-----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, UMdtWXtDD/1o7Zn5DYKENq2t/lsleUEGS+KKf5WgtYxLlIhOvXMoUTnEbbtoUNPh kKzH5TOJpvMtWxcPq7DGGA== 0000931763-99-001660.txt : 19990517 0000931763-99-001660.hdr.sgml : 19990517 ACCESSION NUMBER: 0000931763-99-001660 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 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: 99623323 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 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 March 31, 1999 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 9,445,926 shares of the registrant's common stock outstanding as of May 12, 1999. BLIMPIE INTERNATIONAL, INC. QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999 TABLE OF CONTENTS
PAGE NUMBER ------ PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited): Condensed Consolidated Balance Sheets - March 31, 1999 and June 30, 1998 3 Condensed Consolidated Statements of Income - Three and Nine Months Ended March 31, 1999 and 1998 4 Condensed Consolidated Statements of Cash Flows - Nine Months Ended March 31, 1999 and 1998 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 13 SIGNATURES 14
2 PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS BLIMPIE INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands) MARCH 31 JUNE 30 1999 1998 ------------ ------------- ASSETS (UNAUDITED) (NOTE) Current assets: Cash and cash equivalents $ 3,715 $ 4,021 Investments 5,583 4,495 Accounts receivable, net 2,893 3,007 Prepaid expenses and other current assets 449 498 Deferred income taxes 211 211 Current portion of notes receivable 561 569 ------------ ------------- Total current assets 13,412 12,801 ------------ ------------- Property and equipment, net 1,722 1,584 ------------ ------------- Other assets: Notes receivable less current portion, net 934 1,324 Investments 1,002 3,686 Trademarks, net 8,545 8,568 Other 404 360 ------------ ------------- Total other assets 10,885 13,938 ------------ ------------- $ 26,019 $ 28,323 ============ ============= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and other current liabilities $ 2,802 $ 3,060 Income taxes payable 164 276 ------------ ------------- Total current liabilities 2,966 3,336 Deferred revenue 725 736 Deferred income taxes 218 218 Trademark obligations 204 3,408 Shareholders' equity: Common stock, $.01 par value 96 96 Additional paid-in capital 8,638 8,420 Retained earnings 13,581 12,519 Net unrealized gain on marketable securities 72 51 ------------ ------------- 22,387 21,086 Treasury stock (421) (251) Subscriptions receivable (60) (210) ------------ ------------ Total shareholders' equity 21,906 20,625 ------------ ------------- $ 26,019 $ 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 NINE MONTHS ENDED (in thousands, except for per share amounts) MARCH 31 MARCH 31 1999 1998 1999 1998 ------------ ------------ ------------ ------------ Revenues Continuing fees $ 4,527 $ 4,202 $ 13,864 $ 12,599 Subfranchisor fees, master license fees and sale of franchises 805 1,130 2,987 3,263 Store equipment sales 2,107 2,672 7,181 11,190 Management fees and other income 335 305 1,028 944 ------------ ------------ ------------ ------------ 7,774 8,309 25,060 27,996 Expenses Subfranchisors' share of franchise and continuing fees 2,458 2,486 8,528 7,773 Store equipment cost of sales 1,852 2,420 6,284 9,469 Selling, general and administrative expenses 2,927 2,909 8,673 8,116 ------------ ------------ ------------ ------------ 7,237 7,815 23,485 25,358 ------------ ------------ ------------ ------------ Operating income 537 494 1,575 2,638 Interest income 178 197 598 582 ------------ ------------ ------------ ------------ Income before income taxes 715 691 2,173 3,220 Income taxes 258 255 782 1,220 ------------ ------------ ------------ ------------ Net income $ 457 $ 436 $ 1,391 $ 2,000 ============ ============ ============ ============ Basic earnings per share $ 0.05 $ 0.05 $ 0.15 $ 0.21 ============ ============ ============ ============ Diluted earnings per share $ 0.05 $ 0.05 $ 0.15 $ 0.21 ============ ============ ============ ============ Weighted average basic shares outstanding 9,477 9,538 9,486 9,542 ============ ============ ============ ============ Weighted average diluted shares outstanding 9,482 9,547 9,488 9,563 ============ ============ ============ ============
See notes to condensed consolidated financial statements. 4 BLIMPIE INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
NINE MONTHS ENDED (in thousands) MARCH 31 1999 1998 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 1,391 $ 2,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 552 490 Incentive stock granted 14 98 Decrease (increase) in: Accounts receivable 114 (466) Prepaid expenses and other current assets 49 (755) Other assets (44) (171) Notes receivable 398 176 Increase (decrease) in: Accounts payable and other current liabilities (258) (950) Income taxes payable (112) 249 Deferred revenue (11) (279) ------------ ------------ Net cash provided by operating activities 2,093 392 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Purchase of available-for-sale securities (1,720) (4,015) Proceeds from sale of available-for-sale securities 3,337 4,026 Reinvested dividends of available-for-sale securities 0 (4) Purchase of trademarks (3,045) (109) Acquisition of property and equipment (472) (219) ------------ ------------ Net cash used in investing activities (1,900) (321) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Purchase of treasury stock (170) (251) Proceeds from stock warrants/options exercised 0 12 Cash dividend paid (329) (669) Repayment of long-term debt 0 (5) ------------ ------------ Net cash used in financing activities (499) (913) ------------ ------------ Net increase in cash and cash equivalents (306) (842) Cash and cash equivalents at beginning of period 4,021 3,532 ------------ ------------ Cash and cash equivalents at end of period $ 3,715 $ 2,690 ============ ============
See notes to condensed consolidated financial statements. 5 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED MARCH 31, 1999 (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 March 31, 1999 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 NINE MONTHS ENDED MARCH 31, MARCH 31, (in thousands, except per share amounts) 1999 1998 1999 1998 ----------- ----------- ----------- ----------- Net income $ 457 $ 436 $ 1,391 $ 2,000 =========== =========== =========== =========== Calculation of weighted average shares outstanding plus assumed conversions: Weighted average basic shares outstanding 9,477 9,538 9,486 9,542 Effect of dilutive employee stock options 5 9 2 21 ----------- ----------- ----------- ----------- Weighted average diluted shares outstanding 9,482 9,547 9,488 9,563 =========== =========== =========== =========== Basic earnings per share $ 0.05 $ 0.05 $ 0.15 $ 0.21 =========== =========== =========== =========== Diluted earnings per share $ 0.05 $ 0.05 $ 0.15 $ 0.21 =========== =========== =========== ===========
COMPREHENSIVE INCOME Comprehensive income consists of the following:
THREE MONTHS ENDED NINE MONTHS ENDED MARCH 31, MARCH 31, (in thousands) 1999 1998 1999 1998 ---------- ---------- ---------- ---------- Net income $ 457 $ 436 $ 1,391 $ 2,000 Net unrealized gain (loss) on marketable securities (36) 0 21 (4) ========== ========== ========== ========== Comprehensive income $ 421 $ 436 $ 1,412 $ 1,996 ========== ========== ========== ==========
6 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 March 31, 1999, there were 2,071 Blimpie locations franchised by the Company in operation in the United States and 12 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 Company has since sold two more subfranchise territories, and currently has several locations under lease. As of March 31, 1999, there were 16 Smoothie Island locations in operation, all of which were located in Blimpie or Maui Tacos locations. The first two Pasta Central locations were opened as co-brands with Blimpie locations in Boise, Idaho and Marshall, Missouri in March 1999. As anticipated, each of the new brands was generating revenues for the Company as of March 31, 1999. The Company believes that these new concepts will be well received and that the Blimpie brand will continue to be successful. 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 7 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 NINE MONTHS ENDED MARCH 31, 1999 COMPARED WITH THREE AND NINE MONTHS ENDED MARCH 31, 1998 The Company's net income increased 4.8% to $457,000 in the three months ended March 31, 1999 from $436,000 in the three months ended March 31, 1998. The Company's basic and diluted earnings per share was unchanged at $0.05 per share in the three months ended March 31, 1999. The Company's net income decreased 30.5% to $1,391,000 in the nine months ended March 31, 1999 from $2,000,000 in the nine months ended March 31, 1998. The Company's basic and diluted earnings per share decreased 28.6% to $0.15 per share in the nine months ended March 31, 1999 from $0.21 per share in the nine months ended March 31, 1998. The decreases for the nine months ended March 31, 1999 were the result of a slow down in the number of new store openings, which resulted in lower franchise fees and store equipment sales. This decline began in the third quarter of fiscal 1998, and therefore did not affect the three-month comparisons. Additionally, the Company invested heavily in the new brands, which caused selling, general and administrative costs to increase in the nine-month period ended March 31, 1999. The Company's continuing fees derived from franchises increased 7.7% to $4,527,000 in the three months ended March 31, 1999 from $4,202,000 in the three months ended March 31, 1998. During the nine months ended March 31, 1999, continuing fees derived from franchises increased 10.0% to $13,864,000 from $12,599,000 for the nine months ended March 31, 1998. These increases were due to the 9.3% increase in the number of open outlets from 1,895 at March 31, 1998 to 2,071 at March 31, 1999. The 9.3% increase in total open outlets is net of outlets closed, and includes a 4.8% increase in traditional outlets, a 12.6% increase in non-traditional outlets, and a 48.5% 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 decreased 28.8% to $805,000 in the three months ended March 31, 1999 from $1,130,000 in the three months ended March 31, 1998. Subfranchisor fees represent amounts paid to the Company by subfranchisors for the right to develop a specified domestic territory. Master license fees are similar to subfranchisor fees, but relate to international territories. Franchise fees represent the fees paid by a prospective franchisee for the right to open a specific location. Resale fees represent a transfer fee charged by the Company when a subfranchise, master license, or franchise is sold to a new owner. 8 The following table summarizes the components of these fees for the three and nine months ended March 31, 1999 and 1998:
Three Months Ended March 31, 1999 1998 Change ----------------------------------------------- Subfranchisor fees $ 224,000 $ 246,000 -8.9% Master license fees 23,000 88,000 -73.9% Franchise and resale fees 558,000 796,000 -29.9% ----------------------------------------------- Total $ 805,000 $1,130,000 -28.8% =============================================== Outlets opened in period 58 133 -56.4% ===============================================
Nine months Ended March 31, 1999 1998 Change ----------------------------------------------- Subfranchisor fees $ 627,000 $ 588,000 6.6% Master license fees 123,000 300,000 -59.0% Franchise and resale fees 2,237,000 2,375,000 -5.8% ----------------------------------------------- Total $2,987,000 $3,263,000 -8.5% =============================================== Outlets opened in period 224 357 -37.3% ===============================================
Subfranchisor fees decreased 8.9% in the three months ended March 31, 1999 as compared to 1998 due to an absence of existing subfranchise expansions in the current year and lower annual renewal fees, partially offset by new territory sales by Maui Tacos. Subfranchisor fees increased 6.6% in the nine month period due primarily to the sale of three Maui Tacos subfranchise territories in the current year. Master license fees decreased 73.9% in the three months ended March 31, 1999 due to fewer annual renewals. Master license fees decreased 59.0% in the nine month period due to the recognition of deferred fees from previously sold territories in the 1998 period, with no corresponding revenues in the current period. Revenues from sales of franchises and resale fees decreased 29.9% in the three months ended March 31, 1999 and 5.8% in the nine months ended March 31, 1999 due primarily to a decrease in the number of new outlets opened in the 1999 periods. As of March 31, 1999, the Company had Master Licensors operating in 26 countries, and 49 Blimpie outlets operating in 12 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 21.1% to $2,107,000 in the three months ended March 31, 1999 from $2,672,000 in the three months ended March 31, 1998. Store equipment sales decreased 35.8% to $7,181,000 in the nine months ended March 31, 1999 from $11,190,000 in the nine months ended March 31, 1998. These decreases were due to fewer store openings in the fiscal 1999 periods, as well as a greater percentage of the new franchises being "new 9 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 March 31, 1999 increased 9.8% to $335,000 from $305,000 in the three months ended March 31, 1998. Management fees and other income for the nine months ended March 31, 1999 increased 8.9% to $1,028,000 from $944,000 in the nine months ended March 31, 1998. These increases primarily 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 1.1% to $2,458,000 in the three months ended March 31, 1999 from $2,486,000 in the three months ended March 31, 1998. The Subfranchisors' shares of continuing and franchise fees increased 9.7% to $8,528,000 in the nine months ended March 31, 1999 from $7,773,000 in the nine months ended March 31, 1998. These increases were due to the increases in continuing fees, and were partially offset by the decreases in franchise and resale fees. Store equipment cost of sales decreased 23.5% to $1,852,000 in the three months ended March 31, 1999 from $2,420,000 in the three months ended March 31, 1998. Store equipment cost of sales decreased 33.6% to $6,284,000 in the nine months ended March 31, 1999 from $9,469,000 in the nine months ended March 31, 1998. These decreases were due to the decreases in store equipment sales. The gross margin on store equipment sales increased to 12.1% in the three months ended March 31, 1999 from 9.4% in the three months ended March 31, 1998 and decreased to 12.5% in the nine months ended March 31, 1999 from 15.4% in the nine months ended March 31, 1998. The fluctuations in the gross margins are due to changes in the product mix between periods. Selling, general and administrative expense rose 0.6% to $2,927,000 in the three months ended March 31, 1999 from $2,909,000 in the three months ended March 31, 1998. Selling, general and administrative expense rose 6.9% to $8,673,000 in the nine months ended March 31, 1999 from $8,116,000 in the nine months ended March 31, 1998. 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 March 31, 1999 decreased by 9.6% to $178,000 from $197,000 in the three months ended March 31, 1998. Interest income in the nine months ended March 31, 1999 increased by 2.7% to $598,000 from $582,000 in the nine months ended March 31, 1998. The decrease in the three-month period was due to lower average cash and investments caused by the payment of approximately $2,850,000 for trademark interests in February 1999. The increase in the nine-month period was due to higher average cash and investment balances outstanding in the fiscal 1999 period prior to the payment referred to above. The effective income tax rates (income taxes expressed as a percentage of pre-tax income) were approximately 36% in the three and nine months ended March 31, 1999 compared to approximately 36.9% and 37.9% in the three and nine months ended March 31, 1998, respectively. The decreases were due to a lower effective state income tax rate in the fiscal 1999 periods. 10 LIQUIDITY AND CAPITAL RESOURCES The Company generated cash flows from operating activities of $2,093,000 and $392,000 in the nine months ended March 31, 1999 and 1998, respectively. The increase in the nine months ended March 31, 1999 was primarily the result of decreases in accounts receivable and prepaid expenses in the fiscal 1999 period compared to large increases in the prior period. Additionally, accounts payable and other current liabilities decreased more in the fiscal 1998 period than in the fiscal 1999 period. These sources of cash flows were partially offset by lower net income in the 1999 period. Net cash used in investing activities during the nine months ended March 31, 1999 and 1998 totaled $1,900,000 and $321,000, respectively. On February 10, 1999, the Company paid a total of $2,850,000 in satisfaction of certain amounts due to two officers of the Company, net of amounts due from the officers. See "Trademark Interests" footnote to the December 31, 1998 Quarterly Report on Form 10-Q for additional information regarding these payments. These payments resulted in a large use of cash, which was partially offset by the sale of investments required to generate a portion of the funds used in the cash payments. The Company does not anticipate any similar uses of cash in the next 12 to 18 months. Net cash used in financing activities was $499,000 in the nine months ended March 31, 1999 and $913,000 in the nine months ended March 31, 1998. The decrease in the cash used in financing activities was due to the timing of the semi-annual dividend payment. In fiscal 1998, the payment was made in March, whereas in fiscal 1999 the payment was made in April, and was not reflected in the cash flows for the nine months ended March 31, 1999. 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 June 1999. The majority of the costs of installing and implementing the aforementioned software and hardware was incurred prior to March 31, 1999. The Company anticipates that any additional expenditures to complete the implementation will be funded from cash flows generated by operations. 11 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. 12 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) A Current Report on Form 8-K was filed by the Company on February 10, 1999 describing the acquisition of certain trademark rights. 13 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: May 12, 1999 By: /s/ Brian D. Lane -------------------------------- Brian D. Lane Vice President and Chief Financial Officer (Principal Financial Officer) 14 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AT MARCH 31, 19999 (UNAUDITED) AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED MARCH 31, 1999 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS JUN-30-1999 JUL-1-1998 MAR-31-1999 3,715 5,583 2,984 91 0 13,412 3,336 1,614 26,019 2,966 0 0 0 96 21,810 26,019 24,032 25,060 14,812 14,812 8,673 0 0 2,173 782 1,391 0 0 0 1,391 0.15 0.15
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