-----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, TAJmWg/DVeUVG6B1UGVTmxkvCg3axb3+SkJ3vaqX9AmzYDMDI5dZJnm+GHWdqoWX GC+3seu5FdDpL7ZRmpsBew== 0001005477-00-001315.txt : 20000215 0001005477-00-001315.hdr.sgml : 20000215 ACCESSION NUMBER: 0001005477-00-001315 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000214 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: 542416 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 December 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 9,475,026 shares of the registrant's common stock outstanding as of February 4, 2000. Blimpie International, Inc. Quarterly Report on Form 10-Q For the Quarter Ended December 31, 1999 Table of Contents Page Number ------ PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited): Condensed Consolidated Balance Sheets - December 31, 1999 and June 30, 1999 3 Condensed Consolidated Statements of Operations - Three and Six Months Ended December 31, 1999 and 1998 4 Condensed Consolidated Statements of Cash Flows - Six Months Ended December 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 8 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 12 SIGNATURES 13 2 PART 1. FINANCIAL INFORMATION Item 1. Financial Statements BLIMPIE INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) December 31 June 30 1999 1999 -------- -------- Assets (Unaudited) (Note) Current assets: Cash and cash equivalents $ 6,315 $ 4,682 Investments 2,702 5,296 Accounts receivable, net 3,008 3,106 Prepaid expenses and other current assets 378 228 Deferred income taxes 85 85 Current portion of notes receivable 466 427 -------- -------- Total current assets 12,954 13,824 Property and equipment, net 1,756 1,749 Other assets: Notes receivable less current portion, net 923 1,009 Investments 972 981 Trademarks, net 8,366 8,434 Deferred income taxes 1,828 1,828 Other 648 433 -------- -------- Total other assets 12,737 12,685 -------- -------- $ 27,447 $ 28,258 ======== ======== Liabilities and Shareholders' Equity Current liabilities: Accounts payable and other current liabilities $ 2,878 $ 4,237 Income taxes payable 382 -- -------- -------- Total current liabilities 3,260 4,237 Deferred revenue, net 5,503 5,710 Trademark obligations -- 204 Shareholders' equity: Common stock, $.01 par value 96 96 Additional paid-in capital 9,028 8,818 Retained earnings 10,054 9,640 Net unrealized gain on marketable securities 2 40 -------- -------- 19,180 18,594 Treasury stock (436) (427) Subscriptions receivable (60) (60) -------- -------- Total shareholders' equity 18,684 18,107 -------- -------- $ 27,447 $ 28,258 ======== ======== Note: The condensed consolidated balance sheet at June 30, 1999 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 OPERATIONS (Unaudited)
Three months ended Six months ended (in thousands, except for per share amounts) December 31 December 31 1999 1998 1999 1998 -------- -------- -------- -------- Revenues Continuing fees $ 4,518 $ 4,537 $ 9,455 $ 9,337 Subfranchisor fees, master license fees and sale of franchises 862 1,350 1,970 2,469 Store equipment sales 1,448 2,482 3,546 5,074 License fees and other income 230 108 364 211 Company restaurant sales 133 107 258 107 -------- -------- -------- -------- 7,191 8,584 15,593 17,198 Expenses Subfranchisors' share of franchise and continuing fees 2,559 3,133 5,596 6,113 Store equipment cost of sales 1,191 2,048 3,080 4,432 Selling, general and administrative expenses 2,621 2,604 5,612 5,301 Company restaurant operations 155 116 276 116 -------- -------- -------- -------- 6,526 7,901 14,564 15,962 -------- -------- -------- -------- Operating income 665 683 1,029 1,236 Interest income 172 235 354 420 -------- -------- -------- -------- Income before income taxes and cumulative effect of change in accounting principle 837 918 1,383 1,656 Income taxes on income before cumulative effect of change in accounting principle 371 330 634 595 -------- -------- -------- -------- Income before cumulative effect of change in accounting principle 466 588 749 1,061 Cumulative effect on prior years (to June 30, 1998) of changing to a different subfranchisor and master license fee revenue recognition method (less tax benefit of $1,815) - Note 1 -- -- -- (3,373) -------- -------- -------- -------- Net income (loss) $ 466 $ 588 $ 749 $ (2,312) ======== ======== ======== ======== Basic and diluted earnings (loss) per share: Income before cumulative effect of change in accounting principle $ 0.05 $ 0.06 $ 0.08 $ 0.11 Cumulative effect of change in accounting principle -- -- -- (0.35) -------- -------- -------- -------- Net income (loss) $ 0.05 $ 0.06 $ 0.08 $ (0.24) ======== ======== ======== ======== Weighted average basic shares outstanding 9,498 9,484 9,484 9,491 ======== ======== ======== ======== Weighted average diluted shares outstanding 9,498 9,484 9,498 9,491 ======== ======== ======== ========
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 1999 1998 ------- ------- Cash Flows From Operating Activities Income before cumulative effect of change in accounting principle $ 749 $ 1,061 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization 415 372 Incentive stock granted 6 10 Changes in operating assets and liabilities: Accounts receivable 98 (645) Prepaid expenses and other current assets (150) (40) Other assets (215) (41) Notes receivable 47 179 Accounts payable and other current liabilities (1,359) 1,314 Income taxes payable 382 146 Deferred revenue, net (207) (591) ------- ------- Net cash (used in) provided by operating activities (234) 1,845 Cash Flows From Investing Activities Purchases of available-for-sale securities -- (1,553) Proceeds from sale of available-for-sale securities 2,567 1,608 Reinvested dividends of available-for-sale securities (2) -- Purchase of trademarks (81) (188) Purchases of property and equipment (273) (361) ------- ------- Net cash provided by (used in) investing activities 2,211 (494) Cash Flows From Financing Activities Purchases of treasury stock (9) (156) Cash dividends paid (335) (332) ------- ------- Net cash used in financing activities (344) (488) ------- ------- Net increase in cash and cash equivalents 1,633 863 Cash and cash equivalents at beginning of period 4,682 4,021 ------- ------- Cash and cash equivalents at end of period $ 6,315 $ 4,884 ======= =======
See notes to condensed consolidated financial statements. 5 Notes To Condensed Consolidated Financial Statements For the Six Months Ended December 31, 1999 (Unaudited) Note 1: Basis of Presentation 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, 1999 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, 1999 and the results of operations and cash flows for the period then ended. Results of operations for the period are not necessarily indicative of the results to be expected for the full year. As indicated in Note 2 to the Company's annual financial statements for the year ended June 30, 1999, the Company changed its methodology of accounting for fees relating to subfranchisor and master licensor territory sales to recognize such fees as revenue on a straight-line basis over a 10-year period, effective July 1, 1998. The Company considers the new revenue recognition methodology to result in a better matching of revenues and related expenses incurred in the earnings process related to such revenues. The amounts presented for the three and six months ended December 31, 1998 have been restated to give effect to the change in accounting principle. The effect of the change as of the beginning of the first quarter of fiscal 1999 (i.e., July 1, 1998) has been presented as a cumulative effect of a change in accounting principle, net of a $1,815,000 income tax benefit, of $3,373,000, and has been recorded as of such date. The effect of this change on operations for the first six months of fiscal 1999 was to increase income before cumulative effect of accounting change by $127,000, net of income taxes. In addition, certain other amounts have been reclassified to conform with the current year presentation. Primarily, expenses incurred by the Company and reimbursed by an advertising fund administered by the Company on behalf of franchisees were reclassified from management fees and other income to selling, general and administrative expenses. Such reimbursements are reflected as offsets to the related expenses. Note 2: 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) 1999 1998 1999 1998 ----- ----- ------ ------ Income before cumulative effect of change in accounting principle $ 466 $ 588 $ 749 $1,061 ===== ===== ====== ====== Calculation of weighted average shares outstanding plus assumed conversions: Weighted average basic shares outstanding 9,498 9,484 9,484 9,491 Effect of dilutive employee stock options -- -- 14 -- ----- ----- ------ ------ Weighted average diluted shares outstanding 9,498 9,484 9,498 9,491 ===== ===== ====== ====== Basic earnings per share $0.05 $0.06 $ 0.08 $ 0.11 ===== ===== ====== ====== Diluted earnings per share $0.05 $0.06 $ 0.08 $ 0.11 ===== ===== ====== ======
6 Note 3: Comprehensive Income (Loss) Comprehensive income (loss) consists of the following:
Three months ended Six months ended December 31 December 31 (in thousands) 1999 1998 1999 1998 ------- ------- ------- ------- Net income (loss) $ 466 $ 588 $ 749 $(2,312) Net unrealized (loss) gain on marketable securities (14) (34) (38) 57 ------- ------- ------- ------- Comprehensive income (loss) $ 452 $ 554 $ 711 $(2,255) ======= ======= ======= =======
Note 4: Segment Information Interim financial information by identifiable segments is as follows:
Three months ended (in thousands) December 31, 1999 December 31, 1998 ----------------------- ---------------------- Operating Operating Income Income Revenue (Loss) Revenue (Loss) -------- -------- -------- -------- Franchise operations: United States $ 5,483 $ 754 $ 5,795 $ 775 International 116 (88) 174 (175) Equipment and design 1,459 21 2,508 92 Company restaurant 133 (22) 107 (9) $ 7,191 665 $ 8,584 683 ======== ======== Interest income 172 235 -------- -------- Income before income taxes and cumulative effect of change in accounting principle $ 837 $ 918 ======== ========
Six months ended December 31, 1999 December 31, 1998 ----------------------- ---------------------- Operating Operating Income Income Revenue (Loss) Revenue (Loss) -------- -------- -------- -------- Franchise operations: United States $ 11,558 $ 1,300 $ 11,696 $ 1,509 International 208 (225) 284 (280) Equipment and design 3,569 (28) 5,111 16 Company restaurant 258 (18) 107 (9) -------- -------- -------- -------- $ 15,593 1,029 $ 17,198 1,236 ======== ======== Interest income 354 420 -------- -------- Income before income taxes and cumulative effect of change in accounting principle $ 1,383 $ 1,656 ======== ========
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. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors including, without limitation, our 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 our control referred to in the registration statements and periodic reports that we file with the Securities and Exchange Commission. Overview Our principal operations are centered around the Blimpie Subs & Salads chain of quick-service restaurants. As of December 31, 1999, there were 2,126 Blimpie locations franchised by us 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 us 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, our 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, we 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 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. As of December 31, 1999, there were five Maui Tacos outlets operating and six subfranchise territories operating. There also were four Pasta Central outlets operating, and a majority of the Blimpie subfranchisors had agreed to sell Pasta Central franchises in their territories. Finally, there were 40 Smoothie Island locations operating, all of which were located in Blimpie or Maui Tacos locations. As anticipated, each of the new brands was generating revenues for us as of December 31, 1999. We believe 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 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. 8 Results of Operations Three and Six Months Ended December 31, 1999 Compared with Three and Six Months Ended December 31, 1998 Our net income decreased 20.7% to $466,000 in the three months ended December 31, 1999 from $588,000 in the three months ended December 31, 1998. Our basic and diluted earnings per share decreased 16.7% to $0.05 per share in the three months ended December 31, 1999 from $0.06 per share in the three months ended December 31, 1998. Such decreases are attributable primarily to decreases in franchise fees and equipment sales, and an increase in selling, general and administrative expenses, all of which are discussed below. Our continuing fees derived from franchises decreased 0.4% to $4,518,000 in the three months ended December 31, 1999 from $4,537,000 in the three months ended December 31, 1998. This decrease resulted from a 3.2% increase in the number of open Blimpie outlets from 2,061 at December 31, 1998 to 2,126 at December 31, 1999, offset by a decrease in average unit volumes for existing Blimpie outlets. Continuing fees increased 1.3% to $9,455,000 in the six months ended December 31, 1999 from $9,337,000 in the six months ended December 31, 1998 due to an increase in the number of outlets, partially offset by a decrease in the average unit volumes per outlet. Subfranchisor fees, master license fees and fees from the sales and resales of franchises decreased 36.1% to $862,000 in the three months ended December 31, 1999 from $1,350,000 in the three months ended December 31, 1998. These revenues decreased 20.2% to $1,970,000 in the six months ended December 31, 1999 from $2,469,000 in the six months ended December 31, 1998. The following tables summarize the components of these fees for the three and six months ended December 31, 1999 and 1998: Three Months Ended December 31, (amounts in 000's) 1999 1998 Change ------ ------ ------ Amortization of deferred subfranchise and master license fees $ 387 $ 358 8.1% Franchise fees 392 860 -54.4% Resale and other fees 83 132 -37.1% ------ ------ ------ Total $ 862 $1,350 -36.1% ====== ====== ====== Six Months Ended December 31, (amounts in 000's) 1999 1998 Change ------ ------ ------ Amortization of deferred subfranchise and master license fees $ 774 $ 720 7.5% Franchise fees 980 1,519 -35.5% Resale and other fees 216 230 -6.1% ------ ------ ------ Total $1,970 $2,469 -20.2% ====== ====== ====== 9 The amortization of deferred subfranchise and master license fees for the three and six months ended December 31, 1999 were 8.1% and 7.5% higher, respectively, than the amortization for the same three and six month periods of the prior fiscal year, due primarily to amortization of deferred revenues related to the sales of new Maui Tacos subfranchise territories between the two periods. Franchise fees and resale fees were negatively impacted in the three and six months ended December 31, 1999 due to the Company not being able to sell franchises during the period from October 29, 1999 to early January 2000. As previously disclosed, we were unable to complete our audited financial statements for the year ended June 30, 1999 pending our determination of the most appropriate revenue recognition method for the subfranchise and master license fees discussed in the previous paragraph. Effective October 28, 1999, our franchise disclosure documents for most states expired, and could not be renewed until we were able to complete our audited financial statements. We are required to give these documents to potential franchisees before we can sell a franchise, so we were unable to sell franchises or assist with reselling most franchises for approximately two months during the past quarter. After our audited financial statements were completed, we were able to renew our various state disclosure documents, comply with the Federal Rule on franchising and then recommence our franchise sales operations. This situation contributed to lower revenues from franchise fees and resale fees during the three and six months ended December 31, 1999. Revenues from sales of franchises decreased 54.4% in the three months ended December 31, 1999 due primarily to a 61.9% decrease in new outlets opened, from 84 new outlets in the three months ended December 31, 1998 to 32 new outlets in the three months ended December 31, 1999. Revenues from sales of franchises decreased 35.5% in the six months ended December 31, 1999 due primarily to a 31.3% decrease in new outlets opened, from 166 new outlets in the six months ended December 31, 1998 to 114 new outlets in the six months ended December 31, 1999. The decreases in revenues were less than the decreases in the number of outlets opened due to increases in the franchise fee revenue per outlet , as well as the recognition of franchise fees for franchises sold but not opened after two years. Resale and other fees decreased 37.1% and 6.1% in the three and six months ended December 31, 1999, respectively, due to fewer outlets and subfranchise territories being transferred to new owners. Store equipment sales decreased 41.7% to $1,448,000 in the three months ended December 31, 1999 from $2,482,000 in the three months ended December 31, 1998. Store equipment sales decreased 30.1% to $3,546,000 in the six months ended December 31, 1999 from $5,074,000 in the six months ended December 31, 1998. These decreases were consistent with the 61.9% and 31.3% decreases in new outlets opened during the three and six months ended December 31, 1999, respectively, when compared to the same period of the prior fiscal year. The decrease in sales to Blimpie franchises was partially offset by higher sales per location due to Maui Tacos and co-branded Blimpie / Pasta Central sales, as well as an increase in sales to non-affiliates. License fees and other income for the three months ended December 31, 1999 increased 113.0% to $230,000 from $108,000 in the three months ended December 31, 1998. License fees and other income for the six months ended December 31, 1999 increased 72.5% to $364,000 from $211,000 in the six months ended December 31, 1998. These increases were due to greater license fees from the sale of Blimpie branded products, as well as royalties from the Canteen Vending Service Program. Company restaurant sales were $133,000 for the three months ended December 31, 1999 compared to $107,000 in the three months ended December 31, 1998. Company restaurant sales were $258,000 for the six months ended December 31, 1999 compared to $107,000 in the six months ended December 31, 1998. The increase in the three month period is due to an Island 10 Smoothie location that opened in October 1999. Island Smoothie is a stand-alone juice bar concept being developed initially in the Houston, Texas market. The increase in the six month period is due to both the Island Smoothie location, as well as the Maui Tacos location that opened in October 1998. We intend to continue to open and operate a limited number of Company-owned outlets for Maui Tacos, Island Smoothie, and possibly for co-branded Blimpie / Pasta Central / Smoothie Island locations. The Subfranchisors' shares of continuing and franchise fees decreased 18.3% to $2,559,000 in the three months ended December 31, 1999 from $3,133,000 in the three months ended December 31, 1998. The Subfranchisors' shares of continuing and franchise fees decreased 8.5% to $5,596,000 in the six months ended December 31, 1999 from $6,113,000 in the six months ended December 31, 1998. These decreases were due primarily to the decreases in franchise and resale fees in the related periods. Store equipment cost of sales decreased 41.8% to $1,191,000 in the three months ended December 31, 1999 from $2,048,000 in the three months ended December 31, 1998. Store equipment cost of sales decreased 30.5% to $3,080,000 in the six months ended December 31, 1999 from $4,432,000 in the six months ended December 31, 1998. These decreases were due to the related decreases in store equipment sales. The gross margin on store equipment sales increased to 17.7% in the three months ended December 31, 1999 from 17.5% in the three months ended December 31, 1998. The gross margin on store equipment sales increased to 13.1% in the six months ended December 31, 1999 from 12.7% in the six months ended December 31, 1998. The slight increases in the 1999 periods were due to a favorable product mix during the current year. Selling, general and administrative expense rose 0.7% to $2,621,000 in the three months ended December 31, 1999 from $2,604,000 in the three months ended December 31, 1998. Selling, general and administrative expense rose 5.9% to $5,612,000 in the six months ended December 31, 1999 from $5,301,000 in the six months ended December 31, 1998. The increase in the six month period was 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. We believe that the number of franchised outlets will continue to increase and the new brands will continue to require increased support as franchises and/or subfranchise territories are sold. Therefore, we expect selling, general and administrative expenses will continue to increase for at least the next year. Company restaurant operations increased by 33.6% to $155,000 in the three months ended December 31, 1999 from $116,000 in the three months ended December 31, 1998. Company restaurant operations increased by 137.9% to $276,000 in the six months ended December 31, 1999 from $116,000 in the six months ended December 31, 1998. The first Company-owned Maui Tacos outlet was opened in October 1998, and the first Company-owned Island Smoothie was opened in October 1999. The locations were not open for the full three- or six-month period in fiscal 1999, resulting in the increases between the periods. Interest income in the three months ended December 31, 1999 decreased by 26.8% to $172,000 from $235,000 in the three months ended December 31, 1998. Interest income in the six months ended December 31, 1999 decreased by 15.7% to $354,000 from $420,000 in the six months ended December 31, 1998. These decreases resulted from our sale of a portion of our U.S. Treasury notes in February 1999 in order to satisfy our remaining obligation for the purchase of the various international trademarks and service marks of the Blimpie brand in February 1997. The effective income tax rates (income taxes expressed as a percentage of pre-tax income) were 44.3% and 45.8%, respectively, in the three and six months ended December 31, 11 1999 and 35.9% excluding the impact of the change in accounting principle in the three and six months ended December 31, 1998. The increase in the effective rate was due to certain losses of our majority-owned subsidiary which may not be deductible for tax purposes in fiscal 2000. 12 Liquidity and Capital Resources Our cash used in operating activities was $234,000 in the six months ended December 31, 1999. We generated $1,845,000 in cash flows from operating activities in the six months ended December 31, 1998. The change between the two periods is due primarily to a decrease in accounts payable and other current liabilities and lower income before cumulative effect of change in accounting principle. Net cash provided by investing activities during the six months ended December 31, 1999 was $2,211,000. Net cash used in investing activities during the six months ended December 31, 1998 was $494,000. The change between the two periods is due primarily to proceeds from the sale of securities with no offsetting purchases in the current year. The proceeds in the current period were used to purchase investments with maturities of less than three months, so the investments have been included in cash and cash equivalents as of December 31, 1999. Net cash used in financing activities was $344,000 in the six months ended December 31, 1999 and $488,000 in the six months ended December 31, 1998. The decrease in the cash used in financing activities was due to fewer purchases of treasury stock in the current year period. We have recently implemented a stock repurchase program, and anticipate that purchases of treasury stock will increase during the remainder of fiscal 2000. The Company's primary liquidity needs arise from expansion, 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. 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 11, 2000 By: /s/ Brian D. Lane -------------------------------------- Brian D. Lane Vice President and Chief Financial Officer (Principal Financial Officer) 15 EX-27 2 FIANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Condensed Consolidated Balance Sheet at December 31, 1999 (Unaudited) and the Condensed Consolidated Statement of Operations for the six months ended December 31, 1999 (Unaudited) and is qualified in its entirety by reference to such financial statements. 1,000 6-MOS JUN-30-2000 JUL-01-1999 DEC-31-1999 6,315 3,674 3,481 473 0 12,954 3,822 2,066 27,447 3,260 0 0 0 96 18,588 27,447 15,593 15,593 8,952 8,952 5,612 0 0 1,383 634 749 0 0 0 749 0.08 0.08
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