SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] Quarterly report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 2001
OR
[ ] Transition report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from ________ to ________
Commission File Number 0-21036
BLIMPIE INTERNATIONAL, INC.
(Exact name of issuer as specified in its charter)
New Jersey
(State or Other Jurisdiction of Incorporation or Organization)
13-2908793
(IRS Employer Identification No.)
740 Broadway, New York, NY 10003
(Address and Zip Code of Principal Executive Offices)
(212) 673-5900
(Issuer's Telephone Number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No___
---
There were 9,189,319 shares of the registrant's common stock outstanding as of
April 26, 2001.
Blimpie International, Inc.
Quarterly Report on Form 10-Q
For the Quarter Ended March 31, 2001
Table of Contents
Page
Number
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets - March 31, 2001
and June 30, 2000 3
Condensed Consolidated Statements of Income - Three and Nine
Months Ended March 31, 2001 and 2000 4
Condensed Consolidated Statements of Cash Flows - Nine
Months Ended March 31, 2001 and 2000 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BLIMPIE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except for per share amounts) March 31 June 30
2001 2000
------------- -------------
Assets (Unaudited) (Note)
Current assets:
Cash and cash equivalents $ 7,626 $ 8,272
Investments 732 618
Accounts receivable, net 2,775 2,125
Prepaid expenses and other current assets 540 1,089
Deferred income taxes 155 155
Current portion of notes receivable 619 540
------------- -------------
Total current assets 12,447 12,799
Property and equipment, net 2,498 2,390
Other assets:
Notes receivable less current portion, net 545 666
Investments 987 970
Trademarks, net 8,088 8,249
Deferred income taxes 1,313 1,313
Other 604 673
------------- -------------
Total other assets 11,537 11,871
------------- -------------
$ 26,482 $ 27,060
============= =============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and other current liabilities $ 3,238 $ 3,285
Customer equipment deposits 321 238
------------- -------------
Total current liabilities 3,559 3,523
Deferred revenue, net 4,363 5,051
Shareholders' equity:
Common stock, $.01 par value 96 96
Additional paid-in capital 9,031 9,028
Retained earnings 10,299 10,075
Net unrealized gain on marketable securities 120 41
------------- -------------
19,546 19,240
Treasury stock (927) (694)
Subscriptions receivable (59) (60)
------------- -------------
Total shareholders' equity 18,560 18,486
------------- -------------
$ 26,482 $ 27,060
============= =============
Note: The condensed consolidated balance sheet at June 30, 2000 has been derived
from the audited consolidated financial statements of the Company at that date
but does not include all of the information required by accounting principles
generally accepted in the United States for complete financial statements.
See notes to condensed consolidated financial statements.
3
BLIMPIE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three months ended Nine months ended
(in thousands, except for per share amounts) March 31 March 31
2001 2000 2001 2000
------------- ------------- ------------- -------------
Revenues
Continuing fees $ 4,575 $ 4,582 $ 14,254 $ 14,037
Subfranchisor fees, master license fees
and sale of franchises 968 912 3,022 2,882
Store equipment sales 1,052 1,451 3,842 4,997
License fees and other income 207 114 555 478
Company restaurant sales 409 190 1,254 448
------------- ------------- ------------- -------------
7,211 7,249 22,927 22,842
Expenses
Subfranchisors' share of franchise
and continuing fees 2,817 2,618 8,607 8,214
Store equipment cost of sales 916 1,224 3,308 4,304
Selling, general and administrative expenses 2,531 2,698 8,141 8,310
Company restaurant operations 693 360 2,202 636
------------- ------------- ------------- -------------
6,957 6,900 22,258 21,464
------------- ------------- ------------- -------------
Operating income 254 349 669 1,378
Interest income 143 149 503 503
------------- ------------- ------------- -------------
Income before income taxes 397 498 1,172 1,881
Income taxes 202 235 621 869
------------- ------------- ------------- -------------
Net income $ 195 $ 263 $ 551 $ 1,012
============= ============= ============= =============
Basic and diluted earnings per share $ 0.02 $ 0.03 $ 0.06 $ 0.11
============= ============= ============= =============
Weighted average basic shares outstanding 9,250 9,452 9,298 9,474
============= ============= ============= =============
Weighted average diluted shares outstanding 9,274 9,452 9,305 9,483
============= ============= ============= =============
Dividends declared per share $ 0.035 $ 0.035 $ 0.070 $ 0.070
============= ============= ============= =============
See notes to condensed consolidated financial statements.
4
BLIMPIE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended
March 31
(in thousands) 2001 2000
------------ -------------
Cash Flows From Operating Activities
Net income $ 551 $ 1,012
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 740 618
Incentive stock granted 3 6
Changes in operating assets and liabilities:
Accounts receivable, net (650) 158
Prepaid expenses and other current assets 549 (264)
Other assets 69 (704)
Notes receivable 42 122
Accounts payable and other current liabilities 36 (1,292)
Income taxes payable - 109
Deferred revenue, net (688) (337)
------------ ------------
Net cash provided by (used in) operating activities 652 (572)
Cash Flows From Investing Activities
Proceeds from sale of available-for-sale securities - 4,084
Reinvested dividends of available-for-sale securities (52) (95)
Purchase of trademarks (71) (81)
Purchases of property and equipment (616) (473)
------------ ------------
Net cash (used in) provided by investing activities (739) 3,435
Cash Flows From Financing Activities
Purchases of treasury stock (233) (165)
Collections of subscriptions receivable 1 -
Cash dividends paid (327) (332)
------------ ------------
Net cash used in financing activities (559) (497)
------------ ------------
Net (decrease) increase in cash and cash equivalents (646) 2,366
Cash and cash equivalents at beginning of period 8,272 4,682
------------ ------------
Cash and cash equivalents at end of period $ 7,626 $ 7,048
============ ============
See notes to condensed consolidated financial statements.
5
Notes To Condensed Consolidated Financial Statements
For the Nine Months Ended March 31, 2001 (Unaudited)
Note 1: Basis of Presentation
The unaudited interim financial statements have been prepared in accordance with
accounting principles generally accepted in the United States for interim
financial statements and should be read in conjunction with the Company's June
30, 2000 Annual Report on Form 10-K.
The unaudited financial statements include all adjustments consisting of only
normal recurring accruals which are, in the opinion of management, necessary to
present a fair statement of financial position as of March 31, 2001 and the
results of operations and cash flows for the period then ended. Results of
operations for the period are not necessarily indicative of the results to be
expected for the full year. Historically, revenues from continuing fees are
highest in the Company's first and fourth fiscal quarters, and decrease in the
second and third fiscal quarters, due to seasonal factors.
No significant events have occurred subsequent to the end of fiscal year 2000,
and no material contingencies exist which would require disclosure in this
interim report.
Note 2: Earnings per Share
Earnings per share on a basic and diluted basis is calculated as follows:
Three months ended Nine months ended
March 31 March 31
(in thousands, except per share amounts) 2001 2000 2001 2000
------------ ------------ ------------ ------------
Net income $ 195 $ 263 $ 551 $ 1,012
============ ============ ============ ============
Calculation of weighted average shares
outstanding plus assumed conversions:
Weighted average basic shares outstanding 9,250 9,452 9,298 9,474
Effect of dilutive employee stock options 24 - 7 9
------------ ------------ ------------ ------------
Weighted average diluted shares outstanding 9,274 9,452 9,305 9,483
============ ============ ============ ============
Basic earnings per share $ 0.02 $ 0.03 $ 0.06 $ 0.11
============ ============ ============ ============
Diluted earnings per share $ 0.02 $ 0.03 $ 0.06 $ 0.11
============ ============ ============ ============
Note 3: Comprehensive Income
Comprehensive income consists of the following:
Three months ended Nine months ended
March 31 March 31
(in thousands) 2001 2000 2001 2000
------------ ------------ ------------ ------------
Net income $ 195 $ 263 $ 551 $ 1,012
Net unrealized gain (loss) on
marketable securities (27) 40 79 2
------------ ------------ ------------ ------------
Comprehensive income $ 168 $ 303 $ 630 $ 1,014
============ ============ ============ ============
6
Note 4: Segment Information
Interim financial information by identifiable segments is as follows:
Three months ended
--------------------------------------------------------------
(in thousands) March 31, 2001 March 31, 2000
------------------------------ -----------------------------
Operating Operating
Income Income
Revenue (Loss) Revenue (Loss)
--------------- ------------- ------------- --------------
Franchise operations:
United States $ 5,618 $ 729 $ 5,513 $ 726
International 129 (68) 78 (159)
Equipment and design 1,055 (123) 1,468 (48)
Company restaurants 409 (284) 190 (170)
-------------- ------------- ------------- --------------
$ 7,211 254 $ 7,249 349
============== =============
Interest income 143 149
------------- --------------
Income before income taxes $ 397 $ 498
============= ==============
Nine months ended
-------------------------------------------------------------
March 31, 2001 March 31, 2000
------------------------------ -----------------------------
Operating Operating
Income Income
Revenue (Loss) Revenue (Loss)
-------------- -------------- ------------- --------------
Franchise operations:
United States $17,399 $1,959 $17,071 $2,026
International 409 (170) 286 (384)
Equipment and design 3,865 (172) 5,037 (76)
Company restaurants 1,254 (948) 448 (188)
-------------- -------------- ------------- --------------
$22,927 669 $22,842 1,378
============== =============
Interest income 503 503
-------------- --------------
Income before income taxes $1,172 $1,881
============== ==============
7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion contains forward-looking statements subject to
the safe harbor created by the Private Securities Litigation Reform Act of 1995.
The words "may," "would," "could," "will," "expect," "estimate," "believe,"
"intends," "plans" and similar expressions and variations thereof are intended
to identify forward-looking statements. Management cautions that these
statements represent projections and estimates of future performance and involve
certain risks and uncertainties. Our actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors including, without limitation, our ability to successfully implement the
new concepts currently being formulated; changes in global and local business
and economic conditions; consumer preferences, spending patterns and demographic
trends; food, labor and other operating costs; availability and cost of land and
construction; currency exchange rates; and other risks outside our control
referred to in the registration statements and periodic reports that we file
with the Securities and Exchange Commission.
Overview
We engage in franchising, subfranchising and master licensing the
BLIMPIE trademarks, trade names, service marks, logos, marketing concepts and
marketing programs. We franchise BLIMPIE(R) Subs & Salads and PASTA CENTRALTM
and are the majority owner of Maui Tacos International, Inc. ("Maui Tacos"), the
franchisor of MAUI TACOSTM and SMOOTHIE ISLANDTM. Currently, we operate one MAUI
TACOS restaurant in New York City and one in Atlanta, Georgia, as well as six
SMOOTHIE ISLAND JUICE BAR restaurants in Houston, TX. We opened a company-owned
co-branded BLIMPIE SUBS & SALADS / PASTA CENTRAL / SMOOTHIE ISLAND location in
Athens, Georgia in mid-April 2001. All other locations operating under our
brands are franchised locations. We have not franchised any SMOOTHIE ISLAND
JUICE BAR locations to date.
BLIMPIE Subs & Salads' traditional location same store sales increased
0.4% during the quarter and 3.3% for the nine months ended March 31, 2001. We
opened 50 BLIMPIE Subs & Salads, one PASTA CENTRAL and two MAUI TACOS locations
during the third quarter of fiscal 2001. We also reopened one formerly closed
MAUI TACOS location, but closed 51 BLIMPIE Subs & Salads locations during the
third quarter.
Our quarterly and year to date results were hurt by losses from Company
restaurant operations, which were $284,000 in the third quarter of fiscal 2001,
compared to losses of $170,000 in the third quarter of fiscal 2000. The loss
from Company restaurant operations was $948,000 for the nine months ended March
31, 2001 and $188,000 for the nine months ended March 31, 2000. We are incurring
the majority of these losses at the Company-owned MAUI TACOS location in New
York City and the SMOOTHIE ISLAND JUICE BAR locations in Houston, Texas. Because
these operations have been unable to achieve profitability, we have decided to
sell or close each of these locations by the end of our fiscal year, if
possible. We intend to sell the MAUI TACOS location as a franchised MAUI TACOS
restaurant. The SMOOTHIE ISLAND JUICE BAR locations will be sold as independent
juice bars, not as franchises. These sales and/or closings may result in a one-
time charge to operations if we are unable to recover our investment in the
stores. However, we believe that the potential of short-term charges against
income will benefit us in the long-term because we will stop incurring operating
losses at these locations. As of March 31, 2001, we believe the recorded
investments in these locations are recoverable. Actual recoverability may be
different from these recorded amounts. See also "Liquidity and Capital
Resources" below.
For the quarter and nine months ended March 31, 2001, we earned $0.02
and $0.06 per diluted share, respectively, down from $0.03 and $0.11 per diluted
share in the corresponding periods of the prior year. We expect that we will
continue to incur losses in our Company-owned restaurant operations in the
fourth quarter of fiscal 2001, but, as noted above, it is our intent to
8
dispose of these locations by June 30, 2001. Therefore, we may record a loss
from the sales and/or closings of these locations in the fourth quarter, but
should not continue to incur significant operating losses from Company-owned
locations in fiscal 2002.
Results of Operations
Three and Nine Months Ended March 31, 2001 Compared with Three and Nine Months
Ended March 31, 2000
Our net income decreased 25.9% to $195,000 in the three months ended
March 31, 2001 from $263,000 in the three months ended March 31, 2000. Our basic
and diluted earnings per share decreased 33.3% to $0.02 per share in the three
months ended March 31, 2001 from $0.03 per share in the three months ended March
31, 2000. Such decreases are attributable primarily to losses incurred in
Company restaurant operations, as discussed in the Overview above, as well as in
the discussion below.
Our continuing fees derived from franchises decreased 0.2% to
$4,575,000 in the three months ended March 31, 2001 from $4,582,000 in the three
months ended March 31, 2000. This decrease was due primarily to a 7.3% decrease
in the number of open BLIMPIE Subs & Salads outlets from 2,125 at March 31, 2000
to 1,970 at March 31, 2001. This decrease in open outlets was partially offset
by a 0.4% increase in same store sales for BLIMPIE Subs & Salads traditional
locations, and higher revenues from Maui Tacos, Pasta Central and Smoothie
Island. Continuing fees increased 1.5% to $14,254,000 in the nine months ended
March 31, 2001 from $14,037,000 in the nine months ended March 31, 2000 due to a
3.3% increase in same store sales for the nine-month period, partially offset by
a lower number of open outlets.
Subfranchisor fees, master license fees and fees from the sales and
resales of franchises increased 6.1% to $968,000 in the three months ended March
31, 2001 from $912,000 in the three months ended March 31, 2000. These revenues
increased 4.9% to $3,022,000 in the nine months ended March 31, 2001 from
$2,882,000 in the nine months ended March 31, 2000. The following table
summarizes the components of these fees for the three and nine months ended
March 31, 2001 and 2000:
Three Months Ended
March 31,
(amounts in 000's) 2001 2000 Change
----------------------------------------------
Amortization of deferred subfranchise
and master license fees $ 367 $ 390 -5.9%
Franchise fees 467 381 22.6%
Resale and other fees 134 141 -5.0%
----------------------------------------------
Total $ 968 $ 912 6.1%
==============================================
Nine months Ended
March 31,
(amounts in 000's) 2001 2000 Change
----------------------------------------------
Amortization of deferred subfranchise
and master license fees $ 1,114 $ 1,164 -4.3%
Franchise fees 1,507 1,361 10.7%
Resale and other fees 401 357 12.3%
----------------------------------------------
Total $ 3,022 $ 2,882 4.9%
==============================================
The amortization of deferred subfranchise and master license fees for
the three and nine months ended March 31, 2001 was 5.9% and 4.3% lower,
respectively, than the amortization for
9
the same periods of the prior fiscal year, due primarily to certain deferred
amounts becoming fully amortized. Revenues from sales of franchises increased
22.6% and 10.7% in the three and nine months ended March 31, 2001, respectively,
from the three and nine months ended March 31, 2000. These increases were due
primarily to a higher average franchise fee per location opened, as well as an
increase in the recognition of franchise fees for franchises sold but not opened
after two years. Store openings in the current quarter included two MAUI TACOS
locations and 50 BLIMPIE Subs & Salads locations, of which one was co-branded
with PASTA CENTRAL. In the third quarter of the prior year, we opened two MAUI
TACOS locations and 34 BLIMPIE Subs & Salads locations, of which one was co-
branded with PASTA CENTRAL. Resale and other fees decreased 5.0% in the three
months ended March 31, 2001 and increased 12.3% in the nine months then ended
due to fluctuations in the number and selling price of stores resold in the
periods.
Store equipment sales decreased 27.5% to $1,052,000 in the three months
ended March 31, 2001 from $1,451,000 in the three months ended March 31, 2000.
Store equipment sales decreased 23.1% to $3,842,000 in the nine months ended
March 31, 2001 from $4,997,000 in the nine months ended March 31, 2000. These
decreases in equipment sales were due to a decrease in sales per unit opened.
Beginning in fiscal 2001, store cash register systems have been sold by a third
party and not by us. Further, some of the new locations are purchasing equipment
from closed locations, which decreases our sales of new equipment.
License fees and other income for the three months ended March 31, 2001
increased 81.6% to $207,000 from $114,000 in the three months ended March 31,
2000. License fees and other income for the nine months ended March 31, 2001
increased 16.1% to $555,000 from $478,000 in the nine months ended March 31,
2000. These increases were due to higher license fees from BLIMPIE branded
products, as well as higher sales from the Canteen Vending Program.
Company restaurant sales increased 115.3% to $409,000 in the three
months ended March 31, 2001 from $190,000 in the three months ended March 31,
2000. Company restaurant sales increased 179.9% to $1,254,000 in the nine months
ended March 31, 2001 from $448,000 in the nine months ended March 31, 2000.
These increases were due to an increase in the number of Company-owned outlets
from two MAUI TACOS locations in the fiscal 2000 period, versus three MAUI TACOS
locations and six SMOOTHIE ISLAND JUICE BAR locations open for part or all of
the current year periods.
The Subfranchisors' share of continuing and franchise fees increased
7.6% to $2,817,000 in the three months ended March 31, 2001 from $2,618,000 in
the three months ended March 31, 2000. This increase was due primarily to the
increases in franchise and resale fees. The Subfranchisors' share of continuing
and franchise fees increased 4.8% to $8,607,000 in the nine months ended March
31, 2001 from $8,214,000 in the nine months ended March 31, 2000. This increase
was due to increases in continuing fees, franchise fees and resale fees.
Store equipment cost of sales decreased 25.2% to $916,000 in the three
months ended March 31, 2001 from $1,224,000 in the three months ended March 31,
2000. This decrease was due to the 27.5% decrease in store equipment sales,
coupled with a decrease in the gross profit on those sales. The gross margin on
store equipment sales decreased to 12.9% in the three months ended March 31,
2001 from 15.6% in the three months ended March 31, 2000 due to normal changes
in the product mix between periods. Store equipment cost of sales decreased
23.1% to $3,308,000 in the nine months ended March 31, 2001 from $4,304,000 in
the nine months ended March 31, 2000. This decrease was due to the 23.1%
decrease in store equipment sales during the period. The gross margin on store
equipment sales was 13.9% in both nine-month periods.
Selling, general and administrative expense decreased 6.2% to
$2,531,000 in the three months ended March 31, 2001 from $2,698,000 in the three
months ended March 31, 2000. This
10
decrease was due primarily to lower professional fees, which were incurred in
earlier quarters during the current year. Selling, general and administrative
expense decreased 2.0% to $8,141,000 in the nine months ended March 31, 2001
from $8,310,000 in the three months ended March 31, 2000.
We anticipate that selling, general and administrative expenses will
increase in the fourth quarter of fiscal 2001. Three of our top executives own
an aggregate of more than 53% of our common stock. In the event any of these
officers was to pass away, his estate might be forced to sell some or all of the
shares of our stock that it holds in order to pay inheritance taxes. The
attempted sale of a large number of our shares of common stock could cause a
significant decrease in the market price of our stock for an extended period of
time. In an attempt to protect against such an event, we purchased key man life
insurance designed to pay the estates of each of those executives a death
benefit that should enable them to pay inheritance taxes from the insurance
proceeds, and not force those estates to sell large blocks of our stock all at
once. In April 2001, we determined it would be more appropriate for these
executives to purchase such insurance individually. We assigned the original
policies and the related cash surrender values to the executives, and no longer
will pay the premiums for such policies. We recorded the aggregate cash
surrender value of these policies of approximately $450,000 as other assets in
the accompanying balance sheet as of March 31, 2001. This amount, adjusted for
changes in the cash surrender value, will be expensed as bonuses to the three
executives and included in selling, general and administrative expenses in the
fourth quarter of fiscal 2001.
Company restaurant operations increased 92.5% to $693,000 in the three
months ended March 31, 2001 from $360,000 in the three months ended March 31,
2000. Company restaurant operations increased 246.2% to $2,202,000 in the nine
months ended March 31, 2001 from $636,000 in the nine months ended March 31,
2000. These increases were due primarily to the 115.3% and 179.9% increases in
the related revenues generated by additional locations in the three and nine
months ended March 31, 2001, respectively. Additionally, losses from these
operations were greater than anticipated due primarily to low sales in the
restaurants caused by the immaturity of the MAUI TACOS and SMOOTHIE ISLAND JUICE
BAR concepts in their markets, poor weather conditions during most of the second
quarter, and the closing of one MAUI TACOS location in the first quarter of the
current year. As a result, we incurred losses of $284,000 and $948,000 in the
three and nine months ended March 31, 2001, respectively, from Company
restaurant operations. See "Liquidity and Capital Resources" below for a
discussion of our plans regarding Company-owned restaurants.
Interest income in the three months ended March 31, 2001 decreased 4.0%
to $143,000 from $149,000 in the three months ended March 31, 2000. Interest
income in the nine months ended March 31, 2001 was unchanged from $503,000 in
the nine months ended March 31, 2000.
The effective income tax rates (income taxes expressed as a percentage
of pre-tax income) were 50.9% in the three months ended March 31, 2001 and 47.2%
in the three months ended March 31, 2000. The effective income tax rates were
53.0% in the nine months ended March 31, 2001 and 46.2% in the nine months ended
March 31, 2000. The increase in the effective rate in the three and nine month
periods was due to certain losses of our majority-owned subsidiary, Maui Tacos
International, Inc. ("MTII"), which may not be deductible for consolidated tax
purposes in fiscal 2001. Such losses were a greater percentage of income before
income taxes in the current year periods, resulting in a higher effective income
tax rate.
We currently are negotiating to purchase the shares of MTII that we do
not own. We expect to complete this purchase and merge MTII into Blimpie
International, Inc. by the end of the first quarter of fiscal 2002. If we are
able to complete these transactions as planned, we will be able to utilize the
net operating losses generated by MTII (approximately $875,000 through March 31,
2001) to offset a portion of the profits generated by Blimpie International,
Inc. We recorded that $875,000 as a deferred tax asset at March 31, 2001, but
have offset it with a valuation allowance in the same amount. This proposed
merger would enable us to
11
reverse the majority of this valuation allowance and record a tax benefit in the
fiscal period when the merger is completed. Further, the merger would enable us
to deduct future losses of the former MTII operations, if any, on a current
basis for consolidated tax purposes in fiscal 2002 and beyond. This change would
enable us to return to an effective income tax rate of between 35% and 38% in
future periods, as compared to 49.2% in fiscal 2000 and 53.0% for the nine
months ended March 31, 2001.
Liquidity and Capital Resources
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of", we record impairment losses on long-lived assets used in
operations when events and circumstances indicate that the assets might be
impaired and we estimate that the undiscounted cash flows to be generated by
those assets are less than their carrying amount. In light of the poor results
of operations from the Company-owned MAUI TACOS location in New York City and
the SMOOTHIE ISLAND JUICE BAR locations in Houston, Texas, we have decided to
sell or close each of these locations. In the event we cannot recover our
remaining investment in these locations though a favorable sale, we may need to
write down these assets to their estimated fair value. As of March 31, 2001, we
believe the recorded investments will be recovered. Actual recoverability may be
different from the recorded amounts.
Our cash provided by operating activities was $652,000 in the nine
months ended March 31, 2001. Our cash used in operating activities was $572,000
in the nine months ended March 31, 2000. The improvement in cash flows from
operating activities is due primarily to a lower decrease in accounts payable
and other current liabilities and a decrease in prepaid expenses and other
current assets, partially offset by an increase in accounts receivable, lower
net income and a greater decrease in deferred revenue.
Net cash used in investing activities during the nine months ended
March 31, 2001 was $739,000. Net cash provided by investing activities during
the nine months ended March 31, 2000 was $3,435,000. The change between the two
periods is due primarily to proceeds from the sale of securities in the prior
period, with no similar activity in the current period. Additionally, purchases
of property and equipment increased due to the opening of several SMOOTHIE
ISLAND JUICE BAR locations in the current year period.
Net cash used in financing activities was $559,000 in the nine months
ended March 31, 2001 and $497,000 in the nine months ended March 31, 2000. The
increase in cash used in financing activities was due to greater purchases of
treasury stock in the current period.
The Company's primary liquidity needs arise from expansion, capital
expenditures and dividend payments. These needs are primarily met by the cash
flows from operations and from the Company's cash and investments. The Company
believes that the cash flows from operations and the Company's cash and
investments will be sufficient to fund its future liquidity needs for the
foreseeable future.
12
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. No exhibits are filed as part of this report:
---------
(b) We did not file any Current Reports on Form 8-K during the
quarter for which this report has been filed.
13
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Blimpie International, Inc.
(Registrant)
Dated: May 10, 2001 By: /s/ Brian D. Lane
------------------------
Brian D. Lane
Vice President and Chief Financial
Officer (Principal Financial Officer)
14