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 December 31, 1997
OR
|_| Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
E
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 9,548,726 shares of the registrant's common stock outstanding as of
February 9, 1998.
1
<PAGE>
Table of Contents
Page No.
--------
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 4. Submission of Matters to a Vote of Shareholders ..................13
Item 6. Exhibits and Reports on Form 8-K .................................13
Signatures .......................................................14
2
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Blimpie International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
December 31 June 30
Assets 1997 1997
<S> <C> <C>
Current
Cash and cash equivalents $ 3,354,437 $ 3,532,339
Investments 4,061,582 4,462,253
Accounts receivable, less allowance for doubtful accounts 2,150,305 2,084,825
Equipment inventory 510,240 247,114
Prepaid expenses and other current assets 472,285 454,390
Current portion of notes receivable 846,968 985,772
----------- -----------
Total Current Assets 11,395,817 11,766,693
----------- -----------
Property, Plant and Equipment - at cost less accumulated depreciation 1,212,038 1,253,003
----------- -----------
Other Assets
Notes receivable less allowance for doubtful accounts and current portion 1,510,500 1,518,721
Investments 4,381,905 3,877,827
Trademarks - at cost, less accumulated amortization 8,658,719 8,704,472
Other 707,753 583,633
----------- -----------
Total Other Assets 15,258,877 14,684,653
----------- -----------
$27,866,732 $27,704,349
=========== ===========
Liabilities and Shareholders' Equity
Current
Accounts payable $ 2,433,805 $ 3,518,657
Current portion of long-term debt 2,986 5,202
Income taxes payable 318,075 7,676
Other current liabilities 284,264 473,951
----------- -----------
Total Current Liabilities 3,039,130 4,005,486
----------- -----------
Deferred Revenue 1,129,130 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 9,545,676 and 9,526,226 shares, respectively 95,457 95,262
Additional paid-in capital 8,308,009 8,209,666
Retained earnings 11,974,580 10,744,290
Net unrealized gain on marketable securities 21,832 25,905
----------- -----------
20,399,878 19,075,123
Less: Subscriptions receivable 210,000 210,000
----------- -----------
Total Shareholders' Equity 20,189,878 18,865,123
----------- -----------
$27,866,732 $27,704,349
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
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Blimpie International, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31 December 31
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Continuing fees $4,166,584 $ 3,565,320 $ 8,397,053 $ 7,220,749
Subfranchisor fees, master license fees, sale of franchises 898,841 1,306,370 2,132,926 3,216,765
Store equipment sales 4,243,993 3,870,975 8,518,228 8,071,508
Management fees and other income 344,562 444,074 638,902 694,779
---------- ----------- ----------- -----------
9,653,980 9,186,739 19,687,109 19,203,801
---------- ----------- ----------- -----------
Expenses
Subfranchisors' share of franchise and continuing fees 2,383,583 2,298,628 4,951,917 4,576,985
Store equipment cost of sales 3,485,960 3,334,259 7,048,344 7,149,505
Selling, general and administrative expenses 2,759,308 2,446,366 5,542,002 5,077,150
Interest expense 57 772 266 3,485
---------- ----------- ----------- -----------
8,628,908 8,080,025 17,542,529 16,807,125
---------- ----------- ----------- -----------
Operating Income 1,025,072 1,106,714 2,144,580 2,396,676
Interest income 202,518 271,000 385,166 507,761
---------- ----------- ----------- -----------
Income before income taxes 1,227,590 1,377,714 2,529,746 2,904,437
Income taxes 466,000 527,000 965,000 1,113,000
---------- ----------- ----------- -----------
Net Income $ 761,590 $ 850,714 $ 1,564,746 $ 1,791,437
========== =========== =========== ===========
Basic earnings per share $ 0.08 $ 0.09 $ 0.16 $ 0.19
========== =========== =========== ===========
Diluted earnings per share $ 0.08 $ 0.09 $ 0.16 $ 0.18
========== =========== =========== ===========
</TABLE>
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six months ended December 31,
1997 1996
---- ----
<S> <C> <C>
Cash Flows From Operating Activities
Net cash provided by operating activities $ 394,656 $ 1,126,637
Cash Flows From Investing Activities
Reinvested dividends of available-for-sale securities (2,753) (3,566)
Purchase of available-for-sale securities (2,338,002) --
Proceeds from maturities of available-for-sale securities 2,233,275 --
Purchase of held-to-maturity securities -- (2,233,621)
Proceeds from maturities of held-to-maturity securities -- 2,239,215
Disposal of property, plant and equipment -- 10,232
Acquisition of property, plant and equipment (140,594) (390,676)
----------- -----------
Net cash used in investing activities (248,074) (378,416)
----------- -----------
Cash Flows From Financing Activities
Proceeds from stock warrants/options exercised 12,188 12,350
Collections on officer notes receivable for stock purchase -- 41,841
Cash dividends paid (334,456) (332,369)
Repayment of long-term debt (2,216) (3,136)
----------- -----------
Net cash used in financing activities (324,484) (281,314)
----------- -----------
Net increase (decrease) in Cash and Cash Equivalents (177,902) 466,907
Cash and Cash Equivalents, at beginning of year 3,532,339 4,328,468
----------- -----------
Cash and Cash Equivalents, at end of period $ 3,354,437 $ 4,795,375
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
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Blimpie International, Inc. and Subsidiaries
Notes To Consolidated Financial Statements
For the Six Months Ended December 31, 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 December 31, 1997 and the
results of operations, changes in shareholders' equity, and cash flows for the
three and six 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.
Earnings per Share
As of December 31, 1997, the Company adopted Statement of Financial Accounting
Standards No. 128 "Earnings per Share." Prior year amounts have been restated in
accordance with this Statement. Basic earnings per share is computed by dividing
net income available to common shareholders by the weighted-average number of
common shares outstanding during the period. Diluted earnings per share is
computed similarly but reflects the potential dilution that could occur if
options were exercised. The following table calculates basic earnings per share
and diluted earnings per share for the periods indicated:
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income $ 761,590 $ 850,714 $1,564,746 $1,791,437
Average common shares outstanding 9,545,388 9,521,863 9,543,657 9,508,841
---------- ---------- ---------- ----------
Basic earnings per share $ 0.08 $ 0.09 $ 0.16 $ 0.19
========== ========== ========== ==========
Net Income $ 761,590 $ 850,714 $1,564,746 $1,791,437
Average common shares outstanding 9,545,388 9,521,863 9,543,657 9,508,841
Add - Options exercisable 25,013 310,521 25,013 310,521
---------- ---------- ---------- ----------
Average diluted shares outstanding 9,570,401 9,832,384 9,568,670 9,819,362
---------- ---------- ---------- ----------
Diluted earnings per share $ 0.08 $ 0.09 $ 0.16 $ 0.18
========== ========== ========== ==========
</TABLE>
Commitments and Contingencies
On October 29, 1997 an agreement was signed between Blimpie International, Inc.
and Maui Tacos International, Inc. Blimpie International, Inc. shall invest
$10,000 as a capital contribution and shall loan the sum of $240,000 to Maui
Tacos International, Inc., to be repaid in five years. Blimpie International,
Inc. may thereafter loan up to $1,250,000 to Maui Tacos International, Inc.,
also to be repaid in five years.
5
<PAGE>
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Three and Six Month Periods Ended December 31, 1997 Compared with Three and Six
Month Periods Ended December 31, 1996
Results of Operations
The Company's net income decreased 10% to $761,590 for the three months ended
December 31, 1997 from $850,714 for the three months ended December 31, 1996.
The Company's basic and diluted earnings per share decreased 11% to $.08 per
share for the three months ended December 31, 1997 from $.09 for the same period
ended 1996. The Company's net income decreased 13% to $1,564,746 for the six
months ended December 31, 1997 from $1,791,437 for the same period ended 1996.
The Company's basic earnings per share decreased 16% to $.16 per share for the
six months ended December 31, 1997 from $.19 per share for the six months ended
December 31, 1996. During these same periods, diluted earnings per share
decreased 11% to $.16 from $.18. Such decreases are attributable to the
decreases in subfranchise, master license and franchise fees, and the increase
in selling, general and administrative expenses, all of which are discussed
below.
The Company's continuing fees derived from domestic franchises increased 17% to
$4,134,634 for the three months ended December 31, 1997 from $3,530,082 for the
three months ended December 31, 1996. During the six months ended December 31,
1997, continuing fees derived from domestic franchises increased 16% to
$8,343,593 from $7,171,422 for the six months ended December 31, 1996. These
increases are directly attributable to the increase in total domestic open
outlets at December 31, 1997 to 1,796 from 1,555 at December 31, 1996.
Revenue from subfranchise, master license and franchise fees for the three
months ended December 31, 1997 decreased 31% to $898,841 from $1,306,370 for the
same period ended 1996. The following table sets forth an analysis of the
components of such fees.
Three Months Ended December 31,
1997 1996
---- ----
SUBFRANCHISE FEES - DOMESTIC:
Existing Subfranchise Expansions $ 59,202 $ 60,000
Principal Payments Recognized on Deferred
Subfranchise Notes -0- 10,465
Annual Renewal Term Payments Recognized 88,647 31,851
-------- ----------
TOTAL SUBFRANCHISE FEES $147,849 $ 102,316
-------- ----------
MASTER LICENSE FEES - INTERNATIONAL:
New Master License Grants $-0- $ 335,000
Lump Sum Payments Recognized in Current Fiscal Year 10,000 -0-
-------- ----------
TOTAL MASTER LICENSE FEES $ 10,000 $ 335,000
-------- ----------
FRANCHISE FEES RECOGNIZED:
Domestic $723,618 $ 856,118
International 17,374 12,936
-------- ----------
TOTAL FRANCHISE FEES $740,992 $ 869,054
-------- ----------
6
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TOTAL SUBFRANCHISE, MASTER LICENSE
& FRANCHISE FEES $ 898 $1,306,370
======== ==========
Revenue from subfranchise, master license and franchise fees for the six months
ended December 31, 1997 decreased 34% to $2,132,926 from $3,216,765 for the same
period ended 1996. The following table sets forth an analysis of the components
of such fees.
Six Months Ended December 31,
1997 1996
---- ----
SUBFRANCHISE FEES - DOMESTIC:
Existing Subfranchise Expansions $ 61,071 $ 235,292
Principal Payments Recognized on Deferred
Subfranchise Notes 11,791 24,648
Annual Renewal Term Payments Recognized 205,195 90,799
Deferred Subfranchise Fees Recognized 63,275 258,749
---------- ----------
TOTAL SUBFRANCHISE FEES $ 341,332 $ 609,488
---------- ----------
MASTER LICENSE FEES - INTERNATIONAL:
New Master License Grants $ 82,000 $ 696,950
Lump Sum Payments Recognized in Current Fiscal Year 130,293 317,500
---------- ----------
TOTAL MASTER LICENSE FEES $ 212,293 $1,014,450
---------- ----------
FRANCHISE FEES RECOGNIZED:
Domestic $1,546,927 $1,579,891
International 32,374 12,936
---------- ----------
TOTAL FRANCHISE FEES $1,579,301 $1,592,827
---------- ----------
TOTAL SUBFRANCHISE, MASTER LICENSE
& FRANCHISE FEES $2,132,926 $3,216,765
---------- ----------
Total revenue from subfranchise fees decreased 44% to $341,332 for the six
months ended December 31, 1997 from $609,488 for the six months ended December
31, 1996. During the three and six months ended December 31, 1997 and December
31, 1996, the Company neither granted nor derived any revenue from any new
domestic subfranchises. During the six months ended December 31, 1997, four
domestic subfranchisors expanded and the Company received $61,071 in fees in
connection therewith, compared to the same six month period ended 1996, in which
nine domestic subfranchisors expanded and the Company received $235,292 in fees
in connection therewith. Such decreases resulted from the substantial
achievement of the Company's goal of saturating the domestic market with
subfranchises. In addition, during the six months ended December 31, 1997 the
Company recognized $205,195 in annual renewal term options exercised by 13
subfranchisors, as compared to $90,799 in annual renewal term options exercised
by ten subfranchisors during the same period ended 1996. Such increase is
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 six months ended December 31, 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
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<PAGE>
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 December 31,
1997, the Company neither granted nor derived any revenue from any new
international grants, compared to the same period ended 1996, in which the
Company granted international development rights for five countries and received
$335,000 in fees in connection therewith. During the six months ended December
31, 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, compared to the same period ended 1996, in which the Company granted
international development rights for 13 countries and received $696,950 in fees
in connection therewith. 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 domestic franchise fees recognized decreased 15% to $723,618 for the three
months ended December 31, 1997 from $856,118 for the three months ended December
31, 1996. This decrease is attributable to the decrease in the number of outlets
opened to 102 for the three months ended December 31, 1997 from 116 for the same
period ended 1996. During the six months ended December 31, 1997, total domestic
franchise fees recognized decreased 2% to $1,546,927 from $1,579,891 for the
same period ended 1996. This decrease is attributable to the decrease in the
number of outlets opened to 215 for the six months ended December 31, 1997 from
220 for the same period ended 1996.
The Company believes the decreases in subfranchise fees, domestic franchise fees
and the number of outlets opened are the result of the saturation of the
domestic market with subfranchisors and the maturing of the convenience store
segment of the new-concept marketplace. The Company implemented several new
initiatives during the three months ended December 31, 1997 to encourage future
revenue growth. One such initiative has realigned the Company's franchise
support system in order to more effectively assist the subfranchisors in
developing their territories, selling franchises and opening more outlets. Two
other initiatives involve the development and introduction of two new franchise
brands, Maui Tacos International, Inc. ("MTII") and Pasta Central, Inc. ("PCI").
The Company plans to introduce these new brands during the remainder of fiscal
1998. MTII will be the Company's offering in the second fastest-growing food
category of "Maui-Mex" menu items. PCI will provide the Company with an entry
into the fastest growing market in the restaurant/food service industry, the
"home meal replacement" category. The Company plans to develop these two new
brands similarly to the development of Blimpie outlets, which should increase
revenue derived from continuing fees, subfranchise fees, franchise fees and
equipment sales and subsequently increase net income. No assurances can be
given, however, that any such development or initiative would generate increased
revenue or net income.
During the three months ended December 31, 1997, store equipment sales increased
10% to $4,243,993 from $3,870,975 for the same period ended 1996. During the six
months ended December 31, 1997, store equipment sales increased 6% to $8,518,228
from $8,071,508. These increases are 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 B I Concept Systems, Inc., a wholly
owned subsidiary.
Management fees and other income for the three months ended December 31, 1997
decreased 22%
8
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to $344,562 from $444,074 for the same period ended December 31, 1996. During
the six months ended December 31, 1997, management fees and other income
decreased 8% to $638,902 from $694,779 for the same period ended December 31,
1996. These decreases resulted from the January 1997 relocation of one of the
Company's subfranchisors who had previously been sharing office space in the
Atlanta office, thereby reducing the fees the Company was receiving for
reimbursement of a portion of office expenses.
Subfranchisors' share of continuing and franchise fees increased 4% to
$2,383,583 for the three months ended December 31, 1997 from $2,298,628 for the
same period ended 1996. The following table sets forth an analysis of the
components of such fees.
Three Months Ended December 31,
1997 1996
---- ----
SUBFRANCHISORS'/MASTER LICENSORS' SHARE
OF CONTINUING FEES:
Domestic $1,997,004 $1,766,329
International 11,353 15,931
---------- ----------
TOTAL SUBFRANCHISORS'/MASTER
LICENSORS' SHARE OF CONTINUING FEES $2,008,357 $1,782,260
---------- ----------
SUBFRANCHISORS'/MASTER LICENSORS' SHARE
OF FRANCHISE FEES:
Domestic $ 144,003 $ 200,771
International 4,089 2,543
---------- ----------
TOTAL SUBFRANCHISORS' SHARE OF
FRANCHISE FEES $ 148,092 $ 203,314
---------- ----------
TRADEMARK LICENSE FEES ON CONTINUING,
FRANCHISE, MASTER LICENSE &
SUBFRANCHISE FEES:
Domestic $ 165,605 $ 84,623
International 61,529 228,431
---------- ----------
TOTAL TRADEMARK LICENSE FEES ON
CONTINUING, FRANCHISE, MASTER
LICENSE & SUBFRANCHISE FEES $ 227,134 $ 313,054
---------- ----------
TOTAL SUBFRANCHISORS'/MASTER
LICENSORS' SHARE OF CONTINUING &
FRANCHISE FEES AND TRADEMARK
LICENSE FEES ON CONTINUING,
FRANCHISE, MASTER LICENSE &
SUBFRANCHISE FEES $2,383,583 $2,298,628
========== ==========
Subfranchisors' share of continuing and franchise fees increased 8% to
$4,951,917 for the six months ended December 31, 1997 from $4,576,985 for the
same period ended 1996. The following table sets forth an analysis of the
components of such fees.
9
<PAGE>
Six Months Ended December 31,
1997 1996
---- ----
SUBFRANCHISORS'/MASTER LICENSORS' SHARE
OF CONTINUING FEES:
Domestic $4,115,458 $3,522,630
International 18,795 22,058
---------- ----------
TOTAL SUBFRANCHISORS'/MASTER
LICENSORS' SHARE OF CONTINUING FEES $4,134,253 $3,544,688
---------- ----------
SUBFRANCHISORS'/MASTER LICENSORS' SHARE
OF FRANCHISE FEES:
Domestic $ 385,416 $ 415,160
International 5,969 2,543
---------- ----------
TOTAL SUBFRANCHISORS' SHARE OF
FRANCHISE FEES $ 391,385 $ 417,703
---------- ----------
TRADEMARK LICENSE FEES ON CONTINUING,
FRANCHISE, MASTER LICENSE &
SUBFRANCHISE FEES:
Domestic $ 319,994 $ 264,294
International 106,285 350,300
---------- ----------
TOTAL TRADEMARK LICENSE FEES ON
CONTINUING, FRANCHISE, MASTER
LICENSE & SUBFRANCHISE FEES $ 426,279 $ 614,594
---------- ----------
TOTAL SUBFRANCHISORS'/MASTER
LICENSORS' SHARE OF CONTINUING &
FRANCHISE FEES AND TRADEMARK
LICENSE FEES ON CONTINUING,
FRANCHISE, MASTER LICENSE &
SUBFRANCHISE FEES $4,951,917 $4,576,985
========== ==========
Total subfranchisors' share of domestic continuing fees increased 13% to
$1,997,004 for the three months ended December 31, 1997 from $1,766,329 for the
same period ended 1996. During the six months ended December 31, 1997, the
subfranchisors' share of domestic continuing fees increased 17% to $4,115,458
from $3,522,630 for the same period ended 1996. These increases are directly
related to the 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 28% to $144,003 for the three month
period ended December 31, 1997 from $200,771 for the same period ended 1996.
During the six months ended December 31, 1997, the subfranchisors' share of
domestic franchise fees decreased 7% to $385,416 from $415,160 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 27% to $227,134 for
the three months ended December 31, 1997 from $313,054 for the same period ended
1996. During the six months ended December 31, 1997,
10
<PAGE>
trademark license fee obligations owed to MBI decreased 31% to $426,279 from
$614,594 for the same period ended 1996. These decreases are directly related to
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
six months ended December 31, 1997, as compared to the same period ended 1996,
store equipment cost of sales decreased slightly to $7,048,344 from $7,149,505
for the same period ended 1996.
Selling, general and administrative expense rose 13% to $2,759,308 for the three
month period ended December 31, 1997 from $2,446,366 for the same period ended
1996. During the six month period ended December 31, 1997, selling, general and
administrative expense rose 9% to $5,542,002 from $5,077,150 for the same period
ended 1996. These increases are the result of continued expansion of the
Company's workforce and increases in amortization expense for the trademarks
purchased in February 1997.
Interest income for the three months ended December 31, 1997 decreased 25% to
$202,518 from $271,000 for the same period ended 1996. Interest income decreased
24% for the six month period ended December 31, 1997 to $385,166 from $507,761
for the same period ended 1996. These decreases are 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% and 38.3% for the three months ended December 31, 1997 and 1996,
respectively, and 38.1% and 38.3% for the six months ended December 31, 1997 and
1996, respectively.
Investments under current assets decreased 9% to $4,061,582 at December 31, 1997
from $4,462,253 at June 30, 1997. During this same period, investments under
other assets increased 13% to $4,381,905 from $3,877,827. Such decrease and
increase, respectively, are the result of the maturation and two year renewal of
U.S. Treasury notes in July 1997 and October 1997. As a result thereof, the
Treasury notes were reclassified from current assets to long-term assets.
The Company's equipment inventory increased 106% to $510,240 at December 31,
1997 from $247,114 at June 30, 1997. This increase was the result of increases
in the amount of store equipment purchased in bulk, for subsequent resale, from
various equipment vendors at a substantial savings.
Current portion of notes receivable decreased 14% to $846,968 at December 31,
1997 from $985,772 at June 30, 1997. During this same period, deferred revenue
decreased 15% to $1,129,130 from $1,325,146. These decreases 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 other non-current assets increased 21% to $707,753 at December 31,
1997 from $583,633 at June 30, 1997. This increase was the result of the
accumulation of the cash surrender values of life insurance policies on the
lives of certain executive officers.
Accounts payable decreased 31% to $2,433,805 at December 31, 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.
Income taxes payable at December 31, 1997 increased to $318,075 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
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<PAGE>
six months ended December 31, 1997.
The Company's other current liabilities decreased 40% to $284,264 at December
31, 1997 from $473,951 at June 30, 1997. This decrease was the result of
incurring expenses, related to the Company's annual convention held in July
1997, which had been previously accrued.
Business Expansion
On October 29, 1997 the Company entered into an agreement with MTII. This
agreement gives the Company 76% ownership of MTII. MTII is a brand of
"fresh-Mex" quick service restaurants originating in Hawaii. With the Company's
expertise in franchising, the goal is to develop MTII across the mainland U.S.,
similar to the development of Blimpie outlets. The Company believes that the
development of MTII would increase the Company's revenue from continuing fees,
subfranchise fees and equipment sales, which would in turn increase the
Company's net income. No assurances can be given, however, that the development
of MTII will generate increased revenue or net income for the Company.
Liquidity and Capital Resources
During the six months ended December 31, 1997, the Company incurred a material
capital commitment from the signing of the agreement on October 29, 1997 with
MTII. This agreement requires a minimum initial contribution from the Company
for the development of MTII totaling $250,000, to be repaid by MTII in five
years.
The Company also has the option of loaning an additional $1,250,000 to MTII,
also to repaid in five years. The Company's current ratio (aggregate current
assets compared to aggregate current liabilities) at December 31, 1997 was in
excess of 3.7:1.
The Company generated cash flows from operating activities of $394,656 and
$1,126,637 for the six months ended December 31, 1997 and 1996, respectively.
The decrease of $731,981 was mainly the result of a decrease in accounts payable
which was partially offset by an increase in income taxes payable.
Net cash flows used in investing activities during the six months ended December
31, 1997 and 1996 totaled $248,074 and $378,416, respectively. The decrease of
$130,342 was the result of a slight decrease in the purchase of property, plant
and equipment.
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.
12
<PAGE>
PART II. Other Information
Item 4. Submission of Matters to a Vote of Shareholders
The Company's annual meeting of shareholders (the "Meeting") was held on
December 4, 1997. As of the October 31, 1997 record date of the Meeting,
9,545,676 shares of the Company's sole class of capital stock, i.e., its $.01
par value common stock, were issued and outstanding, and entitled to vote
thereat. 9,093,440 shares (95.26%) were present in person or by proxy at the
Meeting.
At such Meeting, management's slate of six incumbent directors, i.e., Messrs.
Anthony P. Conza (Chairman), David L. Siegel (Vice Chairman), Patrick J. Pompeo,
Charles G. Leaness, Alvin Katz and Harry G. Chernoff, were re-elected to serve
until the annual meeting of shareholders to be held for the fiscal year ending
June 30, 1999. Not less than 9,050,945 of all issued and outstanding shares
(94.82%) voted in favor of each of such directors, and not more than 42,495 of
such shares (0.45%) withheld authority to vote for any of such directors.
Also at the Meeting, the shareholders ratified the selection of Coopers &
Lybrand L.L.P. as the Company's independent accountants for the fiscal year
ending June 30, 1998 by a vote of 9,061,306 shares (94.93%) in favor.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit no. Description
27 Financial Data Schedule
(b) No reports on Form 8-K were filed by the Company during the
quarter for which this report has been filed.
13
<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: February 10, 1998 By: /s/ Joanne Guarnieri
----------------------
Joanne Guarnieri, Vice President
and Chief (Accounting) Financial
Officer
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at December 31, 1997 (Unaudited) and the Consolidated
Statement of Operations for the six months ended December 31, 1997 (Unaudited)
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,354,437
<SECURITIES> 4,061,582
<RECEIVABLES> 2,233,055
<ALLOWANCES> 82,750
<INVENTORY> 510,240
<CURRENT-ASSETS> 11,395,817
<PP&E> 2,262,216
<DEPRECIATION> 1,050,178
<TOTAL-ASSETS> 27,866,732
<CURRENT-LIABILITIES> 3,039,130
<BONDS> 0
0
0
<COMMON> 95,457
<OTHER-SE> 20,189,878
<TOTAL-LIABILITY-AND-EQUITY> 27,866,732
<SALES> 19,048,207
<TOTAL-REVENUES> 19,687,109
<CGS> 12,000,261
<TOTAL-COSTS> 12,000,261
<OTHER-EXPENSES> 5,542,002
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 266
<INCOME-PRETAX> 2,529,746
<INCOME-TAX> 965,000
<INCOME-CONTINUING> 1,564,746
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,564,746
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.16
</TABLE>
