UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 29, 1996
Commission File Number 0-22012
GROW BIZ INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in Its Charter)
Minnesota 41-1622691
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
4200 Dahlberg Drive
Golden Valley, MN 55422-4837
(Address of Principal Executive Offices, Zip Code)
Registrant's Telephone Number, Including Area Code 612/520-8500
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes: X No:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock, no par value, 6,249,194 shares outstanding as of August 8, 1996.
GROW BIZ INTERNATIONAL, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
Condensed Balance Sheets: 3
June 29, 1996 and December 30, 1995
Condensed Statements of Operations: 4
Three month periods ended
June 29, 1996 and July 1, 1995
Six month periods ended
June 29, 1996 and July 1, 1995
Condensed Statements of Cash Flows: 5
Six month periods ended
June 29, 1996 and July 1, 1995
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7 - 10
PART II. OTHER INFORMATION PAGE
Items 1 through 3 and 5 have been omitted since all
items are inapplicable or answers negative.
Item 4. Submission of Matters to a Vote of Security-holders 11
Item 6. Exhibits and Reports on Form 8-K
(a.) Exhibit
Number: Description:
------- ------------
11 Statement of Computation of Per Share Earnings
27 Financial Data Schedule
(b.) Reports on Form 8-K -- None
GROW BIZ INTERNATIONAL, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 29, 1996 December 30, 1995
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 445,500 $ 101,500
Short-term investments 200,000 420,000
Trade receivables, less allowance for doubtful
accounts of $858,000 and $678,000 15,770,100 16,372,200
Inventories 4,021,200 4,292,000
Prepaid expenses and other 1,061,400 985,700
Deferred income taxes 1,451,500 1,451,500
----------- -----------
Total current assets 22,949,700 23,622,900
Property and equipment, net 6,524,100 6,851,000
Other assets, net 3,352,100 3,550,500
----------- -----------
$32,825,900 $34,024,400
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable - bank $ 1,200,000 $ --
Accounts payable 9,425,300 7,078,500
Accrued liabilities 670,700 1,195,600
Current maturities of long-term debt 140,000 137,500
Deferred franchise fee revenue 4,752,000 4,143,000
----------- -----------
Total current liabilities 16,188,000 12,554,600
Long-Term Debt 194,200 277,700
Shareholder's Equity:
Common stock, no par, 10,000,000 shares authorized,
6,319,993 and 6,958,468 shares issued and outstanding 11,486,900 17,033,000
Retained earnings 4,956,800 4,159,100
----------- -----------
Total shareholders' equity 16,443,700 21,192,100
----------- -----------
$32,825,900 $34,024,400
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
GROW BIZ INTERNATIONAL, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 29, 1996 July 1, 1995 June 29, 1996 July 1, 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE:
Merchandise sales $20,236,100 $23,576,900 $41,085,400 $45,376,500
Royalties 3,744,600 2,893,900 6,977,500 5,251,900
Franchise fees 972,600 1,211,500 1,737,100 2,217,500
Advertising and other 55,500 99,800 335,200 350,200
----------- ----------- ----------- -----------
Total revenue 25,008,800 27,782,100 50,135,200 53,196,100
COST OF MERCHANDISE SOLD 18,267,900 21,525,100 37,065,700 41,422,800
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 6,015,600 5,150,100 11,859,800 10,113,300
----------- ----------- ----------- -----------
Income from operations 725,300 1,106,900 1,209,700 1,660,000
INTEREST INCOME, NET 43,600 77,400 102,300 140,500
----------- ----------- ----------- -----------
Income before income taxes 768,900 1,184,300 1,312,000 1,800,500
PROVISION FOR INCOME TAXES 301,400 466,000 514,300 710,000
----------- ----------- ----------- -----------
NET INCOME $ 467,500 $ 718,300 $ 797,700 $ 1,090,500
=========== =========== =========== ===========
NET INCOME PER COMMON SHARE $ .07 $ .10 $ .12 $ .15
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES
OUTSTANDING 6,507,400 7,472,100 6,704,300 7,475,600
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
GROW BIZ INTERNATIONAL, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 29, July 1,
1996 1995
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 797,700 $ 1,090,500
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 863,400 849,800
Deferred income tax benefit -- (97,000)
Change in operating assets and liabilities:
Trade receivables 602,100 (2,938,000)
Inventories 270,800 (2,389,200)
Prepaid expenses and other (75,700) (492,600)
Accounts payable 2,346,800 2,670,900
Accrued liabilities (524,900) (1,567,400)
Deferred franchise fee revenue 609,000 (294,000)
----------- -----------
Net cash provided by (used for)
operating activities 4,889,200 (3,167,000)
----------- -----------
INVESTING ACTIVITIES:
Redemption of short-term investments 220,000 3,587,200
Increase in other assets (137,200) (82,800)
Purchases of property and equipment (200,900) (1,418,200)
----------- -----------
Net cash provided by investing
activities (118,100) 2,086,200
----------- -----------
FINANCING ACTIVITIES:
Proceeds from line of credit 1,200,000 --
Payments on long-term debt (81,000) (129,600)
Proceeds from stock option exercises 106,700 234,900
Repurchase of common stock (5,652,800) --
----------- -----------
Net cash provided by (used for)
financing activities (4,427,100) 105,300
----------- -----------
INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS 344,000 (975,500)
Cash and cash equivalents, beginning of period 101,500 1,106,900
----------- -----------
Cash and cash equivalents, end of period $ 445,500 $ 131,400
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
GROW BIZ INTERNATIONAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. MANAGEMENT'S INTERIM FINANCIAL STATEMENT REPRESENTATION:
The accompanying condensed financial statements have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. The information in the condensed financial statements
includes normal recurring adjustments and reflects all adjustments which are, in
the opinion of management, necessary for a fair presentation of such financial
statements. Although the Company believes that the disclosures are adequate to
make the information presented not misleading, it is suggested that these
condensed financial statements be read in conjunction with the audited financial
statements and the notes thereto included in the Company's latest Annual Report
on Form 10-K.
Revenues and operating results for the six months ended June 29, 1996 are not
necessarily indicative of the results to be expected for the full year.
2. ORGANIZATION AND BUSINESS:
Grow Biz International, Inc. (the `Company') offers licenses to operate retail
stores using the service marks `Play it Again Sports', `Once Upon A Child',
`Computer Renaissance', `Music Go Round' and `Disc Go Round'. In addition, the
Company sells inventory to its franchisees through its buying group and operates
retail stores. The Company has a 52/53 week year which ends on the last Saturday
in December.
3. SHAREHOLDERS' EQUITY:
Since 1995, the Company's Board of Directors has authorized the repurchase of up
to 1,500,000 shares of the Company's common stock on the open market. As of June
29, 1996, the Company had repurchased 985,670 shares of its stock at an average
price of $8.72 per share including 355,270 shares repurchased at an average
price of $8.12 per share in the three months ended June 29, 1996.
4. LITIGATION:
In December 1995, an early partner in the original Play It Again Sports store
commenced an action against the Company relating to, among other things, the
development of stores under a 1992 retail store agreement. The suit alleges
breach of contract, fraud and misrepresentation, and violation of federal and
state anti-racketeering (RICO) statutes. The plaintiff seeks monetary damages in
excess of $50,000, treble damages under the RICO claim and, among other things,
injunctive and declaratory relief. The Company believes the suit is without
merit and intends to vigorously defend the action. When concluded, in the
opinion of management, based upon information it presently possesses, the
actions will not have a material adverse effect on the Company's financial
position.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL
Following is a summary of the Company's franchising and corporate retail store
activity for the three months ended June 29, 1996:
<TABLE>
<CAPTION>
TOTAL CONVERTED TOTAL
3/30/96 OPENED CLOSED TO CORPORATE 6/29/96
----------- ------------ ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Play It Again Sports(R)
Franchised Stores - US and Canada 640 15 (11) 0 644
Franchised Stores - Other International 8 0 0 0 8
Corporate 4 0 0 0 4
Other 22 0 0 0 22
Once Upon A Child(R)
Franchised Stores - US and Canada 157 8 (1) (1) 163
Corporate 7 0 0 1 8
Computer Renaissance(R)
Franchised Stores - US and Canada 44 14 0 0 58
Corporate 5 0 0 0 5
Music Go Round(R)
Franchised Stores - US and Canada 7 1 0 0 8
Corporate 3 0 0 0 3
Disc Go Round(R)
Franchised Stores - US and Canada 97 8 0 0 105
Corporate 2 0 0 0 2
----------- ------------ ----------- ------------- -----------
Total 996 46 (12) 0 1,030
=========== ============ =========== ============= ===========
</TABLE>
Following is a summary of the Company's franchising and corporate retail store
activity for the six months ended June 29, 1996:
<TABLE>
<CAPTION>
TOTAL CONVERTED TOTAL
12/30/95 OPENED CLOSED TO CORPORATE 6/29/96
----------- ------------ ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Play It Again Sports(R)
Franchised Stores - US and Canada 629 26 (11) 0 644
Franchised Stores - Other International 8 0 0 0 8
Corporate 4 0 0 0 4
Other 21 1 0 0 22
Once Upon A Child(R)
Franchised Stores - US and Canada 150 16 (2) (1) 163
Corporate 7 0 0 1 8
Computer Renaissance(R)
Franchised Stores - US and Canada 39 19 0 0 58
Corporate 5 0 0 0 5
Music Go Round(R)
Franchised Stores - US and Canada 5 3 0 0 8
Corporate 3 0 0 0 3
Disc Go Round(R)
Franchised Stores - US and Canada 92 16 (3) 0 105
Corporate 2 0 0 0 2
----------- ------------ ----------- ------------- -----------
Total 965 81 (16) 0 1,030
=========== ============ =========== ============= ===========
</TABLE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, certain income
statement items as a percentage of total revenue:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 29, July 1, June 29, July 1,
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue:
Merchandise sales 80.9% 84.9% 81.9% 85.3%
Royalties 15.0 10.4 13.9 9.9
Franchise fees 3.9 4.4 3.5 4.2
Advertising and other 0.2 0.3 0.7 0.6
------- ------- ------- -------
Total revenues 100.0% 100.0% 100.0% 100.0%
Cost of merchandise sold 73.0 77.5 73.9 77.9
Selling, general and administrative expenses 24.1 18.5 23.7 19.0
------ ------ ------ ------
Income from operations 2.9 4.0 2.4 3.1
Interest and other income, net 0.2 0.3 0.2 0.3
------- ------- ------- -------
Income before income taxes 3.1 4.3 2.6 3.4
Provision for income taxes 1.2 1.7 1.0 1.3
------- ------- ------- -------
Net income 1.9% 2.6% 1.6% 2.1%
======== ======== ======== ========
</TABLE>
Comparison of Three Months Ended June 29, 1996 to
Three Months Ended July 1, 1995
Revenues for the quarter ended June 29, 1996 totaled $25.0 million compared to
$27.8 million for the comparable period in 1995. Merchandise sales consist of
the sale of product to franchisees through the buying group and retail sales at
the corporate-owned stores. For the second quarter of 1996 and 1995 merchandise
sales were as follows:
1996 1995
---- ----
Buying Group $ 16,941,200 $ 21,001,200
Retail Sales 3,294,900 2,575,700
-------------- --------------
Merchandise Sales $ 20,236,100 $ 23,576,900
============== ==============
Merchandise sales decreased to $20.2 million for the three months ended June 29,
1996 from $23.6 million for the same period in 1995, due primarily to the
franchisees sourcing more product directly from vendors. In addition, buying
group sales were affected by the flattening of sales in the in-line skate
industry. The decrease in buying group sales was offset by a $700,000 increase
in retail sales due primarily to the addition of four corporate-owned retail
stores since the second quarter of 1995. Royalties increased to $3.7 million for
the second quarter of 1996 from $2.9 million for the same period in 1995, due
primarily to the expanding base of franchise stores. Franchise fees decreased to
$972,600 in the second quarter of 1996 from $1.2 million in the second quarter
of 1995, as a result of opening 46 franchise stores in the second quarter of
1996 as compared to 64 franchise stores in the second quarter of 1995.
Cost of merchandise sold decreased in the second quarter of 1996 to $18.3
million from $21.5 million for the same period last year as a result of the
decrease in merchandise sales. Gross margin on merchandise sales improved to
9.7% from 8.7% due to an increase in the mix of merchandise sales at the
corporate-owned retail stores, on which gross margin contributions are
significantly higher. Selling, general and administrative expenses were $6.0
million or 24.1% of revenues in the second quarter of 1996 compared to $5.1
million or 18.5% of revenues for the same period in 1995. This increase is
primarily the result of increased staff and related costs and increased
advertising expenditures relating to franchise sales.
During the second quarter of 1996, the Company had net interest income of
$43,600 as compared to net interest income of $77,400 in the second quarter of
1995. This decrease is primarily the result of a lower average balance of funds
invested in short-term, high-grade investments.
Net income for the second quarter of 1996 decreased to $467,500 or $.07 per
share compared to $718,300 or $.10 per share for the comparable period in 1995
as a result of the reasons discussed above.
Comparison of Six Months Ended June 29, 1996 to
Six Months Ended July 1, 1995
Revenues for the six months ended June 29, 1996 were $50.1 million compared to
$53.2 million for the comparable period in 1995. Merchandise sales consist of
the sale of product to franchisees through the buying group and retail sales at
the corporate-owned stores. For the first six months of 1996 and 1995
merchandise sales were as follows:
1996 1995
---- ----
Buying Group $ 34,600,200 $ 40,571,200
Retail Sales 6,485,200 4,805,300
-------------- --------------
Merchandise Sales $ 41,085,400 $ 45,376,500
============== ==============
Merchandise sales decreased to $41.1 million for the six months ended June 29,
1996 from $45.4 million for the first six months of 1995 due primarily to
franchisees sourcing more product directly from vendors. In addition,
merchandise sales were affected by the flattening of sales in the in-line skate
industry. The decrease in buying group sales was offset by a $1.7 million
increase in retail sales at the corporate-owned retail stores. Royalty income
increased to $7.0 million for the first six months of 1996 from $5.3 million for
the same period last year as a result of the expanding base of stores in the
franchise system. Franchise fees decreased to $1.7 million for the six months
ended June 29, 1996 from $2.2 million for the same period in 1995, as a result
of opening 80 franchise stores in the first half of 1996 as compared to 115
franchise stores in the same period of 1995.
Cost of merchandise sold decreased during the first six months of 1996 to $37.1
million from $41.4 million for the same period last year as a result of
decreased merchandise sales. Gross profits on merchandise sales improved to 9.8%
from 8.7% for the comparable period. This increase is the result of an increase
in the mix of merchandise sales at the corporate-owned retail stores, on which
gross margin contributions are significantly higher. Selling, general and
administrative expenses increased to $11.9 million for the first six months of
1996 compared to $10.1 million last year as a result of expanding its facilities
and staff in support of the five franchise concepts and increased advertising
expenditures.
Net interest income was $102,300 for the six month period ending June 29, 1996,
as compared to net interest income of $140,500 for the comparable period last
year. This decrease is primarily the result of a lower average balance of funds
invested in short-term, high-grade investments.
Net income for the first six months of 1996 decreased to $797,700 or $.12 per
share compared to $1,090,500 or $.15 per share in 1995 as a result of the
reasons discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Prior to its initial public offering in 1993, the Company relied on borrowings
from banks, private equity financing and internally generated funds to meet its
cash needs. From the initial public offering to the second quarter of 1996, the
Company has relied on the proceeds of the offering and internally generated
funds to finance its operation.
Operating activities provided $4.9 million in cash for the six months ended June
29, 1996 compared to utilizing $3.2 million for the same period in 1995. During
the first six months of 1995, accounts receivable and inventory increased by
$5.3 million and accrued liabilities decreased by $1.6 million, utilizing $6.9
million in cash. This was offset by an increase in accounts payable of $2.7
million. For the same period in 1996, accounts receivable and inventory
decreased by $872,900 and accounts payable and deferred franchise fees increased
by $3.0 million, providing cash of $3.9 million. This was offset by a $524,900
decrease in accrued liabilities. The net change in accounts receivable in the
first six months of 1996 compared to 1995 is a result of franchisees sourcing
more product on a direct basis and timelier payment by franchisees.
The Company's investing activities used net cash of $118,100 during the first
six months of 1996 compared to providing cash of $2.1 million in 1995. In 1995,
the Company redeemed $3.6 million of short-term investments that was offset by
$1.4 million in purchases of property and equipment.
Financing activities used net cash of $4.4 million in the six months ended June
29, 1996 compared to providing cash of $105,300 for the first six months of
1995. This was due primarily to the repurchase of 663,700 shares of the
Company's stock in the first six months of 1996. During the second quarter of
1996, the Company borrowed $1.2 million against its revolving line of credit.
Effective July 31, 1996, the Company entered into a $5.0 million committed
revolving line of credit agreement replacing its previous $3.0 million
discretionary line of credit. Borrowings against the line are due on demand (or
July 31, 1997) and carry an interest rate of prime which was 8.25% at July 31,
1996.
The Company believes that its current cash position, cash generated from future
operations, availability of line of credit borrowings and additional capacity
for debt will be adequate to meet the Company's current obligations and
operating needs.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
At the Annual Shareholders meeting held on May 14, 1996, the Company submitted
to a vote of security-holders the following matters which received the indicated
votes:
1. Approving setting the number of members of the Board of Directors at seven.
Broker
For: 6,205,125 Against: 6,289 Abstain: 5,368 Non-Vote: 0
2. Election of Directors FOR WITHHOLD AUTHORITY
K. Jeffrey Dahlberg 6,207,644 9,138
Ronald G. Olson 6,208,169 8,613
Robert E. Thiner 6,206,014 10,768
Randel S. Carlock 6,208,424 8,358
Dennis J. Doyle 6,208,424 8,358
Robert C. Pohlad 6,207,724 9,058
Bruce C. Sanborn 6,208,224 8,558
3. Approving the amendment to the Company's 1992 Stock Option Plan to increase
the number of common shares authorized for issuance thereunder from 800,000
shares to 1,100,000 shares.
Broker
For: 5,889,171 Against: 308,965 Abstain: 8,591 Non-Vote: 10,055
4. Ratifying the appointment of Arthur Andersen LLP as independent auditors
for the current fiscal year.
Broker
For: 6,205,000 Against: 6,442 Abstain: 5,340 Non-Vote: 0
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GROW BIZ INTERNATIONAL, INC.
Date: August 9, 1996 By: /s/ Ronald G. Olson
Ronald G. Olson
President and Chief Executive Officer
Date: August 9, 1996 By: /s/ Robert E. Thiner
Robert E. Thiner
Executive Vice President of Finance
and Chief Financial Officer
Exhibit 11
GROW BIZ INTERNATIONAL, INC.
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
Three Months Ended
June 29, July 1,
1996 1995
---------- ----------
Net income $ 467,500 $ 718,300
========== ==========
Shares used in per common share computation:
Weighted average common shares outstanding 6,415,800 7,251,400
Dilutive effect of stock options after application
of the treasury stock method 91,600 220,700
---------- ----------
6,507,400 7,472,100
========== ==========
Net income per common share $ .07 $ .10
========== ==========
Six Months Ended
June 29, July 1,
1996 1995
---------- ----------
Net income $ 797,700 $1,090,500
========== ==========
Shares used in per common share computation:
Weighted average common shares outstanding 6,601,500 7,235,500
Dilutive effect of stock options after application
of the treasury stock method 102,800 240,100
---------- ----------
6,704,300 7,475,600
========== ==========
Net income per common share $ .12 $ .15
========== ==========
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> JUN-29-1996
<CASH> 446
<SECURITIES> 0
<RECEIVABLES> 16,628
<ALLOWANCES> (858)
<INVENTORY> 4,021
<CURRENT-ASSETS> 22,950
<PP&E> 8,915
<DEPRECIATION> (2,391)
<TOTAL-ASSETS> 32,826
<CURRENT-LIABILITIES> 16,188
<BONDS> 0
0
0
<COMMON> 11,487
<OTHER-SE> 4,957
<TOTAL-LIABILITY-AND-EQUITY> 32,826
<SALES> 20,236
<TOTAL-REVENUES> 25,009
<CGS> 18,268
<TOTAL-COSTS> 24,284
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 193
<INTEREST-EXPENSE> (44)
<INCOME-PRETAX> 769
<INCOME-TAX> 301
<INCOME-CONTINUING> 468
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 468
<EPS-PRIMARY> .07
<EPS-DILUTED> 0
</TABLE>
