<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission File Number 0-9812
GREASE MONKEY HOLDING CORPORATION
---------------------------------
(Exact name of small business issuer as specified in its charter)
Utah 87-0321320
- --------------------------------- ---------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
216 16th Street Mall, Suite 1100
Denver, Colorado 80202
-----------------------
(Address of principal executive offices)
(303) 534-1660
--------------
(Issuer's telephone number)
Check whether issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes X No
----- -----
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Outstanding at
Class August 1, 1997
----------------------------- --------------
Common Stock, $0.03 par value 4,611,774 shares
Transitional Small Business Disclosure Format Yes No X
----- -----
<PAGE>
GREASE MONKEY HOLDING CORPORATION
COMMISSION FILE NUMBER: 0-9812
QUARTER ENDED JUNE 30, 1997
FORM 10-QSB
PART I FINANCIAL INFORMATION
Consolidated Statements of Operations . . . . . . . . . . . . . Page 1
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . Page 2
Consolidated Statements of Stockholders' Equity . . . . . . . . Page 4
Consolidated Statements of Cash Flows . . . . . . . . . . . . . Page 5
Notes to Consolidated Financial Statements. . . . . . . . . . . Page 7
Management's Discussion and Analysis or Plan
of Operation. . . . . . . . . . . . . . . . . . . . . . . . . Page 10
PART II OTHER INFORMATION
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . Page 16
Submission of Matters to a Vote of Security Holders . . . . . . Page 16
Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . Page 17
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . Page 18
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED Six Months Ended
JUNE 30, June 30,
-------------------------------- --------------------------------
1997 1996 1997 1996
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Operating Revenue:
Royalty fees . . . . . . . . . . . . . . . . . $ 1,052,721 813,351 1,830,211 1,564,493
Franchise sales - center openings . . . . . . . 72,721 - 88,201 -
Product and equipment revenue. . . . . . . . . 177,763 158,633 343,537 330,608
Sales by Company-owned Centers . . . . . . . . 3,802,717 3,778,367 7,386,371 7,063,639
Leasing revenue . . . . . . . . . . . . . . . . 389,804 343,244 778,872 700,802
Other . . . . . . . . . . . . . . . . . . . . . 180,466 29,154 201,647 96,396
--------------- --------------- --------------- ---------------
5,676,192 5,122,749 10,628,839 9,755,938
--------------- --------------- --------------- ---------------
Operating Expenses:
Franchise costs - center openings . . . . . . . 17,454 - 21,418 -
Product and equipment costs . . . . . . . . . . 65,053 53,957 108,393 110,716
Company-owned Centers . . . . . . . . . . . . . 3,250,766 3,256,216 6,319,450 6,104,715
Leasing expense . . . . . . . . . . . . . . . . 380,342 329,730 752,336 684,170
General and administrative expenses . . . . . . 1,118,985 1,164,110 2,647,633 2,254,243
Provision for credit losses . . . . . . . . . . 22,578 28,346 52,141 58,346
Depreciation . . . . . . . . . . . . . . . . . 166,477 180,548 328,213 337,495
Amortization . . . . . . . . . . . . . . . . . 69,754 69,002 135,037 116,512
--------------- --------------- --------------- ---------------
5,091,409 5,081,909 10,364,621 9,666,197
--------------- --------------- --------------- ---------------
Operating income . . . . . . . . . . . . . . . . 584,783 40,840 264,218 89,741
--------------- --------------- --------------- ---------------
Other income (expense):
Gain (loss) on sale/disposition of centers . . (11,481) 29,707 (17,463) (3,412)
Undeveloped franchise licenses canceled . . . . - 27,563 - 27,563
Interest income . . . . . . . . . . . . . . . . 14,021 6,347 35,674 9,365
Interest expense . . . . . . . . . . . . . . . (194,066) (176,391) (366,117) (317,231)
--------------- --------------- --------------- ---------------
(191,526) (112,774) (347,906) (283,715)
--------------- --------------- --------------- ---------------
Net income (loss) . . . . . . . . . . . . . . . . $ 393,257 (71,934) (83,688) (193,974)
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Earnings (loss) per common share (Note 5) . . . . $ 0.07 (0.02) (0.03) (0.06)
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Weighted average shares outstanding . . . . . . . 4,598,092 4,357,310 4,568,124 4,351,135
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
</TABLE>
(UNAUDITED)
1
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1997 1996
- ------ ------------- -----------------
<S> <C> <C>
Current Assets:
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 511,007 324,745
Restricted cash including certificates of
deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . - 34,927
Accounts receivable, net of allowance for
doubtful accounts of $308,390 at June 30, 1997,
and $252,795 at December 31, 1996 . . . . . . . . . . . . . . 1,298,632 1,042,259
Current portion of notes receivable,
net of allowance for uncollectible amounts . . . . . . . . . 530,382 500,705
Current portion of net investment
in direct financing leases . . . . . . . . . . . . . . . . . 251,431 225,053
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . 900,749 887,203
Prepaid expenses and supplies . . . . . . . . . . . . . . . . . 111,504 125,208
------------ ------------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . 3,603,705 3,140,100
------------ ------------
Property and Equipment, at Cost, Pledged:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 695,917 445,917
Buildings (including buildings under capital leases) . . . . . 5,948,496 5,728,492
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . 574,376 562,235
Leasehold improvements . . . . . . . . . . . . . . . . . . . . 706,213 662,001
Machinery and equipment . . . . . . . . . . . . . . . . . . . 1,786,258 1,735,844
------------ ------------
9,711,260 9,134,489
Less accumulated depreciation and
amortization . . . . . . . . . . . . . . . . . . . . . . . . (3,849,265) (3,540,784)
------------ ------------
NET PROPERTY AND EQUIPMENT . . . . . . . . . . . . . . . . . 5,861,995 5,593,705
------------ ------------
Other Assets:
Net investment in direct financing leases . . . . . . . . . . . 3,671,658 3,499,162
Notes receivable, net of allowance for uncollectible
amounts . . . . . . . . . . . . . . . . . . . . . . . . . . 244,158 270,761
Deferred franchising costs . . . . . . . . . . . . . . . . . . 261,413 211,849
Goodwill and covenants not to compete, net
of accumulated amortization of $1,091,923 at June 30,
1997, and $966,729 at December 31, 1996 . . . . . . . . . . . 2,722,778 2,401,586
Other assets, net of accumulated
amortization of $150,239 at June 30, 1997,
and $141,355 at December 31, 1996 . . . . . . . . . . . . . . 175,275 99,960
------------ ------------
TOTAL OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . 7,075,282 6,483,318
------------ ------------
$ 16,540,982 15,217,123
------------ ------------
------------ ------------
</TABLE>
(UNAUDITED)
(continued on next page)
2
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
June 30, DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
- ------------------------------------ ------------ ------------
<S> <C> <C>
Current Liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . $ 1,176,781 1,043,149
Accrued salaries and wages . . . . . . . . . . . . . . . . . . 233,708 203,073
Other accrued liabilities . . . . . . . . . . . . . . . . . . . 344,364 347,158
Current portion of long-term obligations . . . . . . . . . . . 1,531,696 1,066,283
Current portion of obligations
under capital leases . . . . . . . . . . . . . . . . . . . . 476,324 427,917
------------ -----------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . 3,762,873 3,087,580
------------ -----------
Long-term Obligations . . . . . . . . . . . . . . . . . . . . . . 3,468,960 3,126,148
Obligations Under Capital Leases . . . . . . . . . . . . . . . . 6,744,887 6,649,017
Deferred Franchise Sales Revenue . . . . . . . . . . . . . . . . 917,770 907,371
Stockholders' Equity:
Series C Preferred stock, stated value of $100.00 per
share, 20,896 shares issued and outstanding at June 30,
1997 and December 31, 1996 . . . . . . . . . . . . . . . . . 2,089,638 2,089,638
Common stock, par value $.03, 20,000,000
shares authorized, 4,599,274, and 4,379,860,
shares issued and outstanding at June 30,
1997 and December 31, 1996, respectively . . . . . . . . . . 137,978 131,396
Capital in excess of par value . . . . . . . . . . . . . . . . 6,154,261 5,877,670
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . (6,735,385) (6,651,697)
------------ -----------
TOTAL STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . 1,646,492 1,447,007
Commitments and Contingencies . . . . . . . . . . . . . . . . .
------------ -----------
$ 16,540,982 15,217,123
------------ -----------
------------ -----------
</TABLE>
(UNAUDITED)
3
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Stock Common Stock
----------------------- ------------------------------------
Capital in
Number of Number of Excess of Accumulated
Shares Amount Shares Amount Par Value Deficit Total
---------- ----------- ---------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 . . . . 20,958 $2,095,838 4,336,764 $130,103 5,773,248 (6,074,574) 1,924,615
Issuance of common stock pursuant to
employee benefit plan . . . . . . . - - 40,616 1,219 45,025 - 46,244
Conversion of Series C Preferred stock
to common stock, including payment
of accumulated dividends . . . . . (62) (6,200) 2,480 74 5,397 - (729)
Increase in fair value of warrants
extended . . . . . . . . . . . . . - - - - 54,000 - 54,000
Net loss . . . . . . . . . . . . . . - - - - - (577,123) (577,123)
---------- ----------- ---------- ----------- ----------- ------------ -----------
Balance at December 31, 1996 . . . . 20,896 2,089,638 4,379,860 131,396 5,877,670 (6,651,697) 1,447,007
Issuance of common stock pursuant to
employee benefit plan . . . . . . . - - 21,438 642 23,875 - 24,517
Issuance of common stock upon
exercise of employee stock options - - 7,500 225 8,431 - 8,656
Issuance of common stock . . . . . . - - 190,476 5,715 244,285 - 250,000
Net loss . . . . . . . . . . . . . . - - - - - (83,688) (83,688)
---------- ----------- ---------- ----------- ----------- ------------ -----------
Balance at June 30, 1997 . . . . . . 20,896 $2,089,638 4,599,274 $ 137,978 6,154,261 (6,735,385) 1,646,492
---------- ----------- ---------- ----------- ----------- ------------ -----------
---------- ----------- ---------- ----------- ----------- ------------ -----------
</TABLE>
(UNAUDITED)
4
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------------
1997 1996
------------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . $ (83,688) (193,974)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Increase in deferred franchise sales revenue . . . . . 137,600 318,800
Franchise sales revenue recognized-center openings . . (88,201) -
Increase in deferred franchising costs . . . . . . . . (70,984) (51,130)
Franchise costs recognized - center openings . . . . . 21,418 -
Provision for credit losses . . . . . . . . . . . . . . 52,141 58,346
Depreciation and amortization . . . . . . . . . . . . . 463,250 454,007
Undeveloped franchise licenses canceled . . . . . . . . - (27,563)
Loss (gain) on sale of centers . . . . . . . . . . . . 11,083 (5,160)
Accrual of Consultant Agreement . . . . . . . . . . . . 357,113 -
Other, net . . . . . . . . . . . . . . . . . . . . . . 6,742 (24,792)
Change in assets and liabilities:
Increase in accounts receivable . . . . . . . . . . . (408,167) (348,073)
Decrease (increase) in notes receivable . . . . . . . 35,293 (34,918)
Increase in inventories . . . . . . . . . . . . . . . (24,382) (122,682)
Decrease (increase) in prepaid expenses and 13,705 (58,697)
supplies . . . . . . . . . . . . . . . . . . . . . .
Increase in accounts payable . . . . . . . . . . . . 108,632 346,013
Increase (decrease) in accrued salaries and wages
and other liabilities . . . . . . . . . . . . . . . 45,057 (49,468)
------------- -----------
Net cash provided by operating activities . . . . . . . $ 576,612 260,709
------------- -----------
</TABLE>
(UNAUDITED)
(continued on next page)
5
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------------
1997 1996
------------ -----------
<S> <C> <C>
Cash flows from investing activities:
Principal receipts on direct financing leases . . . . . . . $ 103,274 85,267
Acquisition of centers . . . . . . . . . . . . . . . . . . (554,859) (394,389)
Sale of centers . . . . . . . . . . . . . . . . . . . . . . 73,900 21,573
Capital expenditures . . . . . . . . . . . . . . . . . . . (142,386) (217,975)
Decrease (increase) in other assets . . . . . . . . . . . . (84,197) 11,028
------------ -----------
Net cash used in investing activities . . . . . . . . (604,268) (494,496)
------------ -----------
Cash flows from financing activities:
Proceeds from long-term obligations . . . . . . . . . . . . 425,000 522,000
Principal payments on long-term obligations . . . . . . . . (305,299) (229,438)
Principal payments on capital lease obligations . . . . . . (200,165) (164,035)
Issuance of common stock . . . . . . . . . . . . . . . . . 258,656 -
Payment of accumulated dividends upon conversion
of preferred stock to common stock . . . . . . . . . . . . - (729)
Decrease (increase) in restricted cash . . . . . . . . . . 34,926 (1,276)
Increase in lease deposit obligations . . . . . . . . . . . 800 4,500
------------ -----------
Net cash provided by financing activities . . . . . . 213,918 131,022
------------ -----------
Net increase (decrease) in cash . . . . . . . . . . . . . . . 186,262 (102,765)
Cash, beginning of period . . . . . . . . . . . . . . . . . . 324,745 385,167
------------ -----------
Cash, end of period . . . . . . . . . . . . . . . . . . . . . $ 511,007 282,402
------------ -----------
------------ -----------
Supplemental disclosures of cash flow
information -
Cash paid during the period for interest . . . . . . . . $ 585,600 528,517
------------ -----------
------------ -----------
</TABLE>
(UNAUDITED)
6
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of management, the interim financial statements include all
adjustments, consisting of normal recurring adjustments, necessary in
order to make the financial statements not misleading.
2. Grease Monkey Holding Corporation ("GMHC") and its wholly-owned
subsidiaries, Grease Monkey International, Inc. ("GMI") and GM Properties,
Inc. ("GMP") are collectively referred to as the "Company". The
accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting
principles for financial statements. For further information, refer to the
audited consolidated financial statements and notes thereto for the year
ended December 31, 1996, included in the Company's Annual Report on Form
10-KSB filed with the Securities and Exchange Commission on March 28, 1997.
3. The results for the three-month and six-month periods ended June 30, 1997,
are not necessarily indicative of the results to be expected for the entire
fiscal year of 1997.
4. STOCKHOLDERS' EQUITY
On January 20, 1997, Charles E. Steinbrueck, President and Chief Executive
Officer, entered into an agreement to purchase 190,476 newly issued shares
of the Company's common stock at $1.3125, the last trade price on January
20, 1997, for a total consideration of $250,000.
The Company's Series C, 6% cumulative, preferred stock is redeemable at the
option of the Company upon 60 days prior written notice. At the option of
the holder, at any time prior to the close of business on the redemption
date, each share of Series C Preferred stock, plus any accumulated unpaid
dividends, may be converted into shares of common stock at a conversion
price of $2.50 per share of common stock. On June 30, 1997, accumulated
unpaid dividends totaled $443,741.
The Company has an employee deferred compensation 401(k) plan and matches
employee contributions to this plan in an amount equal to 50% of the
employees' contribution, up to a maximum of 6% of the employees'
compensation. The Company's contribution is paid with its $0.03 par value
common stock (net of forfeitures) valued at market on the date of the
contribution. During the first six months of 1997 and 1996, the Company
contributed 21,438 and 20,644 shares to this plan at an average of $1.14
and $1.13 per share, respectively.
5. EARNINGS (LOSS) PER SHARE
Primary earnings (loss) per share is determined based on the number of
common and common equivalent shares outstanding and is adjusted for the
assumed conversion of shares issuable upon exercise of options and
warrants, after the assumed repurchase of common shares with the related
proceeds (anti-dilutive for all periods presented except the second quarter
of 1997). Earnings (loss) per share for all periods was computed after
reduction for preferred stock
(continued)
7
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
dividends ($31,259 for both the second quarter of 1997 and 1996, and
$62,174 and $62,561 for the first six months of 1997 and 1996,
respectively). The assumed conversion of preferred stock was also anti-
dilutive for all periods presented except the second quarter of 1997.
6. CONTINGENCIES
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.
7. SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
The following table sets forth, by period, the amount and nature of amounts
paid and received for the acquisition and sale (refranchising) of Company-
owned Centers.
SIX MONTHS ENDED
JUNE 30,
-----------------------------------
1997 1996
--------------- ---------------
Acquisitions of Centers:
Number of Centers purchased . . . 2 2
--------------- ---------------
--------------- ---------------
Number of Centers foreclosed . . - 5
--------------- ---------------
--------------- ---------------
Receivables applied (net of
related allowance) . . . . . . $ - 251,328
Liabilities assumed . . . . . . . 375,337 1,216,724
Cash paid . . . . . . . . . . . 554,859 394,389
--------------- ---------------
Cost of assets acquired . . . . . $ 930,196 1,862,441
--------------- ---------------
--------------- ---------------
Sales:
Number of Centers refranchised . 2* 3
--------------- ---------------
--------------- ---------------
Cash received . . . . . . . . . . $ 73,900 21,573
Notes received . . . . . . . . . 26,800 112,232
Liabilities assumed by purchaser 40,875 19,500
Loss (gain) on sale . . . . . . . 11,083 (5,160)
Operating/Marketing subsidies
granted purchaser . . . . . . . . - (49,750)
Franchise fees . . . . . . . . . 14,000 28,000
Franchise costs . . . . . . . . . - (5,000)
--------------- ---------------
Net book value of centers
refranchised . . . . . . . . . $ 166,658 121,395
--------------- ---------------
--------------- ---------------
* Includes one center which was originally developed to be a Company-owned
Center, but was sold to a franchisee prior to opening.
(continued)
8
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
During the six months ended June 30, 1997 and 1996, non-cash transactions
consisted of the Company issuing 21,438 and 20,644 shares of common stock
at an average value of $1.14 and $1.13 per share, respectively, in
accordance with its matching requirement under the Company's 401(k) plan.
Other non-cash transactions during the first six months of 1997 included
the write-off of a direct financing lease receivable and the corresponding
capital lease obligation of $153,316 based on the franchisee re-negotiating
the lease resulting in the Company being released from the lease. Other
non-cash transactions during the first six months of 1996 included a
settlement agreement with a franchisee, who owned two Centers, whereby,
$109,439 of net receivables, $7,000 of lease deposits and one undeveloped
license of $16,312, were exchanged for a non-interest bearing note
receivable discounted to $86,127 upon the sale of the Centers to a new
franchisee; a franchise license in the amount of $7,392, net of deferred
franchising costs of $2,222, was cancelled and applied to a franchisee's
accounts receivable balance and a capital lease obligation of $368,000 was
recorded.
8. NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128, EARNINGS PER SHARE
(Statement 128). Statement 128 supersedes APB Opinion No. 15, EARNINGS PER
SHARE (APB 15) and specifies the computation, presentation, and disclosure
requirements for earnings per share (EPS) for entities with publicly held
common stock or potential common stock. Statement 128 was issued to
simplify the computation of EPS and to make the U.S. standard more
compatible with the EPS standards of other countries and that of the
International Accounting Standards Committee (IASC). It replaces the
presentation of primary EPS with a presentation of basic EPS and fully
diluted EPS with diluted EPS. It also requires dual presentation of basic
and diluted EPS on the face of the income statement for all entities with
complex capital structures and requires a reconciliation of the numerator
and denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation. Statement 128 is effective for
financial statements for both interim and annual periods ending after
December 15, 1997. Earlier application is not permitted. The adoption of
Statement 128 is not expected to have a significant effect on the Company's
reported earnings per share.
9
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
The Company reported a net loss of ($83,688) for the first half of 1997, as
compared to a net loss of ($193,974) for the first half of 1996. For the second
quarter of 1997, the Company reported net income of $393,257 compared to a net
loss of ($71,934) for the same quarter in 1996.
Total revenue increased 9% or $872,901 for the first half of 1997, compared
to the first half of 1996. Revenue during the second quarter of 1997 increased
$553,443 over the same quarter last year, an increase of 11%. The increases are
due primarily to increases in royalty revenue and other revenue due to a
settlement agreement entered into with a former franchisee. Under the
settlement agreement, the Company recognized approximately $207,200 of royalty
fees not previously recognized and approximately $168,000 of other income
related to the reimbursement of costs previously expensed. The Company also
experienced increases in revenue from center openings and the related product
and equipment revenue. Revenue from Company-owned Centers remained relatively
constant as the average number of Company-owned Centers (based on number of
months operated) remained constant.
Royalty fees are a percentage of gross sales paid monthly by all franchised
Grease Monkey Centers. Royalty fee revenue for the first half of 1997 increased
by 17% over the first half of 1996 to $1,830,211. Royalty fee revenue for the
second quarter of 1997 increased 29% over the second quarter of 1996 to
$1,052,721. The increases are due to the recording of the settlement agreement
with a former franchisee, as discussed previously. Based upon many factors,
including the age of amounts owed the Company, the extent of collateralization,
and historical performance, the Company may place certain financially troubled
franchisees on a non-accrual status. For the first half of 1997, estimated
royalties of $58,375 were not accrued under this policy, compared to $61,875 for
the first half of 1996. During the second quarter of 1997, estimated royalties
of $32,625 were not accrued compared to $31,525 for the second quarter of 1996.
The Company has a royalty rebate program for franchisees under which eligible
franchisees can receive a rebate of royalties paid. For the first half of 1997,
the rebate accrued under this program was $120,202, compared to $125,715 for the
first half of 1996. The rebate accrued for the second quarter of 1997 was
$61,257, compared to a rebate of $64,788 for the second quarter of 1996. The
rebate is recorded as a reduction in royalty revenue.
The Company recognized franchise sales revenue net of related costs of
$66,783 during the first six months of 1997, representing seven Center openings.
For the second quarter of 1997, franchise sales net revenue was $55,267,
representing four center openings. There were no Center openings during the
first six months of 1996. Franchise sales revenue represents initial one-time
payments received by the Company from buyers of its franchises. The fee and any
directly related costs are recognized as revenue and expense when the related
franchise Center opens for business.
(continued)
10
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
At June 30, 1997, the Company operated 30 Centers as compared to 33 Centers
at June 30, 1996. However, the average number of Centers operated during the
quarter and six month periods ended June 30, 1997 and June 30, 1996, were
relatively constant at 31 Centers for the quarter periods for both years and 31
and 32 Centers for the six month periods in 1997 and 1996, respectively. For
the first six months of 1997, the Company reported an operating margin (Company-
owned Center sales less expenses, excluding interest, depreciation and
amortization) of $1,066,921 on revenue of $7,386,371 at Company-owned Centers as
compared to an operating margin of $958,924 on revenue of $7,063,639 for the
same period last year. These results represent an increase of 5% in revenue and
11% in operating margin. For the second quarters of 1997 and 1996, the Company
reported operating margins of $551,951 and $522,151 on revenue of $3,802,717
and $3,778,367 respectively, representing increases in revenue of 1% and
operating margin of 6%.
In the first six months of 1997, the Company realized marketing allowances
and gross margins on product and equipment sales of $235,144, as compared to
$219,892 in the first six months of 1996. In the second quarter of 1997,
marketing allowances and gross margins on product and equipment sales were
$112,710, as compared to $104,676 in the second quarter of 1996. 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. The number of
Center openings in a period impacts product and equipment revenue, thus revenue
for 1997 was above that of 1996.
General and administrative expenses for the first six months and second
quarter of 1997 increased 17% or $393,390 and decreased 4% or $45,125 as
compared to the first six months and second quarter of 1996. The increase in
the first six months of 1997 over 1996 is primarily a result of the accrual
of the Company's obligation under a Consultant Agreement with the Company's
former Chairman of the Board, President and Chief Executive Officer. The
term of the agreement is from March 4, 1997 through March 3, 1999. The
agreement requires the former executive to perform such duties and services
as may be assigned to him from time to time at the direction or request of
the Company's President and Chief Executive Officer. Under the agreement,
the former executive will be paid a monthly fee for the term of the
agreement. The Company is obligated to make the payments regardless of
whether services are requested or performed. General and administrative
expenses for the first six months of 1997 includes approximately $379,000
related to this agreement. Other factors contributing to the increase in
1997 include: an increase in the general and administrative expenses at the
Company-owned Center Division of approximately $89,000; an increase in
professional fees related to legal, tax and accounting issues, of
approximately $31,000; an increase in franchise development expenses of
approximately $24,000; an increase in travel and entertainment expenses of
approximately $17,000; and an increase in franchise sales and advertising
expenses of approximately $15,000. Offsetting these increases was a decrease
in litigation legal fees of approximately $145,000. Factors causing the
variance between second quarter 1997 and 1996 general and administrative
expenses include: an increase in professional fees related to legal, tax and
accounting issues, of approximately $27,000; an increase
(continued)
11
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
in the general and administrative expenses at the Company-owned Center Division
of approximately $21,000; an increase in travel and entertainment expenses of
approximately $14,000; and an increase in franchise development expenses of
approximately $7,000. Offsetting these increases was a decrease in salaries,
wages and personnel expenses of approximately $8,000 and a decrease in
litigation legal fees of approximately $86,000.
Depreciation and amortization expense for the first six months and second
quarter of 1997 remained constant to the periods in 1996. This is due to the
average number of Company-owned Centers operated during the periods remaining
relatively consistent.
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 loss of ($17,463) for the six months
ended June 30, 1997, represents the refranchising of one Company-owned Center,
the sale of one Center, which was originally developed to be a Company-owned
Center, and marketing allowances paid based on subsidies granted certain
franchisees on the refranchising of Company-owned Centers in 1996. The loss of
($3,412) for the six months ended June 30, 1996, represents the refranchising of
three Company-owned Centers.
In the first half of 1996, the Company recognized $27,563 in franchise
sales revenue resulting from license cancellations. There have been no license
cancellations in 1997.
Interest expense includes interest on debt financing and interest recorded
on capital leases of Company-owned Centers. The addition of two Company-owned
Centers accounts for the increase in interest expense due to additional
borrowings to acquire the Centers and interest expense related to capital leases
entered into for the buildings. Interest expense in 1997 also includes
amortization of the discount on the Company's obligation under the Consultant
Agreement, which was initially recorded at its present value.
(continued)
12
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
The following schedule summarizes the activity with regard to Grease Monkey
Company-owned Centers as well as Grease Monkey franchised Centers for the six
months ended June 30, 1997 and 1996.
<TABLE>
<CAPTION>
SIX MONTHS ENDED:
JUNE 30, 1997 JUNE 30, 1996
----------------------------------------------------------------------------
COMPANY FRANCHISE COMPANY FRANCHISE
OWNED OWNED TOTAL OWNED OWNED TOTAL
-------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Centers open, beginning 31 184 215 29 181 210
Centers opened (A) - 7 7 - 1 1
Centers purchased 2 (2) - 2 (2) -
Centers sold (1) 1 - (3) 3 -
Centers terminated or
closed (2) (1) (3) - (5) (5)
Centers reacquired - - - 5 (5) -
-------- --------- --------- --------- --------- ----------
Centers open, ending (B) 30 189 219 33 173 206
-------- --------- --------- --------- --------- ----------
-------- --------- --------- --------- --------- ----------
Vehicles serviced (000's) 1,426 1,414
--------- ----------
--------- ----------
Franchise licenses issued (C) 7 16
--------- ----------
--------- ----------
Undeveloped franchise licenses
(D) 50 51
--------- ----------
--------- ----------
Franchise applications
outstanding (D) 17 17
--------- ----------
--------- ----------
Franchise license/application
fees received (E) $137,600 $318,800
--------- ----------
--------- ----------
</TABLE>
(A) 1996 includes one franchised Center which was involved in a settlement with
the Company which resulted in the Company assuming possession of the Center
in April 1996 and thus no franchise revenue was recognized.
(B) Includes 20 franchised Centers in Mexico in 1997 and 16 franchised Centers
in Mexico in 1996.
(C) Represents the number of licenses issued during the period.
(D) Represents the number of licenses/applications outstanding at June 30.
(E) Represents amounts received for franchise licenses/applications during the
period.
(continued)
13
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(continued)
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL RESOURCES
In May 1996, the Company entered into a Business Loan Agreement with a
major bank for a $2,000,000 three year line of credit. Funds drawn under the
line are restricted to the development of new Centers. The Company has the
right to select an optional interest rate as described in the agreement,
however, in no case will the interest rate exceed the bank's reference rate. In
exchange for a supply agreement on any Centers built utilizing the line of
credit, a motor oil supplier agreed to guarantee the line. As of June 30, 1997,
the Company had drawn approximately $415,000 under this line of credit.
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, as amended, a $2,481,000 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 real property, leases and lubrication
equipment of certain Company-owned Centers. All available amounts have been
drawn under the line and approximately $2,100,000 remains outstanding as of June
30, 1997. 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 the supplier's 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.
The growth of the Grease Monkey system is dependent on the ability of the
Company 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 the
Company's specifications, then leased to the Company or to a franchisee, by a
third party. Recently, franchisees have moved toward purchasing and developing
the real estate for their own account, thereby creating greater value in their
business.
(continued)
14
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(continued)
LIQUIDITY
Cash provided by operations during the first six months of 1997 was
$576,612 as compared to cash provided by operations of $260,709 in the first six
months of 1996. The most significant factors contributing to this variance are
the settlement agreement entered into with a former franchisee as discussed
previously, and an improved operating margin at Company-owned Centers.
Cash used in investing activities was ($604,268) in the first six months of
1997, as compared to cash used in investing activities of ($494,496) in the
first six months of 1996. Cash provided in both periods consisted primarily of
receipts on direct financing leases which increased slightly over the periods.
Additional cash was received in the first six months of 1997 and 1996 with the
refranchising/sale of two and three Company-owned Centers, respectively. Cash
used in investing activities for the first six months of 1997 and 1996 consisted
primarily of cash used to purchase Centers. Additional cash was used in both
periods for capital expenditures, primarily Company Center equipment.
Additionally, cash was used in the first six months of 1996 for the buy-out of
leases of automobiles used by field employees.
Cash provided by financing activities was $213,918 in the first six months
of 1997 as compared to cash provided by financing activities of $131,022 in the
first six months of 1996. Cash provided by financing activities in the first
six months of 1997 consisted primarily of proceeds from long-term obligations
for the purchase of property related to the acquisition of a center and sale of
common stock. Cash provided by financing activities in the first six months of
1996 consisted primarily of proceeds from long-term obligations related to the
purchase of automobiles (as described above), an equipment loan from a motor oil
supplier, and a draw on a line of credit for the financing of the acquisition of
two franchised Centers. Financing activities also included cash used to reduce
long-term debt and capital lease obligations of $505,464 in the first six months
of 1997 and $393,473 in the first six months of 1996.
The Company does not have any material commitments for capital
expenditures. The Company believes it has the capital resources and liquidity
necessary to meet all of the obligations, debt maturities, and commitments of
the Company during 1997.
15
<PAGE>
GREASE MONKEY HOLDING CORPORATION
COMMISSION FILE NUMBER: 0-9812
QUARTER ENDED JUNE 30, 1997
FORM 10-QSB
PART II OTHER INFORMATION
ITEM 1. 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.
On June 10, 1997, the Company held its annual meeting of shareholders. The
Company's shareholders elected the following seven persons as directors, each to
serve until the next annual meeting of shareholders or until his successor is
elected and qualified: Jerry D. Armstrong, Jim D. Baldwin, Cortlandt S.
Dietler, Wayne H. Patterson, Charles E. Steinbrueck, James B. Wallace and
George F. Wood. The Company's shareholders also voted to amend the Company's
1994 Stock Incentive Plan to increase the number of shares of Common Stock which
may be optioned or awarded under the plan from 500,000 shares to 1,000,000
shares (the Amendment). The number of shares voted and withheld with respect to
each director and the Amendment were as follows:
ELECTION OF DIRECTORS FOR WITHHELD
Jerry D. Armstrong 3,698,413 15,859
Jim D. Baldwin 3,697,591 16,681
Cortlandt S. Dietler 3,697,308 16,964
Wayne H. Patterson 3,696,564 17,708
Charles E. Steinbrueck 3,694,982 19,290
James B. Wallace 3,698,320 15,952
George F. Wood 3,697,781 16,491
AMENDMENT
FOR AGAINST ABSTAIN BROKER NON-VOTES
2,784,883 84,523 147,460 697,406
16
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits (numbered in accordance with Item 601 of regulation S-K)
10. Amendment to 1994 Stock Incentive Plan
11. Statement Re: Computation of Per Share Earnings
27. Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the period covered by this report.
17
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
COMMISSION FILE NUMBER: 0-9812
QUARTER ENDED JUNE 30, 1997
FORM 10-QSB
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GREASE MONKEY HOLDING CORPORATION
By:/s/ T. Timothy Kershisnik
---------------------------------------------
T. Timothy Kershisnik
Vice President, Controller, Treasurer and
Corporate Secretary
(Principal Financial and
Accounting Officer)
Denver, Colorado
August 14, 1997
18
<PAGE>
SECOND AMENDMENT TO
GREASE MONKEY HOLDING CORPORATION
1994 STOCK INCENTIVE PLAN
THIS SECOND AMENDMENT ("Amendment") is made as of this 10th day of
June, 1997 to the Grease Monkey Holding Corporation ("Company") 1994 Stock
Incentive Plan ("Plan"). In the event of any conflict between the terms of this
Amendment and the terms of the Plan, the terms of this Amendment shall control.
All capitalized terms not defined in this Amendment shall have their respective
meanings set forth in the Plan.
The Plan is amended as follows:
by amending the first sentence of Section 3 so that as amended the
first sentence of Section 3 reads as follows:
"3. STOCK SUBJECT TO THE PLAN. The number of shares of the
Company's Common Stock which may be optioned or awarded under this
Plan is 1,000,000 shares."
IN WITNESS WHEREOF, the Company has caused its duly authorized officer
to execute this Amendment effective as of the date first set forth above.
GREASE MONKEY HOLDING CORPORATION,
a Utah corporation
By: /s/ Charles E. Steinbrueck
------------------------------------
Charles E. Steinbrueck,
President and Chief Executive Officer
<PAGE>
EXHIBIT 11
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(unaudited)
<TABLE>
<CAPTION>
Quarters Ended June 30, Six Months Ended June 30,
----------------------------------- ----------------------------------
1997 1996 1997 1996
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE
Net income (loss) . . . . . . . . . . . $ 393,257 (71,934) (83,688) (193,974)
Dividends on preferred stock . . . . . . (31,259) (31,259) (62,174) (62,561)
------------- ------------- ------------- --------------
Net income (loss) applicable to common
stock . . . . . . . . . . . . . . . . . . $ 361,998 (103,193) (145,862) (256,535)
------------- ------------- ------------- --------------
------------- ------------- ------------- --------------
Common shares outstanding . . . . . . . . . 4,599,274 4,359,888 4,599,274 4,359,888
Effect of using weighted average common
and common equivalent shares . . . . . . (1,182) (2,578) (31,150) (8,753)
Effect of shares issuable under common
stock warrants using the treasury
stock method. . . . . . . . . . . . . . . 92,391 * * *
Effect of shares issuable under stock
options using the treasury stock
method . . . . . . . . . . . . . . . . . 125,269 * * *
------------- ------------- ------------- --------------
Shares used in computing primary earnings
per share . . . . . . . . . . . . . . . . 4,815,752 4,357,310 4,568,124 4,351,135
------------- ------------- ------------- --------------
------------- ------------- ------------- --------------
Primary earnings per common share . . . . . $ 0.08 (0.02) (0.03) (0.06)
------------- ------------- ------------- --------------
------------- ------------- ------------- --------------
FULLY DILUTED EARNINGS PER SHARE
Net income (loss) . . . . . . . . . . . . . $ 393,257 (71,934) (83,688) (193,974)
Dividends on preferred stock . . . . . . . ** (31,259) (62,174) (62,561)
------------- ------------- ------------- --------------
Net income (loss) as adjusted . . . . . . . $ 393,257 (103,193) (145,862) (256,535)
------------- ------------- ------------- --------------
------------- ------------- ------------- --------------
Shares used in computing primary earnings
per share . . . . . . . . . . . . . . . . 4,815,752 4,357,310 4,568,124 4,351,135
Effect of shares issuable upon conversion
of preferred stock . . . . . . . . . . . 835,840 * * *
------------- ------------- ------------- --------------
Shares used in computing fully diluted
earnings per share . . . . . . . . . . . 5,651,592 4,357,310 4,568,124 4,351,135
------------- ------------- ------------- --------------
------------- ------------- ------------- --------------
Fully diluted earnings per common
share . . . . . . . . . . . . . . . . . . $ 0.07 (0.02) (0.03) (0.06)
------------- ------------- ------------- --------------
------------- ------------- ------------- --------------
</TABLE>
* Antidilutive
** Conversion of preferred stock is assumed to occur at the beginning of the
year.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND
ON PAGES 1-3 OF THE COMPANY'S FORM 10-QSB FOR THE YEAR-TO-DATE AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 511,007
<SECURITIES> 0
<RECEIVABLES> 2,381,562
<ALLOWANCES> 308,390
<INVENTORY> 900,749
<CURRENT-ASSETS> 3,603,705
<PP&E> 9,711,260
<DEPRECIATION> 3,849,265
<TOTAL-ASSETS> 16,540,982
<CURRENT-LIABILITIES> 3,762,873
<BONDS> 5,000,656
0
2,089,638
<COMMON> 137,978
<OTHER-SE> (581,124)
<TOTAL-LIABILITY-AND-EQUITY> 16,540,982
<SALES> 0
<TOTAL-REVENUES> 10,628,839
<CGS> 0
<TOTAL-COSTS> 10,364,621
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 52,141
<INTEREST-EXPENSE> 366,117
<INCOME-PRETAX> (83,688)
<INCOME-TAX> 0
<INCOME-CONTINUING> (83,688)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (83,688)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
