The company's Blimpie¨ Subs & Salads grew continuing fees paid by franchisees by 9.3%; added 125 Blimpie restaurants; signed two international development agreements; expanded Blimpie brand products program to include wider distribution of chips and peppers; initiated the BUILD program (Blimpie Urban Initiative for Leadership Development) in conjunction with the Department of Housing and Urban Development.
Maui Tacos awarded five subfranchise agreements; opened its first unit in Atlanta, Georgia; signed leases for new locations in New York City, Delaware, and North Carolina; and won national awards from industry leaders for store design.
Meanwhile, Pasta Central opened three new locations and awarded nine new franchise agreements. The successful Smoothie Island chain opened 30 locations in 17 states and Puerto Rico, and awarded 61 franchise agreements.
Release of these results has been delayed by discussions initiated by the Company with the Staff of the SEC regarding a change in the Company's accounting policy for recording subfranchise and master license fee revenues. As a result of those discussions, the Company changed its policy to recognize these revenues on a straight-line basis over a ten-year period. The change has not resulted in a need to restate the Company's earnings for prior periods, but has necessitated a one-time charge, net of taxes, to fiscal 1999 earnings to record the cumulative effect of the change in accounting principle of $3,373,000. The amount of that charge has been recorded as deferred revenue, and is being recognized as subfranchise and master license fee revenues over a ten-year period. The release of the Company's fiscal year and fourth quarter financial results has been further delayed while it completed the calculations necessary to implement the change in accounting principle.
Revenues for the three months ended June 30, 1999 were $8,554,000, compared to $9,658,000 for the same quarter in the prior year. Net loss for the fourth quarter of 1999 was $435,000, or $0.05 per diluted share, compared to net income of $444,000, or $0.05 for the same period in the prior year.
Revenues from continuing fees, the ongoing fees paid by franchisees to Blimpie International, increased 7.3% to $5,092,000 for the quarter ended June 30, 1999, from $4,744,000 for the same period in the prior year driven by new restaurant openings. Revenues from subfranchisor fees, master license fees and the sale of franchises were $1,026,000 for the fourth quarter of 1999, compared with $1,720,000 for the same period in the prior year. Store equipment sales were $2,147,000 for the fourth quarter of 1999, compared to $3,184,000 for the same period in the prior year.
Revenues for fiscal year 1999 were $33,550,000, compared to $37,107,000 for the prior year. Net income before cumulative effect of change in accounting principle for fiscal year 1999 was $1,156,000, or $0.12 per diluted share, compared to $2,444,000 or $0.26 per diluted share for fiscal year 1998. Revenues from continuing fees increased 9.3% to $18,956,000 for fiscal year 1999, compared to $17,343,000 for fiscal year 1998.
Revenues from subfranchisor fees, master license fees and sale of franchises were $4,451,000 for fiscal year 1999, compared to $4,983,000 for the prior year. Store equipment sales for fiscal year 1999 were $9,328,000, compared to $14,374,000 for the prior year.
Revenue growth was affected during the fourth quarter by a decline in franchise fee, subfranchise fee, and master license fee income, as well as lower equipment sales. This decline was due mainly to decreased store openings, as well as an increased percentage of new concept store openings, which are associated with a lower franchise fee and a smaller equipment package. Selling, general and administrative expenses were higher in the quarter due to provisions, net of tax, of approximately $255,000 to increase the allowance for doubtful accounts, $325,000 for additional professional fees and legal settlements, $260,000 write-down of deferred franchise fees, and $100,000 write-off of start-up costs.
Vice president and chief financial officer Brian Lane commented, "We were not able to complete our financial statements for the past year while we determined, with the assistance of our independent auditors and the Staff of the Securities and Exchange Commission, the most appropriate means of recognizing fees we receive from the sale of subfranchise and master license territories. Because we did not file our Form 10-K when it became due, we were no longer in compliance with the continued listing guidelines of the American Stock Exchange, and the Exchange halted trading in our common stock. We have determined that we should change our accounting policy relating to these revenues and have completed all of the many computations necessary to effect the change. We expect to file our Form 10-K for the year ended June 30, 1999 and our Form 10-Q for the quarter ended September 30, 1999 in the next few days. Once the Exchange has reviewed these filings with respect to the Exchange's continued listing guidelines, we expect the Exchange will lift the trading halt and allow our common stock to resume trading."
Mr. Lane continued, "We hope that we're near the end of what has been a stressful two months for both our management and our shareholders. This delay in our filing and the resulting trading halt has caused a lot of concern within and outside of the company. We apologize for any inconvenience it has caused our shareholders. We believe this issue is now behind us, and that we can now return to normal operations. We would like to reiterate that this change in our accounting policy affects only the way in which we record these transactions in our financial statements and does not affect our operations, cash flows or financial condition.
"As a result of the change, we will record a loss for fiscal 1999 but will amortize the related deferred revenues into income over a ten-year period. Future subfranchise and master license fees which we collect also will be deferred and amortized into income over a ten-year period. The effect of the change on future periods will be to recognize a known amount of revenues based on past sales of subfranchises and master licenses.
"If those revenues exceed the fees we collect from new territory sales, the effect of the change in accounting principle will be to increase revenues for the period over the revenues which would have been recorded under the former accounting principle.
"Alternatively, if the fees we collect from new territory sales exceed the amounts recognized under the ten-year amortization of past and current sales of subfranchises and master licenses, the effect will be to decrease the revenues we would have reported had we not made the change in accounting principle. So, we are unable to predict at this time whether the change will increase or decrease revenues in future periods. We believe that some periods will reflect higher revenues and some will reflect lower revenues than if we had not changed our accounting principle."
"During the fourth quarter, we wrote off certain assets that may not have future value to the Company. Selling, general and administrative expense increased this quarter as we continue to invest in the new brands in order to ensure that we maximize the potential of each concept. The combination of these factors caused the Company to show a loss for the quarter of $0.05 per share, but we believe that the loss was due primarily to one-time charges in the quarter and expect to return to profitability in the quarter ended September 30, 1999."
Tony Conza, founder, chairman, and chief executive officer, added, "We see growth in the near future from several key areas. Increased marketing staff for new and existing Blimpie locations will help franchisees realize the full potential of their markets, increase same-store sales, and in turn, bolster continuing fee growth for the Company. The BUILD program has laid out the plans for the Blimpie brand to be one of the first quick-service restaurant concepts to expand into HUD designated empowerment zones and enterprise communities. International growth has shown positive momentum in the near term, and programs such as the Canteen Vending program and Blimpie and products such as potato chips and peppers should have a positive impact on the Blimpie brand through higher store sales and increased brand recognition."
Mr. Conza further commented, "While the internal changes we have made have been expensive to effectuate, the addition of three new brands holds exciting possibilities for the company. With locations open and operating in each of the three new brands and plans to continue growth, all the elements are in place to begin to see positive results from our New Wave…Toward a New Century initiative."
Headquartered in New York, with offices in Atlanta and Houston, Blimpie International, Inc. franchises Blimpie¨ Subs & Salads and Pasta Central(TM) and is the majority owner of Maui Tacos International, Inc., the franchisor of Maui Tacos(TM) and Smoothie Island(TM). Blimpie Subs & Salads, a quick- service sandwich chain, has more than 2,100 units operating in locations throughout the United States and in 13 other countries. Pasta Central is a quick service Italian food concept that addresses current eating trends for eat-in or take home meals. Maui Tacos offers a menu of "Maui-Mex(TM)" items, including traditional Mexican food marinated in Hawaiian spices. Smoothie Island offers a menu of blended beverages of frozen yogurt, fruit and nutritional supplements. The Company also owns the subsidiary B I Concept Systems, Inc., a professional design and equipment service company.
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