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 28, 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, 6,054,070 shares outstanding as of July 31, 1997.
<PAGE>
GROW BIZ INTERNATIONAL, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE
- ---------------- ------------------------------------------------------- -------
Item 1. Financial Statements (Unaudited)
CONDENSED BALANCE SHEETS: 3
June 28, 1997 and December 28, 1996
CONDENSED STATEMENTS OF OPERATIONS: 4
Three Months Ended June 28, 1997 and June 29,
1996 Six Months Ended June 28, 1997 and June 29,
1996
CONDENSED STATEMENTS OF CASH FLOWS: 5
Six Months Ended
June 28, 1997 and June 29, 1996
NOTES TO CONDENSED FINANCIAL STATEMENTS 6 - 7
Item 2. Management's Discussion and Analysis of Financia
Condition and Results of Operations 8 - 12
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 13
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 -- None
<PAGE>
GROW BIZ INTERNATIONAL, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 28, 1997 December 28, 1996
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 1,676,600 $ 1,388,800
Trade receivables, less allowance for doubtful
accounts of $669,500 and $930,000 12,629,900 13,171,400
Inventories 2,704,800 2,716,000
Prepaid expenses and other 1,580,900 862,900
Deferred income taxes 1,726,400 1,726,400
----------- -----------
Total current assets 20,318,600 19,865,500
Notes receivable 431,000 339,800
Property and equipment, net 5,166,300 5,979,300
Other assets, net 2,698,800 2,991,900
----------- -----------
$28,614,700 $29,176,500
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable 5,663,700 5,670,300
Accrued liabilities 1,010,300 1,275,800
Current maturities of long-term debt 231,200 134,900
Deferred franchise fee revenue 4,685,500 4,269,000
----------- -----------
Total current liabilities 11,590,700 11,350,000
Long-Term Debt 226,600 129,000
Shareholder's Equity:
Common stock, no par, 10,000,000 shares authorized,
6,086,270 and 6,263,444 shares issued and outstanding 8,513,500 10,952,900
Retained earnings 8,283,900 6,744,600
----------- -----------
Total shareholders' equity 16,797,400 17,697,500
----------- -----------
$28,614,700 $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 Six Months Ended
June 28, 1997 June 29, 1996 June 28, 1997 June 29, 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE:
Merchandise sales $15,199,200 $20,236,100 $29,578,400 $41,085,400
Royalties 4,330,700 3,744,600 8,256,400 6,977,500
Franchise fees 1,074,700 972,600 1,607,700 1,737,100
Advertising and other 74,400 55,500 345,900 335,200
----------- ----------- ----------- -----------
Total revenue 20,679,000 25,008,800 39,788,400 50,135,200
COST OF MERCHANDISE SOLD 13,404,500 18,267,900 26,064,500 37,065,700
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 5,684,800 6,015,600 11,307,900 11,859,800
----------- ----------- ----------- -----------
Income from operations 1,589,700 725,300 2,416,000 1,209,700
INTEREST INCOME, NET 45,200 43,600 115,700 102,300
----------- ----------- ----------- -----------
Income before income taxes 1,634,900 768,900 2,531,700 1,312,000
PROVISION FOR INCOME TAXES 640,900 301,400 992,400 514,300
----------- ----------- ----------- -----------
NET INCOME $ 994,000 $ 467,500 $ 1,539,300 $ 797,700
=========== =========== =========== ===========
NET INCOME PER COMMON SHARE $ .16 $ .07 $ .25 $ .12
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES
OUTSTANDING 6,223,500 6,507,400 6,281,300 6,704,300
=========== =========== =========== ===========
</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>
Six Months Ended
June 28,1997 June 29,1996
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,539,300 $ 797,700
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 888,900 863,400
Change in operating assets and liabilities:
Trade receivables 450,300 602,100
Inventories 11,200 270,800
Prepaid expenses and other (718,000) (75,700)
Accounts payable (6,600) 2,346,800
Accrued liabilities (265,500) (524,900)
Deferred franchise fee revenue 416,500 609,000
----------- -----------
Net cash provided by
operating activities 2,316,100 4,889,200
----------- -----------
INVESTING ACTIVITIES:
Redemption of short-term investments - 220,000
Increase in other assets (69,500) (137,200)
Decrease (Increase) in property and equipment 286,700 (200,900)
----------- -----------
Net cash provided by (used for)
investing activities 217,200 (118,100)
----------- -----------
FINANCING ACTIVITIES:
Increase in notes payable 267,000 1,200,000
Payments on long-term debt (73,100) (81,000)
Proceeds from stock option exercises 182,400 106,700
Repurchase of common stock (2,621,800) (5,652,800)
----------- -----------
Net cash used for
financing activities (2,245,500) (4,427,100)
----------- -----------
INCREASE IN CASH & CASH EQUIVALENTS 287,800 344,000
Cash and cash equivalents, beginning of period 1,388,800 101,500
----------- -----------
Cash and cash equivalents, end of period $ 1,676,600 $ 445,500
=========== ===========
</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 six months ended June 28, 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" 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 2,000,000 shares of the Company's common stock on the open market. As of July
31, 1997, the Company had repurchased 1,346,113 shares of its stock at an
average price of $9.07 per share, including 188,159 shares repurchased at an
average price of $10.59 per share in the three months ended June 28, 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 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.
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.
GENERAL
Following is a summary of the Company's franchising and corporate retail store
activity for the three months ended June 28, 1997:
<TABLE>
<CAPTION>
----------- ------------ ----------- ------------- -----------
TOTAL TOTAL
3/29/97 OPENED CLOSED CONVERTED 6/28/97
----------- ------------ ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Play It Again Sports(R)
Franchised Stores - US and Canada 669 9 (14) (1) 663
Franchised Stores - Other International 8 0 0 0 8
Corporate 4 0 0 1 5
Other 22 0 0 0 22
Once Upon A Child(R)
Franchised Stores - US and Canada 185 3 (3) 2 187
Corporate 6 0 0 (2) 4
Computer Renaissance(R)
Franchised Stores - US and Canada 119 18 (1) 0 136
Corporate 4 0 0 0 4
Music Go Round(R)
Franchised Stores - US and Canada 20 8 0 0 28
Corporate 4 0 0 0 4
Disc Go Round(R)
Franchised Stores - US and Canada 115 8 (3) 0 120
Corporate 2 0 0 0 2
----------- ------------ ----------- ------------- -----------
Total 1,158 46 (21) 0 1,183
=========== ============ =========== ============= ===========
Following is a summary of the Company's franchising and corporate retail store
activity for the six months ended June 28, 1997:
----------- ------------ ----------- ------------- -----------
TOTAL TOTAL
12/28/96 OPENED CLOSED CONVERTED 6/28/97
----------- ------------ ----------- ------------- -----------
Play It Again Sports(R)
Franchised Stores - US and Canada 676 11 (23) (1) 663
Franchised Stores - Other International 8 0 0 0 8
Corporate 4 0 0 1 5
Other 22 0 0 0 22
Once Upon A Child(R)
Franchised Stores - US and Canada 182 8 (5) 2 187
Corporate 6 0 0 (2) 4
Computer Renaissance(R)
Franchised Stores - US and Canada 108 29 (1) 0 136
Corporate 4 0 0 0 4
Music Go Round(R)
Franchised Stores - US and Canada 20 8 0 0 28
Corporate 4 0 0 0 4
Disc Go Round(R)
Franchised Stores - US and Canada 114 12 (6) 0 120
Corporate 2 0 0 0 2
----------- ------------ ----------- ------------- -----------
Total 1,150 68 (35) 0 1,183
=========== ============ =========== ============= ===========
</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 Six Months Ended
June 28, 1997 June 29, 1996 June 28, 1997 June 29, 1996
------------------ ----------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Revenue:
Merchandise sales 73.5% 80.9% 74.3% 81.9%
Royalties 20.9 15.0 20.8 13.9
Franchise fees 5.2 3.9 4.0 3.5
Advertising and other 0.4 0.2 0.9 0.7
------- ------- ------- -------
Total revenues 100.0% 100.0% 100.0% 100.0%
Cost of merchandise sold 64.8 73.0 65.5 73.9
Selling, general and administrative
expenses 27.5 24.1 28.4 23.7
------ ------ ------ ------
Income from operations 7.7 2.9 6.1 2.4
Interest and other income, net 0.2 0.2 0.3 0.2
------- ------- ------- -------
Income before income taxes 7.9 3.1 6.4 2.6
Provision for income taxes 3.1 1.2 2.5 1.0
------- ------- ------- -------
Net income 4.8% 1.9% 3.9% 1.6%
======== ======== ======== ========
</TABLE>
Comparison of Three Months Ended June 28, 1997 to Three Months
Ended June 29, 1996
Revenues for the quarter ended June 28, 1997 totaled $20.7 million compared to
$25.0 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 corporate-owned stores. For the second quarter of 1997 and 1996 merchandise
sales were as follows:
1997 1996
---- ----
Buying Group Sales $ 11,986,300 $ 16,941,200
Retail Sales 3,212,900 3,294,900
-------------- --------------
Merchandise Sales $ 15,199,200 $ 20,236,100
============== ==============
The 29.2% decrease in buying group sales for the three months ended June 28,
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. Retail sales were relatively flat despite having an average of
two fewer corporate-owned stores in the three months ended June 28, 1997
compared to the same period in 1996.
<PAGE>
Royalties increased to $4.3 million for the second quarter of 1997 from $3.7
million for the same period in 1996, primarily due to the expanding base of
franchise stores. Franchise fees were $1,074,700 in the second quarter of 1997
compared to $972,600 in the second quarter of 1996. This increase is due to
higher average franchise fees and an increased number of fees from resale
transactions. Store openings for the quarter were consistent with the prior
period. Store openings for the remainder of 1997 are likely to be consistent
with the same period in 1996.
Cost of merchandise sold was $13.4 million for the second quarter of 1997
compared to $18.3 million for the same period last year. Gross margin on
merchandise sales improved to 11.8% from 9.8% due to an increase in the mix of
merchandise sales from the corporate-owned retail stores, on which gross margin
contributions are significantly higher. Selling, general and administrative
expenses were $5.7 million or 27.5% of revenues in the second quarter of 1997
compared to $6.0 million or 24.1% of revenues for the same period in 1996. The
$330,800 decrease in selling, general and administrative expenses is primarily
due to the Company exiting the warehouse operations and a reduction of
non-operational staff needed to support the franchise system. The increase in
selling, general and administrative expenses as a percent of revenue is due to
the decline in the low margin buying group sales. 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.
Net income for the second quarter of 1997 was $994,000 or $.16 per share
compared to $467,500 or $.07 per share for the comparable period in 1996.
Comparison of Six Months Ended June 28, 1997 to Six Months Ended June 29, 1996
Revenues for the six months ended June 28, 1997 were $39.8 million compared to
$50.1 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 corporate-owned stores. For the first six months of 1997 and 1996
merchandise sales were as follows:
1997 1996
---- ----
Buying Group Sales $ 23,192,700 $ 34,600,200
Retail Sales 6,385,700 6,485,200
-------------- --------------
Merchandise Sales $ 29,578,400 $ 41,085,400
============== ==============
The 33.0% decrease in buying group sales for the six months ended June 28, 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. Retail sales were relatively flat despite having an average of
two fewer corporate-owned stores in the six months ended June 28, 1997 compared
to the same period in 1996.
Royalties increased to $8.3 million for the first six months of 1997 from $7.0
million for the same period in 1996, primarily due to the expanding base of
franchise stores. Franchise fees decreased $129,400 in the first six months of
1997 compared to the first six months of 1996 as a result of opening fewer
stores in the first quarter of 1997 compared to the first quarter of 1996.
<PAGE>
Cost of merchandise sold was $26.1 million for the first six months of 1997
compared to $37.1 million for the same period last year. Gross margin on
merchandise sales improved to 11.9% from 9.8% 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 $11.3 million or 28.4% of revenues for the first six quarter of
1997 compared to $11.9 million or 23.7% of revenues for the same period in 1996.
The $551,900 decrease in selling, general and administrative expenses is
primarily due to the Company exiting the warehouse operations and a reduction of
non-operational staff needed to support the franchise system. The increase in
selling, general and administrative expenses as a percent of revenue is due to
the decline in the low margin buying group sales. 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.
Net income for the first half of 1997 was $1,539,300 or $.25 per share compared
to $797,700 or $.12 per share for the comparable period in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company ended the period with $1.7 million in total cash and short-term,
high-grade investments.
Operating activities provided $2.3 million of cash during the six months ended
June 28, 1997. This consists primarily of net income of $1.5 million along with
changes in operating assets and liabilities.
The Company used $2.6 million during the first six months of 1997 to repurchase
248,319 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 July 31, 1997, the
Company had purchased 1,346,113 shares, at an average price of $9.07 per share.
In June 1997, the Company renegotiated the terms of its purchase of the
point-of-sale software license utilized by its franchisees. In January 1995, the
Company acquired the point-of-sale software license for $260,000 in cash. In
addition, the Company was required to pay a fee for each system installed
through December 31, 1999. This fee carried a minimum liability of $1,150,000
for the term of the agreement. A total of $483,250 in fees had been paid through
June 28, 1997. The new agreement requires that the Company pay a total of
$400,000 in three equal installments in June 1997, January 1998 and January
1999. The Company will amortize the $400,000 and the unamortized portion of the
initial purchase as additional licenses are sold.
In July 1997, the Company signed a letter of intent to purchase certain assets
and franchising rights from Video Game Exchange, based in Cleveland, Ohio. The
letter of intent is subject to the parties' negotiation of a definitive purchase
agreement. Video Game Exchange operates 40 retail stores in Ohio, Pennsylvania,
Kentucky, Georgia and Maryland that buy, sell and trade used video games and
equipment. These stores will become the nucleus of the Company's sixth concept,
renamed It's About Games. The Company anticipates that the acquisition will
occur in August 1997 and will begin advertising for potential franchisees in the
Fall of 1997. The Company has a commitment to lend
<PAGE>
from a bank for a substantial portion of the purchase price. The balance will be
financed by Video Game Exchange.
The Company has a $5.0 million committed revolving line of credit agreement
which is due for renewal on July 31, 1998. Borrowings carry an interest rate of
prime which was 8.50% at June 28, 1997. At June 28, 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>
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
At the Annual Shareholders meeting held on April 30, 1997, 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 six:
Broker
For: 6,009,467 Against: 11,763 Abstain: 2,052 Non-Vote: 0
2. Election of Directors:
For: Withheld:
K. Jeffrey Dahlberg 6,014,822 8,460
Ronald G. Olson 6,014,822 8,460
Randel S. Carlock 6,014,722 8,560
Dennis J. Doyle 6,014,872 8,410
Robert C. Pohlad 6,013,595 9,687
Bruce C. Sanborn 6,014,922 8,360
3. Ratifying the appointment of Arthur Andersen LLP as independent auditors
for the current fiscal year:
Broker
For: 6,014,153 Against: 4,560 Abstain: 4,569 Non-Vote: 0
<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: August 11, 1997 By: /s/ Ronald G. Olson
----------------------
Ronald G. Olson
President and Chief Executive Officer
Date: August 11, 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
June 28, 1997 June 29, 1996
------------- -------------
<S> <C> <C>
Net income $ 994,000 $ 467,500
========== ==========
Shares used in per common share computation:
Weighted average common shares outstanding 6,105,800 6,415,800
Dilutive effect of stock options after application
of the treasury stock method 117,700 91,600
---------- ----------
6,223,500 6,507,400
========== ==========
Net income per common share $ .16 $ .07
========== ==========
------------------------------
Six Months Ended
June 28, 1997 June 29, 1996
------------- -------------
Net income $1,539,300 $ 797,700
========== ==========
Shares used in per common share computation:
Weighted average common shares outstanding 6,180,700 6,601,500
Dilutive effect of stock options after application
of the treasury stock method 101,100 102,800
---------- ----------
6,281,300 6,704,300
========== ==========
Net income per common share $ .25 $ .12
========== ==========
</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.
<PAGE>
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 11, 1997 By: /s/ Ronald G. Olson
Ronald G. Olson
President and Chief Executive Officer
Date: August 11, 1997 By: /s/ David J. Osdoba, Jr.
David J. Osdoba, Jr.
Vice President of Finance and Chief
Financial Officer
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