-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TnJonDgaGHkzsTaktslXh4p6XMocddnMdJmq4MQnWDkqPlYQK7dajfVuAGLXUqfz oYiJtR6SjrDzWoKjJIh4og== 0000897101-99-000511.txt : 19990513 0000897101-99-000511.hdr.sgml : 19990513 ACCESSION NUMBER: 0000897101-99-000511 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990327 FILED AS OF DATE: 19990512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GROW BIZ INTERNATIONAL INC CENTRAL INDEX KEY: 0000908315 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-MISCELLANEOUS RETAIL [5900] IRS NUMBER: 411622691 STATE OF INCORPORATION: MN FISCAL YEAR END: 1226 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22012 FILM NUMBER: 99618848 BUSINESS ADDRESS: STREET 1: 4200 DAHLBERG DR CITY: GOLDEN VALLEY STATE: MN ZIP: 55422-4837 BUSINESS PHONE: 6125208500 10-Q 1 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. ------------------------------------------------------------------------------ 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 GROW BIZ INTERNATIONAL, INC. CONDENSED BALANCE SHEETS (UNAUDITED)
---------------------------------- March 27, 1999 December 26, 1998 ---------------------------------- 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 ============ ============
The accompanying notes are an integral part of these financial statements 3 GROW BIZ INTERNATIONAL, INC. CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
--------------------------------- Three Months Ended March 27, 1999 March 28, 1998 --------------------------------- 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 ============ ============
The accompanying notes are an integral part of these financial statements 4 GROW BIZ INTERNATIONAL, INC. CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
--------------------------------- Three Months Ended March 27, 1999 March 28, 1998 --------------------------------- 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 ============ ============
The accompanying notes are an integral part of these financial statements 5 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 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.
-------------------------------- Three Months Ended March 27, 1999 March 28, 1998 -------------------------------- 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 ========= =========
7 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:
----------------------------------------------------------------- TOTAL OPENED/ TOTAL 12/26/98 PURCHASED CLOSED CONVERTED 3/27/99 ----------------------------------------------------------------- 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 ================================================================
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 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:
-------------------------------------------------- Three Months Ended First Quarter March 27, March 28, 1999 over (under) 1999 1998 First Quarter 1998 -------------------------------------------------- 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)% ======= ======= =======
9 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 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 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 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 EX-99 2 CAUTIONARY STATEMENTS 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. 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. EX-27 3 ART. 5 FDS FOR 1ST QTR 10Q
5 1,000 3-MOS DEC-25-1999 MAR-27-1999 601 0 13,861 (1,068) 7,762 24,062 11,958 (5,316) 37,436 17,339 0 0 0 0 10,278 37,436 12,938 18,535 11,110 18,553 0 0 271 (288) (113) (175) 0 0 0 (175) (.03) (.03)
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