Business Context and Reporting Period
Company: Grow Biz International, Inc. (Note: Metadata listed "WINMARK CORP" but filing text confirms "Grow Biz International, Inc.")
Filing Type: Form 10-Q (Unaudited)
Period Ended: March 31, 2001
Business Overview: The Company franchises retail brands (Play It Again Sports, Once Upon A Child, Music Go Round, ReTool, Plato's Closet) that buy, sell, trade, and consign used and new merchandise. It also operates corporate retail stores and sells inventory to franchisees via a buying group.
Key Financial Metrics
| Metric | Q1 2001 | Q1 2000 |
|---|---|---|
| Total Revenue | $10,152,300 | $12,807,300 |
| Net Income | $712,700 | $25,100 |
| Income from Operations | $1,297,200 | $380,200 |
| Net Cash from Operating Activities | $2,129,800 | $2,316,800 |
| Cash and Equivalents (End of Period) | $3,827,100 | $0 (Not reported) |
| Current Ratio | 1.9 to 1.0 | 1.1 to 1.0 |
| Long-Term Debt | $3,819,800 | $3,961,000 |
| Current Maturities of Debt | $693,500 | $827,400 |
| Net Income Per Share (Basic) | $0.13 | $0.00 |
Material Changes vs. Prior Period
- Revenue Decline: Total revenue decreased 20.7% to $10.2 million. Merchandise sales dropped 31.7% due to a strategic shift allowing franchisees to buy directly from vendors and the sale of the "Computer Renaissance" brand in late 2000.
- Profitability Surge: Despite lower revenue, Net Income increased 2,739.4% to $712,700. Operating income rose 241.2% to $1.3 million.
- Expense Reduction: Selling, General, and Administrative (SG&A) expenses fell 24.6% ($1.3 million decrease) primarily due to the elimination of costs associated with the sold Computer Renaissance brand and reduced executive salaries.
- Liquidity Improvement: Cash and cash equivalents increased by $1.8 million to $3.8 million, driven by strong operating cash flow and a $762,800 reduction in accounts receivable.
- Store Count: Total store count decreased from 907 to 900 (9 opened, 16 closed).
Guidance, Outlook, and Risks
- Outlook: Management believes the Rush River credit facility and future operating cash flows will be adequate to meet current obligations. No specific numerical guidance for the full year was provided.
- Debt Covenants: The Company maintains a $7.5 million credit facility with Rush River Group, LLC (affiliate). Outstanding balance is approximately $4.0 million at 14% interest. Covenants require minimum shareholder equity of $1,922,000 (currently $4.2 million).
- Contingencies: The Company is contingently liable on leases for sold or closed stores up to $484,200 through 2006.
- Market Risk: The Company utilizes fixed-rate loan agreements, minimizing exposure to interest rate fluctuations.
- Unusual Items: "Other" revenue increased 78.2% due to approximately $100,000 in consulting fees from Hollis Technologies, LLC.
Investor Verification Checklist
- Revenue Quality: Verify the sustainability of the 15.8% royalty growth (excluding the sold Computer Renaissance brand) versus the 31.7% drop in merchandise sales.
- Debt Structure: Confirm the terms of the Rush River Group credit facility, specifically the 14% interest rate and the "change of control" default clause.
- Contingent Liabilities: Assess the risk exposure of the $484,200 in lease guarantees for closed/sold locations.
- Store Performance: Review the impact of closing 16 stores versus opening 9 on future royalty streams and franchise fee revenue.
- One-Time Gains: Isolate the $100,000 consulting fee in "Other" revenue to determine core operating performance.