Business Context and Reporting Period
Company: Grow Biz International, Inc. (Note: Metadata listed "Winmark Corp," but filing text identifies "Grow Biz International, Inc.")
Reporting Period: Quarterly period ended June 27, 1998 (Six months ended June 27, 1998).
Business Model: Franchisor of retail concepts (e.g., Play It Again Sports, Once Upon A Child) that buy, sell, and trade used merchandise. The company also operates corporate retail stores and sells inventory to franchisees via a buying group.
Key Financial Metrics
| Metric | Six Months Ended June 27, 1998 | Six Months Ended June 28, 1997 |
|---|---|---|
| Total Revenue | $49,121,200 | $39,788,400 |
| Net Income | $4,903,900 | $1,539,300 |
| Diluted EPS | $0.79 | $0.25 |
| Operating Cash Flow | $7,285,600 | $2,638,400 |
| Cash and Equivalents (End) | $9,509,000 | $1,676,600 |
| Current Ratio | 1.8 to 1.0 | Filing text does not provide a clear value |
| Total Debt (Current + Long-Term) | $5,348,300 | Filing text does not provide a clear value |
Revenue Composition (Six Months 1998): Merchandise Sales ($37.4M), Royalties ($9.9M), Franchise Fees ($1.5M).
Material Changes vs. Prior Period
- Significant Gain on Sale: The company recorded a $5,231,500 operating gain from the sale of the "Disc Go Round" concept to CD Warehouse, Inc. on June 26, 1998. This transaction included $7.0 million in cash and the assumption of $384,000 in deferred franchise fees.
- Revenue Growth: Total revenue increased 23.5% year-over-year. Retail store sales surged 138.1% due to the acquisition of 40 Video Game Exchange stores in August 1997. Conversely, Buying Group revenue decreased 4.3% as franchisees purchased more directly from vendors.
- Profitability: Net income increased 218% year-over-year, driven primarily by the Disc Go Round sale gain and increased retail sales, partially offset by higher operating expenses.
- Liquidity: Cash and cash equivalents increased by $6.4 million to $9.5 million, bolstered by operating cash flow and proceeds from the asset sale.
Guidance, Outlook, and Risks
- Store Expansion: Management anticipates opening an additional 25 company-owned stores in 1998, targeting a total of over 85 company-owned stores by year-end.
- Franchise Growth: The impact of the Disc Go Round sale on royalty revenue is expected to be offset by the opening of new "ReTool" and "It's About Games" franchise stores.
- Buying Group Outlook: Buying group revenue is expected to remain consistent with prior year levels for the remainder of 1998.
- Liquidity Position: The company maintains a $5.0 million committed revolving line of credit (renewable July 31, 1999). Availability is reduced by a $2.0 million letter of credit related to litigation.
- Litigation Risk: The company is appealing a court ruling requiring a $2.0 million payment for development rights in a dispute with an early partner (Van Buskirk matter). The liability was recognized in 1997.
- Forward-Looking Risks: Risks include the ability to attract franchisees, collect receivables, acquire quality used merchandise, and control operating expenses.
Investor Verification Checklist
- Recurring Earnings: Verify core profitability by excluding the $5.2 million one-time gain from the Disc Go Round sale.
- Buying Group Trends: Monitor the continued decline in buying group revenue as franchisees bypass the company to buy directly from vendors.
- Debt Covenants: Review the terms of the $5.0 million revolving credit line and the impact of the $2.0 million letter of credit on borrowing capacity.
- Litigation Status: Confirm the status of the appeal regarding the $2.0 million Van Buskirk settlement obligation.
- Store Economics: Assess the performance of the newly acquired Video Game Exchange stores and the projected ROI on the 25 planned new company-owned stores.