation allowances for intangible assets.

                                       21
<Page>
    The following tables set forth (i) the percentage relationship to total
revenue of the listed items included in the Company's consolidated statements of
operations, except as otherwise indicated, and (ii) selected restaurant data.

<Table>
<Caption>
                                                                    FISCAL YEARS ENDED
                                                                       DECEMBER 31,
                                                              ------------------------------
                                                                2001       2000       1999
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue:
  Royalties.................................................    35.2%      38.0%      41.9%
  Franchise fees............................................     0.6        0.9        1.6
  Developer fees............................................     0.7        1.3        2.1
  Restaurant sales..........................................    48.3       43.5       36.1
  Brand contribution........................................    12.0       12.1       12.0
  Other fees and revenue....................................     3.2        4.2        6.3
                                                               -----      -----      -----
      Total revenue.........................................   100.0      100.0      100.0
                                                               -----      -----      -----
Expenses:
  Service costs:
    Royalties (1)...........................................    21.8       23.6       30.6
    Franchise fees (2)......................................    42.8       42.2       46.1
  Restaurant operations:
    Cost of sales (3).......................................    28.0       28.6       29.4
    Personnel and benefits (3)..............................    41.8       41.5       39.8
    Operating expenses (3)..................................    23.2       22.0       22.8
  Equity loss on investments................................     0.2        0.1         --
  General and administrative................................    30.3       47.1       35.2
  Depreciation and amortization.............................     6.8        6.4        6.2
      Total expenses........................................    90.2      102.9       88.2
                                                               -----      -----      -----
    Income (loss) from operations...........................     9.8       (2.9)      11.8
Other:
  Interest income...........................................     1.5        3.8        6.0
  Interest expense..........................................    (4.6)      (6.1)      (4.5)
                                                               -----      -----      -----
      Total other...........................................    (3.1)      (2.3)       1.5
                                                               -----      -----      -----
    Income (loss) before income taxes and cumulative effect
      of change in accounting principle.....................     6.8       (5.2)      13.3
Provision (credit) for income taxes.........................     2.8       (1.3)       4.9
                                                               -----      -----      -----
    Income (loss) before cumulative effect of change in
      accounting principle..................................     4.0       (3.9)       8.4
Cumulative effect of change in accounting principle, net of
 tax........................................................      --         --       (7.4)
                                                               -----      -----      -----
    Net income (loss).......................................     4.0%      (3.9)%      1.0%
                                                               =====      =====      =====
</Table>

------------------------------

(1) Expressed as a percentage of royalties.

(2) Expressed as a percentage of franchise fees.

(3) Expressed as a percentage of restaurant sales.

                                       22
<Page>

<Table>
<Caption>
                                                               FISCAL YEARS ENDED DECEMBER 31,
                                                              ----------------------------------
                                                                 2001        2000        1999
                                                              ----------   ---------   ---------
<S>                                                           <C>          <C>         <C>
RESTAURANT DATA:
  Systemwide sales (in thousands) (1).......................  $423,200     $429,400    $400,300
  Change in same store sales (2)............................      (1.4)%        4.1%        2.8%
  Weighted average annual store sales (3)...................  $606,000     $594,000    $550,000
  Weighted average weekly store sales, by restaurant
    type (3) (4):
    Freestanding............................................  $ 13,273     $ 13,102    $ 12,266
    Shopping center.........................................  $  9,495     $  9,332    $  8,570
    Other...................................................  $  9,000     $  8,734    $  8,239
      All restaurants.......................................  $ 11,651     $ 11,425    $ 10,579
  Change in weighted average weekly store sales for all
    restaurants (5).........................................       2.0%         8.0%        9.4%
  Restaurants opened:
    Domestic -
      New...................................................        17           26          59
      Reopenings............................................        18           27          12
                                                              --------     --------    --------
        Total domestic openings.............................        35           53          71
    International...........................................         1            6           7
                                                              --------     --------    --------
          Total openings....................................        36           59          78
  Restaurants closed........................................       (73)         (91)        (61)
                                                              --------     --------    --------
          Net unit change...................................       (37)         (32)         17
                                                              ========     ========    ========
  Restaurants operating at end of year......................       674          711         743
                                                              ========     ========    ========
</Table>

------------------------------

(1) Includes sales for all restaurants, including Company-owned and franchised,
    as reported by franchisees or derived by the Company from other data.

(2) Same store sales are based on Company-owned and franchised restaurants that
    were open for the entire period indicated and for at least eighteen months
    as of the end of the corresponding prior period, including restaurants that
    were temporarily closed and reopened within six months.

(3) In actual dollars (rounded in the case of average annual store sales).

(4) Freestanding restaurants include all restaurants in freestanding buildings,
    including the standard 3,200 square foot design; shopping center restaurants
    are restaurants in a shopping center at the end of the building or in-line
    with tenants on both sides; other restaurants include downtown, airport and
    other locations.

(5) Percentage change in weighted average weekly store sales from previous
    fiscal year.

                                       23
<Page>
                             RESULTS OF OPERATIONS

FISCAL YEAR 2001 COMPARED TO 2000

    REVENUE. Total revenue increased 4.5% from $59,175,000 to $61,851,000.

    ROYALTIES decreased 3.2% from $22,478,000 to $21,765,000. The decrease was
due to a decrease in the average number of franchised restaurants in 2001
compared to 2000, an increased percentage of systemwide sales generated by
Company-owned restaurants, which do not pay royalties, and a decrease in same
store sales of 1.4%, partially offset by a continuing shift in restaurant mix
towards larger, higher volume units.

    FRANCHISE FEES decreased 31.9% from $511,000 to $348,000. This decrease was
a result of fewer restaurant openings during 2001, as compared to 2000. The
reduced number of openings was principally the result of the discontinuation of
the Turnkey program in 2000, as well as the Company's increased emphasis on
superior site selection for new restaurants and on more highly qualified
franchisees.

    DEVELOPER FEES decreased 38.5% from $740,000 to $455,000. The decrease
reflected the termination of three international master licensees in the fourth
quarter of 2000 which are therefore not included in 2001 revenue, as well as the
deferral of amortization into income of deferred revenue for certain
international master licensees and domestic area developers to the extent of
uncollected notes receivable, partially offset by an increase in income related
to the recognition of deferred developer fees based upon the termination of one
international master licensee in the third quarter of 2001.

    RESTAURANT SALES increased 16.2% from $25,738,000 to $29,906,000. The
increase was primarily due to an increase in the average number of Company-owned
restaurants operated during 2001 compared to 2000, an increase in prices and a
2.2% increase in Company-owned restaurant same store sales. As of December 31,
2001, there were 33 Company-owned restaurants compared to 29 at December 31,
2000, of which 18 and 16, respectively, were available for sale.

    SCHLOTZSKY'S-Registered Trademark- DELI BRAND LICENSING FEES (BRAND
CONTRIBUTION) increased 3.6% from $7,142,000 to $7,397,000. The increase was a
result of more favorable terms with certain major suppliers and an increase in
the sales of Schlotzsky's-Registered Trademark- Deli brand products through
retail channels, partially offset by the effect of the decrease in systemwide
sales. Sales of Schlotzsky's-Registered Trademark- Deli brand products through
retail channels of distribution accounted for 4.8% of brand contribution in
2001, up 7% from 4.5% in 2000.

    OTHER FEES AND REVENUE decreased 22.8% from $2,566,000 to $1,981,000. This
decrease was primarily due to the elimination of revenue generated by the former
Turnkey program, which was cancelled in 2000, partially offset by gains of
approximately $243,000 on the sale of available for sale property during 2001.

    OPERATING EXPENSES. SERVICE COSTS decreased 11.2% from $5,510,000 to
$4,894,000, and as a percentage of royalties and franchise fees declined from
24.0% to 22.1%. This decrease was primarily due to the Company's reacquisition
of certain area developer territory rights during 2001 and 2000, a decrease in
franchise fee costs due to fewer restaurant openings during 2001 as compared to
the prior year, and a decrease in royalty revenue.

    RESTAURANT OPERATIONS EXPENSES increased 17.4% from $23,707,000 to
$27,823,000. This increase was primarily due to the increase in restaurant
sales. RESTAURANT COST OF SALES increased 13.7% from $7,353,000 to $8,363,000,
but decreased as a percentage of net restaurant sales from 28.6% to 28.0%. The
decrease, as a percentage of net restaurant sales, was due to improved controls
and price increases, which were partially offset by rising costs for meats and
cheeses and increased discounts. RESTAURANT PERSONNEL AND BENEFITS COST
increased 17.0% from $10,693,000 to $12,515,000, and increased as a percentage
of net restaurant sales from 41.5% to 41.8%. The increase, as a percentage of
net restaurant sales, was due to several additional managers in training for
Company-owned

                                       24
<Page>
restaurants under development and an increase in manager coverage at restaurants
available for sale. RESTAURANT OPERATING EXPENSES increased 22.7% from
$5,661,000 to $6,945,000, and increased as a percentage of net restaurant sales
from 22.0% to 23.2%. The increase in operating costs, as a percentage of net
restaurant sales, was due to higher voluntary contributions to the Austin
advertising cooperative during 2001 as well as increased repair, maintenance,
utility and facility costs, partially offset by operational efficiencies. All
cost components were adversely impacted by training and pre-opening costs for
Company-owned restaurants that will open in the future. The use of some
Company-owned restaurants in the long-term portfolio for product, process and
equipment testing and for systemwide training also adversely impacts their
operating performance.

    EQUITY LOSS ON INVESTMENTS increased 98.2% from a loss of $55,000 to a loss
of $109,000. The equity investment represents the Company's 50% interest in a
limited liability company that operates a Schlotzsky's-Registered Trademark-
Deli restaurant which opened in 2000.

    GENERAL AND ADMINISTRATIVE EXPENSES decreased 32.8% from $27,865,000 to
$18,719,000, and decreased from 47.1% to 30.3% as a percentage of total revenue.
The decrease was primarily due to the termination of the Turnkey program during
the second quarter of 2000, which resulted in a non-cash, pre-tax charge of
approximately $5,340,000 in 2000. The decrease from the prior year was also
impacted by reduced salaries and benefits, due to a reduced number of employees,
reduced convention and franchisee meeting expenses, reduced legal and
professional fees, reduced office supplies and reduced travel expenses,
partially offset by increases in property taxes, insurance costs, and severance
costs related to a reduction in force during the third quarter of 2001.

    DEPRECIATION AND AMORTIZATION increased 12.0% from $3,771,000 to $4,224,000,
and increased from 6.4% to 6.8% as a percentage of total revenue. The increase
was principally due to the amortization of reacquired area developer territory
rights and depreciation related to an increase in the average number of
Company-owned and operating restaurants during the year.

    INTEREST INCOME decreased 58.4% from $2,265,000 to $943,000. The decrease
was due to the decrease in the amount of outstanding notes receivable and the
nonrecognition of interest income on certain subordinated notes receivable.

    INTEREST EXPENSE decreased 21.3% from $3,586,000 to $2,822,000. This
decrease was due to reduced debt levels, a lower weighted average interest rate,
and bank waiver and amendment fees in the prior year.

    PROVISION (CREDIT) FOR INCOME TAXES reflected a combined federal and state
effective tax rate of 40.8% for 2001, which was higher than the effective
combined tax benefit rate of 24.4% for 2000 due to certain state taxes being
based in part on factors other than income.

SUPPLEMENTAL RESTAURANT OPERATIONS INFORMATION--PERFORMANCE OF LONG-TERM
  PORTFOLIO DELI RESTAURANTS

    The following table is presented for the Schlotzsky's-Registered Trademark-
Delis in the Company's long-term portfolio for the twelve months ended
December 31, 2001. As of December 31, 2001, this restaurant group included nine
restaurants in the Austin area, two in College Station, Texas and one in
suburban Atlanta, Georgia. This group includes eleven freestanding restaurants
(ten recently constructed and one older facility converted from another concept)
and one shopping center endcap restaurant. Pre-opening costs of approximately
$139,000, which were incurred for two Schlotzsky's-Registered Trademark- Delis
that opened in Austin in the fourth quarter of 2001, and are included in the
operating results for this restaurant group for financial reporting purposes
(see Note 9 in the accompanying Notes to the Consolidated Financial Statements),
have been separately accounted for in this analysis. In accordance with the
Company's internal management reporting practices for consistent comparisons,
line item categories have been expanded and percentages are calculated based on
gross sales, instead of net sales as used elsewhere in this report.

                                       25
<Page>
Facility costs vary by restaurant because some facilities are rented and some
are owned. The table provides the average percentage results for each line item
for the twelve Schlotzsky's-Registered Trademark- Deli restaurants in the
long-term portfolio group as a whole, as well as the best and worst percentage
performance for each line item for any restaurant in the group.

<Table>
<Caption>
                                                   YEAR ENDED     PERCENTAGE      BEST          WORST
                                                  DECEMBER 31,     OF GROSS    PERCENTAGE    PERCENTAGE
                                                      2001          SALES      PERFORMANCE   PERFORMANCE
                                                 --------------   ----------   -----------   -----------
                                                 (IN THOUSANDS)
<S>                                              <C>              <C>          <C>           <C>
Gross sales....................................     $15,178         100.0%
Less-discounts.................................         778           5.1%         4.2%          5.7%
                                                    -------         ------
  Net sales....................................      14,400          94.9%
Cost of sales..................................       3,844          25.3%        24.3%         26.2%
Personnel and benefits:
  Crew costs...................................       3,636          24.0%        21.7%         31.9%
  Management costs.............................       1,514          10.0%         7.4%         12.7%
Operating expenses:
  Advertising..................................         875           5.8%         3.8%          6.8%
  Controllable expenses........................         959           6.3%         4.6%          7.8%
                                                    -------         ------
    Operating income before facility costs,
      pre-opening costs and depreciation
      and amortization.........................       3,572          23.5%        29.7%*        15.2%*
  Facility costs...............................         574           3.8%         1.2%          8.5%
                                                    -------         ------
    Operating income before pre-opening costs
      and depreciation and amortization........       2,998          19.7%        26.6%         11.6%
  Less--Pre-opening costs......................         139           0.9%
                                                    -------         ------
    Operating income before depreciation and
      amortization.............................     $ 2,859          18.8%
                                                    =======         ======
</Table>

------------------------------

* Represents the actual best and worst percentage performance for a restaurant
  in the group. The best and worst performance on a composite basis would be
  34.0% and 8.9%, respectively.

FISCAL YEAR 2000 COMPARED TO 1999

    REVENUE. Total revenue increased 15.1% from $51,408,000 to $59,175,000.

    ROYALTIES increased 4.3% from $21,547,000 to $22,478,000. Royalty growth was
driven by a 7.3% increase in systemwide sales. Systemwide sales increased due to
an 8.0% increase in average weekly store sales, reflecting a continued shift to
the larger restaurant format, a 4.1% increase in same store sales and the
opening of 59 restaurants, offset by the closing of 91 restaurants. Royalties
grew more slowly than systemwide sales primarily due to an increase in the
proportion of systemwide sales generated by royalty exempt corporate-owned
restaurants from 4.6% to 5.9% of systemwide sales from 1999 to 2000.

    FRANCHISE FEES decreased 39.4% from $843,000 to $511,000. This decrease was
a result of fewer restaurant openings during 2000, as compared to 1999. The
reduced number of openings was principally the result of the discontinuation of
the Turnkey program in 2000 as well as the Company's increased emphasis on
superior site selection for new restaurants and on more highly
qualified franchisees.

    DEVELOPER FEES decreased 30.1% from $1,058,000 to $740,000. Developer fees
reported for the year are attributable to recognition of deferred revenue from
transactions that occurred in prior years. In 2000, the Company deferred the
amortization into income of deferred revenue for certain underperforming
international master licensees and domestic area developers to the extent of
uncollected notes receivable.

                                       26
<Page>
    RESTAURANT SALES increased 38.9% from $18,533,000 to $25,738,000. This
increase was attributable to a full year impact of Company-owned restaurants
added during 1999 as well as the addition of six restaurants to the Company
portfolio during 2000. As of December 31, 2000, there were 29 Company-owned
restaurants, compared to 23 at December 31, 1999, of which 16 and 11,
respectively, were restaurants available for sale.

    SCHLOTZSKY'S-Registered Trademark- DELI BRAND LICENSING FEES (BRAND
CONTRIBUTION) increased 15.7% from $6,173,000 to $7,142,000. The increase was
the result of the increasing volume of systemwide sales, more favorable terms
with certain major suppliers and an increase in the sales of
Schlotzsky's-Registered Trademark- Deli brand products through retail channels.
Sales of Schlotzsky's-Registered Trademark- Deli brand products through retail
channels of distribution accounted for 4.5% of brand contribution in 2000, up
88% from 2.4% in 1999.

    OTHER FEES AND REVENUE decreased 21.1% from $3,254,000 to $2,566,000. This
decrease was primarily due to a $858,000 decline in revenue generated by the
former Turnkey program, which was cancelled in 2000.

    OPERATING EXPENSES. SERVICE COSTS decreased 21.2% from $6,989,000 to
$5,510,000, and as a percentage of royalties and franchise fees declined from
31.2% to 24.0%. This decrease reflects the impact of the reacquisition and
reduction of certain area developers' interests in royalties during 1999. Also
contributing to the decline in service costs, the Company assumed in the Fourth
Quarter of 1999 territory management responsibility for its largest area
developer in conjunction with an option to buy its territories (exercisable
until June 30, 2002). Under this agreement, as amended, net service costs
associated with these territories were reduced to 1% of franchisee restaurant
sales effective October 31, 1999, and escalate to 2% by June 30, 2002, versus
the prior 2.5% rate.

    RESTAURANT OPERATIONS EXPENSES increased 38.9% from $17,064,000 to
$23,707,000. This increase was primarily due to the increase in restaurant
sales. RESTAURANT COST OF SALES, which consists of food, beverage and paper
costs, increased 34.7% from $5,457,000 to $7,353,000, but decreased as a
percentage of net restaurant sales from 29.4% to 28.6%. RESTAURANT PERSONNEL AND
BENEFITS COST increased 45.0% from $7,374,000 to $10,693,000, and increased as a
percentage of net restaurant sales from 39.8% to 41.5%. RESTAURANT OPERATING
EXPENSES increased 33.7% from $4,233,000 to $5,661,000, but decreased as a
percentage of net restaurant sales from 22.8% to 22.0%. The decreases, as a
percentage of net restaurant sales, of restaurant cost of sales and restaurant
operating expenses, are primarily due to increased operational efficiencies and
cost controls during 2000 as compared to 1999. The increase in restaurant
personnel and benefits cost, as a percentage of net restaurant sales, is
primarily due to increased pre-opening costs for a larger number of new Company-
owned restaurants during 2000 and provision of health insurance benefits to
hourly employees. On an overall basis, costs, as a percentage of net restaurant
sales, are higher at restaurants available for sale, and the proportion of
restaurants available for sale to total Company-owned restaurants was higher
during 2000 as compared to 1999.

    EQUITY LOSS ON INVESTMENTS represents the Company's 50% interest in a
limited liability company that operates a Schlotzsky's-Registered Trademark-
Deli restaurant. Fiscal year 2000 was the first year of operations for
this entity.

    GENERAL AND ADMINISTRATIVE EXPENSES increased 54.1% from $18,078,000 to
$27,865,000, and increased from 35.2% to 47.1% as a percentage of total revenue.
The increases were primarily due to a non-cash, pre-tax charge of approximately
$5,340,000 as a result of the termination of the Turnkey program in the second
quarter of 2000; increases of approximately $1,800,000 in salaries and benefits
due to increased salaries and a higher average headcount during 2000 (although
by yearend headcount was below the beginning of the year); an increase of
approximately $900,000 in provisions for uncollectible accounts and impaired
assets; and increases in other general and administrative expenses including
travel, legal and professional fees and insurance.

                                       27
<Page>
    DEPRECIATION AND AMORTIZATION increased 18.4% from $3,186,000 to $3,771,000,
and increased from 6.2% to 6.4% as a percentage of total revenue. The increase
was principally due to the amortization of reacquired area developer territory
rights and certain franchise rights during 1999 and 2000 and an increase in
depreciation due to an increase in the average number of Company-owned
restaurants operating during 2000.

    INTEREST INCOME decreased 26.9% from $3,097,000 to $2,265,000. This decrease
was a result of a lower level of funds outstanding in the form of mortgages and
interim construction financing under the Turnkey program, as well as a decline
in receivables associated with the sale of development rights.

    INTEREST EXPENSE increased 54.8% from $2,316,000 to $3,586,000. This
increase was the result of a larger average level of debt outstanding during
2000, as well as higher interest rates and debt related bank fees, partially
offset by capitalized interest of approximately $200,000 on construction
projects during 2000.

    PROVISION (CREDIT) FOR INCOME TAXES reflected a combined federal and state
effective tax benefit rate of 24.4% for 2000, which was lower than the effective
combined tax rate of 36.7% for 1999 due to certain state taxes being based in
part on factors other than income.

                        LIQUIDITY AND CAPITAL RESOURCES

    Cash and cash equivalents increased $1,404,000 in 2001 and decreased
$3,749,000 and $10,490,000 in 2000 and 1999, respectively. Cash flows are
impacted by operating, investing and financing activities.

    Operating activities provided $8,718,000 and $2,195,000 of cash in 2001 and
2000, respectively, and used $598,000 in 1999. The increase in cash provided in
2001 as compared to 2000 was the net result of the Company returning to
profitability after a net loss in 2000, an increase in depreciation and
amortization, and a reduced use of cash for certain working capital accounts,
partially offset by decreased provisions for uncollectible accounts and
impairment of assets. The increase in cash provided in 2000 compared to 1999 was
the net result of an increase in provisions for uncollectible accounts and
impairment of assets and reduced use of cash for certain working capital
accounts, offset by reduced net income.

    Investing activities used $2,635,000 of cash in 2001, provided $4,499,000 of
cash in 2000, and used $32,360,000 of cash in 1999. The decrease in cash
provided in 2001 compared to 2000 was the net result of an increase in
expenditures for intangible assets, reduced net repayments of notes receivable,
and a decrease in the amount of net proceeds received from the sale of property,
equipment and real estate. The increase in cash provided in 2000 compared to
1999 was the net result of reduced expenditures for property and equipment and
real estate, reduced expenditures for intangible assets and increased net
repayments of notes receivable.

    Financing activities used $4,678,000 and $10,443,000 of cash in 2001 and
2000, respectively, and provided $22,469,000 of cash in 1999. The use of cash in
2001 and 2000 is due to the net repayment of debt whereas in 1999 there was a
net borrowing. Additionally, the Company implemented a stock repurchase program
in 2001.

    At December 31, 2001, the Company had approximately $32,377,000 of total
debt outstanding. During 2001, the Company reduced the outstanding principal
under its bank term note from $15,667,000 to $10,267,000. However, the Company
incurred new debt in 2001 to finance the reacquisition of area developer
territories, complete the construction of two new Company-owned restaurants in
the Austin area, and provide computers to franchisees and area developers.

    The Company's Credit Agreement, as amended, with a group of banks prohibits
the payment of dividends and imposes a number of restrictions on the Company,
including limitations on additional borrowings, capital expenditures, contingent
liabilities and stock repurchases. The Credit Agreement requires the Company to
maintain certain financial ratios, working capital and net worth. Certain

                                       28
<Page>
mortgage debt of the Company also contains restrictive covenants. While the
Company is currently in compliance with all of these covenants, any failure to
do so in the future could have material adverse consequences to the Company.

    The Company's scheduled maturities of debt in 2002 approximate $6,480,000
(including short-term debt). In addition, the Company's Credit Agreement
requires the application to the term note of 75% of the net cash proceeds from
the sale or refinancing of certain real estate and restaurants available for
sale. The Company's reduction of its bank term note during 2001 of $5,400,000
includes $1,400,000 in payments under this provision.

    The Company guarantees certain loans, leases, and other obligations of
franchisees and others. At December 31, 2001, these contingent liabilities
totaled approximately $30,548,000. The following tables present certain of the
Company's obligations and commitments to make future payments, excluding
interest payments, under contracts and contingent commitments as of
December 31, 2001.

<Table>
<Caption>
                                                         PAYMENTS DUE BY PERIOD
                                  --------------------------------------------------------------------
                                                LESS THAN
CONTRACTUAL OBLIGATIONS              TOTAL        1 YEAR      1-3 YEARS    4-5 YEARS    AFTER 5 YEARS
-----------------------           -----------   ----------   -----------   ----------   --------------
<S>                               <C>           <C>          <C>           <C>          <C>
Short-term Debt.................  $   681,011   $  681,011   $        --   $       --    $        --
Long-term Debt..................   31,695,772    5,799,003    12,557,127    3,579,675      9,759,967
Operating Leases................   19,809,735    2,169,792     3,689,521    3,527,111     10,423,311
</Table>

<Table>
<Caption>
                                                      AMOUNT OF COMMITMENT EXPIRATION PER PERIOD
                                      TOTAL      ----------------------------------------------------
                                     AMOUNTS     LESS THAN
OTHER COMMERCIAL COMMITMENTS        COMMITTED      1 YEAR     1-3 YEARS    4-5 YEARS    OVER 5 YEARS
----------------------------       -----------   ----------   ----------   ----------   -------------
<S>                                <C>           <C>          <C>          <C>          <C>
Guarantees.......................  $30,547,945   $3,334,448   $7,179,325   $2,965,349    $17,068,823
</Table>

    The Company plans to develop additional Company-owned restaurants. One
restaurant is under construction in the Austin area, which is expected to open
in 2002. The Company has received a lending commitment for this restaurant. The
Company has also acquired the building sites for two additional restaurants in
the Austin area, which the Company intends to be opened by limited liability
companies in which the Company will have an equity interest. Sites for
additional restaurants in Texas are under consideration.

    The Company has an option, through June 30, 2002, to reacquire the rights
held by its largest area developer. The exercise price of the option is
$28,200,000, of which a nonrefundable $4,582,000 has been paid. The exercise of
the option will require the further payment of $3,500,000 in cash at closing and
the execution of a $20,118,000 promissory note to the area developer. The note
would bear interest at 8% and require four semi-annual $2,000,000 payments of
principal and interest commencing on June 30, 2003, with all remaining principal
due on June 30, 2005. In the event the option is not exercised on or before
June 30, 2002, the Company will be required to pay a fee of $1,700,000.

    The Company's Credit Agreement does not currently provide for the addition
of the promissory note associated with the exercise of the option discussed
above. The Company is negotiating with its bank group to provide credit
facilities which would accommodate such option exercise and continued growth in
the number of Company-owned restaurants. The Company is also investigating
alternative credit facilities to achieve these goals.

    The Company's Board of Directors has authorized the repurchase of up to
1,000,000 shares of the Company's outstanding Common Stock. In 1998,
10,000 shares were repurchased for $105,000. During 2001, the Company
repurchased an additional 176,300 shares at a total cost of
approximately $718,000.

                                       29
<Page>
                             QUARTERLY COMPARISONS

    During the Second Quarter of 2000, the Company conducted a strategic review
of its business, particularly its approach to new restaurant development. Based
on this strategic review, the Company terminated its Turnkey program for
restaurant development. As a result of this termination, a non-cash, pre-tax
charge of approximately $5,340,000 was recorded in the Second Quarter of 2000.
The Company now develops sites only if either the Company wants to operate a
Company-owned restaurant on the site or a qualified franchisee has obtained
third-party financing to acquire, build and open the site as a
Schlotzsky's-Registered Trademark- Deli restaurant

    The Company utilizes a "4-4-5 week" quarterly reporting schedule for
royalties, restaurant operations and royalty service costs. Fiscal years 2001,
2000, and 1999 included 52 weeks. For all other areas of the financial
statements, the Company reports all fiscal quarters as ending on March 31,
June 30, September 30 and December 31.

    Management believes that the Company experiences only moderate seasonality,
although first and fourth quarter systemwide sales, which impact several revenue
categories, are generally lower than the second and third quarter levels. The
Company attempts to make restaurant sales less seasonal by offering a variety of
products which tend to sell better during various seasons.

                                       30
<Page>
    The following tables present unaudited condensed quarterly results of
operations and selected restaurant data for 2001 and 2000.

                      SCHLOTZSKY'S, INC. AND SUBSIDIARIES
                   CONDENSED QUARTERLY RESULTS OF OPERATIONS
                                  (UNAUDITED)

<Table>
<Caption>
                                                   2001                                        2000
                                 -----------------------------------------   -----------------------------------------
                                   1ST        2ND        3RD        4TH        1ST        2ND        3RD        4TH
                                 --------   --------   --------   --------   --------   --------   --------   --------
                                                     (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                              <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
REVENUE:
  Royalties....................  $  5,435   $  5,733   $  5,471   $  5,126   $  5,522   $  5,902   $  5,723   $  5,331
  Franchise fees...............       150         35        133         30        156        115        150         90
  Developer fees...............        84         86        209         76        304        198        121        117
  Restaurant sales.............     7,416      7,648      7,320      7,521      5,747      6,233      6,623      7,134
  Brand contribution...........     1,729      1,967      1,884      1,816      1,603      1,845      1,988      1,706
  Other fees and revenue.......       533        595        489        364      1,090        351        526        599
                                 --------   --------   --------   --------   --------   --------   --------   --------
    Total revenue..............    15,347     16,064     15,506     14,933     14,422     14,644     15,131     14,977

EXPENSES:
  Service costs:
    Royalties..................     1,293      1,191      1,162      1,099      1,285      1,379      1,371      1,260
    Franchise fees.............        60         18         56         15         75         54         57         30
                                 --------   --------   --------   --------   --------   --------   --------   --------
                                    1,353      1,209      1,218      1,114      1,360      1,433      1,428      1,290
                                 --------   --------   --------   --------   --------   --------   --------   --------
  Restaurant operations:
    Cost of sales..............     2,048      2,146      2,060      2,109      1,640      1,774      1,905      2,034
    Personnel and benefits.....     3,183      3,164      3,057      3,111      2,284      2,568      2,861      2,980
    Operating expenses.........     1,588      1,765      1,725      1,867      1,306      1,289      1,476      1,590
                                 --------   --------   --------   --------   --------   --------   --------   --------
                                    6,819      7,075      6,842      7,087      5,230      5,631      6,242      6,604
                                 --------   --------   --------   --------   --------   --------   --------   --------
  Equity loss on investments...        16         39         33         22         --         --         --         55
                                 --------   --------   --------   --------   --------   --------   --------   --------
  General and administrative...     4,683      5,007      4,873      4,155      4,955     12,263      5,691      4,955
                                 --------   --------   --------   --------   --------   --------   --------   --------
  Depreciation and
    amortization...............       998      1,039      1,072      1,115        926        945        884      1,017
                                 --------   --------   --------   --------   --------   --------   --------   --------
      Total expenses...........    13,869     14,369     14,038     13,493     12,471     20,272     14,245     13,921
                                 --------   --------   --------   --------   --------   --------   --------   --------
      INCOME (LOSS) FROM
        OPERATIONS.............     1,478      1,695      1,468      1,440      1,951     (5,628)       886      1,056
Other:
  Interest income..............       263        267        251        162        763        681        449        372
  Interest expense.............      (785)      (707)      (665)      (664)      (843)      (769)    (1,117)      (856)
                                 --------   --------   --------   --------   --------   --------   --------   --------
      INCOME (LOSS) BEFORE
        INCOME TAXES...........       956      1,255      1,054        938      1,871     (5,716)       218        572
Provision (credit) for income
 taxes.........................       364        504        395        450        683     (1,712)        74        211
                                 --------   --------   --------   --------   --------   --------   --------   --------
      NET INCOME (LOSS)........  $    592   $    751   $    659   $    488   $  1,188   $ (4,004)  $    144   $    361
                                 ========   ========   ========   ========   ========   ========   ========   ========

EARNINGS PER SHARE--BASIC......  $   0.08   $   0.10   $   0.09   $   0.07   $   0.16   $  (0.54)  $   0.02   $   0.05
                                 ========   ========   ========   ========   ========   ========   ========   ========
EARNINGS PER SHARE--DILUTED....  $   0.08   $   0.10   $   0.09   $   0.07   $   0.16   $  (0.54)  $   0.02   $   0.05
                                 ========   ========   ========   ========   ========   ========   ========   ========
</Table>

                                       31
<Page>

<Table>
<Caption>
                                                   2001                                        2000
                                 -----------------------------------------   -----------------------------------------
                                   1ST        2ND        3RD        4TH        1ST        2ND        3RD        4TH
                                 --------   --------   --------   --------   --------   --------   --------   --------
<S>                              <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
RESTAURANT DATA:
Systemwide sales
 (in thousands) (1)............  $107,170   $109,783   $106,165   $100,049   $104,232   $110,110   $111,443   $103,652
Change in same store sales
 (2)...........................      2.6%     (0.8)%     (5.2)%     (2.7)%       5.7%       4.1%       4.5%       1.8%
Weighted average weekly store
 sales, by restaurant
 type (3) (4):
  Freestanding.................  $ 13,281   $ 13,800   $ 13,417   $ 12,870   $ 12,673   $ 13,479   $ 13,748   $ 12,622
  Shopping center..............     9,556      9,844      9,566      9,130      8,992      9,609      9,628      8,977
  Other........................     8,611      8,450      8,173      8,556      8,024      8,654      8,824      9,569
      All restaurants..........  $ 11,611   $ 12,000   $ 11,695   $ 11,281   $ 10,951   $ 11,699   $ 11,900   $ 11,125
Change in weighted average
 weekly store sales for all
 restaurants (5)...............      6.0%       2.6%     (1.7)%       1.4%       6.8%       8.2%       7.8%       5.6%
Restaurants opened:
    Domestic --
      New......................         6          2          6          3          3          5          9          5
      Reopenings...............         8          2          3          5          4         10          8          5
                                 --------   --------   --------   --------   --------   --------   --------   --------
        Total domestic
          openings.............        14          4          9          8          7         15         17         10
    International..............         1         --         --         --         --          3         --          3
                                 --------   --------   --------   --------   --------   --------   --------   --------
          Total openings.......        15          4          9          8          7         18         17         13
Restaurants closed.............       (15)       (13)       (19)       (26)       (27)       (21)       (19)       (24)
                                 --------   --------   --------   --------   --------   --------   --------   --------
          Net unit change......        --         (9)       (10)       (18)       (20)        (3)        (2)       (11)
                                 ========   ========   ========   ========   ========   ========   ========   ========
Restaurants operating at end of
 quarter.......................       711        702        692        674        727        724        722        711
                                 ========   ========   ========   ========   ========   ========   ========   ========
</Table>

------------------------------

(1) Includes sales for all restaurants, including Company-owned and franchised,
    as reported by franchisees or derived by the Company from other data.

(2) Same store sales are based on Company-owned and franchised restaurants that
    were open for the entire period indicated and for at least eighteen months
    as of the end of the corresponding prior period, including restaurants that
    were temporarily closed and reopened within six months.

(3) In actual dollars.

(4) Freestanding restaurants include all restaurants in freestanding buildings,
    including the standard 3,200 square foot design; shopping center restaurants
    are restaurants in a shopping center at the end of the building or in-line
    with tenants on both sides; and other restaurants include downtown, airport
    and other locations.

(5) Percentage change in weighted average weekly store sales from previous
    fiscal year.

                              IMPACT OF INFLATION

    The Company believes that inflation did not have a material impact on its
operations for the periods reported. Significant increases in labor, employee
benefits, food costs and other operating expenses could have a material adverse
effect on franchisees' and the Company's restaurant operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    Changes in short-term interest rates on loans from financial institutions
could materially affect the Company's earnings because the interest rates
charged on certain underlying obligations are variable.

    At December 31, 2001, a hypothetical 100 basis point increase in interest
rates would result in a decrease of approximately $102,700 in annual pre-tax
earnings. The estimated decrease is based upon the increased interest expense of
the Company's variable rate debt and assumes no change in the volume or
composition of debt at December 31, 2001.

                                       32
<Page>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

    Reference is made to the consolidated financial statements and schedule
referred to in the index on page F-1 setting forth the Consolidated Financial
Statements of Schlotzsky's, Inc. and Subsidiaries, together with the reports
thereon of Grant Thornton LLP.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

    None.

                                       33
<Page>
                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

    Information regarding directors and executive officers is incorporated by
reference from the discussion under "Election of Directors" in the Company's
definitive Proxy Statement for the Annual Meeting of Shareholders to be held on
May 24, 2002.

ITEM 11. EXECUTIVE COMPENSATION

    Information regarding executive compensation is incorporated by reference
from the Company's definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on May 24, 2002; provided, however, that the information
under the headings "Report of the Compensation Committee on Executive
Compensation" and "Stock Performance Graph" are not incorporated herein by
reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    Information regarding security ownership of certain beneficial owners and
management is incorporated by reference from the discussion under "Security
Ownership of Certain Beneficial Owners and Management" in the Company's
definitive Proxy Statement for the Annual Meeting of Shareholders to be held on
May 24, 2002.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    Information regarding certain relationships and related transactions is
incorporated by reference from the discussion under "Certain Relationships and
Related Transactions" in the Company's definitive Proxy Statement for the Annual
Meeting of Shareholders to be held on May 24, 2002.

                                       34
<Page>
                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

    (a)(1) FINANCIAL STATEMENTS.  Reference is made to the index on page F-1
for a list of all financial statements filed as part of this Report.

    (a)(2) FINANCIAL STATEMENTS SCHEDULES.  Reference is made to the index on
page F-1 for a list of all financial statement schedules filed as part of this
Report.

    (a)(3) EXHIBITS

<Table>
    <C>    <S>
     3.1   -- Articles of Incorporation of the Company, as amended. (1)
     3.2   -- Statement of Resolutions Regarding the Designation,
              Preferences and Rights of Class C Series A
              Junior Participating Preferred Stock of the Company. (2)
     3.3   -- Bylaws of the Company, as amended. (15)
     4.1   -- Specimen stock certificate evidencing the Common Stock of
              the Company. (1)
     4.2   -- Rights Agreement dated December 18, 1998 between the
              Company and Harris Trust and Savings Bank. (2)
     4.3   -- Warrant Certificate dated February 15, 2001 from the
              Company to Triad Media Ventures LLC. (13)
    10.1   -- Franchise Financing Program Procedures for Qualified
              Franchisees dated April 15, 1994, between the Company and
              Captec Financial Group, Inc. (1)
    10.2   -- Ultimate Net Loss Agreement dated April 15, 1994, between
              the Company and Captec Financial Group, Inc. (1)
    10.3   -- Amendment to Ultimate Net Loss Agreement dated March 30,
              1995, between the Company and Captec Financial
              Group, Inc. (1)
    10.4   -- Franchise finance letter of understanding dated
              February 21, 1994, between the Company and Stephens
              Franchisee Finance. (1)
    10.5   -- Franchisee Financing Agreement dated September 1, 1994,
              between the Company and Stephens Diversified
              Leasing, Inc. (1)
    10.6   -- Form of Guaranty from the Company to landlord for Turnkey
              restaurants. (5)
    10.7   -- Form of Limited Guaranty from the Company to mortgage
              lender for Turnkey restaurants. (6)
    10.8   -- Employee Stock Purchase Plan of the Company. (3)*
    10.9   -- Third Amended and Restated 1993 Stock Option Plan of the
              Company. (4)*
    10.10  -- Amendments to Third Amended and Restated 1993 Stock
              Option Plan of the Company. (3)*
    10.11  -- Form of Incentive Stock Option Agreement, as amended,
              between the Company and certain employees. (10)*
    10.12  -- 1995 Nonemployee Directors Stock Option Plan of the
              Company, and form of Stock Option Agreement. (1)*
    10.13  -- Form of Indemnification Agreement between the Company and
              its directors and officers. (1)*
    10.14  -- Form of Employment Agreement between the Company and
              certain employees, including Darrell Kolinek and Joyce
              Cates. (10)*
    10.15  -- Employment Agreement dated August 15, 2000, between the
              Company and Richard H. Valade. (12)*
    10.16  -- Form of Employment Agreement between the Company and John
              C. Wooley and Jeffrey J. Wooley. (13)*
    10.17  -- Form of First Amendment to Employment Agreement between
              the Company and John C. Wooley and Jeffrey J. Wooley.
              (15) *
    10.18  -- Amended and Restated Promissory Note dated January 1,
              2001, from John C. Wooley to the Company. (13)*
</Table>

                                       35
<Page>
<Table>
    <C>    <S>
    10.19  -- Amended and Restated Promissory Note dated January 1,
              2001, from Jeffrey J. Wooley to the Company. (13)*
    10.20  -- Lease Agreement dated March 21, 1997, between the Company
              and Third & Colorado 19, L.L.C. (13)
    10.21  -- Modification Agreement Regarding Promissory Note dated
              January 1, 2001, from Third & Colorado, L.L.C. to the
              Company. (13)*
    10.22  -- Amended and Restated Promissory Note dated January 1,
              2001, from Third & Colorado, L.L.C. to Schlotzsky's Real
              Estate, Inc. (13)*
    10.23  -- Amended and Restated Option Agreement dated February 7,
              2001, between DFW Restaurant Transfer Corp. and NS
              Associates I, Ltd. (13)
    10.24  -- Amended and Restated Management Agreement dated
              February 7, 2001, between DFW Restaurant Transfer Corp.
              and NS Associates I, Ltd. (13)
    10.25  -- Credit Agreement dated December 7, 1999, between the
              Company and Wells Fargo Bank (Texas), National
              Association, as Agent; and the Lender named therein. (8)
    10.26  -- First Amendment to Credit Agreement dated December 31,
              1999, between the Company and Wells Fargo Bank (Texas),
              National Association, as Agent; and the Lender named
              therein. (9)
    10.27  -- Second Amendment to Credit Agreement dated May 1, 2000,
              between the Company and Wells Fargo Bank Texas, National
              Association, as Agent; and the Lender named
              therein. (11)
    10.28  -- Third Amendment to Credit Agreement dated September 30,
              2000, between the Company and Wells Fargo Bank Texas,
              National Association, as Agent; and the Lender named
              therein. (11)
    10.29  -- Fourth Amendment to Credit Agreement dated April 10,
              2001, between the Company and Wells Fargo Bank Texas,
              National Association, as Agent, and the Lenders named
              therein. (14)
    10.30  -- Fifth Amendment to Credit Agreement dated December 31,
              2001, between the Company and Wells Fargo Bank Texas,
              National Association, as Agent, and the Lenders named
              therein. (15)
    10.31  -- Sixth Amendment to Credit Agreement dated March 13, 2002,
              between the Company and Wells Fargo Bank Texas, National
              Association, as Agent, and the Lenders named
              therein. (15)
    10.32  -- Limited Guaranty Agreement dated April 10, 2001, between
              the Company and The Frost National Bank. (14)
    21.1   -- List of subsidiaries of the Company. (15)
    23.1   -- Consent of Grant Thornton LLP. (15)
</Table>

------------------------------

*   Indicates a management contract or compensatory plan or arrangement.

(1) Incorporated by reference from the Company's Registration Statement on
    Form S-1 filed on October 12, 1995, as amended.

(2) Incorporated by reference from the Company's Registration of certain
    Securities on Form 8-A filed on December 18, 1998.

(3) Incorporated by reference from the Company's Registration Statement on
    Form S-8 filed on June 17, 1998.

(4) Incorporated by reference from the Company's Registration Statement on
    Form S-1 filed on September 4, 1997.

(5) Incorporated by reference from the Company's Annual Report on Form 10-K
    filed on April 14, 1998.

(6) Incorporated by reference from the Company's Annual Report on Form 10-K
    filed on March 31, 1999.

(7) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
    filed on November 12, 1999.

(8) Incorporated by reference from the Company's Annual Report on Form 10-K
    filed on March 30, 2000.

(9) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
    filed on May 15, 2000.

(10) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
    filed on August 14, 2000.

(11) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
    filed on November 14, 2000.

(12) Incorporated by reference from the Company's Quarterly Report on
    Form 10-Q/A filed on November 17, 2000.

(13) Incorporated by reference from the Company's Annual Report on Form 10-K
    filed on April 2, 2001.

(14) Incorporated by reference from the Company's Quarterly Report on Form 10Q
    filed on August 14, 2001.

(15) Filed with this Annual Report on Form 10K.

    (b) REPORTS ON FORM 8-K

    None

                                       36
<Page>
                                   SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) 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.

<Table>
<S>                                                    <C>  <C>
                                                       SCHLOTZSKY'S, INC.

                                                       By:              /s/ JOHN C. WOOLEY
                                                            -----------------------------------------
                                                                         John C. Wooley,
                                                               CHAIRMAN OF THE BOARD, PRESIDENT AND
                                                                     CHIEF EXECUTIVE OFFICER
                                                                       Date: March 29, 2002
</Table>

    Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<Table>
<Caption>
                      SIGNATURE                                   CAPACITY                  DATE
                      ---------                                   --------                  ----
<C>                                                    <S>                             <C>
                                                       Chairman of the Board,
                 /s/ JOHN C. WOOLEY                      President and Chief
     -------------------------------------------         Executive Officer             March 29, 2002
                   John C. Wooley                        (Principal Executive
                                                         Officer)

                                                       Executive Vice President and
                /s/ RICHARD H. VALADE                    Treasurer, Chief Financial
     -------------------------------------------         Officer                       March 29, 2002
                  Richard H. Valade                      (Principal Financial
                                                         Officer)

                                                       Controller and Assistant
                /s/ MATTHEW D. OSBURN                    Treasurer
     -------------------------------------------         (Principal Accounting         March 29, 2002
                  Matthew D. Osburn                      Officer)

                /s/ JEFFREY J. WOOLEY
     -------------------------------------------       Director, Senior Vice           March 29, 2002
                  Jeffrey J. Wooley                      President and Secretary

               /s/ AZIE TAYLOR MORTON
     -------------------------------------------       Director                        March 29, 2002
                 Azie Taylor Morton

                 /s/ FLOOR MOUTHAAN
     -------------------------------------------       Director                        March 29, 2002
                   Floor Mouthaan

              /s/ RAYMOND A. RODRIGUEZ
     -------------------------------------------       Director                        March 29, 2002
                Raymond A. Rodriguez
</Table>

                                       37
<Page>
                      SCHLOTZSKY'S, INC. AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<Table>
<Caption>
                                                                PAGE
                                                              --------
<S>                                                           <C>
Consolidated Financial Statements:

  Report of Independent Certified Public Accountants........    F-2

  Consolidated Balance Sheets at December 31, 2001 and
    2000....................................................    F-3

  Consolidated Statements of Income for the years ended
    December 31, 2001, 2000 and 1999........................    F-4

  Consolidated Statements of Stockholders' Equity for the
    years ended December 31, 2001, 2000 and 1999............    F-5

  Consolidated Statements of Cash Flows for the years ended
    December 31, 2001, 2000 and 1999........................    F-6

  Notes to Consolidated Financial Statements................    F-7

Financial Statement Schedule:

  Report of Independent Certified Public Accountants........    S-1

  Schedule II--Valuation and Qualifying Accounts for the
    years ended December 31, 2001, 2000 and 1999............    S-2
</Table>

    All other schedules are omitted because the required information is not
applicable or the information is presented in the consolidated financial
statements, related notes or other schedules.

                                      F-1
<Page>
               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders,
Schlotzsky's, Inc.:

    We have audited the accompanying consolidated balance sheets of
Schlotzsky's, Inc. (a Texas corporation) and Subsidiaries as of December 31,
2001 and 2000, and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the three years in the period ended
December 31, 2001. 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 audits.

    We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 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 audits provide a
reasonable basis for our opinion.

    In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of
Schlotzsky's, Inc. and Subsidiaries as of December 31, 2001 and 2000, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America.

    As discussed in Note 1 to the financial statements, effective January 1,
1999, the Company changed its method of revenue recognition for area developer
and master licensee fees.

GRANT THORNTON LLP

Dallas, Texas
March 1, 2002

                                      F-2
<Page>
                      SCHLOTZSKY'S, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS

                                     ASSETS

<Table>
<Caption>
                                                                     DECEMBER 31,
                                                              ---------------------------
                                                                  2001           2000
                                                              ------------   ------------
<S>                                                           <C>            <C>
Current Assets:
  Cash and cash equivalents.................................  $  2,567,904   $  1,163,839
  Accounts receivable, net:
    Royalties...............................................       579,503      1,101,865
    Brands..................................................     1,214,936      1,221,090
    Other...................................................     1,588,853      2,796,597
  Refundable income taxes...................................     1,609,795      1,496,767
  Prepaids, inventories and other assets....................     1,349,444        933,884
  Real estate available for sale............................     6,347,726      7,938,278
  Current portion of:
    Notes receivable........................................       474,317      4,072,451
    Notes receivable--related party.........................        58,760      4,171,073
    Deferred tax asset......................................     1,888,074      2,575,913
                                                              ------------   ------------
      Total current assets..................................    17,679,312     27,471,757
Property, equipment and leasehold improvements, net.........    39,348,025     34,044,329
Notes receivable, net, less current portion.................     6,762,652      7,318,454
Notes receivable--related party, net, less current
  portion...................................................     5,100,741      3,611,687
Investments.................................................     1,693,639      1,802,851
Intangible assets, net......................................    43,118,101     38,215,032
Deferred tax asset, less current portion....................            --        391,102
Other noncurrent assets.....................................       446,790        645,558
                                                              ------------   ------------
      Total assets..........................................  $114,149,260   $113,500,770
                                                              ============   ============
                          LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
  Short-term debt...........................................  $    681,011   $  1,338,000
  Current maturities of long-term debt......................     5,799,003      5,331,579
  Accounts payable..........................................     1,429,762      1,576,035
  Accrued liabilities.......................................     3,546,551      3,267,891
  Deferred revenue, current portion.........................       403,421        733,907
                                                              ------------   ------------
      Total current liabilities.............................    11,859,748     12,247,412
Long-term debt, less current portion........................    25,896,769     26,251,245
Deferred revenue, less current portion......................     1,837,943      2,480,085
Deferred tax liability......................................       152,764             --
                                                              ------------   ------------
      Total liabilities.....................................    39,747,224     40,978,742
                                                              ------------   ------------
Commitments and contingencies
Stockholders' equity:
  Preferred stock:
    Class C, no par value, 1,000,000 shares authorized, none
    issued..................................................            --             --
  Common stock, no par value, 30,000,000 shares authorized,
    7,463,990 shares and 7,443,342 shares issued at
    December 31, 2001 and 2000, respectively................        63,498         63,291
  Additional paid-in capital................................    57,986,546     57,877,642
  Retained earnings.........................................    17,175,234     14,686,095
  Treasury stock (186,300 shares and 10,000 shares at
    December 31, 2001 and 2000, respectively), at cost......      (823,242)      (105,000)
                                                              ------------   ------------
      Total stockholders' equity............................    74,402,036     72,522,028
                                                              ------------   ------------
      Total liabilities and stockholders' equity............  $114,149,260   $113,500,770
                                                              ============   ============
</Table>

   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                      F-3
<Page>
                      SCHLOTZSKY'S, INC. AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF INCOME

<Table>
<Caption>
                                                                      YEAR ENDED DECEMBER 31,
                                                              ---------------------------------------
                                                                 2001          2000          1999
                                                              -----------   -----------   -----------
<S>                                                           <C>           <C>           <C>
Revenue:
  Royalties.................................................  $21,765,314   $22,478,455   $21,546,495
  Franchise fees............................................      347,500       510,850       843,333
  Developer fees............................................      455,266       739,777     1,057,499
  Restaurant sales..........................................   29,905,593    25,737,556    18,533,158
  Brand contribution........................................    7,396,514     7,142,200     6,173,389
  Other fees and revenue....................................    1,980,528     2,566,174     3,254,222
                                                              -----------   -----------   -----------
      Total revenue.........................................   61,850,715    59,175,012    51,408,096
                                                              -----------   -----------   -----------
Expenses:
  Service costs:
    Royalties...............................................    4,745,284     5,294,754     6,600,899
    Franchise fees..........................................      148,750       215,583       388,500
                                                              -----------   -----------   -----------
                                                                4,894,034     5,510,337     6,989,399
                                                              -----------   -----------   -----------
  Restaurant operations:
    Cost of sales...........................................    8,363,389     7,353,465     5,456,951
    Personnel and benefits..................................   12,514,714    10,693,001     7,373,895
    Operating expenses......................................    6,945,362     5,660,989     4,233,139
                                                              -----------   -----------   -----------
                                                               27,823,465    23,707,455    17,063,985
                                                              -----------   -----------   -----------
  Equity loss on investments................................      109,212        55,381            --
                                                              -----------   -----------   -----------
  General and administrative................................   18,719,088    27,864,990    18,078,271
                                                              -----------   -----------   -----------
  Depreciation and amortization.............................    4,224,417     3,771,199     3,186,433
                                                              -----------   -----------   -----------
      Total expenses........................................   55,770,216    60,909,362    45,318,088
                                                              -----------   -----------   -----------
      Income (loss) from operations.........................    6,080,499    (1,734,350)    6,090,008
Other:
  Interest income...........................................      943,300     2,264,763     3,097,260
  Interest expense, net of capitalized interest of $198,030,
    $200,000 and $0, respectively...........................   (2,821,660)   (3,585,674)   (2,316,075)
                                                              -----------   -----------   -----------
      Income (loss) before income taxes and cumulative
        effect of change in accounting principle............    4,202,139    (3,055,261)    6,871,193
Provision (credit) for income taxes.........................    1,713,000      (744,201)    2,525,164
                                                              -----------   -----------   -----------
      Net income (loss) before cumulative effect of change
        in accounting principle.............................    2,489,139    (2,311,060)    4,346,029
Cumulative effect of change in accounting principle, net of
  tax.......................................................           --            --    (3,819,592)
                                                              -----------   -----------   -----------
      Net income (loss).....................................  $ 2,489,139   $(2,311,060)  $   526,437
                                                              ===========   ===========   ===========
Earnings per share--basic:
      Earnings before cumulative effect of change in
        accounting principle................................  $      0.34   $     (0.31)  $      0.59
      Cumulative effect of change in accounting principle...           --            --         (0.52)
                                                              -----------   -----------   -----------
      Earnings per share....................................  $      0.34   $     (0.31)  $      0.07
                                                              ===========   ===========   ===========
Earnings per share--diluted:
      Earnings before cumulative effect of change in
        accounting principle................................  $      0.33   $     (0.31)  $      0.58
      Cumulative effect of change in accounting principle...           --            --         (0.51)
                                                              -----------   -----------   -----------
      Earnings per share....................................  $      0.33   $     (0.31)  $      0.07
                                                              ===========   ===========   ===========
</Table>

   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                      F-4
<Page>
                      SCHLOTZSKY'S, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<Table>
<Caption>
                                           COMMON STOCK
                                    --------------------------   ADDITIONAL                                  TOTAL
                                    NUMBER OF   STATED CAPITAL     PAID-IN      RETAINED     TREASURY    STOCKHOLDERS'
                                     SHARES         AMOUNT         CAPITAL      EARNINGS       STOCK        EQUITY
                                    ---------   --------------   -----------   -----------   ---------   -------------
<S>                                 <C>         <C>              <C>           <C>           <C>         <C>
Balance, January 1, 1999..........  7,401,942      $62,877       $57,533,997   $16,470,718   $(105,000)   $73,962,592
Options exercised.................      5,825           58            52,887            --          --         52,945
Tax benefit from employee stock
  transactions....................         --           --            25,072            --          --         25,072
Issuance of common stock in
  connection with employee stock
  purchase plan...................     19,947          200           167,335            --          --        167,535
Net income........................         --           --                --       526,437          --        526,437
                                    ---------      -------       -----------   -----------   ---------    -----------
Balance, December 31, 1999........  7,427,714       63,135        57,779,291    16,997,155    (105,000)    74,734,581
Issuance of common stock in
  connection with employee stock
  purchase plan...................     15,628          156            85,243            --          --         85,399
Options issued for services.......         --           --            13,108            --          --         13,108
Net loss..........................         --           --                --    (2,311,060)         --     (2,311,060)
                                    ---------      -------       -----------   -----------   ---------    -----------
Balance, December 31, 2000........  7,443,342       63,291        57,877,642    14,686,095    (105,000)    72,522,028
Issuance of common stock in
  connection with employee stock
  purchase plan...................     18,348          184            38,806            --          --         38,990
Issuance of warrants..............         --           --            57,000            --          --         57,000
Treasury stock purchases (176,300
  shares).........................         --           --                --            --    (718,242)      (718,242)
Options exercised.................      2,300           23             6,877            --          --          6,900
Tax benefit from employee stock
  transactions....................         --           --             6,221            --          --          6,221
Net income........................         --           --                --     2,489,139          --      2,489,139
                                    ---------      -------       -----------   -----------   ---------    -----------
Balance, December 31, 2001........  7,463,990      $63,498       $57,986,546   $17,175,234   $(823,242)   $74,402,036
                                    =========      =======       ===========   ===========   =========    ===========
</Table>

PREFERRED STOCK

    Authorized 1,000,000 Class C shares, no par value; no shares outstanding at
December 31, 1999, 2000 or 2001.

COMMON STOCK

    Authorized 30,000,000 shares, no par value; 7,427,714 shares issued at
December 31, 1999, 7,443,342 shares issued at December 31, 2000, and 7,463,990
shares issued at December 31, 2001. Shares issued include 10,000 shares in
treasury at both December 31, 1999 and 2000, and 186,300 shares at
December 31, 2001.

   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                      F-5
<Page>
                      SCHLOTZSKY'S, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<Table>
<Caption>
                                                                YEAR ENDED DECEMBER 31,
                                                       -----------------------------------------
                                                          2001           2000           1999
                                                       -----------   ------------   ------------
<S>                                                    <C>           <C>            <C>
Cash flows from operating activities:
  Net income (loss) before cumulative effect of
    change in accounting principle...................  $ 2,489,139   $ (2,311,060)  $  4,346,029
  Adjustments to reconcile net income (loss) before
    cumulative effect adjustment to net cash provided
    by operating activities:
    Depreciation and amortization....................    4,224,417      3,771,199      3,186,433
    Provisions for uncollectible accounts and
      impairment of assets...........................    1,852,374      8,303,639      2,116,597
    Provision for deferred taxes.....................    1,231,705       (329,228)      (370,649)
    Amortization of deferred revenue.................   (1,023,959)      (811,822)    (1,166,712)
    Equity loss on investments.......................      109,212         55,879             --
    Options issued for services......................           --         13,108             --
    Changes in:
      Accounts receivable............................      (45,305)    (1,206,919)    (2,245,306)
      Prepaid expenses and other assets..............     (476,893)      (169,419)      (714,758)
      Accounts payable and accrued liabilities.......      356,834     (5,120,868)    (5,749,700)
                                                       -----------   ------------   ------------
        Net cash provided by (used in) operating
          activities.................................    8,717,524      2,194,509       (598,066)
                                                       -----------   ------------   ------------
Cash flows from investing activities:
  Purchases of property, equipment and real estate
    available for sale...............................   (7,888,870)    (8,094,141)   (21,434,197)
  Sale of property, equipment and real estate
    available for sale...............................    3,383,465      4,236,878      9,447,666
  Acquisition of investments and intangible assets...   (2,616,909)      (893,350)   (17,359,442)
  Issuance of notes receivable.......................   (1,038,784)    (6,477,450)   (55,643,175)
  Repayments of notes receivable.....................    5,455,908     15,727,164     49,557,502
  Sale of investments and intangible assets..........       70,011             --      3,071,475
                                                       -----------   ------------   ------------
    Net cash provided by (used in) investing
      activities.....................................   (2,635,179)     4,499,101    (32,360,171)
                                                       -----------   ------------   ------------
Cash flows from financing activities:
  Sale of stock......................................       52,111         85,399        245,552
  Issuance of warrants...............................       57,000             --             --
  Acquisition of treasury stock......................     (718,242)            --             --
  Proceeds from issuance of debt.....................    3,415,769     10,444,600     50,924,093
  Repayment of debt..................................   (7,484,918)   (20,973,072)   (28,701,097)
                                                       -----------   ------------   ------------
    Net cash provided by (used in) financing
      activities.....................................   (4,678,280)   (10,443,073)    22,468,548
                                                       -----------   ------------   ------------
Net increase (decrease) in cash and cash
  equivalents........................................    1,404,065     (3,749,463)   (10,489,689)
Cash and cash equivalents at beginning of year.......    1,163,839      4,913,302     15,402,991
                                                       -----------   ------------   ------------
Cash and cash equivalents at end of year.............  $ 2,567,904   $  1,163,839   $  4,913,302
                                                       ===========   ============   ============
</Table>

   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                      F-6
<Page>
                      SCHLOTZSKY'S, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    PRINCIPLES OF CONSOLIDATION

    The accompanying consolidated financial statements include the accounts of
Schlotzsky's, Inc., a Texas corporation, and its wholly-owned subsidiaries
(collectively, "the Company"). All significant intercompany balances and
transactions are eliminated in consolidation.

    BUSINESS

    The Company is a franchisor and operator of
Schlotzsky's-Registered Trademark- Deli quick-service restaurants that feature
made-to-order sandwiches with unique sourdough buns. As of December 31, 2001,
there were 674 Schlotzsky's-Registered Trademark- Deli restaurants, of which 33
are Company-owned and 641 are franchised, located in 38 states, the District of
Columbia and eight foreign countries. Approximately 29% of the restaurants are
located in Texas and 3% in foreign countries. Systemwide sales, including both
Company-owned and franchised restaurants, were $423.2 million, $429.4 million
and $400.3 million in 2001, 2000 and 1999, respectively.

    REVENUE RECOGNITION AND CHANGE IN ACCOUNTING PRINCIPLE

    Royalties and Franchise Fees:

    Royalties and franchise fees are paid to the Company based on individual
franchise agreements. Royalties are based on franchisees' restaurant sales and
are recognized as revenue in the period of the related sales. Franchise fees are
recognized as revenue when the Company has performed substantially all services,
typically at restaurant opening. Franchise fees collected but not yet earned are
included in deferred revenue.

    Developer Fees:

    Fees from area developers and international master licensees for the
purchase of their territorial rights are recognized as revenue ratably over the
development schedule specific to each contract, generally for a ten-year period.
Unrecognized fees are included in deferred revenue. This accounting policy was
adopted effective January 1, 1999.

    Prior to 1999, the Company recognized these fees when the contract was
executed, the Company's obligations under the contract were substantially
completed, and the fee was paid. The Company considers the new revenue
recognition method to result in a better matching of revenues and related
expenses incurred in the earnings process related to such revenues. The effect
of the change in 1999 resulted in the deferral of $6,062,845 of revenue
recognized in prior years which, net of income tax benefits of $2,243,253, was
recognized as the cumulative effect of change in accounting principle in 1999.
Income before the cumulative effect adjustment in 1999 included $1,057,499 of
amortized deferred revenue related to developer fees.

    Restaurant Sales:

    Restaurant sales are comprised of sales of food and beverage through
Company-owned restaurants and are recognized, net of discounts, at the time of
sale.

    Brand Contribution:

    Brand contribution is comprised of license fees received from third-party
manufacturers based on their sales of Schlotzsky's-Registered Trademark- Deli
brand products to distributors for resale to franchisees or to retailers. These
fees are recognized upon sale of the licensed products by manufacturers.

                                      F-7
<Page>
                      SCHLOTZSKY'S, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
    FISCAL YEAR

    The Company utilizes a "4-4-5 week" quarterly reporting schedule for
royalties, restaurant operations and royalty service costs. As a result of this
reporting schedule, the fiscal year will include 53 weeks of activity for these
line items once every 5-6 years. The financial statements for 2001, 2000 and
1999 reflect 52 weeks of operations for these items. For all other areas of the
financial statements, the Company reports all fiscal quarters as ending on
March 31, June 30, September 30 and December 31.

    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 the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

    CASH EQUIVALENTS

    Cash equivalents include unrestricted highly liquid investments purchased
with an original maturity date of three months or less. At December 31, 2001 and
2000, cash equivalents totaling approximately $2,568,000 and $1,164,000,
respectively, consisted primarily of money market accounts and overnight
repurchase agreements.

    CREDIT RISK

    The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash and cash equivalents and notes receivable
from franchisees, area developers, master licensees and affiliates. The Company
places its cash and cash equivalents with high credit quality financial
institutions, which, at times, may exceed federally insured limits. The Company
has not experienced any losses in such accounts.

    INVENTORY

    Inventory represents food and supplies at Company-owned restaurants and is
accounted for at the lower of cost or market on a first-in, first-out method.

    NOTES RECEIVABLE

    Notes receivable consist of area developer, master licensee, franchisee and
related-party promissory notes. The Company believes the carrying value of these
notes approximate fair value.

    PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS

    Property, equipment and leasehold improvements, which includes capitalized
leases at a carrying value of $3,729,000 and $3,300,000, net of accumulated
amortization of $725,000 and $495,000 at December 31, 2001 and 2000,
respectively, are stated at cost, net of accumulated depreciation and
amortization. Expenditures for normal maintenance of property and equipment are
charged against income as incurred. Expenditures that significantly extend the
useful lives of the assets are capitalized. The costs of assets retired or
otherwise disposed of and the related accumulated depreciation and amortization
balances are removed from the accounts and any resulting gain or loss is
included in income. Depreciation and amortization are calculated using the
straight-line method over the estimated useful lives of the assets or the term
of the lease, including renewal options, whichever is shorter, for leasehold
improvements.

                                      F-8
<Page>
                      SCHLOTZSKY'S, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
    REAL ESTATE AVAILABLE FOR SALE

    Real estate available for sale consists of properties owned by the Company
that it intends to remarket or liquidate within the next twelve months. These
properties are stated at the lower of cost or net realizable value and have been
classified as current on the accompanying consolidated balance sheet. Each
property is reviewed in terms of its carrying value and the expected net
realizable value. As of December 31, 2001, the Company had an impairment
allowance of $386,000 related to real estate available for sale.

    INVESTMENTS

    Investments are stated at the lower of cost or market. Limited partnership
investments are accounted for under the equity method and, accordingly, the
Company's investment is adjusted for allocated profits, losses and
distributions.

    INTANGIBLE ASSETS

    Intangible assets consist primarily of the Company's original franchise
rights, royalty values and goodwill, and developer and franchise rights related
to the Company's reacquisition of franchises and area developer territory
rights. Intangible assets are amortized over their estimated useful lives
ranging from four to 40 years.

    The Company evaluates the propriety of the carrying amount of its intangible
assets, as well as the amortization period for each intangible, when conditions
warrant. If an indicator of impairment is present, the Company compares the
projected undiscounted cash flows for the related business activity with the
unamortized balance of the related intangible asset. If the undiscounted cash
flows are less than the carrying value, management estimates the fair value of
the intangible asset based on expected future operating cash flows discounted at
the Company's primary borrowing rate. The excess of the unamortized balance of
the intangible asset over the fair value, as determined, is charged to
impairment loss. As of December 31, 2001, the Company had an impairment
allowance of $300,000 related to certain intangible assets.

    SERVICE COSTS

    Royalties and franchise fees service costs represent payments, generally
computed as a percentage of royalties and franchise fees, to area developers in
accordance with their individual contracts.

    INCOME TAXES

    The Company recognizes deferred tax assets or liabilities computed based on
the difference between the financial statement and income tax bases of assets
and liabilities using the enacted statutory tax rate. Deferred income tax
expenses or credits are based on the changes in the asset or liability from
period to period.

    FAIR VALUE OF FINANCIAL INSTRUMENTS

    The Company's financial instruments include cash and cash equivalents,
certificates of deposit, accounts receivable, notes receivable, accounts
payable, accrued liabilities and debt. The carrying value of financial
instruments approximates fair value at December 31, 2001 and 2000.

                                      F-9
<Page>
                      SCHLOTZSKY'S, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
    ADVERTISING EXPENSE

    The Company expenses advertising costs as incurred. Total advertising
expense amounted to approximately $1,468,000, $1,334,000, and $893,000 for the
years ended December 31, 2001, 2000, and 1999, respectively.

    INSURANCE PROGRAM

    The Company is partially self-insured for medical and dental claims
effective January 1, 2000. Stop loss insurance is maintained on an individual
claim and aggregate basis. Accrual has been made for claims incurred but not
reported.

    EARNINGS PER SHARE

    The Company computes basic earnings per share based on the weighted average
number of common shares outstanding. Diluted earnings per share is computed
based on the weighted average number of shares outstanding, plus the additional
common shares that would have been outstanding, if dilutive potential common
shares consisting of stock options and warrants had been issued. No dilutive
effect is considered during periods in which there is a net loss.

    CANCELLATION OF TURNKEY PROGRAM

    During the Second Quarter of 2000, the Company conducted a strategic review
of its business, particularly its approach to new restaurant development. Based
on this strategic review, the Company terminated its Turnkey program for
restaurant development. As a result of this termination, a non-cash, pre-tax
charge of approximately $5,340,000 was recorded in the Second Quarter of 2000.

    RECLASSIFICATIONS

    Certain reclassifications were made to previously reported amounts in the
accompanying consolidated financial statements and notes to make them consistent
with the current presentation format.

2. NOTES RECEIVABLE

    Notes receivable consist of the following:

<Table>
<Caption>
                                                           DECEMBER 31,
                                                     -------------------------
                                                        2001          2000
                                                     -----------   -----------
<S>                                                  <C>           <C>
Notes receivable from area developers and
  international master licensees, secured by their
  respective territories, interest ranging from
  2.93% to 10%, due in installments through 2018...  $   368,882   $ 2,056,254
Notes receivable from franchisees, secured by real
  estate and equipment, generally subordinated to a
  first mortgage, interest ranging from 7.5% to
  11%, due in installments through 2019............    7,684,810    10,375,484
Notes receivable, unsecured, interest ranging from
  8% to 10%, due in installments through 2023......      226,290       239,674
Less--valuation allowance..........................   (1,043,013)   (1,280,507)
                                                     -----------   -----------
                                                       7,236,969    11,390,905
Less--current portion..............................     (474,317)   (4,072,451)
                                                     -----------   -----------
Notes receivable, less current portion.............  $ 6,762,652   $ 7,318,454
                                                     ===========   ===========
</Table>

                                      F-10
<Page>
                      SCHLOTZSKY'S, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. NOTES RECEIVABLE FROM RELATED PARTIES

    Notes receivable from related parties consist of the following:

<Table>
<Caption>
                                                            DECEMBER 31,
                                                      ------------------------
                                                         2001         2000
                                                      ----------   -----------
<S>                                                   <C>          <C>
Note receivable from Schlotzsky's National
  Advertising Association, Inc. ("NAA"), unsecured,
  bearing interest at 8%, due on demand at any time
  on or before December 31, 2010, subordinated to a
  bank term loan expiring in April 2004.............  $2,862,644   $ 5,942,191
Notes receivable from related entities controlled by
  stockholders of the Company, bearing interest at
  9%, collateralized by real estate, due in
  installments upon certain events..................     889,811       604,013
Notes receivable from master licensee, of which the
  Company is a preferred shareholder, bearing
  interest at 9%, due in installments through
  December 2007.....................................     996,258       996,258
Notes receivable from stockholders of the Company,
  bearing interest at 7.5%, due in installments upon
  certain events....................................     445,412       391,469
Note receivable from master licensee, of which a
  member of the Company's management is a
  shareholder, bearing interest at 8%, due in
  installments through December 2006................     775,000       455,000
Less--valuation allowance...........................    (809,624)     (606,171)
                                                      ----------   -----------
                                                       5,159,501     7,782,760
Less--current portion...............................     (58,760)   (4,171,073)
                                                      ----------   -----------
Notes receivable from related parties, less current
  portion...........................................  $5,100,741   $ 3,611,687
                                                      ==========   ===========
</Table>

    From time to time, the Company makes advances to certain stockholders,
related partnerships and affiliates (see Notes 5 and 14).

                                      F-11
<Page>
                      SCHLOTZSKY'S, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS

    Property, equipment and leasehold improvements consist of the following:

<Table>
<Caption>
                                                    DEPRECIABLE         DECEMBER 31,
                                    DEPRECIATION       LIFE       -------------------------
                                       METHOD         (YEARS)        2001          2000
                                    -------------   -----------   -----------   -----------
<S>                                 <C>             <C>           <C>           <C>
Buildings.........................  Straight Line       32        $14,367,150   $13,979,059
Furniture, fixtures and
  equipment.......................  Straight Line     3 to 7       13,015,806    10,978,761
Leasehold improvements............  Straight Line    10 to 32       8,541,511     8,199,412
                                                                  -----------   -----------
                                                                   35,924,467    33,157,232
Accumulated depreciation and amortization......................    (9,219,322)   (6,647,902)
                                                                  -----------   -----------
                                                                   26,705,145    26,509,330
Land...........................................................    12,642,880     7,534,999
                                                                  -----------   -----------
Property, equipment and leasehold improvements, net............   $39,348,025   $34,044,329
                                                                  ===========   ===========
</Table>

    Certain of these properties, with a net carrying value of $12,687,000 and
$10,927,000 at December 31, 2001 and 2000, respectively, represent operating
restaurants which are not part of the Company's long-term portfolio of
restaurants and are available for sale. Depreciation and amortization of
property, equipment and leasehold improvements totaled approximately $3,074,000,
$1,979,000 and $1,918,000 for the years ended December 31, 2001, 2000 and 1999,
respectively.

5. INVESTMENTS

    Investments consist of the following:

<Table>
<Caption>
                                                            DECEMBER 31,
                                                       -----------------------
                                                          2001         2000
                                                       ----------   ----------
<S>                                                    <C>          <C>
Restaurant venture investment........................  $1,126,516   $1,238,903
Real estate venture investment.......................       4,052          877
Building artwork.....................................     263,071      263,071
Investments in master licensees......................     300,000      300,000
                                                       ----------   ----------
                                                       $1,693,639   $1,802,851
                                                       ==========   ==========
</Table>

    RESTAURANT VENTURE

    The Company acquired in 2000 a 50% interest in a limited liability company
engaged in the operation of a Schlotzsky's-Registered Trademark- Deli
restaurant. The company has the following assets, liabilities and capital:

<Table>
<Caption>
                                                            DECEMBER 31,
                                                       -----------------------
                                                          2001         2000
                                                       ----------   ----------
<S>                                                    <C>          <C>
Assets...............................................  $3,819,874   $3,881,829
Liabilities..........................................   2,486,147    2,324,144
Capital..............................................   1,333,727    1,557,685
</Table>

                                      F-12
<Page>
                      SCHLOTZSKY'S, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. INVESTMENTS (CONTINUED)
    The limited liability company's net profits, losses and distributions are
allocated based upon methods set forth in its regulations. The Company is
allocated 50% of distributions and net profits and losses, and has a
preferential distribution of capital in the event of sale or liquidation.

    The Company is the guarantor of a mortgage for the limited liability company
in the amount of approximately $2,197,000 at December 31, 2001. Additionally,
the Company has receivables outstanding in the amount of approximately $210,000
at December 31, 2001 due from the limited liability company.

    REAL ESTATE VENTURE

    The Company owns a 10% limited partnership interest and a 1% general
partnership interest in a limited partnership that owns a shopping center in
Austin, Texas. The partnership has the following assets, liabilities and
capital:

<Table>
<Caption>
                                                            DECEMBER 31,
                                                       -----------------------
                                                          2001         2000
                                                       ----------   ----------
<S>                                                    <C>          <C>
Assets...............................................  $2,534,158   $2,370,702
Liabilities..........................................   2,117,211    2,157,248
Capital..............................................     416,947      213,454
</Table>

    The limited partnership's net profits, losses and distributions are
allocated based upon methods set forth in the partnership agreement. Net profits
and all losses are allocated 1% to the Company.

    The Company is the guarantor, subject to certain conditions, of the
partnership debt in the amount of approximately $2,012,000, which is also
collateralized by real estate and related leases and rents.

    INVESTMENTS IN MASTER LICENSEES

    The Company has a minority interest in two master licensees. The Company is
also a lender to these master licensees (see Note 3).

6. INTANGIBLE ASSETS

    Intangible assets consist of the following:

<Table>
<Caption>
                                                 AMORTIZATION         DECEMBER 31,
                                                    PERIOD      -------------------------
                                                   (YEARS)         2001          2000
                                                 ------------   -----------   -----------
<S>                                              <C>            <C>           <C>
Original franchise rights......................      40         $ 5,688,892   $ 5,688,892
Royalty value and goodwill.....................      20           4,105,347     3,776,117
Developer and franchise rights acquired........   20 to 40       37,692,004    32,027,686
Debt issue costs...............................      5               10,000       387,704
Other intangible assets........................      5              687,399       401,894
                                                                -----------   -----------
                                                                 48,183,642    42,282,293
Less accumulated amortization................................    (5,065,541)   (4,067,261)
                                                                -----------   -----------
Intangible assets, net.......................................   $43,118,101   $38,215,032
                                                                ===========   ===========
</Table>

                                      F-13
<Page>
                      SCHLOTZSKY'S, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. INTANGIBLE ASSETS (CONTINUED)
    Original franchise rights represent an amount allocated in connection with a
1993 merger of predecessor entities to form the current Schlotzsky's, Inc.

    Developer and franchise rights acquired, royalty value and goodwill
represent the fair value of various rights reacquired from area developers,
master licensees and franchisees in various transactions to reduce or eliminate
the percentage of royalties and franchise fees paid to area developers and
master licensees and to reacquire franchise and other rights to develop certain
territories and restaurant locations.

    The Company has an option, through June 2002, to reacquire the rights held
by its largest area developer. The exercise price of the option is $28,200,000,
of which a nonrefundable $4,582,000 has been paid as of December 31, 2001 and is
included in intangible assets. The exercise of the option will require the
further payment of $3,500,000 in cash at closing and the execution of a
$20,118,000 note to the area developer. The note would bear interest at 8% and
require four semi-annual $2,000,000 payments of principal and interest
commencing June 30, 2003, with all remaining principal due on June 30, 2005. In
the event the option is not exercised on or before June 30, 2002, the Company
will be required to pay a fee of $1,700,000.

    Amortization of intangible assets totaled approximately $1,150,000,
$1,033,000 and $938,000 for the years ended December 31, 2001, 2000 and 1999,
respectively.

    The Financial Accounting Standards Board has issued Statements No. 141, 142
and 144, concerning accounting for business combinations, amortization of
certain acquired intangible assets, and the impairment or disposal of long-lived
assets, respectively, which the Company will adopt in 2002 (see Note 18).

7. DEFERRED REVENUE

    Deferred revenue consists of the following:

<Table>
<Caption>
                                                            DECEMBER 31,
                                                       -----------------------
                                                          2001         2000
                                                       ----------   ----------
<S>                                                    <C>          <C>
Deferred developer and master licensee fees..........  $1,750,489   $2,245,198
Deferred franchise fees..............................     287,500    1,233,500
Deferred franchise fee service costs.................    (139,100)    (560,850)
Deferred gain on property sales......................     342,475      342,475
Other................................................          --      (46,331)
                                                       ----------   ----------
                                                        2,241,364    3,213,992
Less--current portion................................    (403,421)    (733,907)
                                                       ----------   ----------
Deferred revenue, long term..........................  $1,837,943   $2,480,085
                                                       ==========   ==========
</Table>

    The Company's policy is to reduce the basis of reacquired intangible rights
by the amount of deferred revenue associated with the rights remaining at the
time of acquisition. Deferred revenue was reduced by approximately $66,000 and
$4,746,000 due to the reacquisition of certain master licensees and area
developer territory rights during 2001 and 2000, respectively.

                                      F-14
<Page>
                      SCHLOTZSKY'S, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. DEBT

    The Company's short-term debt consists of the following:

<Table>
<Caption>
                                                            DECEMBER 31,
                                                        ---------------------
                                                          2001        2000
                                                        --------   ----------
<S>                                                     <C>        <C>
Mortgage note, interest at 11.5%, due July 2002.......  $681,011   $  818,000
Notes payable, repaid in 2001.........................        --      520,000
                                                        --------   ----------
                                                        $681,011   $1,338,000
                                                        ========   ==========
</Table>

    The Company's long-term debt consists of the following:

<Table>
<Caption>
                                                           DECEMBER 31,
                                                     -------------------------
                                                        2001          2000
                                                     -----------   -----------
<S>                                                  <C>           <C>
Term note under Credit Agreement, interest at prime
  plus 1% (5.75% at December 31, 2001), secured by
  certain real property and equipment, due in
  monthly installments of $333,333 plus interest
  through December 2004............................  $10,266,808   $15,666,667
Mortgage notes payable to various financial
  institutions, interest rates ranging from 6.25%
  to 9.6%, secured by related restaurants, due in
  monthly installments through 2016................   13,195,263    10,635,551
Capitalized lease obligations, net of imputed
  interest of $5,550,162 and $5,843,802 as of
  December 31, 2001 and 2000, respectively, imputed
  rates ranging from 8.0% to 16.9%, due in monthly
  installments through 2027........................    3,015,390     2,488,089
Note payable to former area developer, non-interest
  bearing, discounted to reflect 8.0% imputed
  interest, unsecured, due in monthly installments
  through 2009, net of discount of $939,753 and
  $1,066,461 as of December 31, 2001 and 2000,
  respectively.....................................    2,059,473     2,242,517
Notes payable to former area developers, interest
  rate at 8.0%, unsecured, due in installments
  through May 2008.................................    2,819,658            --
Other..............................................      339,180       550,000
                                                     -----------   -----------
                                                      31,695,772    31,582,824
Less--current maturities...........................   (5,799,003)   (5,331,579)
                                                     -----------   -----------
Long-term debt, less current maturities............  $25,896,769   $26,251,245
                                                     ===========   ===========
</Table>

    In December 1999, the Company entered into a Credit Agreement with a bank
syndicate which provided a $15,000,000 line of credit, a $5,000,000 letter of
credit in favor of the media buyer for Schlotzsky's National Advertising
Association, Inc., of which the Company was a guarantor, and a $20,000,000 term
note. During 2000, the line of credit was repaid and that portion of the
facility, along with

                                      F-15
<Page>
                      SCHLOTZSKY'S, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. DEBT (CONTINUED)
the letter of credit, expired. The Credit Agreement, as amended, is secured by
certain real property and equipment, provides for the payment on the term note
of 75% of the net cash proceeds from the sale or refinancing of certain real
estate and restaurants available for sale, requires maintenance of certain
financial ratios, working capital and net worth, and contains limitations on
additional borrowings, capital expenditures, stock repurchases and prohibits the
payment of dividends.

    Aggregate scheduled maturities of long-term debt at December 31, 2001, are
as follows:

<Table>
<Caption>
YEAR ENDING
DECEMBER 31,
------------
<S>                                                           <C>
2002........................................................  $ 5,799,003
2003........................................................    6,059,456
2004........................................................    6,497,672
2005........................................................    1,803,148
2006........................................................    1,776,527
Thereafter..................................................    9,759,966
                                                              -----------
                                                              $31,695,772
                                                              ===========
</Table>

9. RESTAURANT OPERATIONS

    The Company operates two groups of restaurants, one group which it intends
to own and operate on a long-term basis and another group which are available
for sale. The restaurants in the long-term portfolio include, as of
December 31, 2001, three Marketplace restaurants which include, along with a
Schlotzsky's-Registered Trademark- Deli, a full bakery producing pastries,
muffins and other baked goods for sale in the Marketplace restaurant and in the
coffee bar section of other Company-owned restaurants. A summary of certain
operating information for Company-owned restaurants is presented below for the
years ending December 31, 2001, 2000 and 1999:

<Table>
<Caption>
                                                                                                       AVAILABLE FOR SALE
                                                   LONG-TERM PORTFOLIO RESTAURANTS                        RESTAURANTS
                                          --------------------------------------------------   ----------------------------------
                                          SCHLOTZSKY'S-REGISTERED TRADEMARK-                   SCHLOTZSKY'S-REGISTERED TRADEMARK-
                                                        DELIS                  MARKETPLACES                  DELIS
                                          ----------------------------------   -------------   ----------------------------------
<S>                                       <C>                                  <C>             <C>
YEAR ENDED DECEMBER 31, 2001
  Restaurant sales......................              $14,399,533               $5,220,013                 $10,286,047
                                                      -----------               ----------                 -----------
  Restaurant operations
    Cost of sales.......................                3,844,658                1,588,047                   2,930,684
    Personnel and benefits..............                5,273,458                2,504,561                   4,736,695
    Operating expenses..................                2,422,503                1,367,057                   3,155,802
                                                      -----------               ----------                 -----------
                                                       11,540,619                5,459,665                  10,823,181
                                                      -----------               ----------                 -----------
  Operating income (loss) before
    depreciation and amortization.......              $ 2,858,914               $ (239,652)                $  (537,134)
                                                      ===========               ==========                 ===========
</Table>

                                      F-16
<Page>
                      SCHLOTZSKY'S, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. RESTAURANT OPERATIONS (CONTINUED)

<Table>
<Caption>
                                                                                                       AVAILABLE FOR SALE
                                                   LONG-TERM PORTFOLIO RESTAURANTS                        RESTAURANTS
                                          --------------------------------------------------   ----------------------------------
                                          SCHLOTZSKY'S-REGISTERED TRADEMARK-                   SCHLOTZSKY'S-REGISTERED TRADEMARK-
                                                        DELIS                  MARKETPLACES                  DELIS
                                          ----------------------------------   -------------   ----------------------------------
<S>                                       <C>                                  <C>             <C>
YEAR ENDED DECEMBER 31, 2000
  Restaurant sales......................              $11,941,136               $5,346,394                 $ 8,450,026
                                                      -----------               ----------                 -----------
  Restaurant operations
    Cost of sales.......................                3,182,577                1,644,714                   2,526,174
    Personnel and benefits..............                4,275,438                2,481,740                   3,935,823
    Operating expenses..................                1,922,194                1,212,466                   2,526,329
                                                      -----------               ----------                 -----------
                                                        9,380,209                5,338,920                   8,988,326
                                                      -----------               ----------                 -----------
  Operating income (loss) before
    depreciation and amortization.......              $ 2,560,927               $    7,474                 $  (538,300)
                                                      ===========               ==========                 ===========
YEAR ENDED DECEMBER 31, 1999
  Restaurant sales......................              $ 8,411,553               $4,865,210                 $ 5,256,395
                                                      -----------               ----------                 -----------
  Restaurant operations
    Cost of sales.......................                2,289,112                1,573,510                   1,594,329
    Personnel and benefits..............                2,878,201                2,199,505                   2,296,189
    Operating expenses..................                1,488,147                1,171,308                   1,573,684
                                                      -----------               ----------                 -----------
                                                        6,655,460                4,944,323                   5,464,202
                                                      -----------               ----------                 -----------
  Operating income (loss) before
    depreciation and amortization.......              $ 1,756,093               $  (79,113)                $  (207,807)
                                                      ===========               ==========                 ===========
</Table>

10. INCOME TAXES

    The provision (credit) for federal and state income taxes consists of the
following:

<Table>
<Caption>
                                                     FOR THE YEARS ENDED DECEMBER 31,
                                                   -------------------------------------
                                                      2001         2000          1999
                                                   ----------   -----------   ----------
<S>                                                <C>          <C>           <C>
Federal:
  Current........................................  $  221,107   $  (776,517)  $2,658,905
  Deferred.......................................   1,231,705      (329,228)    (370,649)
                                                   ----------   -----------   ----------
    Total federal................................   1,452,812    (1,105,745)   2,288,256
State............................................     260,188       361,544      236,908
                                                   ----------   -----------   ----------
Total provision (credit) for income taxes........  $1,713,000   $  (744,201)  $2,525,164
                                                   ==========   ===========   ==========
</Table>

                                      F-17
<Page>
                      SCHLOTZSKY'S, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. INCOME TAXES (CONTINUED)
    The differences between the provision (credit) for income tax and the amount
that would result if the federal statutory rate was applied to the pretax
financial income were as follows:

<Table>
<Caption>
                                                     FOR THE YEARS ENDED DECEMBER 31,
                                                   -------------------------------------
                                                      2001         2000          1999
                                                   ----------   -----------   ----------
<S>                                                <C>          <C>           <C>
Federal statutory rate of 34%....................  $1,428,727   $(1,038,789)  $2,336,206
Nondeductible items..............................      84,797        83,824       77,716
State income taxes, net of federal benefit.......     171,724       238,619      197,408
Other............................................      27,752       (27,855)     (86,166)
                                                   ----------   -----------   ----------
                                                   $1,713,000   $  (744,201)  $2,525,164
                                                   ==========   ===========   ==========
</Table>

    Deferred taxes are provided for the temporary differences between the
financial reporting bases and the tax bases of the Company's assets and
liabilities. The temporary differences that give rise to the deferred tax assets
or liabilities are as follows:

<Table>
<Caption>
                                                            DECEMBER 31,
                                                       -----------------------
                                                          2001         2000
                                                       ----------   ----------
<S>                                                    <C>          <C>
Deferred Tax Assets:
  Receivables........................................  $1,236,639   $1,276,554
  Deferred revenue...................................     867,822    1,358,857
  Property and intangibles...........................     962,746      234,775
  Accrued liabilities................................     200,904      132,581
  Other..............................................      68,719       82,982
                                                       ----------   ----------
    Gross deferred tax assets........................   3,336,830    3,085,749
                                                       ----------   ----------
Deferred Tax Liabilities:
  Property and intangibles...........................   1,518,939           --
  Other..............................................      82,581      118,734
                                                       ----------   ----------
    Gross deferred tax liabilities...................   1,601,520      118,734
                                                       ----------   ----------
Net deferred tax asset...............................  $1,735,310   $2,967,015
                                                       ==========   ==========
Current deferred tax asset...........................  $1,888,074   $2,575,913
Long-term deferred tax asset (liability).............    (152,764)     391,102
                                                       ----------   ----------
Net deferred tax asset...............................  $1,735,310   $2,967,015
                                                       ==========   ==========
</Table>

11. STOCKHOLDERS' EQUITY

    SHAREHOLDERS' RIGHTS PLAN

    In December 1998, the Company adopted a Shareholders' Rights Plan and
approved a dividend of one Right for each share of Company Common Stock
outstanding. Under the plan, each shareholder of record is deemed to have
received one Right for each share of Common Stock held. Initially, the Rights
are not exercisable and automatically trade with the Common Stock. There are no
separate Rights

                                      F-18
<Page>
                      SCHLOTZSKY'S, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. STOCKHOLDERS' EQUITY (CONTINUED)
certificates at this time. Each Right entitles the holder to purchase one
one-hundredth of a share of Company Class C Series A Junior Participating
Preferred Stock for $75.00 (the "Exercise Price").

    The Rights separate and become exercisable upon the occurrence of certain
events, such as an announcement that an "acquiring person" (which may be a group
of affiliated persons) beneficially owns, or has acquired the rights to own, 20%
or more of the outstanding Common Stock, or upon the commencement of a tender
offer or exchange offer that would result in an acquiring person obtaining 20%
or more of the outstanding shares of Common Stock.

    Upon becoming exercisable, the Rights entitle the holder to purchase Common
Stock with a value of $150 for $75. Accordingly, assuming the Common Stock had a
per share value of $75 at the time, the holder of a Right could purchase two
shares for $75. Alternatively, the Company may permit a holder to surrender a
Right in exchange for stock or cash equivalent to one share of Common Stock
(with a value of $75) without the payment of any additional consideration. In
certain circumstances, the holders have the right to acquire common stock of an
acquiring company having a value equal to two times the Exercise Price of the
Rights.

12. STOCK-BASED COMPENSATION PLANS AND WARRANTS

    The Company has adopted the "Third Amended and Restated Stock Option Plan,"
as further amended (the "Option Plan"), which is a stock-based incentive
compensation plan, as described below. The Company applies APB Opinion No. 25 in
accounting for the Option Plan. In 1995, the FASB issued SFAS No. 123
"Accounting for Stock-Based Compensation" which, if adopted by the Company,
would change the methods the Company applies in recognizing the cost of the
Option Plan. Adoption of the cost recognition provisions of SFAS No. 123 is
optional and the Company has decided not to elect these provisions of SFAS
No. 123. However, pro forma disclosures as if the Company adopted the cost
recognition provisions of SFAS No. 123 in 1995 are required by SFAS No. 123
and are presented below. The Company also has an employee stock purchase plan
that it adopted in 1998.

    OPTION PLAN

    Under the Option Plan, as amended, the Company may grant options for up to
1,450,000 shares of common stock. Options awarded may be in the form of
incentive stock options (qualified under Section 422 of the Internal Revenue
Code of 1986, as amended) or non-qualified stock options. Option grants that are
forfeited may be regranted.

    Options granted in 2001, 2000 and 1999 generally vest ratably over three
years, except 248,500 of the options granted in 2001, which had immediate
vesting provisions and 100,000 of the options granted in 2000, which vested over
two years. Options granted before 1998 generally vest ratably over five years.

                                      F-19
<Page>
                      SCHLOTZSKY'S, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. STOCK-BASED COMPENSATION PLANS AND WARRANTS (CONTINUED)

    A summary of the status of the Company's stock options as of December 31,
2001, 2000 and 1999, and the changes during the years ended on those dates is
presented below:

<Table>
<Caption>
                                                                OPTIONS OUTSTANDING
                                                            ----------------------------
                                                                        WEIGHTED AVERAGE
                                                                        EXERCISE PRICES
                                                             SHARES        PER SHARE
                                                            ---------   ----------------
<S>                                                         <C>         <C>
BALANCE, January 1, 1999..................................  1,064,409        $14.56
  Granted (weighted average fair value of $4.77 per
    share)................................................     88,000         10.32
  Exercised...............................................     (5,825)         9.09
  Forfeited...............................................    (63,205)        10.66
                                                            ---------
BALANCE, December 31, 1999................................  1,083,379         15.52
  Granted (weighted average fair value of $2.51 per
    share)................................................    447,583          6.04
  Forfeited...............................................   (681,882)        16.86
                                                            ---------
BALANCE, December 31, 2000................................    849,080          7.69
  Granted (weighted average fair value of $1.92 per
    share)................................................    496,962          3.41
  Exercised...............................................     (2,300)         3.00
  Forfeited...............................................   (115,987)         7.96
                                                            ---------
BALANCE, December 31, 2001................................  1,227,755          5.93
                                                            =========
Exercisable at December 31, 1999..........................    894,826        $15.16
Exercisable at December 31, 2000..........................    380,709          8.91
Exercisable at December 31, 2001..........................    764,383          6.51
</Table>

    As of December 31, 2001, 87,481 options are available for grant. The fair
value of each stock option granted is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions: no dividend yield; risk-free interest rate of 5.14% for 1999, 5.22%
for 2000 and 4.96% for 2001; expected lives of six years; and volatility of
38.95% for 1999, 49.18% for 2000 and 61.94% for 2001.

    The following table summarizes information about stock options outstanding
at December 31, 2001:

<Table>
<Caption>
                                                OPTIONS OUTSTANDING                 OPTIONS EXERCISABLE
                                     -----------------------------------------   -------------------------
                                         NUMBER         WEIGHTED      WEIGHTED       NUMBER       WEIGHTED
                                     OUTSTANDING AT      AVERAGE      AVERAGE    EXERCISABLE AT   AVERAGE
                                      DECEMBER 31,      REMAINING     EXERCISE    DECEMBER 31,    EXERCISE
RANGE OF EXERCISE PRICES                  2001        CONTRACT LIFE    PRICE          2001         PRICE
------------------------             --------------   -------------   --------   --------------   --------
<S>                                  <C>              <C>             <C>        <C>              <C>
$3.00 to $6.32.....................       925,006         8.19         $ 4.58       475,043        $ 4.36
$8.00 to $12.50....................       297,749         4.35           9.93       284,340          9.88
$18.73.............................         5,000         5.73          18.73         5,000         18.73
                                        ---------                                   -------
Total..............................     1,227,755         7.25           5.93       764,383          6.51
                                        =========                                   =======
</Table>

    EMPLOYEE STOCK PURCHASE PLAN

    The Company adopted the Employee Stock Purchase Plan (the "Stock Purchase
Plan") and authorized 250,000 shares of common stock to be sold to employees
through the Stock Purchase Plan. As

                                      F-20
<Page>
                      SCHLOTZSKY'S, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. STOCK-BASED COMPENSATION PLANS AND WARRANTS (CONTINUED)
of December 31, 2001, 196,077 shares are available for purchase under the Stock
Purchase Plan. Under the terms of the Stock Purchase Plan, employees may elect
to contribute up to 15% of compensation through payroll deductions for the
purchase of Company stock at 85% of the lesser of the market price at the
beginning or the end of the offering period. An offering period begins on
January 1 and July 1 of each year and expires in six months.

    During 2001, 34 participants purchased 18,348 shares of stock at a price of
$2.13 per share. During 2000, 50 participants purchased 15,628 shares of stock
for prices ranging from $4.83 to $5.63 per share. During 1999, 62 participants
purchased 19,947 shares of stock for prices ranging from $5.63 to $8.39 per
share. Under APB Opinion No. 25, the Stock Purchase Plan is considered
noncompensatory (the shares are purchased with after-tax dollars). Therefore, no
compensation expense has been recognized for shares sold under this plan.

    The fair value of stock purchase rights granted in 2001, 2000 and 1999 were
$1.02, $1.31 and $3.39 per share, respectively, or a total of $18,348, $20,473
and $35,726, respectively. The fair value of each stock purchase right was
determined using an expected term of 6 months, a volatility of 61.94%, 49.18%
and 38.95%, for 2001, 2000 and 1999, respectively, and a risk-free interest rate
of 4.96%, 5.22% and 6.03%, respectively.

    WARRANTS

    In connection with a Schlotzsky's National Advertising Association, Inc.
("NAA") subordinated debt financing in 2001, the Company issued warrants for the
purchase of 30,000 shares of common stock to the lender, an entity of which a
member of the Company's Board of Directors is a managing director. These
warrants have an exercise price of $4.50 per share and expire in 2006. Utilizing
the Black-Scholes option-pricing model, the warrants were valued at $57,000. NAA
reimbursed the Company the cost of issuing the warrants.

    PRO FORMA NET INCOME AND NET INCOME PER COMMON SHARE

    During 2001, 2000 and 1999, the Company did not incur any compensation costs
for the Option Plan under APB No. 25. Had compensation cost for the Company's
Stock Option Plan been determined consistent with SFAS No. 123, the Company's
net income and earnings per common share for 2001, 2000 and 1999 would
approximate the pro forma amounts below:

<Table>
<Caption>
                           DECEMBER 31, 2001           DECEMBER 31, 2000          DECEMBER 31, 1999
                        ------------------------   -------------------------   ------------------------
                        AS REPORTED   PRO FORMA    AS REPORTED    PRO FORMA    AS REPORTED   PRO FORMA
                        -----------   ----------   -----------   -----------   -----------   ----------
<S>                     <C>           <C>          <C>           <C>           <C>           <C>
Income (loss) before
  cumulative effect of
  change in accounting
  principle...........  $2,489,139    $1,766,564   $(2,311,060)  $(2,679,865)  $4,346,029    $2,992,156
Earnings per common
  share--basic........  $     0.34    $     0.24   $     (0.31)  $     (0.36)  $     0.59    $     0.40
Earnings per common
  share--diluted......  $     0.33    $     0.24   $     (0.31)  $     (0.36)  $     0.58    $     0.40
</Table>

                                      F-21
<Page>
                      SCHLOTZSKY'S, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. STOCK-BASED COMPENSATION PLANS AND WARRANTS (CONTINUED)
    The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts.

13. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

    Cash paid for interest during the years ended December 31, 2001, 2000 and
1999 was approximately $2,796,000, $3,257,000 and $2,086,000, respectively.

    Cash paid for income taxes during the years ended December 31, 2001, 2000
and 1999 was approximately $1,194,000, $381,000 and $2,515,000, respectively.

    Non-cash investing and financing activities:

2001

    Notes payable totaling approximately $2,961,000 were issued for acquisition
of area developer territory rights.

    A capital lease liability totaling approximately $564,000 was recorded in
conjunction with computers provided to franchisees and area developers.

    Accounts receivable and notes receivable totaling approximately $274,000 and
$2,233,000, respectively, were cancelled in exchange for real estate and
intangible assets acquired.

    Accounts receivable and notes receivable totaling approximately $240,000 and
$335,000, respectively, were cancelled in exchange for acquisition of area
developer territory rights.

    Interest and other accounts receivable of approximately $738,000 was
converted to notes receivable.

2000

    Notes receivable totaling approximately $2,859,000 were received as payment
for sale of real estate.

    Notes receivable totaling approximately $2,999,000 were cancelled in
exchange for real estate received.

    Notes payable totaling approximately $2,419,000 were issued for acquisition
of real estate and intangible assets.

1999

    Notes receivable totaling approximately $5,016,000 were received as payment
of nonrefundable area developer fees.

    Notes receivable totaling approximately $42,749,000 were received as payment
for sale of real estate.

    Notes payable totaling approximately $4,311,000 were issued for acquisition
of area developer territory rights.

                                      F-22
<Page>
                      SCHLOTZSKY'S, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14. RELATED PARTY TRANSACTIONS

    Franchised and Company-owned restaurants contribute 1% of gross sales to
Schlotzsky's N.A.M.F., Inc. ("NAMF") to be used for the production of programs
and materials for marketing and advertising and for purchase of media placement.
The Company charges NAMF an amount equal to certain cost allocations and
salaries for administering NAMF. Advances to NAMF totaled approximately $85,000
and $303,000 at December 31, 2001 and 2000, respectively, and are included in
other receivables in the accompanying consolidated balance sheets.

    During 2001, franchised and Company-owned restaurants increased
contributions to Schlotzsky's National Advertising Association, Inc. ("NAA"),
which is used for purchase of media placement, from 1.75% of gross sales to 2.0%
of gross sales. At December 31, 2001 and 2000, Schlotzsky's, Inc. had advanced
approximately $3,023,000 and $6,249,000, including interest, respectively, to
NAA for the purchase of network television advertising.

    During 2001, NAMF and NAA, as co-borrowers, obtained a term loan from a bank
in the amount of $3,500,000, the proceeds of which were used to repay a portion
of their loans and accrued interest to the Company. The Company guaranteed this
loan, as well as a $500,000 line of credit with the bank for the benefit of NAMF
and NAA. The guaranteed amount outstanding at December 31, 2001 was $2,916,000.

    In connection with an NAA subordinated debt financing in 2001, the Company
issued warrants for the purchase of 30,000 shares of common stock to the lender,
an entity of which a member of the Company's Board of Directors is a managing
director. These warrants have an exercise price of $4.50 per share and expire in
2006. Utilizing the Black-Scholes option-pricing model, the warrants were valued
at $57,000. NAA reimbursed the Company the value of the warrants.

    One or more directors or officers of the Company is guarantor of certain
debt of the Company, totaling approximately $1,163,000 and $1,183,000 at
December 31, 2001 and 2000, respectively.

    At December 31, 2001 and 2000, the Company held combined notes in the amount
of $775,000 and $455,000, respectively, from Sino Caribbean Development, Inc. in
which an officer of the Company holds an interest of less than 30%.

    During 2000, the Company guaranteed a loan for the benefit of an officer of
the Company. The outstanding guarantee at December 31, 2001 was approximately
$54,000.

    During 1996, the Company paid $300,000 to Bonner Carrington Corporation
European Market ("BCCE") and agreed to serve as guarantor for additional
financing not to exceed $400,000. In return, the Company received:
(i) preferred stock representing 7.5% of the total outstanding shares of BCCE;
(ii) an option to buy additional preferred stock representing an additional 10%
of the total outstanding shares of BCCE; and (iii) options to purchase BCCE and
its respective territories at predetermined prices effective during the period
covering December 1999 through December 2011. In February 1999, the Company took
assignment of the note from the bank and has stepped into the lender position
for the $400,000.

    The Company and the predecessor-in-interest to Third & Colorado, L.L.C.
("T&C"), a limited liability company owned by two directors and officers of the
Company, entered into a lease agreement effective March 21, 1997, under which
the Company leases from T&C approximately 29,410 square feet of office space and
11,948 square feet of storage space, in Austin, Texas, for the Company's
corporate headquarters. Under the terms of the lease, the Company pays annual
net rental of $12.95 per square foot for the office space and up to $2.50 per
square foot for the storage space for a term of 10 years beginning
November 1997.

                                      F-23
<Page>
                      SCHLOTZSKY'S, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

15. COMMITMENTS AND CONTINGENCIES

    LEASES

    The Company leases office facilities and certain land, buildings and
equipment under operating leases. Lease terms are generally for three months to
25 years and, in some cases, provide for rent escalations and renewal options,
with certain leases providing purchase options. Certain leases also provide for
the payment of additional rent based on sales levels. Future minimum rental
payments under operating leases that have initial or remaining noncancelable
lease terms in excess of one year as of December 31, 2001, are as follows:

<Table>
<Caption>
YEAR ENDING
DECEMBER 31,
------------
<S>                                                           <C>
2002........................................................  $ 2,169,792
2003........................................................    1,846,379
2004........................................................    1,843,142
2005........................................................    1,844,376
2006........................................................    1,682,735
Thereafter..................................................   10,423,311
                                                              -----------
                                                              $19,809,735
                                                              ===========
</Table>

    Rent expense for the years ended December 31, 2001, 2000 and 1999, was
approximately $2,647,000, $1,916,000 and $2,078,000, respectively.

    GUARANTEES OF FRANCHISEE OPERATING LEASES AND OTHER OBLIGATIONS

    The Company, and in some cases certain stockholders, guarantee certain real
estate and equipment leases and other obligations of its franchisees and others.
At December 31, 2001, the Company was contingently liable for approximately
$30.5 million under guarantees of real estate and equipment leases and various
obligations (including amounts discussed in Notes 5 and 14).

    LITIGATION

    LONE STAR LADIES INVESTMENT CLUB, A TEXAS GENERAL PARTNERSHIP, ET AL., ON
BEHALF OF THEMSELVES AND ALL OTHERS SIMILARLY SITUATED V. SCHLOTZSKY'S, INC.,
JOHN C. WOOLEY, JEFFREY J. WOOLEY, JOHN M. ROSILLO, AND MONICA GILL, (CASE
NO. A-98CA-550-JN), was filed in the United States District Court, Western
District of Texas, Austin Division on February 8, 1999, as a class action
lawsuit, amending and consolidating four cases previously filed on behalf of
certain shareholders against the Company and certain of its past and present
officers and directors, seeking remedies under the Securities Act of 1933 and
the Securities Exchange Act of 1934 based upon statements made by the Company in
its Registration Statement and Prospectus issued in connection with the
Company's Secondary Public Offering, which became effective on September 24,
1997, and subsequent press releases. The Company filed a motion to dismiss for
failure to state a claim, which was granted, with prejudice, by the District
Court on August 5, 1999. On appeal, the Fifth Circuit reversed the District
Court's denial of leave to amend and remanded the case on January 9, 2001 to
allow Plaintiffs leave to file an amended complaint in March of 2001. The
amended complaint sought relief under the 1933 Act claims only. Without
conceding the facts that formed the basis of Plaintiffs' claims, the Company
entered into a stipulation of settlement on January 26, 2002, settling all
claims, with prejudice,

                                      F-24
<Page>
                      SCHLOTZSKY'S, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

15. COMMITMENTS AND CONTINGENCIES (CONTINUED)
for the sum of $2 million, the entirety of which will be paid by the Company's
insurer. On February 19, 2002 the District Court entered its preliminary
approval and set the matter for final settlement hearing on April 2, 2002, at
which time the Court will determine whether the proposed settlement is fair to
the settlement class and should be approved by the Court. There can be no
assurance that the Court will grant final approval or that a significant number
of the settlement class will not "opt-out" of the proposed settlement.

    In addition to the lawsuit discussed above, the Company is a defendant in
various other legal proceedings arising from its business. The ultimate outcome
of these pending proceedings cannot be projected with certainty. However, based
on its experience to date, the Company believes such proceedings will not have a
material effect on its business or financial condition.

    From time to time, the Company has settled various legal proceedings arising
from its business. In certain cases, the Company's insurers have made payments
with regard to these settlements. There has been no material adverse impact to
the Company relating to these settlements.

16. SEGMENTS

    The Company and its subsidiaries are principally engaged in franchising and
operating quick service restaurants that feature salads, made-to-order
sandwiches with unique sourdough buns and pizzas. At December 31, 2001, the
Schlotzsky's-Registered Trademark- Deli system included Company-owned and
franchised restaurants in 38 states, the District of Columbia and eight foreign
countries.

    The Company identifies segments based on management responsibility within
the corporate structure. The Restaurant Operations segment includes restaurants
operated for the purposes of market leadership and redevelopment of certain
markets, demonstrating profit potential and key operating metrics, operational
leadership of the franchise system, product development, concept refinement,
product and process testing, training and building brand awareness and
restaurants available for sale. The Franchise Operations segment encompasses the
franchising of restaurants, assisting franchisees in the development of
restaurants, providing franchisee training and operating the national training
center, communicating with franchisees, conducting regional and national
franchisee meetings, developing and monitoring supplier and distributor
relationships, planning and coordinating advertising and marketing programs, and
the licensing of brand products for sale to the franchise system and retailers.
Until its termination in 2000, a third segment, Turnkey Development, developed
new restaurants for franchisees. The Company measures segment profit as
operating profit, which is defined as income before interest and income taxes.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies (see Note 1). Segment information and
a reconciliation to income, before interest and income taxes are as follows:

<Table>
<Caption>
                                                      RESTAURANT     FRANCHISE
YEAR ENDED DECEMBER 31, 2001                          OPERATIONS     OPERATIONS    CONSOLIDATED
----------------------------                          -----------   ------------   ------------
<S>                                                   <C>           <C>            <C>
Revenue from external customers.....................  $29,905,593   $ 31,945,122   $ 61,850,715
Depreciation and amortization.......................    1,856,927      2,367,490      4,224,417
Operating income....................................      225,201      5,855,298      6,080,499
Significant non-cash items-bad debt and
  impairment........................................           --      1,852,374      1,852,374
Capital expenditures................................    5,446,194      2,442,676      7,888,870
Total assets........................................  $36,071,905   $ 78,077,355   $114,149,260
</Table>

                                      F-25
<Page>
                      SCHLOTZSKY'S, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

16. SEGMENTS (CONTINUED)

<Table>
<Caption>
                                                      RESTAURANT     FRANCHISE
YEAR ENDED DECEMBER 31, 2000                          OPERATIONS     OPERATIONS    CONSOLIDATED
----------------------------                          -----------   ------------   ------------
<S>                                                   <C>           <C>            <C>
Revenue from external customers.....................  $25,737,556   $ 33,437,456   $ 59,175,012
Depreciation and amortization.......................    1,336,437      2,434,762      3,771,199
Operating income (loss).............................      693,664     (2,428,014)    (1,734,350)
Significant non-cash items-bad debt and
  impairment........................................    1,050,262      7,253,377      8,303,639
Capital expenditures................................    4,012,052      4,082,089      8,094,141
Total assets........................................  $29,365,327   $ 84,135,443   $113,500,770
</Table>

<Table>
<Caption>
                                                      RESTAURANT     FRANCHISE
YEAR ENDED DECEMBER 31, 1999                          OPERATIONS     OPERATIONS    CONSOLIDATED
----------------------------                          -----------   ------------   ------------
<S>                                                   <C>           <C>            <C>
Revenue from external customers.....................  $18,533,158   $ 32,874,938   $ 51,408,096
Depreciation and amortization.......................    1,023,489      2,162,944      3,186,433
Operating income....................................      445,684      5,644,324      6,090,008
Significant non-cash items-fees financed............           --      5,016,250      5,016,250
Significant non-cash items-bad debt and
  impairment........................................           --      2,116,597      2,116,597
Capital expenditures................................    3,768,921      3,899,513      7,668,434
Total assets........................................  $20,581,163   $112,178,218   $132,759,381
</Table>

    Included in revenue from external customers for the Franchise Operations
segment are royalties from international sources of $149,363, $139,126 and
$111,098 for 2001, 2000 and 1999, respectively.

                                      F-26
<Page>
                      SCHLOTZSKY'S, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

17. EARNINGS PER SHARE

    Basic and diluted earnings per share computations for the years ended
December 31, 2001, 2000 and 1999 are as follows:

<Table>
<Caption>
                                                             FOR THE YEARS ENDED DECEMBER 31,
                                                          --------------------------------------
                                                             2001         2000          1999
                                                          ----------   -----------   -----------
<S>                                                       <C>          <C>           <C>
BASIC EARNINGS PER SHARE
  Net income (loss) before cumulative effect of
    change in accounting principle......................  $2,489,139   $(2,311,060)  $ 4,346,029
  Cumulative effect of change in accounting principle,
    net of tax..........................................          --            --    (3,819,592)
                                                          ----------   -----------   -----------
  Net income (loss).....................................  $2,489,139   $(2,311,060)  $   526,437
                                                          ==========   ===========   ===========
  Weighted average common shares outstanding............   7,303,455     7,431,760     7,409,496
                                                          ==========   ===========   ===========
  Basic earnings per share before cumulative effect of
    change in accounting principle......................  $     0.34   $     (0.31)  $      0.59
  Cumulative effect of change in accounting principle...          --            --         (0.52)
                                                          ----------   -----------   -----------
  Basic earnings per share..............................  $     0.34   $     (0.31)  $      0.07
                                                          ==========   ===========   ===========
DILUTED EARNINGS PER SHARE
  Net income (loss) before cumulative effect of change
    in accounting principle.............................  $2,489,139   $(2,311,060)  $ 4,346,029
  Cumulative effect of change in accounting principle,
    net of tax..........................................          --            --    (3,819,592)
                                                          ----------   -----------   -----------
  Net income (loss).....................................  $2,489,139   $(2,311,060)  $   526,437
                                                          ==========   ===========   ===========
  Weighted average common shares outstanding............   7,303,455     7,431,760     7,409,496
  Assumed conversion of common shares issuable under
    stock option plan and exercise of warrants..........     169,991            --        66,703
                                                          ----------   -----------   -----------
  Weighted average common shares outstanding--assuming
    dilution............................................   7,473,446     7,431,760     7,476,199
                                                          ==========   ===========   ===========
  Diluted earnings per share before cumulative effect of
    change in accounting principle......................  $     0.33   $     (0.31)  $      0.58
  Cumulative effect of change in accounting principle...          --            --         (0.51)
                                                          ----------   -----------   -----------
  Diluted earnings per share............................  $     0.33   $     (0.31)  $      0.07
                                                          ==========   ===========   ===========
</Table>

    Outstanding options that were not included in the diluted calculation
because their effect would be anti-dilutive totaled 672,000, 849,000 and 748,000
in 2001, 2000 and 1999, respectively.

18. NEW ACCOUNTING PRONOUNCEMENTS

    The Financial Accounting Standards Board has issued Statements 141, 142 and
144, concerning accounting for business combinations, amortization of certain
acquired intangible assets, and the impairment or disposal of long-lived assets,
respectively. The Statements become effective for the Company for calendar year
2002. Under Statement No. 142, intangible assets having an indefinite life will

                                      F-27
<Page>
                      SCHLOTZSKY'S, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

18. NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)
not be amortized until their useful life is determined to be no longer
indefinite. Furthermore, intangible assets not subject to amortization shall be
tested for impairment annually, or more frequently if events or changes in
circumstances indicate that the asset may be impaired. At December 31, 2001, the
Company completed an analysis of the impact of Statement 142 on its results of
operations and financial condition and determined that intangible assets having
a carrying value of approximately $6,000,000 will become nonamortizable under
this new accounting standard and that amortization expense will be reduced by
approximately $215,000 annually. The Company does not expect Statements 141 and
144 to have a material effect on its results of operations and financial
condition upon adoption.

                                      F-28
<Page>
               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders,
Schlotzsky's, Inc.:

    In connection with our audit of the consolidated financial statements of
Schlotzsky's, Inc. and Subsidiaries referred to in our report dated March 1,
2002, which is included in Part IV of this Form 10-K, we have also audited
Schedule II for each of the three years in the period ended December 31, 2001.
In our opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.

GRANT THORNTON LLP

Dallas, Texas
March 1, 2002

                                      S-1
<Page>
                      SCHLOTZSKY'S, INC. AND SUBSIDIARIES

                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

<Table>
<Caption>
              COL. A                   COL. B              COL. C              COL. D       COL. E.
----------------------------------  ------------   -----------------------   -----------   ----------
                                                          ADDITIONS
                                                   -----------------------
                                     BALANCE AT    CHARGE TO    CHARGE TO                  BALANCE AT
                                    BEGINNING OF   COSTS AND      OTHER                      END OF
DESCRIPTION                            PERIOD       EXPENSES     ACCOUNTS    DEDUCTIONS      PERIOD
-----------                         ------------   ----------   ----------   -----------   ----------
<S>                                 <C>            <C>          <C>          <C>           <C>
YEAR ENDED DECEMBER 31, 2001
Accounts receivable:
  Royalties.......................   $  821,601    $  689,171   $       --   $(1,270,393)  $  240,379
  Other...........................    1,018,570        79,041           --      (325,763)     771,848
Notes receivable..................    1,886,689       604,007           --      (703,125)   1,787,571
Restaurants available for sale....    1,105,011        66,545           --      (385,808)     785,748
Intangibles.......................      411,170       229,131           --      (340,301)     300,000
                                     ----------    ----------   ----------   -----------   ----------
                                     $5,243,041    $1,667,895   $       --   $(3,025,390)  $3,885,546
                                     ==========    ==========   ==========   ===========   ==========
YEAR ENDED DECEMBER 31, 2000
Accounts receivable:
  Royalties.......................   $  102,602    $1,042,788   $       --   $  (323,789)  $  821,601
  Other...........................      986,199     2,993,164           --    (2,960,793)   1,018,570
Notes receivable..................      643,213     1,577,487           --      (334,011)   1,886,689
Restaurants available for sale....           --     1,607,589           --      (502,578)   1,105,011
Intangibles.......................      111,170       300,000           --            --      411,170
Investments.......................      196,875            --           --      (196,875)          --
                                     ----------    ----------   ----------   -----------   ----------
                                     $2,040,059    $7,521,028   $       --   $(4,318,046)  $5,243,041
                                     ==========    ==========   ==========   ===========   ==========
YEAR ENDED DECEMBER 31, 1999
Accounts receivable:
  Royalties.......................   $  467,452    $   66,270   $       --   $  (431,120)  $  102,602
  Other...........................       63,242     1,531,535           --      (608,578)     986,199
Notes receivable..................      750,216       (25,804)          --       (81,199)     643,213
Intangibles.......................      111,170            --           --            --      111,170
Investments.......................      100,000        96,875           --            --      196,875
                                     ----------    ----------   ----------   -----------   ----------
                                     $1,492,080    $1,668,876   $       --   $(1,120,897)  $2,040,059
                                     ==========    ==========   ==========   ===========   ==========
</Table>

                                      S-2