UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 27, 1998 Commission File Number 0-22012 GROW BIZ INTERNATIONAL, INC. (Exact Name of Registrant as Specified in Its Charter) Minnesota 41-1622691 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification Number) 4200 Dahlberg Drive Golden Valley, MN 55422-4837 (Address of Principal Executive Offices, Zip Code) Registrant's Telephone Number, Including Area Code 612-520-8500 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes: __X__ No: _____ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common stock, no par value, 6,089,470 shares outstanding as of July 30, 1998.
GROW BIZ INTERNATIONAL, INC. INDEX PART I. FINANCIAL INFORMATION PAGE - -------------------------------------------------------------------------------- Item 1. Financial Statements (Unaudited) CONDENSED BALANCE SHEETS: 3 June 27, 1998 and December 27, 1997 CONDENSED STATEMENTS OF OPERATIONS: 4 Three Months Ended June 27, 1998 and June 28, 1997 Six Months Ended June 27, 1998 and June 28, 1997 CONDENSED STATEMENTS OF CASH FLOWS: 5 Six Months Ended June 27, 1998 and June 28, 1997 NOTES TO CONDENSED FINANCIAL STATEMENTS 6 - 7 Item 2. Management's Discussion and Analysis of Financial 8 - 13 Condition and Results of Operations PART II. OTHER INFORMATION PAGE - -------------------------------------------------------------------------------- Items 1 through 3 and 5 have been omitted since all items are inapplicable or answers negative. Item 4. Submission of Matters to a Vote of Security-holders 14 Item 6. Exhibits and Reports on Form 8-K (a.) Exhibit Number: Description: ------- ------------ 27 Financial Data Schedule 99 Cautionary Statements (b.) On July 9, 1998, the Company filed an 8-K related to the disposition of Disc Go Round to CD Warehouse, Inc. with the following exhibit: 10.1 Asset Purchase Agreement, dated June 16, 1998 2
GROW BIZ INTERNATIONAL, INC. CONDENSED BALANCE SHEETS (UNAUDITED) <TABLE> <CAPTION> ---------------------------------- June 27, 1998 December 27, 1997 ---------------------------------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents $ 9,509,000 $ 3,088,000 Trade receivables, less allowance for doubtful accounts of $915,900 and $880,000 11,109,500 12,880,700 Inventories 6,064,300 5,728,600 Prepaid expenses and other 1,955,900 1,987,300 Deferred income taxes 1,491,600 1,491,600 ----------- ----------- Total current assets 30,130,300 25,176,200 Notes receivable 197,200 184,000 Property and equipment, net 5,452,100 5,617,900 Other assets, net 5,578,200 6,776,500 ----------- ----------- $41,357,800 $37,754,600 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 5,246,400 $ 6,604,800 Accrued liabilities 6,014,300 3,781,500 Current maturities of long-term debt 2,164,200 2,061,400 Deferred franchise fee revenue 2,965,900 3,588,000 ----------- ----------- Total current liabilities 16,390,800 16,035,700 Long-Term Debt 3,184,100 4,268,200 Shareholders' Equity: Common stock, no par, 10,000,000 shares authorized, 6,079,907 and 6,002,214 shares issued and outstanding 6,903,200 7,474,900 Retained earnings 14,879,700 9,975,800 ----------- ----------- Total shareholders' equity 21,782,900 17,450,700 ----------- ----------- $41,357,800 $37,754,600 =========== =========== </TABLE> The accompanying notes are an integral part of these financial statements 3
GROW BIZ INTERNATIONAL, INC. CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) <TABLE> <CAPTION> ------------------------------------------------------------------------ Three Months Ended Six Months Ended June 27, 1998 June 28, 1997 June 27, 1998 June 28, 1997 ------------------------------------------------------------------------ <S> <C> <C> <C> <C> REVENUE: MERCHANDISE SALES $17,205,700 $15,199,200 $37,398,500 $29,578,400 ROYALTIES 5,203,900 4,330,700 9,886,000 8,256,400 FRANCHISE FEES 1,032,300 1,074,700 1,547,500 1,607,700 ADVERTISING AND OTHER 55,900 74,400 289,200 345,900 ----------- ----------- ----------- ----------- TOTAL REVENUE 23,497,800 20,679,000 49,121,200 39,788,400 COST OF MERCHANDISE SOLD 14,136,800 13,404,500 30,758,900 26,064,500 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 7,714,600 5,684,800 15,540,300 11,307,900 GAIN ON SALE OF DISC GO ROUND 5,231,500 -- 5,231,500 -- ----------- ----------- ----------- ----------- INCOME FROM OPERATIONS 6,877,900 1,589,700 8,053,500 2,416,000 INTEREST INCOME, NET 51,300 45,200 12,100 115,700 ----------- ----------- ----------- ----------- INCOME BEFORE INCOME TAXES 6,929,200 1,634,900 8,065,600 2,531,700 PROVISION FOR INCOME TAXES 2,716,200 640,900 3,161,700 992,400 ----------- ----------- ----------- ----------- NET INCOME $ 4,213,000 $ 994,000 $ 4,903,900 $ 1,539,300 =========== =========== =========== =========== NET INCOME PER COMMON SHARE - BASIC $ .70 $ .16 $ .82 $ .25 =========== =========== =========== =========== WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC 5,994,100 6,105,800 5,985,600 6,180,200 =========== =========== =========== =========== NET INCOME PER COMMON SHARE - DILUTED $ .68 $ .16 $ .79 $ .25 =========== =========== =========== =========== WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED 6,211,900 6,223,500 6,183,300 6,281,300 =========== =========== =========== =========== </TABLE> The accompanying notes are an integral part of these financial statements 4
GROW BIZ INTERNATIONAL, INC. CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) <TABLE> <CAPTION> ----------------------------------- Six Months Ended June 27, 1998 June 28, 1997 ----------------------------------- <S> <C> <C> OPERATING ACTIVITIES: Net income $ 4,903,900 $ 1,539,300 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,039,300 888,900 Change in operating assets and liabilities: Trade receivables 1,542,900 450,300 Inventories (613,600) 11,200 Prepaid expenses and other 27,400 (395,700) Accounts payable (1,358,400) (6,600) Accrued liabilities 2,082,200 (265,500) Deferred franchise fee revenue (338,100) 416,500 ----------- ----------- Net cash provided by operating activities 7,285,600 2,638,400 ----------- ----------- INVESTING ACTIVITIES: Increase in other assets (400,200) (69,500) Purchase of property and equipment (679,900) (35,600) Sale of net assets of Disc Go Round, net of gain 1,768,500 -- ----------- ----------- Net cash provided by investing activities 688,400 (105,100) ----------- ----------- FINANCING ACTIVITIES: Proceeds from notes payable 130,200 267,000 Payments on long-term debt (1,111,500) (73,100) Proceeds from stock option exercises 623,800 182,400 Repurchase of common stock (1,195,500) (2,621,800) ----------- ----------- Net cash used for financing activities (1,553,000) (2,245,500) ----------- ----------- INCREASE IN CASH AND CASH EQUIVALENTS 6,421,000 287,800 Cash and cash equivalents, beginning of period 3,088,000 1,388,800 ----------- ----------- Cash and cash equivalents, end of period $ 9,509,000 $ 1,676,600 =========== =========== </TABLE> The accompanying notes are an integral part of these financial statements 5
GROW BIZ INTERNATIONAL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS 1. MANAGEMENT'S INTERIM FINANCIAL STATEMENT REPRESENTATION: The accompanying condensed financial statements have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. The information in the condensed financial statements includes normal recurring adjustments and reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of such financial statements. Although the Company believes that the disclosures are adequate to make the information presented not misleading, it is suggested that these condensed financial statements be read in conjunction with the audited financial statements and the notes thereto included in the Company's latest Annual Report on Form 10-K. Revenues and operating results for the six months ended June 27, 1998 are not necessarily indicative of the results to be expected for the full year. 2. ORGANIZATION AND BUSINESS: Grow Biz International, Inc. (the 'Company') offers licenses to operate retail stores using the service marks 'Play it Again Sports', 'Once Upon A Child', 'Computer Renaissance', 'Music Go Round', 'It's About Games' and 'ReTool'. In addition, the Company sells inventory to its franchisees through its buying group and operates retail stores. The Company has a 52/53 week year which ends on the last Saturday in December. 3. SALE OF DISC GO ROUND On June 26, 1998, Grow Biz International, Inc., (the Company) completed the sale of the assets, primarily intangibles, and franchising rights of its Disc Go Round concept to CD Warehouse, Inc. (CD Warehouse) 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 stores in operation, including 3 Company-owned stores, and an additional 37 franchise agreements awarded for stores that were not yet opened. The sale resulted in a $5,231,500 operating gain, or $.51 per share diluted, in the second quarter ending June 27, 1998. 4. SHAREHOLDERS' EQUITY: Since 1995, the Company's Board of Directors has authorized the repurchase of up to 2,000,000 shares of the Company's common stock on the open market. As of July 30, 1998, the Company had repurchased 1,608,736 shares of its stock at an average price of $9.67 per share, including 39,000 shares repurchased at an average price of $13.12 per share in the three months ended June 27, 1998. 6
5. LITIGATION: In connection with an action filed by an early partner in the original Play It Again Sports store, the Company received a court ruling in February 1998 on a motion filed by the plaintiff stating that an enforceable settlement agreement existed between the two parties. The Company has appealed the order which requires the Company to pay $2.0 million to purchase certain development rights held by the plaintiff from a 1992 agreement. The order further directed that all claims between the parties be dismissed. The Company recognized the entire $2.0 million as a non-operating expense in the year ended December 27, 1997. 6. NET INCOME PER COMMON SHARE: The Company calculates net income per share in accordance with FASB Statement No. 128 by dividing net income by the weighted average number of shares of common stock outstanding to arrive at the Net Income Per Common Share Basic. The Company calculates Net Income Per Share - Dilutive by diving net income by the weighted average number of shares of common stock outstanding plus the dilutive effect of stock equivalents from the exercise of stock options and warrants using the treasury stock method. A reconciliation of basic weighted average number of shares outstanding to dilutive average number of shares outstanding is as follows: <TABLE> <CAPTION> ---------------------------------- Three Months Ended June 28, 1997 June 27, 1998 ---------------------------------- <S> <C> <C> Shares used in per common share computation: Weighted average shares outstanding - Basic 6,105,800 5,994,100 Dilutive effect of stock options after application of the treasury stock method 117,700 217,800 --------- --------- Weighted average shares outstanding - Diluted 6,223,500 6,211,900 ========= ========= ---------------------------------- Six Months Ended June 28, 1997 June 27, 1998 ---------------------------------- Shares used in per common share computation: Weighted average shares outstanding - Basic 6,180,200 5,985,600 Dilutive effect of stock options after application of the treasury stock method 101,100 197,700 --------- --------- Weighted average shares outstanding - Diluted 6,281,300 6,183,300 ========= ========= </TABLE> 7
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. GENERAL Grow Biz International, Inc., (the Company) is a franchise company that franchises retail concepts which buy, sell, trade and consign merchandise. Each concept operates in a different industry and provides the consumer with 'ultra-high value' retailing by offering quality used merchandise at substantial savings from the price of new merchandise and by purchasing customers' used goods that have been outgrown or are no longer used. The stores also offer new merchandise to supplement their selection of used goods. Following is a summary of the Company's franchising and corporate retail store activity for the retail concepts for the three months ended June 27, 1998: <TABLE> <CAPTION> ------------------------------------------------------------------------------- TOTAL OPENED/ SALE OF TOTAL 3/28/98 PURCHASED CLOSED CONVERTED BUSINESS 6/27/98 ------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> Play It Again Sports(R) Franchised Stores - US and Canada 642 10 (19) 0 (0) 633 Franchised Stores - Other International 8 0 (0) 0 (0) 8 Corporate 5 0 (0) 0 (0) 5 Other 22 0 (0) 0 (0) 22 Once Upon A Child(R) Franchised Stores - US and Canada 202 3 (1) 0 (0) 204 Corporate 5 0 (0) 0 (0) 5 Computer Renaissance(R) Franchised Stores - US and Canada 190 13 (2) 0 (0) 201 Corporate 7 0 (0) 0 (0) 7 Music Go Round(R) Franchised Stores - US and Canada 39 7 (0) 0 (0) 46 Corporate 4 2 (0) 0 (0) 6 Disc Go Round(R) Franchised Stores - US and Canada 135 4 (2) 0 (137) 0 Corporate 3 0 (0) 0 (3) 0 It's About Games(TM) Franchised Stores - US and Canada 1 0 (0) 0 (0) 1 Corporate 42 2 (0) 0 (0) 44 ReTool(TM) Franchised Stores - US and Canada 0 2 (0) 0 (0) 2 Corporate 0 0 (0) 0 (0) 0 ------------------------------------------------------------------------------ Total 1,305 43 (24) 0 (140) 1,184 ============================================================================== </TABLE> 8
Following is a summary of the Company's franchising and corporate retail store activity for the six months ended June 28, 1997: <TABLE> <CAPTION> ------------------------------------------------------------------------------- TOTAL OPENED/ SALE OF TOTAL 12/27/97 PURCHASED CLOSED CONVERTED BUSINESS 6/27/98 ------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> Play It Again Sports(R) Franchised Stores - US and Canada 654 15 (36) 0 (0) 633 Franchised Stores - Other International 8 0 (0) 0 (0) 8 Corporate 5 0 (0) 0 (0) 5 Other 22 0 (0) 0 (0) 22 Once Upon A Child(R) Franchised Stores - US and Canada 204 5 (4) (1) (0) 204 Corporate 4 0 (0) 1 (0) 5 Computer Renaissance(R) Franchised Stores - US and Canada 180 23 (2) 0 (0) 201 Corporate 7 0 (0) 0 (0) 7 Music Go Round(R) Franchised Stores - US and Canada 38 8 (0) 0 (0) 46 Corporate 4 2 (0) 0 (0) 6 Disc Go Round(R) Franchised Stores - US and Canada 132 8 (3) 0 (137) 0 Corporate 3 0 (0) 0 (3) 0 It's About Games(TM) Franchised Stores - US and Canada 0 1 (0) 0 (0) 1 Corporate 42 2 (0) 0 (0) 44 ReTool(TM) Franchised Stores - US and Canada 0 2 (0) 0 (0) 2 Corporate 0 0 (0) 0 (0) 0 ------------------------------------------------------------------------------- Total 1,303 66 (45) 0 (140) 1,184 =============================================================================== </TABLE> FACTORS THAT MAY AFFECT FUTURE RESULTS The statements made in this report that are not historical facts are forward looking statements. Such statements are based on current expectations but involve risks, uncertainties and other factors which may cause actual results to differ materially from those contemplated by such forward looking statements. Important factors which may result in variations from results contemplated by such forward looking statements include, but are not limited to: (1) the Company's ability to attract qualified franchisees; (2) the Company's ability to collect its receivables; (3) the Company's ability to open stores; (4) each store's ability to acquire high-quality, used merchandise; (5) the Company's ability to control selling, general and administrative expenses; and (6) the Company's ability to obtain competitive financing to fund its growth. The Company's strategy focuses on enhancing revenue and profitability of all store locations and the opening of additional stores. The Company's growth strategy is premised on a number of assumptions concerning trends in each of the retail industries as well as trends in franchising and the economy. To the extent that the Company's assumptions with respect to any of these matters are inaccurate, its results of operations and financial condition could be adversely affected. 9
SALE OF DISC GO ROUND On June 26, 1998, Grow Biz International, Inc., (the Company) completed the sale of the assets, primarily intangibles, and franchising rights of its Disc Go Round concept to CD Warehouse, Inc. (CD Warehouse) 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 stores in operation, including 3 Company-owned stores, and an additional 37 franchise agreements awarded for stores that were not yet opened. The sale resulted in a $5,231,500 operating gain, or $.51 per share diluted, in the second quarter ending June 27, 1998. RESULTS OF OPERATIONS The following table sets forth for the periods indicated, certain income statement items as a percentage of total revenue and the percentage change in the dollar amounts from the prior period: <TABLE> <CAPTION> ---------------------------------------------------------------------------- Three Months Ended Six Months Ended June 27, 1998 June 28, 1997 June 27, 1998 June 28, 1997 ---------------------------------------------------------------------------- <S> <C> <C> <C> <C> Revenue: Merchandise sales 73.2% 73.5% 76.1% 74.3% Royalties 22.1 20.9 20.1 20.8 Franchise fees 4.4 5.2 3.2 4.0 Advertising and other 0.3 0.4 0.6 0.9 ------- ------- ------- ------- Total revenues 100.0% 100.0% 100.0% 100.0% Cost of merchandise sold (60.2) (64.8) (62.6) (65.5) Selling, general and administrative expenses (32.8) (27.5) (31.7) (28.4) Gain on the sale of Disc Go Round 22.3 0.0 10.7 0.0 ------- ------- ------- ------- Income from operations 29.3 7.7 16.4 6.1 Interest and other income, net 0.2 0.2 0.0 0.3 ------- ------- ------- ------- Income before income taxes 29.5 7.9 16.4 6.4 Provision for income taxes 11.6 3.1 6.4 2.5 ------- ------- ------- ------- Net income 17.9% 4.8% 10.0% 3.9% ======= ======= ======= ======= </TABLE> COMPARISON OF THREE MONTHS ENDED JUNE 27, 1998 TO THREE MONTHS ENDED JUNE 28, 1997 REVENUES Revenues for the quarter ended June 27, 1998 totaled $23.5 million compared to $20.7 million for the comparable period in 1997. Merchandise sales increased to $17.2 million for the three months ended June 27, 1998 from $15.2 million for the same period in 1997. Merchandise sales consist of the sale of product to the Play It Again Sports franchisees through the buying group and retail sales at the Company-owned stores. For the second quarter of 1998 and 1997 they were as follows:
1998 1997 ---- ---- Buying Group $ 10,414,900 $ 11,986,300 Retail Sales 6,790,800 3,212,900 ------------ ------------- Merchandise Sales $ 17,205,700 $ 15,199,200 ============ ============= Buying group revenue decreased 13.1% for the three months ended June 27, 1998 compared to the same period last year as a result of more franchisees purchasing merchandise directly from vendors. It is anticipated that buying group revenue for the remainder of 1998 will be consistent with the prior year. Retail store sales increased $3.6 million, or 111.4%, in the three months ended June 27, 1998 compared to the same period in 1997 as a result of acquiring forty Video Game Exchange, Inc. stores in August 1997 and an increase in comparable store sales. Retail sales are expected to continue to increase as the Company opens an additional twenty-five Company-owned stores in 1998. It is anticipated the total number of Company-owned stores will be over eighty-five by the end of 1998. Royalties increased 20.2% to $5.2 million for the second quarter of 1998 from $4.3 million for the same period in 1997, primarily due to the expanded base of franchise stores and an increase in comparable store sales. Royalty growth is expected to slow slightly in the near future due to the sale of Disc Go Round. Franchise fee income, which is recognized when the store is open, is consistent with the prior year. We anticipate store openings for the twelve months ended December 26, 1998 to be consistent with the same period in 1997, and that the impact of the sale of Disc Go Round will be offset by the opening of ReTool and It's About Games franchise stores. COST OF MERCHANDISE SOLD Cost of merchandise sold includes the cost of merchandise sold through the buying group and at Company-owned retail stores. For the three months ended June 27, 1998 the cost of merchandise sold as a percentage of the related revenue was consistent with the previous year as shown in the following table: 1998 1997 ---- ---- Buying Group 95.5% 95.2% Retail Stores 61.7 62.1 SELLING, GENERAL AND ADMINISTRATIVE The $2.0 million, or 35.7%, increase in operating expenses in the three months ended June 27, 1998 compared to the same period in 1997 is primarily due to the costs related to operating the Video Game Exchange, Inc. stores acquired in August 1997. Operating expenses are expected to continue to increase proportionately with the opening of the additional Company-owned retail stores. Net income for the second quarter of 1998 was $4.2 million, or $.68 per share diluted, compared to $994,000, or $.16 per share diluted, in the same period of 1997. The second quarter of 1998 earnings include the $5.2 million gain on the sale of Disc Go Round. This gain, net of taxes, represents $3.2 million, or $.51 per share diluted.
COMPARISON OF SIX MONTHS ENDED JUNE 27, 1998 TO SIX MONTHS ENDED JUNE 28, 1997 REVENUES Revenues for the six months ended June 27, 1998 were $49.1 million compared to $39.8 million for the comparable period in 1997. Merchandise sales consist of the sale of product to the Play It Again Sports franchisees through the buying group and retail sales at the Company-owned stores. For the first six months of 1998 and 1997 merchandise sales were as follows: 1998 1997 ---- ---- Buying Group $ 22,197,100 $ 23,192,700 Retail Sales 15,201,400 6,385,700 ------------ ------------ Merchandise Sales $ 37,398,500 $ 29,578,400 ============ ============ The 4.3% decrease in buying group sales for the six months ended June 27, 1998 compared to the same period last year was as a result of more franchisees purchasing merchandise directly from vendors during the period. It is anticipated that buying group revenue will be consistent with the prior year. Retail store sales increased $8.8 million, or 138.1%, in the first six months of 1998 compared to 1997 as a result of acquiring forty Video Game Exchange, Inc. stores in August 1997. Retail sales are expected to continue to increase as the Company opens an additional twenty-five Company-owned stores in 1998. It is anticipated the total number of Company-owned store will be over eighty-five by the end of 1998. Royalties increased to $9.9 million for the first six months of 1998 from $8.3 million for the same period in 1997, primarily due to the expanded base of franchise stores and an increase in comparable store sales. Royalty growth is expected to slow in the near future due to the sale of Disc Go Round. Franchise fee income is consistent with the prior year. We anticipate store openings for the twelve months ended December 26, 1998 to be consistent with the same period in 1997, and that the impact of the sale of Disc Go Round will be offset by the opening of ReTool and It's About Games franchise stores. COST OF MERCHANDISE SOLD Cost of merchandise sold includes the cost of merchandise sold through the buying group and at Company-owned retail stores. For the six months ended June 27, 1998 the cost of merchandise sold as a percentage of the related revenue was consistent with the previous year as shown in the following table: 1998 1997 ---- ---- Buying Group 95.8% 95.1% Retail Stores 62.4 62.8
SELLING, GENERAL AND ADMINISTRATIVE The $4.2 million, or 37.4%, increase in operating expense for the six months ended June 27, 1998 compared to the same period in 1997 is primarily due to the costs related to operating the Video Game Exchange, Inc. stores acquired in August 1997, along with the costs incurred to begin franchising the It's About Games and ReTool concepts. Operating expenses are expected to continue to increase proportionately with the opening of the additional Company-owned retail stores. Net income for the first half of 1998 was $4.9 million, or $.79 per share diluted, compared to $1.5 million, or $.25 per share diluted, in the same period of 1997. The first half of 1998 earnings include the $5.2 million gain on the sale of Disc Go Round. This gain, net of taxes, represents $3.2 million, or $.51 per share diluted. LIQUIDITY AND CAPITAL RESOURCES The Company ended the period with $9.5 million in cash and had a current ratio of 1.8 to 1.0. During the six months ended June 27, 1998, the Company's operating activities provided $7.3 million of cash. The increase is primarily due to pretax net income of $8.1 million, which includes a $5.2 million gain from the sale of Disc Go Round. In addition, accrued liabilities increased $2.1 million primarily as a result of recording the tax liability relating to the sale of Disc Go Round. The Company's investing activities provided $688,400 as a result of the disposition of $1.7 million of certain net assets of Disc Go Round being offset by a increase of $1.1 million for purchases of property and equipment and other assets. The Company's $1.6 million use of cash for financing activities in the first six months of 1998 was due to note payable payments and the repurchase of 95,373 shares of the Company's common stock offset by cash received from the exercise of options and warrants to purchase 77,443 shares of the Company's common stock. The Company has a $5.0 million committed revolving line of credit agreement which is due for renewal on July 31, 1999. Borrowings against the line carry an interest rate of prime which was 8.5% at June 27, 1998. The available line is reduced by a $2.0 million letter of credit issued by the Company in March 1998 in connection with its appeal of a court ruling on a motion in the Van Buskirk litigation matter. The Company believes that its current cash position, cash generated from future operations, availability of line of credit borrowings and additional capacity for debt will be adequate to meet the Company's current obligations and operating needs.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS At the Annual Shareholders meeting held on April 30, 1997, the Company submitted to a vote of security-holders the following matters which received the indicated votes: 1. Approving setting the number of members of the Board of Directors at six (6): Broker For: 5,499,183 Against: 5,114 Abstain: 3,563 Non-Vote: 0 2. Election of Directors: For: Withheld: K. Jeffrey Dahlberg 5,281,739 226,121 Ronald G. Olson 5,283,339 224,521 Randel S. Carlock 5,281,839 226,021 Dennis J. Doyle 5,282,339 225,521 Robert C. Pohlad 5,280,289 227,571 Bruce C. Sanborn 5,283,339 224,542 3. Approving an amendment to the Company's 1992 Stock Option Plan to increase the number of common shares authorized for issuance thereunder by 300,000 shares: Broker For: 4,525,836 Against: 261,511 Abstain: 7,507 Non-Vote: 713,006 4. Ratifying the appointment of Arthur Andersen LLP as independent auditors for the current fiscal year: Broker For: 5,501,746 Against: 2,216 Abstain: 3,898 Non-Vote: 0
2. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GROW BIZ INTERNATIONAL, INC. Date: August 6, 1998 By: /s/ Ronald G. Olson ------------------- Ronald G. Olson President and Chief Executive Officer Date: August 6, 1998 By: /s/ David J. Osdoba, Jr. ------------------------ David J. Osdoba, Jr. Vice President of Finance and Chief Financial Officer