<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
/X/ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
OR
TRANSITION REPORT UNDER 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
(Name of small business issuer in its charter)
Utah 87-0321320
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
216 16th Street, Suite 1100
DENVER, COLORADO 80202
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (303) 534-1660
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
$0.03 PAR VALUE COMMON STOCK
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes /X/ No / /
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
The issuer's revenue for its most recent fiscal year was: $18,693,143
The aggregate market value of the issuer's voting stock held as of March
1, 1996, by nonaffiliates of the issuer was $2,396,276.
As of March 1, 1996, issuer had 4,349,689 shares of its $0.03 par value
common stock outstanding.
Transitional Small Business Disclosure Format. Yes / / No /X/
<PAGE>
GREASE MONKEY HOLDING CORPORATION
Annual Report on Form 10-KSB
December 31, 1995
Table of Contents
PART I Page
------ ----
Item 1 - Description of Business. . . . . . . . . . . . . . . . . . 1
Item 2 - Description of Property. . . . . . . . . . . . . . . . . . 4
Item 3 - Legal Proceedings. . . . . . . . . . . . . . . . . . . . . 5
Item 4 - Submission of Matters to a Vote of Security Holders. . . . 5
PART II
-------
Item 5 - Market for Common Equity and Related Stockholder Matters . 6
Item 6 - Management's Discussion and Analysis or Plan of Operation . 7
Item 7 - Financial Statements . . . . . . . . . . . . . . . . . . . 18
Item 8 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . 18
PART III
--------
Item 9 - Directors, Executive Officers, Promoters and Control
Persons, Compliance with Section 16(a) of the Exchange
Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 10 - Executive Compensation . . . . . . . . . . . . . . . . . . 24
Item 11 - Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . . . . 28
Item 12 - Certain Relationships and Related Transactions . . . . . . 29
Item 13 - Exhibits and Reports on Form 8-K . . . . . . . . . . . . . 30
ii
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Grease Monkey Holding Corporation ("GMHC") was incorporated on April
9, 1976. On April 22, 1980, GMHC acquired 100% of the issued and outstanding
shares of Grease Monkey International, Inc. ("GMI"). GMI is the operating
entity for GMHC and GMHC derives substantially all of its operating revenue
through GMI. GMI is engaged in the business of owning, operating, leasing,
managing and franchising automotive fast service lubrication and oil change
centers under the trade name of Grease Monkey ("Grease Monkey Centers" or
"Centers") in the United States. In addition, GMI began franchising centers
in Mexico in 1993. GMHC and GMI are collectively referred to as the
"Company".
THE CONCEPT. Grease Monkey Centers provide the automobile user with
convenient preventative fluid maintenance services. In about ten minutes,
without an appointment, Grease Monkey service technicians change the oil,
install a new oil filter, lubricate the chassis, adjust tire pressure, wash
windows and vacuum the interior of an automobile. At the same time, all
fluid levels are checked and topped off, if necessary. The price for this
basic service is $23.00 to $31.00 in the United States ($14.00 to $20.00 in
Mexico), depending upon the location of the Center. Grease Monkey Centers
also offer transmission fluid changes, differential fluid changes, radiator
flushes, air conditioning recharges, automotive light bulb replacement, an
oil additive package, and will replace air filters and install new wiper
blades.
Grease Monkey Centers are two or three bay drive-through buildings
built to the Company's specifications. Grease Monkey buildings utilize
service basements from which the underneath portion of the vehicle is
serviced at the same time other technicians service the vehicle from above.
The buildings also include a pleasant customer waiting area.
COMPANY-OWNED CENTERS. As of January 31, 1996, GMI operated a total
of 29 Grease Monkey Centers. The Grease Monkey Centers owned by GMI were
either purchased from franchisees or opened (19 Centers), acquired as a
result of GMI's exercise of its right of first refusal (1 Center), or taken
over from failed franchisees (9 Centers). The Company believes the operation
of Company-owned Centers is important to its overall success and expects to
continue to purchase and develop Company-owned Centers. The Company does not
expect the acquisition of failed franchisees' Centers to be significant in
the future.
THE FRANCHISE. GMI licenses franchisees to operate Grease Monkey
Centers pursuant to a franchise agreement with GMI. A franchisee is required
to pay a franchise fee totaling $28,000 for the initial license and $16,800
for each additional license.
1
<PAGE>
CENTERS. On January 31, 1996, GMI had a total of 211 Grease Monkey
Centers open. The following table provides certain information pertaining to
Grease Monkey Centers as of January 31, 1996:
<TABLE>
<CAPTION>
CENTERS OPEN
FRANCHISE ------------------------------
APPLICANTS FRANCHISES SOLD (1) FRANCHISED COMPANY TOTAL
---------- ------------------- ---------- ------- -----
<S> <C> <C> <C> <C> <C>
Arizona 3 3 1 4
California 2 20 14 14
Colorado 2 37 36 15 51
Florida 1 7 3 3
Georgia 2 2 2
Idaho 2 2 2
Illinois 3 3 3
Indiana 9 9 9
Iowa 7 6 6
Kansas 7 4 4
Kentucky 1 1 1
Maryland 5 4 1 5
Massachusetts 2 2 1 3
Missouri 1 1 1
Nebraska 1 1 1 2
New Jersey 2 16 13 13
New Mexico 2 2 2
New York 1 3 2 2
North Carolina 1 7 6 6
Ohio 13 8 8
Pennsylvania 12 9 1 10
Rhode Island 1 1
South Carolina 12 10 10
Tennessee 3 2 2
Texas 1 7 7 7
Virginia 12 9 9
Washington 4 4 8 12
West Virginia 1 1 1
Wyoming 2 2 2
Mexico 7 24 16 16
--- --- --- --- ---
TOTALS: 17 225 182 29 211
--- --- --- --- ---
--- --- --- --- ---
</TABLE>
(1) Does not include those Centers operated by the Company.
During 1995, seven franchise licenses were sold and 18 franchised
Grease Monkey Centers were opened. In 1995, six Grease Monkey franchise
applications were terminated, two franchise agreements were canceled
concurrently with GMI taking over the operations of the Centers, and 13
franchises of open Grease Monkey Centers were terminated, of which five were
a result of the Company not exercising its right of first refusal and eight
were a result of GMI enforcing the franchise agreement.
2
<PAGE>
PATENTS, TRADEMARKS AND LICENSES. The Company owns no patents or
concessions. As described above, the sale of franchises is materially
important to the operations and growth of the Company.
GMI is the owner of, and has registered with the United States Patent
and Trademark Office on the Principal Register, the following trademarks and
service marks: "GREASE MONKEY", "GREASE MONKEY, THE 10 MINUTE LUBE PROS",
"MONKEY TALK", "CARE PAK", and "SEYMORE MILES" (including variations
thereof), as well as various designs and logotypes associated with and used
in connection therewith.
The trademark and service mark registrations expire between 1997 and
2009 and may be renewed for successive periods of 10 years. GMI intends to
maintain the above stated registrations of its marks in the manner required
by applicable statute, namely, the Trademark Act of 1946, as amended.
The mark, "GREASE MONKEY, THE 10 MINUTE LUBE AND OIL PROS", was
registered in the State of Colorado and is effective to November of 2004.
GMI has also registered its mark "Grease Monkey" and design with the
Canadian Register of Trademarks, the United Kingdom Register of Trademarks,
the Belgian Register of Trademarks, the Mexico Register of Trademarks, and
the Trinidad Registrar General. These foreign registrations expire between
1997 and 2007.
COMPETITION. The Company experiences competition for
customers at the retail level and also experiences competition
from other fast lube operators for franchisees and sites for
Centers.
At the retail level, the Centers experience competition from
automobile dealers, independent mechanic shops, other fast lube operations,
department store auto centers, and full service gas stations. The largest
source of competition, however, may be the do-it-yourself market.
The Company believes that the Grease Monkey Centers comprise the 4th
largest fast lube chain with 211 Grease Monkey Centers operating at January
31, 1996. The largest chain is Jiffy Lube International, Inc., owned by
Pennzoil, which has 1,212 centers open, followed by Ashland Oil Co. (d/b/a
Rapid Oil Co. or Valvoline Instant Oil Change) which has 460 open centers.
Quaker State Minit-Lube, Inc. (also d/b/a McQuicks Oilubes and Q Lubes),
owned by Quaker State Oil Company, follows with 443 centers open.
The Company recognizes that the barriers to enter the fast lubrication
business are significant, and in the future the Company may experience
additional direct competition from other companies with greater strength and
financial resources than those of the Company.
ENVIRONMENTAL REGULATIONS. GMI and its franchisees are subject to
various federal, state, and local provisions regarding the collection and
disposal of used lubricating oils and other automotive fluids and waste oil
filters. Each Grease Monkey Center is equipped with facilities for the
collection of waste products that comply with all applicable laws and
regulations. Waste products are sold to, or disposed with, fully qualified
and licensed collection services. Compliance with current and anticipated
future federal, state and local provisions regarding the collection and
disposal of these materials is not expected to materially affect capital
expenditures, earnings, or the competitive position of the Company.
3
<PAGE>
GMI and its franchisees are subject to federal, state or municipal
regulations regarding underground storage tanks ("UST's"). In those locales
where required, the operator of a Center must register the number and
location of UST's. The registration fee is not a significant capital
expenditure and the registration requirement does not place the Company at a
competitive disadvantage. In 1998, Federal regulations will require UST's
either be removed or equipped with leak monitoring devices. Effective in
approximately 1988, it was GMI's recommendation to its franchisees to
discontinue installing UST's. Removal of UST's at those Company-owned
Centers which have UST's is not expected to be a material cost to the Company.
The Environmental Protection Agency is now requiring insurance or
proof of the financial ability of the owner to cover any damage caused by
leaking underground storage tanks. The fee will vary from state to state.
However, all lubrication centers in the same state will be required to
purchase the insurance and, therefore, this requirement will not place the
Company or its franchisees at a competitive disadvantage.
Some states have passed regulations that designate used oil and oil
filters and their contents as hazardous waste. Such regulations require the
Center operator to first crush the filter and then dispose of it through use
of a regulated hazardous waste carrier. Other states are considering such
regulations. These regulations are imposed on all fast lube operators and do
not place the Company or its franchisees at a competitive disadvantage, but
may result in an increase in the cost of the service.
EMPLOYEES. At January 31, 1996, the Company had 38 full-time
employees at its corporate offices, 13 full-time employees at its field
offices, and 229 full-time employees in its Company-owned Grease Monkey
Centers division.
2. DESCRIPTION OF PROPERTY
At January 31, 1996, GMI owned the buildings, on leased land, at nine
Grease Monkey Centers. Of the nine properties, one is leased to a
franchisee, and eight are used for Company-owned Centers.
In addition, GMI owns two parcels of real estate in St. Louis,
Missouri. Both of the properties are leased to non Grease Monkey operations.
The Company's offices and training facility are located at 216 16th
Street, Suite 1100, Denver, Colorado, 80202. The Company leases a total of
20,297 rentable square feet, which includes the offices and training
facility, pursuant to a lease from an unaffiliated entity. The lease expires
on June 30, 1998. Rent is approximately $18,000 per month.
The Company has guaranteed leases or leased and subleased real estate
for franchised Grease Monkey Centers. The Company or GMI is directly liable
on the leases at 32 locations if the franchisees do not make the lease
payments. (See Note G, Consolidated Financial Statements.)
4
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to 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, results of operations,
or cash flows of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the Company's fourth fiscal quarter of the year ended December
31, 1995, no matter was submitted to a vote of the Company's security
holders, either by proxy solicitations or otherwise.
5
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) MARKET INFORMATION.
The Company's common stock trades on the NASDAQ Small-Cap Market under
the symbol GMHC. The following table reports high and low sales prices:
<TABLE>
<CAPTION>
Period High Trade Low Trade Last Trade
------ ---------- --------- ----------
<S> <C> <C> <C>
1994:
First Quarter $3.75 $1.88 $2.50
Second Quarter $2.75 $2.38 $2.63
Third Quarter $2.63 $2.25 $2.28
Fourth Quarter $2.50 $2.13 $2.13
1995:
First Quarter $2.50 $2.13 $2.13
Second Quarter $2.38 $1.25 $1.75
Third Quarter $1.94 $1.44 $1.56
Fourth Quarter $1.69 $1.00 $1.00
</TABLE>
Prices represent quotations between dealers and do not include retail
mark-ups, mark-downs, or commissions, and do not necessarily represent prices
at which actual transactions were, or could have been, effected.
(b) HOLDERS.
As of March 1, 1996, the Company had 2,540 shareholders of record.
(c) DIVIDENDS.
To date, the Company has not paid any cash dividends on its common
stock. Holders of the Company's common stock are entitled to receive
dividends when and as declared by the Board of Directors out of funds legally
available. All accrued and unpaid dividends on the Company's outstanding
shares of Series C Preferred stock must be paid before dividends are paid on
common stock.
6
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
RESULTS OF OPERATIONS
The Company reported net income of $238,190 in 1995 compared to net
income of $139,566 in 1994 and a net loss of $1,484,310 in 1993.
During 1993, the Company concentrated on positioning itself in Mexico,
which included the translation of marketing and training materials and the
translation of the point-of-sale computer software. Relationships were
developed with vendors and equipment suppliers, and franchise licenses were
sold and application fees were received. In September, the first Grease
Monkey Center opened in Saltillo, Coahuila. Also during 1993, the Company
established an in-house training facility to more effectively address the
training needs of its franchise organization and its employees, as well as to
control the costs associated with training. Continued attention was devoted
to addressing non-performing franchises, resulting in the resolution of a
number of these situations. 1993 activity also included refranchising seven
Centers operated by the Company which were outside of the Company's key
market areas. The Company also acquired that portion of the Seattle Grease
Monkey Limited Partnership ("SGMLP") which it did not previously own and
subsequently dissolved the partnership. In addition, the Company continued
its investment in the franchise development area. Additional investments were
made in 1993 to establish relations with development partners and in locating
Center sites in proposed Company Center key market areas.
During 1994, the Company continued its focus on development in the
Mexican market and opened an additional eight centers, bringing the total
number of centers open in Mexico to nine. Mexico expansion also continued
with the ongoing sale of franchise applications and licenses. U.S.
development also realized growth with an increase in franchised center
openings from five in 1993 to ten in 1994. In conjunction with the Company's
ongoing commitment to investing in franchise support services, two additional
assistant regional managers were added to U.S. operations, and a regional
manager was added to the Mexico region of the Company's operations. Efforts
begun in 1993 to raise additional equity capital resulted in the successful
completion of a preferred stock offering in the first quarter of 1994. A
portion of the proceeds raised from the offering were used to consummate a
settlement agreement with a landlord on four leases, three of which pertained
to sites which were operated as Company-owned Centers and one which formerly
was a franchised center. Of the four centers involved in the settlement
agreement, two centers were refranchised and two centers ceased operations
and were closed.
The Company ended 1995 with 181 franchised centers and 29
Company-owned Centers. This compares to 176 franchised centers and 29
Company-owned Centers at the end of 1994. Center openings for 1995 were
comparable to 1994 with eleven new U.S. centers and seven new Mexico centers.
During 1995, thirteen centers were terminated primarily due to the
enforcement by the Company of the franchise agreements and the Company not
exercising its right of first refusal. Those centers which remained in the
system and were open at the end of 1994, realized a 3% growth in ticket
average and a 3% growth in sales, which contributed to the growth in royalty
income. In addition to growth in existing centers, the Company has
positioned itself to
7
<PAGE>
increase the number of total centers open with the addition of a Vice
President of Franchise Development and a corresponding support staff.
Operating revenue totaled $18,693,143 in 1995 compared to $18,818,334
in 1994 and $19,757,999 in 1993. The changes in revenue are due primarily to
increases or decreases in the number of Company-owned Centers operated, the
number of store openings, and increases in royalty fees.
Royalty fees are a percentage of gross sales (ranging from 3% to 5%)
paid monthly by all franchised Grease Monkey Centers. Royalty fee revenue
increased by 5% in 1995 to $3,211,716 and 13% in 1994 to $3,052,044. The
Company has a "non-accrual" policy wherein royalties are not accrued on
certain financially troubled franchisees. In 1995 estimated royalties
totaling $170,500 were not recognized as revenue pursuant to this policy, as
compared to $133,215 in 1994 and $158,775 in 1993. Any such royalty
subsequently collected is recorded as revenue in the period the funds are
received.
The Company has a royalty rebate program for franchisees under which
eligible franchisees can receive a rebate of royalties paid. To be eligible,
franchisees must be in compliance with their franchise agreement, must be
current on amounts owed the Company and pay all amounts coming due the
Company on time during the period of the royalty rebate program. Management
implemented this program to reward those franchisees who comply with their
franchise agreement, have paid the Company on a regular and consistent basis,
to accelerate cash flow, and to provide an incentive for franchisees to
continue to pay on a timely basis. During 1995, the Company paid a total of
$248,431 to franchisees under this program, as compared to $245,625 in 1994
and $213,037 in 1993. 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 royalty rebate program has been extended through December
31, 1996.
The following table presents the activity of operating Centers:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Open at beginning of year 205 194 193
Opened during year 18 19 5
Terminated (13) (5) (4)
Closed - (3) -
---- ---- ----
Open at end of year 210 205 194
---- ---- ----
---- ---- ----
</TABLE>
8
<PAGE>
The following table presents the number of centers open, systemwide
retail sales, royalty fees, total vehicles serviced and average sale per
vehicle for the United States, Mexico and systemwide:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Centers Open:
US ................ 194 196 193
Mexico ............ 16 9 1
------- ------ ------
Systemwide ........ 210 205 194
------- ------ ------
------- ------ ------
Sales (000's):
US ................ $ 89,254 88,760 81,381
Mexico ............ 1,323 714 53
------- ------ ------
Systemwide ........ $ 90,577 89,474 81,434
------- ------ ------
------- ------ ------
Percent growth in sales:
US ................ 1% 9% 11%
------- ------ ------
------- ------ ------
Mexico ............ 85% 1,246% 100%
------- ------ ------
------- ------ ------
Systemwide ........ 1% 10% 11%
------- ------ ------
------- ------ ------
Royalty fees (000's):
US ................ $ 3,153 3,020 2,701
Mexico ............ 58 32 4
------- ------ ------
Systemwide ........ $ 3,211 3,052 2,705
------- ------ ------
------- ------ ------
Percent growth in royalties:
US ................ 4% 12% 13%
------- ------ ------
------- ------ ------
Mexico ............ 80% 782% 100%
------- ------ ------
------- ------ ------
Systemwide ........ 5% 13% 13%
------- ------ ------
------- ------ ------
Vehicles serviced (000's):
US ................ 2,850 2,927 2,721
Mexico ............ 63 26 2
------- ------ ------
Systemwide ........ 2,913 2,953 2,723
------- ------ ------
------- ------ ------
Average sale per vehicle:
US ................ $ 31.32 30.32 29.90
------- ------ ------
------- ------ ------
Mexico ............ $ 21.05 27.99 29.83
------- ------ ------
------- ------ ------
Systemwide ........ $ 31.09 30.30 29.90
------- ------ ------
------- ------ ------
</TABLE>
9
<PAGE>
Franchise sales revenue represents initial payments received by the
Company from the buyers of its franchise. The fee is $28,000 (less for
franchises purchased prior to September 1992 and for additional franchises
purchased by existing franchisees) and is not refundable. Initial franchise
fees are deferred and recognized as revenue when the related Center opens for
business.
The following table presents the number of franchises issued including
related fees and costs, and the nature of franchise sales revenue recognized:
<TABLE>
<CAPTION>
1995 1994 1993
--------- ------- -------
<S> <C> <C> <C>
Franchise licenses issued:
US(1).......................................... 4 4 4
Mexico......................................... 1 16 6
--------- ------- -------
Total........................................ 5 20 10
--------- ------- -------
--------- ------- -------
Franchise fees paid:
US.............................................$ 116,800 124,000 175,000
Mexico......................................... 12,200 369,000 185,600
--------- ------- -------
Total........................................$ 129,000 493,000 360,600
--------- ------- -------
--------- ------- -------
Franchise costs deferred:
US............................................. $ 23,996 2,043 30,539
Mexico......................................... 54,134 75,229 38,860
--------- ------- -------
Total........................................ $ 78,130 77,272 69,399
--------- ------- -------
--------- ------- -------
Franchises opened:
US(1).......................................... 11 10 4
Mexico......................................... 7 8 1
--------- ------- -------
Total........................................ 18 18 5
--------- ------- -------
--------- ------- -------
Franchise fees recognized on openings:
US(2)..........................................$ 259,110 185,219 59,682
Mexico......................................... 196,000 200,000 -
--------- ------- -------
Total........................................$ 455,110 385,219 59,682
--------- ------- -------
--------- ------- -------
Franchise costs recognized on openings:
US(3).......................................... $ 27,677 18,666 23,491
Mexico......................................... 72,094 61,529 -
--------- ------- -------
Total........................................ $ 99,771 80,195 23,491
--------- ------- -------
--------- ------- -------
Undeveloped franchise
licenses/applications cancelled.................. 6 14 57
--------- ------- -------
--------- ------- -------
Income recognized on cancellations............... $ 18,075 98,287 243,239
--------- ------- -------
--------- ------- -------
</TABLE>
10
<PAGE>
(1) Excludes franchise licenses related to refranchised Company-owned Centers
during the year; two in 1995, one in 1994 and seven in 1993.
(2) Excludes franchise fees related to refranchised Company-owned Centers;
$56,000 in 1995, $3,100 in 1994 and $132,700 in 1993.
(3) Excludes franchise costs related to refranchised Company-owned Centers;
$7,500 in 1995, $704 in 1994 and $5,603 in 1993.
At December 31, 1995, 43 franchises had been sold which were not open
and commitment fees for 18 franchises had been paid, representing $655,553 in
deferred franchise sales revenue, compared to 57 unopened franchises and
commitment fees for 27 franchises representing $1,009,663 in deferred
franchise sales revenue at the end of 1994.
Between December 1992 and May 1993, the Company offered certain
franchisees with undeveloped licenses shares of the Company's common stock in
exchange for cancellation of the franchisee's unopened franchise agreement.
The Company offered 3,111 shares in exchange for the cancellation of the
franchisee's first unopened franchise, plus 1,867 shares for any additional
franchises owned by the same franchisee and canceled. Between December 31,
1992, and May 12, 1993, 41 unopened franchises were canceled as the result of
this offer. The common stock issued in exchange for the franchises canceled
was recorded at $235,200, representing the market value of the stock at the
time the plan was approved by the Board of Directors for offers accepted
prior to April 15, 1993, and representing the market value of the stock at
the date the offer was accepted for offers accepted after April 16, 1993.
The deferred sales revenue associated with the franchises canceled of
$559,787, reduced by the value of the stock issued ($235,200) and the related
deferred franchising costs of $169,835 was recorded as income in 1993
($154,752). In addition, the Company terminated six licenses/applications in
1995, fourteen licenses in 1994 and sixteen licenses in 1993 for
non-performance, representing income of $18,075, $98,287 and $88,487,
respectively.
In 1995, the Company realized marketing allowances and gross margins
on product and equipment sales of $463,184, as compared to $505,382 in 1994
and $396,269 in 1993. The gross margins on product and equipment sales are
affected by the opening of new centers which was relatively consistent in
number to 1994 and increased compared to 1993. Marketing allowances are also
affected by the opening of new centers, but were adversely affected by the
termination and closure of the thirteen centers in 1995. Product and
equipment revenue represents the sale of fluid dispensing equipment and other
supplies to franchisees, and marketing allowances relate to the sale of oil
filters, air filters, oil additives, and certain other products.
Company-owned Centers at December 31, 1995, include 15 Centers located
in Denver, Colorado, 8 Centers in Seattle, Washington, and 1 Center each in
Arizona, Pennsylvania, Maryland, Nebraska, Rhode Island and Massachusetts.
11
<PAGE>
The following table shows the Company's activity with respect to
Company-owned Centers over the past three years:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Company-owned Centers at
the beginning of the year........ 29 32 34
New Centers built or purchased... 1 1 2
Centers acquired from failed
franchisees...................... 1 1 3
Centers sold..................... (2) (2) (7)
Centers closed .................. - (3) -
---- ---- ----
Company-owned Centers at the end
of the year ..................... 29 29 32
---- ---- ----
---- ---- ----
Average Number of Centers operated
during the year based on number of
months operated.................. 29 29 36
---- ---- ----
---- ---- ----
</TABLE>
Company-owned Centers have become a significant portion of the
Company's business since 1990 and are expected to increase in proportion to
the total number of Grease Monkey Centers open in the future. Historically,
Company-owned Centers were Centers relinquished by failed franchisees,
acquired from franchisees through the Company's exercise of its right of
first refusal, or purchased by the Company. In the future, the Company
expects to increase the number of Company-owned Centers by leasing new
built-to-suit Centers and by acquiring existing quick lubes from Grease
Monkey franchisees and independents. Centers which, in the past, have been
acquired from failed franchisees were acquired due to the failure of the
franchisee to pay amounts due the Company, principally rent and royalties.
The acquisition of Centers from failed franchisees is expected to be limited
in the future due to overall improvement in performance of the franchisees'
Centers and compliance of the franchisees with the terms of the Company's
franchise agreements.
12
<PAGE>
The following table sets forth the results of operations from Centers
which were built or purchased by the Company as compared to the results of
operations from Centers acquired from failed franchisees:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1995 1994 1993
------------ --------- ----------
<S> <C> <C> <C>
Centers built or purchased:
Revenue................................ $ 10,258,432 9,801,533 10,066,099
Expenses............................... 8,545,028 8,109,243 8,314,263
------------ --------- ----------
Income (loss) before depreciation,
amortization and division overhead.... 1,713,404 1,692,290 1,751,836
------------ --------- ----------
Centers acquired from failed
franchisees:
Revenue............................... 2,204,200 2,518,039 4,424,052
Expenses.............................. 2,272,279 2,475,607 4,582,442
------------ --------- ----------
Income (loss) before depreciation,
amortization and division overhead... (68,079) 42,432 (158,390)
------------ --------- ----------
Combined income (loss) before
depreciation, amortization and
division overhead.................... 1,645,325 1,734,722 1,593,446
Depreciation............................ (527,050) (506,346) (675,967)
Amortization............................ (144,465) (120,239) (109,213)
Company-Owned Centers Division
Overhead (1)......................... (564,719) (648,088) (894,683)
------------ --------- ----------
Operating income (loss) from
Company-owned Centers (2)............ $ 409,091 460,049 (86,417)
------------ --------- ----------
------------ --------- ----------
Number of Centers by category:
Built or purchased.................... 20 21 20
Failed franchises acquired............ 9 8 12
------------ --------- ----------
Total............................. 29 29 32
------------ --------- ----------
------------ --------- ----------
</TABLE>
(1) Consists of management, accounting and administrative personnel and their
related expenses which are directly identifiable to the Company-owned
Centers division and is included in general and administrative expenses
in the Company's financial statements.
(2) Included in the above operating results are results from refranchised
centers through the date of sale.
13
<PAGE>
Leasing revenue represents revenue primarily derived from properties
subleased by the Company to franchisees. Leasing revenue, which includes
rent and interest income related to operating and capital leases, was
$1,391,886 in 1995; $1,671,234 in 1994; and $1,653,810 in 1993.
Leasing expense represents leasing costs incurred in connection with
properties leased by the Company and then subleased to franchisees. Leasing
expense, which includes rent and interest expense related to capital and
operating leases, was $1,401,978 in 1995; $1,588,918 in 1994; and $1,527,157
in 1993.
General and administrative expenses decreased by 6% in 1995, as compared
to a decrease of 3% in 1994. The decrease in expense for 1995 is primarily
attributable to a decrease in litigation expenses, travel and entertainment
expenses, and decreased franchise advertising and development expenses in
Mexico, offset by losses incurred due to the disposition of obsolete assets.
Due to the decline in the economy in Mexico, development expenses for that
region were below expectations and prior year, but activity in the Mexican
market is expected to resume in 1996 if the economy in Mexico continues to
improve. The decrease in 1994 is principally due to decreased litigation
expenses and a reduction in Company-owned Center's general and administrative
expense as a result of a decline in the number of centers from 1993 to 1994
and a redesign of the Company-owned Center management structure. General and
administrative expenses are expected to increase slightly in 1996, and are
expected to grow in future years with growth in the system.
During 1992, the Company recorded an expense of $255,652 for a
litigation award, including costs and interest. The award was the result of
a judgment entered against the Company in connection with a lawsuit filed
against the Company by an elderly couple who allegedly loaned the sum of
$450,000 to a former president of the Company. The Company appealed this
decision and posted an appeal bond for the amount of the judgment and the
estimated interest. The appeal was denied by the Appeals Court and the
Company requested the Colorado Supreme Court to review this case. The
Colorado Supreme Court granted a Writ of Certiorari on November 7, 1994. On
September 21, 1995, the Supreme Court of Colorado affirmed the judgement of
the Colorado Court of Appeals. On October 26, 1995, final payment in the
amount of $312,144 was made to the plaintiffs to cover the settlement award,
accrued interest and certain court costs.
In February of 1994, the Company entered into a settlement agreement
with a landlord after the suspension of lease payments by the Company on four
of its leases, three of which pertained to sites which were operated as
Company-owned Centers and one which formerly was a franchised center. The
settlement consisted of a cash settlement payment of $350,000, a reduction of
lease payments for the period from October 1, 1993, through March 31, 1994,
the termination of four lease obligations which represented future lease
payments approximating $2.6 million, the refranchising of two centers, the
forgiveness of receivables and the performance by the Company of certain
operating commitments on two centers. Included in the gain (loss) on
sale/disposition of centers is a loss of $420,000 and $5,686 in 1993 and
1994, respectively, related to this settlement.
14
<PAGE>
The provision for credit losses increased in 1995 to $151,800 from
$112,509 in 1994 and $133,091 in 1993. The increase is attributable to the
deterioration of five franchised center accounts. Subsequent to year-end, the
Company has taken over the operations of three of these centers. In addition,
the Company entered into a settlement agreement with the franchisee of the
other two centers in conjunction with the transfer of ownership of the
centers to a new franchisee.
Depreciation expense totaled $638,352 in 1995 compared to $619,047 in
1994 and $768,792 in 1993. The decrease in expense from 1993 to 1994 is due
to a decrease in the average number of Company-owned Centers offset by
depreciation on 1994 capital expenditures. Increases in 1995 depreciation
are primarily due to depreciation on 1995 capital expenditures. Increases in
amortization in 1994 and 1995 are due to goodwill recorded on the acquisition
of centers.
Gain (loss) on sale of centers represents the net results of the
refranchising/disposal of Company-owned Centers. When the Company
refranchises a center, a franchise license fee is included in the sales price
and included in the resulting gain or loss on sale. The gain of $6,705 in
1995 represents the refranchising of two Company-owned Centers and the
refranchising of one closed center. The loss of $12,792 in 1994 represents
the refranchising of one Company-owned Center, plus additional losses of
$5,686 incurred due to the settlement agreement with a landlord as previously
discussed. The loss in 1993 of $376,148 includes $420,000 of losses recorded
as a result of the settlement agreement with a landlord and the refranchising
of seven Company-owned Centers.
Interest expense includes interest on debt financing and interest
recorded on capital leases of Company-owned Centers. The decrease in interest
expense from $792,475 in 1993 to $545,881 in 1994 is due primarily to a
decrease in the number of Company-owned Centers leased due to the
refranchising of seven centers, and the Company being released from four
leases as a result of the settlement agreement with a landlord as discussed
previously. The increase in interest expense from $545,881 in 1994 to
$562,105 in 1995 is due primarily to an increase in debt due to draws on a
line of credit with a motor oil supplier.
15
<PAGE>
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 also provided a $750,000 two-year line of credit effective
August of 1991. The Company's 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.
During April 1995, the Company entered into two agreements with a 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 by the assignment of leases and lubrication equipment of certain
Company-owned Centers. As of December 31, 1995, the Company had borrowed
approximately $1,600,000 under the line to refinance existing debt with the
motor oil supplier, for acquisitions and for working capital. 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.
Another 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.
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 $162,000. 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
GMI and its franchisees to obtain real estate development capital.
Historically, Grease Monkey Centers have been built utilizing build-to-suit
services, whereby the land is purchased and the building is constructed to
GMI's specifications, then leased to GMI or to a franchisee, by a third
party.
16
<PAGE>
However, the franchisees have moved toward purchasing and developing the
real estate for their own account, thereby creating greater value in their
business. Development of GMI-owned Centers will continue to utilize
build-to-suit capital for expansion.
LIQUIDITY
Cash provided by operations during 1995 was $238,398 as compared to
$460,546 provided by operations in 1994. The decrease is primarily a result
of fewer new franchise sales, and an increase in accounts receivable balances.
Cash used for investing activities was $825,966 in 1995 and $46,216 in
1994. This consisted primarily of cash used for the acquisition of centers
of $870,388 in 1995, capital expenditures of $218,041 in 1995 and $252,049 in
1994 (which consisted primarily of computer systems and Center equipment) and
receipts on direct financing leases of $181,155 and $204,098 in 1995 and
1994, respectively.
Cash provided by financing activities was $716,104 in 1995 compared to
cash used in financing activities of ($170,795) in 1994. Cash provided by
financing activities in 1995 includes proceeds from long-term debt of
$1,241,880 and the release of restricted cash related to a settlement award.
Cash provided by financing activities in 1994 includes $1,137,900 (net of
offering costs of $162,100) from the issuance of Series C Preferred stock.
Cash used to reduce long-term debt was $350,372 in 1995 and $432,403 in 1994
and cash used to reduce capital lease obligations was $307,669 in 1995 and
$320,582 in 1994. Financing activities in 1994 also included $25,000 that
was used to buy-out a capital lease, $378,000 was used to pay off a related
party notes payable, and $152,710 was used for other financing activities.
The Company does not have any material commitments for capital
expenditures at December 31, 1995. 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 1996.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF
(SFAS 121) was issued in March 1995, by the Financial Accounting Standards
Board. It requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. SFAS 121 is required to be adopted for
fiscal years beginning after December 15, 1995. The adoption of SFAS 121 is
not expected to have a significant effect on the Company's financial
statements.
Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION (SFAS 123), was issued by the Financial Accounting
Standards Board in October 1995. SFAS 123 establishes financial accounting
and reporting standards for stock-based employee compensation plans as well
as transactions in which an entity issues its equity
17
<PAGE>
instruments to acquire goods and services from non-employees. This statement
defines a fair value based method of accounting for employee stock option or
similar equity instruments, and encourages all entities to adopt that method
of accounting for all of their employee stock compensation plans. However,
it also allows an entity to continue to measure compensation cost for those
plans using the intrinsic value based method of accounting prescribed by APB
Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. Entities electing
to remain with the accounting in Opinion 25 must make pro forma disclosures
on net income and, if presented, earning per share, as if the fair value
based method of accounting defined by SFAS 123 had been applied. SFAS 123 is
applicable to fiscal years beginning after December 15, 1995. The Company
currently accounts for its equity instruments using the accounting prescribed
by Opinion 25. The Company does not currently expect to adopt the accounting
prescribed by SFAS 123; however, the Company will include the disclosures
required by SFAS 123 in future financial statements.
Item 7. FINANCIAL STATEMENTS
All financial statements required to be filed hereunder are attached
hereto following the signature page.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
18
<PAGE>
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
(a) IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS.
DIRECTORS.
The present term of office of each director will expire at the next
Annual Meeting of Shareholders. The name and position with the Company and
age of each director and the period during which each director has served are
as follows:
<TABLE>
<CAPTION>
NAME AND POSITION, IF DIRECTOR
ANY, IN THE COMPANY AGE SINCE
----------------------- ---- ---------
<S> <C> <C>
Rex L. Utsler 50 1991
(Chairman of the Board
and President of GMHC
and GMI)
Jerry D. Armstrong 65 1991
Jim D. Baldwin 63 1994
Cortlandt S. Dietler 74 1995
Wayne H. Patterson 50 1994
Charles E. Steinbrueck 52 1994
James B. Wallace 67 1991
George F. Wood 52 1991
</TABLE>
There are no arrangements or understanding between any director and any
other person pursuant to which any director was selected as such.
19
<PAGE>
EXECUTIVE OFFICERS.
The executive officers of the Company are elected annually at the first
meeting of the Company's Board of Directors held after each annual meeting of
shareholders. Each executive officer will hold office until his or her
successor is duly elected and qualified or until his or her death or
resignation or until he or she shall have been removed in the manner provided
in the Company's Bylaws. The current executive officers of the Company are
as follows:
<TABLE>
<CAPTION>
NAME OF EXECUTIVE OFFICER OFFICER
AND POSITION IN COMPANY AGE SINCE
------------------------- ---- --------
<S> <C> <C>
Rex L. Utsler 50 1991
(President and Chairman
of the Board)
T. Timothy Kershisnik 38 1992
(Controller, Treasurer and
Corporate Secretary)
Darcy A. Erickson 44 1993
(Vice President-Marketing
and Communications)
Dennis R. McCarthy 44 1994
(Vice President -
Franchise Support Services)
James E. Johnson 42 1995
(Vice President -
Real Estate Development)
Michael J. Brunetti 39 1995
(Vice President -
Franchise Development)
</TABLE>
20
<PAGE>
BUSINESS EXPERIENCE.
The following is a brief account of the business experience for the last
five years of each director and executive officer of the Company:
<TABLE>
<CAPTION>
NAME OF DIRECTOR
OR EXECUTIVE OFFICER PRINCIPAL OCCUPATION DURING THE LAST FIVE YEARS
- -------------------- -----------------------------------------------
<S> <C>
Rex L. Utsler President and Chairman of the Board of Grease
Monkey Holding Corporation ("GMHC"), Grease
Monkey International, Inc. ("GMI"), and all
other wholly-owned subsidiaries of the
Company, since March 1991; President and
Chief Executive Officer of both First of
September Corporation, a financial investment
group, and its predecessor, Bountiful
Corporation, which was involved in crude oil
gathering, transportation and marketing,
since 1979; Chairman of the Board of Savant
Resources, Inc., an oil and gas exploration
and development company, from 1988 to July
1994.
T. Timothy Kershisnik Controller and Treasurer of GMHC and GMI
since 1992; appointed Corporate Secretary in
April 1994; employed by KPMG Peat Marwick
from 1980 to 1992, Senior Manager at KPMG
Peat Marwick from 1987 through 1992.
Darcy A. Erickson Vice President, Marketing and Communications
at GMI since August 1993; Marketing and
Communications Director from April 1992 to
August 1993; Self-employed as a marketing and
training consultant from 1987 to 1992.
Dennis R. McCarthy Vice President, Franchise Support Services of
GMI from April 1994 to present; Southeast
Regional Manager from January 1994 to April
1994; employed by Mobil Corporation from 1973
to December 1993, most recently as National
Lubricants Manager.
James E. Johnson Vice President, Real Estate Development since
February 1995; Real Estate consultant to GMI
from September 1993 to January 1995; 1990 to
1993, President and CEO of SRTI, a
Denver-based environmental remediation
company; 1982 to 1990, Vice President of
Development for SullivanHayes Companies, a
Denver-based real estate firm.
</TABLE>
21
<PAGE>
<TABLE>
<S> <C>
Michael J. Brunetti Vice President, Franchise Development since
July 1995; March 1993 to July 1995, Director
of Region Development - Western Region for
Moto Photo Inc., a franchisor of photography
imaging centers located in Dayton, Ohio.
From August 1987 to August 1992, was employed
by Taco Johns International, Inc., a
franchisor of fast food Mexican style
restaurants located in Cheyenne, Wyoming,
most recently as Vice President of Franchise
Development.
Jerry D. Armstrong Partner in Brownlie, Wallace, Armstrong and
Bander Exploration since 1992. He served as
senior vice president and member of the Board
of Directors of BWAB Incorporated from 1980
to 1992.
Jim D. Baldwin Retired President of King Soopers, a retail
grocery store chain owned by Dillon
Companies, a subsidiary of The Kroger
Company, from 1979 to 1990. Mr. Baldwin was
with Dillon Companies for over 40 years.
Cortlandt S. Dietler President and CEO of TransMontaigne Oil
Company from March 1995 to present; Chairman
and CEO of Associated Natural Gas
Corporation, from 1980 to February 1995.
Wayne H. Patterson Chairman, QuickPen International, a
commercial software and systems company,
since December 1992; Principal, Patterson
Consulting, a management consulting firm,
December 1991 to present; Chairman, Live
Entertainment, 1990 to 1991; Chairman, Pace
Membership Warehouse, from 1988 to 1990.
Charles E. Steinbrueck Managing partner of Retail Venture
Partnership, a partnership specializing in
investments of emerging public companies,
from 1993 to present; Founder, President, and
CEO of Pace Membership Warehouse from 1983
to 1993.
James B. Wallace Partner in Brownlie, Wallace, Armstrong and
Bander Exploration from 1992 to present;
President of BWAB Incorporated, an oil and
gas production company, from 1980 to 1992.
George F. Wood Sole proprietor of Wood and Co., an investment
counseling firm, since 1982.
</TABLE>
22
<PAGE>
(b) IDENTIFICATION OF SIGNIFICANT EMPLOYEES; BUSINESS EXPERIENCE.
The following is a brief account of the business experience for the last
five years of each significant employee (not an officer) of the Company:
<TABLE>
<CAPTION>
NAME OF EMPLOYEE AGE PRINCIPAL OCCUPATION DURING THE LAST FIVE YEARS
---------------- --- -----------------------------------------------
<S> <C> <C>
Jeffrey D. Barkman 41 General Manager of GMI's Company Center
Division, Eastern Region, from November 1993
to present; General Manager of GMI's Company
Center Division from February 1993 to
November 1993; Coordinator of Information
Systems at GMI from 1991 to February 1993;
Sales Manager for Sage Microsystems, Inc.,
from June 1990 to July 1991; owner and
manager of Carriage Care quick lube from
August 1989 to July 1991.
Richard S. Etchey 42 General Manager of GMI's Company Center
Division, Western Region, from June 1995 to
present; Management Consultant for Smart
Healy Investment Team from September 1994 to
May 1995; Manager with Quaker State Minit
Lube from October 1989 to September 1994.
</TABLE>
(c) FAMILY RELATIONSHIPS. None
(d) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS. None.
(e) COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Section 16(a) of the Securities Exchange Act of 1934 requires Company's
officers and directors and persons who own more than ten percent of the
Company's outstanding common stock to file reports of ownership and changes
in ownership with the Securities and Exchange Commission ("SEC"). Officers,
directors and greater than ten percent shareholders are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms
they file.
Based solely on a review of Forms 3 and 4 and amendments thereto
furnished to the Company during the Company's fiscal year ended December 31,
1995, the directors, officers or more than 10% shareholders of the Company
who failed to timely file a Form 3 or Form 4 were Jerry D. Armstrong, Jim D.
Baldwin, Wayne H. Patterson, James B. Wallace, George F. Wood and Charles E.
Steinbrueck, each of whom inadvertently filed a late Form 4 for the grant
23
<PAGE>
of stock options on June 26, 1995, of which none have been exercised. In
addition, Jerry D. Armstrong and James B. Wallace inadvertently filed a late
Form 4 for the purchase of common stock. In addition, Cortlandt S. Dietler
filed a late Form 3 for the Initial Statement of Beneficial Ownership of
Securities.
ITEM 10. EXECUTIVE COMPENSATION
(a) and (b) GENERAL AND SUMMARY COMPENSATION TABLE
The following table shows all plan and non-plan compensation paid by the
Company and its subsidiaries for services rendered for the fiscal year ended
December 31, 1995, to each of the most highly compensated executive officers
of the Company whose total cash compensation exceeded $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
OTHER ANNUAL
NAME PRINCIPAL POSITION YEAR SALARY COMPENSATION(1)
---- ------------------ ---- ------ ---------------
<S> <C> <C> <C> <C>
Rex L. Utsler President and Chairman of
the Board of Directors of
GMHC and GMI 1995 $157,842 $11,328
1994 $151,522 $10,922
1993 $154,711 $15,321
</TABLE>
Mr. Utsler became Chairman of the Board and President on March 4, 1991.
(1) Includes costs of a leased car and the Company's 401(k) matching
contribution.
COMPENSATION UNDER PLANS
On May 4, 1992, GMI adopted the Grease Monkey International, Inc. 401(k)
Savings and Retirement Plan and Trust Agreement (the "Plan"), effective as of
April 1, 1992. Colorado National Bank Trust and Investment Group is Trustee
under the Plan. At present, the Company contributes to the Plan on a
quarterly basis 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 1995, the Company contributed 11,542
shares to the Plan at an average of $1.82 per share. During 1994, the
Company contributed 12,981 shares to the Plan at an average of $2.27 per
share.
24
<PAGE>
(c) and (d) STOCK OPTION AND STOCK APPRECIATION RIGHT PLANS.
STOCK OPTION PLANS
The Company adopted the 1986 Incentive Stock Option Plan ("1986 Plan")
which was approved by the shareholders on February 17, 1987, in which the
employees of the Company and its subsidiaries are eligible to participate.
The 1986 Plan authorizes the granting of options to purchase up to 66,667
shares of the Company's common stock.
The Company adopted the 1993 Incentive Stock Option Plan ("1993 Plan")
which was approved by the shareholders on June 30, 1993. All employees of
the Company and its subsidiaries are eligible to participate. The 1993 Plan
authorizes the granting of options to purchase 300,000 shares of the
Company's common stock.
The Company adopted the 1994 Stock Incentive Plan ("1994 Plan") which
was approved by the shareholders on July 11, 1994. All employees, officers,
directors and consultants of the Company and its subsidiaries are eligible to
participate. The 1994 Plan authorizes the granting of options to purchase
500,000 shares of the Company's common stock.
The 1986 and 1993 Plans are administered by an Option Committee of not
less than three persons appointed by the Board of Directors. The members of
the Option Committee for 1995 were Jerry D. Armstrong, Jim D. Baldwin and
Kirk E. Douglas (who resigned from the Board on November 30, 1995). The
Option Committee met once during 1995. All members were present at the
meeting. New members of the Option Committee will be selected after the
Annual Meeting of Shareholders.
The 1994 plan is administered by an Option Committee of not less than
three persons appointed by the Board of Directors. The members of the Option
Committee are Jack D. Rule, Jr., George H. Fancher, Jr. and Kermit L. Darkey.
The Option Committee met once during 1995. All members were present at the
meeting. New members of the Option Committee will be selected after the
Annual Meeting of Shareholders.
The Option Committees select the employees to whom options are granted,
determine the time or times when any option granted becomes exercisable,
determine the period within which it becomes exercisable and determine the
price per share at which the option is exercisable, provided that no option
may be exercised more than 10 years after it is granted and the exercise
price must be at least the fair market value of the Company's common stock on
the date of the grant. If an employee owns more than 10% of the Company's
outstanding common stock, then the Option Committees may grant an option to
such employee only if the exercise price of the option is at least 110% of
the fair market value of the Company's common stock on the date of the grant.
An option granted to any employee owning more than 10% of the Company's
outstanding common stock may not be exercisable for longer than five years
from the date of the grant.
Payment for shares of common stock purchased upon exercise of any option
must be in full and in cash or, with certain restrictions, the surrender of
other shares of common stock of the Company owned by the employee at the time
the option is exercised. No option may be
25
<PAGE>
transferred except by will or the laws of descent and distribution and,
during the optionee's lifetime, the option may be exercised only by the
optionee. If the employment of the optionee is terminated for any reason
other than death, retirement or disability, the option terminates. An option
held by an optionee who dies may be exercised by the representative of the
optionee's estate within one year after the date of death. An Option held by
an optionee who retires or who becomes disabled, may be exercised within
three months or one year, respectively, following the date of retirement or
disability. In all cases, however, an option must be exercised within the
period of time that the option originally was exercisable.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- ------------------------------------------------------------------------------
(A) (B) (C) (D) (E)
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE
- ---- ---------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
Rex L. Utsler 50,000 11.6% $1.72 9-25-00
</TABLE>
(e) LONG-TERM INCENTIVE PLAN. NONE.
(f) COMPENSATION OF DIRECTORS.
Directors of the Company who are not employees or officers are granted
stock options as compensation. Options are granted for services provided as
a director, with additional options granted for committee participation.
Options for 5,000 shares are granted annually for service as a director,
options for 2,500 shares are granted annually for service on the Option and
Audit Committees and options for 5,000 shares are granted annually for
service on the Long Range Planning Committee.
For the period from July 11, 1994, through June 26, 1995, options to
purchase 70,000 shares of common stock were granted which are exercisable for
a five year option period. The options were granted at the market value of
the Company's common stock on the date of grant, (market value being the
average of the bid and ask prices as of the close of business).
For the period from June 27, 1995, through the date of the next Annual
Meeting of Shareholders, options to purchase 75,000 shares of common stock
were granted which are exercisable for a five year option period. The
options were granted at the market value of the Company's common stock on the
date of grant (market value being the average of the bid and ask prices as of
the close of business).
26
<PAGE>
(g) EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND
CHANGE-IN-CONTROL ARRANGEMENTS. NONE.
(h) REPORT ON REPRICING OF OPTIONS/SARS. NONE.
27
<PAGE>
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
(a) and (b) Security Ownership of Certain Beneficial Owners
and Management.
The following table sets forth as of March 1, 1996, the
number of shares of the Company's $0.03 par value common stock
owned by each person who owned of record, or was known to own
beneficially, more than 5% of the number of shares of the
Company's outstanding common stock, sets forth the number of
shares of the Company's outstanding common stock beneficially
owned by each of the Company's directors, and sets forth the
number of shares of the Company's common stock beneficially owned
by all of the Company's directors and officers as a group:
<TABLE>
<CAPTION>
PRESENTLY
CONVERTIBLE
PRESENTLY PREFERRED
NAME OF COMMON EXERCISABLE STOCK
BENEFICIAL SHARES OPTIONS AND AND UNPAID BENEFICIAL TOTAL PERCENT
OWNER(1) OWNED WARRANTS DIVIDENDS(6) OWNERSHIP OWNERSHIP OF CLASS
- ------------------------ --------- ----------- ------------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
First of September
Corporation(2)(4) 1,479,432 500,000 168,800 - 2,148,232 34.2%
Rex L. Utsler(2)(3)(7) 219,123 50,000 - 2,148,232 2,417,355 38.5%
Jerry D. Armstrong(2)(3) 179,260 20,000 45,418 2,148,232 2,392,910 38.1%
James B. Wallace(2)(3) 179,261 15,000 23,015 2,148,232 2,365,508 37.7%
Wayne H. Patterson(2) - 22,500 22,403 - 44,903 .7%
Charles E. Steinbrueck(2) - 20,000 33,605 - 53,605 .9%
George F. Wood(2) 38,639 15,000 4,481 - 58,120 .9%
Jim D. Baldwin(2) - 17,500 11,202 - 28,702 .5%
Cortlandt S. Dietler(2) 55,556 10,000 17,923 - 83,479 1.3%
All officers and
directors as a group
(13 persons)(5) 671,839 380,000 167,008 2,148,232 3,367,079 53.7%
</TABLE>
__________
To avoid duplication, the aggregate number of shares of common
stock and total percentage of all officers and directors as a
group have been computed to include only once the shares of
common stock beneficially owned by First of September
Corporation.
(1) All beneficial owners listed have sole voting and/or
investment power with respect to the shares shown unless
otherwise indicated.
28
<PAGE>
(2) The address for First of September Corporation and Rex
L. Utsler is 216 16th Street, Suite 1100, Denver Colorado, 80202.
The address for Messrs. Armstrong and Wallace is 475 17th Street,
Suite 1300, Denver, Colorado 80202. The address for George F.
Wood is 1115 Grant St., Denver, Colorado, 80203. The address for
Wayne H. Patterson is 384 Inverness Drive South, Suite 200,
Englewood, CO, 80112. The address for Charles E. Steinbrueck is
165 High Street, Denver, CO, 80218. The address for Jim D.
Baldwin is 901 Chestnut Trail, Littleton, CO, 80121. The address
for Cortlandt S. Dietler is 900 Republic Plaza, 370 Seventeenth
St., Denver, CO, 80202.
(3) Rex L. Utsler, Jerry D. Armstrong and James B. Wallace
own a total of 64% of the outstanding stock of First of September
Corporation. As such they are deemed to be beneficial owners of
the shares of common stock of the Company which are beneficially
owned by First of September Corporation.
(4) Includes 500,000 shares of common stock underlying
presently exercisable warrants at $1.50 per share.
(5) Includes 380,000 shares underlying presently
exercisable stock options granted under the 1986, 1993 and 1994
Incentive Stock Option Plans that have exercise prices between
$1.59 per share and $2.22 per share.
(6) Represents shares of common stock underlying shares of
Series C, 6% Preferred Stock with a stated value of $100 per
share plus accumulated unpaid dividends, convertible into common
stock at $2.50 per share.
(7) Does not include 3,100 shares held by Mr. Utsler's
children, of which he disclaims beneficial ownership.
(c) CHANGES IN CONTROL. None.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
29
<PAGE>
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) (3) LIST OF EXHIBITS REQUIRED BY ITEM 601 OF
REGULATION S-B.
3. Articles of Incorporation and Bylaws.
(a) Bylaws, as amended through March 4,
1991, incorporated by reference to
the Annual Report on Form 10-KSB
for the fiscal year ended December
31, 1992.
(b) Restated Articles of Incorporation,
filed November 1, 1991,
incorporated by reference to the
Annual Report on Form 10-K for the
fiscal year ended December 31,
1991.
(c) Articles of Amendment to Articles
of Incorporation filed June 29,
1992 incorporated by reference to
the Annual Report on Form 10-KSB
for the fiscal year ended December
31, 1992.
4. Instruments Defining the Rights of Holders Including
Indentures.
(a) Statement of Designation, Voting
Powers, Preferences, and Rights of
the Series C Preferred Stock of
Grease Monkey Holding Corporation
incorporated by reference to the
Annual Report on Form 10-KSB for
the fiscal year ended December 31,
1993.
10. Material Contracts.
(a) 1986 Incentive Stock Option Plan,
incorporated by reference to the
Annual Report on Form 10-KSB for
the fiscal year ended December 31,
1993.
(b) 1993 Incentive Stock Option Plan,
incorporated by reference to the
Annual Report on Form 10-KSB for
the fiscal year ended December 31,
1994.
(c) 1994 Stock Incentive Plan,
incorporated by reference to the
Annual Report on Form 10-KSB for
the fiscal year ended December 31,
1994.
(d) Lease Agreement dated August 20,
1991, between Clarmont Enterprises,
Inc., and Grease Monkey
International, Inc., incorporated
by reference to the Annual Report
on Form 10-K for the fiscal year
ended December 31, 1991.
30
<PAGE>
(e) Amendment Number One dated May 5,
1993, to Lease Agreement dated
August 20, 1991, between Venture
West Investments Limited (f.k.a.
Clarmont Enterprises, Inc.) and
Grease Monkey International, Inc.,
incorporated by reference to the
Annual Report on Form 10-KSB for
the fiscal year ended December 31,
1994.
(f) Loan Documents for $2,400,000 line
of credit, incorporated by
reference to the Quarterly report
on Form 10-QSB for the period ended
June 30, 1995.
(g) License Agreement dated July 10,
1989, between Grease Monkey
International, Inc., and Compania
Espanola de Petroleos, S.A. (also
known as "CEPSA"), of Madrid,
Spain, incorporated by reference to
the Current Report on Form 8-K
dated July 10, 1989.
(h) Loan documents from Preferred Risk
Loan for $200,000 incorporated by
reference to the Annual Report on
Form 10-K for the fiscal year ended
December 31, 1989:
1. Construction Loan Agreement
2. Promissory Note
3. Promissory Note Clarification
4. Deed of Trust
5. Assignment of Rents
6. Estoppel Certificate
7. Quaker State Guaranty
8. Guaranty Agreement by
Quaker State for benefit
of Preferred Risk
(i) Current form of Grease Monkey
Franchise Agreement in effect since
April 28, 1994, incorporated by
reference to the Annual Report on
Form 10-KSB for the fiscal year
ended December 31, 1994.
(j) Mobil Oil Company Supply Contract
dated February 24, 1993, for Center
#234 (similar contract form used
for all centers), incorporated by
reference to Annual Report on Form
10-KSB for the fiscal year ended
December 31, 1992.
(k) Form of Seattle Grease Monkey
Limited Partnership Purchase
Agreement incorporated by reference
to the Annual Report on Form 10-KSB
for the fiscal year ended December
31, 1993.
31
<PAGE>
11. Statement Re: Computation of Per Share Earnings
21. Subsidiaries of the Registrant
(a) Grease Monkey International, Inc.,
incorporated in the State of
Colorado (100% owned).
(b) GM Properties, Inc., incorporated
in the State of Colorado (100%
owned).
23. Consent of Experts and Counsel.
(a) Consent of KPMG Peat Marwick LLP.
27. Financial Data Schedule
(b) Reports on Form 8-K.
No Reports on Form 8-K were filed during the last
quarter of the period covered by this report.
32
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act,
the Registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Dated: March 26, 1996
GREASE MONKEY HOLDING CORPORATION,
a Utah corporation
By: /s/ REX L. UTSLER
------------------------
Rex L. Utsler, President
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
DATE NAME AND TITLE SIGNATURE
- -------------- ----------------------- -----------------------
March 26, 1996 REX L. UTSLER, Chairman /s/ REX L. UTSLER
of the Board and ------------------------
President (Principal Rex L. Utsler
Executive Officer)
March 26, 1996 T. TIMOTHY KERSHISNIK, /s/ T. TIMOTHY KERSHISNIK
Controller, Treasurer and ------------------------
Corporate Secretary T. Timothy Kershisnik
(Principal Financial and
Accounting Officer)
March 26, 1996 JERRY D. ARMSTRONG, /s/ JERRY D. ARMSTRONG
Director ------------------------
Jerry D. Armstrong
March 26, 1996 JIM D. BALDWIN, Director /s/ JIM D. BALDWIN
------------------------
Jim D. Baldwin
March 26, 1996 CORTLANDT S. DIETLER, /s/ CORTLANDT S. DIETLER,
Director ------------------------
Cortlandt S. Dietler
March 26, 1996 WAYNE H. PATTERSON, /s/ WAYNE H. PATTERSON
Director ------------------------
Wayne H. Patterson
March 26, 1996 CHARLES E. STEINBRUECK, /s/ CHARLES E. STEINBRUECK
Director ------------------------
Charles E. Steinbrueck
March 26, 1996 JAMES B. WALLACE, /s/ JAMES B. WALLACE
Director ------------------------
James B. Wallace
March 26, 1996 GEORGE F. WOOD, Director /s/ GEORGE F. WOOD
------------------------
George F. Wood
33
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND STOCKHOLDERS
GREASE MONKEY HOLDING CORPORATION:
We have audited the accompanying consolidated balance sheets of Grease Monkey
Holding Corporation and subsidiaries as of December 31, 1995 and 1994, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the three-year period ending December 31,
1995. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Grease
Monkey Holding Corporation and subsidiaries as of December 31, 1995 and 1994,
and the results of their operations and their cash flows for each of the
years in the three-year period ending December 31, 1995, in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Denver, Colorado
March 8, 1996
F-1
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1994
------------ -----------
<S> <C> <C>
Current Assets:
Cash........................................................ $ 385,167 256,631
Restricted cash including certificates of deposit........... 32,232 465,783
Accounts receivable, net of allowance for doubtful
accounts of $399,141 in 1995 and $309,394 in 1994.......... 1,123,267 867,062
Current portion of notes receivable, net of allowance for
uncollectible amounts (Note C)............................. 105,584 134,181
Current portion of net investment in direct financing
leases (Note G)............................................ 187,195 195,302
Inventories (Note F)........................................ 697,383 733,736
Prepaid expenses and supplies............................... 155,661 125,027
------------ -----------
TOTAL CURRENT ASSETS...................................... 2,686,489 2,777,722
------------ -----------
Property and Equipment, at Cost, Pledged (Notes F and G):
Land........................................................ 152,079 152,079
Buildings (including buildings under
capital leases)............................................ 5,294,542 5,268,460
Furniture and fixtures...................................... 486,648 511,806
Leasehold improvements...................................... 630,073 617,484
Machinery and equipment..................................... 1,454,289 1,414,961
------------ -----------
8,017,631 7,964,790
Less accumulated depreciation and amortization.............. (3,061,632) (2,680,599)
------------ -----------
NET PROPERTY AND EQUIPMENT 4,955,999 5,284,191
------------ -----------
Other Assets:
Net investment in direct financing leases (Note G).......... 3,331,596 3,543,750
Notes receivable, net of allowance for uncollectible
amounts (Note C)........................................... 99,036 116,168
Deferred franchising costs.................................. 159,788 198,854
Goodwill and covenants not to compete, net of accumulated
amortization of $746,793 in 1995 and $621,855 in 1994...... 1,588,348 1,110,152
Real estate held for sale................................... 173,500 173,500
Other assets, net of accumulated amortization of $120,713
in 1995 and $108,147 in 1994.............................. 150,877 141,805
------------ -----------
TOTAL OTHER ASSETS 5,503,145 5,284,229
------------ -----------
$ 13,145,633 13,346,142
------------ -----------
------------ -----------
</TABLE>
(continued on next page)
F-2
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1994
----------- ----------
<S> <C> <C>
Current Liabilities:
Accounts payable............................................ $ 773,983 958,023
Accrued salaries and wages.................................. 191,116 176,065
Other accrued liabilities................................... 218,426 319,351
Current portion of long-term debt (Note F).................. 420,887 320,315
Current portion of obligations under capital leases
(Note G)................................................... 363,209 307,669
Reserve for litigation award................................ - 298,091
------------ -----------
TOTAL CURRENT LIABILITIES................................. 1,967,621 2,379,514
------------ -----------
Long-Term Debt (Note F)....................................... 2,223,817 1,465,938
Obligations Under Capital Leases (Note G)..................... 6,374,027 6,746,748
Deferred Franchise Sales Revenue.............................. 655,553 1,009,663
Stockholders' Equity (Notes I and J):
Preferred stock, 200,000 shares authorized:
Series C Preferred stock, issued and outstanding 20,958
and 22,205 shares in 1995 and 1994, respectively,
stated value of $100.00................................... 2,095,838 2,220,500
Common stock, par value $0.03, 10,000,000 shares
authorized, 4,336,764 and 4,305,359 shares issued and
outstanding in 1995 and 1994, respectively................ 130,103 129,161
Capital in excess of par value.............................. 5,773,248 5,707,382
Accumulated deficit......................................... (6,074,574) (6,312,764)
------------ -----------
TOTAL STOCKHOLDERS' EQUITY................................ 1,924,615 1,744,279
Commitments and Contingencies (Notes G and K).................
------------ -----------
$ 13,145,633 13,346,142
------------ -----------
------------ -----------
</TABLE>
See notes to the consolidated financial statements
F-3
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1995 1994 1993
------------ ----------- -----------
<S> <C> <C> <C>
Operating Revenue:
Royalty fees.................................. $ 3,211,716 3,052,044 2,704,929
Franchise sales - center openings............. 455,110 385,219 59,682
Product and equipment revenue................. 1,021,730 1,260,055 791,172
Sales by Company-owned Centers................ 12,462,632 12,319,572 14,490,158
Leasing revenue............................... 1,391,886 1,671,234 1,653,810
Other......................................... 150,069 130,210 58,248
------------ ----------- -----------
18,693,143 18,818,334 19,757,999
------------ ----------- -----------
Operating Expenses:
Franchise costs - center openings............. 99,771 80,195 23,491
Product and equipment costs................... 558,546 754,673 394,903
Company-owned Centers......................... 10,817,307 10,584,850 12,896,712
Leasing expense............................... 1,401,978 1,588,918 1,527,157
General and administrative expenses........... 4,110,166 4,375,663 4,492,097
Provision for credit losses................... 151,800 112,509 133,091
Depreciation.................................. 638,352 619,047 768,792
Amortization.................................. 177,553 152,603 136,402
------------ ----------- -----------
17,955,473 18,268,458 20,372,645
------------ ----------- -----------
Operating income (loss)........................ 737,670 549,876 (614,646)
------------ ----------- -----------
Other income (expense):
Gain (loss) on sale/disposition of centers.... 6,705 (12,792) (376,148)
Undeveloped franchise licenses canceled....... 18,075 98,287 243,239
Interest income............................... 37,845 50,076 55,720
Interest expense (Note G)..................... (562,105) (545,881) (792,475)
------------ ----------- -----------
(499,480) (410,310) (869,664)
------------ ----------- -----------
Net income (loss).............................. $ 238,190 139,566 (1,484,310)
------------ ----------- -----------
------------ ----------- -----------
Earnings (loss) per common share............... $ 0.03 * (0.41)
------------ ----------- -----------
------------ ----------- -----------
Weighted average shares outstanding............ 4,354,680 4,288,946 3,871,927
------------ ----------- -----------
------------ ----------- -----------
* Less than $.01 income per share.
</TABLE>
See notes to the consolidated financial statements.
F-4
<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, 1992 . . . 80,000 $ 800,000 - 3,741,059 $112,232 4,720,870 (4,968,020) 665,082
Conversion of Series A Preferred
stock and accumulated unpaid
dividends of $108,000 to
common stock . . . . . . . . . . . (80,000) (800,000) - 405,357 12,161 787,839 - -
Subscriptions receivable . . . . . - - 789,000 - - - - 789,000
Issuance of Series B Preferred
stock subsequently converted to
Series C Preferred stock . . . . . 9,360 936,000 - - - - - 936,000
Issuance of common stock upon
exercise of employee stock
options. . . . . . . . . . . . . . - - - 3,334 100 6,152 - 6,252
Issuance of common stock pursuant
to employee benefit plan . . . . . - - - 10,146 304 30,082 - 30,386
Issuance of common stock pursuant
to cancellation of undeveloped
franchise licenses . . . . . . . . - - - 99,190 2,976 232,224 - 235,200
Common stock reacquired and
canceled . . . . . . . . . . . . . - - - (5,395) (162) (11,692) - (11,854)
Net loss . . . . . . . . . . . . . - - - - - - (1,484,310) (1,484,310)
------- ---------- -------- --------- -------- --------- ---------- ----------
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
</TABLE>
(continued on next page)
F-5
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
<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, 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 . . . . . - - - 11,542 346 20,682 - 21,028
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)
Common stock reacquired and
canceled . . . . . . . . . . . . . - - - (30,000) (900) (60,540) - (61,440)
Net income . . . . . . . . . . . . - - - - - - 238,190 238,190
------- ---------- -------- --------- -------- --------- ---------- ----------
Balance at December 31, 1995 . . . 20,958 $2,095,838 - 4,336,764 $130,103 5,773,248 (6,074,574) 1,924,615
------- ---------- -------- --------- -------- --------- ---------- ----------
------- ---------- -------- --------- -------- --------- ---------- ----------
</TABLE>
See notes to the consolidated financial statements
F-6
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1995 1994 1993
--------- -------- ----------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss). . . . . . . . . . $ 238,190 139,566 (1,484,310)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Increase in deferred franchise
sales revenue. . . . . . . . . . 129,000 493,000 360,600
Franchise sales revenue
recognized - center openings . . (455,110) (385,219) (59,682)
Increase in deferred
franchising costs. . . . . . . . (78,130) (77,272) (69,399)
Franchise costs recognized
- center openings. . . . . . . . 99,771 80,195 23,491
Provision for credit losses . . . 151,800 112,509 133,091
Loss realized on retirement
of property and equipment. . . . 18,130 7,938 5,053
Depreciation and amortization . . 815,905 771,650 905,194
Loss (gain) on sale of centers. . (6,705) 12,792 376,148
Payments on settlement
agreement. . . . . . . . . . . . - (425,686) -
Undeveloped franchise licenses
canceled . . . . . . . . . . . . (18,075) (98,287) (243,239)
Interest accrued on litigation
award. . . . . . . . . . . . . . 20,723 22,081 20,357
Other, net. . . . . . . . . . . . 17,113 (70,252) (59,451)
Change in assets and liabilities:
Increase in accounts
receivable . . . . . . . . . . (422,484) (279,576) (234,664)
Decrease in notes receivable. . 29,150 80,062 140,956
Decrease (increase) in
inventories. . . . . . . . . . (13,513) 76,614 (82,983)
Decrease (increase) in prepaid
expenses and supplies. . . . . (30,634) 71,631 (100,220)
Decrease in accounts payable. . (194,363) (103,493) (8,870)
Increase (decrease) in accrued
salaries and wages and other
accrued liabilities. . . . . . (62,370) 32,293 70,246
--------- -------- ----------
Net cash provided by (used
in) operating activities. . $ 238,398 460,546 (307,682)
--------- -------- ----------
</TABLE>
(Continued on next page)
F-7
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from investing activities:
Principal receipts on direct
financing leases . . . . . . . . . . . $ 181,155 204,098 139,901
Acquisition of centers. . . . . . . . . (870,388) - (58,942)
Sale of centers . . . . . . . . . . . . 123,233 21,050 147,717
Capital expenditures. . . . . . . . . . (218,041) (252,049) (268,153)
Decrease (increase) in other assets . . (41,925) (19,315) 25,073
--------- --------- ---------
Net cash used in investing
activities . . . . . . . . . . . . . (825,966) (46,216) (14,404)
--------- --------- ---------
Cash flows from financing
activities:
Proceeds from (payments on) notes
payable to a related party . . . . . . - (378,000) 393,000
Proceeds from long-term debt. . . . . . 1,241,880 - 775,860
Principal payments on long-term debt. . (350,372) (432,403) (649,495)
Principal payments on capital lease
obligations. . . . . . . . . . . . . . (307,669) (320,582) (340,868)
Issuance of common stock for options
exercised. . . . . . . . . . . . . . . - - 6,252
Issuance of preferred stock, net of
offering costs . . . . . . . . . . . . (7,500) 1,137,900 -
Payment of accumulated dividends upon
conversion of preferred stock to
common stock . . . . . . . . . . . . . (9,942) (902) -
Settlement of lease obligations . . . . - (25,000) (25,500)
Decrease (increase) in restricted
cash . . . . . . . . . . . . . . . . . 149,407 (130,248) 22,305
Increase (decrease) in lease deposit
obligations. . . . . . . . . . . . . . 300 (21,560) (10,861)
--------- --------- ---------
Net cash provided by (used in)
financing activities . . . . . . . . 716,104 (170,795) 170,693
--------- --------- ---------
Net increase (decrease) in cash . . . . . 128,536 243,535 (151,393)
Cash, beginning of year . . . . . . . . . 256,631 13,096 164,489
--------- --------- ---------
Cash, end of year . . . . . . . . . . . . $ 385,167 256,631 13,096
--------- --------- ---------
--------- --------- ---------
Supplemental disclosures of cash flow
information -
Cash paid during the year for
interest . . . . . . . . . . . . . . $ 955,889 1,002,206 1,190,963
--------- --------- ---------
--------- --------- ---------
</TABLE>
(Continued on next page)
F-8
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
Supplemental Schedule of Non-cash Investing and Financing Activities:
During the year ended December 31, 1995, there were the
following non-cash transactions: the Company issued 11,542
shares of stock at an average value of $1.82 per share in
accordance with its matching requirement under the Company's
401(k) plan; $11,612 of lease deposits were applied to past due
accounts receivable, and $312,144 of restricted cash was released
to fund a previously recorded litigation award. Additional non-
cash transactions included: the refranchising of three centers,
whereby the Company received $41,993 of notes receivable; $40,000
of liabilities were assumed by the purchaser; the Company assumed
liabilities of $5,000; and franchise fee revenue was recognized
in the amount of $28,000. In addition, the Company assumed
operations of a franchised center, resulting in a direct
financing lease being canceled and a capital lease building being
recorded in the amount of $184,524.
During the year ended December 31, 1994, there were the
following non-cash transactions: the Company issued 12,981
shares of stock at an average value of $2.27 per share in
accordance with its matching requirement under the Company's
401(k) plan; a franchisee applied the cancellation of 8,712
shares of common stock of the Company, at a market value of $2.25
per share, to his accounts receivable and notes receivable
balances; the Company's debt of $354,381 was assumed by a third
party in exchange for amounts owed the Company of $354,914; and
the Company, three franchisees, and one landlord entered into
transactions which relieved the Company of capital lease
obligations of $842,737, reduced direct financing lease
receivables by $618,725, increased long-term debt by $170,000 and
resulted in a net gain of $29,012. Additional non-cash
transactions included: the refranchising of one center, whereby
the Company received $37,351 of notes receivable; $14,263 of
liabilities were assumed by the purchaser; and $4,793 of
undeveloped licenses net of deferred franchise costs were
applied. In addition, the Company reacquired one center whereby
$59,201 of receivables were applied.
During the year ended December 31, 1993, there were the
following non-cash transactions: the Company issued 10,146
shares of stock at an average value of $2.99 per share in
accordance with its matching requirement under the Company's
401(k) plan; a franchise license in the amount of $7,782 net of
deferred franchising costs of $2,641 was canceled and applied to
a franchisee's accounts receivable balance; the Series A
Preferred stock including $108,000 of accumulated dividends was
converted to 405,357 shares of common stock at a conversion price
of $2.24 per share; a franchisee applied the cancellation of
4,978 shares of common stock of the Company, at a market value of
$2.13 per share, to his accounts receivable balance; a lawsuit
was settled with the receipt of a $37,332 note receivable and the
cancellation of 417 shares of common stock in exchange for
receivables of the same amount; a note payable to a related party
in the amount of $300,000 was exchanged for 3,000 shares of
Series B Preferred stock; and the Company issued 6,360 shares of
Series B Preferred stock to acquire that portion of the Seattle
Grease Monkey Limited Partnership which it did not previously
own. The Company valued the approximately 69% interest acquired
and the shares issued at $636,000. Additional non-cash
transactions included: the refranchising of seven centers,
whereby the Company received $42,956 of notes
(continued on next page)
F-9
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
receivable; $287,250 of liabilities were assumed by the
purchaser; net rent concessions of $56,981 were granted, and
franchise fee revenue was recognized in the amount of $92,700.
In addition, the Company reacquired five centers whereby $118,099
of receivables were applied, and $213,478 of liabilities were
assumed by the Company. In addition, capital lease obligations
assumed related to the acquisition of centers totaled $410,000
and direct financing leases recorded related to the refranchising
of centers totaled $841,745. The Company also entered into a
capital lease obligation for an additional Center which opened in
1994 in the amount of $192,431.
See notes to the consolidated financial statements.
F-10
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. DESCRIPTION OF BUSINESS
In 1980 Grease Monkey Holding Corporation (GMHC) acquired all of the
issued and outstanding common stock of Grease Monkey International, Inc.
(GMI), which operates, leases, manages and franchises automotive
quick-service preventive fluid maintenance centers (Grease Monkey Centers or
Centers). In 1987 GMHC established a wholly-owned subsidiary, GM Properties,
Inc. (GMP), for the purpose of acquiring (purchasing or leasing) real estate,
which in turn is leased to GMI franchisees. The three companies,
collectively are referred to as the "Company".
Grease Monkey Centers provide the automobile user with convenient
preventive fluid maintenance services. In about ten minutes, without an
appointment, Grease Monkey service technicians change the oil, install a new
oil filter, lubricate the chassis, adjust tire pressure, wash windows and
vacuum the interior of an automobile. At the same time, all fluid levels are
checked and topped off if necessary. Grease Monkey Centers also offer
transmission fluid changes, differential fluid changes, radiator flushes, air
conditioning recharges, automotive light bulb replacement, and oil additive
packages, and will replace air filters and install new wiper blades.
The principal markets in which Grease Monkey operates include twenty-six
states and Mexico with concentrations in California, Colorado, Iowa, Indiana,
North Carolina, New Jersey, Ohio, Pennsylvania, South Carolina, Texas,
Virginia and Washington.
The following table summarizes the number of Grease Monkey Centers in
operation during the last three fiscal years:
<TABLE>
<CAPTION>
December 31,
--------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Franchised Grease Monkey Centers......................... 181 176 162
Company-owned Grease Monkey Centers...................... 29 29 32
---- ---- ----
Total Grease Monkey Centers in operation at year end..... 210 205 194
---- ---- ----
---- ---- ----
</TABLE>
Included in Franchised Grease Monkey Centers are sixteen centers in 1995,
nine centers in 1994 and one center in 1993 located in Mexico.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION -- The consolidated financial statements include
the accounts of GMHC, its wholly-owned subsidiaries, and the Seattle Grease
Monkey Limited Partnership (SGMLP) (a Colorado limited partnership in which
the Company had a 31% interest) until August 26, 1993, when the Company
acquired the remaining interests from the limited partners (see Note E). All
significant intercompany balances and transactions have been eliminated.
F-11
<PAGE>
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
RESTRICTED CASH - Included in restricted cash at December 31, 1995 and
1994, is a certificate of deposit pledged to secure long-term debt with a
balance of $32,000 and $31,000, respectively. Included in restricted cash at
December 31, 1994, is a money market account securing a bond related to a
judgment against the Company with a balance of $309,000 and a certificate of
deposit for $120,000 securing a letter of credit.
INVENTORIES - Inventories are stated at the lower of cost, determined by
the first-in, first-out (FIFO) method, or market. Inventories consist
primarily of automotive service products and promotional materials.
NET INVESTMENT IN DIRECT FINANCING LEASES AND OBLIGATIONS UNDER CAPITAL
LEASES - The Company has entered into leasing arrangements with franchisees
of Grease Monkey Centers. In some cases, the Company leases the property
from an outside party and, in turn, subleases the property to the franchisee.
Certain of these leases and subleases meet the criteria of capitalized
leases and direct financing leases. In addition, the Company leases
buildings at certain Company-owned Grease Monkey Centers. Certain of these
leases are capital leases. Capital leases are recorded at the lesser of the
building's fair market value at the inception of the lease or the net present
value of the minimum lease payments.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost, less
accumulated depreciation and amortization. Depreciation and amortization are
computed using the straight-line method over the following estimated useful
lives:
<TABLE>
<S> <C>
Buildings accounted for as
capitalized leases......... term of the lease (generally 15 to 20 years)
Buildings................... 20 years
Furniture and fixtures...... 10 years
Leasehold improvements...... term of the lease (generally 15 to 20 years)
Machinery and equipment..... 5 to 10 years
</TABLE>
INTANGIBLE ASSETS - The cost of Grease Monkey Centers acquired in excess
of the fair value of tangible assets acquired at the date of acquisition is
recorded as goodwill and covenants not to compete. Goodwill is amortized on
a straight-line basis over the remaining term of the underlying lease (15-20
years). The covenants not to compete are amortized on a straight-line basis
over the period of the agreements.
F-12
<PAGE>
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MARKETING COSTS - The Company participates in various advertising and
marketing programs, individually and in conjunction with product suppliers.
Certain of the Company's costs incurred in connection with these programs are
reimbursed. All costs related to marketing and advertising are expensed in
the period incurred.
AREA DEVELOPMENT FEES, INITIAL FRANCHISE FEES AND RELATED FRANCHISE
COSTS - Prior to April 1988, the Company entered into area development
agreements which granted franchisees the exclusive right to develop and
operate specific numbers of Grease Monkey Centers within territories for a
fee. The agreements further provided for a license fee for each Grease
Monkey Center. The area development fee, the license fee and initial
franchise fees are deferred and recognized as franchise sales when the Grease
Monkey Centers open. Incremental development costs are deferred, but not in
excess of the deferred revenue, net of the estimated cost to open the Grease
Monkey Center, and are expensed when the revenue is recognized.
ROYALTY FEES - Royalties as allowed by the franchise agreement are
accrued on a percentage of gross sales (ranging from 3% to 5%) as reported by
franchisees.
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.
During 1995, approximately $171,000 ($133,000 in 1994 and $159,000 in 1993)
in estimated royalty revenue was not recognized as a result of the
non-accrual policy. The Company actively pursues collection of all
receivables, including receivables that are not recognized as income until
collected.
ALLOWANCE FOR DOUBTFUL ACCOUNTS - The allowance for doubtful accounts is
maintained at amounts the Company deems adequate to cover estimated losses on
accounts and notes receivable. In determining the level to be maintained,
the Company evaluates many factors including the franchisees' ability to pay,
historical performance, the collateral value of the franchisees' Centers and
any undeveloped franchises owned by the franchisee, and prevailing and
anticipated economic conditions. In the opinion of the Company, the
allowances are adequate to absorb reasonably foreseeable losses. Charge-offs
to the allowances are made when accounts and notes receivable are considered
uncollectible.
COMPANY-OWNED CENTERS - At December 31, 1995, the Company owned 29
Grease Monkey Centers. The combined revenue and expenses (excluding
depreciation and amortization) for those Grease Monkey Centers operated by
the Company are reported on the Consolidated Statements of Operations as
Company-owned Centers.
INCOME TAXES - The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME
TAXES (Statement 109). Under the asset and liability method of Statement
109, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under
Statement 109, the effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date.
F-13
<PAGE>
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 ($126,632 in 1995,
$121,202 in 1994 and $91,541 in 1993). The assumed conversion of preferred
stock was anti-dilutive in 1995, 1994 and 1993.
RECLASSIFICATIONS - Certain amounts in the 1993 and 1994 financial
statements have been reclassed to conform to the 1995 presentation.
C. NOTES RECEIVABLE
Notes Receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1995 1994
----------- ---------
<S> <C> <C>
Notes receivable from franchisees. Interest ranging from
6% to 9.75% at December 31, 1995. Due in
monthly installments of approximately $5,300
including interest (maturities range through May
2002). Generally collateralized by franchise rights
and property and equipment of Grease Monkey
Centers.................................................... $ 191,401 214,560
Notes receivable from franchisees. Due in monthly
installments of approximately $2,400 and a balloon
payment in January 1996 of approximately $36,500
(maturities range through December 1998).
Unsecured.................................................. 64,315 18,791
Other notes receivable. Both interest and non-interest
bearing with maturities ranging through May 1997........... 35,533 100,237
----------- ---------
291,249 333,588
Less allowance for uncollectible amounts..................... (86,629) (83,239)
Less current portion......................................... (105,584) (134,181)
----------- ---------
$ 99,036 116,168
----------- ---------
----------- ---------
</TABLE>
F-14
<PAGE>
C. NOTES RECEIVABLE (CONTINUED)
Maturities of notes receivable (excluding the allowance for uncollectible
amounts) are as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
- ------------
<S> <C>
1996....................................... $ 129,187
1997....................................... 45,558
1998....................................... 38,275
1999....................................... 30,906
2000....................................... 15,475
Thereafter................................. 31,848
----------
$ 291,249
----------
----------
</TABLE>
D. ACQUISITIONS
During 1995, the Company acquired one Grease Monkey Center from a
franchisee for total consideration of $870,388.
During 1994, the Company acquired one Grease Monkey Center from a
franchisee. The Company foreclosed on amounts due the Company and received a
note receivable resulting in total consideration of $59,201 for the Center.
During 1993, the Company acquired five Grease Monkey Centers from
franchisees. The Company foreclosed on amounts due the Company and acquired
three Grease Monkey Centers for total consideration of $573,881, including
the cancellation of receivables, assumption of liabilities, and the
assumption of a capital lease on one of the Centers. The assets of the two
other Grease Monkey Centers were acquired from the franchisees for total
consideration of $226,638, including the acquisition of two buildings in
exchange for two notes payable, and the payment of cash, cancellation of
receivables and assumption of liabilities.
The results of operations of the Grease Monkey Centers acquired are
included in the accompanying consolidated financial statements from the date
of acquisition.
E. MANAGED LIMITED PARTNERSHIP
The Company was the general partner of SGMLP which was formed in April
1988 for the purpose of developing, owning and operating Grease Monkey
Centers in Seattle. SGMLP capital was raised through the sale of limited
partnership interests. The capital accounts of the limited partners had been
reduced to zero as a result of losses. Thus, the Company had recorded all of
the losses of the partnership since the second quarter of 1991. On August
26, 1993, the Company issued shares of preferred stock to acquire that
portion of SGMLP which it did not previously own and the partnership was
dissolved. The Company valued the approximately 69% interest acquired and
the shares issued at $636,000.
F-15
<PAGE>
F. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1994
----------- ----------
<S> <C> <C>
Notes payable under a line of credit of $2,400,000 with
interest at 9%, maturing in June 2005 secured by
assignment of leases and lubrication equipment at Grease
Monkey Centers.................................................... $ 1,572,878 424,695
Notes payable to oil suppliers which are non-interest bearing
and amortized based on product purchases, maturing at
various times through August 2003, secured by lubrication
equipment at Grease Monkey Centers having a net book
value of $190,855................................................. 416,742 523,286
Notes payable with interest rates ranging from 8.5% to 13%,
maturing at various times through November 1999,
including a balloon payment of $93,582 in August 1997,
secured by mortgages on real property and lubrication
equipment having a net book value of $829,025, additional
collateral consists of a $32,000 certificate of deposit held in
escrow............................................................ 386,031 458,557
Notes payable with interest rates ranging from 8.75% to
11.5%, maturing at various times through August 1998,
secured by assets at Grease Monkey Centers having a net
book value of $485,402............................................ 165,137 223,852
Other long-term debt............................................... 103,916 155,863
----------- ----------
2,644,704 1,786,253
Less current portion............................................... (420,887) (320,315)
----------- ----------
$ 2,223,817 1,465,938
----------- ----------
----------- ----------
</TABLE>
F-16
<PAGE>
F. LONG-TERM DEBT (CONTINUED)
Aggregate maturities of long-term debt as of December 31, 1995, are as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
- ------------
<S> <C>
1996................. $ 420,887
1997................. 528,055
1998................. 315,602
1999................. 294,559
2000................. 233,884
Thereafter........... 851,717
-----------
$ 2,644,704
-----------
-----------
</TABLE>
G. LEASES
The Company is a party to a number of leases, as described below.
As lessee, the Company leases certain Grease Monkey Center sites,
automobiles and office space under operating lease agreements. Lease terms
range from one to twenty years. The Company pays the property taxes,
insurance, and maintenance costs related to the leased property where
applicable. Rent expense under operating leases was $2,274,542 for 1995,
$2,379,746 for 1994 and $2,470,261 for 1993.
The Company also leases additional 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.
As lessor, the Company subleases 26 Grease Monkey Center sites to
franchisees. The typical sublease period is coincident with the primary
lease term, and some leases contain renewal options. The franchisees pay the
property taxes, insurance and maintenance costs related to the leased
property. Certain of the subleases are accounted for as direct financing
leases. In those cases where the Company subleases only land, or the lease
or sublease does not meet the criteria for capitalization, the sublease is
accounted for as an operating lease.
The Company has guaranteed leases for some of its franchisees. At
December 31, 1995, the aggregate contingent liability under the lease
guarantees amounted to approximately $1,532,000.
F-17
<PAGE>
G. LEASES (CONTINUED)
Future minimum commitments under leasing arrangements for Grease Monkey
Centers at December 31, 1995, are as follows:
<TABLE>
<CAPTION>
PAYABLE AS LESSEE RECEIVABLE AS LESSOR
----------------- --------------------
YEARS ENDED CAPITAL OPERATING CAPITAL OPERATING
DECEMBER 31, LEASES LEASES LEASES LEASES
----------- ------- --------- --------- ----------
<S> <C> <C> <C> <C>
1996................................. $1,114,302 2,294,567 580,684 1,267,084
1997................................. 1,150,018 2,173,748 604,682 1,155,024
1998................................. 1,183,927 1,958,970 618,129 920,823
1999................................. 1,114,293 1,829,725 589,754 823,343
2000................................. 1,102,700 1,776,612 590,075 837,672
Thereafter........................... 6,294,178 8,970,632 3,097,294 4,000,636
---------- ---------- --------- ---------
Total minimum commitments............ 11,959,418 19,004,254 6,080,618 9,004,582
---------- ---------
---------- ---------
Less portion representing interest... (5,222,182) (2,561,827)
---------- ----------
Present value of net minimum
commitments......................... 6,737,236 3,518,791
Less current portion................ (363,209) (187,195)
---------- ---------
Non-current portion.................. $6,374,027 3,331,596
---------- ---------
---------- ---------
</TABLE>
Amounts capitalized for Centers under capital leases are included in
buildings (primarily representing Company Centers) and as the net investment
in direct financing leases (representing centers subleased to franchisees).
The following is a summary of Grease Monkey Centers under capital leases
included in buildings:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1994
---------- ---------
<S> <C> <C>
Buildings............................. $3,466,964 3,517,440
Less accumulated depreciation......... (1,141,482) (1,009,081)
---------- ---------
$2,325,482 2,508,359
---------- ---------
---------- ---------
</TABLE>
Interest expense attributable to leases for centers subleased to
franchisees is included in leasing expense in the accompanying financial
statements. Interest expense attributable to capital leases of Company
Centers is included in interest expense in the accompanying financial
statements and amounted to $360,783, $383,429 and $577,976 in 1995, 1994 and
1993, respectively.
The Company leases its office space and training facility under a lease
expiring in June 1998. Rent under the lease is approximately $18,000 per
month.
F-18
<PAGE>
H. INCOME TAXES
In 1995 and 1994, deferred income taxes that would otherwise have been
provided for were offset by recognizing the benefit of a portion of the
existing net deferred tax assets and reducing the valuation allowance by
$116,000 in 1995 and $87,000 in 1994. No deferred income tax benefit was
recognized in 1993 for the net loss incurred due to the uncertainty of
realization.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1995 and 1994, are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1994
----------- ----------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to the allowance for
doubtful accounts.............................................. $ 96,000 71,000
Property and equipment, principally due to differences in basis
and depreciation............................................... 407,000 341,000
Goodwill......................................................... 182,000 154,000
Real estate held for sale, principally due to differences in
basis.......................................................... 106,000 106,000
Deferred franchise sales revenue, due to deferral for financial
reporting purposes............................................. 246,000 379,000
Net operating loss carry-forwards................................ 1,481,000 1,595,000
----------- ----------
Total gross deferred tax assets................................ 2,518,000 2,646,000
Less valuation allowance....................................... (2,447,000) (2,563,000)
----------- ----------
Net deferred tax assets........................................ 71,000 83,000
----------- ----------
Deferred tax liabilities:
Deferred franchising costs, due to deferral for financial
reporting purposes............................................. (60,000) (74,000)
Other............................................................ (11,000) (9,000)
----------- ----------
Total gross deferred tax liabilities........................... (71,000) (83,000)
----------- ----------
Net deferred tax liability..................................... $ - -
----------- ----------
----------- ----------
</TABLE>
The valuation allowance as of December 31, 1995 and 1994 represents
deferred tax assets that, based on the Company's history and uncertainty
regarding the timing of recognition, may not be realized.
The Company has net operating loss carry-forwards at December 31, 1995,
of approximately $3,900,000 for income tax purposes. As a result of change
in control of the Company in March of 1991, approximately $900,000 of the net
operating loss carry-forward is subject to limitations. The Company is
limited to utilizing approximately $50,000 of such carry-forward annually.
The Company had deducted approximately $1,692,000 related to the
exercise of non-qualified stock options through December 31, 1995, which is
included in the net operating loss carry-forward for income tax purposes. If
the $1,692,000 in deductions are realized, the tax benefit will be credited
to capital in excess of par value.
F-19
<PAGE>
I. STOCKHOLDERS' EQUITY
On August 5, 1991, the Company issued warrants to First of September
Corporation to purchase 500,000 shares of its common stock for $1.50 per
share. In exchange, First of September Corporation provided the Company with
a $750,000 line of credit which was repaid on March 23, 1994, and canceled.
The warrants were to expire on August 4, 1996, but were extended in March
1996 by the Board of Directors to August 4, 1998.
Between December 1992 and May 1993, the Company made an offer to certain
Grease Monkey franchisees to cancel undeveloped franchise rights in exchange
for stock. During December, 1992, two franchisees (representing six
licenses) accepted the offer for which the Company issued 13,689 shares of
its common stock valued at $2.25 per share. During the first nine months of
1993, 26 franchisees (representing 41 licenses) accepted the offer for which
the Company issued 99,190 shares of its common stock valued at $2.25, $3.75,
and $4.00 per share, depending on the date the offer was accepted.
On August 26, 1993, the Company issued 6,360 shares of Series B
Preferred stock to acquire that portion of the Seattle Grease Monkey Limited
Partnership which it did not previously own (Note E). Also, on August 26,
1993, a note payable to First of September Corporation in the amount of
$300,000 was exchanged for 3,000 shares of Series B Preferred stock. All
Series B Preferred stock has been subsequently converted to Series C
Preferred stock. 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. In December
of 1994, 155 shares of Series C Preferred stock were converted into 6,199
shares of common stock and related dividends of $902 were paid in cash.
During 1995, 1,247 shares of Series C Preferred stock were converted into
49,863 shares of common stock and related dividends of $9,942 were paid in
cash. As of December 31, 1995, accumulated unpaid dividends totaled $256,531.
On February 28, 1994 and March 15, 1994, the Company issued 13,000
shares of Series C Preferred stock for $1,300,000, of which $789,000 was
subscribed to as of December 31, 1993.
In 1992 the Company adopted an employee deferred compensation 401(k)
plan and agreed to match 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 common
stock valued at the quoted market price on the date of the contribution.
During 1995, 1994 and 1993, the Company contributed 11,542, 12,981 and 10,146
shares to this plan at an average of $1.82, $2.27 and $2.99 per share,
respectively.
In 1986 and 1993, the Company adopted incentive stock option plans which
provide for the grant of options for the purchase of shares of the Company's
common stock to officers and employees on terms and conditions determined by
the Option Committee. Options are granted at an exercise price equal to
market value on the date of the grant, are exercisable immediately, expire
five years from the date of the grant, and expire upon termination of
employment. The 1986 plan reserved 66,667 shares and the 1993 plan reserved
300,000 shares for grant under the Plan.
F-20
<PAGE>
I. STOCKHOLDERS' EQUITY (CONTINUED)
In 1994, the Company adopted a stock incentive plan which provides for
the grant of stock options, the award of cash or stock bonuses and the award
of stock appreciation rights. The grants under the plan may be made to
officers, directors, consultants and employees of the Company by the Option
Committee. The Option Committee determines the time or times when options
granted become exercisable, the period within which the options are
exercisable and the price per share at which the options are exercisable,
provided, however, that no option will be exercisable for more than ten years
after it is granted and the exercise price must be at least 100% of the fair
market value of the Company's common stock on the date of the grant. The
1994 plan reserved 500,000 shares for grant or awards under the plan.
The following is the status of options granted under the 1986, 1993 and
1994 plans, all of which are exercisable at December 31, 1995:
<TABLE>
<CAPTION>
SHARES OPTIONS OPTION PRICES
RESERVED OUTSTANDING PER SHARE
--------- ----------- --------------
<S> <C> <C> <C>
Balances at December 31, 1993..... 363,333 42,035 $ 1.88 - $ 2.44
Additional shares reserved....... 500,000 -
Granted.......................... - 332,000 $ 2.06 - $ 2.53
Exercised........................ (30,000) (30,000) $ 1.88 - $ 2.44
Canceled......................... - (52,268) $ 1.88 - $ 2.53
------- --------
Balances at December 31, 1994..... 833,333 291,767 $ 1.88 - $ 2.53
Granted.......................... - 577,666 $ 1.59 - $ 2.22
Canceled (1)..................... - (332,767) $ 1.75 - $ 2.53
------- --------
Balances at December 31, 1995..... 833,333 536,666 $ 1.59 - $ 2.22
------- --------
------- --------
</TABLE>
(1) Includes 291,666 of previously granted options with exercise prices of
$1.88 to $2.53 per share, which were canceled and a corresponding number of
options granted at $1.75 per share.
J. RELATED PARTY TRANSACTIONS
During 1993 the Company borrowed an additional $393,000 on a working
capital line of credit provided by First of September Corporation. On August
26, 1993, the Company issued 3,000 shares of Series B Preferred stock in
satisfaction of $300,000 of the obligation. On March 23, 1994, the
outstanding balance of $378,000 was paid off and the line of credit was
canceled. During 1994 and 1993, the Company paid interest to First of
September of $6,711 and $27,526, respectively.
F-21
<PAGE>
K. LITIGATION
The Company is a party to 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, results of operations,
or cash flows of the Company.
F-22
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DOCUMENT PAGE
- ----------- -------- ----
3. Articles of Incorporation and Bylaws.
(a) Bylaws, as amended through March 4,
1991, incorporated by reference to
the Annual Report on Form 10-KSB
for the fiscal year ended December
31, 1992. N/A
(b) Restated Articles of Incorporation,
filed November 1, 1991,
incorporated by reference to the
Annual Report on Form 10-K for the
fiscal year ended December 31,
1991. N/A
(c) Articles of Amendment to Articles
of Incorporation filed June 29,
1992 incorporated by reference to
the Annual Report on Form 10-KSB
for the fiscal year ended December
31, 1992. N/A
4. Instruments Defining the Rights of Holders Including Indentures.
(a) Statement of Designation, Voting
Powers, Preferences, and Rights of
the Series C Preferred Stock of
Grease Monkey Holding Corporation
incorporated by reference to the
Annual Report on Form 10-KSB for
the fiscal year ended December 31,
1993. N/A
10. Material Contracts.
(a) 1986 Incentive Stock Option Plan,
incorporated by reference to the
Annual Report on Form 10-KSB for
the fiscal year ended December 31,
1993. N/A
(b) 1993 Incentive Stock Option Plan,
incorporated by reference to the
Annual Report on Form 10-KSB for
the fiscal year ended December 31,
1994. N/A
(c) 1994 Stock Incentive Plan,
incorporated by reference to the
Annual Report on Form 10-KSB for
the fiscal year ended December 31,
1994. N/A
i
<PAGE>
(d) Lease Agreement dated August 20,
1991, between Clarmont Enterprises,
Inc., and Grease Monkey
International, Inc., incorporated
by reference to the Annual Report
on Form 10-K for the fiscal year
ended December 31, 1991. N/A
(e) Amendment Number One dated May 5,
1993, to Lease Agreement dated
August 20, 1991, between Venture
West Investments Limited (f.k.a.
Clarmont Enterprises, Inc.) and
Grease Monkey International, Inc.,
incorporated by reference to the
Annual Report on form 10-KSB for
the fiscal year ended December 31,
1994. N/A
(f) Loan Documents for $2,400,000 line
of credit, incorporated by
reference to the Quarterly report
on Form 10-QSB for the period ended
June 30, 1995. N/A
(g) License Agreement dated July 10,
1989, between Grease Monkey
International, Inc., and Compania
Espanola de Petroleos, S.A. (also
known as "CEPSA"), of Madrid,
Spain, incorporated by reference to
the Current Report on Form 8-K
dated July 10, 1989. N/A
(h) Loan documents from Preferred Risk
Loan for $200,000 incorporated by
reference to the Annual Report on
Form 10-K for the fiscal year ended
December 31, 1989: N/A
1. Construction Loan Agreement
2. Promissory Note
3. Promissory Note Clarification
4. Deed of Trust
5. Assignment of Rents
6. Estoppel Certificate
7. Quaker State Guaranty
8. Guaranty Agreement by
Quaker State for benefit
of Preferred Risk
(i) Current form of Grease Monkey
Franchise Agreement in effect since
April 28, 1994, incorporated by
reference to the Annual Report on
Form 10-K for the fiscal year ended
December 31, 1994. N/A
(j) Mobil Oil Company Supply Contract
dated February 24, 1993, for Center
#234 (similar contract form used
for all centers), incorporated by
reference to Annual Report on Form
10-KSB for the fiscal year ended
December 31, 1992. N/A
ii
<PAGE>
(k) Form of Seattle Grease Monkey
Limited Partnership Purchase
Agreement incorporated by reference
to the Annual Report on Form 10-KSB
for the fiscal year ended December
31, 1993. N/A
11. Statement Re: Computation of Per Share Earnings --
21. Subsidiaries of the Registrant
(a) Grease Monkey International, Inc.,
incorporated in the State of
Colorado (100% owned).
(b) GM Properties, Inc., incorporated
in the State of Colorado (100%
owned).
23. Consent of Experts and Counsel.
(a) Consent of KPMG Peat Marwick LLP. --
27. Financial Data Schedule --
iii
<PAGE>
EXHIBIT 11
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1995 1994 1993
--------- --------- -----------
<S> <C> <C> <C>
PRIMARY EARNINGS PER SHARE
Net income (loss)............................ $ 238,190 139,566 (1,484,310)
Dividends on preferred stock................. (126,632) (121,202) (91,541)
--------- --------- -----------
Net income (loss) applicable to common stock. $ 111,558 18,364 (1,575,851)
--------- --------- -----------
--------- --------- -----------
Common shares outstanding.................... 4,336,764 4,305,359 4,253,691
Effect of using weighted average
common and common equivalent shares
outstanding................................. 17,916 (16,413) (381,764)
Effect of shares issuable under
common stock warrants using the
treasury stock method....................... - 192,623 *
Effect of shares issuable under
stock options using the
treasury stock method....................... - 32,970 *
--------- --------- -----------
Shares used in computing primary
earnings per share.......................... 4,354,680 4,514,539 3,871,927
--------- --------- -----------
--------- --------- -----------
Primary earnings (loss) per common
share....................................... $ 0.03 ** (0.41)
--------- --------- -----------
--------- --------- -----------
FULLY DILUTED EARNINGS PER SHARE
Net income (loss)............................ $ 238,190 139,566 (1,484,310)
Dividends on preferred stock................. (126,632) (121,202) (91,541)
--------- --------- -----------
Net income (loss) applicable to
common stock................................ 111,558 18,364 (1,575,851)
--------- --------- -----------
--------- --------- -----------
Shares used in computing primary
earnings per share.......................... 4,354,680 4,514,539 3,871,927
Effect of shares issuable upon
conversion of preferred stock............... * * *
--------- --------- -----------
Shares used in computing fully
diluted earnings per
share....................................... 4,354,680 4,514,539 3,871,927
--------- --------- -----------
--------- --------- -----------
Fully diluted earnings (loss) per
common share................................ $ 0.03 ** (0.41)
--------- --------- -----------
--------- --------- -----------
</TABLE>
* Antidilutive
** Less than $.01 per share
<PAGE>
EXHIBIT 23.1
THE BOARD OF DIRECTORS
GREASE MONKEY HOLDING CORPORATION:
We consent to incorporation by reference in the registration
statement (No. 33-80376) on Form S-8 and the registration
statement (No. 33-79616) on Form S-3 of Grease Monkey Holding
Corporation of our report dated March 8, 1996, relating to the
consolidated balance sheets of Grease Monkey Holding
Corporation and subsidiaries as of December 31, 1995 and 1994,
and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the years in
the three-year period ended December 31, 1995, which report
appears in the December 31, 1995, annual report on Form 10-KSB
of Grease Monkey Holding Corporation.
KPMG PEAT MARWICK LLP
Denver, Colorado
March 25, 1996
<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 F-2 THROUGH F-4 OF THE COMPANY'S FORM 10-KSB FOR THE YEAR AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 385,167
<SECURITIES> 0
<RECEIVABLES> 1,727,028
<ALLOWANCES> 399,141
<INVENTORY> 697,383
<CURRENT-ASSETS> 2,686,489
<PP&E> 8,017,631
<DEPRECIATION> 3,061,632
<TOTAL-ASSETS> 13,145,633
<CURRENT-LIABILITIES> 1,967,621
<BONDS> 2,644,704
0
2,095,838
<COMMON> 130,103
<OTHER-SE> (301,326)
<TOTAL-LIABILITY-AND-EQUITY> 13,145,633
<SALES> 0
<TOTAL-REVENUES> 18,693,143
<CGS> 0
<TOTAL-COSTS> 17,955,473
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 151,800
<INTEREST-EXPENSE> 562,105
<INCOME-PRETAX> 238,190
<INCOME-TAX> 0
<INCOME-CONTINUING> 238,190
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 238,190
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
