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 September 30, 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 9,163,659 shares of the registrant's common stock outstanding as of
November 9, 2001.
Blimpie International, Inc.
Quarterly Report on Form 10-Q
For the Quarter Ended September 30, 2001
Table of Contents
Page Number
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets - September 30, 2001
and June 30, 2001 3
Condensed Consolidated Statements of Income - Three
Months Ended September 30, 2001 and 2000 4
Condensed Consolidated Statements of Cash Flows - Three
Months Ended September 30, 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 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
BLIMPIE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30 June 30
(in thousands, except for per share amounts) 2001 2001
------------- -------------
(Unaudited) (Note)
Assets
Current assets:
Cash and cash equivalents $ 8,789 $ 9,492
Investments 638 687
Accounts receivable, net 2,271 2,596
Prepaid expenses and other current assets 960 732
Deferred income taxes 328 328
Current portion of notes receivable 468 586
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Total current assets 13,454 14,421
Property and equipment, net 1,322 1,441
Other assets:
Notes receivable less current portion, net 630 646
Investments 1,044 1,018
Trademarks, net 7,965 8,018
Deferred income taxes 879 879
Other 96 100
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Total other assets 10,614 10,661
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$25,390 $26,523
======= =======
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and other current liabilities $ 3,366 $ 4,434
Customer equipment deposits 167 363
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Total current liabilities 3,533 4,797
Deferred revenue, net 3,816 4,087
Shareholders' equity:
Common stock, $.01 par value 96 96
Additional paid-in capital 9,032 9,031
Retained earnings 9,922 9,499
Net unrealized gain on marketable securities 72 95
------- -------
19,122 18,721
Treasury stock (1,025) (1,025)
Subscriptions receivable (56) (57)
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Total shareholders' equity 18,041 17,639
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$25,390 $26,523
======= =======
Note: The condensed consolidated balance sheet at June 30, 2001 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
September 30
(in thousands, except for per share amounts) 2001 2000
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Revenues
Continuing fees $ 4,677 $ 5,204
Subfranchisor fees, master license fees
and sale of franchises 869 1,044
Store equipment sales 1,676 1,254
License fees and other income 175 200
Company restaurant sales 172 477
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7,569 8,179
Expenses
Subfranchisors' share of franchise
and continuing fees 2,666 3,150
Store equipment cost of sales 1,414 1,103
Selling, general and administrative expenses 2,675 2,903
Company restaurant operations 232 852
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6,987 8,008
------- -------
Operating income 582 171
Interest income 127 169
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Income before income taxes 709 340
Income taxes 286 180
------- -------
Net income $ 423 $ 160
======= =======
Basic and diluted earnings per share $ 0.05 $ 0.02
======= =======
Weighted average basic shares outstanding 9,164 9,339
======= =======
Weighted average diluted shares outstanding 9,187 9,339
======= =======
Dividends declared per share $ - $ 0.035
======= =======
See notes to condensed consolidated financial statements.
4
BLIMPIE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended
September 30
(in thousands) 2001 2000
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Cash Flows From Operating Activities
Net income $ 423 $ 160
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 227 262
Incentive stock granted 1 2
Changes in operating assets and liabilities:
Accounts receivable, net 325 (992)
Prepaid expenses and other current assets (228) 120
Other assets 4 134
Notes receivable 134 35
Accounts payable and other current liabilities (1,264) 229
Deferred revenue, net (271) (243)
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Net cash used in operating activities (649) (293)
Cash Flows From Investing Activities
Reinvested dividends of available-for-sale securities - (36)
Purchase of trademarks (26) (47)
Purchases of property and equipment (29) (317)
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Net cash used in investing activities (55) (400)
Cash Flows From Financing Activities
Purchases of treasury stock - (60)
Collections on subscriptions receivable 1 -
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Net cash provided by (used in) financing activities 1 (60)
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Net decrease in cash and cash equivalents (703) (753)
Cash and cash equivalents at beginning of period 9,492 8,272
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Cash and cash equivalents at end of period $ 8,789 $ 7,519
======= =======
See notes to condensed consolidated financial statements.
5
Notes To Condensed Consolidated Financial Statements
For the Three Months Ended September 30, 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, 2001 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 September 30, 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.
Note 2: Earnings per Share
Earnings per share on a basic and diluted basis is calculated as follows:
Three months ended
September 30
(in thousands, except per share amounts) 2001 2000
-------- --------
Net income $ 423 $ 160
======== ========
Calculation of weighted average shares
outstanding plus assumed conversions:
Weighted average basic shares outstanding 9,164 9,339
Effect of dilutive employee stock options 23 -
-------- --------
Weighted average diluted shares outstanding 9,187 9,339
======== ========
Basic earnings per share $ 0.05 $ 0.02
======== ========
Diluted earnings per share $ 0.05 $ 0.02
======== ========
6
Note 3: Comprehensive Income
Comprehensive income consists of the following:
Three months ended
September 30
(in thousands) 2001 2000
-------------- --------------
Net income $ 423 $ 160
Net unrealized gain (loss) on
marketable securities (23) 65
-------------- --------------
Comprehensive income $ 400 $ 225
============== ==============
Note 4: Segment Information
Interim financial information by identifiable segments is as follows:
(in thousands)
Operating
Three Months Ended Income
September 30, 2001 Revenue (Loss)
--------------- ---------------
Franchise operations:
United States $5,667 $ 667
International 48 (102)
Equipment and design 1,682 77
Company restaurants 172 (60)
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$7,569 582
===============
Interest income 127
---------------
Income before income taxes $ 709
===============
Three Months Ended
September 30, 2000
Franchise operations:
United States $6,302 $ 621
International 135 (43)
Equipment and design 1,265 (32)
Company restaurant 477 (375)
--------------- ---------------
$8,179 171
===============
Interest income 169
---------------
Income before income taxes $ 340
===============
7
Note 5: Subsequent Event
On October 5, 2001, the Company entered into an agreement and plan of merger
(the "Agreement") with an investor group headed by Jeffrey Endervelt (the
"Endervelt Group"), one of its subfranchisors. Pursuant to the Agreement, Mr.
Endervelt's company, Sandwich Acquisition Corporation ("SAC"), will merge with
and into the Company, and the Company will be the surviving corporation.
In the merger, the Endervelt Group will acquire all of the outstanding common
stock of the Company at a price of $2.80 per share, or approximately
$25,800,000. The transaction, which is expected to close during the first
quarter of calendar 2002, is subject to the approval of the Company's
shareholders.
In connection with the merger agreement, five members of the Company's senior
management, who currently own approximately 58% of the Company's outstanding
shares, entered into a voting agreement with SAC. In accordance with the voting
agreement, those officers have agreed to vote their shares in favor of the
Agreement, and have granted to SAC a proxy to vote their shares in favor of the
transaction. Those officers may terminate the voting agreement and revoke their
proxies if the Company's Board of Directors withdraws its recommendation of the
merger in favor of a superior proposal, as defined in the merger agreement.
Additionally, the Agreement provides that the Company had the ability to conduct
a market check for a 30-day period, which is now expired. The Agreement allows
the Company to terminate the merger if the Board determines that it has received
a superior proposal, which would require the payment by the Company of a break-
up fee of $1.3 million plus up to $200,000 of expenses. To date, no competing
proposals have been received from other parties.
The Company has incurred additional legal, accounting and consulting fees in
connection with the merger activities described above. Such fees were
approximately $275,000 as of September 30, 2001, and management anticipates that
they will exceed $600,000 by December 31, 2001. These additional costs are
included in prepaid expenses and other current assets in the accompanying
September 30, 2001 balance sheet. If the merger is not completed as planned,
these fees will be expensed to operations immediately upon termination of the
merger process.
8
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
During fiscal 2001, we focused on reducing the losses we were incurring in
unprofitable operations. We reduced our staffing and office space for Maui Tacos
and sold or closed most of the Company-owned restaurants that we were operating.
These actions contributed to a loss for the fourth quarter of fiscal 2001, but
enabled us to begin fiscal 2002 as a leaner, more profitable company than we
were in recent years.
Net income for the first quarter of fiscal 2002 was $423,000, or 164.4%
greater than the $160,000 achieved in the first quarter of fiscal 2001. Although
revenues decreased 7.5% from the prior year quarter, profitability increased due
to smaller losses from Company-owned restaurants, lower selling, general and
administrative expenses and a lower effective income tax rate.
We anticipate that we will continue to enjoy lower selling, general and
administrative expenses, a lower effective income tax rate, and smaller losses
from Company-owned restaurants through the remainder of fiscal 2002. We now must
turn our focus to reversing the negative trend in revenues by increasing sales
volumes in our franchised restaurants, thereby increasing our continuing fee
revenues.
Results of Operations
Three Months Ended September 30, 2001 Compared with Three Months Ended
September 30, 2000
Our continuing fees derived from franchises decreased 10.1% to $4,677,000
in the three months ended September 30, 2001 from $5,204,000 in the three months
ended September 30, 2000. This decrease was due primarily to a 7.6% decrease in
same store sales for BLIMPIE Subs & Salads traditional locations. Although we
can not state the reason for this decrease with any degree of certainty, we
believe it is attributable to a reduction in consumer spending activities
occasioned by the overall slowdown of the US economy, and also to a 2.2%
decrease in the number of open outlets. During the quarter, BLIMPIE Subs &
Salads opened 52 locations and closed 61 locations.
Subfranchisor fees, master license fees and fees from the sales and resales
of franchises decreased 16.8% to $869,000 in the three months ended September
30, 2001 from $1,044,000 in
9
the three months ended September 30, 2000. The following table summarizes the
components of these fees for the three months ended September 30, 2001 and 2000:
Three Months Ended September 30,
2001 2000 Change
-----------------------------------------------
Amortization of deferred subfranchise
and master license fees $344,000 $ 385,000 -10.6%
Franchise fees 385,000 529,000 -27.2%
Resale and other fees 140,000 130,000 7.7%
----------------------------------------------
Total $869,000 $1,044,000 -16.8%
==============================================
The amortization of deferred subfranchise and master license fees for the
three months ended September 30, 2001 was 10.6% lower than the amortization for
the same three months of the prior fiscal year, due primarily to certain
deferred amounts becoming fully amortized. Revenues from sales of franchises
decreased 27.2% in the three months ended September 30, 2001 from the three
months ended September 30, 2000 due primarily to a decrease in the revenue per
outlet and a decrease in the recognition of franchise fees for franchises sold
but not opened after two years. Resale and other fees increased 7.7% in the
three months ended September 30, 2001.
Store equipment sales increased 33.7% to $1,676,000 in the three months
ended September 30, 2001 from $1,254,000 in the three months ended September 30,
2000. This increase was due to incremental sales from new equipment sold to
existing stores for renovations undertaken in the quarter.
License fees and other income for the three months ended September 30, 2001
decreased 12.5% to $175,000 from $200,000 in the three months ended September
30, 2000. This decrease was due to lower license fees from the sale of Blimpie
branded products.
Company restaurant sales decreased 63.9% to $172,000 in the three months
ended September 30, 2001 from $477,000 in the three months ended September 30,
2000. This decrease was due to the reduction in the number of outlets from eight
in the prior year to two in the current year.
The Subfranchisors' share of continuing and franchise fees decreased 15.4%
to $2,666,000 in the three months ended September 30, 2001 from $3,150,000 in
the three months ended September 30, 2000. This decrease was due to the
decreases in the related revenues of 10.1% for continuing fees and 27.2% for
franchise fees.
Store equipment cost of sales increased 28.2% to $1,414,000 in the three
months ended September 30, 2001 from $1,103,000 in the three months ended
September 30, 2000. This increase was due to the 33.7% increase in store
equipment sales, partially offset by an increase in the gross profit on those
sales. The gross margin on store equipment sales increased to 15.6% in the three
months ended September 30, 2001 from 12.0% in the three months ended September
30, 2000 due to a favorable product mix during the current year.
Selling, general and administrative expense decreased 7.9% to $2,675,000 in
the three months ended September 30, 2001 from $2,903,000 in the three months
ended September 30, 2000. This decrease was due primarily to lower personnel and
related costs resulting from staff and office space reductions during fiscal
2001.
Company restaurant operations decreased 72.8% to $232,000 in the three
months ended September 30, 2001 from $852,000 in the three months ended
September 30, 2000. This decrease was due primarily to the sale or closing of
the New York MAUI TACOS location and all
10
of the SMOOTHIE ISLAND JUICE BAR locations, resulting in a 63.9% decrease in the
related revenues.
Interest income in the three months ended September 30, 2001 decreased by
24.9% to $127,000 from $169,000 in the three months ended September 30, 2000.
This decrease resulted from lower average investments and notes receivable
outstanding, as well as lower interest rates earned on investments.
The effective income tax rates (income taxes expressed as a percentage of
pre-tax income) were 40.3% in the three months ended September 30, 2001 and
52.9% in the three months ended September 30, 2000. The high effective rate in
both periods was due to certain losses of our majority-owned subsidiary, Maui
Tacos International, Inc. ("MTII"), which may not be deductible for tax purposes
in fiscal 2001 and fiscal 2002. In fiscal 2002, overall profitability increased
and the losses from MTII decreased, resulting in the nondeductible losses being
a lower percentage of income before income taxes in the current year period,
resulting in a lower effective income tax rate.
Liquidity and Capital Resources
Our cash used in operating activities was $649,000 in the three months
ended September 30, 2001 and $293,000 in the three months ended September 30,
2000. The increase in the use of cash is due primarily to decreases in accounts
payable and other current liabilities and deferred revenues, and an increase in
prepaid expenses and other current assets. These changes were partially offset
by higher net income and a decrease in accounts receivable.
Net cash used in investing activities was $55,000 in the three months ended
September 30, 2001 and $400,000 in the three months ended September 30, 2000.
The decrease in the use of cash is due primarily to lower purchases of property
and equipment during the current year period.
Net cash provided by financing activities was $1,000 in the three months
ended September 30, 2001. Net cash used in financing activities was $60,000 in
the three months ended September 30, 2000. The cash used in financing activities
in the prior year period was due to purchases of treasury stock. Due to the
pending merger described in Note 5 of the accompanying financial statements, we
discontinued our share repurchase program.
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.
11
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. The following exhibits are filed as part of this
report:
None
(b) No Current Reports on Form 8-K were filed by the Company during
the quarter for which this report has been filed.
12
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: November 13, 2001 By: /s/ Brian D. Lane
-------------------
Brian D. Lane
Vice President and Chief Financial Officer
(Principal Financial Officer)
13