U.S. 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, 1997
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 9,545,676 shares of the registrant's common stock outstanding as of
November 12, 1997.
1
Table of Contents
Page No.
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PART I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets........... 3
Condensed Consolidated Statements of Operations. 4
Condensed Consolidated Statements of Cash Flows. 4
Notes to Financial Statements................... 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .. 6
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K................ 11
Signatures...................................... 12
2
Item 1. Financial Statements
Blimpie International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
September 30 June 30
Assets 1997 1997
----------- -----------
(Unaudited)
Current
Cash and cash equivalents $ 3,640,388 $ 3,532,339
Investments 3,533,860 4,462,253
Accounts receivable, less allowance for doubtful accounts 2,468,092 2,084,825
Prepaid expenses and other current assets 839,754 701,504
Current portion of notes receivable 857,596 985,772
----------- -----------
Total Current Assets 11,339,690 11,766,693
----------- -----------
Property, Plant and Equipment - at cost
less accumulated depreciation 1,251,089 1,253,003
----------- -----------
Other Assets
Notes receivable less allowance for doubtful
accounts and current portion 1,671,217 1,518,721
Investments 4,876,805 3,877,827
Trademarks - at cost, less accumulated amortization 8,659,121 8,704,472
Other 622,369 583,633
Total Other Assets 15,829,512 14,684,653
----------- -----------
$28,420,291 $27,704,349
=========== ===========
Liabilities and Shareholders' Equity
Current
Accounts payable $ 3,179,804 $ 3,518,657
Current portion of long-term debt 3,786 5,202
Income taxes payable 434,639 7,676
Dividends payable 333,967 --
Other current liabilities 363,143 473,951
----------- -----------
Total Current Liabilities 4,315,339 4,005,486
----------- -----------
Deferred Revenue 1,185,708 1,325,146
----------- -----------
Trademark Obligations 3,508,594 3,508,594
----------- -----------
Commitments and Contingencies -- --
Shareholders' Equity
Common stock, par value $.01 - authorized 20,000,000 shares;
issued and outstanding 9,541,926 and
9,525,226 shares, respectively 95,419 95,262
Additional paid-in capital 8,295,859 8,209,666
Retained earnings 11,213,479 10,744,290
Net unrealized gain on marketable securities 15,893 25,905
----------- -----------
19,620,650 19,075,123
Less: Subscriptions receivable 210,000 210,000
----------- -----------
Total Shareholders' Equity 19,410,650 18,865,123
----------- -----------
$28,420,291 $27,704,349
=========== ===========
See accompanying notes to condensed consolidated financial statements.
3
Item 1. Financial Statements
Blimpie International, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended September 30
1997 1996
---- ----
Revenues
Continuing fees $ 4,230,469 $ 3,655,429
Subfranchisor fees, master license fees and sale of franchises 1,234,084 1,910,395
Store equipment sales 4,274,235 4,200,534
Management fees and other income 294,341 250,704
------------ ------------
10,033,129 10,017,062
------------ ------------
Expenses
Subfranchisors' share of franchise and continuing fees 2,568,334 2,278,357
Store equipment cost of sales 3,562,385 3,815,246
Selling, general and administrative expenses 2,782,693 2,630,783
Interest expense 209 2,713
------------ ------------
8,913,621 8,727,099
------------ ------------
Operating Income 1,119,508 1,289,963
Interest income 182,648 236,760
------------ ------------
Income before income taxes 1,302,156 1,526,723
Income taxes 499,000 586,000
------------ ------------
Net Income $ 803,156 $ 940,723
============ ============
Earnings per share $ 0.08 $ 0.10
============ ============
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended September 30,
1997 1996
---- ----
Cash Flows From Operating Activities
Net cash provided by operating activities $ 277,948 $ 310,845
Cash Flows From Investing Activities
Reinvested dividends of available-for-sale securities (1,401) (1,357)
Purchase of available-for-sale securities (1,633,172) --
Proceeds from maturities of available-for-sale securities 1,553,976 --
Purchase of held-to-maturity securities -- (2,053,391)
Proceeds from maturities of held-to-maturity securities -- 2,059,050
Disposal of property, plant and equipment -- 10,232
Acquisition of property, plant and equipment (87,886) (82,169)
------------ ------------
Net cash used in investing activities (168,483) (67,635)
------------ ------------
Cash Flows From Financing Activities
Proceeds from stock warrants/options exercised -- 7,250
Collections on officer notes receivable for stock purchase -- 922
Cash dividends paid -- (332,369)
Repayment of long-term debt (1,416) (1,357)
------------ ------------
Net cash used in financing activities (1,416) (325,554)
------------ ------------
Net increase (decrease) in Cash and Cash Equivalents 108,049 (82,344)
Cash and Cash Equivalents, at beginning of year 3,532,339 4,328,468
------------ ------------
Cash and Cash Equivalents, at end of period $ 3,640,388 $ 4,246,124
============ ============
Supplemental Disclosure of Cash flow Information
Noncash investing and financing activities
o Dividends declared $ 333,967 $ --
See accompanying notes to condensed consolidated financial statements.
4
Item 1. Financial Statements
Blimpie International, Inc. and Subsidiaries
Notes To Consolidated Financial Statements
For the Three Months Ended September 30, 1997 (Unaudited)
The unaudited interim financial statements should be read in conjunction with
the Company's June 30, 1997 Annual Report.
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, 1997 and
the results of operations, changes in shareholders' equity, and cash flows for
the three months then ended. Results of operations for the period are not
necessarily indicative of the results to be expected for the full year.
No significant events have occurred subsequent to the end of fiscal year 1997,
and no material contingencies exist which would require disclosure in this
interim report.
Common Stock
The weighted average number of common shares outstanding used in the
calculation of the earnings per share for the three months ended September 30,
1997 and 1996 were 9,577,241, and 9,841, 647, respectively, as adjusted for
the assumed conversion of dilutive common stock equivalents, principally stock
options.
5
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Three Months Ended September 30, 1997 Compared with Three Months Ended September
30, 1996
Results of Operations
The Company's net income decreased 15% to $803,156 for the three months ended
September 30, 1997 from $940,723 for the three months ended September 30, 1996.
The Company's earnings per share decreased 20% to $.08 per share for the three
months ended September 30, 1997 from $.10 per share for the three months ended
September 30, 1996. Such decreases are attributable to the decreases in
subfranchise and master license fees which are discussed below.
The Company's continuing fees derived from domestic franchises increased 16% to
$4,208,959 for the three months ended September 30, 1997 from $3,641,340 for the
three months ended September 30, 1996. During these same periods continuing fees
derived from international franchises increased to $21,510 from $14,089. These
increases are directly attributable to the greater number of total open outlets
as compared to the same period ended 1996.
Revenue from subfranchise, master license and franchise fees for the three
months ended September 30, 1997 decreased 35% to $1,234,084 from $1,910,395 for
the same period ended 1996. The following table sets forth an analysis of the
components of such fees.
Three Months Ended September 30,
1997 1996
SUBFRANCHISE FEES - DOMESTIC:
Existing Subfranchise Expansions $ 1,869 $ 175,292
Principal Payments Recognized on Deferred
Subfranchise Notes 11,791 14,183
Annual Renewal Term Payments Recognized 116,548 58,948
Deferred Subfranchise Fees Recognized 63,275 258,749
---------- ----------
TOTAL SUBFRANCHISE FEES $ 193,483 $ 507,172
---------- ----------
MASTER LICENSE FEES - INTERNATIONAL:
New Master License Grants $ 82,000 $ 361,950
Lump Sum Payments Recognized in Current Fiscal Year 120,293 317,500
---------- ----------
TOTAL MASTER LICENSE FEES $ 202,293 $ 679,450
---------- ----------
FRANCHISE FEES RECOGNIZED:
Domestic $ 823,309 $ 723,773
International 15,000 -0-
---------- ----------
TOTAL FRANCHISE FEES $ 838,309 $ 723,773
---------- ----------
TOTAL SUBFRANCHISE, MASTER LICENSE
& FRANCHISE FEES $1,234,085 $1,910,395
---------- ----------
6
Total revenue from subfranchise fees decreased 62% to $193,483 for the three
months ended September 30, 1997 from $507,172 for the three months ended
September 30, 1996. During the three months ended September 30, 1997 and
September 30, 1996, the Company neither granted nor derived any revenue from any
new domestic subfranchises. In addition, during the three months ended September
30, 1997, the Company recognized $11,791 in principal payments received on
deferred subfranchise notes due from existing subfranchisors and recognized
$116,548 in annual renewal term options exercised by nine subfranchisors, as
compared to $14,183 recognized in principal payments received on deferred
subfranchise notes and $58,948 recognized in annual renewal term options
exercised by six subfranchisors during the three months ended September 30,
1996. The decrease in recognition of principal payments received on deferred
subfranchise notes and the increase in recognition of annual renewal term
options are directly related to the previously reported change in policy during
fiscal 1995 of issuing annual renewable subfranchise agreements rather than long
term agreements. During the three months ended September 30, 1997, the Company
recognized $63,275 of deferred subfranchise fees, with respect to two
subfranchises operating under the prior agreements discussed above, that had
sufficiently matured, while during the same period in 1996, the Company was able
to recognize $258,749 in deferred subfranchise fees with respect to four
subfranchises.
As in the previous fiscal year, the Company is continuing to place substantial
emphasis on the international market. During the three months ended September
30, 1997, the Company granted development rights for Panama and the Canadian
province of Manitoba and received fees with respect to these agreements totaling
$82,000. During this same period ended 1996, the Company granted development
rights for Argentina, Uruguay, Saudi Arabia, United Arab Emirates, Bahrain,
Oman, Qatar and Kuwait, and received fees with respect to these agreements
totaling $361,950. The Company will continue to place substantial emphasis on
the international market, although the international market has not developed as
rapidly as expected with regard to master license fees and outlet openings.
Total franchise fees recognized increased 14% to $823,309 for the three months
ended September 30, 1997 from $723,773 for the three months ended September 30,
1996. This increase is attributable to the increase to 113 outlets (36
traditional and 77 new-concept) opened during the three months ended September
30, 1997, from 104 outlets (40 traditional and 64 new-concept) opened during the
comparable period ended 1996.
During the three months ended September 30, 1997, store equipment sales
increased slightly to $4,274,235 from $4,200,534 for the same period ended 1996.
This increase is attributable to price increases implemented by the Company's
equipment sales department in July 1997, rather than an increase in volume. Due
to the success and experience acquired from selling equipment to Blimpie
franchisees, the Company has expanded its equipment sales department in Houston
in order to sell equipment to franchisees of other chains. This expansion is
being undertaken through BI Concept Systems, Inc., a wholly owned subsidiary.
Increases in the compensation received for providing operational, marketing and
staff support to various subfranchisors, master licensors and franchisees
resulted in an increase in the Company's management fees and other income by 17%
to $294,341 for the period ended September 30, 1997 from $250,704 for the same
period ended 1996.
Subfranchisors' share of continuing and franchise fees increased 13% to
$2,568,334 for the three months ended September 30, 1997 from $2,278,357 for the
same period ended 1996. The following table sets forth an analysis of the
components of such fees.
7
Three Months Ended September 30,
1997 1996
SUBFRANCHISORS'/MASTER LICENSORS' SHARE
OF CONTINUING FEES:
Domestic $2,118,454 $1,756,301
International 7,442 6,127
---------- ----------
TOTAL SUBFRANCHISORS'/MASTER
LICENSORS' SHARE OF CONTINUING FEES $2,125,896 $1,762,428
---------- ----------
SUBFRANCHISORS'/MASTER LICENSORS' SHARE
OF FRANCHISE FEES:
Domestic $ 241,413 $ 214,389
International 1,880 -0-
---------- ----------
TOTAL SUBFRANCHISORS' SHARE OF
FRANCHISE FEES $ 243,293 $ 214,389
---------- ----------
TRADEMARK LICENSE FEES ON CONTINUING,
FRANCHISE, MASTER LICENSE &
SUBFRANCHISE FEES:
Domestic $ 154,389 $ 179,671
International 44,756 121,869
---------- ----------
TOTAL TRADEMARK LICENSE FEES ON
CONTINUING, FRANCHISE, MASTER
LICENSE & SUBFRANCHISE FEES $ 199,145 $ 301,540
---------- ----------
TOTAL SUBFRANCHISORS'/MASTER
LICENSORS' SHARE OF CONTINUING &
FRANCHISE FEES AND TRADEMARK
LICENSE FEES ON CONTINUING,
FRANCHISE, MASTER LICENSE &
SUBFRANCHISE FEES $2,568,334 $2,278,357
---------- ----------
Total subfranchisors' share of domestic continuing fees increased 21% to
$2,118,454 for the three months ended September 30, 1997 from $1,756,301 for the
same period ended 1996. This increase is directly related to the increase in the
revenue derived from continuing fees discussed above.
By reason of the above-mentioned increase in domestic franchise fees, the
subfranchisors' share thereof also increased 13% to $241,413 for the period
ended September 30, 1997 from $214,389 for the same period ended 1996.
Trademark license fee obligations owed to Metropolitan Blimpie, Inc. ("MBI"), an
unaffiliated corporation, on certain domestic and international continuing,
franchise, master license and subfranchise fees decreased 34% to $199,145 for
the three months ended September 30, 1997 from $301,540 for the same period
ended 1996. This decrease is the direct result of the decreases in revenue
derived from subfranchise and master license fees.
As a result of a decrease in the volume of equipment sales processed during the
three months ended
8
September 30, 1997, as compared to the same period ended 1996, s tore equipment
cost of sales decreased slightly to $3,562,385 from $3,815,246 for the same
period ended 1996.
Selling, general and administrative expenses rose slightly to $2,782,693 during
the three months ended September 30, 1997 as compared to $2,630,783 for the same
period ended 1996.
Interest income for the three months ended September 30, 1997 decreased 23% to
$182,648 from $236,760 for the same period ended 1996. This decrease was the
result of the selling of a portion of the U.S. Treasury notes owned by the
Company to purchase a portion of the international trademarks and service marks
in February 1997.
The effective income tax rate (income taxes expressed as a percentage of pre-tax
income) was 38.3% and 38.4% for the three months ended September 30, 1997 and
1996, respectively.
Investments under current assets decreased 21% to $3,533,860 at September 30,
1997 from $4,462,253 at June 30, 1997. Investments under other assets increased
26% to $4,876,805 at September 30, 1997 from $3,877,827 at June 30, 1997. Such
decrease and increase, respectively, are the result of the maturation and two
year renewal of a U.S. Treasury note in July 1997. As a result thereof, the
Treasury note was reclassified from current assets to long-term assets.
Current accounts receivable, less allowance for doubtful accounts, increased 18%
to $2,468,092 at September 30, 1997 from $2,084,825 at June 30, 1997. The
Company's current portion of notes receivable decreased 13% to $857,596 at
September 30, 1997 from $985,772 at June 30, 1997. During these same periods,
deferred revenue decreased 11% to $1,185,708 from $1,325,146. Said increase and
decrease, respectively were the direct result of the previously reported policy
adopted during fiscal 1995 of issuing annual renewable subfranchise agreements
in lieu of long term agreements.
The Company's prepaid expenses and other current assets increased 20% to
$839,754 at September 30, 1997 from $701,504 at June 30, 1996. This increase was
the result of an increase in the Company's store equipment inventory, for
subsequent resale.
Notes receivable less allowance for doubtful accounts and current portion
increased 10% to $1,671,217 at September 30, 1997 from $1,518,721 at June 30,
1997. This increase was the result of the increase in the participation in
equipment leases to its franchisees.
The Company's accounts payable decreased 10% to $3,179,804 at September 30, 1997
from $3,518,657 at June 30, 1997. This decrease resulted from the Company's
utilization of cash received to pay equipment vendors on a current basis.
Dividends payable increased to $333,967 at September 30, 1997 from $0 at June
30, 1997. This was the result of recording the cash dividend to be paid on
October 15, 1997 to shareholders of record on October 1, 1997 which was declared
on September 15, 1997.
Income taxes payable at September 30, 1997 increased to $434,639 from $7,676 at
June 30, 1997. This increase was the result of the accrual for income taxes
payable based on the net income for the three months ended September 30, 1997.
Liquidity and Capital Resources
During the three months ended September 30, 1997, the Company did not incur any
material capital commitments. The Company's current ratio (aggregate current
assets compared to aggregate current
9
liabilities) at September 30, 1997 was in excess of 2.6:1.
The Company generated cash flows from operating activities of $277,948 and
$310,845 for the three months ended September 30, 1997 and 1996, respectively.
The decrease of $32,897 was the result of increases in accounts receivable and
prepaid expenses and other current assets and decreases in accounts payable,
which were partially offset by an increase in income taxes payable.
Net cash flows used in investing activities during the three months ended
September 30, 1997 and 1996 totaled $168,483 and $67,635, respectively. The
increase of $100,848 was the result of a U.S. Treasury note which matured in
July 1997, being renewed for two years.
During the three months ended September 30, 1997 and 1996 the Company used
$1,416 and $325,554, respectively in net cash flows from financing activities.
This decrease of $324,138 was the result of the fact that the first cash
dividend payment for fiscal year ending June 30, 1998 occurred on October 15,
1997 as opposed to the first cash dividend payment for fiscal year ended June
30, 1997 occurred on September 17, 1996.
The Company's primary liquidity needs arise from expansion, research and
development, capital expenditures and trademark obligations. 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.
With the constant modernization of the Company's computer systems, and
significant upgrades during fiscal 1997 and 1996, the Company does not expect
the Impact of Year 2000 to have a material effect on existing systems.
10
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
The exhibits listed below are filed as part of this report.
Exhibit 10.44 Agreement made as of the 29th day of October 1997 by and
between Maui Tacos International. Inc., Blimpie International.,
Inc., Lumi Kuke Partnership, Lau, Lau, Inc., Mark Eliman, Shep
Gordon, No Lava, Inc., Robert Sitkoff and Yvonne Downes.
Exhibit 27 Financial Data Schedule (filed only with the Commission)
b. Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter for
which this report has been filed.
11
Signature
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.
Dated: November 14, 1997 By: /s/ Joanne Guarnieri
-------------------------------------
Joanne Guarnieri, Vice President and
Chief (Accounting) Financial Officer
12