-----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, CrFCAxR267T+2qEjkusa8aPg7bjfUhalw+bkYmFU7KxheZxUeqp57N0anLQLU/XE TkgOH0eS1MwE4dZAirb+lQ== 0000897101-98-000530.txt : 19980513 0000897101-98-000530.hdr.sgml : 19980513 ACCESSION NUMBER: 0000897101-98-000530 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980328 FILED AS OF DATE: 19980512 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GROW BIZ INTERNATIONAL INC CENTRAL INDEX KEY: 0000908315 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-MISCELLANEOUS RETAIL [5900] IRS NUMBER: 411622691 STATE OF INCORPORATION: MN FISCAL YEAR END: 1226 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22012 FILM NUMBER: 98616792 BUSINESS ADDRESS: STREET 1: 4200 DAHLBERG DR CITY: GOLDEN VALLEY STATE: MN ZIP: 55422-4837 BUSINESS PHONE: 6125208500 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 28, 1998 Commission File Number 0-22012 GROW BIZ INTERNATIONAL, INC. (Exact Name of Registrant as Specified in Its Charter) Minnesota 41-1622691 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification Number) 4200 Dahlberg Drive Golden Valley, MN 55422-4837 (Address of Principal Executive Offices, Zip Code) Registrant's Telephone Number, Including Area Code 612-520-8500 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes: X No: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common stock, no par value, 5,981,853 shares outstanding as of April 30, 1998. GROW BIZ INTERNATIONAL, INC. INDEX PART I. FINANCIAL INFORMATION PAGE - -------------------------------------------------------------------------------- Item 1. Financial Statements (Unaudited) CONDENSED BALANCE SHEETS: March 28, 1998 and December 27, 1997 3 CONDENSED STATEMENTS OF OPERATIONS: Three Months Ended March 28, 1998 and March 29, 1997 4 CONDENSED STATEMENTS OF CASH FLOWS: Three Months Ended March 28, 1998 and March 29, 1997 5 NOTES TO CONDENSED FINANCIAL STATEMENTS 6 - 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 - 11 PART II. OTHER INFORMATION PAGE - -------------------------------------------------------------------------------- Items 1 through 5 have been omitted since all items are inapplicable or answers negative. Item 6. Exhibits and Reports on Form 8-K (a.) Exhibit Number: Description: ------- ------------ 27 Financial Data Schedule 99 Cautionary Statements (b.) Reports on Form 8-K -- None GROW BIZ INTERNATIONAL, INC. CONDENSED BALANCE SHEETS (UNAUDITED)
---------------------------------- March 28, 1998 December 27, 1997 ---------------------------------- ASSETS Current Assets: Cash and cash equivalents $ 5,020,500 $ 3,088,000 Trade receivables, less allowance for doubtful accounts of $1,007,500 and $880,000 12,530,500 12,880,700 Inventories 5,414,800 5,728,600 Prepaid expenses and other 1,841,800 1,987,300 Deferred income taxes 1,491,600 1,491,600 ----------- ----------- Total current assets 26,299,200 25,176,200 Notes receivable 206,700 184,000 Property and equipment, net 5,359,200 5,617,900 Other assets, net 6,641,400 6,776,500 ----------- ----------- $38,506,500 $37,754,600 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable 7,677,400 6,604,800 Accrued liabilities 3,826,500 3,781,500 Current maturities of long-term debt 2,134,200 2,061,400 Deferred franchise fee revenue 3,584,300 3,588,000 ----------- ----------- Total current liabilities 17,222,400 16,035,700 Long-Term Debt 3,483,300 4,268,200 Shareholders' Equity: Common stock, no par, 10,000,000 shares authorized, 5,976,103 and 6,002,214 shares issued and outstanding 7,134,100 7,474,900 Retained earnings 10,666,700 9,975,800 ----------- ----------- Total shareholders' equity 17,800,800 17,450,700 ----------- ----------- $38,506,500 $37,754,600 =========== ===========
The accompanying notes are an integral part of these financial statements GROW BIZ INTERNATIONAL, INC. CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
------------------------------------ Three Months Ended March 28, 1998 March 29, 1997 ------------------------------------ REVENUE: Merchandise sales $ 20,192,700 $ 14,379,100 Royalties 4,682,100 3,925,800 Franchise fees 515,300 533,000 Advertising and other 233,300 271,500 ------------ ------------ Total revenue 25,623,400 19,109,400 COST OF MERCHANDISE SOLD 16,622,100 12,660,000 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 7,825,700 5,623,100 ------------ ------------ Income from operations 1,175,600 826,300 INTEREST INCOME (EXPENSE) (39,200) 70,500 ------------ ------------ Income before income taxes 1,136,400 896,800 PROVISION FOR INCOME TAXES 445,500 351,600 ------------ ------------ NET INCOME $ 690,900 $ 545,200 ============ ============ NET INCOME PER COMMON SHARE - BASIC $ .12 $ .09 ============ ============ WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC 5,977,400 6,360,500 ============ ============ NET INCOME PER COMMON SHARE - DILUTED $ .11 $ .09 ============ ============ WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED 6,165,800 6,255,000 ============ ============
The accompanying notes are an integral part of these financial statements GROW BIZ INTERNATIONAL, INC. CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
-------------------------------- Three Months Ended March 28, 1998 March 29, 1997 -------------------------------- OPERATING ACTIVITIES: Net income $ 690,900 $ 545,200 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 517,700 468,900 Change in operating assets and liabilities: Trade receivables 327,400 (505,900) Inventories 313,800 (120,700) Prepaid expenses and other 145,400 (13,400) Accounts payable 1,072,600 2,028,100 Accrued liabilities 45,100 48,000 Deferred franchise fee revenue (3,700) 122,500 ----------- ----------- Net cash provided by operating activities 3,109,200 2,572,700 ----------- ----------- INVESTING ACTIVITIES: Increase in other assets (20,200) -- Purchases of property and equipment (103,700) (40,400) ----------- ----------- Net cash used for investing activities (123,900) (40,400) ----------- ----------- FINANCING ACTIVITIES: Payments on long-term debt (712,100) (36,300) Proceeds from stock option exercises 342,800 88,200 Repurchase of common stock (683,500) (628,800) ----------- ----------- Net cash used for financing activities (1,052,800) (576,900) ----------- ----------- INCREASE IN CASH AND CASH EQUIVALENTS 1,932,500 1,955,400 Cash and cash equivalents, beginning of period 3,088,000 1,388,800 ----------- ----------- Cash and cash equivalents, end of period $ 5,020,500 $ 3,344,200 =========== ===========
The accompanying notes are an integral part of these financial statements GROW BIZ INTERNATIONAL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS 1. MANAGEMENT'S INTERIM FINANCIAL STATEMENT REPRESENTATION: The accompanying condensed financial statements have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. The information in the condensed financial statements includes normal recurring adjustments and reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of such financial statements. Although the Company believes that the disclosures are adequate to make the information presented not misleading, it is suggested that these condensed financial statements be read in conjunction with the audited financial statements and the notes thereto included in the Company's latest Annual Report on Form 10-K. Revenues and operating results for the three months ended March 28, 1998 are not necessarily indicative of the results to be expected for the full year. 2. ORGANIZATION AND BUSINESS: Grow Biz International, Inc. (the `Company') offers licenses to operate retail stores using the service marks `Play it Again Sports', `Once Upon A Child', `Computer Renaissance', `Music Go Round', `Disc Go Round' and `It's About Games'. In addition, the Company sells inventory to its franchisees through its buying group and operates retail stores. The Company has a 52/53 week year which ends on the last Saturday in December. 3. SHAREHOLDERS' EQUITY: Since 1995, the Company's Board of Directors has authorized the repurchase of up to 2,000,000 shares of the Company's common stock on the open market. As of April 30, 1998, the Company had repurchased 1,523,856 shares of its stock at an average price of $9.42 per share, including 56,373 shares repurchased at an average price of $12.13 per share in the three months ended March 28, 1998. 4. LITIGATION: In connection with an action filed by an early partner in the original Play It Again Sports store, the Company received a court ruling in February 1998 on a motion filed by the plaintiff stating that an enforceable settlement agreement existed between the two parties. The Company has appealed the order which requires the Company to pay $2.0 million to purchase certain development rights held by the plaintiff from a 1992 agreement. The order further directed that all claims between the parties be dismissed. The Company recognized the entire $2.0 million as a non-operating expense in the year ended December 27, 1997. 5. NET INCOME PER COMMON SHARE: The Company calculates net income per share in accordance with FASB Statement No. 128 by dividing net income by the weighted average number of shares of common stock outstanding to arrive at the Net Income Per Common Share - Basic. The Company calculates Net Income Per Share - Dilutive by diving net income by the weighted average number of shares of common stock and dilutive stock equivalents from the exercise of stock options and warrants using the treasury stock method. ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. GENERAL Grow Biz International, Inc., (the Company) is a franchise company that franchises six retail concepts which buy, sell, trade and consign merchandise. Each concept operates in a different industry and provides the consumer with `ultra-high value' retailing by offering quality used merchandise at substantial savings from the price of new merchandise and by purchasing customers' used goods that have been outgrown or are no longer used. The stores also offer new merchandise to supplement their selection of used goods. Following is a summary of the Company's franchising and corporate retail store activity for the six retail concepts for the three months ended March 28, 1998:
------------------------------------------------------------------------------- TOTAL OPENED/ TOTAL 12/27/97 PURCHASED CLOSED CONVERTED 3/28/98 ------------------------------------------------------------------------------- Play It Again Sports(R) Franchised Stores - US and Canada 654 5 (17) 0 642 Franchised Stores - Other International 8 0 0 0 8 Corporate 5 0 0 0 5 Other 22 0 0 0 22 Once Upon A Child(R) Franchised Stores - US and Canada 204 2 (3) (1) 202 Corporate 4 0 0 1 5 Computer Renaissance(R) Franchised Stores - US and Canada 180 10 0 0 190 Corporate 7 0 0 0 7 Music Go Round(R) Franchised Stores - US and Canada 38 1 0 0 39 Corporate 4 0 0 0 4 Disc Go Round(R) Franchised Stores - US and Canada 132 4 (1) 0 135 Corporate 3 0 0 0 3 It's About Games(TM) Franchised Stores - US and Canada 0 1 0 0 1 Corporate 42 0 0 0 42 ------------------------------------------------------------------------------- Total 1,303 23 (21) 0 1,305 ===============================================================================
In April 1998, the Company announced the acquisition of certain assets and franchising rights of Tool Traders, Inc. of Detroit, Michigan. The Company paid $380,200 plus a percentage of future royalties for a period of seven years. Tool Traders stores buy, sell and trade used and new tools. The Company anticipates opening Company-owned stores in the Minneapolis/Saint Paul markets and will begin franchising the concept under the name ReTool(TM) during the second half of 1998. ReTool(TM) is the seventh franchise concept for Grow Biz International, Inc. FACTORS THAT MAY AFFECT FUTURE RESULTS The statements made in this report that are not historical facts are forward looking statements. Such statements are based on current expectations but involve risks, uncertainties and other factors which may cause actual results to differ materially from those contemplated by such forward looking statements. Important factors which may result in variations from results contemplated by such forward looking statements include, but are not limited to: (1) the Company's ability to attract qualified franchisees; (2) the Company's ability to collect its receivables; (3) the Company's ability to open stores; (4) each store's ability to acquire high-quality, used merchandise; (5) the Company's ability to control selling, general and administrative expenses; and (6) the Company's ability to obtain competitive financing to fund its growth. The Company's strategy focuses on enhancing revenues and profits at all store locations and the opening of additional stores. The Company's growth strategy is premised on a number of assumptions concerning trends in each of the retail industries as well as trends in franchising and the economy. To the extent that the Company's assumptions with respect to any of these matters are inaccurate, its results of operations and financial condition could be adversely affected. RESULTS OF OPERATIONS The following table sets forth for the periods indicated, certain income statement items as a percentage of total revenue and the percentage change in the dollar amounts from the prior period:
------------------------------------------------- Three Months Ended First Quarter March 28, March 29, 1998 over (under) 1998 1997 First Quarter 1997 -------------------------------------------------- Revenue: Merchandise sales 78.8% 75.2% 40.4% Royalties 18.3 20.5 19.2 Franchise fees 2.0 2.8 (3.3) Advertising and other 0.9 1.5 (14.1) ----- ----- ----- Total revenues 100.0% 100.0% 34.1% Cost of merchandise sold 64.9 66.3 31.3 Selling, general and administrative expenses 30.5 29.4 39.2 ----- ----- ----- Income from operations 4.6 4.3 42.3 Interest and other income (expense), net 0.2 0.4 (155.6) ----- ----- ----- Income before income taxes 4.4 4.7 26.7 Provision for income taxes 1.7 1.8 26.7 ----- ----- ----- Net income 2.7% 2.9% 26.7% ===== ===== =====
COMPARISON OF THREE MONTHS ENDED MARCH 28, 1998 TO THREE MONTHS ENDED MARCH 29, 1997 REVENUES Revenues for the quarter ended March 28, 1998 totaled $25.6 million compared to $19.1 million for the comparable period in 1997. Merchandise sales increased to $20.2 million for the three months ended March 28, 1998 from $14.4 million for the same period in 1997. Merchandise sales consist of the sale of product to franchisees through the buying group and retail sales at the Company-owned stores. For the first quarter of 1998 and 1997 they were as follows: 1998 1997 ----------- ----------- Buying Group $11,782,200 $11,206,300 Retail Sales 8,410,500 3,172,800 ----------- ----------- Merchandise Sales $20,192,700 $14,379,100 =========== =========== Buying group revenues increased 5.1% for the three months ended March 28, 1998 compared to the same period last year. It is anticipated that 1998 buying group revenues will be consistent with the prior year. Retail store sales increased $5.2 million, or 165.1%, in the first three months of 1998 compared to 1997 as a result of acquiring forty Video Game Exchange, Inc. (VGE) stores in August 1997. Retail sales are expected to continue to increase as the Company opens an additional twenty-five Company-owned stores in 1998. It is anticipated the total number of Company-owned stores will be over eighty-five by the end of 1998. Royalties increased to $4.7 million for the first quarter of 1998 from $3.9 million for the same period in 1997, primarily due to the expanding base of franchise stores and increases in comparable store sales. Franchise fees recognized for store openings were consistent with the prior year. Store openings for the twelve months ended December 26, 1998 are anticipated to be consistent with the same period in 1997. COST OF MERCHANDISE SOLD Cost of merchandise sold includes the cost of merchandise sold through the buying group and at Company-owned retail stores. Cost of merchandise sold as a percentage of the related revenue was consistent with the previous year as shown in the following table: 1998 1997 ---- ---- Buying Group 96.1% 95.0% Retail Stores 63.1 63.5 SELLING, GENERAL AND ADMINISTRATIVE The $2.2 million, or 39.2%, increase in operating expenses in the first three months of 1998 compared to the same period in 1997 is primarily due to the costs related to operating the Video Game Exchange, Inc. stores acquired in August 1997. Selling, general and administrative expenses as a percent of revenues increased slightly. During the first quarter of 1998, the Company had a net interest expense of $39,200 compared to net interest income of $70,500 in the first quarter of 1997. This decrease is primarily the result of the interest expense incurred on the notes payable related to the Video Game Exchange, Inc. acquisition. LIQUIDITY AND CAPITAL RESOURCES The Company ended the period with $5.0 million in cash and had a current ratio of 1.5 to 1.0. During the three months ended March 28, 1998, the Company's operating activities provided $3.1 million of cash. This increase in cash available from operations, other than net income and depreciation, is primarily due to working capital management activities that include a $1.1 million increase in payables, a $327,400 decrease in receivables and a $313,800 decrease in inventory. The Company's $1.1 million use of cash for financing activities in the first three months of 1998 was due to note payable payments and the repurchase of 56,373 shares of the Company's common stock offset by cash received from the exercise of options and warrants to purchase 48,312 shares of the Company's common stock. The Company has a $5.0 million committed revolving line of credit agreement which is due for renewal on July 31, 1998. Borrowings against the line carry an interest rate of prime which was 8.5% at March 28, 1998. The available line is reduced by a $2.0 million letter of credit issued by the Company in March 1998 in connection with its appeal of a court ruling on a motion in the Van Buskirk litigation matter. The Company believes that its current cash position, cash generated from future operations, availability of line of credit borrowings and additional capacity for debt will be adequate to meet the Company's current obligations and operating needs. 2. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GROW BIZ INTERNATIONAL, INC. By: /s/ Ronald G. Olson ---------------------- Ronald G. Olson Date: May 11, 1998 President and Chief Executive Officer By: /s/ David J. Osdoba, Jr. ------------------------ David J. Osdoba, Jr. Date: May 11, 1998 Vice President of Finance and Chief Financial Officer EX-99 2 CAUTIONARY STATEMENTS Exhibit 99 GROW BIZ INTERNATIONAL, INC. CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT Grow Biz International, Inc. (the "Company") desires to take advantage of the new "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 and is filing this Exhibit to its Quarterly Report on Form 10-Q in order to do so. When used in this Quarterly Report on Form 10-Q and in future filings by the Company with the Securities and Exchange Commission in the Company's annual report, quarterly reports, press releases and in oral statements made with the approval of an authorized executive officer, the words or phrases "will likely result", "look for", "may result", "will continue", "is anticipated", "expect", "project" or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company cautions readers that the following important factors, among others, could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from any forward-looking statements made by, or on behalf of, the Company: DEPENDENCE ON NEW FRANCHISEES The Company's ability to generate increased revenue and achieve higher levels of profitability depends on increasing the number of franchised stores open. While management believes that a number of major metropolitan markets have reached or are nearing the saturation point for certain concepts, management also believes that many larger and smaller markets will continue to provide significant opportunities for sales of franchises and that the Company can sustain approximately its current annual level of store openings. However, there can be no assurance that the Company will sustain this level of store openings. INABILITY TO COLLECT ACCOUNTS RECEIVABLE In the event that the Company's ability to collect accounts receivable significantly declines from current rates, additional charges that affect earnings may be incurred. UNOPENED STORES The Company believes that a substantial majority of stores sold but not opened will open within the time period permitted by the applicable franchise agreement or the Company will be able to resell the territories for most of the terminated or expired franchises. However, there can be no assurance that substantially all of the currently sold but unopened franchises will open and commence paying royalties to the Company. To the extent the Company is required to refund any franchise fees for stores that do not open, the Company believes that it will be able to repay these fees out of available cash. DEPENDENCE ON SUPPLY OF USED MERCHANDISE The Company's store concepts are based on offering customers a mix of used and new merchandise. As a result, obtaining continuing supplies of high quality used merchandise is essential to the success of the Company's store concepts. To date, supplies of used merchandise have been adequate and the Company's training programs emphasize methods for locating and purchasing used goods. There can be no assurance, however, that supply problems will not be encountered in the future. COMPETITION Retailing, including the sale of sporting goods, children's apparel, computer equipment, compact disks and musical instruments, is highly competitive. Many retailers have significantly greater financial and other resources than the Company and its franchisees. Individual franchisees face competition in their markets from retailers of new merchandise and, in certain instances, resale, thrift and other stores that sell used merchandise. To date, the Company's franchisees and its Company-owned stores have not faced a high degree of competition in the sale of used merchandise. However, the Company may face additional competition as its franchise systems expand and additional competitors may enter the used merchandise market. S, G & A EXPENSE The Company's ability to control the amount, and rate of growth in, selling, general and administrative expenses; and the impact of unusual items resulting from the Company's ongoing evaluation of its business strategies, asset valuations and organizational structures. FINANCING The Company's ability to obtain competitive financing to fund its growth. QUARTERLY FLUCTUATIONS The Company's quarterly results of operations have fluctuated as a result of the timing of recognition of franchise fees, receipt of royalty payments, timing of merchandise shipments, timing of expenditures and other factors. There can be no assurance that results in future periods will not fluctuate on a quarterly basis. GOVERNMENT REGULATION As a franchisor, the Company is subject to various federal and state franchise laws and regulations. Although the Company believes it is currently in material compliance with existing federal and state laws, there is a trend toward increasing government regulation of franchising. The promulgation of new franchising laws and regulations could adversely affect the Company. The Company does not undertake and specifically declines any obligations to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. EX-27 3 ART. 5 FDS FOR 1ST QTR 10Q
5 1,000 3-MOS DEC-26-1998 MAR-28-1998 5,021 0 13,745 (1,008) 5,415 26,299 9,818 (4,459) 38,507 17,222 0 7,134 0 0 10,667 38,507 20,193 25,623 16,222 24,448 0 196 39 1,136 446 691 0 0 0 691 .12 .11
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