<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, 1999
( ) 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)
633 17th Street, Suite 400
Denver, Colorado 80202
----------------------
(Address of principal executive offices)
(303) 308-1660
--------------
(Issuer's telephone number)
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 July 30, 1999
- ----------------------------- ----------------
Common Stock, $0.03 par value 4,690,518 shares
Transitional Small Business Disclosure Format Yes No X
--- ---
<PAGE>
GREASE MONKEY HOLDING CORPORATION
COMMISSION FILE NUMBER: 000-9812
QUARTER ENDED JUNE 30, 1999
FORM 10-QSB
PART I FINANCIAL INFORMATION
<TABLE>
<S> <C>
Consolidated Statements of Operations (unaudited)............................................. Page 1
Consolidated Balance Sheets (unaudited)....................................................... Page 2
Consolidated Statements of Stockholders' Equity (Deficit) (unaudited)......................... Page 4
Consolidated Statements of Cash Flows (unaudited)............................................. Page 5
Notes to Consolidated Financial Statements (unaudited)........................................ Page 7
Management's Discussion and Analysis or Plan
of Operation................................................................................ Page 13
PART II OTHER INFORMATION
Legal Proceedings............................................................................. Page 21
Defaults Upon Senior Securities............................................................... Page 21
Exhibits and Reports on Form 8-K.............................................................. Page 21
Signatures.................................................................................... Page 22
</TABLE>
ii
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------- ----------------------------------
1999 1998 1999 1998
--------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Operating Revenue:
Royalty fees........................................... $ 738,321 777,514 1,411,414 1,519,797
Franchise sales - center openings...................... 35,500 173,600 82,460 173,600
Product and equipment revenue.......................... 116,925 185,978 230,728 366,907
Sales by Company-owned Centers......................... 4,175,414 3,755,906 7,989,365 7,454,780
Leasing revenue........................................ 207,929 299,290 435,760 627,989
Other.................................................. 19,565 21,903 37,941 40,819
-------------- -------------- --------------- ---------------
5,293,654 5,214,191 10,187,668 10,183,892
-------------- -------------- --------------- ---------------
Operating Expenses:
Franchise costs - center openings...................... 11,476 36,926 17,642 42,426
Product and equipment costs............................ 23,891 87,336 66,248 169,929
Company-owned Centers.................................. 3,267,544 3,096,877 6,401,385 6,264,587
Leasing expense........................................ 283,008 339,979 558,240 696,615
General and administrative expenses.................... 1,039,227 1,390,481 1,940,108 2,663,385
Provision for credit losses............................ 29,890 49,165 73,393 91,665
Depreciation........................................... 188,699 172,344 366,712 338,093
Amortization........................................... 75,421 72,439 148,691 143,772
-------------- -------------- --------------- ---------------
4,919,156 5,245,547 9,572,419 10,410,472
-------------- -------------- --------------- ---------------
Operating income (loss).................................. 374,498 (31,356) 615,249 (226,580)
-------------- -------------- --------------- ---------------
Other income (expense):
Gain (loss) on sale/disposition/closure of centers..... 21,461 (5,431) 11,549 (55,943)
Undeveloped franchise licenses canceled................ 17,944 - 17,944 31,983
Interest income........................................ 5,961 10,085 9,508 21,320
Interest expense....................................... (218,446) (212,223) (461,018) (425,940)
-------------- -------------- --------------- ---------------
(173,080) (207,569) (422,017) (428,580)
-------------- -------------- --------------- ---------------
Net income (loss)........................................ $ 201,418 (238,925) 193,232 (655,160)
-------------- -------------- --------------- ---------------
-------------- -------------- --------------- ---------------
Earnings (loss) per common share (Note 6)................ $ 0.04 (.06) 0.03 (.15)
-------------- -------------- --------------- ---------------
-------------- -------------- --------------- ---------------
Earnings (loss) per common share assuming dilution
(Note 6)............................................... $ 0.03 (.06) 0.03 (.15)
-------------- -------------- --------------- ---------------
-------------- -------------- --------------- ---------------
Weighted average shares outstanding...................... 4,684,377 4,647,409 4,667,914 4,644,623
-------------- -------------- --------------- ---------------
-------------- -------------- --------------- ---------------
</TABLE>
1
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
--------------------- --------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash.............................................................. $ 281,194 145,470
Accounts receivable, net of allowance for
doubtful accounts of $551,029 at June 30, 1999,
and $471,571 at December 31, 1998............................... 707,992 742,169
Current portion of notes receivable, net.......................... 55,933 60,885
Current portion of net investment
in direct financing leases...................................... 208,951 183,775
Inventories....................................................... 636,217 647,530
Prepaid expenses and supplies..................................... 165,530 219,635
--------------------- --------------------
TOTAL CURRENT ASSETS............................................ 2,055,817 1,999,464
--------------------- --------------------
Property and Equipment:
Land.............................................................. 708,838 805,432
Buildings (including buildings under capital leases).............. 6,816,041 6,859,365
Furniture and fixtures............................................ 531,784 674,553
Leasehold improvements............................................ 814,075 823,657
Machinery and equipment .......................................... 1,908,122 1,883,693
--------------------- --------------------
10,778,860 11,046,700
Less accumulated depreciation and
amortization.................................................... (4,389,727) (4,508,081)
--------------------- --------------------
NET PROPERTY AND EQUIPMENT...................................... 6,389,133 6,538,619
--------------------- --------------------
Other Assets:
Net investment in direct financing leases......................... 1,781,098 2,023,193
Notes receivable, net............................................. 81,260 81,919
Deferred franchising costs........................................ 91,121 113,819
Goodwill and covenants not to compete, net
of accumulated amortization of $1,464,325 at June
30, 1999, and $1,373,453 at December 31, 1998................... 2,319,829 2,322,422
Land held for development/resale.................................. 804,937 818,300
Other assets, net of accumulated
amortization of $102,575 at June 30, 1999,
and $70,126 at December 31, 1998................................ 248,179 314,528
--------------------- --------------------
TOTAL OTHER ASSETS.............................................. 5,326,424 5,674,181
--------------------- --------------------
$ 13,771,374 14,212,264
--------------------- --------------------
--------------------- --------------------
</TABLE>
(continued on next page)
2
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
--------------------- --------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable.................................................. $ 1,297,184 1,674,175
Accrued salaries and wages........................................ 223,578 190,982
Other accrued liabilities......................................... 364,908 377,799
Current portion of long-term obligations.......................... 1,066,390 1,084,617
Current portion of obligations
under capital leases............................................ 523,405 479,844
--------------------- --------------------
TOTAL CURRENT LIABILITIES....................................... 3,475,465 3,807,417
--------------------- --------------------
Long-term Obligations............................................... 5,454,868 5,418,008
Obligations Under Capital Leases.................................... 5,528,677 5,801,910
Deferred Franchise Sales Revenue.................................... 370,193 467,253
Stockholders' Deficit:
Series C Preferred stock, stated value of $100.00 per
share, 20,896 shares issued and outstanding at June
30, 1999 and December 31, 1998.................................. 2,089,638 2,089,638
Common stock, par value $.03, 20,000,000
shares authorized, 4,690,518 and 4,647,880,
shares issued and outstanding at June 30,
1999 and December 31, 1998, respectively........................ 140,716 139,436
Capital in excess of par value.................................... 6,358,716 6,328,733
Accumulated deficit............................................... (9,646,899) (9,840,131)
--------------------- --------------------
TOTAL STOCKHOLDERS' DEFICIT................................... (1,057,829) (1,282,324)
Commitments and Contingencies (Note 5)............................
--------------------- --------------------
$ 13,771,374 14,212,264
--------------------- --------------------
--------------------- --------------------
</TABLE>
3
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(UNAUDITED)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
------------------------------ --------------------------------------------
Capital in
Number of Number of Excess of
Shares Amount Shares Amount Par Value
------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997............ 20,896 $2,089,638 4,633,570 $139,007 6,197,880
Issuance of common stock
pursuant to employee benefit
plan.................................. - - 10,810 324 13,145
Issuance of common stock upon
exercise of employee stock
options............................... - - 3,500 105 1,708
Fair value of warrants issued........... - - - - 116,000
Net loss................................ - - - - -
------------ ------------ ------------ ----------- ------------
Balance at December 31, 1998............ 20,896 2,089,638 4,647,880 139,436 6,328,733
Issuance of common stock
pursuant to employee benefit
plan.................................. - - 42,638 1,280 29,983
Net income.............................. - - - - -
------------ ------------ ------------ ----------- ------------
Balance at June 30, 1999................ 20,896 $2,089,638 4,690,518 $140,716 6,358,716
------------ ------------ ------------ ----------- ------------
------------ ------------ ------------ ----------- ------------
Accumulated
Deficit Total
----------- ------------
<S> <C> <C>
Balance at December 31, 1997............ (7,810,283) 616,242
Issuance of common stock
pursuant to employee benefit
plan.................................. - 13,469
Issuance of common stock upon
exercise of employee stock
options............................... - 1,813
Fair value of warrants issued........... - 116,000
Net loss................................ (2,029,848) (2,029,848)
----------- ------------
Balance at December 31, 1998............ (9,840,131) (1,282,324)
Issuance of common stock
pursuant to employee benefit
plan.................................. - 31,263
Net income.............................. 193,232 193,232
---------- ----------
Balance at June 30, 1999................ (9,646,899) (1,057,829)
----------- ------------
----------- ------------
</TABLE>
4
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------------------
1999 1998
----------------- ------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)..................................................... $ 193,232 (655,160)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Increase in deferred franchise sales revenue...................... 8,400 89,800
Franchise sales revenue recognized-center openings................ (82,460) (173,600)
Increase in deferred franchising costs............................ - (40,506)
Franchise costs recognized - center openings...................... 17,642 36,926
Provision for credit losses....................................... 73,393 91,665
Loss realized on sale/retirement of property and
equipment........................................................ 2,743 4,263
Depreciation and amortization..................................... 515,403 481,865
Undeveloped franchise licenses canceled........................... (17,944) (31,983)
Loss on sale/disposition/closure of centers....................... 10,694 36,767
Fair value of warrants issued..................................... 43,722 -
Other, net........................................................ 125 86,448
Net change in operating assets and liabilities:
Increase in accounts receivable................................. (55,557) (44,210)
Decrease in notes receivable.................................... 55,955 42,596
Decrease in inventories......................................... 22,199 3,870
Decrease (increase) in prepaid expenses and
supplies....................................................... 10,511 (104,351)
Increase (decrease) in accounts payable......................... (376,989) 145,908
Increase in accrued salaries and wages
and other liabilities......................................... 50,966 46,192
----------------- ------------------
Net cash provided by operating activities......................... $ 472,035 16,490
----------------- ------------------
</TABLE>
(continued on next page)
5
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------------------
1999 1998
----------------- ------------------
<S> <C> <C>
Cash flows from investing activities:
Principal receipts on direct financing leases......................... $ 83,296 88,881
Proceeds from sale of property and equipment.......................... 89,009 -
Proceeds from sale of centers......................................... - 115,450
Purchase of property and equipment.................................... (170,126) (129,538)
Decrease (increase) in projects and development....................... 13,363 (1,062,932)
Decrease (increase) in other assets................................... 28,336 (149,437)
----------------- ------------------
Net cash provided by (used in) investing activities............. 43,878 (1,137,576)
----------------- ------------------
Cash flows from financing activities:
Proceeds from long-term obligations................................... 181,400 1,533,200
Principal payments on long-term obligations........................... (330,516) (286,389)
Principal payments on capital lease obligations....................... (232,598) (216,131)
Issuance of common stock.............................................. - 1,814
Increase in restricted cash........................................... - (25,000)
Increase in lease deposit obligations................................. 1,525 2,392
----------------- ------------------
Net cash provided by (used in) financing activities............. (380,189) 1,009,886
----------------- ------------------
Net increase (decrease) in cash......................................... 135,724 (111,200)
Cash, beginning of period............................................... 145,470 182,214
----------------- ------------------
Cash, end of period..................................................... $ 281,194 71,014
----------------- ------------------
----------------- ------------------
Supplemental disclosures of cash flow
information -
Cash paid during the period for interest............................ $ 641,329 639,036
----------------- ------------------
----------------- ------------------
</TABLE>
6
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL
The financial statements included herein are unaudited and have been
prepared in accordance with generally accepted accounting principles for
interim financial reporting and Securities and Exchange Commission
regulations. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principals have been condensed or omitted pursuant to such rules
and regulations.
In the opinion of management, the financial statements reflect all
adjustments of a normal and recurring nature which are necessary to present
fairly the financial position, results of operations and cash flows for the
interim periods. These financial statements should be read in conjunction
with the Annual Report of Grease Monkey Holding Corporation (the "Company")
on Form 10-KSB for the year ended December 31, 1998.
The results for the three-month and six-month periods ended June 30, 1999,
are not necessarily indicative of the results to be expected for the entire
fiscal year of 1999.
2. LIQUIDITY
Prior to the three and six month periods ended June 30, 1999, the Company
had incurred losses from operations that have increased over the past three
fiscal years coupled with a decrease in cash flow from operations for the
same period. As of June 30, 1999, the Company had a working capital deficit
of $1,419,648 and total liabilities exceeded total assets. These factors
among others may indicate that the Company may not be able to meet its
obligations in a timely manner without increased cash flow from operations,
sale of non-producing assets or additional financing.
As noted in the results of operations for the six months ended June 30,
1999, the Company has taken steps to reduce losses and generate cash flow
from operations and anticipates the sale of non-producing assets which will
generate sufficient cash flow to meet its obligations in a timely manner.
Should the Company be unable to achieve its projected level of cash flow
from operations or sell its non-producing assets, additional financing
could be necessary. The Company has entered into a merger agreement that
would result in the sale of the Company. As a result of the current merger
agreement, the Company is not actively investigating financing
alternatives. Should the merger not proceed, the Company believes it could
obtain additional financing, however, there can be no assurance that such
financing would be available on a timely basis or on acceptable terms.
3. MERGER AGREEMENT WITH QL 3000, INC.
Effective March 26, 1999, the Company entered into a merger agreement with
QL 3000, Inc., a privately held company. The merger agreement (as amended
on August 5, 1999) provides that each shareholder of the Company will
receive $1 per outstanding share of common stock and each preferred
shareholder will receive the stated value of their preferred stock in
addition to all applicable unpaid dividends. The completion of the merger
agreement is subject to QL 3000, Inc. obtaining appropriate financing for
the acquisition, in addition to regulatory and shareholder
(continued)
7
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
approval. Should the merger agreement be consummated, the Company would
incur approximately $345,000 of transaction costs.
4. STOCKHOLDERS' EQUITY (DEFICIT)
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, 1999, accumulated
unpaid dividends totaled $694,498.
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 1999 and 1998, the Company
contributed 42,638 and 10,735 shares to this plan at an average of $0.73
and $1.25 per share, respectively.
5. COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS
On May 26, 1999, Hernando and Patricia Cortina, franchisees of the
Company, filed an action against the Company in the Federal District
Court, Mexico City, Mexico, CORTINA GONZALEZ HERNANDO AND PATRICIA
HERNANDEZ JUNGUERA DE CORTINA V. GREASE MONKEY INTERNATIONAL, INC., Case
No. 582/98. The complaint asserts that the Company breached the
Cortina's franchise agreement by providing false financial projections
based on unrealistic assumptions as to car counts, providing building
plans inappropriate for constructing a GREASE MONKEY Center in Mexico,
City, failing to provide adequate initial and ongoing training, failing
to provide equipment maintenance support, failing to update technical
manuals and software and failing to provide sufficient on-going
marketing and consulting support. The Cortinas seek damages in the
amount of $4,678,464 and moral damages. Based on the arbitration and
venue provisions of the franchise agreement, the Company intends to move
for dismissal of the action and to seek to require the Cortinas to
arbitrate their claims in Denver, Colorado. In addition, the Company
intends to deny the claims and to vigorously defend this action.
On December 15, 1998, a demand for arbitration was made against the Company
by Navfam, Inc. based upon the Company's alleged breach of a Software
License Agreement dated April 7, 1998. That matter is governed by the
American Arbitration Association in Los Angeles, California, and has been
assigned Case No. 72Y1140138198. Unspecified damages have been claimed by
Navfam, Inc. in excess of $250,000. In response to the arbitration demand,
the Company has specifically denied Navfam, Inc.'s claim.
On September 16, 1998, a lawsuit was filed against the Company by Barrett
Commercial, Inc. in the United States District Court for the Central
District of California, BARRETT COMMERCIAL, INC. V. GREASE MONKEY
INTERNATIONAL, INC., No. SACV 98-1123GLT(EEx). In that action, Barrett
alleges the existence of a contract with the Company to work as development
partners in Southern California for the purpose of building ten stores.
Barrett claims unsubstantiated losses of $1,300,000 for expenditures made
in pursuing that development which was never completed. Barrett claims the
Company is in breach of the alleged agreement as a result of its refusal to
reimburse it for those alleged expenditures.
(continued)
8
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The Company has generally denied those claims and believes and has asserted
that they are frivolous and groundless. Barrett has been unable to produce
the alleged contract and the Company believes none was ever created. In
addition, the Company believes Barrett lacks any evidence to support his
claim of the alleged expenditures pursuant to the Southern California
development. The Company intends to defend vigorously said claims and its
liability exposure at the present time appears to be nominal. The Company
believes the likelihood of an unfavorable outcome in this matter is remote.
The Company is involved in various other claims and legal actions arising
in the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material adverse
effect on the Company's consolidated financial position, results of
operations or liquidity.
FINANCIAL GUARANTEES
The Company has guaranteed leases of four franchisees. The aggregate
contingent liability under the lease guarantees totals approximately
$1,300,000. In addition, the Company has guaranteed notes payables of two
franchisees totaling approximately $750,000 and has guaranteed notes
payable to oil suppliers for certain franchisees.
The Company is committed to the lease of office and training facilities
under a lease expiring in November 2008. Rent under the lease is
approximately $18,000 per month.
(continued)
9
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
6. EARNINGS (LOSS) PER SHARE
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
securities or other contracts to issue common stock were exercised or
converted into common shares. 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 THREE MONTHS ENDED
------------------------------------------------------------------------------------
JUNE 30, 1999 JUNE 30, 1998
INCOME INCOME
(LOSS) EPS SHARES (LOSS) EPS SHARES
------------ ------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) 201,418 (238,925)
Preferred
dividends (31,259) (31,259)
------------ ------------ ------------ ------------ ----------- -----------
Basic EPS 170,159 .04 4,684,377 (270,184) (.06) 4,647,409
Effects of dilutive
securities:
Common stock
equivalents
Convertible
Preferred Stock 31,259 1,101,151
------------ ------------ ------------ ------------ ----------- -----------
Diluted EPS 201,418 .03 5,785,528 (270,184) (.06) 4,647,409
------------ ------------ ------------ ------------ ----------- -----------
------------ ------------ ------------ ------------ ----------- -----------
FOR THE SIX MONTHS ENDED
------------------------------------------------------------------------------------
JUNE 30, 1999 JUNE 30, 1998
INCOME INCOME
(LOSS) EPS SHARES (LOSS) EPS SHARES
------------ ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) 193,232 (655,160)
Preferred
dividends (62,174) (62,174)
------------ ------------ ------------ ----------- ----------- ------------
Basic EPS 131,058 .03 4,667,914 (717,334) (.15) 4,644,623
Effects of dilutive
securities:
Common stock
equivalents
Convertible
Preferred Stock 62,174 1,088,785
------------ ------------ ------------ ----------- ----------- ------------
Diluted EPS 193,232 .03 5,756,699 (717,334) (.15) 4,644,623
------------ ------------ ------------ ----------- ----------- ------------
------------ ------------ ------------ ----------- ----------- ------------
</TABLE>
(continued)
10
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
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, sale (refranchising) and closure of
Company-owned Centers.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------------------------------
1999 1998
------------------- -------------------
<S> <C> <C>
ACQUISITIONS:
Number of Centers purchased......................... 2 -
------------------- -------------------
------------------- -------------------
Number of Centers foreclosed........................ - 2
------------------- -------------------
------------------- -------------------
Receivables applied (net of related
allowance)........................................ $ - 30,703
Liabilities assumed................................. 167,749 38,400
------------------- -------------------
Cost of assets acquired............................. $ 167,749 69,103
------------------- -------------------
------------------- -------------------
Sales:
Number of Centers
refranchised/sold/closed.......................... 1* 3
------------------- -------------------
------------------- -------------------
Cash received....................................... $ - 115,450
Notes received/accounts receivable
granted........................................... 20,000 15,769
Loss on sale........................................ 9,693 36,767
------------------- -------------------
Net book value of Centers
refranchised/sold/closed.......................... $ 29,693 167,986
------------------- -------------------
------------------- -------------------
</TABLE>
* Excludes the refranchising of a Center abandoned by a franchisee.
(continued)
11
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
During the six months ended June 30, 1999 and 1998, non-cash transactions
consisted of the Company issuing 42,638 and 10,735 shares of common stock
at an average value of $0.73 and $1.25 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 1999 included
the Company accepting a note receivable for $14,000 representing one-half
of the franchise fee for a Center refranchised after it had been abandoned
by a franchisee, and the sale of equipment to a franchisee (previously
leased to that franchisee) for $1.00 resulting in a $15,000 loss. Other
non-cash transactions during the first six months of 1998 included a
franchise license in the amount of $10,000, net of deferred costs of
$2,173, that was cancelled and applied to a franchisee's obligation to the
Company; a capital lease obligation of $196,900 was recorded for a
Company-owned Center; and a franchisee abandoned a site, resulting in a
direct financing lease being cancelled and a capital lease building being
recorded in the amount of $181,677.
12
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
The Company reported net income of $193,232 for the first half of 1999, as
compared to a net loss of ($655,160) for the first half of 1998. For the second
quarter of 1999, the Company reported net income of $201,418 compared to a net
loss of ($238,925) for the same quarter in 1998.
Total revenue increased slightly by $3,776 for the first half of 1999,
compared to the first half of 1998. Revenue during the second quarter of 1999
increased $79,463 over the same quarter last year, an increase of 2%. The
increases are due primarily to increases in revenue from Company-owned Centers.
Royalty fees are a percentage of gross sales paid monthly by all franchised
Grease Monkey Centers. Royalty fee revenue for the first half of 1999 decreased
by $108,383 or 7% compared to the first half of 1998. Royalty fee revenue for
the second quarter of 1999 decreased by $39,193 or 5% over the second quarter of
1998. The average number of U.S. franchised Centers has remained constant at 159
franchised Centers open and operating during both the six and three month
periods ending June 30, 1999 and 1998. The decreases in royalty income are
caused primarily by the replacement of mature Centers which have left the system
with newer Centers. While these mature Centers were replaced in number 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. In addition, the Company signed
a Master Franchise Agreement for the Republic of Mexico on August 1, 1998 ("the
Agreement"). The Master Franchisee retains eighty percent of royalties and
franchise fees collected from Mexico franchisees after the effective date of the
Agreement. The decrease in royalty revenue related to this transaction, when
compared with the prior year is approximately $50,000 for the six month period
and $39,000 for the second quarter of 1999. 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 1999, estimated
royalties of $122,530 were not accrued under this policy, compared to $113,100
for the first half of 1998. During the second quarter of 1999, estimated
royalties of $61,200 were not accrued compared to $62,430 for the second quarter
of 1998. 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 1999, the rebate accrued under this program was $110,967, compared to
$114,051 for the first half of 1998. The rebate accrued for the second quarter
of 1999 was $61,257 compared to a rebate of $58,061 for the second quarter of
1998. The rebate is recorded as a reduction in royalty revenue.
The Company recognized franchise sales net revenue (sales net of related
costs) of $24,024 and $64,818 during the second quarter and first six months of
1999, respectively, representing six Center openings. During the first six
months and second quarter of 1998, the Company recognized franchise sales net
revenue of $131,174 and $136,674, respectively, representing seven Center
openings. 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)
13
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
At June 30, 1999, the Company operated 34 Centers as compared to 31 Centers
at June 30, 1998. The average number of Centers operated during the quarter and
six month period ended June 30, 1999, was 34 and 33 respectively, as compared to
31 for the same periods in 1998. For the first six months of 1999, the Company
reported an operating margin (Company-owned Center sales less expenses,
excluding interest, depreciation and amortization) of $1,587,980 on revenue of
$7,989,365 at Company-owned Centers as compared to an operating margin of
$1,190,193 on revenue of $7,454,780 for the same period last year. These results
represent an increase of 7% in revenue and 33% in operating margin. For the
second quarters of 1999 and 1998, the Company reported operating margins of
$907,870 and $659,029 on revenue of $4,175,414 and $3,755,906, respectively,
representing an increase in revenue of 11% and an increase in operating margin
of 38%. The increase in the operating margin for Company-owned Centers is a
result of an increase in revenue, coupled with concentrated efforts to reduce
expenses (specifically payroll and operating expenses).
In the first six months of 1999, the Company realized marketing allowances
and gross margins on product and equipment sales of $164,480, as compared to
$196,978 in the first six months of 1998. In the second quarter of 1999,
marketing allowances and gross margins on product and equipment sales were
$93,034, as compared to $98,642 in the second quarter of 1998. Product and
equipment revenue represents the sale of fluid dispensing equipment and other
supplies to franchisees, and marketing allowances that relate to the sale of oil
filters, air filters, oil additives, and certain other products.
General and administrative expenses for the first six months and second
quarter of 1999 decreased $723,277 or 27% and decreased $351,254 or 25%,
respectively, as compared to the first six months and second quarter of 1998.
Variances in the first six months of 1999 as compared to the first six months
of 1998 consisted primarily of reductions in: salaries, wages and personnel
expenses of approximately $465,000; litigation expenses including legal fees,
related costs and settlements of approximately $118,000; travel and
entertainment expenses of approximately $55,000; franchise sales and
promotional expenses of approximately $42,000; office expenses of
approximately $28,000 and severance expenses of approximately $27,000.
Variances in the second quarter of 1999 as compared to the second quarter of
1998 consisted primarily of reductions in: salaries, wages and personnel
expenses of approximately $220,000; litigation expenses including legal fees,
related costs and settlements of approximately $77,000; and severance
expenses of approximately $27,000.
Depreciation and amortization expense for the first six months and second
quarter of 1999 increased 7% and 8%, respectively, as compared to the same
periods in 1998. This increase is due primarily to an increase of two
Company-owned Centers over the prior year periods.
(continued)
14
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
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 gain of $11,549 for the
six months ended June 30, 1999, represents the refranchising of one
Company-owned Center, the refranchising of one closed Center, marketing
allowances paid based on subsidies granted certain franchisees on the
refranchising of Company-owned Centers in 1996, and a reimbursement of costs
previously expensed upon the closure of a Company-owned Center in 1997 and 1998.
In addition, a loss was recognized on the sale of equipment to a franchisee. The
loss of $55,943 for the six months ended June 30, 1998, represents the closure
of two Company-owned Centers 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.
In the first six months and second quarter of 1999, the Company recognized
$17,944 in franchise sales revenue resulting from undeveloped license
cancellations. In the first six months of 1998, undeveloped licenses were
cancelled resulting in $31,983 of revenue. There were no license cancellations
in the second quarter of 1998.
Interest expense includes interest on debt financing and interest recorded
on capital leases of Company-owned Centers. The increase in interest expense
from $425,940 in the first six months of 1998 to $461,018 in the first six
months of 1999 was due primarily to an increase in average debt outstanding.
This increase is due in part to borrowings associated with the
purchase/development of three Company-owned Centers, and for working capital.
(continued)
15
<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, 1999 and 1998.
<TABLE>
<CAPTION>
SIX MONTHS ENDED:
JUNE 30, 1999 JUNE 30, 1998
------------------------------------------------------------------------------------------------
COMPANY FRANCHISE COMPANY FRANCHISE
OWNED OWNED TOTAL OWNED OWNED TOTAL
------------ ------------ ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Centers open, beginning 33 182 215 31 187 218
Centers opened - 6 6 1 7 8
Centers purchased 2 (2) - - - -
Centers sold (1) 2 1 (1) - (1)
Centers terminated or
closed - (4) (4) (2) (14) (16)
Centers reacquired - - - 2 (2) -
------------ ------------ ------------- ----------- ----------- -------------
Centers open, ending (A) 34 184 218 31 178 209
------------ ------------ ------------- ----------- ----------- -------------
------------ ------------ ------------- ----------- ----------- -------------
Vehicles serviced (000's) 1,338 1,354
------------- -------------
------------- -------------
Franchise licenses issued (B) 2 4
------------- -------------
------------- -------------
Undeveloped franchise licenses
(C) 17 44
------------- -------------
------------- -------------
Franchise applications
outstanding (C) 10 18
------------- -------------
------------- -------------
Franchise license/application fees
received (D) $8,400 $89,800
------------- -------------
------------- -------------
</TABLE>
(A) Includes 26 franchised Centers in Mexico in 1999 and 20 franchised Centers
in Mexico in 1998.
(B) Represents the number of licenses issued during the period.
(C) Represents the number of licenses/applications outstanding at June 30.
(D) Represents amounts received for franchise licenses/applications during the
period.
(continued)
16
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(continued)
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL RESOURCES
The Company currently has lines of credit with varying interest rates from,
or guaranteed by, a related party. The lines total $489,000 of which
approximately $484,000 was outstanding at June 30, 1999. Monthly payments are
interest only and the balance is due upon demand.
In September 1997, the Company entered into a $5,000,000 Loan Agreement
with a bank. In connection with the Company entering into a Master Supply
Contract with a motor oil supplier, the supplier agreed to guarantee the loan.
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, for acquiring, constructing and/or developing Company Centers and for
working capital. 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. The remaining draws totaling
$2,380,000 were made during 1998 and during the first quarter of 1999. As of
June 30, 1999, approximately $4,689,000 is outstanding under the loan agreement.
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)
17
<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 1999 was
$472,035 as compared to cash provided by operations of $16,490 in the first six
months of 1998. The most significant factors contributing to the positive
variance were an improved operating margin at Company-owned Centers and a
decrease in general and administrative expenses.
Cash provided by investing activities was $43,878 in the first six months
of 1999, as compared to cash used in investing activities of $1,137,576 in the
first six months of 1998. Cash provided in both periods consisted primarily of
receipts on direct financing leases which decreased slightly over the periods.
Additional cash was received in the first six months of 1999 with the sale of a
vacant site, and additional cash was received in the first six months of 1998
with the refranchising/sale of a Company-owned Center. Cash used in investing
activities for the first six months of 1998 consisted primarily of cash used for
the development of Centers. Additional cash was used in both periods for the
purchase of property and equipment, primarily for Company-owned Center
equipment.
Cash used in financing activities was $380,189 in the first six months of
1999 as compared to cash provided by financing activities of $1,009,886 in the
first six months of 1998. Cash provided by financing activities in the first six
months of 1999 and 1998 consisted primarily of proceeds from long-term
obligations for working capital and the development of Centers. Financing
activities also included cash used to reduce long-term debt and capital lease
obligations of $563,114 in the first six months of 1999 and $502,520 in the
first six months of 1998.
The Company does not have any material commitments for capital expenditures
other than for the required replacement or upgrade of underground storage tanks
at Company-owned Centers and the costs to achieve Year 2000 compliance.
Prior to the three and six month periods ended June 30, 1999, the Company
had incurred losses from operations over the past three fiscal years coupled
with a decrease in cash flow from operations for the same period. As of June 30,
1999, the Company had a working capital deficit of $1,419,648 and total
liabilities exceeded total assets. These factors among others may indicate that
the Company may not be able to meet its obligations in a timely manner without
increased cash flow from operations, sale of non-producing assets or additional
financing.
As noted in the results of operations for the six months ended June 30,
1999, the Company has taken steps to reduce losses and generate cash flow from
operations and anticipates the sale of non-producing assets which will generate
sufficient cash flow to meet its obligations in a timely manner. Should the
Company be unable to achieve its projected level of cash flow from operations or
sell its non-producing assets, additional financing could be necessary. The
Company has entered into a merger agreement that would result in the sale of the
Company. As a result of the current merger agreement, the Company is not
actively investigating financing alternatives.
(continued)
18
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
Should the merger not proceed, the Company believes it could obtain additional
financing, however, there can be no assurance that such financing would be
available on a timely basis or on acceptable terms.
THE YEAR 2000 ISSUE
THE PROBLEM
The Year 2000 issue is the result of the inability of hardware, software
and control systems to correctly identify two-digit references to specific
years, beginning with the Year 2000. This could result in system failures or
miscalculations causing disruptions of the Company's operations and the
Company's suppliers.
STATE OF READINESS
The Company has instituted a Year 2000 project. The project includes an
evaluation of its computer systems and significant software programs. This
evaluation includes the Company's network hardware and software, Point-of-Sale
hardware and software at the Company-owned Centers and accounting and business
process software. The Company has developed an implementation plan to replace
the systems noted in its evaluation that did not appear to be Year 2000
compliant.
As part of the Company's Year 2000 project, the Company is currently in the
process of contacting its significant third party suppliers, such as its oil and
parts suppliers, to determine the extent to which the Company is vulnerable to
its suppliers' failure to remediate their Year 2000 issues. However, the Company
cannot assure that third-party suppliers will adequately address their Year 2000
issues or that failure of the third-party suppliers to address their Year 2000
issues would not have a material adverse effect on the Company or its
operations.
In addition, the Company has communicated with its franchisees to determine
the extent to which the Company is vulnerable to the franchisees' failure to
remediate their Year 2000 issues. However, the Company cannot assure that the
franchisees will adequately address their Year 2000 issues or that failure of
the franchisees to address their Year 2000 issues would not have a material
adverse effect on the Company or its operations.
THE COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES
Based upon the findings at June 30, 1999, the Company's remaining costs of
becoming Year 2000 compliant are less than $50,000.
(continued)
19
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
THE RISKS ASSOCIATED WITH THE COMPANY'S YEAR 2000 ISSUES
The Company's failure to resolve Year 2000 issues on or before December 31,
1999, could result in system failures or miscalculation causing disruption in
operations and normal business activities. Additionally, failure to timely
remediate Year 2000 issues by third parties upon whom the Company's business
relies could result in disruptions in the Company's supply of parts and
materials or result in other problems related to the Company's daily operations.
CONTINGENCY PLAN
The Company is currently working on a contingency plan for all critical
aspects of the Year 2000 issues.
20
<PAGE>
GREASE MONKEY HOLDING CORPORATION
COMMISSION FILE NUMBER: 000-9812
QUARTER ENDED JUNE 30, 1999
FORM 10-QSB
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On May 26, 1999, Hernando and Patricia Cortina, franchisees of the
Company, filed an action against the Company in the Federal District Court,
Mexico City, Mexico, CORTINA GONZALEZ HERNANDO AND PATRICIA HERNANDEZ
JUNGUERA DE CORTINA V. GREASE MONKEY INTERNATIONAL, INC., Case No. 582/98. The
complaint asserts that the Company breached the Cortina's franchise agreement
by providing false financial projections based on unrealistic assumptions as
to car counts, providing building plans inappropriate for constructing a
GREASE MONKEY Center in Mexico, City, failing to provide adequate initial
and ongoing training, failing to provide equipment maintenance support,
failing to update technical manuals and software and failing to provide
sufficient on-going marketing and consulting support. The Cortinas seek
damages in the amount of $4,678,464 and moral damages. Based on the
arbitration and venue provisions of the franchise agreement, the Company
intends to move for dismissal of the action and to seek to require the
Cortinas to arbitrate their claims in Denver, Colorado. In addition, the
Company intends to deny the claims and to vigorously defend this action.
The Company has previously reported two other legal proceedings contained
in its quarterly report on Form 10-QSB for the period ending March 31, 1999. No
material changes have occurred in those proceedings.
The Company is involved in various other claims and legal actions arising
in the ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position, results of operations or liquidity.
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 approximately $711,000. 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 aggregate amount of dividends in arrears exceeded at least four
quarterly dividends as of the date of filing this report. 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-B)
27 Financial Data Schedule
(b) Reports on Form 8-K
A current report on Form 8-K dated August 5, 1999, was filed on August 16,
1999, reporting under Item 5 the signing of an extension agreement between
Grease Monkey Holding Corporation and QL 3000, Inc. The Extension Agreement
and a press release were filed as exhibits under Item 5 of the Current
Report on Form 8-K.
21
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
COMMISSION FILE NUMBER: 000-9812
QUARTER ENDED JUNE 30, 1999
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/ Rex L. Utsler
---------------------------------------------------
Rex L. Utsler
President and Chief Operating Officer
(Principal Operating Officer, Chief
Financial Officer and Principal
Accounting Officer)
Denver, Colorado
August 16, 1999
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENT 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 281,194
<SECURITIES> 0
<RECEIVABLES> 1,396,214
<ALLOWANCES> 551,029
<INVENTORY> 636,217
<CURRENT-ASSETS> 2,055,817
<PP&E> 10,778,860
<DEPRECIATION> 4,389,727
<TOTAL-ASSETS> 13,771,374
<CURRENT-LIABILITIES> 3,475,465
<BONDS> 6,521,258
0
2,089,638
<COMMON> 140,716
<OTHER-SE> (3,288,183)
<TOTAL-LIABILITY-AND-EQUITY> 13,771,374
<SALES> 0
<TOTAL-REVENUES> 10,187,668
<CGS> 0
<TOTAL-COSTS> 9,572,419
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 73,393
<INTEREST-EXPENSE> 461,018
<INCOME-PRETAX> 193,232
<INCOME-TAX> 0
<INCOME-CONTINUING> 193,232
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 193,232
<EPS-BASIC> 0.03
<EPS-DILUTED> 0.03
</TABLE>
