<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, 1998
( ) 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 000-9812
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 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
----- -----
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 May 4, 1998
----------------------------- ----------------
Common Stock, $0.03 par value 4,646,805 shares
Transitional Small Business Disclosure Format Yes No X
----- -----
<PAGE>
GREASE MONKEY HOLDING CORPORATION
COMMISSION FILE NUMBER: 000-9812
QUARTER ENDED MARCH 31, 1998
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
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------
1998 1997
---------- ---------
<S> <C> <C>
Operating Revenue:
Royalty fees . . . . . . . . . . . . . . . . $ 742,283 777,490
Franchise sales - center openings - 15,480
Product and equipment revenue . . . . . . . . 180,929 165,774
Sales by Company-owned Centers. . . . . . . . 3,698,874 3,583,654
Leasing revenue . . . . . . . . . . . . . . . 328,699 389,068
Other . . . . . . . . . . . . . . . . . . . . 18,916 21,181
---------- ---------
4,969,701 4,952,647
---------- ---------
Operating Expenses:
Franchise costs - center openings . . . . . . 5,500 3,964
Product and equipment costs . . . . . . . . . 82,593 43,340
Company-owned Centers . . . . . . . . . . . . 3,167,710 3,068,684
Leasing expense . . . . . . . . . . . . . . . 356,636 371,994
General and administrative expenses . . . . . 1,272,904 1,528,648
Provision for credit losses . . . . . . . . . 42,500 29,563
Depreciation. . . . . . . . . . . . . . . . . 165,749 161,736
Amortization. . . . . . . . . . . . . . . . . 71,333 65,283
---------- ---------
5,164,925 5,273,212
---------- ---------
Operating loss. . . . . . . . . . . . . . . . . (195,224) (320,565)
---------- ---------
Other income (expense):
Gain (loss) on sale/disposition/closure of
centers . . . . . . . . . . . . . . . . . . (50,512) (5,982)
Undeveloped franchise licenses canceled . . . 31,983 -
Interest income . . . . . . . . . . . . . . . 11,235 21,653
Interest expense . . . . . . . . . . . . . . (213,717) (172,051)
---------- ---------
(221,011) (156,380)
---------- ---------
Net loss . . . . . . . . . . . . . . . . . . . $ (416,235) (476,945)
---------- ---------
---------- ---------
Loss per common share (Note 5) . . . . . . . . $ (0.10) (0.11)
---------- ---------
---------- ---------
Loss per common share - assuming dilution
(Note 5). . . . . . . . . . . . . . . . . . . $ (0.10) (0.11)
---------- ---------
---------- ---------
Weighted average shares outstanding . . . . . . 4,641,805 4,537,823
---------- ---------
---------- ---------
</TABLE>
(UNAUDITED)
1
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 1998 1997
- ------ ----------- ------------
<S> <C> <C>
Current Assets:
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 67,429 182,214
Restricted cash . . . . . . . . . . . . . . . . . . . . . 25,000 -
Accounts receivable, net of allowance for
doubtful accounts of $517,294 at March 31, 1998, and
$478,553 at December 31, 1997 . . . . . . . . . . . . . 1,149,416 1,212,014
Current portion of notes receivable,
net of allowance for uncollectible amounts. . . . . . . 332,509 318,658
Current portion of net investment
in direct financing leases . . . . . . . . . . . . . . 203,457 204,921
Inventories . . . . . . . . . . . . . . . . . . . . . . . 777,874 758,116
Prepaid expenses and supplies . . . . . . . . . . . . . . 163,590 113,648
----------- ----------
TOTAL CURRENT ASSETS. . . . . . . . . . . . . . . . . . 2,719,275 2,789,571
----------- ----------
Property and Equipment, at Cost, Pledged:
Land. . . . . . . . . . . . . . . . . . . . . . . . . . . 543,838 543,838
Buildings (including buildings under capital leases). . . 6,199,069 6,430,000
Furniture and fixtures. . . . . . . . . . . . . . . . . . 539,200 536,329
Leasehold improvements. . . . . . . . . . . . . . . . . . 738,795 718,672
Machinery and equipment . . . . . . . . . . . . . . . . . 1,758,717 1,774,196
----------- ----------
9,779,619 10,003,035
Less accumulated depreciation and
amortization . . . . . . . . . . . . . . . . . . . . . (4,077,894) (3,985,940)
----------- ----------
NET PROPERTY AND EQUIPMENT. . . . . . . . . . . . . . . 5,701,725 6,017,095
----------- ----------
Other Assets:
Net investment in direct financing leases . . . . . . . . 3,272,668 3,154,581
Notes receivable, net of allowance for uncollectible
amounts . . . . . . . . . . . . . . . . . . . . . . . . 235,129 225,177
Deferred franchising costs. . . . . . . . . . . . . . . . 194,265 189,528
Goodwill and covenants not to compete, net of accumulated
amortization of $1,274,030 at March 31, 1998, and
$1,215,026 at December 31, 1997 . . . . . . . . . . . . 2,533,049 2,688,103
Other assets, net of accumulated amortization of $177,788
at March 31, 1998, and $167,145 at December 31, 1997. . 982,665 333,795
----------- ----------
TOTAL OTHER ASSETS . . . . . . . . . . . . . . . . . . 7,217,776 6,591,184
----------- ----------
$15,638,776 15,397,850
----------- ----------
----------- ----------
</TABLE>
(UNAUDITED)
(continued on next page)
2
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
- ------------------------------------ ----------- -----------
<S> <C> <C>
Current Liabilities:
Accounts payable . . . . . . . . . . . . . . . . . $ 1,452,780 1,400,633
Accrued salaries and wages . . . . . . . . . . . . 260,731 195,787
Other accrued liabilities . . . . . . . . . . . . . 432,780 371,143
Current portion of long-term obligations . . . . . 814,774 715,289
Current portion of obligations
under capital leases . . . . . . . . . . . . . . 475,764 464,955
----------- ----------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . 3,436,829 3,147,807
----------- ----------
Long-term Obligations . . . . . . . . . . . . . . . . 4,286,268 3,800,082
Obligations Under Capital Leases . . . . . . . . . . 6,732,027 6,848,249
Deferred Franchise Sales Revenue . . . . . . . . . . 969,470 985,470
Stockholders' Equity:
Series C Preferred stock, stated value of $100.00
per share, 20,896 shares issued and outstanding
at March 31, 1998 and December 31, 1997 . . . . . 2,089,638 2,089,638
Common stock, par value $.03, 20,000,000
shares authorized, 4,646,805 and 4,633,570
shares issued and outstanding at March 31, 1998
and December 31, 1997, respectively . . . . . . . 139,404 139,007
Capital in excess of par value . . . . . . . . . . 6,211,658 6,197,880
Accumulated deficit . . . . . . . . . . . . . . . . (8,226,518) (7,810,283)
----------- ----------
TOTAL STOCKHOLDERS' EQUITY . . . . . . . . . . 214,182 616,242
Commitments and Contingencies . . . . . . . . . . .
----------- ----------
$15,638,776 15,397,850
----------- ----------
----------- ----------
</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, 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. . . . . . . . - - 33,234 996 44,262 - 45,258
Issuance of common stock
upon exercise of employee
stock options . . . . . . . - - 30,000 900 31,663 - 32,563
Issuance of common stock . . - - 190,476 5,715 244,285 - 250,000
Net loss . . . . . . . . . . - - - - - (1,158,586) (1,158,586)
------ ---------- --------- -------- --------- ---------- ----------
Balance at December 31, 1997 20,896 2,089,638 4,633,570 139,007 6,197,880 (7,810,283) 616,242
Issuance of common stock
pursuant to employee
benefit plan. . . . . . . . - - 10,735 322 13,102 - 13,424
Issuance of common stock
upon exercise of employee
stock options . . . . . . . - - 2,500 75 2,581 - 2,656
Issuance of common stock - - - - (1,905) - (1,905)
Net loss . . . . . . . . . . - - - - - (416,235) (416,235)
------ ---------- --------- -------- --------- ---------- ----------
Balance at March 31, 1998. . 20,896 $2,089,638 4,646,805 $139,404 6,211,658 (8,226,518) 214,182
------ ---------- --------- -------- --------- ---------- ----------
------ ---------- --------- -------- --------- ---------- ----------
</TABLE>
(UNAUDITED)
4
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . $(416,235) (476,945)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Increase in deferred franchise sales revenue. . 39,000 70,000
Franchise sales revenue recognized - center
openings. . . . . . . . . . . . . . . . . . . - (15,480)
Increase in deferred franchising costs. . . . . (19,927) (32,798)
Franchise costs recognized - center openings. . - 3,964
Provision for credit losses . . . . . . . . . . 42,500 29,563
Depreciation and amortization . . . . . . . . . 237,082 227,019
Undeveloped franchise licenses canceled . . . . (31,983) -
(Gain) loss on sale/disposition/closure of
centers . . . . . . . . . . . . . . . . . . . 36,767 2,814
Accrual of Consultant Agreement . . . . . . . . - 357,113
Other, net. . . . . . . . . . . . . . . . . . . 1,453 3,469
Change in assets and liabilities:
Increase in accounts receivable . . . . . . . (45,343) (95,102)
Decrease in notes receivable. . . . . . . . . 18,873 21,702
Decrease (increase) in inventories. . . . . . (32,257) 34,743
Decrease (increase) in prepaid expenses and
supplies. . . . . . . . . . . . . . . . . . (49,942) 15,429
Increase (decrease) in accounts payable . . . 52,150 (83,116)
Increase in accrued salaries and wages
and other liabilities . . . . . . . . . . . 140,006 43,311
--------- --------
Net cash provided by (used in) operating
activities . . . . . . . . . . . . . . . . . . $ (27,856) 105,686
--------- --------
</TABLE>
(UNAUDITED)
(continued on next page)
5
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from investing activities:
Principal receipts on direct financing leases . . $ 44,219 49,789
Acquisition of centers . . . . . . . . . . . . . - (549,919)
Sale of centers . . . . . . . . . . . . . . . . . 115,450 16,770
Capital expenditures . . . . . . . . . . . . . . (30,192) (26,052)
Increase in projects and development. . . . . . . (595,927) -
Increase in other assets. . . . . . . . . . . . . (63,588) (45,188)
--------- --------
Net cash used in investing activities . . . . (530,038) (554,600)
--------- --------
Cash flows from financing activities:
Proceeds from long-term obligations . . . . . . . 710,500 425,000
Principal payments on long-term obligations . . . (140,729) (128,141)
Principal payments on capital lease
obligations . . . . . . . . . . . . . . . . . . (105,955) (97,755)
Issuance of common stock. . . . . . . . . . . . . 751 108,656
Decrease (increase) in restricted cash. . . . . . (25,000) 34,420
Increase (decrease) in lease deposit obligations. 3,542 (1,000)
--------- --------
Net cash provided by financing activities . . 443,109 341,180
--------- --------
Net decrease in cash . . . . . . . . . . . . . . . (114,785) (107,734)
Cash, beginning of period . . . . . . . . . . . . . 182,214 324,745
--------- --------
Cash, end of period . . . . . . . . . . . . . . . . $ 67,429 217,011
--------- --------
--------- --------
Supplemental disclosures of cash flow
information -
Cash paid during the period for interest . . . $ 320,416 283,589
--------- --------
--------- --------
</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"), Grease Monkey de
Mexico SA de CV ("GMM") 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, 1997, included in the
Company's Annual Report on Form 10-KSB filed with the Securities and
Exchange Commission on March 31, 1998.
3. The results for the three-month period ended March 31, 1998, are not
necessarily indicative of the results to be expected for the entire fiscal
year of 1998.
4. STOCKHOLDERS' EQUITY
On January 20, 1997, Charles E. Steinbrueck, President and Chief Executive
Officer, entered into an agreement to purchase from the Company 190,476
shares of restricted 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 March 31, 1998, accumulated
unpaid dividends totaled $537,861.
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 1998 and 1997, the Company
contributed 10,735 and 14,716 shares to this plan at an average of $1.25
and $0.86 per share, respectively.
5. EARNINGS (LOSS) PER SHARE
Effective for periods ending after December 15, 1997, earnings loss per
common share (EPS) is computed using Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings Per Share." SFAS No. 128 established
standards for computing and presenting EPS and supersedes all prior EPS
guidance found in APB Opinion 15. Basic EPS is computed by dividing income
available to common shareholders by the weighted-average number of common
shares outstanding during the period. Diluted EPS reflects the potential
dilution that could occur if
(continued)
7
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
securities or other contracts to issue common stock were exercised or converted
into common shares. All prior periods have been restated to conform with SFAS
No. 128. The following is a reconciliation between the basic and diluted
earnings per common share for income (loss) as calculated under SFAS No. 128.
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
----------------------------------------------------------
MARCH 31, 1998 MARCH 31, 1997
INCOME EPS SHARES INCOME EPS SHARES
---------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) (416,235) (476,945)
Preferred dividends (30,915) (30,915)
---------------------------- ----------------------------
Basic EPS (447,150) (0.10) 4,641,805 (507,860) (0.11) 4,537,823
Effects of dilutive
securities:
Common stock
equivalents
Convertible
Preferred Stock
---------------------------- ----------------------------
Diluted EPS (447,150) (0.10) 4,641,805 (507,860) (0.11) 4,537,823
---------------------------- ----------------------------
---------------------------- ----------------------------
</TABLE>
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. COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." This
Statement requires that all items that are recognized under accounting
standards as components of comprehensive income be reported in an annual
financial statement displayed with the same prominence as other annual
financial statements. Condensed financial statements of interim periods
are to include a total for comprehensive income. The Company's total
comprehensive income (loss) did not differ from its net loss.
(continued)
8
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. 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, sale (refranchising) and closure of Company-
owned Centers.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1998 1997
-------- ------
<S> <C> <C>
Acquisition of Centers:
Number of Centers purchased . . . . . . . . . . - 2
-------- ------
-------- ------
Number of Centers foreclosed . . . . . . . . . 2 -
-------- ------
-------- ------
Receivables applied (net of
related allowance). . . . . . . . . . . . . . $ 30,703 -
Liabilities assumed . . . . . . . . . . . . . . 38,400 375,337
Cash paid . . . . . . . . . . . . . . . . . . . - 549,919
-------- ------
Cost of assets acquired . . . . . . . . . . . . $ 69,103 925,256
-------- ------
-------- ------
Sales:
Number of Centers
refranchised/sold/closed. . . . . . . . . . . 3 1
-------- ------
-------- ------
Cash received . . . . . . . . . . . . . . . . . $115,450 16,770
Notes received/accounts receivable
granted . . . . . . . . . . . . . . . . . . . 15,769 26,800
Liabilities assumed by purchaser. . . . . . . . - 40,875
Loss on sale . . . . . . . . . . . . . . . . . 36,767 2,814
-------- ------
Net book value of centers
refranchised/sold/closed. . . . . . . . . . . $167,986 87,259
-------- ------
-------- ------
</TABLE>
During the three months ended March 31, 1998 and 1997, non-cash
transactions consisted of the Company issuing 10,735 and 14,716 shares of common
stock at an average value of $1.25 and $0.86 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 1998 included a franchise
license in the amount of $10,000, net of deferred costs of $2,173, that was
canceled and applied to a franchisee's obligation to the Company. 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.
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 ($416,235) for the first quarter of 1998, as
compared to a loss of ($476,945) for the first quarter of 1997. Total revenue
remained relatively constant, increasing by $17,054 or less than 1%.
Royalty fees are a percentage of gross sales paid monthly by all franchised
Grease Monkey Centers. Royalty fee revenue for the first quarter of 1998
decreased by $35,207 or 5% compared to the first quarter of 1997. This decrease
is due primarily to a reduction in average number of franchised Centers open
during the respective periods. In the first quarter of 1998, an average of 181
franchised Centers were open and operating as compared to 186 Centers in the
first quarter of 1997. Factored into this average was the loss of twenty-four
mature Centers (includes the acquisition of 4 centers by the Company) offset by
the addition of fifteen new Centers. While these mature Centers were replaced
in part by the new Centers, the new Centers are in the early stages of
development and do not generate the level of sales of a mature Center. 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 1998, estimated royalties of $50,670 were not accrued under this policy,
compared to $25,750 for the first quarter of 1997. 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 1998, the rebate accrued
under this program was $55,990 compared to $58,945 for the first quarter of
1997. The rebate is recorded as a reduction in royalty revenue.
The Company recognized franchise sales net revenue of $11,516 during the
first quarter of 1997 (representing two 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. There were no
center openings during the first quarter of 1998.
At March 31, 1998, the Company operated 31 Centers as compared to 32
Centers at March 31, 1997. For the first quarter of 1998, the Company reported
an operating margin (Company-owned Center sales less expenses, excluding
interest, depreciation and amortization) of $531,164 on revenue of $3,698,874 at
Company-owned Centers, as compared to an operating margin of $514,970 on revenue
of $3,583,654 for the same period last year. This represents an increase of 3%
in revenue and 3% in operating margin.
In the first quarter of 1998, the Company realized marketing allowances and
gross margins on product and equipment sales of $98,336, as compared to $122,434
in the first quarter of 1997. 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.
(continued)
10
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)
General and administrative expenses for the first quarter of 1998 decreased
17% or $255,744 as compared to the first quarter of 1997. The primary factor
causing this variance was 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 in the first quarter of 1997.
General and administrative expenses for the first quarter of 1997 included
approximately $379,000 related to this agreement. Other contributing factors
include: a decrease in the general and administrative expenses at the Company-
owned Center Division of approximately $79,000, and a decrease in sales and
promotional expenses of approximately $12,000. Offsetting these decreases was
an increase in legal fees of approximately $95,000, and an increase in salaries,
wages and personnel expenses of approximately $120,000.
Depreciation and amortization expense for the first quarter of 1998
remained relatively constant over the first quarter of 1997 increasing by 4% or
$10,063.
Gain (loss) on sale/disposition/closure 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 ($50,512)
for the quarter ended March 31, 1998, represents the closure of a Company-owned
Center in 1998, marketing allowances paid based on subsidies granted certain
franchisees on the refranchising of Company-owned Centers in 1996, and
additional costs incurred in 1998 related to the closure of Company-owned
Centers closed in 1997. In addition, a loss was recognized on the sale of a
Company-owned Center to a third party. 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.
Interest expense includes interest on debt financing and interest recorded
on capital leases of Company-owned Centers. The increase in interest expense
from $172,051 in the first quarter of 1997 to $213,717 in the first quarter of
1998 was due in part to a change in vendor financing. This change resulted in
financing costs being transferred out of cost of goods sold and into financing
costs. In addition, due to the purchase of two Company-owned Centers, late in
the first quarter of 1997, average debt outstanding for the quarters increased
approximately $400,000 or 13%. This increase is due to additional borrowings to
acquire the centers and interest expense related to capital leases entered into.
(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, 1998 and 1997.
<TABLE>
<CAPTION>
THREE MONTHS ENDED:
MARCH 31, 1998 MARCH 31, 1997
-------------------------------------------------------------
COMPANY FRANCHISEE COMPANY FRANCHISEE
OWNED OWNED TOTAL OWNED OWNED TOTAL
------- ---------- ----- ------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Centers open, beginning 31 187 218 31 184 215
Centers opened - - - - 3 3
Centers purchased - - - 2 (2) -
Centers sold (1) - (1) (1) 1 -
Centers terminated or
closed (1) (6) (7) - - -
Centers reacquired 2 (2) - - - -
---- ----- -------- ---- ----- --------
Centers open, ending (A) 31 179 210 32 186 218
---- ----- -------- ---- ----- --------
---- ----- -------- ---- ----- --------
Vehicles serviced (000's) 661 698
-------- --------
-------- --------
Franchise licenses issued (B) 1 3
-------- --------
-------- --------
Undeveloped franchise licenses (C) 48 51
-------- --------
-------- --------
Franchise applications
outstanding (C) 20 19
-------- --------
-------- --------
Franchise license/application
fees received (D) $39,000 $70,000
-------- --------
-------- --------
</TABLE>
(A) Includes 21 franchised centers in Mexico in 1998 and 20 franchised centers
in Mexico in 1997.
(B) Represents the number of licenses issued during the period.
(C) Represents the number of licenses/applications outstanding at March 31.
(D) 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 September 1997, the Company entered into a $5,000,000 Loan Agreement
with a major bank. In connection with the Company entering into a Master Supply
Contract with a motor oil supplier, the supplier agreed to guarantee the line.
Draws under the Loan Agreement were used for the purpose of paying off certain
debt, including the Company's former Loan Agreement and Fast Lube Supply
Agreement, and will be used for acquiring, constructing and/or developing
Company Centers. Any draws are evidenced by notes which amortize over ten years
with a five year balloon payment and bear interest at a rate provided under the
Loan Agreement plus guarantee fees. For an increased guarantee fee, the Company
can extend the payment terms an additional five years. An initial draw of
$2,620,000 was made on September 29, 1997, with interest at 9.26% plus guarantee
fees which approximated $20,000 in the first quarter of 1998. Additional draws
totaling $645,000 were made in the first quarter of 1998 with an average
interest rate of approximately 9% plus guarantee fees.
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,
1998, $190,000 is outstanding 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 accrued interest at 9% per annum and were repaid in
quarterly installments over a ten year period from date of disbursement. The
line was secured by the assignment of real property, leases and lubrication
equipment of certain Company-owned Centers. The line was paid in full on
September 30, 1997.
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)
13
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
LIQUIDITY
Cash used in operations during the first quarter of 1998 was ($27,856) as
compared to cash provided by operations of $105,686 in the first quarter of
1997. The most significant factors contributing to this variance were the sale
of franchise licenses and the non-cash accrual for the Consultant Agreement (as
described previously). 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 $70,000 in 1997 to $39,000 in 1998.
Cash used in investing activities was ($530,038) in the first quarter of
1998, as compared to cash used in investing activities of ($554,600) in the
first quarter of 1997. 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 1998 with the
sale of a Company-owned Center. Additional cash was received in the first
quarter of 1997 with the refranchising of a Company-owned Center. Cash used in
investing activities for the first quarter of 1998 consisted primarily of cash
used for the development of Centers. Cash used in investing activities for the
first quarter of 1997 consisted primarily of cash used to purchase Centers.
Additional cash was used in both periods for capital expenditures, primarily
Company Center equipment.
Cash provided by financing activities was $443,109 in the first quarter of
1998 as compared to cash provided by financing activities of $341,180 in the
first quarter of 1997. Cash provided by financing activities in the first
quarter of 1998 consisted primarily of proceeds from long-term obligations for
the development of Centers. 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. Financing activities also included cash used to
reduce long-term obligations and capital lease obligations of $246,684 in the
first quarter of 1998 and $225,896 in the first quarter of 1997.
The Company does not have any material commitments for capital expenditures
other than for the required replacement or upgrade of underground storage tanks.
The Company is currently seeking additional financing through equity and or debt
to provide working capital for current and future operating needs as well as to
fund development projects. The Company believes, but cannot guarantee, that
such financing will be obtained. If new financing is not secured, the Company's
ability to grow would be substantially limited.
14
<PAGE>
GREASE MONKEY HOLDING CORPORATION
COMMISSION FILE NUMBER: 000-9812
QUARTER ENDED MARCH 31, 1998
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 3. DEFAULTS UPON SENIOR SECURITIES.
(b) As of the date of filing this Quarterly Report on form 10-QSB, the Company
is in arrears in the payment of dividends on the Series C Preferred Stock in the
amount of $537,861. Under Paragraph 5(d) of the Statement of Designation,
Voting Powers, Preferences and Rights of the Series C Preferred Stock
("Statement of Designation"), if dividends on the Series C Preferred Stock are
in arrears in an aggregate amount equal to at least four quarterly dividends,
the number of members of the Board of Directors of the Company is automatically
increased by the smallest number of directors that will constitute at least 25%
of the Board of Directors after such increase and that the holders of the Series
C Preferred Stock (voting as a separate voting group) have the exclusive right
to elect, remove or replace such additional directors of the Company. The
holders of the Series C Preferred Stock have not notified the Company that they
have any intention to elect or serve as Directors.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits (numbered in accordance with Item 601 of regulation S-K)
27.1 Financial Data Schedule - 1998
27.2 Financial Data Schedule - 1997 restated
(b) Reports on Form 8-K
A Current Report on Form 8-K dated March 13, 1998, was filed on March 18,
1998, reporting under Item 5 a change in officers of the Company.
15
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
COMMISSION FILE NUMBER: 000-9812
QUARTER ENDED MARCH 31, 1998
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/ Charles E. Steinbrueck
-----------------------------------------------
Charles E. Steinbrueck
President and Chief Executive Officer
(Principal Executive Officer, Chief Financial
Officer and Principal Accounting Officer)
Denver, Colorado
May 14, 1998
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 67,429
<SECURITIES> 0
<RECEIVABLES> 2,231,348
<ALLOWANCES> 517,294
<INVENTORY> 777,874
<CURRENT-ASSETS> 2,719,275
<PP&E> 9,779,619
<DEPRECIATION> 4,077,894
<TOTAL-ASSETS> 15,638,776
<CURRENT-LIABILITIES> 3,436,829
<BONDS> 5,101,042
0
2,089,638
<COMMON> 139,404
<OTHER-SE> (2,014,860)
<TOTAL-LIABILITY-AND-EQUITY> 15,638,776
<SALES> 0
<TOTAL-REVENUES> 4,969,701
<CGS> 0
<TOTAL-COSTS> 5,164,925
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 42,500
<INTEREST-EXPENSE> 213,717
<INCOME-PRETAX> (416,235)
<INCOME-TAX> 0
<INCOME-CONTINUING> (416,235)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (416,235)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON
PAGES 1-3 OF THE COMPANY'S FORM 10-QSB FOR THE YEAR-TO-DATE AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<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
0
2,089,638
<COMMON> 137,777
<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>
