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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-K
Annual Report Pursuant to Section 13 of
the Securities Exchange Act of 1934
For the fiscal year ended December 30, 2000 Commission File Number: 000-22012
______________________
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, Suite 100, Minneapolis, MN 55422-4837
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (763) 520-8500
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value per share
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 (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 [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing sale price of the registrant's common stock
on March 12, 2001, as reported on the Nasdaq SmallCap Market, was $10.3 million.
Shares of no par value Common Stock outstanding as of March 12, 2001: 5,386,433
shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Registrant's Annual Meeting
of Shareholders to be held on May 2, 2001 have been incorporated by reference
into Items 10, 11, 12 and 13 of Part III of this report.
GROW BIZ INTERNATIONAL, INC. AND SUBSIDIARY
INDEX TO ANNUAL REPORT ON FORM 10-K
PART I PAGE
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Item 1. Business 4
Item 2. Properties 11
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 11
PART II PAGE
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Item 5. Market for the Registrant's Common Equity and Related Shareholder Matters 12
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation 14
Item 7a. Quantitative and Qualitative Disclosures About Market Risk 20
Item 8. Financial Statements and Supplementary Data 20
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 36
PART III PAGE
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Item 10. Directors and Executive Officers of the Registrant 36
Item 11. Executive Compensation 37
Item 12. Security Ownership of Certain Beneficial Owners and Management 37
Item 13. Certain Relationships and Related Transactions 37
PART IV PAGE
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Item 14. Exhibits and Reports on Form 8-K 37
SIGNATURES 40
2
EXHIBITS
================================================================================
Exhibit 10.13 Amendment No. 4 to the 1992 Stock Option Plan
Exhibit 10.25 Employment Agreement with Stephen M. Briggs, dated December 14,
2000
Exhibit 10.26 First Amendment to Employment Agreement with John L. Morgan
Exhibit 10.27 2001 Stock Option Plan, including forms of stock option
agreements
Exhibit 11.1 Statement of Computation of Per Share Earnings
Exhibit 23.1 Consent of Independent Public Accountants
3
ITEM 1: BUSINESS
Background
Grow Biz International, Inc., a Minnesota corporation, (referred to herein as
"Company," "we," "us," "our" and other similar terms) is a franchisor of five
retail brands that buy, sell, trade and consign merchandise. Each brand
operates in a different industry and provides the consumer with high value
retailing. We began franchising the Play It Again Sports(R) brand in 1988,
and since that date, have made a series of acquisitions and dispositions to grow
and diversify our brands in other retail concepts.
. In June 1998, we completed the sale of the assets and franchising rights of
our Disc Go Round(R) brand to CD Warehouse, Inc. for $7.0 million cash
plus the assumption of $384,000 in deferred franchise fees. At the time of
the sale, there were 137 Disc Go Round(R) stores in operation, including
three Company-owned stores, and an additional 37 franchise agreements were
awarded for stores that were not yet opened. The sale resulted in a
$5,231,500 operating gain in the second quarter ending June 27, 1998.
. In August 1997, Grow Biz Games, Inc., a Minnesota corporation and a wholly-
owned subsidiary of the Company, acquired certain assets and franchising
rights of Video Game Exchange, Inc. ("VGE") of Cleveland, Ohio for total
consideration of $6,579,700. VGE was a 40 store retail operation with
stores in Ohio, Pennsylvania, Kentucky, Georgia and Maryland and became the
nucleus of the It's About Games store brand. We began franchising this
brand in 1997. We closed or sold the stores comprising the It's About Games
retail chain in November 1999. In December 1999, we completed the sale or
liquidation of the assets of our It's About Games brand. We undertook an
orderly liquidation of the inventory and other assets by conducting a
liquidation sale. Approximately 50% of the assets were disposed of in three
main transactions. The first sale, to an unrelated party, of substantially
all of the assets of 14 stores in Kentucky, Maryland, Ohio and Pennsylvania
for $114,200 plus inventory valued at 40% of cost to be received in cash
and a promissory note. The second sale, to an unrelated party, of
substantially all of the assets of 14 stores in Ohio for $42,000 plus
inventory at 40% of cost to be received in cash and a promissory note. The
third, a bulk inventory sale to an unrelated party for $140,000 cash. The
remaining assets of the It's About Games brand were disposed of by
abandonment or liquidation sale resulting in a total restructuring charge
of $11,345,500 for the year ended December 25, 1999.
. In April 1998, we acquired certain assets and franchising rights of Tool
Traders, Inc. of Detroit, Michigan, which formed the basis for our
ReTool(R) store brand. We paid $380,200 plus a percentage of future
royalties for a period of seven years. At the time of acquisition, there
were two retail stores in operation under the name Tool Traders. We changed
the name and began franchising the ReTool(R) brand in 1998.
. In January 1999, we acquired 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. There
were four stores in operation at the time of purchase. We began franchising
the Plato's Closet(R) brand in 1999.
. In August 2000, we completed the sale of substantially all the assets
related to the Computer Renaissance(R) franchising and retailing
operations for $3.0 million to Hollis Technologies, LLC. One million
dollars of the purchase price is being held in an escrow account for up to
18 months from August 30, 2000. Hollis Technologies, LLC and CompRen, Inc.
have filed a claim with the escrow agent to recover alleged damages
incurred in connection with the sale. We do not consent to their claim on
the escrowed funds. We believe that these claims are baseless and we have
filed a notice of dispute with the escrow agent. Amounts received from the
escrow will be recorded as additional income when received.
4
In addition, we entered into a five-year $2.0 million consulting agreement
to provide ongoing franchise and business consulting services to Hollis
Technologies, LLC. Pursuant to the Consulting Agreement, Hollis
Technologies, LLC agreed to make 60 equal monthly payments of $33,333 to us
over the term of the agreement.
Each of our retail store brands emphasizes consumer value by offering high-
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.
Our significant assets are located within the United States, and we generate all
revenues from United States operations other than 2000 franchising revenues from
Canadian operations of approximately $1.8 million.
Our five continuing store brands with their fiscal year 2000 system-wide sales,
defined as revenues from all affiliated stores, are summarized as follows:
Play It Again Sports(R) - $282 million
Play It Again Sports(R) stores sell, buy, trade and consign used and new
sporting goods, equipment and accessories for a variety of athletic activities
including hockey, in-line skating, fitness, ski/snowboard, golf and
baseball/softball. The stores offer a flexible mix of merchandise that is
adjusted to adapt to seasonal and regional differences. Sales of used sporting
goods are emphasized to provide the highest value to the customer. New
merchandise is offered to supplement available used goods.
Once Upon A Child(R) - $87 million
Once Upon A Child(R) stores sell and buy used and new children's clothing,
toys, furniture, equipment and accessories. This store brand primarily targets
cost-conscious parents of children ages infant to twelve years with emphasis on
children ages seven years and under. These customers have the opportunity to
sell their used children's items to a Once Upon A Child(R) store when outgrown
and to purchase quality used children's clothing, toys, furniture and
accessories at prices lower than new merchandise. New merchandise is offered as
a supplement to used merchandise.
Plato's Closet(R) - $8 million
Plato's Closet(R) stores sell and buy used and new clothing and accessories
geared toward the teenage and young adult market. Customers also have the
opportunity to sell their used items to a Plato's Closet(R) store when
outgrown and to purchase quality used clothing and accessories at prices lower
than new merchandise.
Music Go Round(R) - $33 million
Music Go Round(R) stores sell, buy, trade and consign used and new musical
instruments, speakers, amplifiers, music-related electronics and related
accessories for parents of children who play musical instruments, as well as
professional and amateur musicians.
ReTool(R)- $4 million
ReTool(R) stores sell and buy both used and new hand tools, power tools and
accessories. The stores also offer to customers the opportunity to try out
equipment prior to making a purchase.
5
Following is a summary of our franchising and corporate store activity for the
fiscal year ended December 30, 2000:
-------------------------------------------------------------------
TOTAL OPENED/ CLOSED/ TOTAL
12/25/99 PURCHASED SOLD CONVERTED 12/30/00
-------------------------------------------------------------------
Play It Again Sports(R)
- --------------------
Franchised Stores - US and Canada 580 14 (70) 2 526
Franchised Stores - Other International 8 0 0 0 8
Corporate - Owned 3 0 0 (2) 1
Other 23 0 0 0 23
Once Upon A Child(R)
- -----------------
Franchised Stores - US and Canada 220 26 (14) 0 232
Corporate - Owned 1 0 0 0 1
Plato's Closet(R)
- --------------
Franchised Stores - US and Canada 4 21 0 0 25
Corporate - Owned 1 0 0 0 1
Computer Renaissance(R)(1)
- --------------------
Franchised Stores - US and Canada 208 1 (209) 0 0
Corporate - Owned 3 0 (3) 0 0
Music Go Round(R)
- --------------
Franchised Stores - US and Canada 72 7 (12) 0 67
Corporate - Owned 8 2 (2) 0 8
ReTool(R)
- -----------------------------------------
Franchised Stores - US and Canada 11 5 (2) 0 14
Corporate - Owned 1 0 0 0 1
-------------------------------------------------------------------
Total 1,143 76 (312)/(1)/ 0 907
===================================================================
____________________________
(1) In August 2000, the Company completed the sale of substantially all the
assets related to the Computer Renaissance(R) franchising and retailing
operations to Hollis Technologies, LLC.
Franchising Overview
We use franchising as a business method of distributing goods and services
through our retail brands to consumers. We, as franchisor, either develop or
acquire a business brand, typically represented by a trademark, service mark or
similar rights, and an operating system for the franchised business. We then
enter into franchise agreements with franchisees and grant the franchisee the
right to use our business brand, service marks and operating system to manage
the business. Franchisees are required to operate their businesses in
accordance with the systems, specifications, standards and formats we develop
for the business brand. We train the franchisees on how to operate the
franchised business and provide continuing support and service.
Business Strategy
Our business strategy is to develop value-oriented retail brands based on a mix
of used and new merchandise and to implement these brands through a nationwide
franchise system that provides support services to its franchisees. The key
elements of this strategy include (i) offering value-oriented retail brands to
prospective entrepreneurs, (ii) attracting new, qualified franchisees and (iii)
supporting existing franchisees.
6
1. Offering Value-Oriented Merchandise Brand Opportunities
Our retail brands provide value to consumers by purchasing and reselling used
merchandise that consumers have outgrown or no longer use at substantial savings
from the price of new merchandise. By offering a combination of high-quality
used and value-priced new merchandise, we benefit from consumer demand for
value-oriented retailing. In addition, we believe that among national retail
operations our retail store brands provide a unique source of value to consumers
by purchasing used merchandise. We also believe that the strategy of buying
used merchandise increases consumer awareness of our retail brands.
2. Attracting Franchisees
Our franchise marketing program seeks to attract prospective franchisees with
experience in management and operations and an interest in being the owner and
operator of their own business. We seek franchisees who: (i) have a sufficient
net worth, (ii) have prior business experience, and (iii) intend to be
integrally involved with the management of the store. At December 30, 2000, we
had 43 franchise agreements for stores that are expected to open in 2001.
We began franchising internationally in 1991 and, as of December 30, 2000, had
83 franchised stores open in Canada. The Canadian stores are operated by
franchisees under agreements substantially similar to those used in the United
States.
3. Franchise Support
As a franchisor, our success depends upon our ability to develop and support
competitive and successful franchise brands. We emphasize the following areas
of franchise support and assistance.
Training
Each franchisee must attend our training program regardless of prior experience.
The training program is a multi-visit program. Soon after signing a franchise
agreement, the franchisee is required to attend a new owner orientation
training. This course covers basic management issues, such as preparing a
business plan, lease evaluation, evaluating insurance needs and obtaining
financing. Our training staff assists each franchise in developing a business
plan for their store with financial and cash flow projections. The second
training session is centered on store operations. It covers, among other
things, point-of-sale computer training, inventory selection and acquisition,
sales, marketing and other topics. We provide the franchisee with operations
manuals that we periodically update.
Field Support
We provide operations personnel to assist the franchisee in the opening of a new
business. We also have an ongoing field support program designed to assist
franchisees in operating their stores. Our franchise support personnel visit
each store periodically and, in most cases, a business appraisal is made to
determine whether the franchisee is operating in accordance with our standards.
The visit is also designed to assist franchisees with operational issues.
Purchasing
During training each franchisee is taught how to evaluate, purchase and price
used goods. In addition to purchasing used products from customers who bring
merchandise to the store, the franchisee is also encouraged to develop sources
for purchasing used merchandise in the community. Franchisees typically do not
repair or recondition used products, but rather, purchase quality used
merchandise that may be put directly on display for resale on an 'as is' basis.
We have developed specialized computer point-of-sale systems for Once Upon A
Child(R) and Plato's Closet(R) stores that provide the franchisee with
standardized pricing information to assist in the purchasing of used items.
Play It Again Sports(R) and Music Go Round(R) also use buying guides to
assist franchisees in pricing used items although not electronic.
7
We provide centralized buying services including credit and billing for the Play
It Again Sports(R) franchisees. Upon credit approval, Play It Again
Sports(R) franchisees may order through the buying group, in which case,
product is drop-shipped directly to the store by the vendor. We are invoiced by
the vendor and, in turn, we invoice the franchisee adding a 4% service fee to
cover our costs of operating the buying group. To provide the remaining brand's
franchisees a source of affordable new product, we have developed relationships
with our core vendors and negotiated prices for our franchisees to take
advantage of on a direct basis. Our Play It Again Sports(R) franchise system
relies on several major vendors including Bauer(R) Nike Hockey, The Hockey
Company and Keys Fitness. The loss of any of the above vendors would change the
vendor mix, but not significantly change our product offered.
Our typical Once Upon A Child(R) franchised store purchases approximately 75%
of its new product from Graco(R), Million Dollar Baby and Cosco(R). While
we believe that there are several other vendors that could adequately replace
the loss of any of these three major vendors, it would alter the selection of
product offered.
There are no significant vendors to our typical Music Go Round(R) franchised
store the loss of which would materially impair our ability to obtain
appropriate product.
Retail Advertising and Marketing
We encourage our franchisees to implement a marketing program that includes one
or more of the following: television, radio, direct mail, point-of-purchase
materials, in store signage and local store marketing programs. Through these
mediums, we advertise both the buying and selling aspects of our retail brands.
Franchisees of the respective brands are required to spend the following minimum
percentage of their gross sales on approved advertising and marketing: Play It
Again Sports(R) - 5%, Once Upon A Child(R) - 5%, Music Go Round(R) - 3%,
ReTool(R) - 4% and Plato's Closet(R) - 4%. In addition, all franchisees are
required to pay us an annual marketing fee of $500. Franchisees are required to
participate in regional cooperative advertising groups.
Computerized Point-Of-Sale Systems
We require franchisees to use a retail information management computer system in
each store. Stores which were opened prior to April 1992 were not required to
install the system. This computerized point-of-sale system is designed
specifically for use in our franchise retail stores. This system includes a
cash register, bar code printer and scanner, together with software modules for
inventory management, cash management and customer information management. The
system is designed to accommodate buying and consigning of used merchandise.
This system provides franchisees with an important management tool that reduces
errors, increases efficiencies and enhances inventory control. We provide both
computer software and hardware support for the system.
Other Support Services
We assist each new franchisee with site location. A third party vendor provides
design layouts and opening materials including pricing materials, stationary,
signage, fixtures, slatwall and carpeting. Additional communication with
franchisees is made through weekly news updates, broadcast faxes and semi-annual
conferences which include trade shows.
The Franchise Agreement
We enter into franchise agreements with our franchisees. The following is a
summary of certain key provisions of our current standard franchise agreement.
A complete copy of our standard franchise agreement has been filed by
incorporation as an exhibit to this Form 10-K. Except as noted, the franchise
agreements used for each of our business brands are the same.
8
Each franchisee must execute our franchise agreement and pay an initial
franchise fee. At December 30, 2000, the franchise fee for all brands was
$20,000 for an initial store. In August 2000, we changed the franchise fees for
additional stores for Grow Biz franchisee owners. Once a franchisee opens its
initial store, it can open additional stores, in any brand, by paying a $15,000
franchise fee, provided an acceptable territory is available and the franchisee
meets minimum financial standards. Typically, the franchisee's initial store is
open for business within 270 days from the date the franchise agreement is
signed. The franchise agreement has an initial term of 10 years, with
subsequent 10-year renewal periods, and grants the franchisee an exclusive
geographic area which will vary in size depending upon population, demographics
and other factors. A renewal fee equal to $5,000 is payable to us 30 days prior
to any franchise renewal. Under current franchise agreements, franchisees of
the respective brands are required to pay us weekly continuing fees (royalties)
equal to the following percentage of gross sales: Play It Again Sports(R) -
5%, Once Upon A Child(R) - 5%, Music Go Round(R) - 3%, ReTool(R) - 4% and
Plato's Closet(R) - 4%. Play It Again Sports(R) franchise agreements signed
prior to April 1, 1992 require payment of a 3% royalty. Upon completion of the
initial 10-year term, Play It Again Sports(R) royalties are adjusted to 4%.
Play It Again Sports(R) franchisees opening their second or additional store
pay us a 4% royalty for that store.
Each franchisee is required to pay us an annual marketing fee of $500. Each
Play It Again Sports(R) and Once Upon A Child(R) franchisee is required to
spend 5% of its gross sales for advertising and promoting its franchised store.
We have the option to increase the minimum advertising expenditure requirement
for these franchises to 6% of the franchisee's gross sales, of which up to 2%
would be paid to us as an advertising fee for deposit in an advertising fund.
This fund would be managed by us and would be used for advertising and promotion
of the franchise system. We expect to initiate this advertising fund when we
determine that the respective franchise system warrants such an advertising and
promotion program. Music Go Round(R) franchisees are required to spend at
least 3% of gross sales for approved advertising. We have the option to
increase the minimum advertising expenditure requirement for these franchises to
a total of 4% of the franchisee's gross sales, of which up to one-third, or
1.5%, would be paid to us as an advertising fee for deposit into an advertising
fund. Retool(R) and Plato's Closet(R) franchisees are required to spend at
least 4% of gross sales for approved advertising. We have an option to increase
the minimum advertising expenditure requirement for these franchises up to at
total of 5% of franchisee's gross sales, of which up to 2% would be paid to us
as an advertising fee for deposit into an advertising fund.
During the term of a franchise agreement, franchisees agree not to operate
directly or indirectly any competitive business. In addition, franchisees agree
that after the end of the term or termination of the franchise agreement,
franchisees will not operate any competitive business for a period of one year
and within a reasonable geographic area. We believe that the strict enforcement
of the noncompetition clause is critical to the success of the franchise
operations. These noncompetition clauses are not enforceable in certain states.
Although our franchise agreements contain provisions designed to assure the
quality of a franchisee's operations, we have less control over a franchisee's
operations than we would if we owned and operated the store. Under the
franchise agreement, we have a right of first refusal on the sale of any
franchised store, but we are not obligated to repurchase any franchise.
Renewal of the Franchise Relationship
At the end of the 10-year term of each franchise agreement, each franchisee has
the option to "renew" the franchise relationship by signing a new 10-year
franchise agreement. If a franchisee chooses not to sign a new franchise
agreement, a franchisee must comply with all post termination obligations
including the franchisee's agreement not to compete discussed above. This
agreement not to compete may not be enforceable in certain states. We may
choose not to renew the franchise relationship only when permitted by the
franchise agreement and applicable state law.
9
In 2000, 36 franchisees had their Play It Again Sports(R) franchise agreement
expire. Of those franchisees, 33 signed new 10-year franchise agreements. In
2001, 2002 and 2003, 81, 127 and 75 Play It Again Sports(R) franchise
agreements will expire, respectively. We believe that renewing a significant
number of these franchise relationships is extremely important to the success of
this franchise system.
No Once Upon A Child(R) franchise agreements expired in 2000. In 2001, 2002
and 2003, 1, 2 and 41 Once Upon A Child(R) franchise agreements will expire,
respectively. We believe that renewing a significant number of these franchise
relationships is important to the success of this franchise system.
None of our other franchise systems have franchise agreements that will expire
in 2001.
Competition
Retailing, including the sale of sporting goods, children's and teenage apparel,
musical instruments and tools, is highly competitive. Many retailers have
substantially greater financial and other resources than we do. Our franchisees
compete with established, locally owned retail stores, discount chains and
traditional retail stores for sales of new merchandise. Full line retailers
generally carry little or no used merchandise. Resale, thrift and consignment
shops and garage and rummage sales offer some competition to our franchisees for
the sale of used merchandise. We are aware of, and compete with, one
franchisor of stores which sell new and used sporting equipment and two
franchisors of stores which sell used and new children's clothing, toys and
accessories.
Our Play It Again Sports(R) franchisees compete with large retailers such as
The Sports Authority(R), Gart Sports and Oshman's as well as regional and
local sporting goods stores. We do not know of any other franchisor that
directly competes with us in the sporting goods retail business for potential
franchisees.
Our Once Upon A Child(R) franchisees compete primarily with large retailers
such as Babies "R" Us(R), Wal-Mart(R), Target(R) Stores and various
specialty children's retail stores such as Gap(R) Kids. We compete with other
franchisors for franchisees. We view our competitive position with other
franchisors in the children's clothing, toys and furniture retail industry as
favorable.
Our Plato's Closet(R) franchise stores compete with specialty apparel stores
primarily such as Gap(R), Abercrombie & Fitch(R) and The Limited(R). We
do not believe we compete with any other franchisor in the teenage clothing
retail market.
Our Music Go Round(R) franchise stores compete with large musical instrument
retailers such as Guitar Center(R), Mars Music(R) and Sam Ash Music(R).
We do not believe we compete with any other franchisor directly in relation to
the used and new musical instrument market.
Our franchisees may face additional competition as our franchise systems expand.
This could include additional competitors that may enter the used merchandise
market. We believe that our franchisees will continue to be able to compete
favorably with other retailers based on the strength of our value-oriented
brands, the name recognition associated with our service marks and the national
recognition gained by our franchise brands.
We also face competition in connection with the sale of franchises. Our
prospective franchisees frequently evaluate other franchise opportunities before
purchasing a franchise from us. We compete for franchisees with other franchise
companies based on at least the following factors: amount of franchise fee,
royalty rate, profitability and industry. We believe that our franchise brands
compete favorably with other franchises based on the fees we charge, our
franchise support services and the performance of our existing franchise brands.
10
Government Regulation
Fourteen states and the Federal Trade Commission impose pre-sale franchise
registration and/or disclosure requirements on franchisors. In addition, a
number of states have statutes which regulate substantive aspects of the
franchisor-franchisee relationship such as termination, nonrenewal, transfer,
discrimination among franchisees and competition with franchisees.
Additional legislation, both at the federal and state levels, could expand pre-
sale disclosure requirements, further regulate substantive aspects of the
franchise relationship and require us to file our franchise offering circulars
with additional states. We cannot predict the effect of future franchise
legislation, but do not believe there is any imminent legislation currently
under consideration which would have a material adverse impact on our
operations.
Trademarks and Service Marks
Grow Biz(R), Play It Again Sports(R), Once Upon A Child(R), Music Go
Round(R), Retool(R) and Plato's Closet(R), among others, are our
registered service marks. These marks are of considerable value to our
business. They support our franchise brands and our marketing and sales
efforts. We intend to protect our service marks by appropriate legal action
where and when necessary. Each service mark registration must be renewed every
10 years. We have, and intend to, continue to take all steps necessary to renew
the registration of all our material service marks.
Seasonality
Our Play It Again Sports(R), Once Upon A Child(R) and Plato's Closet(R)
franchise brands have experienced higher than average sales volume during the
spring months and during the back to school and holiday shopping seasons. This
trend, along with the related impact of our Company-operated retail stores
revenue, results in higher than average royalty and merchandise revenue during
the second, third and fourth quarters.
Employees
As of December 30, 2000, we employed 135 full-time employees, of which 3 were
franchise salespersons, 64 were franchise support personnel, 28 were
administrative and 40 were retail sales staff. We also employed 28 part-time
employees at our Company-owned retail stores as of fiscal year end 2000.
ITEM 2: PROPERTIES
We lease our headquarters facility in Golden Valley, Minnesota. We pay annual
base rent of $218,980 plus 55% of common area maintenance charges for the
building. The lease expires in 2004. Our facilities are sufficient to meet our
current needs and our immediate future needs.
At December 30, 2000, we leased space for our 12 retail store locations,
typically for a fixed monthly rental and operating costs. One lease is due to
expire in 2001, none in 2002, eight in 2003, three in 2004 and none thereafter.
ITEM 3: LEGAL PROCEEDINGS
We are not a party to any material litigation and are not aware of any
threatened litigation that would have a material adverse effect on our business.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal year 2000.
11
PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS.
Our common stock was traded on the Nasdaq National Market System through
February 6, 2000 and is now traded on the Nasdaq SmallCap Market under the
symbol "GBIZ". The table below sets forth the high and low bid prices of our
common stock as reported by Nasdaq for the periods indicated:
2000: First Second Third Fourth 1999: First Second Third Fourth
- ------------------------------------------------------- ----------------------------------------------------------
High 8 7/16 8 3/4 4 11/16 7 High 13 10/32 12 5/16 8 1/2 5 1/8
Low 3 4 1/2 3 7/8 3 15/16 Low 12 1/4 6 1/2 4 1/2 2 7/8
The above quotations reflect inter-dealer prices, without retail mark-up, mark-
down or commission, and may not necessarily represent actual transactions. At
March 12, 2001, there were 5,386,433 shares of common stock outstanding held by
approximately 826 beneficial shareholders and 220 shareholders of record. We
have not paid any cash dividends on our common stock and do not anticipate
paying cash dividends in the foreseeable future.
On July 31, 2000, we entered into a credit agreement with Rush River Group, LLC,
an affiliate of ours, to provide a credit facility of up to $7.5 million. As
part of that agreement, Rush River Group, LLC required that we not declare or
pay any dividends, purchase, redeem, retire or otherwise acquire for value any
of our common stock. Also in connection with the credit facility, we issued to
Rush River Group, LLC a warrant to purchase 200,000 shares of our common stock
at an exercise price of $2.00 per share. The warrant was issued as partial
consideration for providing the credit facility to us. The warrant was issued
pursuant to Section 4(2) of the Securities Act of 1933. The warrant is
currently exercisable and will remain exercisable until July 31, 2010.
In connection with the change in our management during fiscal year 2000, we
issued to Sheldon T. Fleck a warrant for the purchase of 200,000 shares of our
common stock at an exercise price of $6.00 per share. The warrant was issued as
compensation for the financial advisor's services, in accordance with the terms
of a Letter Agreement dated as of November 17, 1999. The warrant was issued
pursuant to Section 4(2) of the Securities Act of 1933. The warrant is
exercisable and will remain exercisable until March 22, 2008.
12
ITEM 6: SELECTED FINANCIAL DATA.
The following table sets forth selected financial information for the periods
indicated. The information should be read in conjunction with the financial
statements and related notes discussed in Item 14, and Management's Discussion
and Analysis of Financial Condition and Results of Operations discussed in Item
7.
Fiscal Year Ended
(in thousands except per share data)
---------------------------------------------------------------------------------
December 30, December 25, December 26, December 27, December 28,
2000/(1)/ 1999/(2)/ 1998/(3)/ 1997/(4)/ 1996
---------------------------------------------------------------------------------
Revenue:
Merchandise sales $29,416 $ 45,163 $73,306 $66,889 $71,737
Royalties 16,502 19,085 19,473 17,329 14,965
Franchise fees 914 1,942 2,986 3,907 4,162
Advertising and other 715 368 586 710 686
------- -------- ------- ------- -------
Total revenue 47,547 66,558 96,351 88,835 91,550
Cost of merchandise sold 25,295 39,387 60,325 56,634 63,856
Selling, general and administrative expenses 18,701 28,320 29,105 24,990 23,636
Restructuring and other - 11,345 - - -
Earnings Charge 3,338 - - - -
Gain on sale of Disc Go Round - - 5,232 - -
Gain on sale of Computer Renaissance(R) 537 - - - -
------- -------- ------- ------- -------
Income (loss) from operations 750 (12,494) 12,153 7,211 4,058
Litigation settlement - - - (2,000) -
Interest income (expense), net (944) (1,293) (239) 103 195
------- -------- ------- ------- -------
Income (loss) before income taxes (194) (13,787) 11,914 5,314 4,253
(Benefit) Provision for income taxes 157 (5,198) 4,670 2,083 1,667
------- -------- ------- ------- -------
Net income (loss) $ (351) $ (8,589) $ 7,244 $ 3,231 $ 2,586
======= ======== ======= ======= =======
Net income (loss) per common share - diluted $ (.07) $ (1.65) $ 1.24 $ .52 $ .40
======= ======== ======= ======= =======
Weighted average shares outstanding 5,382 5,206 5,833 6,274 6,516
======= ======== ======= ======= =======
Balance Sheet Data:
Working capital $ 5,393 $ 2,748 $ 1,103 $ 9,141 $ 8,516
Total assets 14,721 29,642 43,141 37,755 29,177
Total debt 4,788 16,816 17,949 6,330 264
Shareholders' equity 3,467 2,889 10,165 17,451 17,698
Selected Financial Ratios:
Return on average assets (1.6)% (23.6)% 17.9% 9.7% 8.2%
Return on average equity (11.0)% (131.6)% 52.5% 18.4% 13.3%
____________________________
(1) In August 2000, the Company completed the sale of the assets of the
Computer Renaissance(R) franchising and retailing operations. See
Footnote 4 of the Consolidated Notes to the Financial Statements.
(2) In November 1999, the Company completed the sale of the assets of the It's
About Games brand. See Footnote 4 of the Consolidated Notes to the
Financial Statements.
(3) In June 1998, the Company completed the sale of Disc Go Round.
(4) In August 1997, the Company acquired certain assets and franchising rights
of Video Game Exchange, Inc.
13
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION.
Results of Operations
The following table sets forth selected information from the Company's
Consolidated Statements of Operations expressed as a percentage of total revenue
and the percentage change in the dollar amounts from the prior period:
=======================================================================================
Fiscal Year Ended Fiscal 2000 Fiscal 1999
----------------------------------------------
December 30, December 25, December 26, over (under) over (under)
2000 1999 1998 1999 1998
=======================================================================================
Revenues
Merchandise sales 61.9% 67.9% 76.1% (34.9)% (38.4)%
Royalties 34.7 28.7 20.2 (13.5) (2.0)
Franchise fees 1.9 2.9 3.1 (52.9) (35.0)
Advertising and other 1.5 0.5 0.6 94.3 (37.2)
----- ------ ----- ------ -------
Total revenues 100.0 100.0 100.0 (28.6) (30.9)
Cost of merchandise sold 53.2 59.2 62.6 (35.8) (34.7)
Selling, general and administrative
expenses 39.3 42.6 30.2 (34.0) (2.7)
Restructuring and other - 17.0 - - -
Earnings Charge 7.0 - - 100.0 -
Gain on sale of Disc Go Round - - 5.4 - (100.0)
Gain on sale of Computer 1.1 - - (100.0) -
Renaissance(R) ----- ------ ----- ------ -------
Income (loss) from operations 1.6 (18.8) 12.6 106.0 (202.8)
Interest and other income (expense), (2.0) (1.9) (0.2) 27.0 (441.0)
net ----- ------ ----- ------ -------
Income (loss) before income taxes (0.4) (20.7) 12.4 98.6 (215.7)
(Benefit) Provision for income taxes 0.3 (7.8) 4.9 103.0 (211.3)
----- ------ ----- ------ -------
Net income (loss) (0.7)% (12.9)% 7.5% 95.9% (218.6)%
===== ====== ===== ====== =======
Revenues
Merchandise sales, which include the sale of product to franchisees through the
Play It Again Sports(R) buying group and retail sales at the Company-owned
stores, are as follows:
2000 1999 1998
---- ---- ----
Buying Group $ 21,523,800 $ 24,554,500 $ 40,605,300
Retail Sales 7,891,900 20,608,500 32,700,700
----------- ----------- -----------
$ 29,415,700 $ 45,163,000 $ 73,306,000
The Play It Again Sports(R) buying group revenue declined in 2000 compared to
1999 as a result of having approximately 70 fewer Play It Again Sports(R)
stores open as well as the Company's re-evaluation of its extension of credit
with certain franchisees. The buying group revenue decline in 1999 compared to
1998 was due to management's strategic decision to reduce the number of vendors
which are offered centralized billing through the buying group and encouraging
franchisees to purchase more inventory on a direct basis. The decrease in
retail sales at Company-owned stores is a result of selling or closing all 61
It's About Games stores in the fourth quarter of 1999 and the sale or closing of
seven Company-owned stores during fiscal 2000. Historically, the Play It Again
Sports(R) buying group has not contributed materially to the Company's net
income.
Revenues from franchising activity were as follows:
2000 1999 1998
---- ---- ----
Royalties $ 16,502,000 $ 19,085,100 $ 19,472,800
Franchise Fees 914,000 1,942,200 2,986,400
14
Royalties are derived from retail sales at the franchise level and are 3% to 5%
of franchisee's net sales. In 2000, royalties decreased $2,583,100 compared to
1999. This decrease is due to the sale of the Computer Renaissance(R) brand to
Hollis Technologies, LLC in August 2000. If royalties related to Computer
Renaissance(R) are excluded from royalties earned in 2000 and 1999, royalties
increased 1.8% in 2000 compared to 1999.
Key franchise store sales information is included in the table below. Fiscal
year 2000 was a 53-week year and fiscal year 1999 was a 52-week year. The
comparable store sales percentages below have been adjusted to remove the effect
of the extra week from 2000. Comparable store sales information compares 2000
sales to 1999 sales and 1999 sales to 1998 sales. It is calculated utilizing
all stores that were open for the entire 24-month comparable period. Average
store sales are computed utilizing all stores open for the entire 12-month
period.
Comparable Store Sales
-----------------------------------------
2000 Increase 1999 Increase 2000
from 1999 from 1998 Average Store Sales
--------- --------- -------------------
Play It Again Sports(R) 9.3% 1.0% $560,800
Once Upon A Child(R) 2.2% 4.7% $413,500
Music Go Round(R) 2.0% 6.8% $502,200
Retool(R) 1.7% - $284,400
Plato's Closet(R) 19.1% - $710,800
Franchise fee revenue is recognized when substantially all initial franchise
services have been performed by the Company. During 1999, the Company revised
its fee schedule by eliminating franchise fees for all stores other than the
first store opened by a franchisee. As of August 1, 2000, existing franchisees
are required to pay an initial franchise fee of $15,000 for each additional
franchise. Franchise fees in 2000 declined $1,028,200, or 52.9%, from 1999 as a
result of opening 74 franchise stores in 2000 compared to 96 in 1999. Twenty-
nine stores were opened during 2000 that were not required to pay a franchise
fee. Franchise fees declined $1.1 million to $1.9 million in 1999 compared to
$3.0 million in 1998. This decrease is a result of opening fewer stores
overall; 96 in 1999 compared to 125 in 1998; and the elimination of franchise
fees on all stores other than the first store opened by a franchisee. The
reduction in franchise fees in 1999 compared to 1998 was offset, in part, by the
$200,000 master franchise fee paid by Duskin Company Ltd., a Japanese company,
in the third quarter of 1999.
Advertising and other revenue consists primarily of annual marketing fees,
corporate vendor commissions and other miscellaneous revenue. In 2000,
advertising and other revenue increased $347,000 compared to 1999. The increase
is primarily due to approximately $100,000 in fees received in 2000 on the
consulting agreement with Hollis Technologies, LLC.
Cost of Merchandise Sold
Cost of merchandise sold includes the cost of merchandise sold through the Play
It Again Sports(R) buying group and at Company-owned retail stores. Over the
past three years, cost of merchandise sold as a percentage of the related
revenue is shown in the following table:
2000 1999 1998
---- ---- ----
Buying Group 95.0% 95.1% 94.5%
Retail Stores 61.3% 77.8% 65.6%
The 16.5% increase in the 2000 retail gross margin is primarily due to closing
the It's About Games retail stores in 1999. The 12.2% increase in the 1999
retail store cost of goods sold is primarily the result of the liquidation of
It's About Games inventory sold at significantly reduced prices. Margins have
returned to a level consistent with margins achieved prior to acquiring the It's
About Games brand and are anticipated to remain at this level.
15
Selling, General and Administrative
The $9,619,000 decrease in 2000 selling, general and administrative expenses is
primarily due to the elimination of related cost of the It's About Games stores
closed in 1999, selling the Computer Renaissance(R) franchise system and
retail operations in August 2000, closing or selling seven Company-owned stores
in fiscal 2000 and downsizing the Company overall.
Sale of Computer Renaissance(R)
In August 2000, the Company completed the disposition of substantially all the
assets related to the Computer Renaissance(R) franchising and retailing
operations for $3.0 million to Hollis Technologies, LLC. One million dollars of
the purchase price is being held in an escrow account for up to 18 months from
August 30, 2000. Hollis Technologies, LLC and CompRen, Inc. have filed a claim
with the escrow agent to recover alleged damages incurred in connection with the
sale. The Company does not consent to the claim on the escrowed funds. The
Company believes that these claims are baseless, and has filed a notice of
dispute with the escrow agent. Amounts received from the escrow will be recorded
as additional income when received. In addition, the Company has entered into a
five-year $2.0 million consulting agreement to provide ongoing franchise and
business consulting services to Hollis Technologies, LLC. Pursuant to the
Consulting Agreement, Hollis Technologies, LLC agreed to make 60 equal monthly
payments of $33,333 to the Company over the term of the agreement. For the year
ended December 30, 2000, $100,000 of payments made on the Consulting Agreement
were reflected in other revenue.
Sale of Corporate Headquarters
On July 10, 2000, the Company sold its corporate headquarters facility to Koch
Trucking, Inc. for $3.5 million in cash. Net proceeds from the sale were used
to pay down then existing bank debt. The Company entered into a four-year lease
for approximately 55% of the facility pursuant to which the Company will pay
annual base rent of $218,980. The sale resulted in a $731,000 gain to be
recognized over the 48-month lease term. For the year ended December 30, 2000,
$91,600 of deferred gain was recognized.
Nonrecurring Charge
The Company recorded a pre-tax, nonrecurring charge of $3.3 million in the
second quarter of 2000. This charge consists primarily of two components.
First, approximately $2.0 million relates to management's assessment of current
information relating to notes receivable and lease obligations booked in
connection with the 1998 sale of Company-owned stores. The other component
relates to re-evaluating its brands and Company-owned stores that are not
performing at expected levels. As a result of this re-evaluation, certain
intangible assets were written-down to reflect estimated realizability of long-
lived assets.
Restructuring and Other
In the third quarter of 1999, the Company made the decision to dispose of the
It's About Games brand. Accordingly, a restructuring charge and charge for
asset impairment was taken. Further investment in the business was not
consistent with the Company's strategy of reducing the number of Company-owned
stores and focusing on franchised store development. In December 1999, the
Company completed the sale of the assets of the It's About Games brand. The
Company undertook an orderly liquidation of the inventory and store assets by
conducting a liquidation sale resulting in a total restructuring charge and
charge for asset impairment of $11,345,500 for the year ended December 25, 1999.
As of December 30, 2000, the restructuring reserve balance was $817,300.
16
Net Interest
Net interest expense was $944,100, $1,292,900 and $238,800 in 2000, 1999 and
1998, respectively. The decrease in net expense in 2000 was due to the
reduction in total debt from $16.8 million to $4.8 million at year-end 1999 and
2000, respectively. The increase in net interest expense in 1999 and 1998 was
due to the Company having lower cash balances and drawing funds on notes payable
as a result of acquisitions, operations of It's About Games and the repurchase
of shares of the Company's common stock.
Liquidity and Capital Resources
The Company's primary sources of liquidity have historically been cash flow from
operations and bank borrowings. The Company ended 2000 with $2.0 million in
cash and a current ratio of 1.79 to 1.0 compared to no cash and a current ratio
of 1.14 to 1.0 at the end of 1999.
Ongoing operating activities provided cash of $10.1 million for 2000 compared to
$1.4 million for 1999. Components of the cash provided in 2000 include a $5.8
million reduction in accounts receivable as a result of improved collection
performance and reduction of certain revenue generating activities, note
receivables and buying group receivables. Prepaid expenses and other current
assets provided cash of $6.4 million, primarily due to income tax refunds
received and cash surrender value proceeds from officers' life insurance
policies that were canceled. The components of cash utilized by the reduction
in accounts payable of $2.5 million is primarily the result of reduced buying
group activity. The $1.2 million reduction in accrued liabilities consists
primarily of payments on lease settlements on closed It's About Games store
locations accrued at year-end.
Investing activities provided $3.0 million of cash during 2000 and primarily
relates to the sale of the Company's corporate headquarters facility.
Financing activities used $11.1 million of cash during 2000 compared to $640,100
for 1999. The $17.5 million of payments on long-term debt includes $7.4 million
payments on the bank revolving line of credit with TCF National Bank Minnesota
("TCF Line"), $7.1 million on the bank term note with TCF National Bank
Minnesota ("TCF Note"), $2.5 million to pay off the note relating to the
purchase of Video Game Exchange, Inc. and $570,000 payments on other notes. The
Company received $106,400 in cash from options exercised to purchase stock. The
$6.3 million of proceeds from notes payable includes $1.3 million on TCF Line
before repayment and $5.0 million borrowed on the new credit facility with Rush
River Group, LLC.
On July 31, 2000, the Company entered into a credit agreement with Rush River
Group, LLC, an affiliate of the Company, to provide a credit facility of up to
$7.5 million ("Rush River Facility"). The credit agreement allows such amount
to be drawn upon by the Company in one or more term loans. The initial term
loan was $5.0 million dollars and will be repaid by the Company over a seven-
year period. Each term loan is or will accrue interest at 14% per year. The
purposes of establishing the Rush River Facility were to repay the TCF Line and
TCF Note and for general corporate purposes. The Rush River Facility is secured
by a lien against substantially all of the Company's assets. Rush River Group,
LLC has agreed to subordinate its lien to any lien of a financial institution
relating to financing not to exceed $2.5 million dollars.
Among other requirements, the Rush River Facility currently requires that the
Company maintain shareholder equity of at least $1,922,000. In addition, if
there is a change of control as defined in the credit agreement governing the
Rush River Facility, such change is an event of default, and Rush River Group,
LLC may declare all amounts outstanding under such term notes immediately due
and payable. The Rush River Facility also contains an agreement allowing the
Company to prepay any and all amounts outstanding under the Rush River Facility
without premium or penalty.
17
In connection with the Rush River Facility, the Company has issued to Rush River
Group, LLC a warrant to purchase 200,000 shares of the Company's common stock at
an exercise price of $2.00 per share. The warrant became exercisable upon the
removal of certain contingencies and expires on July 31, 2010. See Note 7 to
the Financial Statements, "Revolving Line of Credit and Long Term Debt." The
Company believes that this new facility, along with cash generated from future
operations, will be adequate to meet the Company's current obligations and
operating needs.
Outlook
Forward Looking Statements
The statements contained in the letter from the CEO and the President, Item 1
"Business" and in this Item 7 "Management's Discussion and Analysis of Financial
Condition and Results of Operations" that are not strictly historical fact,
including without limitation, our statements relating to our ability to control
costs, our ability to pay down debt, our ability to maintain profitability, the
number of stores we believe will open, our ability to slow and ultimately
reverse the net loss of franchisees in the Play It Again Sports(R) system and
our belief that we will have adequate capital and reserves to meet our current
and contingent obligations and operating needs are forward looking statements
made under the safe harbor provision of the Private Securities Litigation Reform
Act. Such statements are based on management's current expectations as of the
date of this Report but involve risks, uncertainties and other factors which may
cause actual results to differ materially from those contemplated by such
forward looking statements. Investors are cautioned to consider these forward
looking statements in light of important factors which may result in variations
from results contemplated by such forward looking statements include, but are
not limited to the risk factors discussed below.
Risk Factors
Dependence on Renewals. Each of our franchise agreements is 10 years long. At
the end of the term of each franchise agreement, each franchisee has the option
to "renew" the franchise relationship by signing a new 10-year franchise
agreement.
In 2000, of the 36 franchisees that had their Play It Again Sports(R)
franchise agreement expire, 33 signed new 10-year franchise agreements. In
2001, 2002 and 2003, 81, 127 and 75 Play It Again Sports(R) franchise
agreements will expire, respectively. We believe that renewing a significant
number of these franchise relationships is extremely important to the success of
the franchise system. If a significant number of such franchise relationships
are not renewed, our financial performance may be materially and adversely
affected.
No Once Upon A Child(R) franchise agreements expired in 2000. In 2001, 2002
and 2003, 1, 2 and 41 Once Upon A Child(R) franchise agreements will expire,
respectively. We believe that renewing a significant number of these franchise
relationships is important to the continued success of this franchise system.
Decline in Number of Franchisees. In 1998, Play It Again Sports(R) closed 64
stores and opened 14 stores, a net loss of 50 stores. In 1999, Play It Again
Sports(R) closed 58 stores and opened 12 stores, a net loss of 46 stores. In
2000, Play It Again Sports(R) closed 64 stores and opened 15 stores, a net
loss of 49 stores. It is very important to the future success of the Play It
Again Sports(R) franchise system that the net loss of Play It Again
Sports(R) stores be slowed and ultimately reversed. We believe that a certain
number of stores will close each year. Our objective is to minimize store
closings by investing more capital in franchisee support services such as
franchisee training and the Grow Biz computer support center, by investing
capital to improve Grow Biz's proprietary point-of-sale software system and
continuing to train our field operations personnel to better serve franchisee
needs. In addition, we will allocate more resources to the new franchise sales
process. We believe that many of the store closings referenced above were
related to weaker stores, the loss of which did not significantly impact the
royalties we received. We also believe that in 2001 the net loss of Play It
Again Sports(R) stores in our franchise system will slow.
18
Dependence on New Franchisees. Our ability to generate increased revenue and
achieve higher levels of profitability depends on increasing the number of
franchised stores open. We believe that many larger and smaller markets will
continue to provide significant opportunities for sales of franchises and that
we can sustain approximately our current annual level of store openings.
However, there can be no assurance that we will sustain this level of store
openings.
Inability to Collect Accounts Receivable. In the event that our ability to
collect accounts receivable significantly declines from current rates,
additional charges that affect earnings may be incurred.
Unopened Stores. We believe that a substantial majority of stores sold but not
opened will open within the time period permitted by the applicable franchise
agreement or we 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 us. To the extent we are required to refund any
franchise fees for stores that do not open, we believe that we will be able to
repay these fees out of available cash.
Dependence on Supply of Used Merchandise. Our brands 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 our
brands. There can be no assurance that we will avoid supply problems with
respect to used merchandise.
Lease Terminations. We have closed a number of our Company-owned stores over
the past two years, most of which were part of the It's About Games chain of
stores. We have been negotiating terminations relative to such leases, however;
approximately 11 of such leases remain in effect. There can be no assurance
that we will be able to successfully negotiate satisfactory terminations of such
remaining leases.
In addition, as part of closing the It's About Games chain of Company-owned
stores, we sold the assets related to approximately 28 It's About Games stores
and assigned the underlying leases to independent third parties. We remain
contingently liable with respect to such leases. There can be no assurance that
such independent third parties will comply with the terms and conditions of such
leases, in which case we will be responsible to make payments owed under such
leases. We believe that we have adequate reserves to cover any prospective
liability with respect to such leases.
Competition. Retailing, including the sale of sporting goods, children and
teenage apparel, musical instruments and tools, is highly competitive. Many
retailers have significantly greater financial and other resources than us and
our 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, our franchisees and our Company-
owned stores have not faced a high degree of competition in the sale of used
merchandise. However, we may face additional competition as our franchise
systems expand and additional competitors may enter the used merchandise market.
Selling, General and Administrative Expense. Our ability to control the amount,
and rate of growth in, selling, general and administrative expenses and the
impact of unusual items resulting from our ongoing evaluation of our business
strategies, asset valuations and organizational structures is important to our
financial success. We cannot assure any investor that we will be able to
control such items of expense.
Quarterly Fluctuations. Our 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. We cannot assure any investor that results in future periods will not
fluctuate on a quarterly basis.
19
Government Regulation. As a franchisor, we are subject to various federal and
state franchise laws and regulations. Although we believe we are 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 us.
We do not undertake and specifically decline 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.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
The Company incurs financial markets risk in the form of interest rate risk.
Management deals with such risk by negotiating fixed rate loan agreements.
Accordingly, the Company is not exposed to cash flow risks related to interest
rate changes. A one percent change in interest rates would not have a
significant impact on the Company's fixed rate debt.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Grow Biz International, Inc. and Subsidiary
Index to Financial Statements
Consolidated Balance Sheets Page 21
Consolidated Statements of Operations Page 22
Consolidated Statements of Shareholders' Equity Page 23
Consolidated Statements of Cash Flows Page 24
Consolidated Notes to Financial Statements Page 25
Report of Independent Public Accountants Page 35
20
GROW BIZ INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Balance Sheets
--------------------------------------------------
December 30, 2000 December 25, 1999
--------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,005,100 $ -
Receivables, less allowance for doubtful accounts of $943,500
and $1,044,000 6,170,300 11,164,600
Inventories 1,367,200 1,959,600
Prepaid expenses and other 396,700 6,773,800
Deferred income taxes 2,290,000 2,074,200
----------- -----------
Total current assets 12,229,300 21,972,200
LONG-TERM RECEIVABLES (Note 3) 326,200 1,156,300
PROPERTY AND EQUIPMENT:
Furniture and equipment 6,022,100 6,280,800
Building and building improvements 659,200 3,681,800
Less - accumulated depreciation and amortization (5,229,500) (5,593,500)
----------- -----------
Property and equipment, net 1,451,800 4,369,100
OTHER ASSETS:
Noncompete agreements and other, net of accumulated
amortization of $1,813,200 and $2,531,600 189,200 329,800
Goodwill, net of accumulated amortization of $568,200 and $148,100 524,300 1,814,400
----------- -----------
Total other assets 713,500 2,144,200
----------- -----------
$14,720,800 $29,641,800
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,864,000 $ 5,350,700
Accrued liabilities 2,469,200 3,707,000
Current maturities of long-term debt 827,400 9,287,600
Current deferred revenue 676,000 878,900
----------- -----------
Total current liabilities 6,836,600 19,224,200
COMMITMENTS AND CONTINGENCIES (Notes 5, 6 and 9)
LONG-TERM DEBT 3,961,000 7,528,500
DEFERRED GAIN ON BUILDING SALE 456,400 -
SHAREHOLDERS' EQUITY:
Common stock, no par, 10,000,000 shares authorized,
5,386,433 and 5,346,119 shares issued and outstanding 1,419,900 1,313,500
Common stock warrants 822,000 -
Retained earnings 1,224,900 1,575,600
----------- -----------
Total shareholders' equity 3,466,800 2,889,100
----------- -----------
$14,720,800 $29,641,800
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
21
GROW BIZ INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Statements of Operations
---------------------------------------------------------------------
Fiscal Year Ended
-----------------
December 30, 2000 December 25, 1999 December 26, 1998
---------------------------------------------------------------------
REVENUE
Merchandise sales $29,415,700 $ 45,163,000 $73,306,000
Royalties 16,502,000 19,085,100 19,472,800
Franchise fees 914,000 1,942,200 2,986,400
Advertising and other 715,100 368,100 585,700
----------- ------------ -----------
Total revenue 47,546,800 66,558,400 96,350,900
COST OF MERCHANDISE SOLD 25,294,700 39,386,800 60,324,600
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 18,701,200 28,320,200 29,105,000
RESTRUCTURING AND OTHER (NOTE 4) - 11,345,500 -
NONRECURRING CHARGE (NOTE 5) 3,337,900 - -
GAIN ON SALE OF DISC GO ROUND - - 5,231,500
GAIN ON SALE OF COMPUTER RENAISSANCE(R) 537,200 - -
----------- ------------ -----------
Income (loss) from operations 750,200 (12,494,100) 12,152,800
INTEREST EXPENSE (1,204,600) (1,545,700) (710,500)
INTEREST INCOME 260,500 252,800 471,700
----------- ------------ -----------
Income (loss) before income taxes (193,900) (13,787,000) 11,914,000
(BENEFIT) PROVISION FOR INCOME TAXES 156,800 (5,197,700) 4,670,200
----------- ------------ -----------
NET INCOME (LOSS) $ (350,700) $ (8,589,300) $ 7,243,800
=========== ============ ===========
BASIC EARNINGS (LOSS) PER SHARE $ (.07) $ (1.65) $ 1.28
=========== ============ ===========
BASIC WEIGHTED AVERAGE SHARES OUTSTANDING 5,382,200 5,205,900 5,664,000
=========== ============ ===========
DILUTED EARNINGS (LOSS) PER SHARE $ (.07) $ (1.65) $ 1.24
=========== ============ ===========
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 5,382,200 5,205,900 5,832,700
=========== ============ ===========
The accompanying notes are an integral part of these consolidated financial
statements.
22
GROW BIZ INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Statements of Shareholders' Equity
Fiscal years ended December 30, 2000, December 25, 1999 and December 26, 1998
-------------------------------------------------------------------
Common Stock Retained
---------------------------------------
Shares Amount Warrants Earnings Total
-------------------------------------------------------------------
BALANCE, December 27, 1997 6,002,214 $ 7,474,900 $ - $ 9,975,800 $ 17,450,700
Repurchase of common stock (1,111,915) (9,473,300) - (7,054,700) (16,528,000)
Stock options exercised and related tax benefits 188,756 1,998,400 - - 1,998,400
Net income - - - 7,243,800 7,243,800
---------- ----------- --------- ----------- ------------
BALANCE, December 26, 1998 5,079,055 $ - $ - $10,164,900 $ 10,164,900
Issuance of common stock 182,991 820,800 - - 820,800
Stock options exercised and related tax benefits 84,073 492,700 - - 492,700
Net loss - - - (8,589,300) (8,589,300)
---------- ----------- --------- ----------- ------------
BALANCE, December 25, 1999 5,346,119 $ 1,313,500 $ - $ 1,575,600 $ 2,889,100
Issuance of common stock warrants - - 822,000 - 822,000
Stock options exercised and related tax benefits 40,314 106,400 - - 106,400
Net loss - - - (350,700) (350,700)
---------- ----------- --------- ----------- ------------
BALANCE, December 30, 2000 5,386,433 $ 1,419,900 $ 822,000 $ 1,224,900 $ 3,466,800
========== =========== ========= =========== ============
The accompanying notes are an integral part of these consolidated financial
statements.
23
GROW BIZ INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
-------------------------------------------------------------
Fiscal Year Ended
-----------------
December 30, December 25, December 26,
2000 1999 1998
-------------------------------------------------------------
OPERATING ACTIVITIES:
Net income (loss) $ (350,700) $(8,589,300) $ 7,243,800
Adjustments to reconcile net income (loss) to net cash provided by
operating activities -
Depreciation and amortization 2,231,500 2,312,900 2,074,500
Restructuring and other - 9,198,500 -
Gain on sale of property and equipment (110,000) - -
Loss on sale of retail stores - - (39,800)
Deferred gain on sale of building (91,600) - -
Deferred income tax (215,800) (375,100) (207,500)
Change in operating assets and liabilities:
Receivables 5,824,400 2,878,300 (278,100)
Inventories 592,400 5,972,600 (6,298,300)
Prepaid expenses and other 6,377,100 (4,419,300) (476,000)
Accounts payable (2,486,700) (6,465,900) 4,701,800
Accrued liabilities (1,237,900) 1,888,500 (2,143,300)
Deferred franchise fees (386,000) (1,022,900) (1,402,200)
------------ ----------- ------------
Net cash provided by operating activities 10,146,700 1,378,300 3,174,900
------------ ----------- ------------
INVESTING ACTIVITIES:
Purchases of property and equipment (724,900) (2,805,700) (2,302,900)
(Increase) decrease in other assets 64,800 (350,500) (400,200)
Proceeds from sale of net assets of Disc Go Round - - 1,768,500
Proceeds from sale of property and equipment 3,617,800 - -
------------ ----------- ------------
Net cash provided by (used for) investing activities 2,957,700 (3,156,200) (934,600)
------------ ----------- ------------
FINANCING ACTIVITIES:
Issuance of common stock warrants 822,000 - -
Proceeds from notes payable 5,516,200 3,044,000 13,772,100
Payments on long-term debt (17,543,900) (4,176,800) (2,152,900)
Repurchase of common stock - - (16,528,000)
Proceeds from exercises of options and warrants 106,400 492,700 1,998,500
------------ ----------- ------------
Net cash used for financing activities (11,099,300) (640,100) (2,910,300)
------------ ----------- ------------
INCREASE (DECREASE) IN CASH 2,005,100 (2,418,000) (670,000)
CASH AND CASH EQUIVALENTS, beginning of period - 2,418,000 3,088,000
------------ ----------- ------------
CASH AND CASH EQUIVALENTS, end of period $ 2,005,100 $ - $ 2,418,000
============ =========== ============
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest $ 1,288,700 $ 1,506,700 $ 682,200
============ =========== ============
Cash paid for income taxes $ 121,600 $ 350,400 $ 4,746,400
============ =========== ============
NON CASH INVESTING AND FINANCING ACTIVITIES:
Note received in exchange for sale of inventory and property and
equipment $ - $ 927,700 $ 1,974,500
============ =========== ============
Assets acquired through the issuance of stock $ - $ 820,800 $ -
============ =========== ============
The accompanying notes are an integral part of these consolidated financial
statements.
24
GROW BIZ INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Notes to the Financial Statements
December 30, 2000 and December 25, 1999
1. 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",
"Music Go Round", "ReTool" and "Plato's Closet". The initial franchise fee for
a first store is $20,000 for all brands. In addition, the Company sells
inventory to its Play It Again Sports(R) franchisees through its "Buying
Group" and operates retail stores. The Company has a 52/53-week fiscal year
that ends on the last Saturday in December. Fiscal year 2000 is a 53-week
fiscal year.
In 1997, Grow Biz Games, Inc., a wholly-owned subsidiary of the Company, was
incorporated in connection with the acquisition of Video Game Exchange, Inc.
Certain assets of the following entities were acquired by the Company and its
subsidiary with the respective operating results included in the financial
statements from the date of acquisition:
Entity Acquisition Year
------ ---------------
Sports Traders, Inc. (Buying Group) 1992
Play It Again Sports retail stores (3) 1992
Once Upon A Child, Inc. 1992
Hi Tech Consignments, Inc. (Music Go Round) 1993
Computer Renaissance, Inc. 1993
CDX Audio Development, Inc. (Disc Go Round) 1994
Video Game Exchange, Inc. (It's About Games) 1997
Tool Traders, Inc. (ReTool) 1998
Plato's Closet, Inc. 1999
2. Significant Accounting Policies:
Cash Equivalents
Cash equivalents consist of highly liquid investments with an original maturity
of three months or less. Cash equivalents are stated at cost which approximates
fair value.
Fair Value of Financial Instruments
The estimated fair value of the Company's financial instruments approximates
their carrying values as of December 2000 and 1999. The fair values of
borrowings and notes receivable are estimated by discounting future cash flow
payment streams using rates that approximate those of comparable borrowings and
notes receivable.
Inventories
The Company values its inventories at the lower of cost, as determined by the
average weighted cost method, or market.
25
Property and Equipment
Property and equipment is stated at cost. Depreciation and amortization for
financial reporting purposes is provided on the straight-line method. Estimated
useful lives used in calculating depreciation and amortization are: five years
for furniture and equipment and the shorter of the lease term or useful life for
leasehold improvements. Major repairs, refurbishments and improvements which
significantly extend the useful lives of the related assets are capitalized.
Maintenance and repairs, supplies and accessories are charged to expense as
incurred.
Evaluation of Long-Lived Assets and Intangible Assets
The Company reviews long-lived assets and certain identifiable intangibles for
impairment whenever events or circumstances indicate that the carrying amount of
such assets may not be fully recoverable using undiscounted cash flows. See
Note 5 for impairment adjustments related to 2000.
Other Assets
Other assets consist primarily of covenants not to compete which are being
amortized on a straight-line basis over the terms of the agreements which range
from three to ten years and goodwill which is being amortized on a straight-line
basis over 15 to 40 years.
Use of Estimates
The preparation of financial statements in conformity with accounting principals
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. The ultimate results could differ from those estimates.
Store Opening Costs
All start-up costs associated with the opening of new stores are expensed as
incurred.
Revenue Recognition
The Company collects royalties from each franchise based on retail store gross
sales. The Company recognizes royalties as revenue when earned. The Company
collects franchise fees when franchise agreements are consummated and recognizes
the franchise fees as revenue when substantially all initial franchise services
have been performed. The Company had deferred franchise fee revenue of $492,900
and $878,900 at December 30, 2000 and December 25, 1999, respectively.
Net Income (Loss) Per Common Share
The Company calculates net income (loss) 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 (Loss) Per Common
Share - Basic. The Company calculates Net Income (Loss) Per Share - Dilutive by
dividing 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.
26
New Accounting Pronouncements
The Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities," and SFAS No. 137, "Deferral of the Effective Date of SFAS
No. 133," which establishes accounting and reporting standards requiring that
every derivative instrument (including certain derivative instruments embedded
in other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. If certain conditions are met, a
derivative may qualify for hedge accounting. Based on current operations, the
Company anticipates that the adoption of SFAS No. 133 at the beginning of fiscal
2001 will not have a significant impact on its results of operations.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101, "Revenue Recognition" (SAB No. 101), which provides
guidance on the recognition, presentation and disclosure of revenue in financial
statements. SAB No. 101 is effective for the Company no later than October 1,
2000. The adoption of SAB No. 101 did not have a material effect on the
Company's financial position or results of operations.
3. Receivables:
The Company's current receivables consisted of the following:
December 30, 2000 December 25, 1999
----------------- -----------------
Trade $4,622,300 $ 7,068,800
Royalty 1,475,800 3,188,500
Notes Receivable 370,600 2,013,500
Other 27,800 50,100
---------- -----------
6,496,500 12,320,900
Less: Long-term Notes (326,200) (1,156,300)
---------- -----------
Current Receivables $6,170,300 $11,164,600
========== ===========
As part of its normal operating procedures, the Company requires Standby Letters
of Credit as collateral for a portion of its trade receivables from its first-
year and second-year stores.
Included in accounts receivable above are notes receivable from the sale of
Company-owned retail stores bearing interest ranging from 8.0% to 12.5%, payable
in monthly principal and interest installments and maturing at various dates
from 2001 to 2006.
4. Acquisitions and Dispositions:
Disposition of Computer Renaissance(R)
On August 30, 2000, the Company completed the disposition of substantially all
the assets related to the Computer Renaissance(R) franchising and retailing
operations for $3.0 million to Hollis Technologies, LLC. One million dollars of
the purchase price is being held in an escrow account for up to 18 months from
August 30, 2000. Amounts received from the escrow will be recorded as
additional income when received. The sale resulted in a $537,200 pre-tax
operating gain, or $.06 per share diluted. In addition, the Company has entered
into a five-year $2.0 million consulting agreement to provide ongoing franchise
and business consulting services to Hollis Technologies, LLC. Pursuant to the
Consulting Agreement, Hollis Technologies, LLC agreed to make 60 equal monthly
payments of $33,333 to the Company over the term of the agreement. For the year
ended December 30, 2000, $100,000 of payments made on the Consulting Agreement
are reflected in other revenue of the accompanying financial statements.
27
Disposition of Corporate Headquarters
On July 10, 2000, the Company sold its corporate headquarters facility to Koch
Trucking, Inc. for $3.5 million in cash. Net proceeds from the sale were used
to pay down then existing bank debt. The Company entered into a four-year lease
for approximately 55% of the facility pursuant to which the Company will pay
annual base rent of $218,980. The sale resulted in a $731,000 gain to be
recognized over the 48-month lease term.
Disposition of It's About Games
In the third quarter of 1999, the Company made the decision to dispose of the
It's About Games brand. Accordingly, a restructuring charge and charge for
asset impairment of $11,345,500 was recorded. In December 1999, the Company
completed the sale of the assets of the Company's It's About Games brand. The
Company undertook an orderly liquidation of the inventory and other assets by
conducting a liquidation sale. Approximately 50% of the assets were disposed of
in three main transactions.
The first sale, of substantially all of the assets of 14 stores in Kentucky,
Maryland, Ohio and Pennsylvania, was for $114,200 plus inventory valued at 40%
of cost, which was paid in cash and by a promissory note. The second sale, of
substantially all of the assets of 14 stores in Ohio, was for $42,000 plus
inventory at 40% of cost, which was paid in cash and by a promissory note. The
third sale, was a bulk inventory sale for $140,000 cash. The remaining assets
of the It's About Games brand were disposed of by abandonment or liquidation.
Analysis of the restructuring portion of the reserve:
Facility Costs Employee Costs Other Costs Total
-------------- -------------- ----------- -----
Balance at September 25, 1999 $ 2,247,000 $ - $ 75,000 $2,322,000
Additional Provisions - 175,000 - 175,000
Amounts Paid (30,500) (149,800) (155,300) (335,600)
Amounts Reclassed (80,300) - 80,300 -
Amounts Reversed (350,000) - - (350,000)
--------------- ------------ ------------ ----------
Balance at December 25, 1999 $ 1,786,200 $ 25,200 $ - $1,811,400
--------------- ------------ ------------ ----------
Amounts Paid (966,600) (25,200) (2,300) (994,100)
Amounts Reclassed (2,300) - 2,300 -
--------------- ------------ ------------ ----------
Balance at December 30, 2000 $ 817,300 $ - $ - $ 817,300
=============== ============ ============ ==========
Acquisition of Tool Traders, Inc.
In April 1998, the Company announced the acquisition of certain assets and
franchising rights of Tool Traders, Inc. of Detroit, Michigan. The Company paid
$380,200 plus a percentage of future royalties for a period of seven years.
Acquisition of Plato's Closet, Inc.
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.
5. Nonrecurring Charge:
In 2000, the Company recorded a pre-tax, nonrecurring charge of $3.3 million in
the second quarter. This charge consists primarily of two components. First,
approximately $2.0 million relates to management's assessment of current
information relating to notes receivable and lease obligations booked in
connection with the 1998 sale of Company-owned stores. The other component
relates to re-evaluating its brands and Company-owned stores that are not
performing at expected levels. As a result of this re-evaluation, certain
intangible assets were written-down to reflect estimated realizability.
28
6. Shareholders' Equity:
Repurchase of Common Stock
Since November 1995, the Company's board of directors has authorized the
repurchase of up to 3,000,000 shares of the Company's common stock on the open
market. As of December 26, 1998, the Company had repurchased 2,560,828 shares
of its stock at an average price of $11.70 per share. No shares have been
repurchased since fiscal 1998.
Stock Option Plan
The Company has authorized up to 1,400,000 shares of common stock be reserved
for granting either nonqualified or incentive stock options to officers and key
employees under the Company's 1992 Stock Option Plan (the Plan). Grants can be
made by the board of directors or a board-designated committee at a price of not
less than 100% of the fair market value on the date of grant. If an incentive
stock option is granted to an individual who owns more than 10% of the voting
rights of the Company's common stock, the option exercise price may not be less
than 110% of the fair market value on the date of grant. The term of the
options may not exceed 10 years, except in the case of nonqualified stock
options, whereby the terms are established by the board of directors or a board-
designated committee. Options may be exercisable in whole or in installments,
as determined by the board of directors or a board-designated committee.
Stock options granted and exercised under the plan as of December 30, 2000 were
as follows:
Weighted Average
Number of Shares Exercise Price
----------------- --------------
Outstanding at December 27, 1997 698,862 $ 9.88
Granted 87,750 12.42
Exercised (170,051) 9.52
Forfeited (66,624) 11.35
-------- ------
Outstanding at December 26, 1998 549,937 9.54
Granted 150,000 4.25
Exercised (76,500) 7.58
Forfeited (192,061) 10.92
-------- ------
Outstanding at December 25, 1999 431,376 7.43
Granted 770,000 5.03
Exercised (36,000) 2.15
Forfeited (239,126) 7.80
-------- ------
Outstanding at December 30, 2000 926,250 $ 5.53
======== ======
Options outstanding as of December 30, 2000 are exercisable as follows:
Options Outstanding Options Exercisable
-------------------------------------------------------- ----------------------------------
Weighted
Average Weighted
Remaining Weighted Average
Range of Number Contractual Life Average Number Exercisable
Exercise Price Outstanding (Years) Exercise Price Exercisable Price
--------------- ---------- ------- -------------- ----------- ------
$ 4.25 - $ 5.1875 830,000 4.35 $ 4.97 15,000 $ 4.25
8.00 - 10.50 40,000 0.66 8.61 35,750 8.49
10.625 - 12.25 56,250 1.69 11.63 33,938 11.48
------- ------
926,250 84,688
======= ======
All unexercised options at December 30, 2000 have an exercise price equal to the
fair market value on the date of the initial grant.
29
Employee Stock Purchase Plan
The Company sponsors an Employee Stock Purchase Plan ("Employee Plan") and
reserved 100,000 shares of the Company's common stock for issuance to employees
who elect to participate. The Employee Plan operates in one-year phases and
stock may be purchased at the end of each phase. The stock purchase price is
85% of the fair market value of such common stock on the commencement date or
termination date of the phase, whichever is lower. In April 2000, the Company
issued 4,314 shares under the plan at a price of $6.56. As of December 30,
2000, contributions had been received for the issuance of 7,166 shares to be
issued in April 2001.
Other Options
The Company sponsors a Stock Option Plan for Nonemployee Directors (the
"Nonemployee Directors' Plan") and reserved a total of 250,000 shares for
issuance to directors of the Company who are not employees. The Nonemployee
Directors Plan provides that each director who is not an employee of the Company
will receive an option to purchase 25,000 common shares upon initial election as
a director at a price equal to the fair market value on the date of grant. Each
option granted under the Nonemployee Directors Plan vests and becomes
exercisable in five equal increments of 5,000 shares, beginning one year after
the date of grant.
The Company granted 100,000 options in 2000 to purchase the Company's common
stock at market value on the date of issuance ($6.50 per share) to four non-
employee directors. There were 100,000 shares outstanding with none exercisable
at December 30, 2000.
The Company accounts for the above plans under APB Opinion No. 25, and
accordingly, no compensation expense relating to the granting of options has
been recognized in the Statement of Operations. Had compensation cost for these
plans been determined consistent with Statement of Financial Accounting
Standards No. 123 "Accounting for Stock-Based Compensation" (SFAS 123), the
Company's proforma net income (loss) and net income (loss) per common share
would have changed to the following proforma amounts:
2000 1999 1998
---- ---- ----
Net Income (Loss): As Reported $(350,700) $(8,589,300) $7,243,800
Pro Forma $(944,900) $(8,685,300) $7,158,300
Net Income (Loss) Per Common Share
(Diluted): As Reported $ (.07) $ (1.65) $ 1.24
Pro Forma $ (.17) $ (1.67) $ 1.23
The fair value of each option granted subsequent to January 1, 1995 in
accordance with SFAS 123 was estimated to be $2.91, $2.53 and $4.53 in 2000,
1999 and 1998, respectively, on the date of the grant using the Black-Scholes
option pricing model with the following weighted average assumptions: risk free
interest rates of 6.22% in 2000, 5.98% in 1999 and 5.549% in 1998, expected life
of five years for 2000, 1999 and 1998, expected volatility of 64.17% in 2000,
64.13% in 1999 and 30.69% in 1998, no dividend yield expected in any year.
30
7. Revolving Line of Credit and Long-Term Debt:
The Company's revolving credit and long-term debt consisted of the following:
December 30, 2000 December 25, 1999
----------------- -----------------
Rush River Group, LLC (net of warrant discount) $4,083,000 $ -
TCF Bank Revolving Line of Credit - 6,165,900
TCF Bank Term Debt - 9,575,000
Note Payable 464,800 859,600
Other 240,600 215,600
---------- -----------
Total 4,788,400 16,816,100
Less: Current Portion (827,400) (9,287,600)
---------- -----------
$3,961,000 $ 7,528,500
========== ===========
On July 31, 2000, the Company paid in full all amounts outstanding on the bank
revolving line of credit with TCF National Bank Minnesota ("TCF Line") and bank
term note with TCF National Bank Minnesota ("TCF Note") that carried interest
rates at the bank's base rate plus one percent. To replace the bank debt, the
Company entered into a credit agreement with Rush River Group, LLC, an affiliate
of the Company, to provide in one or more term loans up to $7.5 million in the
aggregate of subordinate secured debt at a fixed rate of 14% per year ("Rush
River Facility"). The initial amount borrowed was $5.0 million amortized over
seven years with an additional $2.5 million available under the Rush River
Facility on similar terms upon 10-days' notice. In connection with the credit
agreement governing the Rush River Facility, the Company has agreed to maintain
shareholders' equity of $1,922,000. In addition, if there is a change in
control, as defined in the credit agreement, such change in control is
considered an event of default and Rush River Group, LLC may declare all loan(s)
under the Rush River Facility immediately due and payable.
In connection with the Rush River Facility, Rush River Group, LLC received a
warrant to purchase 200,000 shares of the Company's common stock at an exercise
price of $2.00 per share. The terms of the warrant allowed Rush River Group,
LLC to surrender the warrant in exchange for an increase in the annual interest
rate under the Rush River Facility from 14% to 18% if The Nasdaq Stock Market
required the shareholders of the Company to approve the warrant and such
approval was not received. On October 12, 2000, The Nasdaq Stock Market
confirmed that it did not require that the shareholders of the Company approve
the warrant. The warrant was not exercisable before such time. The warrants
were valued at $822,000 and are being amortized over the seven-year term of the
credit agreement. In management's opinion, the Rush River Facility was
negotiated at terms comparable to those that could be arranged with unrelated
parties.
In November 1998, the Company entered into a Repurchase of Rights and Settlement
Agreement and dropped its appeal of a February 1998 court ruling requiring the
Company to pay $2.0 million to an early partner in the original Play It Again
Sports(R) store. Under the agreement, the Company paid $400,000 and signed a
three-year note in which the Company is required to pay monthly principal and
interest payments at 8%. At December 30, 2000, the balance was $464,800.
Future maturities of long-term debt as of December 30, 2000 are as follows:
2001 $ 827,400
2002 434,900
2003 525,400
2004 635,900
2005 770,700
Thereafter 1,594,100
31
8. Income Taxes:
Components of the provision for income taxes were as follows:
December 30, 2000 December 25, 1999 December 26, 1998
----------------- ----------------- -----------------
Currently payable:
Federal $ 297,600 $ (4,217,600) $ 4,052,700
State 75,000 (605,000) 825,000
-------------- ---------------- ---------------
Subtotal 372,600 (4,822,600) 4,877,700
Deferred income tax benefit 215,800 (375,100) 207,500
-------------- ---------------- ---------------
Total tax provision $ 156,800 $ (5,197,700) $ 4,670,200
============== ================ ===============
The Company's effective tax rate varies from the statutory federal rate
primarily due to the effect of state income taxes. The Company also incurs
modest amounts of nondeductible meals and entertainment costs and goodwill
amortization.
Deferred income taxes are the result of provisions of the tax laws that either
require or permit certain items of income or expense to be reported for tax
purposes in different periods than they are reported for financial reporting.
The components of the deferred tax asset were as follows:
December 30, 2000 December 25, 1999
----------------- -----------------
Deferred settlement expense $ 182,200 $ 336,900
Deferred franchise fees 81,800 101,900
Accounts receivable and lease reserves 603,800 409,200
Accrued restructuring charge 320,400 710,000
Funds held in escrow 392,000 -
Other 709,800 516,200
---------------- ----------------
Net deferred tax asset $ 2,290,000 $ 2,074,200
================ ================
9. Commitments and Contingencies:
Employee Benefit Plan
The Company provides a 401(k) Savings Incentive Plan which covers substantially
all employees. The plan provides for matching contributions and optional
profit-sharing contributions at the discretion of the board of directors.
Employee contributions are fully vested; matching and profit-sharing
contributions are subject to a five-year service vesting schedule. Company
contributions to the plan for 2000, 1999 and 1998 were $274,300, $332,300 and
$279,500, respectively.
Operating Leases
The Company rents its corporate headquarters and conducts all of its retail
operations in leased facilities that expire over the next four years. A
majority of these leases require the Company to pay maintenance, insurance,
taxes and other expenses in addition to minimum annual rent. Total rent expense
under these operating leases was $1,006,600 in 2000, $2,834,200 in 1999 and
$2,531,600 in 1998. As of December 30, 2000, minimum rental commitments under
noncancelable operating leases are as follows:
2001 $780,200
2002 761,900
2003 663,800
2004 190,400
32
In addition to the operating leases obligations disclosed above, the Company has
remained a guarantor on Company-owned retail stores that have been either sold
or closed. As of December 30, 2000, the Company is contingently liable on these
leases for up to an additional $445,300. These leases have various expiration
dates through 2006. The Company's exposure is reduced as leases are paid,
expire or are renewed by the current operator of the location.
Litigation
The Company is exposed to a number of asserted and unasserted legal claims
encountered in the normal course of business. Management believes that the
ultimate resolution of these matters will not have a material adverse effect on
the financial position or results of operations of the Company.
Consulting Agreements
The Company has a consulting agreement with the former owner of Tool Traders,
Inc. The agreement requires the Company to pay the following percentages of
receipts from franchising ReTool(R) stores during the following periods:
September 14, 1999 through September 13, 2001 - 5%; September 14, 2001 through
September 13, 2003 - 4%; September 14, 2003 through September 13, 2004 - 3%;
September 14, 2004 through September 13, 2005 - 2% and September 14, 2005
through September 13, 2006 - 1%.
The Company has a consulting agreement with the former owner of Plato's Closet,
Inc. The agreement requires the Company to pay the following percentages of
receipts from franchising Plato's Closet(R) stores during the following
periods: January 1, 1999 through December 31, 2000 - 5%; January 1, 2001
through December 31, 2002 - 4%; January 1, 2003 through December 31, 2003 - 3%;
January 1, 2004 through December 31, 2004 - 2% and January 1, 2005 through
December 31, 2005 - 1%.
The Company has a five-year $2.0 million consulting agreement to provide ongoing
franchise and business consulting services to Hollis Technologies, LLC.
Pursuant to the Consulting Agreement, Hollis Technologies, LLC agreed to make 60
equal monthly payments of $33,333 to the Company over the term of the agreement.
10. Business Segment Information:
The Company is engaged in principally one business segment - developing,
licensing, franchising and servicing a system of retail stores which buy, sell,
trade and consign used and new products. The Company's revenue by retail store
brand was as follows:
December 30, 2000 December 25, 1999 December 26, 1998
----------------- ----------------- -----------------
Play It Again Sports(R) $ 33,220,600 $ 36,864,100 $ 54,347,400
Once Upon A Child(R) 4,797,400 5,372,300 5,305,700
Computer Renaissance(R)/(1)/ 3,991,200 6,569,500 12,279,700
Music Go Round(R) 4,298,200 4,015,000 5,503,400
Disc Go Round - - 1,426,700
It's About Games/(1)/ - 12,856,900 17,376,700
ReTool(R) 474,500 655,400 111,300
Plato's Closet(R) 764,900 225,200 -
------------- -------------- --------------
$ 47,546,800 $ 66,558,400 $ 96,350,900
============= ============== ==============
____________________________
(1) The Company disposed of these retail store brands. See Footnote 4 to the
financial statements.
The Company's significant assets are located within the United States and it
generates all revenues from United States operations other than 2000 franchising
revenues from Canadian operations of $1.8 million.
33
11. Quarterly Financial Data (Unaudited):
The Company's unaudited quarterly results for the years ended December 30, 2000
and December 25, 1999 were as follows:
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
2000
Total Revenue $12,807,300 $12,283,800 $ 11,541,500 $10,914,200
Income (Loss) from Operations 380,200 (2,630,200) 1,428,000 1,572,200
Net Income (Loss) 25,100 (1,797,700) 739,000 682,900
Net Income (Loss) Per Common Share -
Basic $ .00 $ (.33) $ .14 $ .13
Net Income (Loss) Per Common Share -
Diluted $ .00 $ (.33) $ .14 $ .12
1999
Total Revenue $18,535,400 $15,264,800 $ 16,673,600 $16,084,600
Income (Loss) from Operations (17,300) 88,200 (11,909,000) (656,000)
Net Income (Loss) (175,200) (121,300) (7,440,900) (851,900)
Net Income (Loss) Per Common Share -
Basic $ (.03) $ (.02) $ (1.43) $ (.16)
Net Income (Loss) Per Common Share -
Diluted $ (.03) $ (.02) $ (1.43) $ (.16)
34
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Grow Biz International, Inc.:
We have audited the accompanying consolidated balance sheets of Grow Biz
International, Inc. and Subsidiary (Minnesota corporations) as of December 30,
2000 and December 25, 1999, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended December 30, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Grow Biz
International, Inc. and Subsidiary as of December 30, 2000 and December 25,
1999, and the results of their operations and their cash flows for each of the
three years in the period ended December 30, 2000, in conformity with accounting
principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
February 2, 2001
35
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by Item 10 relating to our directors, certain of whom
are also executive officers, is incorporated by reference to the section
entitled "Election of Directors" appearing in the Registrant's proxy statement
for the annual meeting of stockholders to be held on May 2, 2001
The other executive officers of the Company are as follows:
NAME AGE POSITION
- ---- --- ---------
Paul F. Kelly 47 Vice President of Financial Services
Mark T. Hooley 34 Vice President and General Counsel
Charles V. Kanan 49 Vice President of Operations
Rebecca J. Geyer 35 Director of Once Upon A Child(R) & Plato's
Closet(R)
___________________________
Paul F. Kelly has served as Vice President of Financial Services of the Company
since November 2000. From August 2000 to November 2000, Mr. Kelly served as the
Acting Chief Financial Officer of the Company. Mr. Kelly was the Chief
Financial Officer of Lightdog.com, Inc., a family oriented internet service
provider, from January 2000 to June 2000. This internet start-up was unable to
obtain initial financing. In August 2000, Mr. Kelly, along with two other
creditors, filed an involuntary petition against Lightdog.com, Inc. in the U.S.
Bankruptcy Court. In November 2000, the court entered an order for relief under
Chapter 7 of the Bankruptcy Code. From January 1990 to August 1999, Mr. Kelly
served as Chief Financial Officer for Terry Feldman's Imports, Inc.
Mark T. Hooley has served as Vice President and General Counsel of the Company
since May 2000. From July 1999 to May 2000 Mr. Hooley served as an attorney
with the Minneapolis law firm of Briggs & Morgan, P.A. Mr. Hooley was an
attorney with the Minneapolis law firm of Mackall, Crounse & Moore, P.L.C. from
November 1993 to July 1999. Mr. Hooley is the son-in-law of Mr. Morgan.
Charles V. Kanan has served as Vice President of Operations of the Company since
May 2000 and President of Play It Again Sports(R) since January 1994. From
December 1990 to December 1991 Mr. Kanan served as Vice President of Marketing
and from January 1992 to December 1993, he served as Executive Vice President,
of Dahlberg, Inc.
Rebecca J. Geyer has served as Director of the Once Upon A Child(R) & Plato's
Closet(R) brands of the Company since May 2000. Ms. Geyer served as General
Manager of Once Upon A Child(R) from January 1999 to May 2000 and as General
Manager of Plato's Closet(R) from September 1999 to May 2000. From September
1997 to January 1999 Ms. Geyer served as Senior Manager of Operations and
Marketing for Once Upon A Child(R). Ms. Geyer served as Manager of Field
Operations from October 1994 to September 1997. She joined the Company in
September 1993 in the position of Field Operations Manager.
Other than John L. Morgan and Stephen M. Briggs, each of whom is subject to an
employment agreement, the term of office of each executive officer continues
until terminated by the Company.
36
There are no arrangements or understandings among any of the executive officers
of the Registrant and any other person (not an officer or director of the
Registrant acting as such) pursuant to which any of the executive officers were
selected as an officer of the Registrant.
Compliance with Section 16(a)
The section entitled "Section 16(a) Beneficial Ownership Reporting Compliance"
appearing in the Registrant's proxy statement for the annual meeting of
stockholders to be held on May 2, 2001, sets forth certain information with
respect to the reporting of purchases and sales of the Registrant's common stock
by certain "insiders" and the required information is incorporated herein by
reference.
ITEM 11: EXECUTIVE COMPENSATION.
The section entitled "Executive Compensation" appearing in the Registrant's
proxy statement for the annual meeting of stockholders to be held on May 2,
2001, sets forth certain information with respect to the compensation of
management of the Registrant and the required information is incorporated herein
by reference.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The section entitled "Security Ownership of Certain Beneficial Owners, Directors
and Executive Officers" appearing in the Registrant's proxy statement for the
annual meeting of stockholders to be held on May 2, 2001, sets forth certain
information with respect to the ownership of the Registrant's Common Stock and
the required information is incorporated herein by reference.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The section entitled "Certain Relationships and Related Transactions" appearing
in the Registrant's proxy statement for the annual meeting of stockholders to be
held on May 2, 2001, sets forth certain information with respect to certain
business relationships and transactions between the Registrant and its directors
and officers and the required information is incorporated herein by reference.
PART IV
ITEM 14: EXHIBITS AND REPORTS ON FORM 8-K.
(a.) The following documents are filed as a part of this Report:
1. Financial Statements.
The financial statements filed as part of this report are listed on
the Index to Financial Statements on page 20.
2. Exhibits.
37
Exhibit Number Description
-------------- -----------
3.1 Articles of Incorporation, as amended (Exhibit 3.1)/(1)/
3.2 By-laws, as amended and restated to date (Exhibit 3.2)/(1)/
10.1 Form of franchise agreement for Play It Again Sports(R)
(Exhibit 10.1)/(3)/
10.2 Form of franchise agreement for Once Upon A Child(R)
(Exhibit 10.2)/(3)/
10.3 Form of franchise agreement for Music Go Round(R) (Exhibit
10.4)/(3)/
10.4 Form of franchise agreement for ReTool(R) (Exhibit
10.6)/(6)/
10.5 Form of franchise agreement for Plato's Closet(R) (Exhibit
10.6)/(8)/
10.6 Asset Purchase Agreement dated January 24, 1992 with Sports
Traders, Inc. and James D. Van Buskirk ("Van Buskirk")
concerning acquisition of wholesale business, including
amendment dated March 11, 1992 (Exhibit 10.6 (a))/(1)/
10.7 Retail store agreement dated January 24, 1992 with Van
Buskirk (Exhibit 10.6 (b))/(1)/
10.8 Noncompetition and Consulting agreement dated January 1,
1990, as amended January 24, 1992, with Martha Morris
(Exhibit 10.7)/(1)/
10.9 1992 Stock Option Plan, including forms of stock option
agreement (Exhibit 10.12)/(1)(3)(5)/
10.10 Amendment No. 1 to the 1992 Stock Option Plan (Exhibit
10.15)/(2)(5)/
10.11 Amendment No. 2 to the 1992 Stock Option Plan (Exhibit
10.16)/(2)(5)/
10.12 Amendment No. 3 to the 1992 Stock Option Plan (Exhibit
10.16)/(4)(5)/
10.13* Amendment No. 4 to the 1992 Stock Option Plan/(5)/
10.14 Nonemployee Director Stock Option Plan, as amended,
including form of stock option agreement (Exhibit
10.16)/(2)(5)/
10.15 Employee Stock Purchase Plan of 1994 (Exhibit 10.17)/(2)(3)/
10.16 Letter of Agreement between the Company and Sheldon & Terry
Fleck related to the purchase of stock, dated July 3, 1999
(Exhibit 10.1)/(7)/
10.17 Consulting Agreement with Sheldon Fleck, dated November 17,
1999 (Exhibit 10.26)/(8)/
10.18 Employment Agreement with John L. Morgan, dated March 22,
2000 (Exhibit 10.1)/(5)(9)/
10.19 Non-qualified Stock Option Agreement with John Morgan, dated
March 22, 2000 (Exhibit 10.2)/(5)(9)/
10.20 Common Stock Warrant with Sheldon Fleck, dated March 22,
2000 (Exhibit 10.3)/(9)/
10.21 Credit Agreement with Rush River Group, LLC (Exhibit
10.1)/(10)/
10.22 Common Stock Warrant with Rush River Group, LLC (Exhibit
10.2)/(10)/
10.23 Real Estate Purchase Agreement with Stan Koch & Sons
Trucking, Inc. (Exhibit 10.3)/(10)/
10.24 Lease with Stan Koch & Sons Trucking, Inc. for Corporate
Headquarters (Exhibit 10.4)/(10)/
10.25* Employment Agreement with Stephen M. Briggs, dated December
14, 2000/(5)/
10.26* First Amendment to Employment Agreement with John L.
Morgan/(5)/
10.27* 2001 Stock Option Plan, including forms of stock option
agreements/(5)/
11.1* Statement of Computation of Per Share Earnings
21.1 Subsidiaries: Grow Biz Games, Inc., a Minnesota corporation
23.1* Consent of Arthur Andersen LLP Independent Public
Accountants
24.1 Power of Attorney (Contained on signature page to this
Form 10-K)
38
____________________________
* Filed Herewith
(1) Incorporated by reference to the specified exhibit to the Registration
Statement on Form S-1, effective August 24, 1993 (Reg. No. 33-65108).
(2) Incorporated by reference to the specified exhibit to the Annual Report on
Form 10-K for the fiscal year ended December 30, 1995.
(3) Incorporated by reference to the specified exhibit to the Annual Report on
Form 10-K for the fiscal year ended December 28, 1996.
(4) Incorporated by reference to the specified exhibit to the Annual Report on
Form 10-K for the fiscal year ended December 27, 1997.
(5) Indicates management contracts, compensation plans or arrangements required
to be filed as exhibits.
(6) Incorporated by reference to the specified exhibit to the Annual Report on
Form 10-K for the fiscal year ended December 26, 1998.
(7) Incorporated by reference to the specified exhibit to the Quarterly Report
on Form 10-Q for the quarter ended June 26, 1999.
(8) Incorporated by reference to the specified exhibit to the Annual Report on
Form 10-K for the fiscal year ended December 25, 1999.
(9) Incorporated by reference to the specified exhibit to the Quarterly Report
on Form 10-Q for the quarter ended March 25, 2000.
(10) Incorporated by reference to the specified exhibit to the Quarterly Report
on Form 10-Q for the quarter ended June 24, 2000.
(b.) Reports on Form 8-K:
-------------------
On March 29, 2000, the Company filed an 8-K related to the change in
management of the Company.
On May 26, 2000, the Company filed an 8-K related to the charge to second
quarter earnings.
On September 1, 2000, the Company filed an 8-K related to the disposition
of assets of the Computer Renaissance(R) concept.
On September 14, 2000, the Company filed an 8-K/A related to the
disposition of assets of the Computer Renaissance(R) concept.
On October 25, 2000, the Company filed an 8-K/A related to the disposition
of assets of the Computer Renaissance(R) concept.
39
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GROW BIZ INTERNATIONAL, INC. AND SUBSIDIARY
By: /s/ JOHN L. MORGAN Date: March 21, 2001
------------------------------------
John L. Morgan
Chairman and Chief Executive Officer
KNOWN TO ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John L. Morgan and Stephen M. Briggs and each of
them, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any amendments to this Form 10-K, and to file
the same, with exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying and confirming all
that said attorney-in-fact or his substitute or substitutes, may do or cause to
be done by virtue hereof.
In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JOHN L. MORGAN Chairman of the Board and chief Executive March 21, 2001
- -------------------------------------- Officer (principal executive officer)
John L. Morgan
/s/ STEPHEN M. BRIGGS President and Chief Operating Officer March 21, 2001
- --------------------------------------
Stephen M. Briggs
/s/ PAUL F. KELLY Vice President of Financial Services March 21, 2001
- -------------------------------------- (principal financial and accounting officer)
Paul F. Kelly
/s/ KIRK A. MACKENZIE Vice Chairman and Director March 21, 2001
- --------------------------------------
Kirk A. MacKenzie
/s/ WILLIAM D. DUNLAP, JR. Director March 21, 2001
- --------------------------------------
William D. Dunlap, Jr.
/s/ JENELE C. GRASSLE Director March 21, 2001
- --------------------------------------
Jenele C. Grassle
/s/ PAUL C. REYELTS Director March 21, 2001
- --------------------------------------
Paul C. Reyelts
/s/ MARK L. WILSON Director March 21, 2001
- --------------------------------------
Mark L. Wilson
40
EXHIBIT INDEX
GROW BIZ INTERNATIONAL, INC. AND SUBSIDIARY
FORM 10-K FOR THE YEAR ENDED DECEMBER 30, 2000
Exhibit Description
- ------- -----------
10.13 Amendment No. 4 to the 1992 Stock Option Plan
10.25 Employment Agreement with Stephen M. Briggs, dated December 14,
2000
10.26 First Amendment to Employment Agreement with John L. Morgan
10.27 2001 Stock Option Plan, including forms of stock option
agreements
11.1 Statement of Computation of Per Share Earnings
23.1 Consent of Independent Public Accountants