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 September 27, 1997
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, 6,076,114 shares outstanding as of November 6, 1997.
<PAGE>
GROW BIZ INTERNATIONAL, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE
- --------------------------------------------------------------------------------
Item 1. Financial Statements (Unaudited)
CONDENSED BALANCE SHEETS: 4
September 27, 1997 and December 28, 1996
CONDENSED STATEMENTS OF OPERATIONS: 5
Three Months Ended
September 27, 1997 and September 28, 1996
Nine Months Ended
September 27, 1997 and September 28, 1996
CONDENSED STATEMENTS OF CASH FLOWS: 6
Nine Months Ended
September 27, 1997 and September 28, 1996
NOTES TO CONDENSED FINANCIAL STATEMENTS 7-8
Item 2. Management's Discussion and Analysis of Financial 9-14
Condition and Results of Operations
PART II. OTHER INFORMATION PAGE
- --------------------------------------------------------------------------------
Items 1 through 5 have been omitted since all items are
inapplicable or answers negative.
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
99 Cautionary Statements
(b.) Reports on Form 8-K
On August 28, 1997, the Company filed an 8-K related to the purchase of
Video Game Exchange, Inc. On October 15, 1997, the Company filed an
amended 8-K related to the Video Game Exchange, Inc. acquisition that
included the following financial statements:
<PAGE>
(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 Statement 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>
GROW BIZ INTERNATIONAL, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
---------------------------
September 27, December 28,
1997 1996
---------------------------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 5,383,900 $ 1,388,800
Trade receivables, less allowance for doubtful
accounts of $750,300 and $930,000 11,928,600 13,171,400
Inventories 4,148,600 2,716,000
Prepaid expenses and other 1,477,800 862,900
Deferred income taxes 1,726,400 1,726,400
----------- -----------
Total current assets 24,665,300 19,865,500
Notes receivable 425,700 339,800
Property and equipment, net 5,569,700 5,979,300
Other assets, net 6,915,900 2,991,900
----------- -----------
$37,576,600 $29,176,500
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable 6,983,600 5,670,300
Accrued liabilities 1,825,000 1,275,800
Current maturities of long-term debt 2,093,400 134,900
Deferred franchise fee revenue 4,268,500 4,269,000
----------- -----------
Total current liabilities 15,170,500 11,350,000
Long-Term Debt 4,659,900 129,000
Shareholder's Equity:
Common stock, no par, 10,000,000 shares authorized,
6,062,058 and 6,263,444 shares issued and outstanding 8,193,300 10,952,900
Retained earnings 9,552,900 6,744,600
----------- -----------
Total shareholders' equity 17,746,200 17,697,500
----------- -----------
$37,576,600 $29,176,500
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
GROW BIZ INTERNATIONAL, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
-----------------------------------------------------------
Three Months Ended Nine Months Ended
September 27, September 28, September 27, September 28,
1997 1996 1997 1996
-----------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE:
Merchandise sales $16,209,000 $15,980,000 $45,787,400 $57,065,400
Royalties 4,553,500 3,875,700 12,809,900 10,853,200
Franchise fees 1,006,900 1,453,000 2,614,600 3,190,100
Advertising and other 309,100 263,000 655,000 598,200
----------- ----------- ----------- -----------
Total revenue 22,078,500 21,571,700 61,866,900 71,706,900
COST OF MERCHANDISE SOLD 13,705,900 14,206,700 39,770,400 51,272,400
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES 6,316,200 5,921,300 17,624,000 17,781,200
----------- ----------- ----------- -----------
Income from operations 2,056,400 1,443,700 4,472,500 2,653,300
INTEREST INCOME, NET 30,800 16,500 146,400 118,700
----------- ----------- ----------- -----------
Income before income taxes 2,087,200 1,460,200 4,618,900 2,772,000
PROVISION FOR INCOME TAXES 818,200 572,400 1,810,600 1,086,600
----------- ----------- ----------- -----------
NET INCOME $ 1,269,000 $ 887,800 $ 2,808,300 $ 1,685,400
=========== =========== =========== ===========
NET INCOME PER COMMON SHARE $ .20 $ .14 $ .45 $ .26
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES
OUTSTANDING 6,277,300 6,327,200 6,276,100 6,574,700
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
GROW BIZ INTERNATIONAL, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
----------------------------
Nine Months Ended
September 27, September 28,
1997 1996
----------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 2,808,300 $ 1,685,400
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,310,000 1,215,000
Deferred income tax -- 247,800
Change in operating assets and liabilities:
Trade receivables 1,156,900 2,044,900
Inventories (1,431,600) 1,014,700
Prepaid expenses and other (615,900) 138,300
Accounts payable 1,313,300 1,954,600
Accrued liabilities 549,200 (324,100)
Deferred franchise fee revenue (500) 154,000
----------- -----------
Net cash provided by
operating activities 5,089,700 8,130,600
----------- -----------
INVESTING ACTIVITIES:
Purchase of short-term investments -- (1,166,000)
Increase in other assets (4,354,200) (34,300)
Purchases of property and equipment (470,200) (120,500)
----------- -----------
Net cash used for
investing activities (4,824,400) (1,320,800)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from notes payable 6,767,000 --
Payments on long-term debt (277,600) (113,400)
Proceeds from stock option exercises 451,900 125,500
Repurchase of common stock (3,211,500) (6,266,100)
----------- -----------
Net cash provided by (used for)
financing activities 3,729,800 (6,254,000)
----------- -----------
INCREASE IN CASH & CASH EQUIVALENTS 3,995,100 555,800
Cash and cash equivalents, beginning of period 1,388,800 101,500
----------- -----------
Cash and cash equivalents, end of period $ 5,383,900 $ 657,300
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
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 nine months ended September 27, 1997 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', `Disc Go Round' and `It's About
Games'. In addition, the Company sells inventory to its Play It Again Sports(R)
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 2,000,000 shares of the Company's common stock on the open market. As of
October 31, 1997, the Company had repurchased 1,365,913 shares of its stock at
an average price of $9.09 per share, including 55,500 shares repurchased at an
average price of $10.63 per share in the three months ended September 27, 1997.
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 intends to vigorously defend the
action.
5. EARNINGS PER SHARE:
Net income per share has been computed by dividing net income by the weighted
average number of common shares outstanding during each period. Common stock
equivalent shares, which relate to stock options and warrants, are included in
the weighted average when the effect is dilutive.
<PAGE>
6. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share". The Company
will be required to adopt SFAS No. 128 in 1997. The Company expects that the
ultimate adoption of SFAS No. 128 will not have a material impact on the
Company's computation or presentation of EPS, as the Company's common stock
equivalents have had no material effect on earnings per share amounts.
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
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 for total
consideration of $6,579,700. 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.
GENERAL
Following is a summary of the Company's franchising and corporate retail store
activity for the three months ended September 27, 1997:
<TABLE>
<CAPTION>
-----------------------------------------------------------------
TOTAL OPENED/ TOTAL
6/28/97 PURCHASED CLOSED CONVERTED 9/27/97
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Play It Again Sports(R)
- ------------------------
Franchised Stores - US and Canada 663 11 (18) 0 656
Franchised Stores - Other International 8 0 0 0 8
Corporate 5 0 0 0 5
Other 22 0 0 0 22
Once Upon A Child(R)
- ------------------------
Franchised Stores - US and Canada 187 9 (1) 0 195
Corporate 4 0 0 0 4
Computer Renaissance(R)
- ------------------------
Franchised Stores - US and Canada 136 18 0 0 154
Corporate 4 0 0 0 4
Music Go Round(R)
- ------------------------
Franchised Stores - US and Canada 28 6 0 0 34
Corporate 4 0 0 0 4
Disc Go Round(R)
- ------------------------
Franchised Stores - US and Canada 120 4 (5) (1) 118
Corporate 2 0 0 1 3
Video Game Exchange(TM)
- ------------------------
Franchised Stores - US and Canada 0 0 0 0 0
Corporate 0 40 0 0 40
It's About Games(TM)
- ------------------------
Franchised Stores - US and Canada 0 0 0 0 0
Corporate 0 1 0 0 1
------------------------------------------------------------------
Total 1,183 89 (24) 0 1,248
==================================================================
</TABLE>
<PAGE>
Following is a summary of the Company's franchising and corporate retail store
activity for the nine months ended September 27, 1997:
<TABLE>
<CAPTION>
------------------------------------------------------------------
TOTAL OPENED/ TOTAL
12/28/96 PURCHASED CLOSED CONVERTED 9/27/97
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Play It Again Sports(R)
- ------------------------
Franchised Stores - US and Canada 676 22 (40) (2) 656
Franchised Stores - Other International 8 0 0 0 8
Corporate 4 0 (1) 2 5
Other 22 0 0 0 22
Once Upon A Child(R)
- ------------------------
Franchised Stores - US and Canada 182 17 (6) 2 195
Corporate 6 0 0 (2) 4
Computer Renaissance(R)
- ------------------------
Franchised Stores - US and Canada 108 47 (1) 0 154
Corporate 4 0 0 0 4
Music Go Round(R)
- ------------------------
Franchised Stores - US and Canada 20 14 0 0 34
Corporate 4 0 0 0 4
Disc Go Round(R)
- ------------------------
Franchised Stores - US and Canada 114 16 (11) (1) 118
Corporate 2 0 0 1 3
Video Game Exchange(TM)
- ------------------------
Franchised Stores - US and Canada 0 0 0 0 0
Corporate 0 40 0 0 40
It's About Games(TM)
- ------------------------
Franchised Stores - US and Canada 0 0 0 0 0
Corporate 0 1 0 0 1
------------------------------------------------------------------
Total 1,150 157 (59) 0 1,248
==================================================================
</TABLE>
<PAGE>
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 Nine Months Ended
September 27, September 28, September 27, September 28,
1997 1996 1997 1996
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue:
Merchandise sales 73.4% 74.1% 74.0% 79.6%
Royalties 20.6 18.0 20.7 15.1
Franchise fees 4.6 6.7 4.2 4.5
Advertising and other 1.4 1.2 1.1 0.8
------- ------- ------- -------
Total revenues 100.0% 100.0% 100.0% 100.0%
Cost of merchandise sold 62.1 65.9 64.3 71.5
Selling, general and administrative
expenses 28.6 27.4 28.5 24.8
------ ------ ------ ------
Income from operations 9.3 6.7 7.2 3.7
Interest and other income, net 0.1 0.1 0.2 0.2
------- ------- ------- -------
Income before income taxes 9.4 6.8 7.4 3.9
Provision for income taxes 3.7 2.7 2.9 1.5
------- ------- ------- -------
Net income 5.7% 4.1% 4.5% 2.4%
======== ======== ======== ========
</TABLE>
Comparison of Three Months Ended September 27, 1997 to Three Months Ended
September 28, 1996
Revenues for the quarter ended September 27, 1997 totaled $22.1 million compared
to $21.6 million for the comparable period in 1996. Merchandise sales consist of
the sale of product to franchisees through the buying group and retail sales at
the Company-owned stores. For the third quarter of 1997 and 1996 merchandise
sales were as follows:
1997 1996
---- ----
Buying Group $ 11,184,700 $ 12,601,000
Retail Sales 5,024,300 3,379,000
-------------- --------------
Merchandise Sales $ 16,209,000 $ 15,980,000
============== ==============
Merchandise revenue increased $229,000 during the third quarter of 1997 compared
to 1996. Play It Again Sports(R) buying group revenue has continued its planned
decline as a result of management's strategic decision to reduce the number of
vendors offered centralized billing. This decline has been more than offset by
the retail sales of the 40 Company-owned Video Game Exchange(TM) stores acquired
August 15, 1997. It is anticipated that buying group revenues will continue to
decline as a percent of total revenues in the upcoming year while retail sales
from the Company-owned stores will increase due to the additional stores.
Royalties increased to $4.6 million for the third quarter of 1997 from $3.9
million for the same period in 1996, due primarily to the growth in the number
of franchise
<PAGE>
stores to 1,157 open at September 27, 1997 compared to 1,037 stores at September
28, 1996. Franchise fees decreased to $1.0 million in the third quarter of 1997
from $1.5 million in the third quarter of 1996, as a result of opening 16 less
franchise stores in the third quarter of 1997 as compared to the third quarter
of 1996. The current trend of royalty increases from the prior year and as a
percent of total revenue is expected to continue as the number of franchise
stores continues to grow. Franchise fees are expected to remain consistent with
prior periods as the overall annual rate of store openings appears stable, with
any decline in mature concepts being offset by the anticipated franchise fees
from It's About Games(TM).
Cost of merchandise sold decreased in the third quarter of 1997 to $13.7 million
from $14.2 million for the same period last year despite the increase in
merchandise sales for the period. This was due to the shift in the mix of
merchandise sales from the Company-owned retail store sales on which gross
margin contributions are significantly higher than the buying group merchandise
sales. Selling, general and administrative expenses were $6.3 million or 28.6%
of revenues in the third quarter of 1997 compared to $5.9 million or 27.4% of
revenues for the same period in 1996. This $394,900 increase is primarily the
result of operating costs of the new 40 Company-owned Video Game Exchange(TM)
stores as well as costs related to franchising the new It's About Games(TM)
concept. It is anticipated that future increases in revenues from franchising
activities, royalties and franchise fees, will surpass future increases in
selling, general and administrative expenses.
During the third quarter of 1997, the Company had net interest income of $30,800
as compared to net interest income of $16,500 in the third quarter of 1996. This
increase is primarily the result of a higher average balance of funds invested
in short-term, high-grade investments. A decline in net interest income is
anticipated in future periods as the Company incurs interest expense on the
notes payable related to the Video Game Exchange, Inc. acquisition.
Comparison of Nine Months Ended September 27, 1997 to Nine Months Ended
September 28, 1996
Revenues for the nine months ended September 27, 1997 were $61.9 million
compared to $71.7 million for the comparable period in 1996. For the first nine
months of 1997 and 1996 merchandise sales were as follows:
1997 1996
---- ----
Buying Group $ 34,377,400 $ 47,201,200
Retail Sales 11,410,000 9,864,200
-------------- --------------
Merchandise Sales $ 45,787,400 $ 57,065,400
============== ==============
The 27.2% decrease in buying group sales for the nine months ended September 27,
1997 compared to the same period last year was anticipated and, as discussed
previously, is the result of management's strategic plan to reduce the number of
Play It Again Sports(R) vendors being offered centralized billing and the
elimination of central billing for the other concepts. It is anticipated that
buying group sales as a percent of total revenues will continue to decline in
future periods. The decrease in buying group sales was partially offset by a
$1.6 million increase in retail sales at the Company-owned retail stores,
primarily due to retail sales of the 40 Company-owned Video Game Exchange(TM)
stores acquired August 15, 1997. It is anticipated that buying group revenues
will continue to decline as a percent of total revenues in the upcoming year
while retail sales from the
<PAGE>
Company-owned stores will increase due to the additional stores. Royalty income
increased to $12.8 million for the first nine months of 1997 from $10.9 million
for the same period last year as a result of the growth in the number of
franchise stores to 1,157 open at September 27, 1997 compared to 1,037 stores
open at September 28, 1996. The $575,000 decrease in franchise fees in the first
nine months of 1997 compared to 1996 was due to the Company opening up 28 less
stores than it opened in the comparable period in 1996. The current trend of
royalty increases from the prior year and as a percent of total revenue is
expected to continue as the number of franchise stores continues to grow.
Franchise fees are expected to remain consistant with prior periods as the
overall annual rate of store openings appears stable, with any decline in
mature concepts being offset by the anticipated franchise fees from It's About
Games(TM).
Cost of merchandise sold decreased during the first nine months of 1997 to $39.8
million from $51.3 million for the same period last year as a result of
decreased merchandise sales. Gross profits on merchandise sales improved to
13.1% from 10.2% for the comparable period. This increase is the result of an
increase in the mix of merchandise sales at the Company-owned retail stores, on
which gross margin contributions are significantly higher. Selling, general and
administrative expenses remained constant for the first nine months of the year
compared to the same period in 1996.
Net interest income was $146,400 for the nine month period ending September 27,
1997, as compared to net interest income of $118,700 for the comparable period
last year. This increase is primarily the result of a higher average balance of
funds invested in short-term, high-grade investments. A decline in net interest
income is anticipated in future periods as the Company incurs interest expense
on the notes payable related to the Video Game Exchange, Inc. acquisition.
LIQUIDITY AND CAPITAL RESOURCES
The Company ended the period with $5.4 million in total cash and investments.
During the nine months ended September 27, 1997, the Company's operating
activities provided $5.1 million of cash. This increase in cash available from
operations, other than net income and depreciation, is primarily due to a $1.2
million reduction in receivables as franchisees source more product on a direct
basis. The $1.3 million increase in accounts payable was offset by the $1.4
million increase in inventory resulting from the Video Game Exchange, Inc.
acquisition.
Of the entire $6,579,700 purchase consideration for Video Game Exchange, Inc.,
$4.5 million was financed through a five year bank term loan payable in sixty
equal monthly principal payments beginning October 10, 1997 plus accrued
interest at prime plus one half of one percent. The remaining $2.0 million was
financed through a two year note payable to the former shareholders of Video
Game Exchange, Inc. payable in twenty-four equal monthly installments beginning
September 1, 1997, bearing interest at the prime rate plus one half of one
percent. The $4.3 million cost in excess of net assets acquired was recorded as
goodwill and will be amortized over a 25 year period.
The Company used $3.2 million during the first nine months of 1997 to repurchase
303,819 shares of the Company's common stock. In July 1997, the Company extended
the buy back to include an additional 500,000 shares bringing the total shares
the Company is authorized to buy back to 2,000,000. As of October 31, 1997, the
Company had purchased 1,365,913 shares, at an average price of $9.09 per share.
<PAGE>
The Company has a $5.0 million committed revolving line of credit agreement
which is due for renewal on July 31, 1998. Borrowings against the line are due
on demand and carry an interest rate of prime which was 8.5% at September 27,
1997. At September 27, 1997, the Company had no borrowings against the line.
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.
<PAGE>
2. 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: November 10, 1997 By: /s/ Ronald G. Olson
--------------------
Ronald G. Olson
President and Chief Executive Officer
Date: November 10, 1997 By: /s/ David J. Osdoba, Jr.
-------------------------
David J. Osdoba, Jr.
Vice President of Finance and Chief
Financial Officer
Exhibit 11
GROW BIZ INTERNATIONAL, INC.
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
-------------------------
Three Months Ended
September 27, September 28,
1997 1996
-------------------------
<S> <C> <C>
Net income $1,269,000 $ 887,800
========== ==========
Shares used in per common share computation:
Weighted average common shares outstanding 6,051,300 6,250,400
Dilutive effect of stock options and warrants after
application of the treasury stock method 226,000 76,800
---------- ----------
6,277,300 6,327,200
========== ==========
Net income per common share $ .20 $ .14
========== ==========
-------------------------
Nine Months Ended
September 27, September 28,
1997 1996
-------------------------
Net income $2,808,300 $1,685,400
========== ==========
Shares used in per common share computation:
Weighted average common shares outstanding 6,137,282 6,484,300
Dilutive effect of stock options and warrants after
application of the treasury stock method 138,794 90,400
---------- ----------
6,276,100 6,574,700
========== ==========
Net income per common share $ .45 $ .26
========== ==========
</TABLE>
Exhibit 99
GROW BIZ INTERNATIONAL, INC.
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
Grow Biz International, Inc. (the "Company") desires to take advantage of the
new "safe harbor" provisions of the Private Securities Litigation Reform Act of
1995 and is filing this Exhibit to its Quarterly Report on Form 10-Q in order to
do so. When used in this Quarterly Report on Form 10-Q and in future filings by
the Company with the Securities and Exchange Commission in the Company's annual
report, quarterly reports, press releases and in oral statements made with the
approval of an authorized executive officer, the words or phrases "will likely
result", "look for", "may result", "will continue", "is anticipated", "expect",
"project" or similar expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from historical earnings and
those presently anticipated or projected. The Company cautions readers that the
following important factors, among others, could affect the Company's financial
performance and could cause the Company's actual results for future periods to
differ materially from any forward-looking statements made by, or on behalf of,
the Company:
DEPENDENCE ON NEW FRANCHISEES
The Company's ability to generate increased revenue and achieve higher levels of
profitability depends on increasing the number of franchised stores open. While
management believes that a number of major metropolitan markets have reached or
are nearing the saturation point for certain concepts, management also believes
that many larger and smaller markets will continue to provide significant
opportunities for sales of franchises and that the Company can sustain
approximately its current annual level of store openings. However, there can be
no assurance that the Company will sustain this level of store openings.
INABILITY TO COLLECT ACCOUNTS RECEIVABLE
In the event that the Company's ability to collect accounts receivable
significantly declines from current rates, additional charges that affect
earnings may be incurred.
UNOPENED STORES
The Company believes that a substantial majority of stores sold but not opened
will open within the time period permitted by the applicable franchise agreement
or the Company will be able to resell the territories for most of the terminated
or expired franchises. However, there can be no assurance that substantially all
of the currently sold but unopened franchises will open and commence paying
royalties to the Company. To the extent the Company is required to refund any
franchise fees for stores that do not open, the Company believes that it will be
able to repay these fees out of available cash.
<PAGE>
DEPENDENCE ON SUPPLY OF USED MERCHANDISE
The Company's store concepts are based on offering customers a mix of used and
new merchandise. As a result, obtaining continuing supplies of high quality used
merchandise is essential to the success of the Company's store concepts. To
date, supplies of used merchandise have been adequate and the Company's training
programs emphasize methods for locating and purchasing used goods. There can be
no assurance, however, that supply problems will not be encountered in the
future.
COMPETITION
Retailing, including the sale of sporting goods, children's apparel, computer
equipment, compact disks and musical instruments, is highly competitive. Many
retailers have significantly greater financial and other resources than the
Company and its franchisees. Individual franchisees face competition in their
markets from retailers of new merchandise and, in certain instances, resale,
thrift and other stores that sell used merchandise. To date, the Company's
franchisees and its Company-owned stores have not faced a high degree of
competition in the sale of used merchandise. However, the Company may face
additional competition as its franchise systems expand and additional
competitors may enter the used merchandise market.
S, G & A EXPENSE
The Company's ability to control the amount, and rate of growth in, selling,
general and administrative expenses; and the impact of unusual items resulting
from the Company's ongoing evaluation of its business strategies, asset
valuations and organizational structures.
FINANCING
The Company's ability to obtain competitive financing to fund its growth.
QUARTERLY FLUCTUATIONS
The Company's quarterly results of operations have fluctuated as a result of the
timing of recognition of franchise fees, receipt of royalty payments, timing of
merchandise shipments, timing of expenditures and other factors. There can be no
assurance that results in future periods will not fluctuate on a quarterly
basis.
GOVERNMENT REGULATION
As a franchisor, the Company is subject to various federal and state franchise
laws and regulations. Although the Company believes it is currently in material
compliance with existing federal and state laws, there is a trend toward
increasing government regulation of franchising. The promulgation of new
franchising laws and regulations could adversely affect the Company.
The Company does not undertake and specifically declines any obligations to
publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
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