<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 Number)
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 April 25, 1997
----------------------------- ----------------
Common Stock, $0.03 par value 4,599,274 shares
Transitional Small Business Disclosure Format Yes No X
----- -----
<PAGE>
GREASE MONKEY HOLDING CORPORATION
COMMISSION FILE NUMBER: 0-9812
QUARTER ENDED MARCH 31, 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 15
Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . Page 15
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 16
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
MARCH 31,
--------------------------
1997 1996
----------- -----------
Operating Revenue:
Royalty fees $ 777,490 751,142
Franchise sales - center openings 15,480 -
Product and equipment revenue 165,774 171,975
Sales by Company-owned Centers 3,583,654 3,285,272
Leasing revenue 389,068 357,558
Other 21,181 67,242
----------- -----------
4,952,647 4,633,189
----------- -----------
Operating Expenses:
Franchise costs - center openings 3,964 -
Product and equipment costs 43,340 56,759
Company-owned Centers 3,068,684 2,848,499
Leasing expense 371,994 354,440
General and administrative expenses 1,528,648 1,090,133
Provision for credit losses 29,563 30,000
Depreciation 161,736 156,947
Amortization 65,283 47,510
----------- -----------
5,273,212 4,584,288
----------- -----------
Operating income (loss) (320,565) 48,901
----------- -----------
Other income (expense):
Gain (loss) on sale/disposition of centers (5,982) (33,119)
Interest income 21,653 3,018
Interest expense (172,051) (140,840)
----------- -----------
(156,380) (170,941)
----------- -----------
Net loss $ (476,945) (122,040)
----------- -----------
----------- -----------
Loss per common share (Note 5) $ (0.11) (0.04)
----------- -----------
----------- -----------
Weighted average shares outstanding 4,537,823 4,344,959
----------- -----------
----------- -----------
(UNAUDITED)
1
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
- -------
Current Assets:
Cash $ 217,011 324,745
Restricted cash including certificates of
deposit 506 34,927
Accounts receivable, net of allowance for
doubtful accounts of $283,575 at March 31,
1997, and $252,795 at December 31, 1996 1,085,697 1,042,259
Current portion of notes receivable,
net of allowance for uncollectible amounts 519,681 500,705
Current portion of net investment
in direct financing leases 227,910 225,053
Inventories 841,624 887,203
Prepaid expenses and supplies 109,779 125,208
------------ ------------
TOTAL CURRENT ASSETS 3,002,208 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 566,423 562,235
Leasehold improvements 651,009 662,001
Machinery and equipment 1,739,227 1,735,844
------------ ------------
9,601,072 9,134,489
Less accumulated depreciation and
amortization (3,685,924) (3,540,784)
------------ ------------
NET PROPERTY AND EQUIPMENT 5,915,148 5,593,705
------------ ------------
Other Assets:
Net investment in direct financing leases 3,392,350 3,499,162
Notes receivable, net of allowance for uncollectible
amounts 270,286 270,761
Deferred franchising costs 240,682 211,849
Goodwill and covenants not to compete, net
of accumulated amortization of $1,026,688 at
March 31, 1997, and $966,729 at
December 31, 1996 2,783,072 2,401,586
Other assets, net of accumulated
amortization of $145,721 at March 31, 1997,
and $141,355 at December 31, 1996 140,784 99,960
------------ ------------
TOTAL OTHER ASSETS 6,827,174 6,483,318
------------ ------------
$ 15,744,530 15,217,123
------------ ------------
------------ ------------
</TABLE>
(UNAUDITED)
(continued on next page)
2
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
MARCH 31, DECEMBER 31,
1997 1996
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable $ 985,034 1,043,149
Accrued salaries and wages 222,756 203,073
Other accrued liabilities 365,441 347,158
Current portion of long-term obligations 1,298,097 1,066,283
Current portion of obligations
under capital leases 457,153 427,917
------------ ------------
TOTAL CURRENT LIABILITIES 3,328,481 3,087,580
------------ ------------
Long-term Obligations 3,879,717 3,126,148
Obligations Under Capital Leases 6,508,076 6,649,017
Deferred Franchise Sales Revenue 936,891 907,371
Stockholders' Equity:
Series C Preferred stock, stated value
of $100.00 per share, 20,896 shares
issued and outstanding at March 31,
1997 and December 31, 1996 2,089,638 2,089,638
Common stock, par value $.03,
20,000,000 shares authorized,
4,592,552 and 4,379,860 shares
issued and outstanding at March
31, 1997 and December 31, 1996,
respectively 137,777 131,396
Capital in excess of par value 6,142,592 5,877,670
Less stock subscriptions receivable (150,000) -
Accumulated deficit (7,128,642) (6,651,697)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 1,091,365 1,447,007
Commitments and Contingencies
------------ ------------
$ 15,744,530 15,217,123
------------ ------------
------------ ------------
(UNAUDITED)
3
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
Preferred Stock Common Stock
-------------------- ----------------------------------------------
Capital in Stock
Number of Number of Excess of Subscriptions Accumulated
Shares Amount Shares Amount Par Value Receivable Deficit Total
------ ---------- --------- -------- --------- ----------- --------- ---------
<S> <C> <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 - - 14,716 441 12,206 - - 12,647
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 (150,000) - 100,000
Net loss - - - - - - (476,945) (476,945)
------ ---------- --------- -------- --------- -------- --------- ---------
Balance at March 31, 1997 20,896 $2,089,638 4,592,552 $137,777 6,142,592 (150,000) (7,128,642) 1,091,365
------ ---------- --------- -------- --------- -------- --------- ---------
------ ---------- --------- -------- --------- -------- --------- ---------
</TABLE>
(UNAUDITED)
4
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
MARCH 31,
----------------------
1997 1996
--------- --------
Cash flows from operating activities:
Net loss $(476,945) (122,040)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Increase in deferred franchise sales revenue 70,000 175,200
Franchise sales revenue recognized - center
openings (15,480) -
Increase in deferred franchising costs (32,798) (17,999)
Franchise costs recognized - center openings 3,964 -
Provision for credit losses 29,563 30,000
Depreciation and amortization 227,019 204,457
Loss on sale of centers 2,814 30,619
Accrual of Consultant Agreement 357,113 -
Other, net 3,469 (25,458)
Change in assets and liabilities:
Increase in accounts receivable (95,102) (255,297)
Decrease (increase) in notes receivable 21,702 (26,521)
Decrease (increase) in inventories 34,743 (42,836)
Decrease (increase) in prepaid expenses and
supplies 15,429 (23,566)
Increase (decrease) in accounts payable (83,116) 225,097
Increase (decrease) in accrued salaries and
wages and other liabilities 43,311 (7,962)
--------- --------
Net cash provided by operating activities $ 105,686 143,694
--------- --------
(UNAUDITED)
(continued on next page)
5
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
THREE MONTHS ENDED
MARCH 31,
----------------------
1997 1996
--------- --------
Cash flows from investing activities:
Principal receipts on direct financing leases $ 49,789 44,757
Acquisition of centers (549,919) (394,389)
Sale of centers 16,770 21,673
Capital expenditures (26,052) (110,299)
Decrease (increase) in other assets (45,188) 12,954
--------- --------
Net cash used in investing activities (554,600) (425,304)
--------- --------
Cash flows from financing activities:
Proceeds from long-term obligations 425,000 522,000
Principal payments on long-term obligations (128,141) (112,614)
Principal payments on capital lease
obligations (97,755) (78,922)
Issuance of common stock 108,656 -
Payment of accumulated dividends
upon conversion of preferred stock to common stock - (729)
Decrease (increase) in restricted cash 34,420 (2,153)
Increase (decrease) in lease deposit obligations (1,000) 10,000
--------- --------
Net cash provided by financing activities 341,180 337,582
--------- --------
Net increase (decrease) in cash (107,734) 55,972
Cash, beginning of period 324,745 385,167
--------- --------
Cash, end of period $ 217,011 441,139
--------- --------
--------- --------
Supplemental disclosures of cash flow
information -
Cash paid during the period for interest $ 283,589 249,968
--------- --------
--------- --------
(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 period ended March 31, 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 oral 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. At March 31, 1997,
$150,000 of the purchase price was represented by a stock subscriptions
receivable.
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 March 31, 1997, accumulated
unpaid dividends totaled $412,483.
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 three months of 1997 and 1996, the Company
contributed 14,716 and 10,445 shares to this plan at an average of $0.86
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
(continued)
7
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
exercise of options and warrants, after the assumed repurchase of common
shares with the related proceeds (anti-dilutive for all periods presented).
Earnings (loss) per share for all periods was computed after reduction for
preferred stock dividends ($30,915 in 1997 and $31,303 in 1996). The
assumed conversion of preferred stock was also anti-dilutive.
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 STATEMENT 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.
THREE MONTHS ENDED
MARCH 31,
-------------------------
1997 1996
---------- ---------
Acquisition of Centers:
Number of Centers purchased 2 2
---------- ---------
---------- ---------
Number of Centers foreclosed - 4
---------- ---------
---------- ---------
Receivables applied (net of related
allowance) $ - 181,929
Liabilities assumed 375,337 1,195,513
Cash paid 549,919 394,389
---------- ---------
Cost of assets acquired $ 925,256 1,771,831
---------- ---------
---------- ---------
(continued)
8
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED
MARCH 31,
-------------------------
1997 1996
---------- ---------
Sales:
Number of Centers refranchised 1 2
---------- ---------
---------- ---------
Cash received $ 16,770 21,673
Notes received 26,800 -
Liabilities assumed by purchaser 40,875 19,500
Loss on sale 2,814 30,619
Operating and marketing subsidies
granted to purchaser - (49,750)
Franchise fees - 28,000
Franchise costs - (5,000)
---------- ---------
Net book value of centers refranchised $ 87,259 45,042
---------- ---------
---------- ---------
During the three months ended March 31, 1997 and 1996, non-cash
transactions consisted of the Company issuing 14,716 and 10,445 shares of
common stock at an average value of $0.86 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 three months of 1997 included
the sale of 190,476 shares of common stock at $1.3125 per share of which
$100,000 was paid in cash and $150,000 was recorded as stock subscriptions
receivable. Other non-cash transactions during the first three 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.
9
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
The Company reported a loss of ($476,945) for the first quarter of 1997, as
compared to a loss of ($122,040) for the first quarter of 1996. The loss
recorded in 1997 increased compared to the loss recorded in 1996 due to an
increase in general and administrative expenses, primarily the accrual of a
consultant agreement as described below, offset by a decrease in legal expenses
pertaining to the enforcement of certain franchise agreements and improved
margins at Company-owned Centers.
Total revenue increased by $319,458 or 7% for the first quarter of 1997,
compared to the first quarter of 1996. The increase is due primarily to an
increase in the average number of Company-owned Centers (based on number of
months operated). The Company operated 31 centers for the first quarter of 1997
compared to 29 centers for the first quarter of 1996. Company-owned Center
revenue increased $298,382 over the first quarter of 1996.
Royalty fees are a percentage of gross sales paid monthly by all franchised
Grease Monkey Centers. Royalty fee revenue for the first quarter of 1997
increased by 4% compared to the first quarter of 1996 to $777,490. Based upon
many factors, including the age of amounts owed the Company, the extent of
collateralization, and historical performance, the Company may place certain
financially troubled franchisees on a non-accrual status. For the first quarter
of 1997, estimated royalties of $25,750 were not accrued under this policy,
compared to $30,350 for the first 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 quarter of 1997, the rebate accrued
under this program was $58,945, compared to $60,927 for the first quarter of
1996. The rebate is recorded as a reduction in royalty revenue.
The Company recognized franchise sales net revenue of $15,480 during the
first quarter of 1997 (representing three centers). 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.
At March 31, 1997, the Company operated 32 centers as compared to 34
centers at March 31, 1996. For the first quarter of 1997, the Company reported
an operating margin (Company-owned Center sales less expenses, excluding
interest, depreciation and amortization) of $514,970 on revenue of $3,583,654 at
Company-owned Centers, as compared to an operating margin of $436,773 on revenue
of $3,285,272 for the same period last year. This represents an increase of 9%
in revenue and 18% in operating margin.
On a same center basis, those Company-owned Centers operated continuously
over the period January 1, 1996 through March 31, 1997, representing 24 centers,
had an operating margin of $386,168 on revenue of $2,722,499 for the first
quarter of 1997, as compared to an operating margin of $350,103 on revenue of
$2,656,064 for the first quarter of 1996. This represents an increase of 3% in
revenue and 10% in operating margin.
(continued)
10
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)
In the first quarter of 1997, the Company realized marketing allowances and
gross margins on product and equipment sales of $122,434, as compared to
$115,216 in the first 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. The marketing allowances relate to the number of centers open and
purchasing product.
General and administrative expenses for the first quarter of 1997 increased
40% or $438,515 as compared to the first quarter of 1996. The primary factor
causing this variance is the accrual of the Company's obligation under a
Consultant Agreement with Rex L. Utsler, 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 Mr. Utsler 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, Mr. Utsler 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 quarter of 1997 includes approximately $379,000 related to this
agreement. Other contributing factors include: an increase in the general and
administrative expenses at the Company-owned Center Division of approximately
$68,000; an increase in salaries, wages and personnel expense of approximately
$54,000; an increase in travel and entertainment expenses of approximately
$8,600; an increase in office expenses of approximately $12,400; an increase in
franchise development expenses of approximately $11,000, and an increase in
franchise sales and advertising expenses of approximately $23,000. Offsetting
these increases was a decrease in litigation legal fees of approximately
$60,000. The first quarter 1996 includes a real estate settlement in the amount
of $35,000.
Depreciation and amortization expense for the first quarter of 1997
increased 11% over the same period in 1996. These increases are due to the
addition of, on average, two Company-owned Centers during the period.
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 ($5,982) for the quarter ended
March 31, 1997, represents the refranchising of one Company-owned Center, and
the marketing and operating subsidies granted during the refranchising of three
centers in 1996. The loss of ($33,119) for the quarter ended March 31, 1996,
represents the refranchising of two Company-owned Centers.
Interest expense includes interest on debt financing and interest recorded
on capital leases of Company-owned Centers. The addition of the two
Company-owned Centers, as mentioned above, accounts for the increase in interest
expense due to additional borrowings to acquire the centers and interest expense
related to capital leases entered into. In addition, interest was incurred
related to borrowings for the purchase of land and building related to a Grease
Monkey Center which had previously been leased.
(continued)
11
<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
quarters ended March 31, 1997 and 1996.
<TABLE>
THREE MONTHS ENDED:
MARCH 31, 1997 MARCH 31, 1996
---------------------------- -----------------------------
COMPANY FRANCHISEE COMPANY FRANCHISEE
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) - 3 3 1 - 1
Centers purchased 2 (2) - 2 (2) -
Centers sold (1) 1 - (2) 2 -
Centers terminated or
closed - - - - (3) (3)
Centers reacquired - - - 4 (4) -
--- --- ------- --- --- --------
Centers open, ending (B) 32 186 218 34 174 208
--- --- ------- --- --- --------
--- --- ------- --- --- --------
Vehicles serviced (000's) 698 695
------- --------
------- --------
Franchise licenses issued (C) 3 9
------- --------
------- --------
Undeveloped franchise licenses (D) 51 48
------- --------
------- --------
Franchise applications
outstanding (D) 19 18
------- --------
------- --------
Franchise license/application
fees received (E) $70,000 $175,200
------- --------
------- --------
</TABLE>
(A) 1996 includes one franchised center which was involved in a settlement
with GMI which resulted in GMI 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 March 31.
(E) Represents amounts received for franchise licenses/applications during
the period.
(continued)
12
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL RESOURCES
In 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 March 31,
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. The Company had drawn approximately
$2,481,000 of which approximately $2,161,000 remains outstanding as of March 31,
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 GMI's
specifications, then leased to GMI 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)
13
<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 quarter of 1997 was $105,686
as compared to $143,694 in the first quarter of 1996. The most significant
factor contributing to this variance is the sale of franchise licenses. As
mentioned above, as franchise licenses are sold, the revenue is deferred until
the center opens for business. For the first quarter, cash collections on
franchise sales decreased from $175,200 in 1996 to $70,000 in 1997.
Cash used in investing activities was ($554,600) in the first quarter of
1997, as compared to cash used in investing activities of ($425,304) in the
first quarter of 1996. Cash provided in both periods consisted primarily of
receipts on direct financing leases which remained relatively constant over the
periods. Additional cash was received in the first quarter of 1997 and 1996
with the refranchising of one and two Company-owned Centers, respectively. Cash
used in investing activities for the first quarter of 1997 and 1996 consisted
primarily of cash used to purchase Centers. Additional cash was used in both
periods for capital expenditures, primarily computer systems and Company Center
equipment. Additionally, cash was used in the first quarter of 1996 for the
buy-out of leases of automobiles used by field employees.
Cash provided by financing activities was $341,180 in the first quarter of
1997 as compared to cash provided by financing activities of $337,582 in the
first quarter of 1996. Cash provided by financing activities in the first
quarter of 1997 consisted primarily of proceeds from long-term obligations for
the purchase of property related to the acquisition of a center and the sale of
common stock of $108,656. Cash provided by financing activities in the first
quarter 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 obligations and capital lease obligations of
$225,896 in the first quarter of 1997 and $191,536 in the first quarter 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.
14
<PAGE>
GREASE MONKEY HOLDING CORPORATION
COMMISSION FILE NUMBER: 0-9812
QUARTER ENDED MARCH 31, 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 2. CHANGES IN SECURITIES
On January 20, 1997, Charles E. Steinbrueck, the President and Chief
Executive Officer of the Company, entered into an oral agreement to purchase
190,476 shares of the Company's Common Stock for $250,000. No underwriting
discounts or commissions were paid in connecion with the transaction. The
shares were issued in reliance upon the exemption from registration provided
by Section 4(2) of the Securities Act of 1933, as amended. The facts relied
upon for such exemption are that the purchaser had full information available
to him concerning the Company because of his relationship to the Company and
did not need the protection afforded by the registration provisions of the
Securities Act of 1933, as amended, and the certificates representing the shares
of Common Stock issued have an appropriate restrictive legend under the
Securities Act of 1933, as amended, typed thereon and are restricted from
transfer. No underwriters were involved or underwriting discounts or
commissions paid in connection with the sale of the 190,476 shares of Common
Stock.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits (numbered in accordance with Item 601 of regulation S-K)
11. Statement Re: Computation of Per Share Earnings
27. Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K dated February 6, 1997, filed with the Commission on February
12, 1997.
Reporting under Item 5 a change in officers of the Company and a
purchase of the Company's common stock from the Company by an officer
of the Company.
15
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
COMMISSION FILE NUMBER: 0-9812
QUARTER ENDED MARCH 31, 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
May 12, 1997
16
<PAGE>
EXHIBIT 11
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(unaudited)
Quarters Ended March 31,
------------------------
1997 1996
---------- ---------
PRIMARY EARNINGS PER SHARE
Net income (loss) $ (476,945) (122,040)
Dividends on preferred stock (30,915) (31,303)
---------- ---------
Net income (loss) applicable to common stock $ (507,860) (153,343)
---------- ---------
---------- ---------
Common shares outstanding 4,592,552 4,349,689
Effect of using weighted average common and
common equivalent shares outstanding (54,729) (4,730)
Effect of shares issuable under common stock
warrants using the treasury stock method * *
Effect of shares issuable under stock options
using the treasury stock method * *
---------- ---------
Shares used in computing primary earnings
per share 4,537,823 4,344,959
---------- ---------
---------- ---------
Primary earnings (loss) per common share $ (0.11) (0.04)
---------- ---------
---------- ---------
FULLY DILUTED EARNINGS PER SHARE
Net income (loss) $ (476,945) (122,040)
Dividends on preferred stock (30,915) (31,303)
---------- ---------
Net income (loss) as adjusted $ (507,860) (153,343)
---------- ---------
---------- ---------
Shares used in computing primary earnings
per share 4,537,823 4,344,959
Effect of shares issuable upon conversion of
preferred stock * *
---------- ---------
Shares used in computing fully diluted
earnings per share 4,537,823 4,344,959
---------- ---------
---------- ---------
Fully diluted earnings (loss) per common share $ (0.11) (0.04)
---------- ---------
---------- ---------
* Antidilutive
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON
PAGES 1-3 OF THE COMPANY'S FORM 10-QSB FOR THE YEAR-TO-DATE, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 217,011
<SECURITIES> 0
<RECEIVABLES> 2,159,239
<ALLOWANCES> 283,575
<INVENTORY> 841,624
<CURRENT-ASSETS> 3,002,208
<PP&E> 9,601,072
<DEPRECIATION> (3,685,924)
<TOTAL-ASSETS> 15,744,530
<CURRENT-LIABILITIES> 3,328,481
<BONDS> 3,879,717
137,777
0
<COMMON> 2,089,638
<OTHER-SE> (1,136,050)
<TOTAL-LIABILITY-AND-EQUITY> 15,744,530
<SALES> 0
<TOTAL-REVENUES> 4,952,647
<CGS> 0
<TOTAL-COSTS> 5,273,212
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 29,563
<INTEREST-EXPENSE> 172,051
<INCOME-PRETAX> (476,945)
<INCOME-TAX> 0
<INCOME-CONTINUING> (476,945)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (476,945)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
