UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission File Number 0-9812
GREASE MONKEY HOLDING CORPORATION
Utah 87-0321320
216 16th Street Mall, Suite 1100
Denver, Colorado 80202
Registrant's Telephone Number Is (303) 534-1660
Check whether issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes X No
----- -----
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
Outstanding at
Class August 1, 1995
----------------------------- --------------
Common Stock, $0.03 par value 4,363,650 shares
Transitional Small Business Disclosure Format Yes No X
----- ----
GREASE MONKEY HOLDING CORPORATION
COMMISSION FILE NUMBER: 0-9812
QUARTER ENDED JUNE 30, 1995
FORM 10-QSB
PART I FINANCIAL INFORMATION
Consolidated Statements of Operations . . . . . . . . . . Page 1
Consolidated Balance Sheets . . . . . . . . . . . . . . . Page 2
Consolidated Statements of Stockholders'
Equity. . . . . . . . . . . . . . . . . . . . . . . . . Page 4
Consolidated Statements of Cash Flows . . . . . . . . . . Page 5
Notes to Consolidated Financial Statements. . . . . . . . Page 8
Management's Discussion and Analysis or Plan of Operation. Page 10
PART II OTHER INFORMATION
Legal Proceedings . . . . . . . . . . . . . . . . . . . . Page 15
Submission of Matters to a Vote of Security Holders . . . Page 16
Exhibits and Reports on Form 8-K. . . . . . . . . . . . . Page 16
Signatures. . . . . . . . . . . . . . . . . . . . . . . . Page 17
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- ------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
REVENUE:
-------
Royalty fees . . . . . . . . . . . . . . . . . . . . . . $ 794,031 744,137 1,582,436 1,420,722
Franchise sales - center openings. . . . . . . . . . . . 161,800 137,000 318,800 170,844
Franchise sales - unopened licenses canceled, net. . . . - 50,851 4,000 60,094
Product and equipment revenue. . . . . . . . . . . . . . 276,120 393,940 639,056 681,188
Sales by Company-owned centers . . . . . . . . . . . . . 3,129,075 3,101,028 5,975,756 6,081,913
Rent and interest income related to
operating and capital leases . . . . . . . . . . . . . 347,737 455,399 696,510 906,727
Interest income. . . . . . . . . . . . . . . . . . . . . 10,069 16,542 19,711 31,518
Other. . . . . . . . . . . . . . . . . . . . . . . . . . 20,462 18,731 87,818 37,943
----------- ----------- ----------- ----------
4,739,294 4,917,628 9,324,087 9,390,949
EXPENSES:
--------
General and administrative expenses. . . . . . . . . . . 938,199 989,065 1,860,512 1,936,330
Franchise costs recognized - center openings . . . . . . 17,425 20,628 53,709 27,265
Product and equipment costs. . . . . . . . . . . . . . . 163,719 264,108 406,076 439,215
Company-owned centers. . . . . . . . . . . . . . . . . . 3,154,705 3,119,242 6,146,171 6,119,233
Rent and interest expenses related to
operating and capital leases . . . . . . . . . . . . . 357,442 436,279 708,502 858,386
Provision for credit losses. . . . . . . . . . . . . . . 42,500 36,337 65,000 57,834
Litigation award and related interest. . . . . . . . . . 5,832 5,386 11,453 10,590
Interest expense . . . . . . . . . . . . . . . . . . . . 9,952 15,417 12,683 38,095
----------- ----------- ----------- ----------
4,689,774 4,886,462 9,264,106 9,486,948
----------- ----------- ----------- ----------
NET INCOME (LOSS). . . . . . . . . . . . . . . . . . . . . $ 49,520 31,166 59,981 (95,999)
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
EARNINGS (LOSS) PER COMMON SHARE . . . . . . . . . . . . . $ * * * (0.03)
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
AVERAGE SHARES OUTSTANDING . . . . . . . . . . . . . . . . 4,361,256 4,300,318 4,347,790 4,280,185
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
<FN>
* Less than $.01 per share
(UNAUDITED)
1
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
1995 1994
------------- -----------
ASSETS
------
CURRENT ASSETS:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . $ 382,285 256,631
Restricted cash including certificates of
deposit. . . . . . . . . . . . . . . . . . . . . . . . . 355,176 465,783
Accounts receivable, net of allowance for
doubtful accounts of $379,026 at June
30, 1995, and $309,394 at December 31, 1994. . . . . . . 977,210 867,062
Current portion of notes receivable,
net of allowance for uncollectible
amounts. . . . . . . . . . . . . . . . . . . . . . . . . 124,141 134,181
Current portion of net investment
in direct financing leases . . . . . . . . . . . . . . . 212,059 195,302
Inventories. . . . . . . . . . . . . . . . . . . . . . . . 688,093 733,736
Prepaid expenses and supplies. . . . . . . . . . . . . . . 224,265 125,027
------------- -----------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . 2,963,229 2,777,722
------------- -----------
PROPERTY AND EQUIPMENT,
AT COST, PLEDGED:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . 152,079 152,079
Buildings (including buildings under capital
leases). . . . . . . . . . . . . . . . . . . . . . . . . 5,345,018 5,268,460
Furniture and fixtures . . . . . . . . . . . . . . . . . . 489,764 511,806
Leasehold improvements . . . . . . . . . . . . . . . . . . 634,071 617,484
Machinery and equipment. . . . . . . . . . . . . . . . . . 1,452,839 1,414,961
------------- -----------
8,073,771 7,964,790
Less accumulated depreciation and
amortization . . . . . . . . . . . . . . . . . . . . . . (2,879,206) (2,680,599)
------------- -----------
NET PROPERTY AND EQUIPMENT . . . . . . . . . . . . . . . 5,194,565 5,284,191
------------- -----------
OTHER ASSETS:
Net investment in direct financing leases. . . . . . . . . 3,436,508 3,543,750
Notes receivable, net of allowance for uncollectible
amounts. . . . . . . . . . . . . . . . . . . . . . . . . 150,030 116,168
Deferred franchising costs . . . . . . . . . . . . . . . . 197,280 198,854
Goodwill and covenants not to compete, net
of accumulated amortization of $669,548
at June 30, 1995, and $621,855 at
December 31, 1994. . . . . . . . . . . . . . . . . . . . 1,665,592 1,110,152
Real estate held for sale. . . . . . . . . . . . . . . . . 173,500 173,500
Other assets, net of accumulated
amortization of $103,125 at June 30, 1995,
and $108,147 at December 31, 1994. . . . . . . . . . . . 162,830 141,805
------------- -----------
TOTAL OTHER ASSETS . . . . . . . . . . . . . . . . . . . 5,785,740 5,284,229
------------- -----------
$ 13,943,534 13,346,142
------------- -----------
------------- -----------
(UNAUDITED)
(continued on next page)
2
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
JUNE 30, DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
------------------------------------ ---------------- ----------------
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . $ 797,249 958,023
Accrued salaries and wages . . . . . . . . . . . . . . . . . . 195,773 176,065
Other accrued liabilities. . . . . . . . . . . . . . . . . . . 276,557 319,351
Current portion of long-term debt. . . . . . . . . . . . . . . 408,132 320,315
Current portion of obligations
under capital leases. . . . . . . . . . . . . . . . . . . . . 335,705 307,669
Reserve for litigation award . . . . . . . . . . . . . . . . . 309,544 298,091
---------------- ----------------
TOTAL CURRENT LIABILITIES. . . . . . . . . . . . . . . . . . 2,322,960 2,379,514
---------------- ----------------
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . . . . . 2,481,581 1,465,938
OBLIGATIONS UNDER CAPITAL
LEASES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,575,220 6,746,748
DEFERRED FRANCHISE SALES
REVENUE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 761,863 1,009,663
STOCKHOLDERS' EQUITY:
Series C Preferred stock, issued and outstanding
20,958 shares and 22,205 shares at June 30, 1995,
and December 31, 1994, respectively, stated
value of $100.00 . . . . . . . . . . . . . . . . . . . . . . 2,095,838 2,220,500
Common stock, par value $.03, 10,000,000
shares authorized, 4,362,080, and 4,305,359,
shares issued and outstanding at June 30,
1995, and December 31, 1994, respectively. . . . . . . . . . 130,863 129,161
Capital in excess of par value . . . . . . . . . . . . . . . . 5,827,992 5,707,382
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . (6,252,783) (6,312,764)
---------------- ----------------
TOTAL STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . . 1,801,910 1,744,279
Commitments and Contingencies. . . . . . . . . . . . . . . . .
---------------- ----------------
$ 13,943,534 13,346,142
---------------- ----------------
---------------- ----------------
(UNAUDITED)
3
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Preferred Stock Common Stock
-------------------------------------- -----------------------------------
Capital in
Number of Subscriptions Number of Excess of
Shares Amount Receivable Shares Amount Par Value
--------- --------- ------------ --------- --------- ----------
Balance at December 31, 1993 . . . . . . . . 9,360 $ 936,000 789,000 4,253,691 $ 127,611 5,765,475
Issuance of common stock pursuant to
employee benefit plan. . . . . . . . . . . - - - 12,981 389 29,131
Issuance of Series C Preferred stock,
net of offering costs. . . . . . . . . . . 13,000 1,300,000 (789,000) - - (162,100)
Conversion of Series C Preferred stock to
common stock, including payment of
accumulated dividends. . . . . . . . . . . (155) (15,500) - 6,199 186 14,412
Issuance of common stock, pursuant to
the cancellation of undeveloped
franchise licenses . . . . . . . . . . . . - - - 11,200 336 19,264
Issuance of common stock upon
exercise of employee stock options . . . . - - - 30,000 900 60,540
Common stock reacquired and
canceled . . . . . . . . . . . . . . . . . - - - (8,712) (261) (19,340)
Net income . . . . . . . . . . . . . . . . . - - - - - -
--------- --------- --------- --------- --------- ---------
Balance at December 31, 1994 . . . . . . . . 22,205 2,220,500 - 4,305,359 129,161 5,707,382
Issuance of common stock pursuant to
employee benefit plan. . . . . . . . . . . - - - 6,858 206 14,886
Conversion of Series C Preferred stock
to common stock, including payment
of accumulated dividends . . . . . . . . . (1,247) (124,662) - 49,863 1,496 113,224
Offering costs of Series C Preferred
stock. . . . . . . . . . . . . . . . . . . - - - - - (7,500)
Net income . . . . . . . . . . . . . . . . . - - - - - -
--------- --------- --------- --------- --------- ---------
Balance at June 30, 1995 . . . . . . . . . . 20,958 $2,095,838 - 4,362,080 $130,863 5,827,992
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Accumulated
Deficit Total
--------- --------
Balance at December 31, 1993 . . . . . . . . (6,452,330) 1,165,756
Issuance of common stock pursuant to
employee benefit plan. . . . . . . . . . . - 29,520
Issuance of Series C Preferred stock,
net of offering costs. . . . . . . . . . . - 348,900
Conversion of Series C Preferred stock to
common stock, including payment of
accumulated dividends . . . . . . . . . . . - (902)
Issuance of common stock, pursuant to
the cancellation of undeveloped
franchise licenses . . . . . . . . . . . . - 19,600
Issuance of common stock upon
exercise of employee stock options . . . . - 61,440
Common stock reacquired and
canceled . . . . . . . . . . . . . . . . . - (19,601)
Net income . . . . . . . . . . . . . . . . . 139,566 139,566
--------- ---------
Balance at December 31, 1994 . . . . . . . . (6,312,764) 1,744,279
Issuance of common stock pursuant to
employee benefit plan. . . . . . . . . . . - 15,092
Conversion of Series C Preferred stock
to common stock, including payment
of accumulated dividends . . . . . . . . . - (9,942)
Offering costs of Series C Preferred
stock. . . . . . . . . . . . . . . . . . . - (7,500)
Net income . . . . . . . . . . . . . . . . . 59,981 59,981
--------- ---------
Balance at June 30, 1995 . . . . . . . . . . (6,252,783) 1,801,910
--------- ---------
--------- ---------
(UNAUDITED)
4
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
JUNE 30,
------------------------------------------------
1995 1994
--------------------- ---------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss). . . . . . . . . . . . . . . . . . . . . .$ 59,981 (95,999)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Increase in deferred franchise sales revenue. . . . . . . 47,000 309,000
Franchise sales revenue recognized-center openings. . . . (318,800) (170,844)
Franchise sales revenue recognized-
unopened licenses canceled, net. . . . . . . . . . . . . (4,000) (60,094)
Increase in deferred franchising costs. . . . . . . . . . (52,134) (36,541)
Reduction in deferred franchising costs . . . . . . . . . 53,709 27,265
Provision for credit losses . . . . . . . . . . . . . . . 65,000 57,834
Net loss realized on retirement of property and
equipment. . . . . . . . . . . . . . . . . . . . . . . . 13,636 -
Depreciation and amortization . . . . . . . . . . . . . . 402,219 409,185
Provision for litigation award. . . . . . . . . . . . . . 11,453 10,590
Payments on settlement agreement. . . . . . . . . . . . . - (398,310)
Loss on settlement agreement. . . . . . . . . . . . . . . - 11,951
Loss on sale of centers . . . . . . . . . . . . . . . . . 62,541 -
Other, net. . . . . . . . . . . . . . . . . . . . . . . . - (14,112)
--------------------- ---------------------
340,605 49,925
Change in assets and liabilities:
Increase in accounts receivable. . . . . . . . . . . . . (206,103) (218,534)
Decrease in notes receivable . . . . . . . . . . . . . . 12,635 1,579
Decrease in inventories. . . . . . . . . . . . . . . . . 25,158 30,491
(Increase) decrease in prepaid expenses
and supplies . . . . . . . . . . . . . . . . . . . . . (99,238) 75,753
(Decrease) increase in accounts payable. . . . . . . . . (160,773) 39,544
(Decrease) increase in accrued salaries and wages
and other liabilities. . . . . . . . . . . . . . . . . (4,171) 28,973
--------------------- ---------------------
Total Adjustments. . . . . . . . . . . . . . . . . . (432,492) (42,194)
--------------------- ---------------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES. . . . . . . . . . . . . . . . . . . . .
$ (91,887) 7,731
--------------------- ---------------------
(UNAUDITED)
(continued on next page)
5
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Six Months Ended
June 30,
------------------------------------------------
1995 1994
--------------------- ---------------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Principal receipts on direct financing leases. . . . . . . . $ 92,286 104,496
Capital expenditures . . . . . . . . . . . . . . . . . . . . (135,689) (94,700)
Acquisition of centers . . . . . . . . . . . . . . . . . . . (870,388) -
Sale of centers. . . . . . . . . . . . . . . . . . . . . . . 123,233 -
Increase in other assets . . . . . . . . . . . . . . . . . . (36,290) (15,317)
--------------------- ---------------------
NET CASH (USED IN)
INVESTING ACTIVITIES . . . . . . . . . . . . . . . . (826,848) (5,521)
--------------------- ---------------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Payments on notes payable to a
related party. . . . . . . . . . . . . . . . . . . . . . . - (378,000)
Proceeds from long-term debt . . . . . . . . . . . . . . . . 1,241,880 -
Principal payments on long-term debt . . . . . . . . . . . . (145,364) (237,131)
Principal payments on capital lease
obligations. . . . . . . . . . . . . . . . . . . . . . . . (147,093) (175,315)
Issuance of preferred stock, net
of offering costs. . . . . . . . . . . . . . . . . . . . . (7,500) 1,148,813
Payment of accumulated dividends
upon conversion of preferred stock to common stock . . . . (9,942) -
Decrease (increase) in restricted cash . . . . . . . . . . . 110,608 (2,614)
Increase (decrease) in lease deposit obligations . . . . . . 1,800 (12,935)
--------------------- ---------------------
NET CASH FLOWS PROVIDED
BY FINANCING ACTIVITIES. . . . . . . . . . . . . . . 1,044,389 342,818
--------------------- ---------------------
NET INCREASE IN CASH . . . . . . . . . . . . . . . . . . . . . 125,654 345,028
CASH, BEGINNING OF PERIOD. . . . . . . . . . . . . . . . . . . 256,631 13,096
--------------------- ---------------------
CASH, END OF PERIOD. . . . . . . . . . . . . . . . . . . . . . $ 382,285 358,124
--------------------- ---------------------
--------------------- ---------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the
period for interest. . . . . . . . . . . . . . . . . . . $ 469,567 536,450
--------------------- ---------------------
--------------------- ---------------------
(UNAUDITED)
(continued on next page)
6
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
During the six months ended June 30, 1995, and June 30, 1994, there were
the following non-cash transactions: the Company issued 6,858 shares and 7,153
shares of stock at an average value of $2.20 per share and $2.25 per share,
respectively, in accordance with its matching requirement under the Company's
401(k) plan, and a $5,500 note receivable was issued upon the refranchising of a
center.
(UNAUDITED)
7
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of management, all adjustments, consisting only of normal
recurring adjustments necessary for a fair statement of (a) the results of
operations for the three-month and six-month periods ended June 30, 1995,
and June 30, 1994, (b) the financial position at June 30, 1995, (c) the
statements of cash flows for the six-month periods ended June 30, 1995 and
1994, and (d) the changes in stockholders' equity at June 30, 1995, have
been made.
2. The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting
principles for financial statements. For further information, refer to the
audited consolidated financial statements and notes thereto for the year
ended December 31, 1994, included in the Company's Form 10-KSB filed with
the Securities and Exchange Commission on March 24, 1995.
3. The results for the three-month and six-month periods ended June 30, 1995,
are not necessarily indicative of the results for the entire fiscal year of
1995.
4. STOCKHOLDERS' EQUITY
On February 28, 1994, and March 15, 1994, the Company issued a total of
13,000 shares of Series C Preferred stock for $1,300,000, of which $789,000
was subscribed to as of December 31, 1993.
The Series C, 6% cumulative, preferred stock is redeemable at the option of
the Company upon 60 days prior written notice after December 31, 1996. At
the option of the holder, at any time prior to the close of business on the
redemption date, each share of Series C Preferred stock, plus any
accumulated unpaid dividends, may be converted into shares of common stock
at a conversion price of $2.50 per share of common stock. On June 30,
1995, accumulated unpaid dividends totaled $193,139.
The Company has an employee deferred compensation 401(k) plan and matches
employee contributions to this plan in an amount equal to 50% of the
employees' contribution, up to a maximum of 6% of the employees'
compensation. The Company's contribution is paid with its $0.03 par value
common stock valued at market on the date of the contribution. During the
first six months of 1995 and 1994, the Company contributed 6,858 and 7,153
shares to this plan at an average of $2.20 and $2.25 per share,
respectively.
(continued)
8
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. EARNINGS (LOSS) PER SHARE
Primary earnings (loss) per share is determined based on the number of
common and common equivalent shares outstanding and is adjusted for the
assumed conversion of shares issuable upon exercise of options and
warrants, after the assumed repurchase of common shares with the related
proceeds. Earnings (loss) per share for all periods was computed after
reduction for preferred stock dividends ($31,367 and $33,074 for the second
quarter of 1995 and 1994, respectively, and $63,240 and $53,629 for the
first six months of 1995 and 1994, respectively). The assumed conversion
of preferred stock was anti-dilutive.
6. COMMITMENTS AND CONTINGENCIES
The Company leases Grease Monkey Center sites under capital lease
agreements. These sites are either subleased to franchisees or operated as
Company-owned Centers. The typical lease period is 15 to 20 years and some
leases contain renewal options. These leases are accounted for as capital
leases and are capitalized using interest rates appropriate at the
inception of each lease.
On February 28, 1991, a Verified Complaint in Replevin and for Restitution
or Damages was filed in the District Court of Denver, State of Colorado,
entitled NICK MONTOYA AND AVER MONTOYA V. GREASE MONKEY HOLDING
CORPORATION, GREASE MONKEY INTERNATIONAL, INC., GM PROPERTIES, INC.,
PHOENIX EQUITY CORPORATION, ARTHUR P. SENSENIG, EDITH SENSENIG, AND JOHN R.
HOLZMAN, Civil Action No. 91 CV 1778. Plaintiffs are elderly persons who
allegedly loaned to Arthur P. Sensenig, the former President and Director
of the Company and GMI, the approximate sum of $450,000. Plaintiffs
asserted claims against the Company, GMI and GM Properties for unjust
enrichment, fraud, statutory theft against the elderly, fraudulent
conveyance, conspiracy and vicarious liability for the acts of Mr.
Sensenig. On June 3, 1992, the Court entered a judgment against the
Company in the amount of $241,679, plus statutory interest to accrue from
June 4, 1992. As of June 30, 1995, interest in the amount of $67,865 has
accrued. The Company filed an appeal in this matter which was heard by the
Colorado Court of Appeals ("Appeals Court") on December 21, 1993. The
Appeals Court upheld the District Court decision in an opinion dated
January 13, 1994. The Company filed a Petition for Certiorari to the
Colorado Supreme Court which was granted on November 7, 1994. Counsel for
the plaintiffs filed a motion for an Order for Expedited Determination
which was issued by the court on April 13, 1995. Oral arguments were heard
on May 22, 1995. The Company has recorded a reserve for the full judgment
amount and continues to reserve for the related interest.
The Company is a party to other legal proceedings including claims by
franchisees against the Company that arise in the ordinary course of
business. In the opinion of management, the outcome of these matters will
not have a material effect on the financial condition or results of
operations of the Company.
9
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company reported income of $59,981 for the first half of 1995, as
compared to a loss of ($95,999) for the first half of 1994. For the second
quarter of 1995, the Company recognized income of $49,520 compared to income of
$31,166 for the same quarter in 1994.
Total revenue decreased by $66,862 (1%) for the first half of 1995,
compared to the first half of 1994. Revenue during the second quarter of 1995
decreased $178,334 over the same quarter last year, a decrease of 4%. The
decreases are due primarily to reductions in: revenue from termination of
undeveloped franchise licenses; revenue from product and equipment sales,
including marketing allowances; revenue from Company-owned centers; and revenue
from operating and capital leases. The decreases in both periods were offset by
increases in royalty fees and increased revenue recognized on center openings.
Royalty fees are a percentage of gross sales paid monthly by all franchised
Grease Monkey Centers. Royalty fee revenue for the first half of 1995 increased
11% over the first half of 1994 to $1,582,436. Royalty fee revenue for the
second quarter of 1995 increased 7% over the second quarter of 1994 to $794,031.
This increase is due to continued growth in sales at existing Centers and a net
increase of fourteen franchised Centers since June 30, 1994. Based upon many
factors, including the age of amounts owed the Company, the extent of
collateralization, and historical performance, the Company may place certain
financially troubled franchisees on a non-accrual status. For the first half of
1995, estimated royalties of $80,450 were not accrued under this policy,
compared to $66,050 for the first half of 1994. During the second quarter of
1995, estimated royalties of $47,425 were not accrued compared to $33,300 for
the second quarter of 1994. The Company has a royalty rebate program for
franchisees under which eligible franchisees can receive a rebate of royalties
paid. For the first half of 1995, the rebate accrued under this program was
$116,864, compared to $118,489 for the first half of 1994. The rebate accrued
for the second quarter of 1995, was $64,295, compared to a rebate of $61,383 for
the second quarter of 1994. The rebate is recorded as a reduction in royalty
revenue.
Franchise sales revenue was $318,800 (representing thirteen centers) for
the first half of 1995, as compared to $170,844 (representing eight centers) for
the first half of last year. For the second quarter of 1995, franchise sales
revenue was $161,800 (representing seven centers), as compared to $137,000
(representing six centers) for the same quarter last year. Franchise sales
revenue represents initial one-time payments received by the Company from buyers
of its franchises. The fee is recognized as revenue when the related franchise
opens for business.
In the first half of 1995, the Company recognized $4,000 in franchise sales
revenue resulting from license cancellations as compared to $60,094 in the first
half of 1994. There were no license cancellations in the second quarter of
1995, however, franchise sales revenue resulting from license cancellations for
the second quarter of 1994 was $50,851.
(continued)
10
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
In the first half of 1995 the Company lost ($170,415) on revenue of
$5,975,756 at Company-owned Centers, as compared to a loss of ($37,320) on
revenue of $6,081,913 for the same period last year. Second quarter losses on
Company-owned Centers were ($25,630) and ($18,214) for 1995 and 1994,
respectively. At June 30, 1995 and 1994, the Company owned 29 Centers.
Company-owned center revenue decreased 2% in the first six months of 1995
versus 1994. The loss of revenue can be primarily attributed to the elimination
of emissions testings in Colorado due to a state adopted emissions testing
program, which commenced January 2, 1995, and limited emissions testing to a
single contractor selected by the state. Company-owned center revenue increased
1% in the second quarter of 1995 versus 1994. The increase in revenue can be
attributed to the acquistion of a center on May 1, 1995, which helped to reduce
the effect on revenue of the lost emissions testing. Emissions revenue has
associated with it a lower cost of sales than the cost of sales percentage on
other services provided by the company-owned centers. This factor accounts for
the higher percentage increase recognized on expenses than recognized for
revenue over the same periods noted above.
In the first half of 1995 the Company realized marketing allowances and
gross margins on product and equipment sales of $232,980, as compared to
$241,973 in the first half of 1994. In the second quarter of 1995, marketing
allowances and gross margins on product and equipment sales were $112,401 as
compared to $129,832 in the second quarter of 1994. Product and equipment
revenue represents the sale of fluid dispensing equipment and other supplies to
franchisees, and marketing allowances related to the sale of oil filters, air
filters, oil additives, and certain other products.
General and administrative expenses for the first half and second quarter
of 1995 decreased by 4% and 5% respectively, as compared to the same periods of
1994. The decrease is due to: a decrease in litigation fees and related costs
of approximately $66,000 for the six months of 1995 compared to 1994 and $33,000
for the three months ended June 30, 1995 compared to the three months ended June
30, 1994; a decrease in travel and entertainment expenses of approximately
$44,000 and $22,000 for the same respective periods; a decrease in corporate
office operating expenses of approximately $34,000 and $12,000 respectively and
offset by losses incurred on the disposition of obsolete assets and the
refranchising of a closed center and a company-owned center totaling
approximately $83,000 and $48,000 respectively.
(continued)
11
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
The following schedule summarizes the total number of Grease Monkey Centers
open, vehicles serviced, franchise licenses issued, franchise licenses and
applications outstanding, and franchise/application fees received during the
first six months of 1995 compared to the first six months of 1994:
SIX MONTHS ENDED:
JUNE 30, 1995 JUNE 30, 1994
-------------------------------------------------------------------------------------
COMPANY FRANCHISEE COMPANY FRANCHISEE
OWNED OWNED TOTAL OWNED OWNED TOTAL
----- ----- ----- ----- ----- -----
Centers open, beginning 29 176 205 32 162 194
Centers opened(A) - 12 12 1 8 9
Centers purchased or
sold (B)(C) - 1 1 (1) 1 -
Centers terminated
or closed (B) - (5) (5) (3) (1) (4)
Centers reacquired - - - - - -
--- --- --- --- --- ---
Centers open, ending 29 184 213 29 170 199
-- --- --- -- --- ---
-- --- --- -- --- ---
Vehicles serviced (000's) 1,441 1,417
----- -----
----- -----
Franchises licenses issued (D) 4 9
---- ----
---- ----
Undeveloped franchise licenses (E) 48 65
---- ----
---- ----
Franchise applications outstanding (E) 20 26
---- ----
---- ----
Franchise license/application
fees received (F) $47,000 $309,000
------- --------
------- --------
<FN>
(A) Includes one refranchised center which was previously closed
(B) Includes one center which was deidentified by the franchisee in January
1995; subsequently, the Company acquired the center on May 1, 1995.
(C) Includes one Company-owned center refranchised in June 1995.
(D) Represents the number of licenses issued during the period.
(E) Represents the number of licenses/applications outstanding at June 30.
(F) Represents amounts received for franchise licenses/applications during the
period.
(continued)
12
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL RESOURCES
In March of 1991 a controlling interest in the Company was sold to First of
September Corporation ("FOSC") for $1.25 million. As part of the transaction,
FOSC provided a $750,000 two-year line of credit effective August of 1991. The
line of credit with FOSC for $750,000 which bore interest at prime plus 2% was
extended through March 31, 1994. On March 23, 1994, the outstanding balance of
$378,000 was paid off and the line of credit was canceled.
A motor oil supplier has provided financing for Company-owned Centers where
the Company agrees to feature its products. The financing ranges from $30,000
to $45,000 per Center depending on the expected usage at the center. The
advances are amortized based on the Company's purchases of its products.
Similar oil company financing is expected to be available for any new Company-
owned Centers acquired and existing Company-owned Centers where the Company does
not have a supply agreement or where the existing supply agreement may be
canceled.
During April 1995, the Company entered into two agreements with another
motor oil supplier, a Loan Agreement and a Fast Lube Supply Agreement. Under
the Loan Agreement a $2,400,000 line of credit was established. All loans drawn
under this line accrue interest at 9% per annum and are repaid in quarterly
installments over a ten year period from date of disbursement. The line is
secured with the leases and assets of certain Company-owned Centers. As of June
30, 1995 the Company had borrowed $1,655,661 under the line for refinancing of
debt with the motor oil supplier, working capital and acquisitions. The balance
of the funds available under the line are restricted to the acquisition or
construction of new fast lube centers. Under the Fast Lube Supply Agreement,
the Company is required to purchase at least 85% of the petroleum products for
such Centers from the supplier, the Company is required to meet certain minimum
annual purchase requirements and the Company is required to feature its products
in such Centers.
Between February 28, 1994, and March 15, 1994, the Company issued a total
of 13,000 shares of Series C Preferred stock for $1,300,000. Offering costs
were approximately $151,000. The Series C Preferred stock has a stated value of
$100 per share; bears a 6% cumulative dividend; is convertible, together with
any accumulated unpaid dividends, into common stock at the option of the holder
at a conversion price of $2.50 per share; and is callable by the company at any
time after December 31, 1996, at a price of $115 per share. The net proceeds of
this offering were designated for working capital, including reduction of notes
payable, and to fund a settlement agreement with a landlord.
The growth of the Grease Monkey system is dependent on the ability of the
Company and its franchisees to obtain real estate development capital. The
majority of Grease Monkey Centers are built under so-called "build-to-suit"
arrangements where the land is purchased and the building constructed to Grease
Monkey specifications by an unrelated party, and then leased to the franchisee
(continued)
13
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
or the Company. The Company does not currently have a national source of build-
to-suit developers. Instead, the Company and its franchisees solicit such
developers on a location-by-location basis.
LIQUIDITY
Cash used in operations during the first half of 1995 was ($91,887) as
compared to cash provided by operations of $7,731 in the first half of 1994.
Cash used in investing activities was ($826,848) in the first half of 1995,
as compared to cash used of ($5,521) in the first half of 1994. Cash provided
consisted primarily of receipts on direct financing leases and cash received for
the refranchising of a company-owned center. Cash used was for the acquisition
of centers and for capital expenditures, primarily computer systems and Company
Center equipment.
Cash provided by financing activities was $1,044,389 in the first half of
1995 and $342,818 in the first half of 1994. Cash provided by financing
activities in the first half of 1995 included proceeds from long-term debt
(related to the facility described previously) of $1,241,880. Cash provided by
financing activities in the first half of 1994 included $1,148,813 (net of
offering costs of $151,187) from the issuance of Series C Preferred stock.
Cash used to reduce long-term debt, notes payable, and capital lease
obligations was $292,457 in the first half of 1995 and $790,446 in the first
half of 1994.
The Company does not have any material commitments for capital
expenditures. The Company believes it has the capital resources and liquidity
necessary to meet all of the obligations, debt maturities, and commitments of
the Company during 1995.
14
GREASE MONKEY HOLDING CORPORATION
COMMISSION FILE NUMBER: 0-9812
QUARTER ENDED JUNE 30, 1995
FORM 10-QSB
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On February 28, 1991, a Verified Complaint in Replevin and for Restitution
or Damages was filed in the District Court of Denver, State of Colorado,
entitled NICK MONTOYA AND AVER MONTOYA V. GREASE MONKEY HOLDING CORPORATION,
GREASE MONKEY INTERNATIONAL, INC., GM PROPERTIES, INC., PHOENIX EQUITY
CORPORATION, ARTHUR P. SENSENIG, EDITH SENSENIG, AND JOHN R. HOLZMAN,
Civil Action No. 91 CV 1778. Plaintiffs are elderly persons who allegedly
loaned to Arthur P. Sensenig, the former President and Director of the Company
and GMI, the approximate sum of $450,000. Plaintiffs asserted claims against
the Company, GMI and GM Properties for unjust enrichment, fraud, statutory theft
against the elderly, fraudulent conveyance, conspiracy and vicarious liability
for the acts of Mr. Sensenig. In January of 1992 the Plaintiffs reached a
settlement with Mr. Sensenig wherein he confessed judgment for approximately
$350,000. At or about the same time, Edith Sensenig was dismissed from the
case, with prejudice. Trial for the remaining defendants was held on May 18,
1992 and on June 3, 1992, the Court entered a judgment against the Company in
the amount of $241,679, plus statutory interest to accrue from June 4, 1992. As
of June 30, 1995, interest in the amount of $67,865 has accrued. The basis of
the Court's decision was one founded in vicarious liability of a principal for
the actions of its agent. The Court found that the Company was responsible for
the tortious acts of its former President, in spite of the fact that the Company
adequately supervised the former President, had no knowledge of any wrongdoing,
and received none of the funds which were taken from the Plaintiffs. The Court
based its decision on Section 261 of the RESTATEMENT OF AGENCY 2D., which
Section has not yet been adopted as the law in the State of Colorado. The
Company filed an appeal in this matter which was heard by the Colorado Court of
Appeals ("Appeals Court") on December 21, 1993. The Appeals Court upheld the
District Court decision in an opinion dated January 13, 1994. The Company filed
a Petition for Certiorari to the Colorado Supreme Court which was granted on
November 7, 1994. Counsel for the plaintiffs filed a motion for an Order for
Expedited Determination which was issued by the court on April 13, 1995. Oral
arguments were held on May 22, 1995. The Company has recorded a reserve for the
full judgment amount and continues to reserve for the related interest.
On February 11, 1993, the Company filed a complaint against a franchisee,
entitled GREASE MONKEY INTERNATIONAL, INC. V. PEARCO, INC. V. JOHN L. GALLIVAN,
Civil Action No. MJG 93-385, in the U.S. District Court in Maryland, for failure
to report sales and pay royalties and advertising fees, servicemark
infringement, unfair competition, unfair/deceptive trade practices,
misappropriation of trade secrets, breach of covenant not to compete, and breach
of agreement. On
(continued)
15
ITEM 1. LEGAL PROCEEDINGS (continued)
April 2, 1993, the Defendant answered and counterclaimed, adding John L.
Gallivan, former Executive Vice President, as a counter-defendant. Their
counterclaims were as follows: fraud, negligent misrepresentation, breach of
contract, unlawful restraint of trade, violation of Maryland Anti-Trust Act,
civil conspiracy, violation of Federal RICO statute, violation of Maryland
Franchise Act, and violation of Federal Rule of Civil Procedure No. 11. The
counterclaim asked for $611,000 in damages, rescission, and attorney's fees and
costs. On August 2, 1993, the Court granted an Order staying and
administratively closing the case, pending the completion of a settlement
agreement between the parties. The settlement is contingent upon the Company
successfully negotiating for the purchase, by the Company or a third party, of
the Grease Monkey building occupied by Defendant. GMI did not acquire title to
Pearco's building by December 31, 1993, and does not anticipate that it will
acquire title to the building in the future. To date, neither party has
requested the reopening of the litigation and GMI has not paid anything to
purchase the assets of Pearco's franchise because the preconditions set forth in
the settlement agreement have not been fulfilled. Management believes that the
resolution of this matter will not have a material adverse effect on the
financial condition or results of operations of the Company.
The Company is a party to other legal proceedings including claims by
franchisees against the Company that arise in the ordinary course of business.
In the opinion of management, the outcome of these matters will not have a
material effect on the financial condition or results of operations of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On June 26, 1995, the Company held its annual meeting of shareholders. The
Company's shareholders elected the following nine persons as directors, each to
serve until the next annual meeting of shareholders or until his successor is
elected and qualified: Jerry D. Armstrong, Jim D. Baldwin, Cortlandt S. Dietler,
Kirk E. Douglas, Wayne H. Patterson, Charles E. Steinbrueck, Rex L. Utsler,
James B. Wallace, George F. Wood.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits (numbered in accordance with Item 601 of regulation S-K)
10. Material Contracts
(a) Loan Documents for $2,400,000 line of credit.
11. Statement Re: Computation of Per Share Earnings
27. Financial Data Schedule
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the period covered by this report.
16
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
COMMISSION FILE NUMBER: 0-9812
QUARTER ENDED JUNE 30, 1995
FORM 10-QSB
SIGNATURES
In accordance with the Exchange Act, this report has been signed below by the
following person(s) on behalf of the Registrant and in the capacities and on the
dates indicated.
GREASE MONKEY HOLDING CORPORATION
By:/s/ T. Timothy Kershisnik
-----------------------------------------------
T. Timothy Kershisnik
Controller, Treasurer and
Corporate Secretary
(Principal Financial and
Accounting Officer)
Denver, Colorado
August 9, 1995
17