<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
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 0-9812
GREASE MONKEY HOLDING CORPORATION
Utah 87-0321320
216 16th Street Mall, Suite 1100
Denver, Colorado 80202
Registrant's Telephone Number Is (303) 534-1660
Check whether 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
----- -----
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
Outstanding at
Class May 1, 1995
----------------------------- ------------
Common Stock, $0.03 par value 4,359,379 shares
Transitional Small Business Disclosure Format Yes No X
----- -----
<PAGE>
GREASE MONKEY HOLDING CORPORATION
COMMISSION FILE NUMBER: 0-9812
QUARTER ENDED MARCH 31, 1995
FORM 10-QSB
PART I FINANCIAL INFORMATION
Consolidated Statements of Operations . . . . . . . . Page 1
Consolidated Balance Sheets . . . . . . . . . . . . . Page 2
Consolidated Statements of Stockholders'
Equity. . . . . . . . . . . . . . . . . . . . . . . Page 4
Consolidated Statements of Cash Flows . . . . . . . . Page 5
Notes to Consolidated Financial Statements. . . . . . Page 8
Management's Discussion and Analysis or Plan
of Operation. . . . . . . . . . . . . . . . . . . . Page 10
PART II OTHER INFORMATION
Legal Proceedings . . . . . . . . . . . . . . . . . . Page 15
Exhibits and Reports on Form 8-K. . . . . . . . . . . Page 16
Signatures. . . . . . . . . . . . . . . . . . . . . . Page 17
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------------
1995 1994
---------------- ----------------
REVENUE:
- --------
<S> <C> <C>
Royalty fees . . . . . . . . . . . . $ 788,405 676,585
Franchise sales - center openings. . 157,000 33,844
Franchise sales - unopened licenses
canceled, net. . . . . . . . . . . 4,000 9,243
Product and equipment revenue. . . . 362,936 287,248
Sales by Company-owned centers . . . 2,846,681 2,980,885
Rent and interest income related to
operating and capital leases . . . 348,773 451,328
Interest income. . . . . . . . . . . 9,642 14,976
Other. . . . . . . . . . . . . . . . 67,356 19,212
---------------- ----------------
4,584,793 4,473,321
EXPENSES:
- ---------
General and administrative
expenses . . . . . . . . . . . . . 922,313 947,265
Franchise costs recognized - center
openings . . . . . . . . . . . . . 36,284 6,637
Product and equipment costs. . . . . 242,357 175,107
Company-owned centers. . . . . . . . 2,991,466 2,999,991
Rent and interest expenses related to
operating and capital leases . . . 351,060 422,107
Provision for credit losses. . . . . 22,500 21,497
Litigation award and related
interest . . . . . . . . . . . . . 5,621 5,204
Interest expense . . . . . . . . . . 2,731 22,678
---------------- ----------------
4,574,332 4,600,486
---------------- ----------------
NET INCOME (LOSS). . . . . . . . . . . $ 10,461 (127,165)
---------------- ----------------
---------------- ----------------
EARNINGS (LOSS) PER COMMON SHARE . . . $ * (0.03)
---------------- ----------------
---------------- ----------------
AVERAGE SHARES OUTSTANDING . . . . . . 4,334,176 4,259,828
---------------- ----------------
---------------- ----------------
<FN>
* Less than $.01 per share.
</TABLE>
(UNAUDITED)
1
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
ASSETS ---------------- ----------------
- ------
<S> <C> <C>
CURRENT ASSETS:
Cash . . . . . . . . . . . . . . . . $ 62,248 256,631
Restricted cash including
certificates of deposit. . . . . . 310,630 465,783
Accounts receivable, net of
allowance for doubtful accounts
of $329,621 at March 31, 1995, and
$309,394 at December 31, 1994. . . 989,916 867,062
Current portion of notes
receivable, net of allowance for
uncollectible amounts. . . . . . . 133,370 134,181
Current portion of net investment
in direct financing leases . . . . 204,384 195,302
Inventories. . . . . . . . . . . . . 712,379 733,736
Prepaid expenses and supplies. . . . 173,179 125,027
---------------- ----------------
TOTAL CURRENT ASSETS . . . . . . . 2,586,106 2,777,722
---------------- ----------------
PROPERTY AND EQUIPMENT,
AT COST, PLEDGED:
Land . . . . . . . . . . . . . . . . 152,079 152,079
Buildings (including buildings
under capital leases). . . . . . . 5,268,460 5,268,460
Furniture and fixtures . . . . . . . 466,754 511,806
Leasehold improvements . . . . . . . 633,350 617,484
Machinery and equipment . . . . . . 1,390,475 1,414,961
---------------- ----------------
7,911,118 7,964,790
Less accumulated depreciation and
amortization . . . . . . . . . . . (2,788,970) (2,680,599)
---------------- ----------------
NET PROPERTY AND EQUIPMENT . . . . . 5,122,148 5,284,191
---------------- ----------------
OTHER ASSETS:
Net investment in direct financing
leases . . . . . . . . . . . . . . 3,490,073 3,543,750
Notes receivable, net of allowance
for uncollectible amounts. . . . . 154,040 116,168
Deferred franchising costs . . . . . 183,100 198,854
Goodwill and covenants not to
compete, net of accumulated
amortization of $634,992 at
March 31, 1995, and $621,855
at December 31, 1994 . . . . . . . 1,079,562 1,110,152
Real estate held for sale. . . . . . 173,500 173,500
Other assets, net of accumulated
amortization of $94,425 at
March 31, 1995, and $108,147 at
December 31, 1994. . . . . . . . . 142,391 141,805
---------------- ----------------
TOTAL OTHER ASSETS . . . . . . . . . 5,222,666 5,284,229
---------------- ----------------
$ 12,930,920 13,346,142
---------------- ----------------
---------------- ----------------
</TABLE>
(UNAUDITED)
(continued on next page)
2
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
- ------------------------------------ ---------------- ----------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . $ 796,287 958,023
Accrued salaries and wages . . . . . 167,483 176,065
Other accrued liabilities. . . . . . 344,575 319,351
Current portion of long-term debt. . 313,710 320,315
Current portion of obligations
under capital leases . . . . . . . 322,486 307,669
Reserve for litigation award . . . . 303,711 298,091
---------------- ----------------
TOTAL CURRENT LIABILITIES. . . . . 2,248,252 2,379,514
---------------- ----------------
LONG-TERM DEBT . . . . . . . . . . . . 1,390,026 1,465,938
OBLIGATIONS UNDER CAPITAL
LEASES . . . . . . . . . . . . . . . 6,662,200 6,746,748
DEFERRED FRANCHISE SALES
REVENUE. . . . . . . . . . . . . . . 878,663 1,009,663
STOCKHOLDERS' EQUITY:
Series C Preferred stock, issued and
outstanding 21,146 shares and 22,205
shares at March 31, 1995 and
December 31, 1994, respectively,
stated value of $100.00 . . . . . . 2,114,638 2,220,500
Common stock, par value $.03,
10,000,000 shares authorized,
4,350,403, and 4,305,359, shares
issued and outstanding at March 31,
1995 and December 31, 1994,
respectively . . . . . . . . . . . 130,512 129,161
Capital in excess of par value . . . 5,808,932 5,707,382
Accumulated deficit. . . . . . . . . (6,302,303) (6,312,764)
---------------- ----------------
TOTAL STOCKHOLDERS' EQUITY. . . . 1,751,779 1,744,279
Commitments and Contingencies. . . . .
---------------- ----------------
$ 12,930,920 13,346,142
---------------- ----------------
---------------- ----------------
</TABLE>
(UNAUDITED)
3
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Stock Common Stock
---------------------------------- -------------------------------------
Capital in
Number of Subscriptions Number of Excess of Accumulated
Shares Amount Receivable Shares Amount Par Value Deficit Total
--------- --------- --------- --------- --------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1993 . . . 9,360 $ 936,000 789,000 4,253,691 $ 127,611 5,765,475 (6,452,330) 1,165,756
Issuance of common
stock pursuant to
employee benefit plan . - - - 12,981 389 29,131 - 29,520
Issuance of Series C
Preferred stock, net
of offering costs . . . 13,000 1,300,000 (789,000) - - (162,100) - 348,900
Conversion of Series C
Preferred stock to
common stock, including
payment of accumulated
dividends . . . . . . . (155) (15,500) - 6,199 186 14,412 - (902)
Issuance of common stock,
pursuant to the
cancellation of
undeveloped franchise
licenses . . . . . . . - - - 11,200 336 19,264 - 19,600
Issuance of common stock
upon exercise of employee
stock options . . . . . - - - 30,000 900 60,540 - 61,440
Common stock reacquired
and canceled . . . . . - - - (8,712) (261) (19,340) - (19,601)
Net income . . . . . . . - - - - - - 139,566 139,566
--------- --------- --------- --------- --------- --------- --------- ---------
Balance at December 31,
1994 . . . . . . . . . 22,205 2,220,500 - 4,305,359 129,161 5,707,382 (6,312,764) 1,744,279
Issuance of common stock
pursuant to employee
benefit plan. . . . . . - - - 2,701 81 5,658 - 5,739
Conversion of Series C
Preferred stock to
common stock, including
payment of accumulated
dividends . . . . . . . (1,059) (105,862) - 42,343 1,270 95,892 - (8,700)
Net income . . . . . . . . - - - - - - 10,461 10,461
--------- --------- --------- --------- --------- --------- --------- ---------
Balance at March 31,
1995. . . . . . . . . . 21,146 $2,114,638 - 4,350,403 $ 130,512 5,808,932 (6,302,303) 1,751,779
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
</TABLE>
(UNAUDITED)
4
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------------
1995 1994
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) . . . . . . . . . . . $ 10,461 (127,165)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Increase in deferred franchise
sales revenue. . . . . . . . . . . . 30,000 136,000
Franchise sales revenue recognized-
center openings. . . . . . . . . . . (157,000) (33,844)
Franchise sales revenue recognized-
unopened licenses canceled, net. . . (4,000) (9,243)
Increase in deferred franchising
costs . . . . . . . . . . . . . . . (20,530) (28,531)
Reduction in deferred franchising
costs. . . . . . . . . . . . . . . . 36,284 6,637
Provision for credit losses . . . . . 22,500 21,497
Net loss realized on retirement of
property and equipment . . . . . . . 11,132 -
Depreciation and amortization . . . . 198,785 216,577
Provision for litigation award. . . . 5,621 5,204
Payments on settlement agreement . . - (420,000)
Loss on settlement agreement. . . . . - 11,951
Loss on sale of centers . . . . . . . 20,159 -
Other, net . . . . . . . . . . . . . - (10,047)
Change in assets and liabilities:
Increase in accounts receivable. . . (189,459) (116,798)
(Increase) decrease in notes
receivable. . . . . . . . . . . . . 12,542 (29,623)
Decrease in inventories. . . . . . . 17,106 28,733
(Increase) decrease in prepaid
expenses and supplies . . . . . . . (48,152) 95,635
Decrease in accounts payable . . . . (161,735) (7,612)
Increase in accrued salaries and
wages and other liabilities . . . . 22,381 53,936
---------------- ----------------
NET CASH USED IN
OPERATING ACTIVITIES. . . . . . . . . . $ (193,905) (206,693)
---------------- ----------------
</TABLE>
(UNAUDITED)
(continued on next page)
5
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------------
1995 1994
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM INVESTING
ACTIVITIES:
Principal receipts on direct
financing leases . . . . . . . . . . . $ 44,595 51,270
Capital expenditures. . . . . . . . . . (29,992) (38,606)
Increase in other assets. . . . . . . . (9,286) (8,967)
---------------- ----------------
NET CASH PROVIDED BY
INVESTING ACTIVITIES. . . . . . . . 5,317 3,697
---------------- ----------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Payments on notes payable to a
related party. . . . . . . . . . . . . - (378,000)
Principal payments on long-term debt. . (82,517) (120,461)
Principal payments on capital lease
obligations. . . . . . . . . . . . . . (72,232) (96,481)
Issuance of preferred stock, net
of offering costs. . . . . . . . . . . - 1,165,587
Payment of accumulated dividends
upon conversion of preferred stock
to common stock. . . . . . . . . . . . (8,700) -
Decrease (increase) in restricted
cash . . . . . . . . . . . . . . . . . 155,154 (1,770)
Increase in lease deposit obligations . 2,500 -
---------------- ----------------
NET CASH FLOWS PROVIDED
BY (USED IN) FINANCING
ACTIVITIES. . . . . . . . . . . . (5,795) 568,875
---------------- ----------------
NET INCREASE (DECREASE) IN CASH. . . . . (194,383) 365,879
CASH, beginning of period. . . . . . . . 256,631 13,096
---------------- ----------------
CASH, end of period. . . . . . . . . . . $ 62,248 378,975
---------------- ----------------
---------------- ----------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the
period for interest . . . . . . . . . $ 218,459 277,922
---------------- ----------------
---------------- ----------------
</TABLE>
(UNAUDITED)
(continued on next page)
6
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
The following table sets forth, by period, the amount and nature of
amounts received for the sale (refranchising) of Company-owned Centers.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1995 1994*
------------- ----------------
<S> <S> <C>
SALES:
Number of Centers refranchised . . . . . . 1
--------
--------
Notes received . . . . . . . . . . . . . . $ 5,500
Loss on sale . . . . . . . . . . . . . . . 20,159
--------
Cost of assets sold . . . . . . . . . . . . $ 25,659
--------
--------
<FN>
* There were no centers refranchised by the Company during the three months
ended March 31, 1994.
</TABLE>
During the quarters ended March 31, 1995 and 1994, non-cash transactions
consisted of the Company issuing 2,701 and 3,961 shares of stock at an average
value of $2.12 and $2.00 per share respectively, in accordance with its matching
requirement under the Company's 401(k) plan.
(UNAUDITED)
7
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of management, all adjustments, consisting only of normal
recurring adjustments necessary for a fair statement of (a) the results of
operations for the three-month periods ended March 31, 1995, and March 31,
1994, (b) the financial position at March 31, 1995, (c) the statements of
cash flows for the three-month periods ended March 31, 1995 and 1994, and
(d) the changes in stockholders' equity at March 31, 1995, have been made.
2. The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting
principles for financial statements. For further information, refer to the
audited consolidated financial statements and notes thereto for the year
ended December 31, 1994, included in the Company's Form 10-KSB filed with
the Securities and Exchange Commission on March 24, 1995.
3. The results for the three-month period ended March 31, 1995, are not
necessarily indicative of the results to be expected for the entire fiscal
year of 1995.
4. STOCKHOLDERS' EQUITY
On February 28, 1994, and March 15, 1994, the Company issued a total of
13,000 shares of Series C Preferred stock for $1,300,000, of which $789,000
was subscribed to as of December 31, 1993.
The Series C, 6% cumulative, preferred stock is redeemable at the option of
the Company upon 60 days prior written notice after December 31, 1996. At
the option of the holder, at any time prior to the close of business on the
redemption date, each share of Series C Preferred stock, plus any
accumulated unpaid dividends, may be converted into shares of common stock
at a conversion price of $2.50 per share of common stock. On March 31,
1995, accumulated unpaid dividends totaled $156,410.
The company has an employee deferred compensation 401(k) plan and matches
employee contributions to this plan in an amount equal to 50% of the
employees' contribution, up to a maximum of 6% of the employees'
compensation. The Company's contribution is paid with its $0.03 par value
common stock (net of forfeitures) valued at market on the date of the
contribution. During the first quarter of 1995 and 1994, the Company
contributed 2,701 and 3,961 shares to this plan at an average of $2.12 and
$2.00 per share, respectively.
(continued)
8
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. EARNINGS (LOSS) PER SHARE
Primary earnings (loss) per share is determined based on the number of
common and common equivalent shares outstanding and is adjusted for the
assumed conversion of shares issuable upon exercise of options and
warrants, after the assumed repurchase of common shares with the related
proceeds (anti-dilutive for the periods presented). Earnings (loss) per
share for all periods was computed after reduction for preferred stock
dividends ($31,873 in 1995 and $20,555 in 1994). The assumed conversion of
preferred stock was also anti-dilutive.
6. COMMITMENTS AND CONTINGENCIES
The Company leases Grease Monkey Center sites under capital lease
agreements. These sites are either subleased to franchisees or operated as
Company-owned Centers. The typical lease period is 15 to 20 years and some
leases contain renewal options. These leases are accounted for as capital
leases and are capitalized using interest rates appropriate at the
inception of each lease.
On February 28, 1991, a Verified Complaint in Replevin and for Restitution
or Damages was filed in the District Court of Denver, State of Colorado,
entitled NICK MONTOYA AND AVER MONTOYA V. GREASE MONKEY HOLDING
CORPORATION, GREASE MONKEY INTERNATIONAL, INC., GM PROPERTIES, INC.,
PHOENIX EQUITY CORPORATION, ARTHUR P. SENSENIG, EDITH SENSENIG, AND JOHN R.
HOLZMAN, Civil Action No. 91 CV 1778. Plaintiffs are elderly persons who
allegedly loaned to Arthur P. Sensenig, the former President and Director
of the Company and GMI, the approximate sum of $450,000. Plaintiffs
asserted claims against the Company, GMI and GM Properties for unjust
enrichment, fraud, statutory theft against the elderly, fraudulent
conveyance, conspiracy and vicarious liability for the acts of Mr.
Sensenig. On June 3, 1992, the Court entered a judgment against the Company
in the amount of $241,679, plus statutory interest to accrue from June 4,
1992. As of March 31, 1995, interest in the amount of $62,032 has accrued.
The Company filed an appeal in this matter which was heard by the Colorado
Court of Appeals ("Appeals Court") on December 21, 1993. The Appeals Court
upheld the District Court decision in an opinion dated January 13, 1994.
The Company filed a Petition for Certiorari to the Colorado Supreme Court
which was granted on November 7, 1994. Counsel for the plaintiffs filed a
motion for an Order for Expedited Determination which was issued by the
court on April 13, 1995. Oral arguments are set for May 22, 1995. The
Company has recorded a reserve for the full judgment amount and continues
to reserve for the related interest.
The Company is a party to other legal proceedings including claims by
franchisees against the Company that arise in the ordinary course of
business. In the opinion of management, the outcome of these matters will
not have a material effect on the financial condition or results of
operations of the Company.
9
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company reported income of $10,461 for the first quarter of 1995, as
compared to a loss of ($127,165) for the first quarter of 1994.
Total revenue increased by $111,472 (2%) for the first quarter of 1995,
compared to the first quarter of 1994. The increase is due primarily to an
increase in royalty fees, revenue recognized on center openings and product and
equipment revenue.
Royalty fees are a percentage of gross sales paid monthly by all franchised
Grease Monkey Centers. Royalty fee revenue for the first quarter of 1995
increased 17% over the first quarter of 1994 to $788,405. This increase is due
to continued growth in sales at existing Centers and an increase in the number
of franchised Centers. Based upon many factors, including the age of amounts
owed the Company, the extent of collateralization, and historical performance,
the Company may place certain financially troubled franchisees on a non-accrual
status. For the first quarter of 1995, estimated royalties of $33,025 were not
accrued under this policy, compared to $32,750 for the first three months of
1994. The Company has a royalty rebate program for franchisees under which
eligible franchisees can receive a rebate of royalties paid. The rebate accrued
under this program for the quarter ended March 31, 1995, was $52,569 as compared
to $57,106 for the quarter ended March 31, 1994. The rebate is recorded as a
reduction of royalty revenue. The royalty rebate program is not a requirement
of the franchise agreement. Continuation of the program is reviewed by
management on an annual basis. The 1995 Royalty Rebate Program runs through
December 31, 1995.
Franchise sales revenue was $157,000 for the first quarter of 1995, as
compared to $33,844 for the first quarter of 1994. Franchise sales revenue
represents initial payments received by the Company from buyers of its franchise
licenses. The fee is recognized as revenue when the related franchise opens for
business. Six franchise centers were opened in the first quarter of 1995
(including one refranchised center which was previously closed). Two franchise
centers were opened in the first quarter of 1994.
In the first quarter of 1995, the Company recognized $4,000 in franchise
sales revenue resulting from license cancellations as compared to $9,243 in the
first quarter of 1994.
In the first quarter of 1995 the Company lost $144,785 on revenue of
$2,846,681 at Company-owned Centers, as compared to a loss of $19,106 on revenue
of $2,980,885 for the same quarter last year. At March 31, 1995, the Company
owned 29 Centers as compared to 28 at March 31, 1994.
(continued)
10
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Company-owned centers' revenue decreased 4.5% in the first quarter of 1995
versus 1994. The loss of revenue can be primarily attributed to the elimination
of emissions testing in Colorado due to a state adopted emissions testing
program, which commenced January 2, 1995, and limited emissions testing to a
single contractor selected by the state. In addition, the Company centers
experienced increased product, labor, and insurance costs.
In the first quarter of 1995 the Company realized marketing allowances and
gross margins on product and equipment sales of $120,579, as compared to
$112,141 in the first quarter of 1994. Product and equipment revenue represents
the sale of fluid dispensing equipment and other supplies to franchisees, and
marketing allowances related to the sale of oil filters, air filters, oil
additives, and certain other products.
On March 31, 1994, the Company closed on a settlement agreement with a
landlord. The settlement consisted of a cash settlement payment of $350,000, a
reduction of lease payments during the time period of October 1, 1993, through
March 31, 1994, the termination of four lease obligations which represented
approximately $2.6 million in future lease payments, the refranchising of two
centers, the forgiveness of receivables and the performance by the Company of
certain operating commitments on two Centers. The company recorded a loss and
settlement provision of $420,000 for this settlement agreement as of December
31, 1993. Losses incurred in the first quarter of 1994 pertaining to this
settlement agreement were accounted for through the reserve.
General and administrative expenses for the first quarter of 1995 decreased
by 3% as compared to the first quarter of 1994. The decrease is due to: a
decrease in litigation fees and related costs of approximately $33,000; a
decrease in travel and entertainment expenses of approximately $22,000; a
decrease in corporate office operating expenses of approximately $20,000, offset
by increases in salaries, wages and personnel expenses of approximately $21,000
and offset by losses incurred on the disposition of obsolete assets and the
refranchising of a closed center, totalling approximately $35,000.
(continued)
11
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
The following schedule summarizes the total number of Grease Monkey
Centers open, vehicles serviced, franchise licenses issued, franchise licenses
and applications outstanding, and franchise/application fees received during the
first quarter of 1995 compared to the first quarter of 1994:
<TABLE>
<CAPTION>
THREE MONTHS ENDED:
March 31, 1995 March 31, 1994
Company Franchisee Company Franchisee
Owned Owned Total Owned Owned Total
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Centers open,
beginning. . . . . . . 29 176 205 32 162 194
Centers opened (A) . . . - 6 6 - 2 2
Centers purchased or
sold. . . . . . . . . . - - - (1) 1 -
Centers terminated or
closed (B). . . . . . . - (4) (4) (3) - (3)
Centers reacquired . . . - - - - - -
--- --- --- --- --- ----
Centers open, ending . 29 178 207 28 165 193
--- ---- ---- --- ---- ----
--- ---- ---- --- ---- ----
Vehicles serviced
(000's) . . . . . . . . . . . . . . . 694 . . . . . . . . . 677
------ ------
------ ------
Franchise licenses issued (C). . . . . 1 . . . . . . . . . 5
---- ----
---- ----
Undeveloped franchise licenses (D) . . 52 . . . . . . . . . 68
------ -----
------ -----
Franchise applications
outstanding (D) . . . . . . . . . . . 27 . . . . . . . . . 25
------- -------
------- -------
Franchise license/application
fees received (E) . . . . . . . . . . $30,000 . . . . . . . . . $140,000
------- --------
------- --------
<FN>
(A) Includes one refranchised center which was previously closed.
(B) Includes one center which was deidentified by the franchisee in January
1995; subsequently, the Company acquired the center on May 1, 1995.
(C) Represents the number of licenses issued during the period.
(D) Represents the number of licenses/applications outstanding at March 31.
(E) Represents amounts received for franchise licenses/applications during the
period.
</TABLE>
(continued)
12
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL RESOURCES
In March of 1991 a controlling interest in the Company was sold to First of
September Corporation ( FOSC ) for $1.25 million. As part of the transaction,
FOSC provided a $750,000 two-year line of credit effective August of 1991. The
line of credit with FOSC for $750,000 which bore interest at prime plus 2% was
extended through March 31, 1994. On March 23, 1994, the outstanding balance of
$378,000 was paid off and the line of credit was canceled.
A motor oil supplier has provided financing for Company-owned Centers where
the Company agrees to feature its products. The financing ranged from $30,000
to $45,000 per Center depending on the expected usage at the center. The
advances are amortized based on the Company's purchases of its products.
Similar oil company financing is expected to be available for any new Company-
owned Centers acquired and existing Company-owned Centers where the Company does
not have a supply agreement or where the existing supply agreement may be
canceled.
Between February 28, 1994, and March 15, 1994, the Company issued a total
of 13,000 shares of Series C Preferred stock for $1,300,000. Offering costs
were approximately $134,000. The Series C Preferred stock has a stated value of
$100 per share; bears a 6% cumulative dividend; is convertible, together with
any accumulated unpaid dividends, into common stock at the option of the holder
at a conversion price of $2.50 per share; and is callable by the company at any
time after December 31, 1996, at a price of $115 per share. The net proceeds of
this offering were designated for working capital, including reduction of notes
payable, and to fund the settlement agreement with a landlord as previously
discussed.
The growth of the Grease Monkey system is dependent on the ability of the
Company and its franchisees to obtain real estate development capital. The
majority of Grease Monkey Centers are built under so-called "build-to-suit"
arrangements where the land is purchased and the building constructed to Grease
Monkey specifications by an unrelated party, and then leased to the franchisee
or the Company. The Company does not currently have a national source of
build-to-suit developers. Instead, the Company and its franchisees solicit such
developers on a location-by-location basis.
(continued)
13
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY
Cash used in operations during the first quarter of 1995 was ($193,905) as
compared to ($206,693) used in operations in the first quarter of 1994.
Cash provided by investing activities was $5,317 in the first quarter of
1995, as compared to $3,697 in the first quarter of 1994. Cash provided
consisted primarily of receipts on direct financing leases which decreased over
the same period last year due to the closure of one center in 1994 which was
leased by the Company and subleased to a franchisee, and the Company being
released as lessee on two centers, which it subleased to two franchisees, when
the franchisees negotiated direct leasing from the landlord. Cash used was for
capital expenditures, primarily computer systems and Company Center equipment.
Cash used in financing activities was ($5,795) in the first quarter of 1995
as compared to cash provided by financing activities of $568,875 in the first
quarter of 1994. Cash provided by financing activities in the first quarter of
1995 consisted of the release of $155,154 of restricted cash to operating cash.
Cash provided by financing activities in the first quarter of 1994 included
$1,165,587 (net of offering costs of $134,413) from the issuance of Series C
Preferred stock.
Cash used to reduce long-term debt, capital lease obligations and notes
payable was $154,749 in the first quarter of 1995 and $594,942 in the first
quarter of 1993.
The Company does not have any material commitments for capital
expenditures. The Company believes it has the capital resources and liquidity
necessary to meet all of the obligations, debt maturities, and commitments of
the Company during 1995.
14
<PAGE>
GREASE MONKEY HOLDING CORPORATION
COMMISSION FILE NUMBER: 0-9812
QUARTER ENDED MARCH 31, 1995
FORM 10-QSB
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On February 28, 1991, a Verified Complaint in Replevin and for Restitution
or Damages was filed in the District Court of Denver, State of Colorado,
entitled NICK MONTOYA AND AVER MONTOYA V. GREASE MONKEY HOLDING CORPORATION,
GREASE MONKEY INTERNATIONAL, INC., GM PROPERTIES, INC., PHOENIX EQUITY
CORPORATION, ARTHUR P. SENSENIG, EDITH SENSENIG, AND JOHN R. HOLZMAN, Civil
Action No. 91 CV 1778. Plaintiffs are elderly persons who allegedly loaned to
Arthur P. Sensenig, the former President and Director of the Company and GMI,
the approximate sum of $450,000. Plaintiffs asserted claims against the
Company, GMI and GM Properties for unjust enrichment, fraud, statutory theft
against the elderly, fraudulent conveyance, conspiracy and vicarious liability
for the acts of Mr. Sensenig. In January of 1992 the Plaintiffs reached a
settlement with Mr. Sensenig wherein he confessed judgment for approximately
$350,000. At or about the same time, Edith Sensenig was dismissed from the
case, with prejudice. Trial for the remaining defendants was held on May 18,
1992 and on June 3, 1992, the Court entered a judgment against the Company in
the amount of $241,679, plus statutory interest to accrue from June 4, 1992. As
of March 31, 1995, interest in the amount of $62,032 has accrued. The basis of
the Court's decision was one founded in vicarious liability of a principal for
the actions of its agent. The Court found that the Company was responsible for
the tortious acts of its former President, in spite of the fact that the Company
adequately supervised the former President, had no knowledge of any wrongdoing,
and received none of the funds which were taken from the Plaintiffs. The Court
based its decision on Section 261 of the RESTATEMENT OF AGENCY 2D., which
Section has not yet been adopted as the law in the State of Colorado. The
Company filed an appeal in this matter which was heard by the Colorado Court of
Appeals ("Appeals Court") on December 21, 1993. The Appeals Court upheld the
District Court decision in an opinion dated January 13, 1994. The Company filed
a Petition for Certiorari to the Colorado Supreme Court which was granted on
November 7, 1994. Counsel for the plaintiffs filed a motion for an Order for
Expedited Determination which was issued by the court on April 13, 1995. Oral
arguments are set for May 22, 1995. The Company has recorded a reserve for the
full judgment amount and continues to reserve for the related interest.
On February 11, 1993, the Company filed a complaint against a franchisee,
entitled GREASE MONKEY INTERNATIONAL, INC. (GMI) V. PEARCO, INC. V. JOHN L.
GALLIVAN, Civil Action No. MJG 93-385, in the U.S. District Court in Maryland,
for failure to report sales and pay royalties and advertising fees, servicemark
infringement, unfair competition, unfair/deceptive trade
(continued)
15
<PAGE>
ITEM 1. LEGAL PROCEEDINGS (continued)
practices, misappropriation of trade secrets, breach of covenant not to compete,
and breach of agreement. On April 2, 1993, the Defendant answered and
counterclaimed, adding John L. Gallivan, former Executive Vice President, as a
counter-defendant. Their counterclaims were as follows: fraud, negligent
misrepresentation, breach of contract, unlawful restraint of trade, violation of
Maryland Anti-Trust Act, civil conspiracy, violation of Federal RICO statute,
violation of Maryland Franchise Act, and violation of Federal Rule of Civil
Procedure No. 11. The counterclaim asked for $611,000 in damages, rescission,
and attorney's fees and costs. On August 2, 1993, the Court granted an Order
staying and administratively closing the case, pending the completion of a
settlement agreement between the parties. The settlement is contingent upon the
Company successfully negotiating for the purchase, by the Company or a third
party, of the Grease Monkey building occupied by Defendant. GMI did not acquire
title to Pearco's building by December 31, 1993, and does not anticipate that it
will acquire title to the building in the future. To date, neither party has
requested the reopening of the litigation, and GMI has not paid anything to
purchase the assets of Pearco's franchise because the preconditions set forth in
the settlement agreement have not been fulfilled. Management believes that the
resolution of this matter will not have a material adverse effect on the
financial condition or results of operations of the Company.
The Company is a party to other legal proceedings including claims by
franchisees against the Company that arise in the ordinary course of business.
In the opinion of management, the outcome of these matters will not have a
material effect on the financial condition or results of operations of the
Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits (numbered in accordance with Item 601 of regulation S-K)
11. Statement Re: Computation of Per Share Earnings
27. Financial Data Schedule
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the period covered by this report.
16
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
COMMISSION FILE NUMBER: 0-9812
QUARTER ENDED MARCH 31, 1995
FORM 10-QSB
SIGNATURES
In accordance with the Exchange Act, this report has been signed below by the
following person(s) on behalf of the Registrant and in the capacities and on the
dates indicated.
GREASE MONKEY HOLDING CORPORATION
By:/s/ T. Timothy Kershisnik
---------------------------------------
T. Timothy Kershisnik
Controller, Treasurer and
Corporate Secretary
(Principal Financial and
Accounting Officer)
Denver, Colorado
May 10, 1995
17
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
COMMISSION FILE NUMBER: 0-9812
QUARTER ENDED MARCH 31, 1995
FORM 10-QSB
SIGNATURES
In accordance with the Exchange Act, this report has been signed below by the
following person(s) on behalf of the Registrant and in the capacities and on the
dates indicated.
GREASE MONKEY HOLDING CORPORATION
By: ____________________________________
T. Timothy Kershisnik
Controller, Treasurer and
Corporate Secretary
(Principal Financial and
Accounting Officer)
Denver, Colorado
May 10, 1995
<PAGE>
EXHIBIT 11
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(unaudited)
<TABLE>
<CAPTION>
Quarters Ended March 31,
------------------------------------
1995 1994
------------- -------------
<S> <C> <C>
PRIMARY EARNINGS PER SHARE
Net income (loss). . . . . . . . . $ 10,461 $ (127,165)
Dividends on preferred stock . . . (31,873) (20,555)
------------- -------------
Net income (loss) applicable to
common stock. . . . . . . . . . . $ (21,412) $ (147,720)
------------- -------------
------------- -------------
Common shares outstanding. . . . . 4,350,403 4,268,852
Effect of using weighted average
common and common equivalent
shares outstanding. . . . . . . . (16,227) (9,024)
Effect of shares issuable under
common stock warrants using the
treasury stock method . . . . . . * *
Effect of shares issuable under
stock options using the treasury
stock method. . . . . . . . . . . * *
------------- -------------
Shares used in computing primary
earnings per share. . . . . . . . 4,334,176 4,259,828
------------- -------------
------------- -------------
Primary earnings (loss) per
common share. . . . . . . . . . . $ ** $ (0.03)
------------- -------------
------------- -------------
FULLY DILUTED EARNINGS PER SHARE
Net income (loss). . . . . . . . . $ 10,461 $ (127,165)
Dividends on preferred stock . . . (31,873) (20,555)
------------- -------------
Net income (loss) as adjusted. . . $ (21,412) $ (147,720)
------------- -------------
------------- -------------
Shares used in computing primary
earnings per share. . . . . . . . 4,334,176 4,259,828
Effect of shares issuable upon
conversion of preferred stock . . * *
------------- -------------
Shares used in computing fully
diluted earnings per share. . . . 4,334,176 4,259,828
------------- -------------
------------- -------------
Fully diluted earnings (loss)
per common share. . . . . . . . . $ ** $ (0.03)
------------- -------------
------------- -------------
<FN>
* Antidilutive
** Less than $.01 per share
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND
ON PAGES 1-3 OF THE COMPANY'S FORM 10-QSB FOR THE YEAR-TO-DATE, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 62,248
<SECURITIES> 0
<RECEIVABLES> 1,606,947
<ALLOWANCES> (329,621)
<INVENTORY> 712,379
<CURRENT-ASSETS> 2,586,106
<PP&E> 7,911,118
<DEPRECIATION> (2,788,970)
<TOTAL-ASSETS> 12,930,920
<CURRENT-LIABILITIES> 2,248,252
<BONDS> 1,703,736
<COMMON> 130,512
0
2,114,638
<OTHER-SE> (493,371)
<TOTAL-LIABILITY-AND-EQUITY> 12,930,920
<SALES> 0
<TOTAL-REVENUES> 4,584,793
<CGS> 0
<TOTAL-COSTS> 4,574,332
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 22,500
<INTEREST-EXPENSE> 2,731
<INCOME-PRETAX> 10,461
<INCOME-TAX> 0
<INCOME-CONTINUING> 10,461
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,461
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1>Less than $.01 per share.
</FN>
</TABLE>
