<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 September 30, 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
Issuer'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 November 1, 1995
----------------------------- ----------------
Common Stock, $0.03 par value 4,366,764 shares
Transitional Small Business Disclosure Format Yes No X
----- -----
<PAGE>
GREASE MONKEY HOLDING CORPORATION
COMMISSION FILE NUMBER: 0-9812
QUARTER ENDED SEPTEMBER 30, 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1994 1995 1994
------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
REVENUE:
Royalty fees . . . . . . . . . . . . . . . . . . . . . . $ 833,673 825,485 2,416,109 2,246,207
Franchise sales - center openings . . . . . . . . . . . . 53,000 133,475 371,800 304,319
Franchise sales - unopened licenses canceled, net . . . . - - 4,000 60,094
Product and equipment revenue . . . . . . . . . . . . . . 191,794 380,745 830,850 1,061,933
Sales by Company-owned centers . . . . . . . . . . . . . 3,423,316 3,115,645 9,399,072 9,197,558
Rent and interest income related to
operating and capital leases . . . . . . . . . . . . . 348,555 397,523 1,045,065 1,304,250
Interest income . . . . . . . . . . . . . . . . . . . . . 11,494 8,945 31,205 40,463
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 37,825 50,396 125,643 88,339
--------------- --------------- ---------------- -----------------
4,899,657 4,912,214 14,223,744 14,303,163
EXPENSES:
General and administrative expenses . . . . . . . . . . . 941,107 993,486 2,801,619 2,929,816
Franchise costs recognized - center openings . . . . . . 25,709 22,716 79,418 49,981
Product and equipment costs . . . . . . . . . . . . . . . 82,834 239,364 488,910 678,579
Company-owned centers . . . . . . . . . . . . . . . . . . 3,310,599 3,087,703 9,456,770 9,206,936
Rent and interest expenses related to
operating and capital leases . . . . . . . . . . . . . 353,113 385,992 1,061,615 1,244,378
Provision for credit losses . . . . . . . . . . . . . . . 36,700 27,175 101,700 85,009
Litigation award and related interest . . . . . . . . . . 6,205 5,746 17,658 16,336
Interest expense . . . . . . . . . . . . . . . . . . . . 7,676 5,115 20,359 43,210
--------------- --------------- ---------------- -----------------
4,763,943 4,767,297 14,028,049 14,254,245
--------------- --------------- ---------------- -----------------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . $ 135,714 144,917 195,695 48,918
--------------- --------------- ---------------- -----------------
--------------- --------------- ---------------- -----------------
EARNINGS (LOSS) PER COMMON SHARE . . . . . . . . . . . . . $ 0.02 0.02 0.02 (0.01)
--------------- --------------- ---------------- -----------------
--------------- --------------- ---------------- -----------------
AVERAGE SHARES OUTSTANDING . . . . . . . . . . . . . . . . 4,362,211 4,298,348 4,350,968 4,286,306
--------------- --------------- ---------------- -----------------
--------------- --------------- ---------------- -----------------
</TABLE>
(UNAUDITED)
1
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 1995 1994
- ------ ---------------- ----------------
<S> <C> <C>
CURRENT ASSETS:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 573,518 256,631
Restricted cash including certificates of
deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 360,038 465,783
Accounts receivable, net of allowance for
doubtful accounts of $322,259 at September
30, 1995, and $309,394 at December 31, 1994 . . . . . . . . . . . . . 1,013,005 867,062
Current portion of notes receivable,
net of allowance for uncollectible
amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135,209 134,181
Current portion of net investment
in direct financing leases . . . . . . . . . . . . . . . . . . . . . 178,782 195,302
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 705,754 733,736
Prepaid expenses and supplies . . . . . . . . . . . . . . . . . . . . . 185,026 125,027
---------------- ----------------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . 3,151,332 2,777,722
---------------- ----------------
PROPERTY AND EQUIPMENT,
AT COST, PLEDGED:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152,079 152,079
Buildings (including buildings under capital
leases) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,529,542 5,268,460
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . 502,696 511,806
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . 634,674 617,484
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . 1,493,670 1,414,961
---------------- ----------------
8,312,661 7,964,790
Less accumulated depreciation and
amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,044,171) (2,680,599)
---------------- ----------------
NET PROPERTY AND EQUIPMENT . . . . . . . . . . . . . . . . . . . . . 5,268,490 5,284,191
---------------- ----------------
OTHER ASSETS:
Net investment in direct financing leases . . . . . . . . . . . . . . . 3,238,254 3,543,750
Notes receivable, net of allowance for uncollectible
amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139,401 116,168
Deferred franchising costs . . . . . . . . . . . . . . . . . . . . . . 180,980 198,854
Goodwill and covenants not to compete, net
of accumulated amortization of $708,171
at September 30, 1995, and $621,855 at
December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . 1,626,970 1,110,152
Real estate held for sale . . . . . . . . . . . . . . . . . . . . . . . 173,500 173,500
Other assets, net of accumulated
amortization of $111,919 at September 30, 1995,
and $108,147 at December 31, 1994 . . . . . . . . . . . . . . . . . . 120,762 141,805
---------------- ----------------
TOTAL OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . 5,479,867 5,284,229
---------------- ----------------
$ 13,899,689 13,346,142
---------------- ----------------
---------------- ----------------
</TABLE>
(UNAUDITED)
(continued on next page)
2
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
- ------------------------------------ ---------------- ---------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 788,551 958,023
Accrued salaries and wages . . . . . . . . . . . . . . . . . . . . . . 204,806 176,065
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . 301,555 319,351
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . 410,580 320,315
Current portion of obligations
under capital leases . . . . . . . . . . . . . . . . . . . . . . . . 348,982 307,669
Reserve for litigation award . . . . . . . . . . . . . . . . . . . . . 315,748 298,091
---------------- ----------------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . . . . . 2,370,222 2,379,514
---------------- ----------------
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,377,232 1,465,938
OBLIGATIONS UNDER CAPITAL
LEASES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,476,679 6,746,748
DEFERRED FRANCHISE SALES
REVENUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 736,863 1,009,663
STOCKHOLDERS' EQUITY:
Series C Preferred stock, issued and outstanding
20,958 shares and 22,205 shares at September
30, 1995, and December 31, 1994, respectively, stated
value of $100.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,095,838 2,220,500
Common stock, par value $.03, 10,000,000
shares authorized, 4,363,650, and 4,305,359,
shares issued and outstanding at September 30,
1995, and December 31, 1994, respectively . . . . . . . . . . . . . . 130,910 129,161
Capital in excess of par value . . . . . . . . . . . . . . . . . . . . 5,829,014 5,707,382
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . (6,117,069) (6,312,764)
---------------- ----------------
TOTAL STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . 1,938,693 1,744,279
Commitments and Contingencies . . . . . . . . . . . . . . . . . . . . .
---------------- ----------------
$ 13,899,689 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 . . . . . . . . . - - - 8,428 253 15,908 - 16,161
Conversion of Series C Preferred stock
to common stock, including payment
of accumulated dividends. . . . . . . . (1,247) (124,662) - 49,863 1,496 113,224 - (9,942)
Offering costs of Series C Preferred
stock . . . . . . . . . . . . . . . . . - - - - - (7,500) - (7,500)
Net income. . . . . . . . . . . . . . . . - - - - - - 195,695 195,695
------ --------- --------- ---------- -------- --------- ----------- ----------
Balance at September 30, 1995 . . . . . . 20,958 $2,095,838 - 4,363,650 $130,910 5,829,014 (6,117,069) 1,938,693
------ --------- --------- ---------- -------- --------- ----------- ----------
------ --------- --------- ---------- -------- --------- ----------- ----------
</TABLE>
(UNAUDITED)
4
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1995 1994
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 195,695 48,918
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Increase in deferred franchise sales revenue . . . . . . . . . . . . . . . 75,000 393,000
Franchise sales revenue recognized-center openings . . . . . . . . . . . . (371,800) (304,319)
Franchise sales revenue recognized-
unopened licenses canceled, net. . . . . . . . . . . . . . . . . . . . . (4,000) (60,094)
Increase in deferred franchising costs . . . . . . . . . . . . . . . . . . (61,543) (68,756)
Franchise costs recognized - center openings . . . . . . . . . . . . . . . 79,418 49,981
Provision for credit losses. . . . . . . . . . . . . . . . . . . . . . . . 101,700 85,009
Net (gain) loss realized on retirement of property
and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,636 (206)
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . 614,600 598,955
Provision for litigation award . . . . . . . . . . . . . . . . . . . . . . 17,658 16,336
Loss on sale of centers. . . . . . . . . . . . . . . . . . . . . . . . . . 62,541 9,502
Payments on settlement agreement . . . . . . . . . . . . . . . . . . . . . - (420,000)
Loss on settlement agreement . . . . . . . . . . . . . . . . . . . . . . . - 11,951
Gain on leasing transactions . . . . . . . . . . . . . . . . . . . . . . . - (21,359)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (31,509)
------------- ------------
722,905 307,409
Change in assets and liabilities:
Increase in accounts receivable. . . . . . . . . . . . . . . . . . . . . (284,348) (288,416)
Decrease in notes receivable . . . . . . . . . . . . . . . . . . . . . . 12,947 24,355
Decrease in inventories. . . . . . . . . . . . . . . . . . . . . . . . . 7,497 19,099
(Increase) decrease in prepaid expenses
and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (60,000) 68,767
Decrease in accounts payable . . . . . . . . . . . . . . . . . . . . . . (169,471) (76,701)
Increase in accrued salaries and wages
and other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . 30,929 70,975
------------- ------------
Changes in assets and liabilities. . . . . . . . . . . . . . . . . . (462,446) (181,921)
------------- ------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 260,459 125,488
------------- ------------
</TABLE>
(UNAUDITED)
(continued on next page)
5
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1995 1994
------------ -----------
<S> <C> <C>
CASH FLOWS FROM INVESTING
ACTIVITIES:
Principal receipts on direct financing leases. . . . . . . . . . . . . . . . . $ 139,292 158,063
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (190,055) (198,809)
Acquisition of centers . . . . . . . . . . . . . . . . . . . . . . . . . . . . (870,388) -
Sale of centers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123,233 21,050
Increase in other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,016) (24,266)
------------ -----------
NET CASH (USED IN)
INVESTING ACTIVITIES . . . . . . . . . . . . . . . . . . . . . . . . . (800,934) (43,962)
------------ -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Payments on notes payable to a
related party. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (378,000)
Proceeds from long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . 1,241,880 -
Principal payments on long-term debt . . . . . . . . . . . . . . . . . . . . . (247,265) (341,896)
Principal payments on capital lease
obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (225,857) (249,636)
Issuance of preferred stock, net
of offering costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,500) 1,140,165
Payment of accumulated dividends
upon conversion of preferred stock to common stock . . . . . . . . . . . . . (9,942) -
Settlement/buy-out of lease obligations. . . . . . . . . . . . . . . . . . . . - (25,000)
Decrease (increase) in restricted cash . . . . . . . . . . . . . . . . . . . . 105,746 (6,364)
Increase (decrease) in lease deposit obligations . . . . . . . . . . . . . . . 300 (13,280)
------------ -----------
NET CASH PROVIDED
BY FINANCING ACTIVITIES. . . . . . . . . . . . . . . . . . . . . . . . 857,362 125,989
------------ -----------
NET INCREASE IN CASH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 316,887 207,515
CASH, BEGINNING OF PERIOD. . . . . . . . . . . . . . . . . . . . . . . . . . . . 256,631 13,096
------------ -----------
CASH, END OF PERIOD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 573,518 220,611
------------ -----------
------------ -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the
period for interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 720,048 782,461
------------ -----------
------------ -----------
</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:
During the nine months ended September 30, 1995, and September 30, 1994,
there were the following non-cash transactions: the Company issued 8,428 shares
and 8,832 shares of stock at an average value of $1.92 per share and $2.30 per
share, respectively, in accordance with its matching requirement under the
Company's 401(k) plan, a $5,500 note receivable was issued upon the
refranchising of a center in 1995, and a $5,000 lease deposit was applied to
past due accounts receivable in 1995.
(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 and nine-month periods ended September 30,
1995, and September 30, 1994, (b) the financial position at September 30,
1995, (c) the statements of cash flows for the nine-month periods ended
September 30, 1995 and 1994, and (d) the changes in stockholders' equity at
September 30, 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 and nine-month periods ended September 30,
1995, are not necessarily indicative of the results 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 September 30,
1995, accumulated unpaid dividends totaled $224,835.
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 valued at market on the date of the contribution. During the
first nine months of 1995 and 1994, the Company contributed 8,428 and 8,832
shares to this plan at an average of $1.92 and $2.30 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. Earnings (loss) per share for all periods was computed after
reduction for preferred stock dividends ($31,696 and $33,799 for the third
quarter of 1995 and 1994, respectively, and $94,936 and $87,428 for the
first nine months of 1995 and 1994, respectively). The assumed conversion
of preferred stock was 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 September 30, 1995, interest in the amount of $74,069
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 were heard
on May 22, 1995. On September 21, 1995, the Supreme Court of Colorado
affirmed the judgement of the Colorado Court of Appeals. On October 26,
1995, final payment was made to the plaintiffs to cover the settlement
award, accrued interest and certain court costs. The Company had
previously recorded a reserve for the full judgement and 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
OR PLAN OF OPERATION
RESULTS OF OPERATIONS
The Company reported income of $195,695 for the first nine months of 1995,
as compared to income of $48,918 for the first nine months of 1994. For the
third quarter of 1995, the Company recognized income of $135,714 compared to
income of $144,917 for the same quarter in 1994.
Total revenue decreased by $79,419 (1%) for the first nine months of 1995,
compared to the first nine months of 1994. Revenue during the third quarter of
1995 remained constant over the same quarter last year, decreasing by less than
1% or $12,557. The decreases are due primarily to reductions in: revenue from
termination of undeveloped franchise licenses; revenue from product and
equipment sales, including marketing allowances; and revenue from operating and
capital leases. The decreases in both periods were offset by increases in
royalty fees, and the nine month decrease was additionally offset by increased
revenue recognized on center openings.
Royalty fees are a percentage of gross sales paid monthly by all franchised
Grease Monkey Centers. Royalty fee revenue for the first nine months of 1995
increased 8% over the first nine months of 1994 to $2,416,109. Royalty fee
revenue for the third quarter of 1995 increased 1% over the third quarter of
1994 to $833,673. This increase is due primarily to continued growth in sales
at existing 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 nine months of 1995, estimated royalties of $122,775 were
not accrued under this policy, compared to $101,055 for the first nine months of
1994. During the third quarter of 1995, estimated royalties of $42,325 were not
accrued compared to $35,005 for the third quarter of 1994. The Company has a
royalty rebate program for franchisees under which eligible franchisees can
receive a rebate of royalties paid. For the first nine months of 1995, the
rebate accrued under this program was $185,751, compared to $183,117 for the
first nine months of 1994. The rebate accrued for the third quarter of 1995,
was $68,887, compared to a rebate of $64,628 for the third quarter of 1994. The
rebate is recorded as a reduction in royalty revenue.
Franchise sales revenue was $371,800 (representing fifteen centers) for the
first nine months of 1995, as compared to $304,319 (representing fifteen
centers) for the first nine months of last year. For the third quarter of 1995,
franchise sales revenue was $53,000 (representing two centers), as compared to
$133,475 (representing seven centers) for the same quarter last year. Franchise
sales revenue represents initial one-time payments received by the Company from
buyers of its franchises. The fee is recognized as revenue when the related
franchise opens for business.
In the first nine months of 1995, the Company recognized $4,000 in
franchise sales revenue resulting from license cancellations as compared to
$60,094 in the first nine months of 1994. There were no license cancellations
in the third quarter of 1995 or 1994.
(continued)
10
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION (CONTINUED)
In the first nine months of 1995 the Company-owned Centers lost ($57,698)
on revenue of $9,399,072, as compared to a loss of ($9,378) on revenue of
$9,197,558 for the same period last year. Third quarter income on Company-owned
Centers was $112,717 and $27,942 for 1995 and 1994, respectively. At September
30, 1995 and 1994, the Company owned 29 and 28 centers, respectively.
Company-owned center revenue increased 2% in the first nine months of 1995
versus 1994. The increase in revenue is despite an elimination of emissions
testings 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. Company-owned center revenue increased 10% in the third
quarter of 1995 versus 1994. The increase in revenue can be attributed to the
acquisition of a center on May 1, 1995, which helped to reduce the effect on
revenue of the lost emissions testing. Emissions revenue has associated with it
a lower cost of sales than the cost of sales percentage on other services
provided by the company-owned centers. This factor accounts for the higher
percentage increase in expenses than the percentage increase in revenue over the
same periods noted above.
In the first nine months of 1995 the Company realized marketing allowances
and gross margins on product and equipment sales of $341,940, as compared to
$383,354 in the first nine months of 1994. In the third quarter of 1995,
marketing allowances and gross margins on product and equipment sales were
$108,960 as compared to $141,381 in the third 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.
General and administrative expenses for the first nine months and third
quarter of 1995 decreased by 4% and 5% respectively, as compared to the same
periods of 1994. The decrease is due to: a decrease in litigation fees and
related costs of approximately $73,000 for the nine months of 1995 compared to
1994 and $7,000 for the three months ended September 30, 1995 compared to the
three months ended September 30, 1994; a decrease in franchise sales advertising
related primarily to updating of advertising material in 1994 of $33,000 and
$17,000, respectively; and a decrease in travel and entertainment expenses of
approximately $61,000 and $17,000 for the same respective periods. Offsetting
the above decreases for the first nine months of 1995, were losses incurred on
the disposition of obsolete assets and the refranchising of a closed center and
a company-owned center totaling approximately $65,000.
(continued)
11
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION (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 nine months of 1995 compared to the first nine months of 1994:
<TABLE>
<CAPTION>
NINE MONTHS ENDED:
SEPTEMBER 30, 1995 SEPTEMBER 30, 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) - 14 14 1 15 16
Centers purchased or
sold (B) (C) - 1 1 (2) 2 -
Centers terminated
or closed (B) - (12) (12) (3) (2) (5)
Centers reacquired - - - - - -
--- --- --- --- --- ---
Centers open,
ending (G) 29 179 208 28 177 205
--- --- --- --- --- ---
--- --- --- --- --- ---
Vehicles serviced (000's) 2,204 2,199
------ ------
------ ------
Franchise licenses issued (D) 5 12
----- -----
----- -----
Undeveloped franchise licenses (E) 48 59
----- -----
----- -----
Franchise applications outstanding (E) 20 25
----- -----
----- -----
Franchise license/application
fees received (F) $75,000 $393,000
------- --------
------- --------
</TABLE>
(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) Includes one Company-owned center refranchised in June 1995.
(D) Represents the number of licenses issued during the period.
(E) Represents the number of licenses/applications outstanding at September 30.
(F) Represents amounts received for franchise licenses/applications during the
period.
(G) The Franchisee Owned center total includes one center which is temporarily
being operated by the Company.
(continued)
12
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION (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 ranges 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.
During April 1995, the Company entered into two agreements with another
motor oil supplier, a Loan Agreement and a Fast Lube Supply Agreement. Under
the Loan Agreement a $2,400,000 line of credit was established. All loans drawn
under this line accrue interest at 9% per annum and are repaid in quarterly
installments over a ten year period from date of disbursement. The line is
secured with the leases and assets of certain Company-owned Centers. As of
September 30, 1995, the Company had outstanding $1,614,270 under the line for
refinancing of debt with the motor oil supplier, working capital and
acquisitions. The balance of the funds available under the line are restricted
to the acquisition or construction of new fast lube centers. Under the Fast
Lube Supply Agreement, the Company is required to purchase at least 85% of the
petroleum products for such Centers from the supplier, the Company is required
to meet certain minimum annual purchase requirements and the Company is required
to feature its products in such Centers.
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 $160,000. 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 a settlement agreement with a landlord.
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
(continued)
13
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION (CONTINUED)
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.
LIQUIDITY
Cash provided by operations during the first nine months of 1995 was
$260,459 as compared to cash provided by operations of $125,488 in the first
nine months of 1994.
Cash used in investing activities was ($800,934) in the first nine months
of 1995, as compared to cash used of ($43,962) in the first nine months of 1994.
Cash provided consisted primarily of receipts on direct financing leases and
cash received for the refranchising of company-owned centers. Cash used was for
the acquisition of centers and for capital expenditures, primarily computer
systems and Company Center equipment.
Cash provided by financing activities was $857,362 in the first nine months
of 1995 and $125,989 in the first nine months of 1994. Cash provided by
financing activities in the first nine months of 1995 included proceeds from
long-term debt (related to the facility described previously) of $1,241,880.
Cash provided by financing activities in the first nine months of 1994 included
$1,140,165 (net of offering costs of $159,835) from the issuance of Series C
Preferred stock.
Cash used to reduce long-term debt, notes payable, and capital lease
obligations was $473,122 in the first nine months of 1995 and $969,532 in the
first nine months of 1994.
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 SEPTEMBER 30, 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 September 30, 1995, interest in the amount of $74,069 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 were held on May 22, 1995. On September 21, 1995, the Supreme Court
of Colorado affirmed the judgement of the Colorado Court of Appeals. On October
26, 1995, final payment was made to the plaintiffs to cover the settlement
award, accrued interest and certain court costs. The Company had previously
recorded a reserve for the full judgment amount and the related interest.
On February 11, 1993, the Company filed a complaint against a franchisee,
entitled GREASE MONKEY INTERNATIONAL, INC. 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 practices,
misappropriation of trade secrets, breach of covenant not to compete, and breach
of agreement. On
(continued)
15
<PAGE>
ITEM 1. LEGAL PROCEEDINGS (continued)
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-B)
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 SEPTEMBER 30, 1995
FORM 10-QSB
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.
GREASE MONKEY HOLDING CORPORATION
By:/s/ T. Timothy Kershisnik
--------------------------------------
T. Timothy Kershisnik
Controller, Treasurer and
Corporate Secretary
(Principal Financial and
Accounting Officer)
Denver, Colorado
November 10, 1995
17
<PAGE>
EXHIBIT 11
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(unaudited)
<TABLE>
<CAPTION>
Quarters Ended Sept. 30, Nine Months Ended Sept. 30,
-------------------------------- ----------------------------------
1995 1994 1995 1994
------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE
Income (loss) from operations . . . . . . $ 135,714 144,917 195,695 48,918
Dividends on preferred stock . . . . . . . (31,696) (33,799) (94,936) (87,428)
------------ ------------ ------------ ---------------
Net income (loss) applicable to
common stock . . . . . . . . . . . . . . $ 104,018 111,118 100,759 (38,510)
------------ ------------ ------------ ---------------
------------ ------------ ------------ ---------------
Common shares outstanding . . . . . . . . 4,363,650 4,295,011 4,363,650 4,295,011
Effect of using weighted average
common and common equivalent shares. . . (1,439) 3,337 (12,682) (8,705)
Effect of shares issuable under
common stock warrants using the
treasury stock method . . . . . . . . . 68,966 192,623 125,000 *
Effect of shares issuable under
stock options using the
treasury stock method . . . . . . . . . 7,328 32,970 65,458 *
------------ ------------ ------------ ---------------
Shares used in computing primary
earnings per share . . . . . . . . . . . 4,438,505 4,523,941 4,541,426 4,286,306
------------ ------------ ------------ ---------------
------------ ------------ ------------ ---------------
Primary earnings per common share $ 0.02 0.02 0.02 (0.01)
------------ ------------ ------------ ---------------
------------ ------------ ------------ ---------------
FULLY DILUTED EARNINGS PER SHARE
Income (loss) from operations . . . . . . $ 135,714 144,917 195,695 48,918
Dividends on preferred stock . . . . . . . (31,696) (33,799) (94,936) (87,428)
------------ ------------ ------------ ---------------
Net income (loss) as adjusted . . . . . . $ 104,018 111,118 100,759 (38,510)
------------ ------------ ------------ ---------------
------------ ------------ ------------ ---------------
Shares used in computing primary
earnings per share . . . . . . . . . . 4,438,505 4,523,941 4,541,426 4,286,306
Effect of shares issuable upon
conversion of preferred stock . . . . . * * * *
------------ ------------ ------------ ---------------
Shares used in computing fully
diluted earnings per share . . . . . . 4,438,505 4,523,941 4,541,426 4,286,306
------------ ------------ ------------ ---------------
------------ ------------ ------------ ---------------
Fully diluted earnings (loss) per
common share . . . . . . . . . . . . . . $ 0.02 0.02 0.02 (0.01)
------------ ------------ ------------ ---------------
------------ ------------ ------------ ---------------
</TABLE>
* Antidilutive
<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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 573,518
<SECURITIES> 0
<RECEIVABLES> 1,609,874
<ALLOWANCES> (322,259)
<INVENTORY> 705,754
<CURRENT-ASSETS> 3,151,332
<PP&E> 8,312,661
<DEPRECIATION> (3,044,171)
<TOTAL-ASSETS> 13,899,689
<CURRENT-LIABILITIES> 2,370,222
<BONDS> 2,787,812
<COMMON> 130,910
0
2,095,838
<OTHER-SE> (288,055)
<TOTAL-LIABILITY-AND-EQUITY> 13,899,689
<SALES> 0
<TOTAL-REVENUES> 14,223,744
<CGS> 0
<TOTAL-COSTS> 14,028,049
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 101,700
<INTEREST-EXPENSE> 20,359
<INCOME-PRETAX> 195,695
<INCOME-TAX> 0
<INCOME-CONTINUING> 195,695
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 195,695
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
