U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1996
Commission File Number 0-21036
BLIMPIE INTERNATIONAL, INC.
(Exact name of small business issuer as specified in its charter)
New Jersey 13-2908793
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
740 Broadway, New York, NY 10003
(Address and Zip Code of Principal Executive Offices)
Issuer's Telephone Number: (212) 673-5900
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 9,521,876 shares of the registrant's common stock outstanding
as of November 11, 1996.
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Table of Contents
Page No.
--------
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets........................................ 3
Consolidated Statements of Operations.............................. 4
Consolidated Statements of Changes in
Shareholders' Equity............................................... 4
Consolidated Statements of Cash Flows.............................. 5
Notes to Financial Statements...................................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...................... 8
PART II. Other Information
Item 1. Legal Proceedings.................................................. 20
Item 6. Exhibits and Reports on Form 8-K................................... 20
Signatures......................................................... 21
2
<PAGE>
Item 1. Financial Statements
Blimpie International, Inc. and Subsidiaries
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
September 30, June 30,
Assets 1996 1996
- --------------------------------------------------------------------------------
Current
Cash and cash equivalent $ 4,246,124 $ 4,328,468
Investments 5,435,440 5,430,950
Accounts receivable, less allowance for
doubtful accounts 2,001,118 1,455,986
Prepaid expenses and other current assets 477,084 674,203
Deferred income taxes 189,000 189,000
Current portion of notes receivable 523,771 535,163
----------- ------------
Total Current Assets 12,872,537 12,613,770
----------- ------------
Property, Plant and Equipment - at cost less
accumulated depreciation 980,021 972,251
----------- ------------
Other Assets
Notes receivable less allowance for doubtful
accounts and current portion 1,417,961 1,495,684
Investments 6,020,273 6,016,014
Trademarks - at cost, less accumulated amortization 473,518 445,556
Other 334,745 279,386
----------- ------------
Total Other Assets 8,246,497 8,236,640
----------- ------------
$22,099,055 $ 21,822,661
=========== ============
Liabilities and Shareholders' Equity
Current
Accounts payable $ 3,164,424 $ 2,697,900
Current portion of long-term debt 7,885 7,536
Income taxes payable 283,615 563,912
Other current liabilities 535,336 851,687
----------- ------------
Total Current Liabilities 3,991,260 4,121,035
----------- ------------
Deferred Revenue 1,244,816 678,918
----------- ------------
Deferred Income Taxes 343,000 343,000
----------- ------------
Long-Term Debt, less current portion 3,496 5,202
----------- ------------
Commitments and Contingencies -- --
Shareholders' Equity
Common stock, par value $.01 - authorized
20,000,000 shares; issued and outstanding
9,496,276 and 9,480,876 shares, respectively 94,963 94,809
Additional paid-in capital 7,923,007 7,703,510
Retained earnings 8,740,436 8,132,082
Net unrealized gain (loss) on marketable securities 9,460 (3,590)
----------- ------------
16,767,866 15,926,811
Less: Subscriptions receivable 251,383 252,305
----------- ------------
Total Shareholders' Equity 16,516,483 15,674,506
----------- ------------
$22,099,055 $ 21,822,661
=========== ============
See accompanying notes to consolidated financial statements. 3
<PAGE>
Item 1. Financial Statements
Blimpie International, Inc. and Subsidiaries
Consolidated Statements of Operations
- --------------------------------------------------------------------------------
Three Months Ended September 30,
1996 1995
- --------------------------------------------------------------------------------
Revenues
Continuing fees $ 3,655,429 $2,882,561
Subfranchisor fees, master license fees and
sale of franchises 1,910,395 1,376,987
Store equipment sales 4,200,534 3,315,878
Management fees and other income 250,704 192,001
----------- ----------
10,017,062 7,767,427
----------- ----------
Expenses
Subfranchisors' share of franchise and
continuing fees 2,278,357 1,788,523
Store equipment cost of sales 3,815,246 2,919,842
Selling, general and administrative expenses 2,630,783 1,975,875
Interest expense 2,713 844
----------- ----------
8,727,099 6,685,084
----------- ----------
Operating Income 1,289,963 1,082,343
Interest income 236,760 224,120
----------- ----------
Income before income taxes 1,526,723 1,306,463
Income taxes 586,000 522,000
----------- ----------
Net Income $ 940,723 $ 784,463
=========== ==========
Earnings per share $ 0.10 $ 0.09
=========== ==========
Consolidated Statements of Changes in Shareholders' Equity
Three Months Ended September 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock
---------------------- Additional Unrealized
Shares paid-in Retained holding
Outstanding Amount capital earnings gain (loss) Total
----------- ------- ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance - June 30, 1996 9,480,876 $94,809 $7,703,510 $ 8,132,082 $ (3,590) $ 15,926,811
Incentive stock granted and
options exercised 15,400 154 219,497 -- -- 219,651
Cash dividends paid -- -- -- (332,369) -- (332,369)
Net Income -- -- -- 940,723 -- 940,723
Net unrealized gain on
marketable securities -- -- -- -- 13,050 13,050
--------- ------- ---------- ----------- -------- ------------
Balance - September 30, 1996 9,496,276 $94,963 $7,923,007 $ 8,740,436 $ 9,460 $ 16,767,866
========= ======= ========== =========== ======== ============
</TABLE>
See accompanying notes to consolidated financial statements. 4
<PAGE>
Item 1. Financial Statements
Blimpie International, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
Three Months Ended September 30,
1996 1995
- --------------------------------------------------------------------------------
Cash Flows From Operating Activities
Net income $ 940,723 $ 784,463
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 79,676 45,214
Incentive stock granted 212,401 101,555
Decrease (increase) in:
Accounts receivable (545,132) 108,585
Prepaid expenses and other current assets 197,118 164,161
Other assets (98,830) (24,296)
Notes receivable 89,115 142,223
Increase (decrease) in:
Accounts payable 466,524 (698,084)
Income taxes payable (280,297) (50,282)
Other current liabilities (316,351) (83,443)
Deferred revenue (434,102) (225,599)
----------- -----------
Net cash provided by operating activities 310,845 264,497
----------- -----------
Cash Flows From Investing Activities
Reinvested dividends of available-for-sale
securities (1,357) (2,377)
Purchase of held-to-maturity securities (2,053,391) (5,547,675)
Proceeds from maturities of held-to-maturity
securities 2,059,050 552,419
Disposal of property, plant and equipment 10,232 --
Acquisition of property, plant and equipment (82,169) (173,177)
----------- -----------
Net cash used in investing activities (67,635) (5,170,810)
----------- -----------
Cash Flows From Financing Activities
Proceeds from stock warrants/options exercised 7,250 --
Proceeds from stock offering -- 4,489,225
Collections on officer notes receivable for
stock purchase 922 1,319
Cash dividends paid (332,369) --
Repayment of long-term debt (1,357) (1,458)
----------- -----------
Net cash (used in) provided by financing
activities (325,554) 4,489,086
----------- -----------
Net decrease in Cash and Cash Equivalents (82,344) (417,227)
Cash and Cash Equivalents, at beginning of year 4,328,468 3,922,173
----------- -----------
Cash and Cash Equivalents, at end of period $ 4,246,124 $ 3,504,946
=========== ===========
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Interest $ 2,713 $ 844
Income taxes 866,297 572,282
Noncash investing and financing activities:
Net unrealized gain on marketable securities 13,050 13,942
See accompanying notes to consolidated financial statements. 5
<PAGE>
Item 1. Financial Statements
Blimpie International, Inc. and Subsidiaries
Notes To Consolidated Financial Statements
For the Three Months Ended September 30, 1996 (Unaudited)
The unaudited interim financial statements should be read in conjunction with
the Company's June 30, 1996 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, 1996 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 1996,
and no material contingencies exist which would require disclosure in this
interim report, except as follows:
Commitments and Contingencies
On September 26, 1996, an award was granted in an arbitration proceeding against
the Company in which a Blimpie franchisee sought damages and injunctive relief
based on allegations that the Company authorized a new-concept Blimpie
restaurant in a location approximately 1.5 miles from the franchisee's location.
The Company denied any liability asserting that it had made no agreements
granting a protected territory to the franchisee. The arbitrator has directed
the Company to pay $204,500 to the franchise without interest. The Company has
commenced proceedings seeking an order vacating the award on several grounds,
including the failure of the claimants to satisfy conditions precedent to the
commencement of the arbitration. All cost related to this action will be born
equally by the Company and the Subfranchisor. The Company is subject to various
other legal actions arising out of the conduct of its business.
Various claims and lawsuits arise in the normal course of business. It is the
Company's practice to vigorously defend all actions. Although the amount of
liability as of September 30, 1996 with respect to all claims and lawsuits
cannot be
6
<PAGE>
Item 1. Financial Statements
Blimpie International, Inc. and Subsidiaries
ascertained, in the opinion of management, the resulting liability, if
any, will not materially affect the Company's results of operations or financial
position.
7
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Three Months Ended September 30, 1996 Compared with Three Months Ended September
30, 1995
Results of Operations
The Company's net income increased 20% to $940,723 for the three months ended
September 30, 1996 from $784,463 for the three months ended September 30, 1995.
The Company's earnings per share increased 10% to $.10 per share for the three
months ended September 30, 1996 from $.09 per share for the three months ended
September 30, 1995. Such increases are attributable to the increases discussed
below in continuing fees, subfranchise fees, master license fees, store
equipment sales and interest income.
The Company's continuing fees derived from domestic franchises increased 26% to
$3,641,340 for the three months ended September 30, 1996 from $2,882,561 for the
three months ended September 30, 1995. During these same periods continuing fees
derived from international franchises increased to $14,089 from $0. These
increases are directly attributable to the greater number of total open outlets
as compared to the same period ended 1995.
During the three months ended September 30, 1996, the Company experienced
decreases in the granting of subfranchises and in franchise fees recognized, and
it experienced increases in existing subfranchise expansions and international
master license fees as compared to the three months ended September 30, 1995.
The Company believes that such decreases are the result of the saturation of the
domestic market with subfranchisors, and the maturation of the convenience store
segment of the new-concept outlet marketplace. The revenue produced from
existing
8
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franchise expansions and from international master license fees more than offset
the above-mentioned decreases, as more fully explained in the table discussion
that follows. With that in mind the Company has refocused on traditional outlet
development by increasing franchise advertising, and hiring more sales staff.
The Company believes its refocusing on traditional outlet development will
increase both franchise grants and outlet openings in future periods. In
addition, the Company believes that its emphasis on developing the international
market to mirror the success it has achieved in the United States will continue
to bring in revenue from master license fees and additional continuing fees from
the opening of international outlets which will more than offset any decreases
which the Company may experience with regard to domestic franchise and
subfranchise fee revenue. However, no assurances can be given that such
refocusing by the Company will increase either franchise grants, master license
fees or outlet openings, or if such increases do occur, that they will result in
material increments in revenue. The Company and its franchisees compete in the
quick-service restaurant (QSR) industry, which is highly competitive with
respect to price, service, outlet location and food quality, and is often
affected by changes in consumer tastes, local and national economic conditions
affecting consumer spending habits, population trends and traffic patterns. In
awarding franchises, the Company competes with a number of QSR franchisors and
other business concepts, as well as for attractive commercial real estate sites
suitable for outlets. The Company and its franchisees also compete with regional
and local franchised and independently owned outlet operations, many of which
are larger in terms of financial resources and sales volume, than the Company's
chain of franchised outlets and its franchisees, respectively. In addition to
these constant obstacles to growth, unforeseen problems could arise which would
keep the Company from reaching its goals, e.g., a strike by an equipment vendor
or a material increase in borrowing rates, could temporarily slow down projected
openings. With these obstacles accounted for, the Company believes that 600 new
outlets will open during the fiscal year end 1997. This would be an increase
over fiscal 1996 and 1995, of 127 and 210 respectively.
9
<PAGE>
Revenue from subfranchise, master license and franchise fees for the three
months ended September 30, 1996 increased 39% to $1,910,395 from $1,376,987 for
the same period ended 1995. The following table sets forth an analysis of the
components of such fees.
Three Months Ended September 30,
1996 1995
SUBFRANCHISE FEES - DOMESTIC:
New Subfranchise Grants $ -0- $ 93,173
Existing Subfranchise Expansions 175,292 24,424
Principal Payments Recognized on Deferred
Subfranchise Notes 14,183 82,648
Annual Renewal Term Payments Recognized 58,948 9,836
Deferred Subfranchise Fees Recognized 258,749 111,211
---------- ----------
TOTAL SUBFRANCHISE FEES $ 507,172 $ 321,292
---------- ----------
MASTER LICENSE FEES - INTERNATIONAL:
New Master License Grants $ 361,950 $ -0-
Lump Sum Payments Recognized in Current
Fiscal Year 317,500 -0-
---------- ----------
TOTAL MASTER LICENSE FEES $ 679,450 $ -0-
---------- ----------
FRANCHISE FEES RECOGNIZED:
Domestic $ 723,773 $1,055,695
International -0- -0-
---------- ----------
TOTAL FRANCHISE FEES $ 723,773 $1,055,695
---------- ----------
TOTAL SUBFRANCHISE, MASTER LICENSE
& FRANCHISE FEES $1,910,395 $1,376,987
---------- ----------
Total revenue from subfranchise fees increased 58% to $507,172 for the three
months ended September 30, 1996 from $321,292 for the three months ended
September 30, 1995. During the three months ended September 30, 1996, the
Company neither granted nor derived any revenue from any new domestic
subfranchises, compared to the three months ended September 30, 1995 in which
the Company granted three domestic subfranchises and received $93,173 in initial
subfranchise fees. These three domestic subfranchises provide
for five annual renewal term options, and if all of such options were to be
exercised, the Company would receive additional subfranchise fee revenues
aggregating $84,139. This
10
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decrease is the result of the Company having substantially achieved its goal of
saturating the domestic market with subfranchises. During the three months ended
September 30, 1996, six domestic subfranchisors expanded and the Company
received $175,292 in fees in connection therewith. If all renewal term options
on these six domestic expansions were to be exercised, the Company would receive
additional subfranchise fee revenues aggregating $224,220. By comparison during
the three months ended September 30, 1995, one domestic subfranchisor expanded
and the Company received $24,424 in fees. This increase is the result of a
Company goal to expand beyond the major population centers located in existing
subfranchise territories by the expansion of existing subfranchisors. In
addition, during the three months ended September 30, 1996, the Company
recognized $14,183 in principal payments received on deferred subfranchise notes
due from existing subfranchisors and recognized $58,948 in annual renewal term
options exercised by six subfranchisors, as compared to $82,648 recognized in
principal payments received on deferred subfranchise notes and $9,836 recognized
in annual renewal term options exercised by one subfranchisor during the three
months ended September 30, 1995. The decrease in recognition of principal
payments received on deferred subfranchise notes and the increase in recognition
of annual renewal term options is directly related to the change, more fully
discussed below with respect to current accounts receivable, of issuing annual
renewable subfranchise agreements as opposed to issuing 50 to 60 year
subfranchise agreements. The new agreements have been executed in connection
with all subfranchise sales since November 1994, and some subfranchisors
operating under the prior agreement are replacing them with the new agreement,
thereby eliminating principal and interest payments on the notes connected with
the old agreements. During the three months ended September 30, 1996, the
Company recognized $258,749 of deferred subfranchise fees with respect to four
subfranchises operating under the prior agreements discussed above which had
suffieciently matured, while during the same period in 1995, the Company was
able to recognize $111,211 in deferred subfranchise fees with respect to five
subfranchises.
As in the previous fiscal year, the Company is continuing to place substantial
emphasis on its prospects in the international market. During the three months
ended September 30, 1996, the Company granted development rights for Argentina,
Uruguay, Saudi Arabia, United Arab Emirates, Bahrain, Oman and Qatar, and
received master license fees with respect to these agreements totaling $361,950.
One of these master license agreements provides for annual renewal
11
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term options with lump sums of $70,920, $70,373, and $75,227 due in fiscal 1998,
1999 and 2000 respectively. Also during the period ended September 30, 1996,
$317,500 in lump sum payments due in fiscal 1997, was recognized in accordance
with 4 master license agreements consummated in fiscal 1996. During this same
period ended 1995, the Company neither granted nor derived any revenue from any
master licenses. As of September 30, 1996 there are five Blimpie outlets and 26
Grab 'n Go locations operating in Sweden and three outlets in Spain.
Total franchise fees recognized decreased 31% to $723,773 for the three months
ended September 30, 1996 from $1,051,195 for the three months ended September
30, 1995. This decrease is attributable to the decrease from 122 outlets (47
traditional and 75 new-concept) opened during the three months ended September
30, 1996, to 107 outlets (40 traditional and 64 new-concept) opened during the
comparable period ended 1995. During these same periods, the Company did not
derive any revenue from the opening of one international outlet for the period
ended 1995 and three international outlets for the period ended 1996. In
addition, the decrease in the funds recognized was the result of the fact that
many of the new concept outlet openings were the second, third, or fourth outlet
opened in the same chain and these franchises were granted at a reduced rate,
versus a traditional outlet, to entice the new concept chain to open multiple
outlets.
Store equipment sales to domestic franchises increased 24% to $4,127,960 for the
period ended September 30, 1996 from $3,315,878 for same period ended 1995.
During these same periods, store equipment sales to international franchises
increased to $72,574 from $0. These increases were attributable to the 54%
increase in orders processed by the Company's equipment sales department (due to
the greater number of Blimpie franchised outlets under construction) to 570
orders processed during the period ended September 30, 1996 from 370 orders
processed during the same period ended 1995.
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 31%
to $250,704 for the period ended September 30, 1996 from $192,001 for the same
period ended 1995.
Subfranchisors' share of continuing and franchise fees increased 27% to
$2,278,357
12
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for the three months ended September 30, 1996 from $1,788,523 for the same
period ended 1995. The following table sets forth an analysis of the components
of such fees.
Three Months Ended September 30,
1996 1995
SUBFRANCHISORS'/MASTER LICENSORS' SHARE
OF CONTINUING FEES:
Domestic $1,756,301 $1,393,388
International 6,127 -0-
---------- ----------
TOTAL SUBFRANCHISORS'/MASTER
LICENSORS' SHARE OF CONTINUING FEES $1,762,428 $1,393,388
SUBFRANCHISORS'/MASTER LICENSORS' SHARE
OF FRANCHISE FEES:
Domestic $ 214,389 $ 258,951
International -0- -0-
---------- ----------
TOTAL SUBFRANCHISORS' SHARE OF
FRANCHISE FEES $ 214,389 $ 258,951
TRADEMARK LICENSE FEES ON CONTINUING,
FRANCHISE, MASTER LICENSE &
SUBFRANCHISE FEES:
Domestic $ 179,671 $ 136,184
International 121,869 -0-
---------- ----------
TOTAL TRADEMARK LICENSE FEES ON
CONTINUING, FRANCHISE, MASTER
LICENSE & SUBFRANCHISE FEES $ 301,540 $ 136,184
---------- ----------
TOTAL SUBFRANCHISORS'/MASTER
LICENSORS' SHARE OF CONTINUING &
FRANCHISE FEES AND TRADEMARK
LICENSE FEES ON CONTINUING,
FRANCHISE, MASTER LICENSE &
SUBFRANCHISE FEES $2,278,357 $1,788,523
---------- ----------
Total subfranchisors' share of domestic continuing fees increased 26% to
$1,756,301 for the three months ended September 30, 1996 from $1,393,388 for the
same period ended 1995. The master licensors' share of international continuing
fees increased to $6,127 for the period ended September 30, 1996 from $0 for the
same period ended 1995. These increases are directly related to the
13
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increase in the revenue derived from continuing fees.
By reason of the above-mentioned decrease in domestic franchise fees, the
subfranchisors' share thereof also decreased 17%, i.e., by $44,562, to $214,389
for the period ended September 30, 1996 from $258,951 for the same period ended
1995. The Company believes that this decrease will not adversely affect its
subfranchisors as their share of the continuing fees, as discussed above, has
continued to increase at a much greater rate, e.g., by $362,913 (a 26% increase)
from $1,393,388 for the three months ended September 30, 1995 to $1,756,301 for
the same period ended 1996. By reason of the fact that the Company did not
derive any international franchise fee revenues, the Company did not incur any
expense related to master licensors' share of franchise fees for the periods
ended September 30, 1996 or 1995.
Trademark license fee obligations owed to Metropolitan Blimpie, Inc. ("MBI"), an
unaffiliated corporation, on certain domestic continuing, franchise, and
subfranchise fees increased 32% to $179,671 for the three months ended September
30, 1996 from $136,184 for the same period ended 1995. During these same
periods, trademark license fee obligations owed to MBI on all international
continuing, franchise, subfranchise and master license fees increased to
$121,869 from $0. These increases are the direct result of the increases in
revenue derived from continuing, subfranchise and master license fees.
Store equipment cost of sales to domestic franchisees increased 28% to
$3,749,906 for the period ended September 30, 1996 from $2,919,842 for the same
period ended 1995. During these same periods store equipment cost of sales to
international franchisees increased to $65,340 from $0. These increases are
directly attributable to the increase in store equipment sales to domestic and
international franchisees.
Selling, general and administrative expense rose 33% to $2,630,783 for the
period ended September 30, 1996 from $1,975,875 for the same period ended 1995.
These increases are directly related to the continued expansion of the Company's
workforce and increases in office and travel expenses incurred in order to
provide support services to the increasing number of subfranchisors,
franchisees, and master licensors. In addition, the increase reflects a one time
contingency charge of $102,250 which represents the Company's share of an
arbitrators' award. See Legal Proceedings at Part II, Item 1.
14
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The effective income tax rate (income taxes expressed as a percentage of pre-tax
income) was 38.4% and 40% for the three months ended September 30, 1996 and
1995, respectively.
Current accounts receivable, less allowance for doubtful accounts, increased 37%
to $2,001,118 at September 30, 1996 from $1,455,986 at June 30, 1996. During
these same periods, deferred revenue decreased 26% to $1,244,816 from
$1,678,918. Said increase and decrease were the direct result of a policy the
Company implemented during fiscal 1995. Rather than issue subfranchise
agreements for a 50 to 60 year period, the Company began issuing annual
renewable subfranchise agreements. Under the previous agreements, if the
subfranchise fees were collectible over an extended period of time and no
reasonable basis existed for estimating collectibility, the fees were deferred
and not recognized until they were collected or the uncertainty regarding
collectibility was resolved. Under the new agreements, the subfranchisor
purchases a territory for a one year period, followed by four to six renewal
terms, all but the last being annual in duration. If all terms and conditions of
the agreement have been met during the initial one year term and each of the
subsequent one year terms, a 50 to 60 year right is granted during the final
renewal term upon payment of the fee set forth in the agreement. The first year
annual fee is recognized when all material services and conditions related to
the sale are satisfied by the Company. Subsequent years are recognized annually
upon renewal. The Company still maintains numerous subfranchise agreements under
the prior policy and continues to recognize revenue under these agreements
consistent with prior years. However, the amount of such revenue will continue
to decline in the future as some of the prior subfranchise agreements are
replaced with the new agreement, upon the subfranchisors' request. The new
agreements have been used on all subfranchise sales since November 1994.
The Company's prepaid expenses and other current assets decreased 29% to
$477,084 at September 30, 1996 from $674,203 at June 30, 1996. This decrease was
the result of a reduction of the Company's store equipment inventory through
sales to its franchisees.
Other non-current assets increased 20% to $334,745 at September 30, 1996 from
$279,386 at June 30, 1996. This increase is the result of the Company's purchase
of a new accounting software package.
15
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The Company's accounts payable increased 17% to $3,164,424 at September 30, 1996
from $2,697,900 at June 30, 1996. This increase resulted from the greater number
of deferred payment, as opposed to cash on delivery transactions, effected by
the Company's equipment sales department, coupled with the longer periods that
the Company takes to pay equipment vendors with respect to purchase transactions
financed by the Company's franchisees. In such cases, the Company defers payment
until (1) the franchisee has given notice to the lender that the equipment has
been installed and accepted; and (2) the lender has delivered payment of the
financed amount to the Company. Accounts payable also increased as a result of
the fees payable to the increasing number of subfranchisors.
Income taxes payable at September 30, 1996 decreased 50% to $283,615 from
$563,912 at June 30, 1996. This decrease was the result of the payment of income
taxes on September 15, 1996, for fiscal year ended June 30, 1996 income taxes
that had been accrued.
The payment of fiscal year end 1996 bonuses to employees, that had been accrued
at June 30, 1996, resulted in the 37% decrease in other current liabilities to
$535,336 at September 30, 1996 from $851,687 at June 30, 1996.
During the three months ended September 30, 1996, 104 domestic Blimpie franchise
outlets opened (40 traditional outlets and 64 new-concept outlets) in the
following states: Alabama (3); Alaska (2); Arizona (4); California (1); Florida
(13); Georgia (5); Illinois (1); Indiana (3); Iowa (1); Kansas (1); Kentucky
(4); Louisiana (2); Massachusetts (1); Michigan (4); Minnesota (3); Mississippi
(1); Missouri (4); Montana (2); Nebraska (1); New Hampshire (1); Nevada (1); New
Mexico (2); New York (6); North Carolina (3); Ohio (5); Oregon (1); Pennsylvania
(3); Rhode Island (2); South Carolina (3); South Dakota (1); Tennessee (3);
Texas (6); Utah (1); Washington (1); West Virginia (4); Wisconsin (3); and
Wyoming (2). During the same period, 3 international Blimpie franchise outlets
opened (1 traditional outlets and 2 new-concept outlets) in the following areas:
Spain (2); and Sweden (1). By comparison, during the three months ended
September 30, 1995, 122 domestic and 1 international Blimpie franchise outlets
opened (47 traditional outlets and 76 new-concept outlets). During the three
months ended September 30, 1996, 10 domestic Blimpie franchise outlets closed (8
traditional outlets and 2 new-concept outlets) in the following states:
Connecticut (1); Florida (1); Hawaii (1); Iowa (1); Kansas (1); Massachusetts
(1); South Carolina (1); and Texas (3). By comparison, during the same period
ended 1995, 11 domestic Blimpie franchise
16
<PAGE>
outlets closed (9 traditional outlets and 2 new-concept outlets). During the
three months ended September 30, 1996, two closed domestic Blimpie franchise
outlets reopened in: Michigan (1); and Texas (1). By comparison, during the same
period ended 1995, 4 closed domestic Blimpie franchise outlets reopened.
During the three months ended September 30, 1996, the Company received $694,000
from the granting of 119 domestic individual outlet franchises (62 traditional
franchises and 57 new-concept franchises) in the following states: Alabama (1);
Alaska (1); Arizona (6); California (8); Florida (6); Georgia (5); Idaho (3);
Illinois (1); Indiana (3); Iowa (1); Kentucky (3); Louisiana (4); Michigan (7);
Minnesota (4); Mississippi (1); Missouri (5); Nebraska (1); New Hampshire (1);
Nevada (2); New York (11); North Carolina (7); North Dakota (1); Ohio (9);
Oregon (3); Pennsylvania (1); Rhode Island (2); South Carolina (2); South Dakota
(1); Tennessee (5); Texas (9); and Wisconsin (5). During the same period ended,
the Company received $12,936 from the granting of 4 international individual
outlet franchises (4 traditional franchises and 0 new-concept franchises) in the
following territories: Alberta, Canada (1); Spain (2); and Sweden (1). By
comparison, during the three months ended September 30, 1995, the Company
received $823,706 from the granting of 158 domestic individual outlet franchises
(35 traditional franchises and 123 new-concept franchises), and did not derive
any revenue from the granting of 1 international individual new-concept
franchise. The decrease in the funds received from the granting of domestic
franchises, was the result of a decrease in the actual number of franchises
granted, and the reduction of the franchise fee to $1,000, for a limited time
only to current Blimpie franchisees only, to encourage multiple outlet
ownership. Of the 119 domestic individual outlet franchises granted during the
three months ended September 30, 1996, 29 were at this reduced price.
Liquidity and Capital Resources
During the three months ended September 30, 1996, the Company did not incur any
material capital commitments and it does not anticipate that it will incur a
commitment of that nature during the remainder of the fiscal year ending June
30, 1997. The Company's current ratio (aggregate current assets compared to
aggregate current liabilities) at September 30, 1996 was in excess of 3.2:1, and
the aggregate amount of cash and cash equivalents available to the company at
that date was, and it continues to be, sufficient, in the opinion of the
Company's management, to fund all of the Company's operations for the next 12
months
17
<PAGE>
through its internally generated funds. The current ratio at June 30, 1996 was
in excess of 3:1.
Blimpie Outlet Locations
The following table sets forth the number of Blimpie franchised outlets in
operation as of September 30, 1996:
Number of
Location Outlets
-------- -------
United States:
Alabama ................................. 18
Alaska .................................. 7
Arizona ................................. 54
Arkansas ................................ 17
California .............................. 30
Colorado ................................ 36
Connecticut ............................. 22
Florida ................................. 132
Georgia ................................. 149
Hawaii .................................. 11
Idaho ................................... 14
Illinois ................................ 31
Indiana ................................. 47
Iowa .................................... 50
Kansas .................................. 17
Kentucky ................................ 25
Louisiana ............................... 27
Massachusetts ........................... 7
Michigan ................................ 66
Minnesota ............................... 19
Mississippi ............................. 13
Missouri ................................ 40
Montana ................................. 4
Nebraska ................................ 18
Nevada .................................. 27
New Hampshire ........................... 1
New Jersey .............................. 52
18
<PAGE>
New Mexico .............................. 7
New York ................................ 52
North Carolina .......................... 46
North Dakota ............................ 3
Ohio .................................... 48
Oklahoma ................................ 5
Oregon .................................. 9
Pennsylvania ............................ 30
Rhode Island ............................ 7
South Carolina .......................... 50
South Dakota ............................ 4
Tennessee ............................... 52
Texas ................................... 153
Utah .................................... 34
Washington .............................. 26
West Virginia ........................... 20
Wisconsin ............................... 13
Wyoming ................................. 5
----
Total - United States 1498
----
International:
Spain.................................... 3
Sweden................................... 5
----
Total - International 8
----
Total Outlets 1506
====
19
<PAGE>
PART II. Other Information
Item 1. Legal Proceedings
An award has been made in the arbitration proceeding commenced against the
Company entitled Linda and Louis Seufert v. Blimpie International, Inc. (case
no. 57-114-0072-95). The claimants, who are the holders of a Blimpie franchise,
sought unspecified damages in excess of $50,000 and injunctive relief based upon
allegations that the Company authorized a new-concept Blimpie outlet in a
location in a Texaco station approximately 1.5 miles from claimants' location.
The Company denied any liability asserting that it had made no agreements
granting a protected territory to the claimants. Without rendering any decision
which would give any indication of the reasoning behind his award, the
arbitrator had directed the Company to pay the sum of $204,500 to the claimants
without interest.
The Company has commenced proceedings in the Supreme Court of the State of New
York, County of New York, seeking an order vacating the award on several
grounds, including the failure of the claimants to satisfy conditions precedent
to the commencement of the arbitration.
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule
(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.
20
<PAGE>
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 13, 1996 By: /s/ Robert S. Sitkoff
--------------------------
Robert S. Sitkoff
Senior Vice President and
Chief Financial Officer
21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated Balance Sheet at September 30, 1996 (Unaudited) and the
Consolidated Statement of Operations for the three months ended September 30,
1996 (Unaudited) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 4,246,124
<SECURITIES> 5,435,440
<RECEIVABLES> 2,063,290
<ALLOWANCES> 62,172
<INVENTORY> 207,177
<CURRENT-ASSETS> 12,872,537
<PP&E> 1,609,835
<DEPRECIATION> 629,814
<TOTAL-ASSETS> 22,099,055
<CURRENT-LIABILITIES> 3,991,260
<BONDS> 0
0
0
<COMMON> 94,963
<OTHER-SE> 16,421,520
<TOTAL-LIABILITY-AND-EQUITY> 22,099,055
<SALES> 9,766,358
<TOTAL-REVENUES> 10,017,062
<CGS> 6,093,603
<TOTAL-COSTS> 6,093,603
<OTHER-EXPENSES> 2,630,783
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,713
<INCOME-PRETAX> 1,526,723
<INCOME-TAX> 586,000
<INCOME-CONTINUING> 940,723
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 940,723
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
