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 March 27, 1999
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, 5,128,128 shares outstanding as of April 30, 1999.
------------------------------------------------------------------------------
<PAGE>
GROW BIZ INTERNATIONAL, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE
- --------------------------------------------------------------------------------
Item 1. Financial Statements (Unaudited)
CONDENSED BALANCE SHEETS:
March 27, 1999 and December 26, 1998 3
CONDENSED STATEMENTS OF OPERATIONS:
Three Months Ended
March 27, 1999 and March 28, 1998 4
CONDENSED STATEMENTS OF CASH FLOWS:
Three Months Ended
March 27, 1999 and March 28, 1998 5
NOTES TO CONDENSED FINANCIAL STATEMENTS 6 - 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 12
PART II. OTHER INFORMATION
- --------------------------------------------------------------------------------
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:
------- ------------
27 Financial Data Schedule
99 Cautionary Statements
(b.) Reports on Form 8-K -- None
2
<PAGE>
GROW BIZ INTERNATIONAL, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
----------------------------------
March 27, 1999 December 26, 1998
----------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 601,300 $ 2,418,000
Receivables, less allowance for doubtful accounts of
$1,067,500 and $1,053,000 11,640,500 13,893,700
Inventories 7,761,900 10,124,400
Prepaid expenses and other 2,359,200 2,459,300
Deferred income taxes 1,699,100 1,699,100
------------ ------------
Total current assets 24,062,000 30,594,500
Notes receivable 1,153,400 1,208,600
Property and equipment, net 6,642,300 5,960,500
Other assets, net 5,577,800 5,377,300
------------ ------------
$ 37,435,500 $ 43,140,900
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable 5,909,400 11,306,600
Accrued liabilities 481,700 1,818,700
Current maturities of long-term debt 9,222,200 14,464,300
Deferred franchise fee revenue 1,725,500 1,901,800
------------ ------------
Total current liabilities 17,338,800 29,491,400
Long-Term Debt 9,819,000 3,484,600
Shareholders' Equity:
Common stock, no par, 10,000,000 shares authorized,
5,113,355 and 5,079,055 shares issued and outstanding -- --
Retained earnings 10,277,700 10,164,900
------------ ------------
Total shareholders' equity 10,277,700 10,164,900
------------ ------------
$ 37,435,500 $ 43,140,900
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
3
<PAGE>
GROW BIZ INTERNATIONAL, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
---------------------------------
Three Months Ended
March 27, 1999 March 28, 1998
---------------------------------
<S> <C> <C>
REVENUE:
Merchandise sales $ 12,937,500 $ 20,192,700
Royalties 4,830,200 4,682,100
Franchise fees 555,800 515,300
Advertising and other 211,900 233,300
------------ ------------
Total revenue 18,535,400 25,623,400
COST OF MERCHANDISE SOLD 11,110,400 16,622,100
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 7,442,300 7,825,700
------------ ------------
Income (loss) from operations (17,300) 1,175,600
INTEREST INCOME 100,100 94,700
INTEREST EXPENSE (370,900) (133,900)
------------ ------------
Income (loss) before income taxes (288,100) 1,136,400
BENEFIT (PROVISION) FOR INCOME TAXES 112,900 (445,500)
------------ ------------
NET INCOME (LOSS) $ (175,200) $ 690,900
============ ============
NET INCOME (LOSS) PER COMMON SHARE -
BASIC $ (.03) $ .12
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING -
BASIC 5,103,300 5,977,400
============ ============
NET INCOME (LOSS) PER COMMON SHARE -
DILUTED $ (.03) $ .11
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING -
DILUTED 5,259,200 6,165,800
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
4
<PAGE>
GROW BIZ INTERNATIONAL, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
---------------------------------
Three Months Ended
March 27, 1999 March 28, 1998
---------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (175,200) $ 690,900
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 521,300 517,700
Change in operating assets and liabilities:
Receivables 2,308,400 327,400
Inventories 2,362,500 313,800
Prepaid expenses and other 100,200 145,400
Accounts payable (5,397,200) 1,072,600
Accrued liabilities (1,337,000) 45,100
Deferred franchise fee revenue (176,300) (3,700)
------------ ------------
Net cash provided by (used for)
operating activities (1,793,300) 3,109,200
------------ ------------
INVESTING ACTIVITIES:
Increase in other assets (299,100) (20,200)
Purchases of property and equipment (1,104,500) (103,700)
------------ ------------
Net cash used for investing activities (1,403,600) (123,900)
------------ ------------
FINANCING ACTIVITIES:
Proceeds from long-term debt 1,776,000 --
Payments on long-term debt (683,700) (712,100)
Proceeds from stock option exercises 287,900 342,800
Repurchase of common stock -- (683,500)
------------ ------------
Net cash provided by (used for)
financing activities 1,380,200 (1,052,800)
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,816,700) 1,932,500
Cash and cash equivalents, beginning of period 2,418,000 3,088,000
------------ ------------
Cash and cash equivalents, end of period $ 601,300 $ 5,020,500
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
5
<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 three months ended March 27, 1999 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', 'It's About Games', 'ReTool' and
'Plato's Closet'. In addition, the Company sells inventory to its Play It Again
Sports 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. LITIGATION:
Harbor Finance Partners, a shareholder of Grow Biz, commenced a shareholder
class action against Grow Biz and the members of its Board of Directors, arising
out of the non-binding proposal by Jeff Dahlberg and Ron Olson, officers,
directors and majority shareholders of Grow Biz, to exchange, through a newly
formed entity, all of the shares of Grow Biz that they do not already own, for
$14 per share in cash. The plaintiff alleges, among other things, that the
proposed price for the shares is substantially below the fair value of those
shares, that the defendants failed to maximize stockholder value through an
adequate auction or market check process, and that the defendants have breached
their fiduciary duties and otherwise unfairly dealt with the plaintiff and the
other minority shareholders. The plaintiff seeks, among other things: (1)
injunctive relief to enjoin any proposed transaction; (2) creation of a
committee of shareholders to help protect the interests of the minority
shareholders in any proposed transaction; and (3) damages in an unstated amount,
pre-judgment interest, and costs and attorneys' fees incurred in this action.
The action was filed in the Hennepin County, Minnesota District Court. Grow Biz
and the Board of Directors deny the plaintiff's allegations and intend to defend
the action vigorously. The proposal by Messrs. Dahlberg and Olson was withdrawn
May 4, 1999.
6
<PAGE>
4. NET INCOME PER COMMON SHARE:
The Company calculates net income per share in accordance with FASB Statement
No. 128 by dividing net income by the weighted average number of shares of
common stock outstanding to arrive at the Net Income Per Common Share - Basic.
The Company calculates Net Income Per Share - Dilutive by diving net income by
the weighted average number of shares of common stock and dilutive stock
equivalents from the exercise of stock options and warrants using the treasury
stock method.
<TABLE>
<CAPTION>
--------------------------------
Three Months Ended
March 27, 1999 March 28, 1998
--------------------------------
<S> <C> <C>
Shares used in per common share computation:
Weighted average shares outstanding - Basic 5,103,300 5,977,400
Dilutive effect of stock options after application
of the treasury stock method 155,900 188,400
--------- ---------
Weighted average shares outstanding - Diluted 5,259,200 6,165,800
========= =========
</TABLE>
7
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
Grow Biz International, Inc., (the Company) is a franchise company that
franchises retail concepts which buy, sell, trade and consign merchandise. Each
concept operates in a different industry and provides the consumer with
'ultra-high value' retailing by offering quality used merchandise at substantial
savings from the price of new merchandise and by purchasing customers' used
goods that have been outgrown or are no longer used. The stores also offer new
merchandise to supplement their selection of used goods.
Following is a summary of the Company's franchising and corporate retail store
activity for the retail concepts for the three months ended March 27, 1999:
<TABLE>
<CAPTION>
-----------------------------------------------------------------
TOTAL OPENED/ TOTAL
12/26/98 PURCHASED CLOSED CONVERTED 3/27/99
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Play It Again Sports(R)
- --------------------
Franchised Stores - US and Canada 622 3 (16) 0 609
Franchised Stores - Other International 8 0 0 0 8
Corporate 4 0 0 0 4
Other 23 0 0 0 23
Once Upon A Child(R)
- -----------------
Franchised Stores - US and Canada 209 12 (1) 0 220
Corporate 4 0 0 0 4
Computer Renaissance(R)
- --------------------
Franchised Stores - US and Canada 224 9 (6) 0 227
Corporate 2 0 (1) 0 1
Music Go Round(R)
- --------------
Franchised Stores - US and Canada 54 4 (1) 0 57
Corporate 8 0 0 0 8
It's About Games(TM)
- ----------------
Franchised Stores - US and Canada 3 0 0 0 3
Corporate 46 11 0 0 57
ReTool(TM)
- ------
Franchised Stores - US and Canada 2 1 0 0 3
Corporate 3 0 0 0 3
Plato's Closet(R)
- --------------
Franchised Stores - US and Canada 0 4 0 0 4
Corporate 0 0 0 0 0
----------------------------------------------------------------
Total 1,212 44 (25) 0 1,231
================================================================
</TABLE>
In January 1999, the Company announced the acquisition of certain assets and
franchising rights of Plato's Closet, Inc. of Columbus, Ohio for total
consideration of $400,000 plus a percentage of future royalties for a period of
seven years.
8
<PAGE>
FACTORS THAT MAY AFFECT FUTURE RESULTS
The statements made in this report that are not historical facts are forward
looking statements. Such statements are based on current expectations but
involve risks, uncertainties and other factors which may cause actual results to
differ materially from those contemplated by such forward looking statements.
Important factors which may result in variations from results contemplated by
such forward looking statements include, but are not limited to: (1) the
Company's ability to attract qualified franchisees; (2) the Company's ability to
collect its receivables; (3) the Company's ability to open stores; (4) each
store's ability to acquire high-quality, used merchandise; (5) the Company's
ability to control selling, general and administrative expenses; and (6) the
Company's ability to obtain competitive financing to fund its growth.
The Company's strategy focuses on enhancing revenues and profits at all store
locations and the opening of additional stores. The Company's growth strategy is
premised on a number of assumptions concerning trends in each of the retail
industries as well as trends in franchising and the economy. To the extent that
the Company's assumptions with respect to any of these matters are inaccurate,
its results of operations and financial condition could be adversely affected.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, certain income
statement items as a percentage of total revenue and the percentage change in
the dollar amounts from the prior period:
<TABLE>
<CAPTION>
--------------------------------------------------
Three Months Ended First Quarter
March 27, March 28, 1999 over (under)
1999 1998 First Quarter 1998
--------------------------------------------------
<S> <C> <C> <C>
Revenue:
Merchandise sales 69.8% 78.8% (35.9)%
Royalties 26.1 18.3 3.2
Franchise fees 3.0 2.0 7.9
Advertising and other 1.1 0.9 (9.2)
------- ------- -------
Total revenues 100.0% 100.0% (27.7)%
Cost of merchandise sold 59.9 64.9 (33.2)
Selling, general and administrative expenses 40.2 30.5 (4.9)
------- ------- -------
Income (loss) from operations (0.1) 4.6 (102.1)
Interest income (expense), net 1.5 0.2 (590.8)
------- ------- -------
Income (loss) before income taxes (1.6) 4.4 (125.4)
Benefit (provision) for income taxes 0.6 (1.7) (125.4)
------- ------- -------
Net income (loss) (1.0)% 2.7% (125.4)%
======= ======= =======
</TABLE>
9
<PAGE>
COMPARISON OF THREE MONTHS ENDED MARCH 1999 TO THREE MONTHS ENDED MARCH 1998
REVENUES
Revenues for the quarter ended March 1999 totaled $18.5 million compared to
$25.6 million for the comparable period in 1998.
Merchandise sales consist of the sale of product to franchisees through the
buying group and retail sales at the Company-owned stores. For the first quarter
of 1999 and 1998 they were as follows:
1999 1998
---- ----
Buying Group $ 6,787,600 $ 11,782,200
Retail 6,149,900 8,410,500
------------ ------------
Merchandise Sales $ 12,937,500 $ 20,192,700
============ ============
Buying group revenues decreased $5.0 million, or 42.4%, for the three months
ended March 1999 compared to the same period last year as a result of more
franchisees purchasing merchandise directly from vendors and a reduction in the
number of golf close-outs made available through the buying group compared to
the previous year. It is anticipated that the buying group sales trend will
continue for the remainder of 1999. Retail store sales decreased $2.3 million,
or 26.9%, for the three months ended March 1999 compared to the same period last
year despite having an average number of Company-owned stores of 72 in the first
quarter of 1999 compared to 66 in the same period of 1998. The revenue decline
was due to a comparable store decrease of 19.0% in the It's About Games stores
and the sale of nine Company-owned Computer Renaissance and Music Go Round
stores in December 1998.
Royalties increased to $4.8 million for the first quarter of 1999 from $4.7
million for the same period in 1998, a 2% increase. Excluding the $309,600 in
royalties generated in the first quarter of 1998 by the 137 Disc Go Round
stores, that were sold in June 1998, the comparable increase in royalties is
10.5%. This increase is due to the expanding base of franchise stores in the
remaining concepts and stronger average store sales within each concept.
Franchise fees were up slightly in the first quarter of 1999 compared to the
first quarter of 1998. Store openings for the year are expected to be consistent
with 1998.
COST OF MERCHANDISE SOLD
Cost of merchandise sold includes the cost of merchandise sold through the
buying group and at Company-owned retail stores. Cost of merchandise sold as a
percentage of the related revenue for the first quarter of 1999 and 1998 were as
follows:
1999 1998
---- ----
Buying Group 95.8% 96.1%
Retail 75.0 63.1
10
<PAGE>
Retail gross margins deteriorated from 36.9% in the first quarter of 1998 to
25.0% in the first quarter of 1999 is primarily the result of shift in the mix
of video game sales from used to new merchandise which carries a lower gross
margin per item, as well as mark downs required to reduce an overstock position
of video game inventory. It is anticipated that margins will return to their
1998 levels in the next few quarters.
SELLING, GENERAL AND ADMINISTRATIVE
The $383,400, or 4.9%, decrease in operating expenses in the first three months
of 1999 compared to the same period in 1998 is primarily due to efficiencies
achieved in operating the franchise system.
During the first quarter of 1999, the Company had a net interest expense of
$270,800 compared to $39,200 in the first quarter of 1998. This increase is
primarily the result of the interest expense incurred on the lines of credit
drawn subsequent to March 31, 1998 in connection with the stock repurchase plan.
LIQUIDITY AND CAPITAL RESOURCES
The Company ended the period with $601,300 in cash and had a current ratio of
1.4 to 1.0.
During the three months ended March 1999, the Company's operating activities
used $1.8 million of cash. This decrease in cash available from operations is
primarily due to working capital management activities that included a $5.4
million decrease in accounts payable and a $1.3 million decrease in accrued
liabilities, offset partially by a $2.3 million decrease in receivables and a
$2.4 million decrease in inventory from year-end.
The change in these components is the result of a number of interrelated
factors. Typically, the Company is required to pay for winter goods purchased by
Play It Again Sports franchisees through the buying group in the first quarter.
It also collects a portion of the corresponding receivable from the franchisees
during this same period with the remaining amount collected later. This
contributed to the reduction in accounts payable and receivable in the first
quarter of 1999 and in 1998. Another factor that contributed to the reduction is
accounts payable related to the video game inventory. Video game inventory was
$4.8 million higher at the end of 1998 compared to 1997. Payment for this
inventory was made during the first quarter of 1999. The majority of the video
game inventory at the end of 1997 had been paid and therefore there was no
corresponding accounts payable.
The Company's $1.4 million use of investing activities is due to opening eleven
additional Company-owned It's About Games stores in the first quarter of 1999.
During the three months ended March 1999, the Company's financing activities
provided $1.4 million of cash. The Company drew $1.8 million on its revolving
credit and received $287,900 from options exercised to purchase 34,300 shares of
the Company's stock. The proceeds were offset by payments made on the
installment notes payable of $683,700.
11
<PAGE>
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.
YEAR 2000
The Company has completed an assessment of its internal systems. Older personal
computers have been upgraded to new systems that are Year 2000 compliant.
Software updates to the Company's systems are in process and expected to be
completed by the second quarter of 1999. The Company has completed an analysis
of its vendor relationships in which the risk of each vendor's non-compliance
with Year 2000 was assessed. Letters were sent out in the fourth quarter of 1998
to ascertain the status of each vendor's Year 2000 compliance. Total costs
associated with the Year 2000 compliance project through March 27, 1999 have
been $76,200 and future costs are expected to be less than $435,300.
A number of franchisees have not converted their point-of-sale hardware and
software to be Year 2000 compliant. A Year 2000 compliant version of the
point-of-sale software was completed in December 1998 and has been available and
ready for implementation. We are currently working with those franchisees that
have not converted and expect to be completed by the third quarter of 1999.
The Company does not provide services to its franchisees in which critical
information is date sensitive, nor does it perform operations with equipment
that may contain embedded chips that are not Year 2000 compliant. The greatest
known risk to an internal system failure is that receivable records would not
age and calculate finance charges properly. Should this occur the Company would
be required to manage credit granted to franchisees and calculate the monthly
finance charge manually.
The Company does not have vendor or customer relationships in which critical
data is exchanged electronically. The Company would suffer if a service provider
such as a telecommunications or utility vendor was not Year 2000 compliant and
their respective service was interrupted or terminated. In such a case the
Company would be required to revert to its completed disaster recovery plan for
the specific issue. If a large number of vendors that provide product to our
franchisees were not compliant and unable to provide our franchisees with their
'new' product, it is likely that the Company would recognize a material
reduction of royalties from the franchisee's lost sales.
12
<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.
By: /s/ Ronald G. Olson
-------------------
Ronald G. Olson
Date: May 12, 1999 President and Chief Executive Officer
By: /s/ David J. Osdoba, Jr.
------------------------
David J. Osdoba, Jr.
Date: May 12, 1999 Vice President of Finance and Chief
Financial Officer
13
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
"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.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-25-1999
<PERIOD-END> MAR-27-1999
<CASH> 601
<SECURITIES> 0
<RECEIVABLES> 13,861
<ALLOWANCES> (1,068)
<INVENTORY> 7,762
<CURRENT-ASSETS> 24,062
<PP&E> 11,958
<DEPRECIATION> (5,316)
<TOTAL-ASSETS> 37,436
<CURRENT-LIABILITIES> 17,339
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 10,278
<TOTAL-LIABILITY-AND-EQUITY> 37,436
<SALES> 12,938
<TOTAL-REVENUES> 18,535
<CGS> 11,110
<TOTAL-COSTS> 18,553
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 271
<INCOME-PRETAX> (288)
<INCOME-TAX> (113)
<INCOME-CONTINUING> (175)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (175)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
