-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NayrodtfoOaRaBCOkb4SBgNxoFS2lEkn+RzJ/LYLAlImR8CmlM7BBUC3x0ug7V8x TbraaIkqJp0H2/fOnwg6Qw== 0000931763-99-000446.txt : 19990217 0000931763-99-000446.hdr.sgml : 19990217 ACCESSION NUMBER: 0000931763-99-000446 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990216 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BLIMPIE INTERNATIONAL INC CENTRAL INDEX KEY: 0000895477 STANDARD INDUSTRIAL CLASSIFICATION: PATENT OWNERS & LESSORS [6794] IRS NUMBER: 132908793 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13945 FILM NUMBER: 99540084 BUSINESS ADDRESS: STREET 1: 1775 THE EXCHANGE STREET 2: SUITE 600 CITY: ATLANTA STATE: GA ZIP: 30339 BUSINESS PHONE: 7709842707 MAIL ADDRESS: STREET 1: 1775 THE EXCHANGE STREET 2: SUITE 600 CITY: ATLANTA STATE: GA ZIP: 30339 10-Q 1 BLIMPIE INTERNATIONAL FORM 10-Q 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, 1998 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 9,444,226 shares of the registrant's common stock outstanding as of February 11, 1999. Blimpie International, Inc. Quarterly Report on Form 10-Q For the Quarter Ended December 31, 1998 Table of Contents Page Number ------ PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited): Condensed Consolidated Balance Sheets December 31, 1998 and June 30, 1998 3 Condensed Consolidated Statements of Income Three and Six Months Ended December 31, 1998 and 1997 4 Condensed Consolidated Statements of Cash Flows Six Months Ended December 31, 1998 and 1997 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 14 SIGNATURES 15 2 PART 1. FINANCIAL INFORMATION Item 1. Financial Statements BLIMPIE INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands) December 31 June 30 1998 1998 ----------- ----------- Assets (Unaudited) (Note) Current assets: Cash and cash equivalents $ 4,738 $ 4,021 Investments 4,489 4,495 Accounts receivable, net 3,652 3,007 Prepaid expenses and other current assets 604 498 Deferred income taxes 211 211 Current portion of notes receivable 665 569 ------- ------- Total current assets 14,359 12,801 ------- ------- Property and equipment, net 1,717 1,584 ------- ------- Other assets: Notes receivable less current portion, net 1,049 1,324 Investments 3,694 3,686 Trademarks, net 8,612 8,568 Other 401 360 ------- ------- Total other assets 13,756 13,938 ------- ------- $29,832 $28,323 ======= ======= Liabilities and Shareholders' Equity Current liabilities: Accounts payable and other current liabilities $ 4,374 $ 3,060 Income taxes payable 351 276 ------- ------- Total current liabilities 4,725 3,336 Deferred revenue 343 736 Deferred income taxes 218 218 Trademark obligations 3,204 3,408 Shareholders' equity: Common stock, $.01 par value 96 96 Additional paid-in capital 8,634 8,420 Retained earnings 13,121 12,519 Net unrealized gain on marketable securities 108 51 ------- ------- 21,959 21,086 Treasury stock (407) (251) Subscriptions receivable (210) (210) ------- ------- Total shareholders' equity 21,342 20,625 ------- ------- $29,832 $28,323 ======= =======
Note: The condensed consolidated balance sheet at June 30, 1998 has been derived from the audited consolidated financial statements of the Company at that date but does not include all of the information required by generally accepted accounting principles for complete financial statements. See notes to condensed consolidated financial statements. 3 BLIMPIE INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three months ended Six months ended (in thousands, except for per share amounts) December 31 December 31 1998 1997 1998 1997 -------- ------- -------- -------- Revenues Continuing fees $4,537 $4,166 $9,337 $8,397 Subfranchisor fees, master license fees and sale of franchises 1,096 899 2,182 2,133 Store equipment sales 2,482 4,244 5,074 8,518 Management fees and other income 397 345 693 639 ------ ------ ------- ------- 8,512 9,654 17,286 19,687 Expenses Subfranchisors' share of franchise and continuing fees 3,099 2,530 6,070 5,287 Store equipment cost of sales 2,048 3,486 4,432 7,049 Selling, general and administrative expenses 2,869 2,613 5,746 5,207 ------ ------ ------- ------- 8,016 8,629 16,248 17,543 ------ ------ ------- ------- Operating income 496 1,025 1,038 2,144 Interest income 235 202 420 385 ------ ------ ------- ------- Income before income taxes 731 1,227 1,458 2,529 Income taxes 263 466 524 965 ------ ------ ------- ------- Net income $ 468 $ 761 $ 934 $ 1,564 ====== ====== ======= ======= Basic earnings per share $ 0.05 $ 0.08 $ 0.10 $ 0.16 ====== ====== ======= ======= Diluted earnings per share $ 0.05 $ 0.08 $ 0.10 $ 0.16 ====== ====== ======= ======= Weighted average basic shares outstanding 9,484 9,545 9,491 9,544 ====== ====== ======= ======= Weighted average diluted shares outstanding 9,484 9,570 9,491 9,569 ====== ====== ======= =======
See notes to condensed consolidated financial statements. 4 BLIMPIE INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended (in thousands) December 31 1998 1997 -------- -------- Cash Flows From Operating Activities Net income $ 934 $1,564 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 372 322 Incentive stock granted 10 86 Decrease (increase) in: Accounts receivable (645) 10 Prepaid expenses and other current assets (106) (281) Other assets (41) (124) Notes receivable 179 147 Increase (decrease) in: Accounts payable and other current liabilities 1,314 (1,350) Income taxes payable 75 310 Deferred revenue (393) (196) ------ ------ Net cash provided by operating activities 1,699 488 ------ ------ Cash Flows From Investing Activities Purchase of available-for-sale securities (1,553) (2,338) Proceeds from sale of available-for-sale securities 1,608 2,233 Reinvested dividends of available-for-sale securities 0 (3) Purchase of trademarks (188) (93) Acquisition of property and equipment (361) (141) ------ ------ Net cash used in investing activities (494) (342) ------ ------ Cash Flows From Financing Activities Purchase of treasury stock (156) 0 Proceeds from stock warrants/options exercised 0 12 Cash dividend paid (332) (334) Repayment of long-term debt 0 (2) ------ ------ Net cash used in financing activities (488) (324) ------ ------ Net increase in cash and cash equivalents 717 (178) Cash and cash equivalents at beginning of period 4,021 3,532 ------ ------ Cash and cash equivalents at end of period $4,738 $3,354 ====== ======
See notes to condensed consolidated financial statements. 5 Notes To Condensed Consolidated Financial Statements For the Six Months Ended December 31, 1998 (Unaudited) The unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles for interim financial statements and should be read in conjunction with the Company's June 30, 1998 Annual Report on Form 10-K. The unaudited financial statements include all adjustments consisting of only normal recurring accruals which are, in the opinion of management, necessary to present a fair statement of financial position as of December 31, 1998 and the results of operations and cash flows for the periods then ended. Results of operations for the period are not necessarily indicative of the results to be expected for the full year. Earnings per Share Earnings per share on a basic and diluted basis is calculated as follows:
Three months ended Six months ended December 31, December 31, (in thousands, except per share amounts) 1998 1997 1998 1997 ------ ------ ------ ------ Net income $ 468 $ 761 $ 934 $1,564 ====== ====== ====== ====== Calculation of weighted average shares outstanding plus assumed conversions: Weighted average basic shares outstanding 9,484 9,545 9,491 9,544 Effect of dilutive employee stock options 0 25 0 25 ------ ------ ------ ------ Weighted average diluted shares outstanding 9,484 9,570 9,491 9,569 ====== ====== ====== ====== Basic earnings per share $ 0.05 $ 0.08 $ 0.10 $ 0.16 ====== ====== ====== ====== Diluted earnings per share $ 0.05 $ 0.08 $ 0.10 $ 0.16 ====== ====== ====== ======
Comprehensive Income Comprehensive income consists of the following:
Three months ended Six months ended December 31, December 31, (in thousands) 1998 1997 1998 1997 ------ ------ ------ ------ Net income $ 468 $ 761 $ 934 $1,564 Net unrealized gain (loss) on marketable securities (34) 6 57 (4) ------ ------ ------ ------ Comprehensive income $ 434 $ 767 $ 991 $1,560 ====== ====== ====== ======
Trademark Interests On February 3, 1999, Blimpie International, Inc. (the "Company") acquired all of the rights, titles, and interests in the domestic rights to the Blimpie trademarks and Blimpie marketing system owned by Anthony P. Conza, the Chairman and Chief Executive Officer ("Conza") and David L. Siegel, the Vice Chairman and Chief Operating Officer ("Siegel") (together, the "individuals"). Previously, such interests in the domestic rights were licensed to the Company by the individuals under 99 year grants made by Conza and Siegel in 1976. The Company acquired ownership of the domestic trademark rights in exchange for amending a 1997 agreement relating to international trademark rights, as described below. Prior to 1997, the international trademark rights were owned 60% by Conza and Siegel and 40% by Metropolitan Blimpie, Inc. ("MBI"), an unrelated company. Under a 1997 agreement between the Company and the individuals, the Company acquired ownership of the 60% interest in the international trademark rights owned by the individuals for $4.5 million in cash plus certain contingent consideration. Generally, the individuals were entitled to receive an additional $150,000 per year for 50 years beginning in 2002, or had the option to elect a lump sum payment 6 of $3 million ($2 million to Conza and $1 million to Siegel), with such payments to be made on January 2, 2001. In order to satisfy the liability for the contingent consideration, and in consideration of the transfer of the domestic trademark rights, the Company amended the 1997 agreement. The amended agreement permitted Conza and Siegel to exercise the lump sum payment options and receive payment on or before February 15, 1999. Both individuals exercised their options, and were paid their lump-sum payments on February 10, 1999. In connection with such payments, the individuals repaid certain demand notes aggregating $150,000, plus accrued interest, relating to purchases of shares of the Company's common stock. Such demand notes had been recorded as a reduction of shareholders' equity. As a result of the above transactions, the Company now owns an undivided 60% interest in the domestic and international Blimpie trademark rights. The remaining 40% of such rights are owned by MBI. Conza and Siegel no longer own any of the rights to the Blimpie trademarks and the Blimpie marketing system. Pursuant to various agreements among the Company, MBI, and the individuals, the Company now has the exclusive domestic trademark rights for 35 entire states and various portions of other states. MBI has the exclusive trademark rights in the remainder of the United States. In 1991, MBI granted the Company the right to license MBI's Blimpie trademark rights in 10 entire states and various portions of other states, as well as in all territories outside of the continental United States. In consideration of the grants made to the Company by MBI, the Company agreed to pay to MBI specified percentages of all net revenues derived from the licensed territories (generally 30% of the gross profit of such revenues). 7 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion contains forward-looking statements subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. The words "may," "would," "could," "will," "expect," "estimate," "believe," "intends," "plans" and similar expressions and variations thereof are intended to identify forward-looking statements. Management cautions that these statements represent projections and estimates of future performance and involve certain risks and uncertainties. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors including, without limitation, the Company's ability to successfully implement the new concepts currently being formulated; changes in global and local business and economic conditions; consumer preferences, spending patterns and demographic trends; food, labor and other operating costs; availability and cost of land and construction; currency exchange rates; and other risks outside the control of the Company referred to in the Company's registration statement and periodic reports filed with the Securities and Exchange Commission. Overview The Company's principal operations are centered around the Blimpie Subs & Salads chain of quick service restaurants. As of December 31, 1998, there were more than 2,060 Blimpie locations franchised by the Company in operation in the United States and 13 other countries. The chain's growth has been achieved through a system of subfranchisors that purchased the rights to develop certain territories. The subfranchisor fees were a significant and profitable revenue source for the Company through fiscal 1996. By the end of fiscal 1996, the majority of the domestic subfranchise rights had been sold, and this revenue stream began to decline. As a result, the Company's profitability also declined, despite the continued growth in the number of franchised units opened and an increase in continuing fee revenues. Faced with declining profitability despite the consistent growth in the number of Blimpie outlets and continuing fees, the Company implemented several new initiatives, including the acquisition or development of three new brands. The three new franchise concepts are Maui Tacos(TM), Pasta Central(TM) and Smoothie Island(TM). Maui Tacos restaurants provide a health-oriented, affordable menu of "Maui-Mex" items, including traditional Mexican foods marinated in Hawaiian spices. Pasta Central's baked pasta meals are designed to address current eating trends for eat-in or take home replacement meals. Smoothie Island is a selection of blended beverages of frozen yogurt, fruit and nutritional supplements sold through the Blimpie, Maui Tacos and Pasta Central locations. In July 1998 the Company sold the first subfranchise territory for Maui Tacos covering the greater Atlanta, Georgia market. The Company opened the first mainland Maui Tacos location in Atlanta, Georgia on October 12, 1998 as a company-owned store. The store sales were approximately $107,000 through December 31, 1998, and total food costs were approximately 34% of store sales for the period. These results were negatively impacted by slow holiday sales and high grand opening expenses and other promotional food costs. The Company anticipates that it will open additional company-owned stores for this or its other new concepts, but does not anticipate that sales from company-owned stores will represent a significant portion of its revenues. Therefore, net store operations are recorded in "Management fees and other income" in the Company's Statement of Income for the three months ended December 31, 1998. As of December 31, 1998, there were 12 Smoothie Island locations in operation, all of which were located in Blimpie or Maui Tacos locations. The first two Pasta Central locations are currently under construction as co-brands with Blimpie locations, and are scheduled to be opened in March 1999. 8 The Company believes that these new concepts will be well received and that the Blimpie brand will continue to be successful. The Company anticipates that it will be generating revenues in each of these new concepts by the end of the third fiscal quarter ended March 31, 1999. The new concepts have increased selling, general and administrative expenses during the past year, and management believes that these expenses will continue to increase as these brands require additional support through the early stages of their growth. There can be no assurance that the introduction of these concepts will continue to result in increased revenues, or that such revenues will exceed the related costs. Results of Operations Three and Six Months Ended December 31, 1998 Compared with Three and Six Months Ended December 31, 1997 The Company's net income decreased 38.5% to $468,000 in the three months ended December 31, 1998 from $761,000 in the three months ended December 31, 1997. The Company's basic and diluted earnings per share decreased 37.5% to $0.05 per share in the three months ended December 31, 1998 from $0.08 per share in the three months ended December 31, 1997. Such decreases are attributable primarily to decreases in store equipment sales and an increase in selling, general and administrative expenses, all of which are discussed below. The Company's continuing fees derived from franchises increased 8.9% to $4,537,000 in the three months ended December 31, 1998 from $4,166,000 in the three months ended December 31, 1997. During the six months ended December 31, 1998, continuing fees derived from franchises increased 11.2% to $9,337,000 from $8,397,000 for the six months ended December 31, 1997. These increases were due to the 13.3% increase in the number of open outlets from 1,819 at December 31, 1997 to 2,061 at December 31, 1998. The 13.3% increase in total open outlets is net of outlets closed, and includes a 6.1% increase in traditional outlets, an 18.4% increase in non-traditional outlets, and a 121.7% increase in international outlets. Generally, the non-traditional outlets are smaller locations within convenience stores, and have lower sales volumes than the traditional outlets. Because of the increase in the percentage of non- traditional outlets versus traditional outlets, revenues from continuing fees increased at a slower rate than the increase in total open outlets. Subfranchisor fees, master license fees and fees from the sales and resales of franchises increased 21.9% to $1,096,000 in the three months ended December 31, 1998 from $899,000 in the three months ended December 31, 1997. The following table summarizes the components of these fees for the three and six months ended December 31, 1998 and 1997: 9
Three Months Ended December 31, 1998 1997 Change ---------------------------------------------- Subfranchisor fees $ 125,000 $148,000 (15.5)% Master license fees -0- 10,000 (100.0)% Franchise and resale fees 971,000 741,000 31.0 % ---------------------------------------------- Total $1,096,000 $899,000 21.9 % ============================================== Outlets opened in period 84 104 (19.2)% ============================================== Six Months Ended December 31, 1998 1997 Change ---------------------------------------------- Subfranchisor fees $ 403,000 $ 342,000 17.8 % Master license fees 100,000 212,000 (52.8)% Franchise and resale fees 1,679,000 1,579,000 6.3 % ---------------------------------------------- Total $2,182,000 $2,133,000 2.3 % ============================================== Outlets opened in period 166 224 (25.9)% ==============================================
Subfranchise fees decreased 15.5% in the three months ended December 31, 1998 as compared to 1997 due to an absence of existing subfranchise expansions in the current year. Subfranchise fees increased 17.8% in the six month period due primarily to the sale of a Maui Tacos International, Inc. subfranchise territory in the current year. There were no master license agreements entered into in the three months ended December 31, 1998. Master license fees decreased 52.8% in the six month period due to the recognition of deferred fees from previously sold territories in the 1997 period, with no corresponding revenues in the current period. Revenues from sales of franchises and resale fees increased 31.0% in the three months ended December 31, 1998 and 6.3% in the six months ended December 31, 1998 due primarily to an increase in the number of franchise fees recognized for franchise agreements awarded for which no store was opened within two years of the date of the franchise agreement. The number of new outlets opened decreased 19.2% to 84 new outlets in the three months ended December 31, 1998 from 104 in the three months ended December 31, 1997. The number of new outlets opened decreased 25.9% to 166 new outlets in the six months ended December 31, 1998 from 224 in the six months ended December 31, 1997. As of December 31, 1998, the Company had Master Licensors operating in 26 countries, and 51 Blimpie outlets operating in 13 of these countries. The Company's focus through the remainder of fiscal 1999 will be to continue to sell new international territories while assisting our Master Licensors with the aggressive development of the existing areas. Although the Company has strengthened its infrastructure and created an international department to support international expansion, the international market has not developed as rapidly as expected with regard to master license fees and outlet openings. There can be no assurance that the Company's investment in the international marketplace 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 revenues, or that such revenues will exceed the related costs. Store equipment sales decreased 41.5% to $2,482,000 in the three months ended December 31, 1998 from $4,244,000 in the three months ended December 31, 1997. Store equipment sales decreased 40.4% to $5,074,000 in the six months ended December 31, 1998 10 from $8,518,000 in the six months ended December 31, 1997. These decreases were due to fewer store openings in the current periods, as well as a greater percentage of the new franchises being "new concept" franchises, which typically purchase less equipment than traditional locations due to their smaller size. Management fees and other income for the three months ended December 31, 1998 increased 15.1% to $397,000 from $345,000 in the three months ended December 31, 1997. Management fees and other income for the six months ended December 31, 1998 increased 8.5% to $693,000 from $639,000 in the six months ended December 31, 1997. These increases were due to higher management fees resulting from increases in related personnel costs which are charged to affiliated entities. The Subfranchisors' shares of continuing and franchise fees increased 22.5% to $3,099,000 in the three months ended December 31, 1998 from $2,530,000 in the three months ended December 31, 1997. The Subfranchisors' shares of continuing and franchise fees increased 14.8% to $6,070,000 in the six months ended December 31, 1998 from $5,287,000 in the six months ended December 31, 1997. These increases were due to the increases in continuing fees and franchise and resale fees. Store equipment cost of sales decreased 41.3% to $2,048,000 in the three months ended December 31, 1998 from $3,486,000 in the three months ended December 31, 1997. Store equipment cost of sales decreased 37.1% to $4,432,000 in the six months ended December 31, 1998 from $7,049,000 in the six months ended December 31, 1997. These decreases were due to the decreases in store equipment sales. The gross margin on store equipment sales decreased to 17.5% in the three months ended December 31, 1998 from 17.9% in the three months ended December 31, 1997 and to 12.7% in the six months ended December 31, 1998 from 17.2% in the six months ended December 31, 1997. The decrease in the six month period is due to an unfavorable product mix in the first quarter of the current fiscal year. Selling, general and administrative expense rose 9.8% to $2,869,000 in the three months ended December 31, 1998 from $2,613,000 in the three months ended December 31, 1997. Selling, general and administrative expense rose 10.4% to $5,746,000 in the six months ended December 31, 1998 from $5,207,000 in the six months ended December 31, 1997. These increases were due primarily to additional personnel and related costs associated with the growth in number of Blimpie outlets, as well as personnel, legal and other costs incurred in the development of the Maui Tacos, Smoothie Island and Pasta Central brands. Interest income in the three months ended December 31, 1998 increased by 16.3% to $235,000 from $202,000 in the three months ended December 31, 1997. Interest income in the six months ended December 31, 1998 increased by 9.1% to $420,000 from $385,000 in the six months ended December 31, 1997. These increases were due to higher average cash and investment balances outstanding in the 1998 periods. The effective income tax rates (income taxes expressed as a percentage of pre-tax income) were approximately 36% in the three and six months ended December 31, 1998 compared to approximately 38% in the 1997 periods. The decreases were due to a lower effective state income tax rate in the 1998 periods. 11 Liquidity and Capital Resources The Company generated cash flows from operating activities of $1,699,000 and $488,000 in the six months ended December 31, 1998 and 1997, respectively. The increase in the six months ended December 31, 1998 was primarily the result of an increase in accounts payable and other current liabilities in the 1998 period compared to a decrease in the prior period, partially offset by lower net income. Net cash used in investing activities during the six months ended December 31, 1998 and 1997 totaled $494,000 and $342,000, respectively. The 1998 period included greater purchases of trademarks and property and equipment, partially offset by net proceeds from the sale of available-for-sale securities. On February 10, 1999, the Company paid a total of $2,850,000 in satisfaction of certain amounts due to and from two officers of the Company. See "Trademark Interests" footnote to the December 31, 1998 Quarterly Report on Form 10-Q for additional information regarding these payments. Net cash used in financing activities was $488,000 in the six months ended December 31, 1998 and $324,000 in the six months ended December 31, 1997. The increase in the cash used in financing activities was due to the implementation of a plan announced by the Company in fiscal 1998 to repurchase up to 250,000 shares of its Common Stock. As of February 11, 1999 the Company had repurchased 133,000 shares pursuant to this plan. 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. Impact of Year 2000 The Company's business and relationships with its business partners and customers depend significantly on a number of computer software programs, internal operating systems and connections to other networks. The failure of any of these programs, systems or networks to successfully address the Year 2000 data rollover problem could have a material adverse effect on the Company's business, financial condition and results of operations. Many installed computer software and network processing systems currently accept only two-digit entries in the date code field and may need to be upgraded or replaced in order to accurately record and process information and transactions on and after January 1, 2000. The Company utilizes personal computers that are connected to a network for all of its employee workstations. These personal computers all utilize Microsoft Windows NT as their operating system. The Company believes that the Windows NT operating system is Year 2000 compliant. Additionally, the Company recently installed new software to operate all of its accounting operations. The new software was implemented to improve operating efficiencies, as well as to address Year 2000 issues. The Company believes this new software, and the computer hardware on which it runs, is Year 2000 compliant. Management anticipates that all accounting operations will be performed using the Year 2000 compliant systems by March 1999. The majority of the costs of installing and implementing the aforementioned software and hardware was incurred prior to December 31, 1998. The Company anticipates that any additional expenditures to complete the implementation will be funded from cash flows generated by operations. 12 The Company primarily does business with its subfranchisors and its franchisees which in turn deal with retail customers and food distribution companies. The Company has considered the transactions it conducts with its subfranchisors and franchisees in its analyses of the Year 2000 issue, and believes that it has completed substantially all modifications to the computer systems used in these transactions to ensure the systems are Year 2000 compliant. The Company is not certain as to whether the computer software and business systems of its franchisees' suppliers are Year 2000 compliant. The failure or delay of these distributors to successfully address the Year 2000 issue may result in delays in placing or receiving orders for goods and services at the store level. Such delays may result in lost revenues for the franchisees, and in turn, lower continuing fee revenue for the Company. The Company anticipates that such delays and lost revenues, if any, would not be material. The Company intends to continue to monitor its Year 2000 compliance and to correct any noncompliance as it is discovered. Management anticipates funding such efforts out of operating cash flow. The Company believes that the effects of any noncompliance on its part, or by its customers and suppliers, will not have a material adverse effect on the Company's business, financial condition, results of operations or cash flows. 13 PART II. Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. The following exhibits are filed as part of this report: --------- Exhibit no. Description 27 Financial Data Schedule (b) No Current Reports on Form 8-K were filed by the Company during the quarter for which this report has been filed. 14 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BLIMPIE International, Inc. (Registrant) Dated: February 12, 1999 By: /s/ Brian D. Lane ------------------------------------------ Brian D. Lane Vice President and Chief Financial Officer (Principal Financial Officer) 15 EX-27.1 2 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Consolidated Balance Sheet at December 31, 1998 (Unaudited) and the Consolidated Statement of Income for the six months ended December 31, 1998 (Unaudited) and is qualified in its entirety by reference to such financial statements. 1,000 6-MOS JUN-30-1999 JUL-01-1998 DEC-31-1998 4,738 4,489 3,729 77 0 14,359 3,207 1,490 29,832 4,725 0 0 0 96 21,246 29,832 16,593 17,286 10,502 10,502 5,746 0 0 1,458 524 934 0 0 0 934 0.10 0.10
-----END PRIVACY-ENHANCED MESSAGE-----