UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) August 15, 1997
GROW BIZ INTERNATIONAL, INC.
(Exact Name of Issuer as Specified in Charter)
Minnesota 0-22012 41-1622691
(State or Other Jurisdiction or (Commission File (I.R.S. Employer
Incorporation or Organization) Number) Identification Number)
4200 Dahlberg Drive, Golden Valley, MN 55422-4837
(Address of Principal Executive Offices)
(612) 520-8500
(Registrant's Telephone Number, Including Area Code)
<PAGE>
ITEM 2. Acquisition or Disposition of Assets
On August 15, 1997, Grow Biz Games, Inc. a wholly-owned subsidiary of Grow Biz
International, Inc. ("Registrant") acquired certain assets and franchising
rights of Video Game Exchange, Inc. ("VGE") of Cleveland, Ohio. VGE operates 40
retail stores in Ohio, Pennsylvania, Kentucky, Georgia and Maryland. These
stores buy, sell and trade used and new video games and equipment and will
become the nucleus of the sixth business concept under the title It's About
Games(TM). The Registrant intends to market and franchise the concept throughout
the United States and Canada.
The purchase consideration paid to the former shareholders of VGE was $4,579,700
cash and a $2,000,000 two year promissory note payable in twenty-four equal
monthly installments beginning September 1, 1997 and bears interest at the prime
rate plus 1/2%. The acquisition has been accounted for under the purchase method
of accounting. The source of cash utilized in the purchase was from a $4,500,000
bank term loan from TCF Bank Minnesota fsb payable in sixty equal monthly
principal payments beginning October 10, 1997 plus accrued interest at prime
plus 1/2%. The cost in excess of net assets acquired is approximately $4,500,000
and will be amortized over a 25 year period.
The purchase consideration paid by the Registrant was determined by negotiations
between and among the representatives of the Registrant and VGE. Prior to the
purchase, no material relationship existed between VGE and the Registrant or any
of its affiliates, any director or officer of the Registrant, or any associate
of any such director or officer.
ITEM 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial statements of business acquired
Independent Auditor's Report
Audited Balance Sheet, December 31, 1996
Audited Statement of Income and Retained Earnings, December 31, 1996
Audited Statement of Cash Flows, December 31, 1996
Audited Notes to Financial Statements, December 31, 1996
Unaudited Balance Sheet, June 30, 1997
Unaudited Statements of Income and Retained Earnings, June 30, 1997
and June 30, 1996
Unaudited Statements of Cash Flows, June 30, 1997 and June 30, 1996
(b) Pro forma financial information
Unaudited Pro forma Condensed Consolidated Statements of Operations
for the Year Ended December 28, 1996
Unaudited Pro forma Condensed Consolidated Statements of Operations
for the Six Months Ended June 28, 1997.
Unaudited Pro forma Condensed Consolidated Balance Sheet as of
June 28, 1997
<PAGE>
(c) Exhibits
10.1 Asset Purchase Agreement, dated August 15, 1997 (1)
10.2 First Amendment to Credit Agreement and Revolving Note,
dated August 8, 1997 (1)
10.3 Term Note, TCF, dated August 8, 1997 (1)
10.4 Non-Negotiable Promissory Note, Video Game Exchange, Inc.,
dated August 15, 1997 (1)
23.1 Consent of Zion, Smorag & Associates
(1) Incorporated by reference to the specified exhibit to the
Current Report on Form 8-K filed on August 19, 1997.
<PAGE>
4141 Rockside Road
Suite 150
Cleveland, Ohio 44131
ZION, SMORAG & ASSOCIATES Phone (216) 447-6006
Certified Public Accountants FAX (216) 447-6007
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Video Game Exchange, Inc.
Cleveland, Ohio
We have audited the accompanying balance sheet of VIDEO GAME EXCHANGE, INC. (an
S Corporation) as of December 31, 1996, and the related statements of income,
retained earnings, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit including examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of VIDEO GAME EXCHANGE, INC. as of
December 31, 1996, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
/s/ Zion, Smorag & Associates
Cleveland, Ohio
March 19, 1997
<PAGE>
VIDEO GAME EXCHANGE, INC.
(AN S CORPORATION)
BALANCE SHEET
DECEMBER 31, 1996
ASSETS
CURRENT ASSETS:
Cash $ 1,135,318
Accounts receivable 154,287
Inventory 1,770,258
Prepaid expenses and other 85,313
------------
TOTAL CURRENT ASSETS 3,145,176
PROPERTY AND EQUIPMENT:
Furniture, fixtures and equipment 984,454
Leasehold improvements 405,596
Transportation equipment 138,802
------------
Total, at cost 1,528,852
Accumulated depreciation 946,055
------------
NET PROPERTY AND EQUIPMENT 582,797
OTHER ASSETS:
Note receivable - related party 100,000
Deposits 58,171
------------
TOTAL OTHER ASSETS 158,171
------------
TOTAL ASSETS $ 3,886,144
============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 533,719
Accounts payable 59,524
Accrued sales taxes 158,447
Accrued payroll 104,000
Accrued and withheld payroll taxes 23,999
------------
TOTAL CURRENT LIABILITIES 879,689
LONG-TERM LIABILITIES:
Long-term debt, less current portion 2,453,528
TOTAL LIABILITIES 3,333,217
SHAREHOLDERS' EQUITY:
Common Shares, no par value, stated value of $1.89 per
share, 30,000 shares authorized, 26,455 shares issued and
outstanding 50,000
Retained earnings 502,927
------------
TOTAL SHAREHOLDERS' EQUITY 552,927
------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,886,144
============
The accompanying notes are an integral part of these financial statements
<PAGE>
VIDEO GAME EXCHANGE, INC.
(AN S CORPORATION)
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDING DECEMBER 31, 1996
NET SALES $ 14,207,025 100.00%
COST OF SALES 9,018,739 63.48%
------------ ------------
GROSS MARGIN 5,188,286 36.52%
OPERATING EXPENSES 4,107,244 28.91%
------------ ------------
INCOME FROM OPERATIONS 1,081,042 7.61%
OTHER INCOME AND (EXPENSE):
Miscellaneous - net 16,868 0.12%
Interest income 41,055 0.29%
Interest expense (371,508) -2.61%
------------ ------------
NET OTHER (EXPENSE) (313,585) -2.20%
------------ ------------
NET INCOME $ 767,457 5.41%
============
RETAINED DEFICIT - January 1, 1996 (264,530)
------------
RETAINED EARNINGS - DECEMBER 31, 1996 $ 502,927
============
The accompanying notes are an integral part of these financial statements
<PAGE>
VIDEO GAME EXCHANGE, INC.
(AN S CORPORATION)
STATEMENT OF CASH FLOWS
DECEMBER 31, 1996
INCREASE (DECREASE) IN CASH
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 767,457
Adjustments to Reconcile Net Income to
Net Cash Provided By Operating Activities:
Depreciation and amortization expense 219,048
(Increase) decrease in:
Accounts receivable (130,478)
Inventory (351,482)
Prepaid expenses and other 38,536
Increase (decrease) in:
Accounts payable 59,524
Accrued sales tax 30,560
Accrued payroll 23,000
Accrued and withheld payroll taxes (27,963)
Accrued other expenses (422,128)
-----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 206,074
CASH FLOW FROM INVESTING ACTIVITIES:
Note receivable - related party (100,000)
Capital expenditures (66,105)
-----------
NET CASH USED IN INVESTING ACTIVITIES (166,105)
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from sale of stock 50,000
Payments of long-term debt (8,663)
-----------
NET CASH PROVIDED BY INVESTING ACTIVITIES 41,337
-----------
NET INCREASE IN CASH 81,306
CASH AT JANUARY 1, 1996 1,054,012
-----------
CASH AT DECEMBER 31, 1996 $ 1,135,318
===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 371,508
===========
The accompanying notes are an integral part of these financial statements
<PAGE>
VIDEO GAME EXCHANGE, INC.
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
Note 1 - Summary of Significant Accounting Policies
Nature of Operations
Video Game Exchange, Inc. (the Company) was incorporated in 1990 for the purpose
of selling new and used video games, hardware and accessories. The Company
distributes its products through its 40 retail locations in the states of Ohio,
Pennsylvania, Maryland, Georgia, and Kentucky. The Company also distributes its
products on a wholesale basis to other video game retailers.
Inventories
Inventories include video games, hardware and accessories and are stated at the
lower of cost or market. Cost is determined using first in, first out (FIFO)
method.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization of
property and equipment are provided using the straight-line method over the
following estimated useful lives:
Furniture, fixtures and equipment 5 to 7 years
Leasehold improvements Initial lease term
Transportation equipment 5 years
Expenditures for maintenance and repairs are charged to expense as incurred.
Store Opening Costs
Non-capital expenditures incurred in preparation of the opening of a new store
are charged to expense as incurred.
Other Assets
Other assets consist primarily of deposits on leases, and a loan to a related
party in the amount of $100,000 (See Note 5).
Statement of Cash Flows
For purposes of the statement of cash flows, the Company considers short-term
cash investments with maturity dates of less than three months or with maturity
dates greater than three months that are not subject to withdrawal restrictions
to be cash equivalents. The Company at times has cash balance in its operating
account in excess of FDIC limits.
<PAGE>
VIDEO GAME EXCHANGE, INC.
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
Note 2 - Federal Income Taxes
The Company has filed an election to be treated as an S Corporation, as defined
by the Internal Revenue Code, for income tax purposes.
As an S Corporation, items of income, deduction and credit pass through to the
shareholders for inclusion in their individual tax returns. Accordingly, no
provision for income taxes is required at the corporate level.
Note 3 - Financing
The following is a summary of notes payable as of December 31, 1996:
An interest only note payable to a related party, in the original
amount of $2,963,021 bearing interest at 1% above the bank prime
rate (prime-8.25% at December 31, 1996) from August 8, 1995
through September 15, 1996. On September 16, 1996 the Company
agreed to a revised interest rate of 20% and then renegotiated
the note as a term note on December 31, 1996. Terms of the note
include an initial balloon payment of $500,000, due February 1,
1997 with the remainder of the note totaling $2,463,021, payable
in 180 equal monthly installments of $43,258 including interest
at 20%. The note is unsecured. $ 2,963,021
A term note payable to a bank, dated February 4,1995 in the
amount of $35,050 requiring monthly installments of $758
including interest at 10.75% through February 2000. The note is
secured by the related equipment. 23,794
Other 432
------------
Total 2,987,247
Less current maturities 533,719
Long-term portion $ 2,453,528
============
Annual maturities of long-term debt are as follows:
Year ending December 31:
------------------------
1997 $ 533,719
1998 42,506
1999 51,017
2000 52,577
2001 63,195
Thereafter 2,244,233
------------
TOTAL $ 2,987,247
============
<PAGE>
VIDEO GAME EXCHANGE, INC.
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
Note 4 - Lease Obligations
The Company has various operating lease obligations for store and warehouse
facilities with initial lease terms of three to five years. The leases are
generally renewable at the option of the Company. The leases generally require
the Company to pay insurance, utilities, real estate taxes, and maintenance
expenses.
Future minimum lease payments under these operating leases were as follows at
December 31, 1996:
1997 $ 738,352
1998 545,945
1999 219,840
2000 61,630
2001 18,904
------------
Total $ 1,584,671
============
Rent expense for the year ended December 31, 1996 totaled $904,230.
Note 5 - Related Parties
The Company transacts business with two companies related through common
ownership and management.
On June 24, 1996 the Company made a loan for $100,000 to one of these companies.
The note calls for annual interest payments at 7% per annum to be paid each
anniversary of the above date, with the entire principal amount due June 2001.
Accrued interest income, totaling $3,625, was included in the accompanying
financial statements. The note is unsecured.
As of December 31, 1996 the Company had a term note payable
totaling $2,963,020 to a related party (See Note 3). Interest
paid on this note during the year totaled $363,052.
Note 6 - Bankruptcy and Reorganization
Bankruptcy
On February 16, 1995, the Company filed for bankruptcy protection under Chapter
11, in The United States Bankruptcy Court For The Northern District of Ohio
Eastern Division for protection from its creditors. The decision for the Company
to enter into Chapter 11, was due to unfavorable economic conditions in the
industry, declining profits and difficulty in maintaining financing
arrangements. Subsequent to the filing, as debtor-in-possession, management
decided to close over forty unprofitable retail locations and consolidate its
remaining operations. Many of the locations had multiple year lease commitments
and a motion was filed with and ultimately accepted by the Court to reject these
leases. On October 16, 1995 the Company filed a first amended disclosure
statement with the Court that outlined the Company's plan of reorganization. The
Court and the Creditor's Committee accepted the Company's plan of reorganization
on December 28, 1995 and the final decree was signed July 31, 1996, evidencing
the emergence of the Company from the Chapter 11 proceedings.
<PAGE>
VIDEO GAME EXCHANGE, INC.
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
Note 6 - Bankruptcy and Reorganization (continued)
Reorganization
Under the disclosure statement that was filed with the Court, the Company's
equity section was restructured, and a new issue of common stock took place on
January 2, 1996.
For financial reporting purposes, as a result of the reorganization, the deficit
as of December 31, 1995 has been partially extinguished by a charge to
paid-in-capital in excess of par and cancellation and retirement of the original
common stock, contemporaneously, with the new issue of the Company's securities
totaling $50,000.
Note 7 - Major Suppliers
During the year, the Company purchased products from one vendor totaling
approximately $2,320,000.
Note 8 - Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
<PAGE>
THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.
<PAGE>
VIDEO GAME EXCHANGE, INC.
(AN S CORPORATION)
BALANCE SHEET
(UNAUDITED)
-------------
JUNE 30, 1997
-------------
ASSETS
CURRENT ASSETS:
Cash $ 595,100
Accounts receivable 4,400
Inventory 1,674,800
Prepaid expenses and other 81,700
-----------
TOTAL CURRENT ASSETS 2,356,000
PROPERTY AND EQUIPMENT:
Furniture, fixtures and equipment 996,800
Leasehold improvements 419,800
Transportation equipment 138,800
-----------
Total, at cost 1,555,400
Accumulated depreciation (1,058,600)
-----------
NET PROPERTY AND EQUIPMENT 496,800
OTHER ASSETS:
Note receivable - related party 390,600
Deposits 58,200
-----------
TOTAL OTHER ASSETS 448,800
-----------
TOTAL ASSETS $ 3,301,600
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 533,300
Accounts payable 434,300
Accrued sales taxes 62,500
Accrued expenses 39,800
-----------
TOTAL CURRENT LIABILITIES 1,069,900
LONG-TERM LIABILITIES:
Long-term debt, less current portion 1,938,800
TOTAL LIABILITIES 3,008,700
SHAREHOLDERS' EQUITY:
Common shares 50,000
Dividend distributions (727,100)
Retained earnings 970,000
TOTAL SHAREHOLDERS' EQUITY 292,900
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,301,600
===========
<PAGE>
VIDEO GAME EXCHANGE, INC.
(AN S CORPORATION)
STATEMENT OF INCOME AND RETAINED EARNINGS
(UNAUDITED)
---------------------------------
SIX MONTHS ENDED
JUNE 30, 1997 JUNE 30, 1996
------------- -------------
NET SALES $ 7,408,900 $ 5,626,300
COST OF SALES 4,567,200 3,560,600
----------- -----------
GROSS MARGIN 2,841,700 2,065,700
OPERATING EXPENSES 2,151,400 1,934,000
----------- -----------
INCOME FROM OPERATIONS 690,300 131,700
OTHER INCOME AND (EXPENSE):
Restructuring expense -- (85,600)
Interest income 34,000 21,100
Interest expense (257,200) (120,300)
----------- -----------
NET OTHER (EXPENSE) (223,200) (184,800)
----------- -----------
NET INCOME $ 467,100 $ (53,100)
RETAINED DEFICIT - Beginning 502,900 (264,500)
----------- -----------
RETAINED EARNINGS - ENDING $ 970,000 $ (317,600)
=========== ===========
<PAGE>
VIDEO GAME EXCHANGE, INC.
(AN S CORPORATION)
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
----------------------------------
JUNE 30, 1997 JUNE 30, 1996
------------- -------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 467,100 $ (53,100)
Adjustments to Reconcile Net Income to
Net Cash Provided By (Used For) Operating Activities:
Depreciation and amortization expense 112,600 104,700
(Increase) decrease in:
Accounts receivable 149,900 (101,400)
Inventory 95,400 1,700
Prepaid expenses and other 103,600 (300)
Accounts payable 260,800 158,000
Accrued expenses (70,100) (355,700)
----------- -----------
NET CASH PROVIDED BY (USED FOR) OPERATING
ACTIVITIES 1,119,300 (246,100)
CASH FLOW FROM INVESTING ACTIVITIES:
Note receivable - related party (390,600) --
Capital expenditures (26,600) (40,300)
----------- -----------
NET CASH USED FOR INVESTING ACTIVITIES (417,200) (40,300)
CASH FLOW FROM FINANCING ACTIVITIES:
Dividend distributions (727,100) --
Proceeds from sale of stock -- 50,000
Payments of debt (515,200) (4,200)
----------- -----------
NET CASH PROVIDED BY (USED FOR) FINANCING
ACTIVITIES (1,242,300) 45,800
NET DECREASE IN CASH (540,200) (240,600)
BEGINNING CASH 1,135,300 1,054,000
----------- -----------
ENDING CASH $ 595,100 $ 813,400
=========== ===========
</TABLE>
<PAGE>
GROW BIZ INTERNATIONAL, INC.
INTRODUCTION TO PRO FORMA UNAUDITED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 28, 1996
AND THE SIX MONTH PERIOD ENDED JUNE 28, 1997
The following unaudited pro forma consolidated financial information consists of
pro forma unaudited consolidated statements of operations of the Company for the
fiscal year ended December 28, 1996 and for the six month period ended June 28,
1997 and a pro forma consolidated balance sheet of the Company as of June 28,
1997. The unaudited pro forma consolidated financial statements give effect to
the August 15, 1997 acquisition of certain assets of Video Game Exchange, Inc.
The pro forma unaudited consolidated statements of operations give effect to the
acquisition as if it had occurred on December 30, 1995. The pro forma unaudited
consolidated balance sheet give effect to the acquisition as if it had occurred
on June 28, 1997.
The unaudited pro forma consolidated statement of operations for the year ended
December 28, 1996 reflects the audited historical consolidated statements of
operations of the Company for the year ended December 28, 1996, and the audited
statement of income and retained earnings of Video Game Exchange, Inc. for the
year ended December 31, 1996. The unaudited pro forma consolidated financial
statements as of June 28, 1997 and for the six months then ended, reflect the
unaudited consolidated financial statements of the Company as of and for the six
months ended June 28, 1997 and the unaudited financial statements of Video Game
Exchange, Inc. as of and for the six months ended June 30, 1997.
The pro forma unaudited consolidated financial statements and accompanying notes
should be read in conjunction with the historical consolidated financial
statements and notes thereto appearing elsewhere or incorporated by reference in
this Current Report.
<PAGE>
GROW BIZ INTERNATIONAL, INC.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET
AS OF JUNE 28, 1997
<TABLE>
<CAPTION>
--------------------------------------------------------------------
Grow Biz Video Game
International Exchange Adjustments Pro Forma
--------------------------------------------------------------------
ASSETS
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,676,600 $ 595,100 $ (79,700)(1) $ 1,608,800
(583,200)(2)
Trade receivables 12,629,900 4,400 -- 12,634,300
Inventories 2,704,800 1,674,800 (124,100)(2) 4,255,500
Prepaid expenses and other 1,580,900 81,700 (38,500)(2) 1,624,100
Deferred income taxes 1,726,400 -- -- 1,726,400
----------- ---------- ------------ ------------
Total current assets 20,318,600 2,356,000 (825,500) 21,849,100
Notes receivable 431,000 390,600 (390,600)(2) 431,000
Property and equipment, net 5,166,300 496,800 75,000 (3) 5,738,100
Other assets, net 2,698,800 58,200 4,339,500 (3) 7,096,500
----------- ---------- ------------ ------------
$28,614,700 $3,301,600 $ 3,198,400 $ 35,114,700
=========== ========== ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable 5,663,700 496,800 (496,800)(2) 5,663,700
Accrued liabilities 1,010,300 39,800 (39,800)(2) 1,010,300
Current maturities of long-term debt 231,200 533,300 (533,300)(2) 231,200
Deferred franchise fee revenue 4,685,500 -- -- 4,685,500
----------- ---------- ------------ ------------
Total current liabilities 11,590,700 1,069,900 (1,069,900) 11,590,700
Long-Term Debt 226,600 1,938,800 (1,938,800)(2) 6,726,600
6,500,000 (3)
Shareholder's Equity:
Common stock 8,513,500 50,000 (50,000)(2) 8,513,500
Retained earnings 8,283,900 242,900 (242,900)(2) 8,283,900
----------- ---------- ------------ ------------
Total shareholders' equity 16,797,400 292,900 (292,900) 16,797,400
----------- ---------- ------------ ------------
$28,614,700 $3,301,600 $ 3,198,400 $ 35,114,700
=========== ========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
GROW BIZ INTERNATIONAL, INC.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 28, 1996
<TABLE>
<CAPTION>
----------------------------------------------------------------------
Grow Biz Video Game
International Exchange Adjustments Pro Forma
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE:
Merchandise sales $ 71,736,800 $ 14,207,000 $ -- $ 85,943,800
Royalties 14,964,800 -- -- 14,964,800
Franchise fees 4,161,600 -- -- 4,161,600
Advertising and other 686,400 -- -- 686,400
------------ ------------ --------- -------------
Total revenue 91,549,600 14,207,000 -- 105,756,600
COST OF MERCHANDISE SOLD 63,855,600 9,018,700 -- 72,874,300
SELLING, GENERAL AND 23,636,200 4,090,400 173,600 (4) 27,868,700
ADMINISTRATIVE EXPENSES 25,000 (5)
(56,500)(6)
------------ ------------ --------- -------------
Income from operations 4,057,800 1,097,900 (142,100) 5,013,600
INTEREST EXPENSE (56,900) (371,500) 371,500 (7) (555,500)
(498,600)(8)
INTEREST INCOME 251,600 41,100 (41,100)(7) 251,600
------------ ------------ --------- -------------
Income before income taxes 4,252,500 767,500 (310,300) 4,709,700
PROVISION FOR INCOME TAXES 1,667,000 300,900 (121,600)(9) 1,846,300
------------ ------------ --------- -------------
NET INCOME $ 2,585,500 $ 466,600 $(188,700) $ 2,863,400
============ ============ ========= =============
NET INCOME PER COMMON SHARE $ .40 $ .44
============ =============
WEIGHTED AVERAGE SHARES
OUTSTANDING 6,516,000 6,516,000
============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
GROW BIZ INTERNATIONAL, INC.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 28, 1997
<TABLE>
<CAPTION>
----------------------------------------------------------------------
Grow Biz Video Game
International Exchange Adjustments Pro Forma
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE:
Merchandise sales $ 29,578,400 $ 7,408,900 $ -- $ 36,987,300
Royalties 8,256,400 -- -- 8,256,400
Franchise fees 1,607,700 -- -- 1,607,700
Advertising and other 345,900 -- -- 345,900
------------ ----------- ----------- ------------
Total revenue 39,788,400 7,408,900 -- 47,197,300
COST OF MERCHANDISE SOLD 26,064,500 4,567,200 -- 30,631,700
SELLING, GENERAL AND 11,307,900 2,151,400 86,800 (4) 13,530,300
ADMINISTRATIVE EXPENSES 12,500 (5)
(28,300)(6)
------------ ----------- ----------- ------------
Income from operations 2,416,000 690,300 (71,000) 3,035,300
INTEREST EXPENSE (11,900) (257,200) 257,200 (7) (205,200)
(193,300)(8)
INTEREST INCOME 127,600 34,000 (34,000)(7) 127,600
------------ ----------- ----------- ------------
Income before income taxes 2,531,700 467,100 (41,100) 2,957,700
PROVISION FOR INCOME TAXES 992,400 180,700 (16,100)(9) 1,157,000
------------ ----------- ----------- ------------
NET INCOME $ 1,539,300 $ 286,400 $ (25,000) $ 1,800,700
============ =========== =========== ============
NET INCOME PER COMMON SHARE $ .25 $ .29
============ ============
WEIGHTED AVERAGE SHARES
OUTSTANDING 6,281,300 6,281,300
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
GROW BIZ INTERNATIONAL, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 28, 1997
1) Reflects $79,700 of non-financed cash paid to Video Game Exchange, Inc.
(VGE) as part of the acquisition.
2) Reflects the elimination of assets, liabilities and equity of VGE which
were not acquired or assumed by the Company.
3) Reflects the effects of purchase accounting for the acquisition of VGE
including adjusting property and equipment to its fair market value and
the recording of goodwill and acquisition debt.
4) Reflects the amortization of $4.3 of goodwill and covenants not to
compete over 25 years arising from the acquisition of VGE.
5) Reflects the net change in depreciation expense associated with the
write-up to fair market value of certain assets acquired from VGE.
6) Reflects the elimination of certain VGE salary costs which will not
recur.
7) Reflects the elimination of VGE interest expenses and income derived
from certain assets and liabilities which were not acquired or assumed
by the Company.
8) Reflects the interest expense related to the acquisition debt.
9) Reflects pro forma provision for income taxes as if VGE was taxed as a C
Corporation as of the beginning of the period.
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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: October 14, 1997 By: /s/ Ronald G. Olson
----------------------
Ronald G. Olson
President and Chief Executive Officer
Date: October 14, 1997 By: /s/ David J. Osdoba, Jr.
--------------------------
David J. Osdoba, Jr.
Vice President of Finance and Chief
Financial Officer
4141 Rockside Road
Suite 150
Cleveland, Ohio 44131
ZION, SMORAG & ASSOCIATES Phone (216) 447-6006
Certified Public Accountants FAX (216) 447-6007
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated March 19, 1997 into this Form 8-K and into the Company's previously
filed Registration Statements, File Numbers 33-85972, 33-85960, 33-85956,
33-79176, 33-71772, 333-3236, 333-3068 and 333-3066.
/s/ Zion, Smorag & Associates
Cleveland, Ohio
October 8, 1997
