10-Q

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 25, 2022

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                   to                  

Commission File Number: 000-22012

WINMARK CORPORATION

(Exact name of registrant as specified in its charter)

Minnesota	41-1622691
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

605 Highway 169 North, Suite 400, Minneapolis, MN 55441

(Address of principal executive offices) (Zip Code)

(763) 520-8500

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:	Trading Symbol	Name of each exchange on which registered:
Common Stock, no par value per share	WINA	Nasdaq Global Market

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 ☒              No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒              No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Non-accelerated filer   ☒ Accelerated filer ☐ Smaller reporting company ☒ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐              No ☒

Common stock, no par value, 3,437,702 shares outstanding as of July 12, 2022.

WINMARK CORPORATION AND SUBSIDIARIES

INDEX

		PAGE
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	CONSOLIDATED CONDENSED BALANCE SHEETS June 25, 2022 and December 25, 2021	3
	CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS Three Months Ended June 25, 2022 and June 26, 2021 Six Months Ended June 25, 2022 and June 26, 2021	4
	CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT): Three Months Ended June 25, 2022 and June 26, 2021 Six Months Ended June 25, 2022 and June 26, 2021	5
	CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS Six Months Ended June 25, 2022 and June 26, 2021	6
	NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	20
Item 4.	Controls and Procedures	20
PART II.	OTHER INFORMATION	21
Item 1.	Legal Proceedings	21
Item 1A.	Risk Factors	21
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	21
Item 3.	Defaults Upon Senior Securities	22
Item 4.	Mine Safety Disclosures	22
Item 5.	Other Information	22
Item 6.	Exhibits	22
	SIGNATURES	23

2

PART I.          FINANCIAL INFORMATION

ITEM 1: Financial Statements

WINMARK CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

(Unaudited)

	June 25, 2022		December 25, 2021
ASSETS
Current Assets:
Cash and cash equivalents	$	8,696,600	$	11,407,000
Restricted cash		55,000		30,000
Receivables, less allowance for doubtful accounts of $500 and $600		1,321,800		1,103,400
Net investment in leases - current		1,870,100		2,890,600
Income tax receivable		869,000		667,500
Inventories		603,400		325,200
Prepaid expenses		861,000		1,008,600
Total current assets		14,276,900		17,432,300
Net investment in leases - long-term		111,000		229,300
Property and equipment, net		1,815,300		1,976,900
Operating lease right of use assets		2,859,800		2,982,000
Intangible assets, net		3,525,200		—
Goodwill		607,500		607,500
Other assets		420,500		418,300
Deferred income taxes		3,438,100		3,252,700
	$	27,054,300	$	26,899,000
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
Current Liabilities:
Notes payable, net of unamortized debt issuance costs of $32,100 and $17,400	$	4,217,900	$	4,232,600
Accounts payable		1,889,300		2,099,000
Accrued liabilities		4,563,100		2,001,000
Deferred revenue		1,631,100		1,645,000
Total current liabilities		12,301,400		9,977,600
Long-Term Liabilities:
Line of credit/Term loan		30,000,000		—
Notes payable, net of unamortized debt issuance costs of $136,900 and $61,100		41,175,700		43,376,400
Deferred revenue		6,849,200		6,863,500
Operating lease liabilities		4,561,500		4,810,100
Other liabilities		945,200		954,800
Total long-term liabilities		83,531,600		56,004,800
Shareholders’ Equity (Deficit):
Common stock, no par value, 10,000,000 shares authorized, 3,437,806 and 3,635,806 shares issued and outstanding		—		—
Retained earnings (accumulated deficit)		(68,778,700)		(39,083,400)
Total shareholders’ equity (deficit)		(68,778,700)		(39,083,400)
	$	27,054,300	$	26,899,000

The accompanying notes are an integral part of these financial statements

3

WINMARK CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended				Six Months Ended
	June 25, 2022		June 26, 2021		June 25, 2022		June 26, 2021
Revenue:
Royalties	$	15,981,300	$	14,716,500	$	31,371,400	$	28,765,300
Leasing income		1,212,000		2,848,600		4,083,700		6,085,600
Merchandise sales		1,027,200		683,100		1,941,500		1,275,500
Franchise fees		391,500		358,900		812,100		717,900
Other		458,800		422,500		911,900		844,200
Total revenue		19,070,800		19,029,600		39,120,600		37,688,500
Cost of merchandise sold		970,200		647,800		1,834,700		1,206,600
Leasing expense		299,600		662,400		515,600		1,051,900
Provision for credit losses		(15,700)		(62,700)		(24,600)		(111,400)
Selling, general and administrative expenses		5,461,600		5,805,200		11,001,600		10,907,500
Income from operations		12,355,100		11,976,900		25,793,300		24,633,900
Interest expense		(712,000)		(304,300)		(1,225,100)		(622,400)
Interest and other income (expense)		(13,800)		4,900		(14,700)		11,700
Income before income taxes		11,629,300		11,677,500		24,553,500		24,023,200
Provision for income taxes		(2,602,100)		(2,740,200)		(5,673,800)		(5,774,800)
Net income	$	9,027,200	$	8,937,300	$	18,879,700	$	18,248,400
Earnings per share - basic	$	2.61	$	2.42	$	5.35	$	4.91
Earnings per share - diluted	$	2.54	$	2.33	$	5.19	$	4.74
Weighted average shares outstanding - basic		3,463,886		3,693,503		3,530,902		3,715,088
Weighted average shares outstanding - diluted		3,559,231		3,830,844		3,637,772		3,852,534

The accompanying notes are an integral part of these financial statements.

4

WINMARK CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

					Retained
					Earnings
	Common Stock			(Accumulated
	Shares	Amount		Deficit)		Total
BALANCE, December 25, 2021	3,635,806	$	—	$	(39,083,400)	$	(39,083,400)
Repurchase of common stock	(164,586)		(1,679,900)		(34,911,500)		(36,591,400)
Stock options exercised	9,156		1,258,300		—		1,258,300
Compensation expense relating to stock options	—		421,600		—		421,600
Cash dividends ($0.45 per share)	—		—		(1,625,300)		(1,625,300)
Comprehensive income (Net income)	—		—		9,852,500		9,852,500
BALANCE, March 26, 2022	3,480,376		—		(65,767,700)		(65,767,700)
Repurchase of common stock	(55,694)		(1,645,200)		(9,610,900)		(11,256,100)
Stock options exercised	13,124		1,295,400		—		1,295,400
Compensation expense relating to stock options	—		349,800		—		349,800
Cash dividends ($0.70 per share)	—		—		(2,427,300)		(2,427,300)
Comprehensive income (Net income)	—		—		9,027,200		9,027,200
BALANCE, June 25, 2022	3,437,806	$	—	$	(68,778,700)	$	(68,778,700)

					Retained
					Earnings
	Common Stock			(Accumulated
	Shares	Amount		Deficit)		Total
BALANCE, December 26, 2020	3,756,028	$	9,281,800	$	(20,660,500)	$	(11,378,700)
Repurchase of common stock	(58,255)		(9,935,800)		(519,400)		(10,455,200)
Stock options exercised	2,950		268,800		—		268,800
Compensation expense relating to stock options	—		385,200		—		385,200
Cash dividends ($0.25 per share)	—		—		(935,400)		(935,400)
Comprehensive income (Net income)	—		—		9,311,100		9,311,100
BALANCE, March 27, 2021	3,700,723		—		(12,804,200)		(12,804,200)
Repurchase of common stock	(43,833)		(1,254,400)		(7,208,600)		(8,463,000)
Stock options exercised	11,129		941,500		—		941,500
Compensation expense relating to stock options			312,900		—		312,900
Cash dividends ($0.45 per share)	—				(1,665,000)		(1,665,000)
Comprehensive income (Net income)	—		—		8,937,300		8,937,300
BALANCE, June 26, 2021	3,668,019	$	—	$	(12,740,500)	$	(12,740,500)

The accompanying notes are an integral part of these financial statements

5

WINMARK CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended
	June 25, 2022		June 26, 2021
OPERATING ACTIVITIES:
Net income	$	18,879,700	$	18,248,400
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		219,400		223,200
Provision for credit losses		(24,600)		(111,400)
Compensation expense related to stock options		771,400		698,100
Deferred income taxes		(185,400)		(907,400)
Deferred initial direct costs		—		(2,100)
Amortization of deferred initial direct costs		—		16,400
Operating lease right of use asset amortization		122,200		109,900
Tax benefits on exercised stock options		348,000		248,900
Change in operating assets and liabilities:
Receivables		(218,400)		405,600
Principal collections on lease receivables		1,636,100		5,332,200
Income tax receivable/payable		(549,500)		(722,900)
Inventories		(278,200)		(222,800)
Prepaid expenses		147,600		308,000
Other assets		(2,200)		17,800
Accounts payable		(209,700)		(311,600)
Accrued and other liabilities		2,213,500		232,100
Rents received in advance and security deposits		(472,700)		(317,700)
Deferred revenue		(28,200)		(120,300)
Net cash provided by operating activities		22,369,000		23,124,400
INVESTING ACTIVITIES:
Purchase of property and equipment		(43,000)		(48,600)
Reacquired franchise rights		(3,540,000)		—
Purchase of equipment for lease contracts		—		(78,200)
Net cash used for investing activities		(3,583,000)		(126,800)
FINANCING ACTIVITIES:
Proceeds from borrowings on line of credit		33,700,000		—
Payments on line of credit		(3,700,000)		—
Payments on notes payable		(2,125,000)		(2,125,000)
Repurchases of common stock		(47,847,500)		(18,918,200)
Proceeds from exercises of stock options		2,553,700		1,210,300
Dividends paid		(4,052,600)		(2,600,400)
Net cash used for financing activities		(21,471,400)		(22,433,300)
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH		(2,685,400)		564,300
Cash, cash equivalents and restricted cash, beginning of period		11,437,000		6,684,000
Cash, cash equivalents and restricted cash, end of period	$	8,751,600	$	7,248,300
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest	$	1,108,100	$	603,700
Cash paid for income taxes	$	6,060,800	$	7,156,200
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Condensed Balance Sheets to the total of the same amounts shown above:
	Six Months Ended
	June 25, 2022		June 26, 2021
Cash and cash equivalents	$	8,696,600	$	7,223,300
Restricted cash		55,000		25,000
Total cash, cash equivalents and restricted cash	$	8,751,600	$	7,248,300

The accompanying notes are an integral part of these financial statements.

6

WINMARK CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

1. Management’s Interim Financial Statement Representation:

The accompanying consolidated condensed financial statements have been prepared by Winmark Corporation and subsidiaries (the Company), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. The Company has a 52/53 week year which ends on the last Saturday in December. The information in the consolidated 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. The consolidated condensed financial statements and notes are presented in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions for Form 10-Q, and therefore do not contain certain information included in the Company’s annual consolidated financial statements and notes. This report should be read in conjunction with the audited consolidated 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 25, 2022 are not necessarily indicative of the results to be expected for the full year.

Reclassifications

Certain reclassifications of previously reported amounts have been made to conform to the current year presentation. Such reclassifications did not impact net income or shareholders’ equity (deficit) as previously reported.

2. Organization and Business:

The Company offers licenses to operate franchises using the service marks Plato’s Closet®, Once Upon A Child®, Play It Again Sports®, Style Encore® and Music Go Round®. The Company also operates a middle market equipment leasing business under the Winmark Capital® mark.

3. Contract Liabilities:

The Company’s contract liabilities for its franchise revenues consist of deferred revenue associated with franchise fees and software license fees. The table below presents the activity of the current and noncurrent deferred franchise revenue during the first six months of 2022 and 2021, respectively:

	June 25, 2022		June 26, 2021
Balance at beginning of period	$	8,508,500	$	8,708,300
Franchise and software license fees collected from franchisees, excluding amount earned as revenue during the period		937,900		755,400
Fees earned that were included in the balance at the beginning of the period		(966,100)		(875,700)
Balance at end of period	$	8,480,300	$	8,588,000

The following table illustrates future estimated revenue to be recognized for the remainder of 2022 and full fiscal years thereafter related to performance obligations that are unsatisfied (or partially unsatisfied) as of June 25, 2022.

Contract Liabilities expected to be recognized in	Amount
2022	$	804,700
2023		1,546,500
2024		1,348,800
2025		1,132,400
2026		928,000
Thereafter		2,719,900
	$	8,480,300

7

4. Fair Value Measurements:

The Company defines fair value as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  The Company uses three levels of inputs to measure fair value:

● Level 1 – quoted prices in active markets for identical assets and liabilities.

● Level 2 – observable inputs other than quoted prices in active markets for identical assets and liabilities.

● Level 3 – unobservable inputs in which there is little or no market data available, which require the reporting entity to develop its own assumptions.

Due to their nature, the carrying value of cash equivalents, receivables, payables and debt obligations approximates fair value.

5. Investment in Leasing Operations:

In May 2021, the Company made the decision to no longer solicit new leasing customers and will pursue an orderly run-off for its leasing portfolio.

Investment in leasing operations consists of the following:

	June 25, 2022		December 25, 2021
Direct financing and sales-type leases:
Minimum lease payments receivable	$	2,020,200	$	3,387,500
Estimated unguaranteed residual value of equipment		658,900		1,316,100
Unearned lease income, net of initial direct costs deferred		(206,400)		(418,100)
Security deposits		(649,800)		(1,122,500)
Total investment in direct financing and sales-type leases		1,822,900		3,163,000
Allowance for credit losses		(40,400)		(63,600)
Net investment in direct financing and sales-type leases		1,782,500		3,099,400
Operating leases:
Operating lease assets		753,800		626,200
Less accumulated depreciation and amortization		(555,200)		(605,700)
Net investment in operating leases		198,600		20,500
Total net investment in leasing operations	$	1,981,100	$	3,119,900

As of June 25, 2022, the $2.0 million total net investment in leases consists of $1.9 million classified as current and $0.1 million classified as long-term. As of December 25, 2021, the $3.1 million total net investment in leases consists of $2.9 million classified as current and $0.2 million classified as long-term.

As of June 25, 2022, there were no customers with leased assets greater than 10% of the Company’s total assets.

Future minimum lease payments receivable under lease contracts and the amortization of unearned lease income, net of initial direct costs deferred, is as follows for the remainder of fiscal 2022 and the full fiscal years thereafter as of June 25, 2022:

	Direct Financing and Sales-Type Leases
	Minimum Lease		Income
Fiscal Year	Payments Receivable		Amortization
2022		1,506,400		175,300
2023		510,300		31,000
2024		3,500		100
	$	2,020,200	$	206,400

8

The activity in the allowance for credit losses for leasing operations during the first six months of 2022 and 2021, respectively, is as follows:

	June 25, 2022		June 26, 2021
Balance at beginning of period	$	63,600	$	270,200
Provisions charged to expense		(24,600)		(111,400)
Recoveries		1,400		—
Balance at end of period	$	40,400	$	158,800

The Company’s investment in direct financing and sales-type leases (“Investment In Leases”) and allowance for credit losses by loss evaluation methodology are as follows:

	June 25, 2022				December 25, 2021
	Investment		Allowance for		Investment		Allowance for
	In Leases		Credit Losses		In Leases		Credit Losses
Collectively evaluated for loss potential	$	1,822,900	$	40,400	$	3,163,000	$	63,600
Individually evaluated for loss potential		—		—		—		—
Total	$	1,822,900	$	40,400	$	3,163,000	$	63,600

The Company’s key credit quality indicator for its investment in direct financing and sales-type leases is the status of the lease, defined as accruing or non-accrual. Leases that are accruing income are considered to have a lower risk of loss. Non-accrual leases are those that the Company believes have a higher risk of loss. The following table sets forth information regarding the Company’s accruing and non-accrual leases. Delinquent balances are determined based on the contractual terms of the lease.

	June 25, 2022
	0-60 Days		61-90 Days		Over 90 Days
	Delinquent		Delinquent		Delinquent and
	and Accruing		and Accruing		Accruing		Non-Accrual		Total
Total investment in leases	$	1,822,900	$	—	$	—	$	—	$	1,822,900

	December 25, 2021
	0-60 Days		61-90 Days		Over 90 Days
	Delinquent		Delinquent		Delinquent and
	and Accruing		and Accruing		Accruing		Non-Accrual		Total
Total investment in leases	$	3,163,000	$	—	$	—	$	—	$	3,163,000

The Company leases high-technology and other business-essential equipment to its leasing customers. Upon expiration of the initial term or extended lease term, depending on the structure of the lease, the customer may return the equipment, renew the lease for an additional term, or purchase the equipment. Due to the uncertainty of such outcome at the end of the lease term, the lease as recorded at commencement represents only the current terms of the agreement. As a lessor, the Company’s leases do not contain non-lease components. The residual values reflect the estimated amounts to be received at lease termination from sales or other dispositions of leased equipment to unrelated parties. The leased equipment residual values are based on the Company’s best estimate. The Company’s risk management strategy for its residual value includes the contractual obligations of its customers to maintain, service, and insure the leased equipment, the use of third party remarketers as well as the analytical review of historical asset dispositions.

9

Leasing income as presented on the Consolidated Condensed Statements of Operations consists of the following:

	Three Months Ended		Three Months Ended		Six Months Ended		Six Months Ended
	June 25, 2022		June 26, 2021		June 25, 2022		June 26, 2021
Interest income on direct financing and sales-type leases	$	205,300	$	482,800	$	483,800	$	1,102,500
Selling profit (loss) at commencement of sales-type leases		34,800		356,300		1,298,000		1,430,000
Operating lease income		528,300		476,500		910,100		960,800
Income on sales of equipment under lease		328,700		1,479,900		932,100		2,225,500
Other		114,900		53,100		459,700		366,800
Leasing income	$	1,212,000	$	2,848,600	$	4,083,700	$	6,085,600

6. Intangible Assets

In June 2022, Winmark terminated an agreement that contained the rights for eleven Play It Again Sports stores to operate separately from Winmark’s franchise system. In terminating the agreement, which included $3.54 million of consideration paid by Winmark, Winmark reacquired the franchise rights to these eleven stores. Upon termination of the agreement, these eleven stores signed franchise agreements, each with an initial term of ten years.

Intangible assets consist of these reacquired franchise rights. The Company amortizes the fair value of the reacquired franchise rights over the contract term of the franchise. The Company recognized $14,800 of amortization expense for the three and six months ended June 25, 2022.

The following table illustrates future amortization to be expensed for the remainder of 2022 and full fiscal years thereafter related to reacquired franchise rights as of June 25, 2022.

Amortization expected to be expensed in	Amount
2022	$	177,000
2023		354,000
2024		354,000
2025		354,000
2026		354,000
Thereafter		1,932,200
	$	3,525,200

7. Earnings Per Share:

The following table sets forth the presentation of shares outstanding used in the calculation of basic and diluted earnings per share (“EPS”):

	Three Months Ended		Six Months Ended
	June 25, 2022	June 26, 2021	June 25, 2022	June 26, 2021
Denominator for basic EPS — weighted average common shares	3,463,886	3,693,503	3,530,902	3,715,088
Dilutive shares associated with option plans	95,345	137,341	106,870	137,446
Denominator for diluted EPS — weighted average common shares and dilutive potential common shares	3,559,231	3,830,844	3,637,772	3,852,534
Options excluded from EPS calculation — anti-dilutive	21,488	6,670	16,379	9,654

10

8. Shareholders’ Equity (Deficit):

Dividends

On January 26, 2022, the Company’s Board of Directors approved the payment of a $0.45 per share quarterly cash dividend to shareholders of record at the close of business on February 9, 2022, which was paid on March 1, 2022.

On April 13, 2022, the Company’s Board of Directors approved the payment of a $0.70 per share quarterly cash dividend to shareholders of record at the close of business on May 11, 2022, which was paid on June 1, 2022.

Repurchase of Common Stock

In the first six months of 2022, the Company repurchased 220,280 shares of its common stock. Under the Board of Directors’ authorization, as of June 25, 2022, the Company has the ability to repurchase an additional 84,485 shares of its common stock. Repurchases may be made from time to time at prevailing prices, subject to certain restrictions on volume, pricing and timing.

Stock Option Plans and Stock-Based Compensation

Stock option activity under the Company’s option plans as of June 25, 2022 was as follows:

				Weighted Average
				Remaining
	Number of	Weighted Average		Contractual Life
	Shares	Exercise Price		(years)		Intrinsic Value
Outstanding, December 25, 2021	355,621	$	146.03	6.32	$	39,320,600
Granted	34,940		198.42
Exercised	(22,280)		114.62
Forfeited	(6,501)		183.28
Outstanding, June 25, 2022	361,780	$	152.35	6.26	$	20,285,200
Exercisable, June 25, 2022	220,496	$	119.50	4.59	$	18,323,800

The fair value of options granted under the Option Plans during the first six months of 2022 and 2021 were estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions and results:

	Six Months Ended
	June 25, 2022			June 26, 2021
Risk free interest rate		2.70	%		0.90	%
Expected life (years)		6			6
Expected volatility		27.47	%		25.07	%
Dividend yield		4.61	%		2.74	%
Option fair value	$	33.38		$	32.70

All unexercised options at June 25, 2022 have an exercise price equal to the fair market value on the date of the grant.

Compensation expense of $771,400 and $698,100 relating to the vested portion of the fair value of stock options granted was expensed to “Selling, General and Administrative Expenses” in the first six months of 2022 and 2021, respectively. As of June 25, 2022, the Company had $4.2 million of total unrecognized compensation expense related to stock options that is expected to be recognized over the remaining weighted average vesting period of approximately 2.9 years.

9. Debt:

Line of Credit

In April 2022, the Company’s credit facility with CIBC Bank USA (the Line of Credit) was amended to, among other things:

● Provide for a new $30.0 million delayed draw term facility, with available draws summarized as follows:

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o The Company may draw up to five (5) loans over a period of 18 months, each draw having a principal amount not less than $3.0 million (or higher integral multiples of $1.0 million), with aggregate draws outstanding not to exceed $30.0 million;

o The final maturity of all drawn loans of April 12, 2029, with all payments of principal due on such date;

o Interest at a rate to be determined at the time of each draw, payable monthly in arrears on the outstanding aggregate principal balance.

● Decrease the aggregate commitments for revolving loans from $25.0 million to $20.0 million;

● Extend the termination date for revolving loans from August 31, 2024 to April 12, 2027;

● Remove the borrowing base covenant restriction for revolving loans;

● Replace LIBOR with SOFR as an interest rate option in connection with borrowings on revolving loans and adjust the definition of and reduce the applicable margin to reflect such replacement;

● Amend the fixed charge coverage ratio definition to exclude principal payments on non-amortizing term loans that are refinanced with proceeds from permitted debt (as defined within the amendment);

● Permit the Company to issue additional term notes under a new Private Shelf Agreement with PGIM, Inc. (formerly Prudential Investment Management, Inc.) its affiliates and managed accounts (collectively, “Prudential”) as described below.

As of June 25, 2022, there were no revolving loans outstanding under the Line of Credit, leaving $20.0 million available for additional revolving borrowings. During the three months ended June 25, 2022, the Company had delayed draw term loan borrowings totaling $30.0 million under the Line of Credit bearing interest ranging from 4.60% to 4.75%.

The Line of Credit has been and will continue to be used for general corporate purposes. The Line of Credit is secured by a lien against substantially all of the Company’s assets (as the Line of Credit ranks pari passu with the Prudential facilities described below), contains customary financial conditions and covenants, and requires maintenance of minimum levels of debt service coverage and maximum levels of leverage (all as defined within the Line of Credit). As of June 25, 2022, the Company was in compliance with all of its financial covenants.

Notes Payable

In April 2022, the Note Agreement with Prudential was amended to, among other things:

● Permit the Company to incur the obligations described in and conform to the changes made by the Company’s entry into the amendments to the Line of Credit described above;

● Permit the Company to incur the obligations described in and conform to the changes made by the Company’s entry into the Shelf Agreement described below.

As of June 25, 2022, the Company had aggregate principal outstanding of $45.6 million under the Note Agreement; consisting of $9.0 million in principal outstanding from the $25.0 million Series A notes issued in May 2015, $6.6 million in principal outstanding from the $12.5 million Series B notes issued in August 2017 and $30.0 million in principal outstanding from the $30.0 million Series C notes issued in September 2021.

The final maturity of the Series A and Series B notes is 10 years from the issuance date. The final maturity of the Series C notes is 7 years from the issuance date. For the Series A notes, interest at a rate of 5.50% per annum on the outstanding principal balance is payable quarterly, along with required prepayments of the principal of $500,000 quarterly for the first five years, and $750,000 quarterly thereafter until the principal is paid in full. For the Series B notes, interest at a rate of 5.10% per annum on the outstanding principal balance is payable quarterly, along with required prepayments of the principal of $312,500 quarterly until the principal is paid in full. For the Series C notes, interest at a rate of 3.18% per annum on the outstanding principal balance is payable quarterly until the principal is paid in full. The Series A, Series B and Series C notes may be prepaid, at the option of the Company, in whole or in part (in a minimum amount of $1.0 million), but prepayments require payment of a Yield Maintenance Amount, as defined in the Note Agreement.

The Company’s obligations under the Note Agreement are secured by a lien against substantially all of the Company’s assets (as the notes rank pari passu with the Line of Credit), and the Note Agreement contains customary financial conditions and covenants, and requires maintenance of minimum levels of fixed charge coverage and maximum levels of leverage (all as defined within the Note Agreement). As of June 25, 2022, the Company was in compliance with all of its financial covenants.

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In connection with the Note Agreement, the Company incurred debt issuance costs, of which unamortized amounts are presented as a direct deduction from the carrying amount of the related liability.

In April 2022, the Company entered into a Private Shelf Agreement (the “Shelf Agreement”) with Prudential, summarized as follows:

● For a period three years from entry into the Shelf Agreement, subject to certain customary conditions, the Company may offer and Prudential may purchase from the Company privately negotiated senior notes (“Shelf Notes”) in the aggregate principal amount up to (i) $100.0 million, less (ii) the aggregate principal amount of notes outstanding at such point (including notes outstanding under the existing Prudential Note Agreement);

● Each Shelf Note issued will have an average life and maturity of no more than 12.5 years from the date of original issuance, with interest payable at a rate per annum determined at the time of each issuance;

● The Shelf Notes will be secured by all of the Company’s assets and the Shelf Notes will rank pari passu with the Company’s obligations to the lenders under the amended Line of Credit and the amended Note Agreement;

● The Shelf Notes may be prepaid, at the option of the Company, in whole or in part (in a minimum amount of $1 million), but prepayments will require payment of a Yield Maintenance Amount (as defined within the Shelf Agreement);

● The Shelf Agreement contains customary affirmative covenants and negative covenants that are substantially the same as those contained in the amended Line of Credit and amended Note Agreement.

As of June 25, 2022, the Company had not issued any notes under the Shelf Agreement and was in compliance with all of its financial covenants.

10. Operating Leases:

As of June 25, 2022, the Company leases its Minnesota corporate headquarters in a facility with an operating lease that expires in December 2029. The remaining lease term for this lease is 7.50 years and the discount rate is 5.5%. The Company recognized $604,900 and $580,000 of rent expense for the periods ended June 25, 2022 and June 26, 2021, respectively.

Maturities of operating lease liabilities is as follows for the remainder of fiscal 2022 and full fiscal years thereafter as of June 25, 2022:

Operating Lease Liabilities expected to be recognized in	Amount
2022	$	374,800
2023		763,300
2024		784,400
2025		806,000
2026		828,200
Thereafter		2,624,300
Total lease payments		6,181,000
Less imputed interest		(1,117,500)
Present value of lease liabilities	$	5,063,500

Of the $5.1 million operating lease liability outstanding at June 25, 2022, $0.5 million is included in Accrued liabilities in the Current liabilities section of the Consolidated Condensed Balance Sheets.

Supplemental cash flow information related to our operating leases is as follows for the period ended June 25, 2022:

	Six Months Ended
	June 25, 2022		June 26, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flow outflow from operating leases	$	368,100	$	358,300

11. Segment Reporting:

The Company currently has two reportable business segments, franchising and leasing. The franchising segment franchises value-oriented retail store concepts that buy, sell and trade merchandise. The leasing segment includes the

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Company’s equipment leasing business. Segment reporting is intended to give financial statement users a better view of how the Company manages and evaluates its businesses. The Company’s internal management reporting is the basis for the information disclosed for its business segments and includes allocation of shared-service costs. Segment assets are those that are directly used in or identified with segment operations, including cash, restricted cash, accounts receivable, prepaid expenses, inventory, property and equipment, investment in leasing operations, intangible assets and goodwill. Unallocated assets include corporate cash and cash equivalents, current and deferred tax amounts, operating lease right of use assets and other corporate assets. Inter-segment balances and transactions have been eliminated. The following tables summarize financial information by segment and provide a reconciliation of segment contribution to operating income:

	Three Months Ended				Six Months Ended
	June 25, 2022		June 26, 2021		June 25, 2022		June 26, 2021
Revenue:
Franchising	$	17,858,800	$	16,181,000	$	35,036,900	$	31,602,900
Leasing		1,212,000		2,848,600		4,083,700		6,085,600
Total revenue	$	19,070,800	$	19,029,600	$	39,120,600	$	37,688,500
Reconciliation to operating income:
Franchising segment contribution	$	11,742,400	$	10,546,900	$	22,943,100	$	21,271,400
Leasing segment contribution		612,700		1,430,000		2,850,200		3,362,500
Total operating income	$	12,355,100	$	11,976,900	$	25,793,300	$	24,633,900
Depreciation and amortization:
Franchising	$	81,900	$	62,300	$	149,400	$	128,200
Leasing		35,000		47,100		70,000		95,000
Total depreciation and amortization	$	116,900	$	109,400	$	219,400	$	223,200

	As of
	June 25, 2022		December 25, 2021
Identifiable assets:
Franchising	$	8,401,500	$	4,907,800
Leasing		2,399,700		3,600,500
Unallocated		16,253,100		18,390,700
Total	$	27,054,300	$	26,899,000

ITEM 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

We are a franchising business focused on sustainability and small business formation. As of June 25, 2022, we had 1,293 resale franchises operating under the Plato’s Closet, Once Upon A Child, Play It Again Sports, Style Encore and Music Go Round brands. Our franchise business is not capital intensive and is designed to generate consistent, recurring revenue and strong operating margins.

The financial criteria that management closely tracks to evaluate current business operations and future prospects include royalties and selling, general and administrative expenses.

Our most significant source of franchising revenue is royalties received from our franchisees. During the first six months of 2022, our royalties increased $2.6 million or 9.1% compared to the first six months of 2021.

Management continually monitors the level and timing of selling, general and administrative expenses. The major components of selling, general and administrative expenses include salaries, wages and benefits, advertising, travel, occupancy, legal and professional fees. During the first six months of 2022, selling, general and administrative expenses increased $0.1 million, or 0.9% compared to the first six months of 2021.

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Management also monitors several nonfinancial factors in evaluating the current business operations and future prospects including franchise openings and closings and franchise renewals. The following is a summary of our franchising activity for the first six months ended June 25, 2022:

					AVAILABLE
	TOTAL			TOTAL	FOR	COMPLETED
	12/25/2021	OPENED	CLOSED	6/25/2022	RENEWAL	RENEWALS
Plato’s Closet
Franchises - US and Canada	489	8	(1)	496	30	30
Once Upon A Child
Franchises - US and Canada	401	5	(1)	405	19	19
Play It Again Sports
Franchises - US and Canada	273	13(1)	(1)	285	38	38
Style Encore						.
Franchises - US and Canada	71	3	(4)	70	—	—
Music Go Round
Franchises - US	37	—	—	37	—	—
Total Franchised Stores	1,271	29	(7)	1,293	87	87

(1) Includes 11 stores formerly operated outside the Winmark franchise system. (See Note 6 – “Intangible Assets”).

Renewal activity is a key focus area for management. Our franchisees sign 10-year agreements with us. The renewal of existing franchise agreements as they approach their expiration is an indicator that management monitors to determine the health of our business and the preservation of future royalties. During the first six months of 2022, we renewed 87 of the 87 franchise agreements available for renewal.

Our ability to grow our operating income is dependent on our ability to: (i) effectively support our franchise partners so that they produce higher revenues, (ii) open new franchises, and (iii) control our selling, general and administrative expenses.

In May 2021, we made the decision to no longer solicit new leasing customers and will pursue an orderly run-off of our middle-market leasing portfolio, the operations of which constitute our leasing segment. Leasing income net of leasing expense for the first six months of 2022 was $3.6 million compared to $5.0 million in the first six months of 2021. Our leasing portfolio (net investment in leases – current and long-term), was $2.0 million at June 25, 2022 compared to $3.1 million at December 25, 2021. Given the decision to run-off the portfolio, we anticipate that leasing income net of leasing expense and the size of the leasing portfolio will continue to decrease through the run-off period. See Note 5 – “Investment in Leasing Operations” for information regarding the lease portfolio, including future minimum lease payments receivable under lease contracts and the amortization of unearned lease income.

COVID-19

As discussed in our 2021 Form 10-K, the COVID-19 pandemic has had a significant impact on our business. We are closely monitoring the effects of the ongoing COVID-19 pandemic and its continued impact on our business. We cannot estimate with certainty the length or severity of this pandemic, or the extent to which the disruption may materially impact our Consolidated Condensed Financial Statements.

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Results of Operations

The following table sets forth selected information from our Consolidated Condensed Statements of Operations expressed as a percentage of total revenue:

	Three Months Ended				Six Months Ended
	June 25, 2022		June 26, 2021		June 25, 2022		June 26, 2021
Revenue:
Royalties	83.8	%	77.3	%	80.2	%	76.3	%
Leasing income	6.4		15.0		10.4		16.2
Merchandise sales	5.4		3.6		5.0		3.4
Franchise fees	2.0		1.9		2.1		1.9
Other	2.4		2.2		2.3		2.2
Total revenue	100.0		100.0		100.0		100.0
Cost of merchandise sold	(5.1)		(3.4)		(4.7)		(3.2)
Leasing expense	(1.6)		(3.5)		(1.3)		(2.8)
Provision for credit losses	0.1		0.3		—		0.3
Selling, general and administrative expenses	(28.6)		(30.5)		(28.1)		(28.9)
Income from operations	64.8		62.9		65.9		65.4
Interest expense	(3.7)		(1.6)		(3.1)		(1.7)
Interest and other income (expense)	(0.1)		—		—		—
Income before income taxes	61.0		61.3		62.8		63.7
Provision for income taxes	(13.7)		(14.4)		(14.5)		(15.3)
Net income	47.3	%	46.9	%	48.3	%	48.4	%

Comparison of Three Months Ended June 25, 2022 to Three Months Ended June 26, 2021

Revenue

Revenues for the quarter ended June 25, 2022 totaled $19.1 million compared to $19.0 million for the comparable period in 2021.

Royalties and Franchise Fees

Royalties increased to $16.0 million for the second quarter of 2022 from $14.7 million for the second quarter of 2021, an 8.6% increase. The increase is primarily from higher franchisee retail sales and from having additional franchise stores in the second quarter of 2022 compared to the same period in 2021.

Franchise fees of $0.4 million for the second quarter of 2022 were comparable to $0.4 million for the second quarter of 2021.

Leasing Income

Leasing income decreased to $1.2 million for the second quarter of 2022 compared to $2.8 million for the same period in 2021. The decrease is primarily due to lower levels of equipment sales to customers and lower levels of interest income from the smaller lease portfolio.

Merchandise Sales

Merchandise sales include the sale of product to franchisees either through our Computer Support Center or through the Play It Again Sports buying group (together, “Direct Franchisee Sales”). Direct Franchisee Sales increased to $1.0 million for the second quarter of 2022 compared to $0.7 million in the same period of 2021. The increase is due to an increase in technology and buying group purchases by our franchisees.

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Cost of Merchandise Sold

Cost of merchandise sold includes in-bound freight and the cost of merchandise associated with Direct Franchisee Sales. Cost of merchandise sold increased to $1.0 million for the second quarter of 2022 compared to $0.7 million in the same period of 2021. The increase is due to an increase in Direct Franchisee Sales discussed above. Cost of merchandise sold as a percentage of Direct Franchisee Sales for the second quarter of 2022 and 2021 was 94.5% and 94.8%, respectively.

Leasing Expense

Leasing expense decreased to $0.3 million for the second quarter of 2022 compared to $0.7 million for the second quarter of 2021. The decrease is primarily due to a decrease in the associated cost of equipment sales to customers discussed above.

Selling, General and Administrative

Selling, general and administrative expenses decreased 5.9% to $5.5 million in the second quarter of 2022 compared to $5.8 million in the same period of 2021. The decrease was primarily due to a decrease in advertising production expenses.

Interest Expense

Interest expense increased to $0.7 million for the second quarter of 2022 compared to $0.3 million for the second quarter of 2021. The increase is primarily due to higher average corporate borrowings when compared to the same period last year.

Income Taxes

The provision for income taxes was calculated at an effective rate of 22.4% and 23.5% for the second quarter of 2022 and 2021, respectively. The decrease is primarily due to higher benefits on the exercise of non-qualified stock options and a decrease in state taxes.

Comparison of Six Months Ended June 25, 2022 to Six Months Ended June 26, 2021

Revenue

Revenues for the first six months of 2022 totaled $39.1 million compared to $37.7 million for the comparable period in 2021.

Royalties and Franchise Fees

Royalties increased to $31.4 million for the first six months of 2022 from $28.8 million for the first six months of 2021, a 9.1% increase. The increase in royalties is primarily from higher franchisee retail sales and from having additional franchised stores in the first six months of 2022 compared to the same period last year.

Franchise fees of $0.8 million for the first six months of 2022 were comparable to $0.7 million for the first six months of 2021.

Leasing Income

Leasing income decreased to $4.1 million for the first six months of 2022 compared to $6.1 million for the same period in 2021. The decrease is primarily due to lower levels of equipment sales to customers and lower levels of interest income from the smaller lease portfolio when compared to the same period last year.

Merchandise Sales

Merchandise sales include the sale of product to franchisees either through our Computer Support Center or through the Play It Again Sports buying group (together, “Direct Franchisee Sales”). Direct Franchisee Sales increased to $1.9 million for the first six months of 2022 compared to $1.3 million in the same period of 2021. The increase is primarily due to an increase in buying group and technology purchases by our franchisees.

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Cost of Merchandise Sold

Cost of merchandise sold includes in-bound freight and the cost of merchandise associated with Direct Franchisee Sales. Cost of merchandise sold increased to $1.8 million for the first six months of 2022 compared to $1.2 million in the same period of 2021. The increase is due to an increase in Direct Franchise Sales discussed above. Cost of merchandise sold as a percentage of Direct Franchisee Sales for the first six months of 2022 and 2021 was 94.5% and 94.6%, respectively.

Leasing Expense

Leasing expense decreased to $0.5 million for the first six months of 2022 compared to $1.1 million for the first six months of 2021. The decrease was due to a decrease in the associated cost of equipment sales to customers discussed above.

Selling, General and Administrative

Selling, general and administrative expenses increased 0.1% to $11.0 million in the first six months of 2022 and were comparable to $10.9 million in the same period of 2021.

Interest Expense

Interest expense was $1.2 million for the first six months of 2022 compared to $0.6 million for the first six months of 2021. The increase is primarily due to higher average corporate borrowings when compared to the same period last year.

Income Taxes

The provision for income taxes was calculated at an effective rate of 23.1% and 24.0% for the first six months of 2022 and 2021, respectively. The decrease is primarily due to higher tax benefits on the exercise of non-qualified stock options and a decrease in state taxes. 

Segment Comparison of Three Months Ended June 25, 2022 to Three Months Ended June 26, 2021

Franchising Segment Operating Income

The franchising segment’s operating income for the second quarter of 2022 increased to $11.7 million from $10.5 million for the second quarter of 2021. The increase in segment contribution was due to increased royalty revenues.

Leasing Segment Operating Income

The leasing segment’s operating income for the second quarter of 2022 decreased to $0.6 million from $1.4 million for the second quarter of 2021. The decrease in segment contribution was due to a decrease in leasing income net of leasing expenses, partially offset by a decrease in selling, general and administrative expenses.

Segment Comparison of Six Months Ended June 25, 2022 to Six Months Ended June 26, 2021

Franchising Segment Operating Income

The franchising segment’s operating income for the first six months of 2022 increased to $22.9 million from $21.3 million for the first six months of 2021. The increase in segment contribution was due to increased royalty revenues, partially offset by an increase in selling, general and administrative expenses.

Leasing Segment Operating Income

The leasing segment’s operating income for the first six months of 2022 decreased to $2.9 million from $3.4 million for the first six months of 2021. The decrease in segment contribution was due to a decrease in leasing income net of leasing expenses, partially offset by a decrease in selling, general and administrative expenses.

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Liquidity and Capital Resources

Our primary sources of liquidity have historically been cash flows from operations and borrowings. The components of the consolidated condensed statements of operations that reduce our net income but do not affect our liquidity include non-cash items for depreciation and amortization and compensation expense related to stock options.

We ended the second quarter of 2022 with $8.8 million in cash, cash equivalents and restricted cash compared to $7.2 million in cash, cash equivalents and restricted cash at the end of the second quarter of 2021.

Operating activities provided $22.4 million of cash during the first six months of 2022, compared to $23.1 million provided during the same period last year. The decrease in cash provided by operating activities in the first six months of 2022 compared to 2021 was primarily due to a decrease in principal collections on lease receivables, partially offset by an increase in accrued and other liabilities.

Investing activities used $3.6 million of cash during the first six months of 2022. The 2022 activities consisted primarily of reacquired franchise rights (See Note 6 – “Intangible Assets”).

Financing activities used $21.5 million of cash during the first six months of 2022. Our most significant financing activities during the first six months of 2022 consisted of $47.8 million to repurchase 220,280 shares of our common stock, $4.1 million for the payment of dividends, and payments on notes payable of $2.1 million; partially offset by $30.0 million of net borrowing on our line of credit and $2.6 million of proceeds from exercise of stock options. (See Note 8 — “Shareholders’ Equity (Deficit),” and Note 9 — “Debt”).

Our debt facilities include a Line of Credit with CIBC Bank USA and a Note Agreement and Shelf Agreement with Prudential. These facilities have been and will continue to be used for general corporate purposes, are secured by a lien against substantially all of our assets, contain customary financial conditions and covenants, and require maintenance of minimum levels of debt service coverage and maximum levels of leverage (all as defined within the agreements governing the facilities). As of June 25, 2022, we were in compliance with all of the financial covenants under the Line of Credit, the Note Agreement and the Shelf Agreement.

The Line of Credit provides for up to $20.0 million in revolving loans and $30.0 million in delayed draw term loans. As of June 25, 2022, we had no revolving loans outstanding, and had delayed draw term loan borrowings totaling $30.0 million that mature in 2029.

The Shelf Agreement allows us to offer privately negotiated senior notes to Prudential in an aggregate principal amount up to (i) $100.0 million, less (ii) the aggregate principal amount of notes outstanding at such point (including notes outstanding under the Note Agreement, which at June 25, 2022 was $45.6 million). As of June 25, 2022, we had not issued any notes under the Shelf Agreement. Of the $45.6 million of principal outstanding under the Note Agreement, $15.6 million amortizes over the remainder of 2022 through 2027, and $30.0 million matures in 2028.

See Part I, Item 1, Note 9 – “Debt” for more information regarding the Line of Credit, Note Agreement and Shelf Agreement.

We expect to generate the cash necessary to pay our expenses and to pay the principal and interest on our outstanding debt from cash flows provided by operating activities and by opportunistically using other means to repay or refinance our obligations as we determine appropriate. Our ability to pay our expenses and meet our debt service obligations depends on our future performance, which may be affected by financial, business, economic, and other factors including the risk factors described under Item 1A of our Form 10-K for the fiscal year ended December 25, 2021 and under Item 1A below. If we do not have enough money to pay our debt service obligations, we may be required to refinance all or part of our existing debt, sell assets, borrow more money or raise equity. In such an event, we may not be able to refinance our debt, sell assets, borrow more money or raise equity on terms acceptable to us or at all. Also, our ability to carry out any of these activities on favorable terms, if at all, may be further impacted by any financial or credit crisis which may limit access to the credit markets and increase our cost of capital.

As of the date of this report we believe that the combination of our cash on hand, the cash generated from our franchising and leasing businesses, our Line of Credit and our Shelf Agreement will be adequate to fund our planned operations through 2023.

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Critical Accounting Policies

A discussion of our critical accounting policies is contained in our annual report on Form 10-K for the year ended December 25, 2021. There have been no changes to our critical accounting policies from those disclosed on our Form 10-K for the year ended December 25, 2021.

Forward Looking Statements

The statements contained in this Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” that are not strictly historical fact, including without limitation, specific and overall impacts of the COVID-19 pandemic on the Company’s financial condition or results of operations, the Company’s belief that it will have adequate capital and reserves to meet its current and contingent obligations and operating needs, as well as its disclosures regarding market rate risk 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 that may cause actual results to differ materially from those contemplated by such forward looking statements. Additionally, many of these risks and uncertainties are currently elevated by and may or will continue to be elevated by the COVID-19 pandemic. Investors are cautioned to consider these forward looking statements in light of important factors which may result in material variations between results contemplated by such forward looking statements and actual results and conditions. See the section appearing in our Annual Report on Form 10-K for the fiscal year ended December 25, 2021 entitled “Risk Factors” and Part II, Item 1A in this Report for a more complete discussion of certain factors that may cause the Company’s actual results to differ from those in its forward looking statements. You should not place undue reliance on these forward-looking statements, which speak only as of the date they were made. The Company undertakes no obligation to revise or update publicly any forward-looking statements for any reason.

ITEM 3: Quantitative and Qualitative Disclosures About Market Risk

The Company incurs financial market risk in the form of interest rate risk. Risk can be quantified by measuring the financial impact of a near-term adverse increase in short-term interest rates. At June 25, 2022, the Company’s Line of Credit with CIBC Bank USA included a commitment for revolving loans of $20.0 million. The interest rates applicable to revolving loans are based on either the bank’s base rate or SOFR for short-term borrowings (twelve months or less). The Company had no revolving loans outstanding at June 25, 2022 under this Line of Credit. The Company had no interest rate derivatives in place at June 25, 2022. The Company’s fixed rate debt exposes the company to changes in the market interest rate only to the extent that the Company may need to refinance maturing debt with new debt at a higher rate.

None of the Company’s cash and cash equivalents at June 25, 2022 was invested in money market mutual funds, which are subject to the effects of market fluctuations in interest rates.

Foreign currency transaction gains and losses were not material to the Company’s results of operations for the six months ended June 25, 2022. During fiscal 2021, less than 7% of the Company’s total revenues and 1% of expenses were denominated in a foreign currency. Based upon these revenues and expenses, a 10% increase or decrease in the foreign currency exchange rates would impact annual pretax earnings by approximately $480,000. To date, the Company has not entered into any foreign currency forward exchange contracts or other derivative financial instruments to hedge the effects of adverse fluctuations in foreign currency exchange rates.

ITEM 4: Controls and Procedures

As of the end of the period covered by this report, the Company conducted an evaluation, under the supervision and with the participation of the principal executive officer and principal financial officer, of its disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon, and as of the date of that evaluation, the principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. There was no

20

change in the Company’s internal control over financial reporting during its most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

PART II.          OTHER INFORMATION

ITEM 1: 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 1A: Risk Factors

In addition to the other information set forth in this report, including the important information in “Forward-Looking Statements,” you should carefully consider the “Risk Factors” discussed in our Annual Report on Form 10-K for the year ended December 25, 2021.  If any of those factors were to occur, they could materially adversely affect our financial condition or future results, and could cause our actual results to differ materially from those expressed in its forward-looking statements in this report.  We are aware of no material changes to the Risk Factors discussed in our Annual Report on Form 10-K for the year ended December 25, 2021.

ITEM 2: Unregistered Sales of Equity Securities and Use of Proceeds

Purchase of Equity Securities by the Issuer and Affiliated Purchasers

The following table summarizes the Company’s common stock repurchases during the second quarter of 2022.

				Total Number of	Maximum Number
				Shares Purchased as	of Shares that may
	Total Number of	Average Price		Part of a Publicly	yet be Purchased
Period	Shares Purchased	Paid Per Share		Announced Plan(1)	Under the Plan
March 27, 2022 to April 30, 2022	13,345	$	207.17	13,345	126,834
May 1, 2022 to May 28, 2022	32,635	$	203.16	32,635	94,199
May 29, 2022 to June 25, 2022	9,714	$	191.61	9,714	84,485

(1) The Board of Directors’ authorization for the repurchase of shares of the Company’s common stock was originally approved in 1995 with no expiration date. The total shares approved for repurchase has been increased by additional Board of Directors’ approvals and as of June 25, 2022 was limited to 5,400,000 shares, of which 84,485 may still be repurchased.

21

ITEM 3: Defaults Upon Senior Securities

None.

ITEM 4: Mine Safety Disclosures

Not applicable.

ITEM 5: Other Information

All information required to be reported in a report on Form 8-K during the period covered by this Form 10-Q has been reported.

ITEM 6: Exhibits

3.1	Articles of Incorporation, as amended (Exhibit 3.1)(1)
3.2	By-laws, as amended and restated to date (Exhibit 3.2)(2)
10.1	Amendment No. 10 to Credit Agreement dated April 12, 2022 (Exhibit 10.1) (3)
10.2	Private Shelf Agreement dated April 12, 2022, among Winmark Corporation and its subsidiaries and PGIM, Inc., its subsidiaries and managed accounts (Exhibit 10.3) (3)
10.3	Amendment No. 6 to Note Agreement dated April 12, 2022 (Exhibit 10.4) (3)
10.4	Amended and Restated Intercreditor and Collateral Agency Agreement dated April 12, 2022 (Exhibit 10.6) (3)
10.5	Omnibus Amendment to Collateral Documents dated April 12, 2022 (Exhibit 10.7) (3)
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32.1	Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
32.2	Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
101	Interactive Data Files Pursuant to Rule 405 of Regulation S-T: Financial statements from the Quarterly Report on Form 10-Q of Winmark Corporation and Subsidiaries for the quarter ended June 25, 2022, formatted in Inline XBRL: (i) Consolidated Condensed Balance Sheets, (ii) Consolidated Condensed Statements of Operations, (iii) Consolidated Condensed Statements of Shareholders’ Equity (Deficit), (iv) Consolidated Condensed Statements of Cash Flows, and (v) Notes to Consolidated Condensed Financial Statements.
104	The cover page from the Quarterly Report on Form 10-Q of Winmark Corporation and Subsidiaries for the quarter ended June 25, 2022, formatted in Inline XBRL (contained in Exhibit 101).

*Filed Herewith

(1) Incorporated by reference to the specified exhibit to the Registration Statement on Form S-1, effective August 24, 1993 (Reg. No. 333-65108).

(2) Incorporated by reference to the specified exhibit to the Annual Report on Form 10-K for the fiscal year ended December 30, 2006.

(3) Incorporated by reference to the specified exhibit to the Current Report on Form 8-K filed April 13, 2022.

22

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.

		WINMARK CORPORATION
Date: July 13, 2022	By:	/s/ Brett D. Heffes
		Brett D. Heffes Chairman of the Board and Chief Executive Officer (principal executive officer)
Date: July 13, 2022	By:	/s/ Anthony D. Ishaug
		Anthony D. Ishaug Executive Vice President Chief Financial Officer and Treasurer (principal financial and accounting officer)

23

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Brett D. Heffes, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Winmark Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:  

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: July 13, 2022	/s/ Brett D. Heffes
	Brett D. Heffes Chairman of the Board and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Anthony D. Ishaug, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Winmark Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:  

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

E
Date: July 13, 2022	Signature:	/s/ Anthony D. Ishaug
		Anthony D. Ishaug Executive Vice President, Chief Financial Officer and Treasurer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Winmark Corporation (the “Company”) on Form 10-Q for the quarter ended June 25, 2022 as filed with the Securities and Exchange Commission (the “Report”), I, Brett D. Heffes, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this written statement required by Section 906 has been provided to Winmark Corporation and will be retained by Winmark Corporation and furnished to the Securities and Exchange Commission upon request.

Date: July 13, 2022	/s/ Brett D. Heffes
	Brett D. Heffes Chairman of the Board and Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Winmark Corporation (the “Company”) on Form 10-Q for the quarter ended June 25, 2022 as filed with the Securities and Exchange Commission (the “Report”), I, Anthony D. Ishaug, Chief Financial Officer and Treasurer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this written statement required by Section 906 has been provided to Winmark Corporation and will be retained by Winmark Corporation and furnished to the Securities and Exchange Commission upon request.

Date: July 13, 2022	/s/ Anthony D. Ishaug
	Anthony D. Ishaug Executive Vice President, Chief Financial Officer and Treasurer

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 25, 2022	Jul. 12, 2022
Document and Entity Information
Entity Registrant Name	WINMARK CORPORATION
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Jun. 25, 2022
Document Transition Report	false
Entity File Number	000-22012
Entity Incorporation, State or Country Code	MN
Entity Tax Identification Number	41-1622691
Entity Address, Address Line One	605 Highway 169 North, Suite 400
Entity Address, City or Town	Minneapolis
Entity Address, State or Province	MN
Entity Address, Postal Zip Code	55441
City Area Code	763
Local Phone Number	520-8500
Title of 12(b) Security	Common Stock, no par value per share
Trading Symbol	WINA
Security Exchange Name	NASDAQ
Amendment Flag	false
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		3,437,702
Current Fiscal Year End Date	--12-31
Entity Central Index Key	0000908315
Document Fiscal Year Focus	2022
Document Fiscal Period Focus	Q2

XML

CONSOLIDATED CONDENSED BALANCE SHEETS - USD ($)	Jun. 25, 2022	Dec. 25, 2021
Current Assets:
Cash and cash equivalents	$ 8,696,600	$ 11,407,000
Restricted cash	55,000	30,000
Receivables, less allowance for doubtful accounts of $500 and $600	1,321,800	1,103,400
Net investment in leases - current	1,870,100	2,890,600
Income tax receivable	869,000	667,500
Inventories	603,400	325,200
Prepaid expenses	861,000	1,008,600
Total current assets	14,276,900	17,432,300
Net investment in leases - long-term	111,000	229,300
Property and equipment, net	1,815,300	1,976,900
Operating lease right of use assets	2,859,800	2,982,000
Intangible assets, net	3,525,200
Goodwill	607,500	607,500
Other assets	420,500	418,300
Deferred income taxes	3,438,100	3,252,700
Total assets	27,054,300	26,899,000
Current Liabilities:
Notes payable, net of unamortized debt issuance costs of $32,100 and $17,400	4,217,900	4,232,600
Accounts payable	1,889,300	2,099,000
Accrued liabilities	4,563,100	2,001,000
Deferred revenue	1,631,100	1,645,000
Total current liabilities	12,301,400	9,977,600
Long-term Liabilities:
Line of credit/Term loan	30,000,000
Notes payable, net of unamortized debt issuance costs of $136,900 and $61,100	41,175,700	43,376,400
Deferred revenue	6,849,200	6,863,500
Operating lease liabilities	4,561,500	4,810,100
Other liabilities	945,200	954,800
Total long-term liabilities	83,531,600	56,004,800
Shareholders' Equity (Deficit):
Retained earnings (accumulated deficit)	(68,778,700)	(39,083,400)
Total shareholders' equity (deficit)	(68,778,700)	(39,083,400)
Total liabilities and shareholders' equity (deficit)	$ 27,054,300	$ 26,899,000

XML

CONSOLIDATED CONDENSED BALANCE SHEETS (Parenthetical) - USD ($)	Jun. 25, 2022	Dec. 25, 2021
CONSOLIDATED BALANCE SHEETS
Receivables, allowance for doubtful accounts	$ 500	$ 600
Unamortized debt issuance costs - Current	32,100	17,400
Unamortized debt issuance costs - Noncurrent	$ 136,900	$ 61,100
Common stock, par value (in dollars per share)	$ 0	$ 0
Common stock, shares authorized	10,000,000	10,000,000
Common stock, shares issued	3,437,806	3,635,806
Common stock, shares outstanding	3,437,806	3,635,806

XML

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS - USD ($)	3 Months Ended		6 Months Ended
	Jun. 25, 2022	Jun. 26, 2021	Jun. 25, 2022	Jun. 26, 2021
Revenue:
Leasing income	$ 1,212,000	$ 2,848,600	$ 4,083,700	$ 6,085,600
Total revenue	19,070,800	19,029,600	39,120,600	37,688,500
Leasing expense	299,600	662,400	515,600	1,051,900
Provisions for credit losses	(15,700)	(62,700)	(24,600)	(111,400)
Selling, general and administrative expenses	5,461,600	5,805,200	11,001,600	10,907,500
Income from operations	12,355,100	11,976,900	25,793,300	24,633,900
Interest expense	(712,000)	(304,300)	(1,225,100)	(622,400)
Interest and other income (expense)	(13,800)	4,900	(14,700)	11,700
Income before income taxes	11,629,300	11,677,500	24,553,500	24,023,200
Provision for income taxes	(2,602,100)	(2,740,200)	(5,673,800)	(5,774,800)
Net income	$ 9,027,200	$ 8,937,300	$ 18,879,700	$ 18,248,400
Earnings per share - basic (in dollars per share)	$ 2.61	$ 2.42	$ 5.35	$ 4.91
Earnings per share - diluted (in dollars per share)	$ 2.54	$ 2.33	$ 5.19	$ 4.74
Weighted average shares outstanding - basic	3,463,886	3,693,503	3,530,902	3,715,088
Weighted average shares outstanding - diluted	3,559,231	3,830,844	3,637,772	3,852,534
Royalties
Revenue:
Revenue	$ 15,981,300	$ 14,716,500	$ 31,371,400	$ 28,765,300
Merchandise sales
Revenue:
Revenue	1,027,200	683,100	1,941,500	1,275,500
Cost of merchandise sold	970,200	647,800	1,834,700	1,206,600
Franchise fees
Revenue:
Revenue	391,500	358,900	812,100	717,900
Other
Revenue:
Revenue	$ 458,800	$ 422,500	$ 911,900	$ 844,200

XML

CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) - USD ($)	Common Stock	Retained Earnings (Accumulated Deficit).	Total
BALANCE at Dec. 26, 2020	$ 9,281,800	$ (20,660,500)	$ (11,378,700)
BALANCE (in shares) at Dec. 26, 2020	3,756,028
Shareholders' Equity (Deficit)
Repurchase of common stock	$ (9,935,800)	(519,400)	(10,455,200)
Repurchase of common stock (in shares)	(58,255)
Stock options exercised	$ 268,800		268,800
Stock options exercised (in shares)	2,950
Compensation expense relating to stock options	$ 385,200		385,200
Cash dividends		(935,400)	(935,400)
Comprehensive income (Net income)		9,311,100	9,311,100
BALANCE at Mar. 27, 2021		(12,804,200)	(12,804,200)
BALANCE (in shares) at Mar. 27, 2021	3,700,723
Shareholders' Equity (Deficit)
Repurchase of common stock	$ (1,254,400)	(7,208,600)	(8,463,000)
Repurchase of common stock (in shares)	(43,833)
Stock options exercised	$ 941,500		941,500
Stock options exercised (in shares)	11,129
Compensation expense relating to stock options	$ 312,900		312,900
Cash dividends		(1,665,000)	(1,665,000)
Comprehensive income (Net income)		8,937,300	8,937,300
BALANCE at Jun. 26, 2021		(12,740,500)	(12,740,500)
BALANCE (in shares) at Jun. 26, 2021	3,668,019
BALANCE at Dec. 25, 2021		(39,083,400)	$ (39,083,400)
BALANCE (in shares) at Dec. 25, 2021	3,635,806		3,635,806
Shareholders' Equity (Deficit)
Repurchase of common stock	$ (1,679,900)	(34,911,500)	$ (36,591,400)
Repurchase of common stock (in shares)	(164,586)
Stock options exercised	$ 1,258,300		1,258,300
Stock options exercised (in shares)	9,156
Compensation expense relating to stock options	$ 421,600		421,600
Cash dividends		(1,625,300)	(1,625,300)
Comprehensive income (Net income)		9,852,500	9,852,500
BALANCE at Mar. 26, 2022		(65,767,700)	(65,767,700)
BALANCE (in shares) at Mar. 26, 2022	3,480,376
BALANCE at Dec. 25, 2021		(39,083,400)	$ (39,083,400)
BALANCE (in shares) at Dec. 25, 2021	3,635,806		3,635,806
BALANCE at Jun. 25, 2022		(68,778,700)	$ (68,778,700)
BALANCE (in shares) at Jun. 25, 2022	3,437,806		3,437,806
BALANCE at Mar. 26, 2022		(65,767,700)	$ (65,767,700)
BALANCE (in shares) at Mar. 26, 2022	3,480,376
Shareholders' Equity (Deficit)
Repurchase of common stock	$ (1,645,200)	(9,610,900)	(11,256,100)
Repurchase of common stock (in shares)	(55,694)
Stock options exercised	$ 1,295,400		1,295,400
Stock options exercised (in shares)	13,124
Compensation expense relating to stock options	$ 349,800		349,800
Cash dividends		(2,427,300)	(2,427,300)
Comprehensive income (Net income)		9,027,200	9,027,200
BALANCE at Jun. 25, 2022		$ (68,778,700)	$ (68,778,700)
BALANCE (in shares) at Jun. 25, 2022	3,437,806		3,437,806

XML

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS - USD ($)	6 Months Ended
	Jun. 25, 2022	Jun. 26, 2021
OPERATING ACTIVITIES:
Net Income	$ 18,879,700	$ 18,248,400
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	219,400	223,200
Provisions for credit losses	(24,600)	(111,400)
Compensation expense related to stock options	771,400	698,100
Deferred income taxes	(185,400)	(907,400)
Deferred initial direct costs		(2,100)
Amortization of deferred initial direct costs		16,400
Operating lease right of use asset amortization	122,200	109,900
Tax benefits on exercised stock options	348,000	248,900
Change in operating assets and liabilities:
Receivables	(218,400)	405,600
Principal collections on lease receivables	1,636,100	5,332,200
Income tax receivable/payable	(549,500)	(722,900)
Inventories	(278,200)	(222,800)
Prepaid expenses	147,600	308,000
Other assets	(2,200)	17,800
Accounts payable	(209,700)	(311,600)
Accrued and other liabilities	2,213,500	232,100
Rents received in advance and security deposits	(472,700)	(317,700)
Deferred revenue	(28,200)	(120,300)
Net cash provided by operating activities	22,369,000	23,124,400
INVESTING ACTIVITIES:
Purchase of property and equipment	(43,000)	(48,600)
Reacquired franchise rights	(3,540,000)
Purchase of equipment for lease contracts		(78,200)
Net cash used for investing activities	(3,583,000)	(126,800)
FINANCING ACTIVITIES:
Proceeds from borrowings on line of credit	33,700,000
Payments on line of credit	(3,700,000)
Payments on notes payable	(2,125,000)	(2,125,000)
Repurchases of common stock	(47,847,500)	(18,918,200)
Proceeds from exercises of stock options	2,553,700	1,210,300
Dividends paid	(4,052,600)	(2,600,400)
Net cash used for financing activities	(21,471,400)	(22,433,300)
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	(2,685,400)	564,300
Cash, cash equivalents and restricted cash, beginning of period	11,437,000	6,684,000
Cash, cash equivalents and restricted cash, end of period	$ 8,751,600	$ 7,248,300

XML

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS - Supplemental Disclosures - USD ($)	6 Months Ended
	Jun. 25, 2022	Jun. 26, 2021
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest	$ 1,108,100	$ 603,700
Cash paid for income taxes	6,060,800	7,156,200
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents	8,696,600	7,223,300
Restricted cash	55,000	25,000
Total cash, cash equivalents and restricted cash	$ 8,751,600	$ 7,248,300

XML

Management's Interim Financial Statement Representation:

6 Months Ended

Jun. 25, 2022

Management's Interim Financial Statement Representation:

Management's Interim Financial Statement Representation:

WINMARK CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

1. Management’s Interim Financial Statement Representation:

The accompanying consolidated condensed financial statements have been prepared by Winmark Corporation and subsidiaries (the Company), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. The Company has a 52/53 week year which ends on the last Saturday in December. The information in the consolidated 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. The consolidated condensed financial statements and notes are presented in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions for Form 10-Q, and therefore do not contain certain information included in the Company’s annual consolidated financial statements and notes. This report should be read in conjunction with the audited consolidated 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 25, 2022 are not necessarily indicative of the results to be expected for the full year.

Reclassifications

Certain reclassifications of previously reported amounts have been made to conform to the current year presentation. Such reclassifications did not impact net income or shareholders’ equity (deficit) as previously reported.

XML

Organization and Business:

6 Months Ended

Jun. 25, 2022

Organization and Business:

Organization and Business:

2. Organization and Business:

The Company offers licenses to operate franchises using the service marks Plato’s Closet®, Once Upon A Child®, Play It Again Sports®, Style Encore® and Music Go Round®. The Company also operates a middle market equipment leasing business under the Winmark Capital® mark.

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Contract Liabilities:

6 Months Ended

Jun. 25, 2022

Contract Liabilities:

Contract Liabilities:

3. Contract Liabilities:

The Company’s contract liabilities for its franchise revenues consist of deferred revenue associated with franchise fees and software license fees. The table below presents the activity of the current and noncurrent deferred franchise revenue during the first six months of 2022 and 2021, respectively:

	June 25, 2022		June 26, 2021
Balance at beginning of period	$	8,508,500	$	8,708,300
Franchise and software license fees collected from franchisees, excluding amount earned as revenue during the period		937,900		755,400
Fees earned that were included in the balance at the beginning of the period		(966,100)		(875,700)
Balance at end of period	$	8,480,300	$	8,588,000

The following table illustrates future estimated revenue to be recognized for the remainder of 2022 and full fiscal years thereafter related to performance obligations that are unsatisfied (or partially unsatisfied) as of June 25, 2022.

Contract Liabilities expected to be recognized in	Amount
2022	$	804,700
2023		1,546,500
2024		1,348,800
2025		1,132,400
2026		928,000
Thereafter		2,719,900
	$	8,480,300

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Fair Value Measurements:

6 Months Ended

Jun. 25, 2022

Fair Value Measurements:

Fair Value Measurements:

4. Fair Value Measurements:

The Company defines fair value as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  The Company uses three levels of inputs to measure fair value:

● Level 1 – quoted prices in active markets for identical assets and liabilities.

● Level 2 – observable inputs other than quoted prices in active markets for identical assets and liabilities.

● Level 3 – unobservable inputs in which there is little or no market data available, which require the reporting entity to develop its own assumptions.

Due to their nature, the carrying value of cash equivalents, receivables, payables and debt obligations approximates fair value.

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Investment in Leasing Operations:

6 Months Ended

Jun. 25, 2022

Investment in Leasing Operations:

Investment in Leasing Operations:

5. Investment in Leasing Operations:

In May 2021, the Company made the decision to no longer solicit new leasing customers and will pursue an orderly run-off for its leasing portfolio.

Investment in leasing operations consists of the following:

	June 25, 2022		December 25, 2021
Direct financing and sales-type leases:
Minimum lease payments receivable	$	2,020,200	$	3,387,500
Estimated unguaranteed residual value of equipment		658,900		1,316,100
Unearned lease income, net of initial direct costs deferred		(206,400)		(418,100)
Security deposits		(649,800)		(1,122,500)
Total investment in direct financing and sales-type leases		1,822,900		3,163,000
Allowance for credit losses		(40,400)		(63,600)
Net investment in direct financing and sales-type leases		1,782,500		3,099,400
Operating leases:
Operating lease assets		753,800		626,200
Less accumulated depreciation and amortization		(555,200)		(605,700)
Net investment in operating leases		198,600		20,500
Total net investment in leasing operations	$	1,981,100	$	3,119,900

As of June 25, 2022, the $2.0 million total net investment in leases consists of $1.9 million classified as current and $0.1 million classified as long-term. As of December 25, 2021, the $3.1 million total net investment in leases consists of $2.9 million classified as current and $0.2 million classified as long-term.

As of June 25, 2022, there were no customers with leased assets greater than 10% of the Company’s total assets.

Future minimum lease payments receivable under lease contracts and the amortization of unearned lease income, net of initial direct costs deferred, is as follows for the remainder of fiscal 2022 and the full fiscal years thereafter as of June 25, 2022:

	Direct Financing and Sales-Type Leases
	Minimum Lease		Income
Fiscal Year	Payments Receivable		Amortization
2022		1,506,400		175,300
2023		510,300		31,000
2024		3,500		100
	$	2,020,200	$	206,400

The activity in the allowance for credit losses for leasing operations during the first six months of 2022 and 2021, respectively, is as follows:

	June 25, 2022		June 26, 2021
Balance at beginning of period	$	63,600	$	270,200
Provisions charged to expense		(24,600)		(111,400)
Recoveries		1,400		—
Balance at end of period	$	40,400	$	158,800

The Company’s investment in direct financing and sales-type leases (“Investment In Leases”) and allowance for credit losses by loss evaluation methodology are as follows:

	June 25, 2022				December 25, 2021
	Investment		Allowance for		Investment		Allowance for
	In Leases		Credit Losses		In Leases		Credit Losses
Collectively evaluated for loss potential	$	1,822,900	$	40,400	$	3,163,000	$	63,600
Individually evaluated for loss potential		—		—		—		—
Total	$	1,822,900	$	40,400	$	3,163,000	$	63,600

The Company’s key credit quality indicator for its investment in direct financing and sales-type leases is the status of the lease, defined as accruing or non-accrual. Leases that are accruing income are considered to have a lower risk of loss. Non-accrual leases are those that the Company believes have a higher risk of loss. The following table sets forth information regarding the Company’s accruing and non-accrual leases. Delinquent balances are determined based on the contractual terms of the lease.

	June 25, 2022
	0-60 Days		61-90 Days		Over 90 Days
	Delinquent		Delinquent		Delinquent and
	and Accruing		and Accruing		Accruing		Non-Accrual		Total
Total investment in leases	$	1,822,900	$	—	$	—	$	—	$	1,822,900

	December 25, 2021
	0-60 Days		61-90 Days		Over 90 Days
	Delinquent		Delinquent		Delinquent and
	and Accruing		and Accruing		Accruing		Non-Accrual		Total
Total investment in leases	$	3,163,000	$	—	$	—	$	—	$	3,163,000

The Company leases high-technology and other business-essential equipment to its leasing customers. Upon expiration of the initial term or extended lease term, depending on the structure of the lease, the customer may return the equipment, renew the lease for an additional term, or purchase the equipment. Due to the uncertainty of such outcome at the end of the lease term, the lease as recorded at commencement represents only the current terms of the agreement. As a lessor, the Company’s leases do not contain non-lease components. The residual values reflect the estimated amounts to be received at lease termination from sales or other dispositions of leased equipment to unrelated parties. The leased equipment residual values are based on the Company’s best estimate. The Company’s risk management strategy for its residual value includes the contractual obligations of its customers to maintain, service, and insure the leased equipment, the use of third party remarketers as well as the analytical review of historical asset dispositions.

Leasing income as presented on the Consolidated Condensed Statements of Operations consists of the following:

	Three Months Ended		Three Months Ended		Six Months Ended		Six Months Ended
	June 25, 2022		June 26, 2021		June 25, 2022		June 26, 2021
Interest income on direct financing and sales-type leases	$	205,300	$	482,800	$	483,800	$	1,102,500
Selling profit (loss) at commencement of sales-type leases		34,800		356,300		1,298,000		1,430,000
Operating lease income		528,300		476,500		910,100		960,800
Income on sales of equipment under lease		328,700		1,479,900		932,100		2,225,500
Other		114,900		53,100		459,700		366,800
Leasing income	$	1,212,000	$	2,848,600	$	4,083,700	$	6,085,600

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Intangible Assets:

6 Months Ended

Jun. 25, 2022

Intangible Assets

Intangible Assets

6. Intangible Assets

In June 2022, Winmark terminated an agreement that contained the rights for eleven Play It Again Sports stores to operate separately from Winmark’s franchise system. In terminating the agreement, which included $3.54 million of consideration paid by Winmark, Winmark reacquired the franchise rights to these eleven stores. Upon termination of the agreement, these eleven stores signed franchise agreements, each with an initial term of ten years.

Intangible assets consist of these reacquired franchise rights. The Company amortizes the fair value of the reacquired franchise rights over the contract term of the franchise. The Company recognized $14,800 of amortization expense for the three and six months ended June 25, 2022.

The following table illustrates future amortization to be expensed for the remainder of 2022 and full fiscal years thereafter related to reacquired franchise rights as of June 25, 2022.

Amortization expected to be expensed in	Amount
2022	$	177,000
2023		354,000
2024		354,000
2025		354,000
2026		354,000
Thereafter		1,932,200
	$	3,525,200

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Earnings Per Share:

6 Months Ended

Jun. 25, 2022

Earnings Per Share:

Earnings Per Share:

7. Earnings Per Share:

The following table sets forth the presentation of shares outstanding used in the calculation of basic and diluted earnings per share (“EPS”):

	Three Months Ended		Six Months Ended
	June 25, 2022	June 26, 2021	June 25, 2022	June 26, 2021
Denominator for basic EPS — weighted average common shares	3,463,886	3,693,503	3,530,902	3,715,088
Dilutive shares associated with option plans	95,345	137,341	106,870	137,446
Denominator for diluted EPS — weighted average common shares and dilutive potential common shares	3,559,231	3,830,844	3,637,772	3,852,534
Options excluded from EPS calculation — anti-dilutive	21,488	6,670	16,379	9,654

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Shareholders' Equity (Deficit):

6 Months Ended

Jun. 25, 2022

Shareholders' Equity (Deficit):

Shareholders' Equity (Deficit):

8. Shareholders’ Equity (Deficit):

Dividends

On January 26, 2022, the Company’s Board of Directors approved the payment of a $0.45 per share quarterly cash dividend to shareholders of record at the close of business on February 9, 2022, which was paid on March 1, 2022.

On April 13, 2022, the Company’s Board of Directors approved the payment of a $0.70 per share quarterly cash dividend to shareholders of record at the close of business on May 11, 2022, which was paid on June 1, 2022.

Repurchase of Common Stock

In the first six months of 2022, the Company repurchased 220,280 shares of its common stock. Under the Board of Directors’ authorization, as of June 25, 2022, the Company has the ability to repurchase an additional 84,485 shares of its common stock. Repurchases may be made from time to time at prevailing prices, subject to certain restrictions on volume, pricing and timing.

Stock Option Plans and Stock-Based Compensation

Stock option activity under the Company’s option plans as of June 25, 2022 was as follows:

				Weighted Average
				Remaining
	Number of	Weighted Average		Contractual Life
	Shares	Exercise Price		(years)		Intrinsic Value
Outstanding, December 25, 2021	355,621	$	146.03	6.32	$	39,320,600
Granted	34,940		198.42
Exercised	(22,280)		114.62
Forfeited	(6,501)		183.28
Outstanding, June 25, 2022	361,780	$	152.35	6.26	$	20,285,200
Exercisable, June 25, 2022	220,496	$	119.50	4.59	$	18,323,800

The fair value of options granted under the Option Plans during the first six months of 2022 and 2021 were estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions and results:

	Six Months Ended
	June 25, 2022			June 26, 2021
Risk free interest rate		2.70	%		0.90	%
Expected life (years)		6			6
Expected volatility		27.47	%		25.07	%
Dividend yield		4.61	%		2.74	%
Option fair value	$	33.38		$	32.70

All unexercised options at June 25, 2022 have an exercise price equal to the fair market value on the date of the grant.

Compensation expense of $771,400 and $698,100 relating to the vested portion of the fair value of stock options granted was expensed to “Selling, General and Administrative Expenses” in the first six months of 2022 and 2021, respectively. As of June 25, 2022, the Company had $4.2 million of total unrecognized compensation expense related to stock options that is expected to be recognized over the remaining weighted average vesting period of approximately 2.9 years.

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Debt:

6 Months Ended

Jun. 25, 2022

Debt:

Debt:

9. Debt:

Line of Credit

In April 2022, the Company’s credit facility with CIBC Bank USA (the Line of Credit) was amended to, among other things:

● Provide for a new $30.0 million delayed draw term facility, with available draws summarized as follows:

o The Company may draw up to five (5) loans over a period of 18 months, each draw having a principal amount not less than $3.0 million (or higher integral multiples of $1.0 million), with aggregate draws outstanding not to exceed $30.0 million;

o The final maturity of all drawn loans of April 12, 2029, with all payments of principal due on such date;

o Interest at a rate to be determined at the time of each draw, payable monthly in arrears on the outstanding aggregate principal balance.

● Decrease the aggregate commitments for revolving loans from $25.0 million to $20.0 million;

● Extend the termination date for revolving loans from August 31, 2024 to April 12, 2027;

● Remove the borrowing base covenant restriction for revolving loans;

● Replace LIBOR with SOFR as an interest rate option in connection with borrowings on revolving loans and adjust the definition of and reduce the applicable margin to reflect such replacement;

● Amend the fixed charge coverage ratio definition to exclude principal payments on non-amortizing term loans that are refinanced with proceeds from permitted debt (as defined within the amendment);

● Permit the Company to issue additional term notes under a new Private Shelf Agreement with PGIM, Inc. (formerly Prudential Investment Management, Inc.) its affiliates and managed accounts (collectively, “Prudential”) as described below.

As of June 25, 2022, there were no revolving loans outstanding under the Line of Credit, leaving $20.0 million available for additional revolving borrowings. During the three months ended June 25, 2022, the Company had delayed draw term loan borrowings totaling $30.0 million under the Line of Credit bearing interest ranging from 4.60% to 4.75%.

The Line of Credit has been and will continue to be used for general corporate purposes. The Line of Credit is secured by a lien against substantially all of the Company’s assets (as the Line of Credit ranks pari passu with the Prudential facilities described below), contains customary financial conditions and covenants, and requires maintenance of minimum levels of debt service coverage and maximum levels of leverage (all as defined within the Line of Credit). As of June 25, 2022, the Company was in compliance with all of its financial covenants.

Notes Payable

In April 2022, the Note Agreement with Prudential was amended to, among other things:

● Permit the Company to incur the obligations described in and conform to the changes made by the Company’s entry into the amendments to the Line of Credit described above;

● Permit the Company to incur the obligations described in and conform to the changes made by the Company’s entry into the Shelf Agreement described below.

As of June 25, 2022, the Company had aggregate principal outstanding of $45.6 million under the Note Agreement; consisting of $9.0 million in principal outstanding from the $25.0 million Series A notes issued in May 2015, $6.6 million in principal outstanding from the $12.5 million Series B notes issued in August 2017 and $30.0 million in principal outstanding from the $30.0 million Series C notes issued in September 2021.

The final maturity of the Series A and Series B notes is 10 years from the issuance date. The final maturity of the Series C notes is 7 years from the issuance date. For the Series A notes, interest at a rate of 5.50% per annum on the outstanding principal balance is payable quarterly, along with required prepayments of the principal of $500,000 quarterly for the first five years, and $750,000 quarterly thereafter until the principal is paid in full. For the Series B notes, interest at a rate of 5.10% per annum on the outstanding principal balance is payable quarterly, along with required prepayments of the principal of $312,500 quarterly until the principal is paid in full. For the Series C notes, interest at a rate of 3.18% per annum on the outstanding principal balance is payable quarterly until the principal is paid in full. The Series A, Series B and Series C notes may be prepaid, at the option of the Company, in whole or in part (in a minimum amount of $1.0 million), but prepayments require payment of a Yield Maintenance Amount, as defined in the Note Agreement.

The Company’s obligations under the Note Agreement are secured by a lien against substantially all of the Company’s assets (as the notes rank pari passu with the Line of Credit), and the Note Agreement contains customary financial conditions and covenants, and requires maintenance of minimum levels of fixed charge coverage and maximum levels of leverage (all as defined within the Note Agreement). As of June 25, 2022, the Company was in compliance with all of its financial covenants.

In connection with the Note Agreement, the Company incurred debt issuance costs, of which unamortized amounts are presented as a direct deduction from the carrying amount of the related liability.

In April 2022, the Company entered into a Private Shelf Agreement (the “Shelf Agreement”) with Prudential, summarized as follows:

● For a period three years from entry into the Shelf Agreement, subject to certain customary conditions, the Company may offer and Prudential may purchase from the Company privately negotiated senior notes (“Shelf Notes”) in the aggregate principal amount up to (i) $100.0 million, less (ii) the aggregate principal amount of notes outstanding at such point (including notes outstanding under the existing Prudential Note Agreement);

● Each Shelf Note issued will have an average life and maturity of no more than 12.5 years from the date of original issuance, with interest payable at a rate per annum determined at the time of each issuance;

● The Shelf Notes will be secured by all of the Company’s assets and the Shelf Notes will rank pari passu with the Company’s obligations to the lenders under the amended Line of Credit and the amended Note Agreement;

● The Shelf Notes may be prepaid, at the option of the Company, in whole or in part (in a minimum amount of $1 million), but prepayments will require payment of a Yield Maintenance Amount (as defined within the Shelf Agreement);

● The Shelf Agreement contains customary affirmative covenants and negative covenants that are substantially the same as those contained in the amended Line of Credit and amended Note Agreement.

As of June 25, 2022, the Company had not issued any notes under the Shelf Agreement and was in compliance with all of its financial covenants.

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Operating Leases:

6 Months Ended

Jun. 25, 2022

Operating Leases:

Operating Leases:

10. Operating Leases:

As of June 25, 2022, the Company leases its Minnesota corporate headquarters in a facility with an operating lease that expires in December 2029. The remaining lease term for this lease is 7.50 years and the discount rate is 5.5%. The Company recognized $604,900 and $580,000 of rent expense for the periods ended June 25, 2022 and June 26, 2021, respectively.

Maturities of operating lease liabilities is as follows for the remainder of fiscal 2022 and full fiscal years thereafter as of June 25, 2022:

Operating Lease Liabilities expected to be recognized in	Amount
2022	$	374,800
2023		763,300
2024		784,400
2025		806,000
2026		828,200
Thereafter		2,624,300
Total lease payments		6,181,000
Less imputed interest		(1,117,500)
Present value of lease liabilities	$	5,063,500

Of the $5.1 million operating lease liability outstanding at June 25, 2022, $0.5 million is included in Accrued liabilities in the Current liabilities section of the Consolidated Condensed Balance Sheets.

Supplemental cash flow information related to our operating leases is as follows for the period ended June 25, 2022:

	Six Months Ended
	June 25, 2022		June 26, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flow outflow from operating leases	$	368,100	$	358,300

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Segment Reporting:

6 Months Ended

Jun. 25, 2022

Segment Reporting:

Segment Reporting:

11. Segment Reporting:

The Company currently has two reportable business segments, franchising and leasing. The franchising segment franchises value-oriented retail store concepts that buy, sell and trade merchandise. The leasing segment includes the

Company’s equipment leasing business. Segment reporting is intended to give financial statement users a better view of how the Company manages and evaluates its businesses. The Company’s internal management reporting is the basis for the information disclosed for its business segments and includes allocation of shared-service costs. Segment assets are those that are directly used in or identified with segment operations, including cash, restricted cash, accounts receivable, prepaid expenses, inventory, property and equipment, investment in leasing operations, intangible assets and goodwill. Unallocated assets include corporate cash and cash equivalents, current and deferred tax amounts, operating lease right of use assets and other corporate assets. Inter-segment balances and transactions have been eliminated. The following tables summarize financial information by segment and provide a reconciliation of segment contribution to operating income:

	Three Months Ended				Six Months Ended
	June 25, 2022		June 26, 2021		June 25, 2022		June 26, 2021
Revenue:
Franchising	$	17,858,800	$	16,181,000	$	35,036,900	$	31,602,900
Leasing		1,212,000		2,848,600		4,083,700		6,085,600
Total revenue	$	19,070,800	$	19,029,600	$	39,120,600	$	37,688,500
Reconciliation to operating income:
Franchising segment contribution	$	11,742,400	$	10,546,900	$	22,943,100	$	21,271,400
Leasing segment contribution		612,700		1,430,000		2,850,200		3,362,500
Total operating income	$	12,355,100	$	11,976,900	$	25,793,300	$	24,633,900
Depreciation and amortization:
Franchising	$	81,900	$	62,300	$	149,400	$	128,200
Leasing		35,000		47,100		70,000		95,000
Total depreciation and amortization	$	116,900	$	109,400	$	219,400	$	223,200

	As of
	June 25, 2022		December 25, 2021
Identifiable assets:
Franchising	$	8,401,500	$	4,907,800
Leasing		2,399,700		3,600,500
Unallocated		16,253,100		18,390,700
Total	$	27,054,300	$	26,899,000

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Contract Liabilities: (Tables)

6 Months Ended

Jun. 25, 2022

Contract Liabilities:

Schedule of activity of current and noncurrent deferred franchise revenue

	June 25, 2022		June 26, 2021
Balance at beginning of period	$	8,508,500	$	8,708,300
Franchise and software license fees collected from franchisees, excluding amount earned as revenue during the period		937,900		755,400
Fees earned that were included in the balance at the beginning of the period		(966,100)		(875,700)
Balance at end of period	$	8,480,300	$	8,588,000

Schedule of future estimated revenue to be recognized related to performance obligations

Contract Liabilities expected to be recognized in	Amount
2022	$	804,700
2023		1,546,500
2024		1,348,800
2025		1,132,400
2026		928,000
Thereafter		2,719,900
	$	8,480,300

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Investment in Leasing Operations: (Tables)

6 Months Ended

Jun. 25, 2022

Investment in Leasing Operations:

Schedule of investment in leasing operations

	June 25, 2022		December 25, 2021
Direct financing and sales-type leases:
Minimum lease payments receivable	$	2,020,200	$	3,387,500
Estimated unguaranteed residual value of equipment		658,900		1,316,100
Unearned lease income, net of initial direct costs deferred		(206,400)		(418,100)
Security deposits		(649,800)		(1,122,500)
Total investment in direct financing and sales-type leases		1,822,900		3,163,000
Allowance for credit losses		(40,400)		(63,600)
Net investment in direct financing and sales-type leases		1,782,500		3,099,400
Operating leases:
Operating lease assets		753,800		626,200
Less accumulated depreciation and amortization		(555,200)		(605,700)
Net investment in operating leases		198,600		20,500
Total net investment in leasing operations	$	1,981,100	$	3,119,900

Schedule of future minimum lease payments receivable under lease contracts and the amortization of unearned lease income, net of initial direct costs deferred

	Direct Financing and Sales-Type Leases
	Minimum Lease		Income
Fiscal Year	Payments Receivable		Amortization
2022		1,506,400		175,300
2023		510,300		31,000
2024		3,500		100
	$	2,020,200	$	206,400

Schedule of activity in the allowance for credit losses for leasing operations

	June 25, 2022		June 26, 2021
Balance at beginning of period	$	63,600	$	270,200
Provisions charged to expense		(24,600)		(111,400)
Recoveries		1,400		—
Balance at end of period	$	40,400	$	158,800

Schedule of investment in direct financing and sales-type leases ("Investment in Leases") and allowance for credit losses by loss evaluation methodology

	June 25, 2022				December 25, 2021
	Investment		Allowance for		Investment		Allowance for
	In Leases		Credit Losses		In Leases		Credit Losses
Collectively evaluated for loss potential	$	1,822,900	$	40,400	$	3,163,000	$	63,600
Individually evaluated for loss potential		—		—		—		—
Total	$	1,822,900	$	40,400	$	3,163,000	$	63,600

Schedule of information regarding accruing and non-accrual leases

	June 25, 2022
	0-60 Days		61-90 Days		Over 90 Days
	Delinquent		Delinquent		Delinquent and
	and Accruing		and Accruing		Accruing		Non-Accrual		Total
Total investment in leases	$	1,822,900	$	—	$	—	$	—	$	1,822,900

	December 25, 2021
	0-60 Days		61-90 Days		Over 90 Days
	Delinquent		Delinquent		Delinquent and
	and Accruing		and Accruing		Accruing		Non-Accrual		Total
Total investment in leases	$	3,163,000	$	—	$	—	$	—	$	3,163,000

Schedule of components of leasing income

	Three Months Ended		Three Months Ended		Six Months Ended		Six Months Ended
	June 25, 2022		June 26, 2021		June 25, 2022		June 26, 2021
Interest income on direct financing and sales-type leases	$	205,300	$	482,800	$	483,800	$	1,102,500
Selling profit (loss) at commencement of sales-type leases		34,800		356,300		1,298,000		1,430,000
Operating lease income		528,300		476,500		910,100		960,800
Income on sales of equipment under lease		328,700		1,479,900		932,100		2,225,500
Other		114,900		53,100		459,700		366,800
Leasing income	$	1,212,000	$	2,848,600	$	4,083,700	$	6,085,600

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Intangible Assets: (Tables)

6 Months Ended

Jun. 25, 2022

Intangible Assets

Schedule of future amortization to be expensed

Amortization expected to be expensed in	Amount
2022	$	177,000
2023		354,000
2024		354,000
2025		354,000
2026		354,000
Thereafter		1,932,200
	$	3,525,200

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Earnings Per Share: (Tables)

6 Months Ended

Jun. 25, 2022

Earnings Per Share:

Schedule of shares outstanding used in the calculation of basic and diluted earnings per share

	Three Months Ended		Six Months Ended
	June 25, 2022	June 26, 2021	June 25, 2022	June 26, 2021
Denominator for basic EPS — weighted average common shares	3,463,886	3,693,503	3,530,902	3,715,088
Dilutive shares associated with option plans	95,345	137,341	106,870	137,446
Denominator for diluted EPS — weighted average common shares and dilutive potential common shares	3,559,231	3,830,844	3,637,772	3,852,534
Options excluded from EPS calculation — anti-dilutive	21,488	6,670	16,379	9,654

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Shareholders' Equity (Deficit): (Tables)

6 Months Ended

Jun. 25, 2022

Shareholders' Equity (Deficit):

Schedule of stock option activity

				Weighted Average
				Remaining
	Number of	Weighted Average		Contractual Life
	Shares	Exercise Price		(years)		Intrinsic Value
Outstanding, December 25, 2021	355,621	$	146.03	6.32	$	39,320,600
Granted	34,940		198.42
Exercised	(22,280)		114.62
Forfeited	(6,501)		183.28
Outstanding, June 25, 2022	361,780	$	152.35	6.26	$	20,285,200
Exercisable, June 25, 2022	220,496	$	119.50	4.59	$	18,323,800

Schedule of weighted average assumptions used in estimation of fair value of options granted

	Six Months Ended
	June 25, 2022			June 26, 2021
Risk free interest rate		2.70	%		0.90	%
Expected life (years)		6			6
Expected volatility		27.47	%		25.07	%
Dividend yield		4.61	%		2.74	%
Option fair value	$	33.38		$	32.70

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Operating Leases: (Tables)

6 Months Ended

Jun. 25, 2022

Operating Leases:

Schedule of maturities of operating lease liabilities

Operating Lease Liabilities expected to be recognized in	Amount
2022	$	374,800
2023		763,300
2024		784,400
2025		806,000
2026		828,200
Thereafter		2,624,300
Total lease payments		6,181,000
Less imputed interest		(1,117,500)
Present value of lease liabilities	$	5,063,500

Schedule of supplemental cash flow information related to operating leases

	Six Months Ended
	June 25, 2022		June 26, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flow outflow from operating leases	$	368,100	$	358,300

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Segment Reporting: (Tables)

6 Months Ended

Jun. 25, 2022

Segment Reporting:

Schedule of financial information by segment and reconciliation of segment contribution to operating income

	Three Months Ended				Six Months Ended
	June 25, 2022		June 26, 2021		June 25, 2022		June 26, 2021
Revenue:
Franchising	$	17,858,800	$	16,181,000	$	35,036,900	$	31,602,900
Leasing		1,212,000		2,848,600		4,083,700		6,085,600
Total revenue	$	19,070,800	$	19,029,600	$	39,120,600	$	37,688,500
Reconciliation to operating income:
Franchising segment contribution	$	11,742,400	$	10,546,900	$	22,943,100	$	21,271,400
Leasing segment contribution		612,700		1,430,000		2,850,200		3,362,500
Total operating income	$	12,355,100	$	11,976,900	$	25,793,300	$	24,633,900
Depreciation and amortization:
Franchising	$	81,900	$	62,300	$	149,400	$	128,200
Leasing		35,000		47,100		70,000		95,000
Total depreciation and amortization	$	116,900	$	109,400	$	219,400	$	223,200

	As of
	June 25, 2022		December 25, 2021
Identifiable assets:
Franchising	$	8,401,500	$	4,907,800
Leasing		2,399,700		3,600,500
Unallocated		16,253,100		18,390,700
Total	$	27,054,300	$	26,899,000

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Management's Interim Financial Statement Representation: (Details)	6 Months Ended
	Jun. 25, 2022 item
Minimum
Number of Weeks in Fiscal Year	52
Maximum
Number of Weeks in Fiscal Year	53

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Contract Liabilities: Activity (Details) - USD ($)	6 Months Ended
	Jun. 25, 2022	Jun. 26, 2021
Activity of the current and noncurrent deferred franchise revenue
Balance at beginning of period	$ 8,508,500	$ 8,708,300
Franchise and software license fees collected from franchisees, excluding amount earned as revenue during the period	937,900	755,400
Fees earned that were included in the balance at the beginning of the period	(966,100)	(875,700)
Balance at end of period	$ 8,480,300	$ 8,588,000

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Contract Liabilities: Performance Obligations (Details)	Jun. 25, 2022 USD ($)
Future estimated revenue to be recognized related to performance obligations
Revenue, remaining performance obligation	$ 8,480,300
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2022-06-26
Future estimated revenue to be recognized related to performance obligations
Duration of expected recognition period for remaining performance obligation	6 months
Revenue, remaining performance obligation	$ 804,700
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2023-01-01
Future estimated revenue to be recognized related to performance obligations
Duration of expected recognition period for remaining performance obligation	1 year
Revenue, remaining performance obligation	$ 1,546,500
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2023-12-31
Future estimated revenue to be recognized related to performance obligations
Duration of expected recognition period for remaining performance obligation	1 year
Revenue, remaining performance obligation	$ 1,348,800
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2024-12-29
Future estimated revenue to be recognized related to performance obligations
Duration of expected recognition period for remaining performance obligation	1 year
Revenue, remaining performance obligation	$ 1,132,400
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2025-12-28
Future estimated revenue to be recognized related to performance obligations
Duration of expected recognition period for remaining performance obligation	1 year
Revenue, remaining performance obligation	$ 928,000
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2026-12-27
Future estimated revenue to be recognized related to performance obligations
Duration of expected recognition period for remaining performance obligation
Revenue, remaining performance obligation	$ 2,719,900

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Investment in Leasing Operations: Summary of Leasing Operations (Details) - USD ($)	Jun. 25, 2022	Dec. 25, 2021
Direct financing and sales-type leases:
Minimum lease payments receivable	$ 2,020,200	$ 3,387,500
Estimated unguaranteed residual value of equipment	658,900	1,316,100
Unearned lease income net of initial direct costs deferred	(206,400)	(418,100)
Security deposits	(649,800)	(1,122,500)
Total investment in direct financing and sales-type leases	1,822,900	3,163,000
Allowance for credit losses	(40,400)	(63,600)
Net investment in direct financing and sales-type leases	1,782,500	3,099,400
Operating leases:
Operating lease assets	753,800	626,200
Less accumulated depreciation and amortization	(555,200)	(605,700)
Net investment in operating leases	198,600	20,500
Total net investment in leasing operations	1,981,100	3,119,900
Net investment in leases - current	1,870,100	2,890,600
Net investment in leases - long-term	$ 111,000	$ 229,300

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Investment in Leasing Operations: Minimum Lease Payments Receivable (Details) - USD ($)	Jun. 25, 2022	Dec. 25, 2021
Direct Financing and Sales-Type Leases, Minimum Lease Payments Receivable
2022	$ 1,506,400
2023	510,300
2024	3,500
Total	2,020,200	$ 3,387,500
Direct Financing and Sales-Type Leases, Income Amortization
2022	175,300
2023	31,000
2024	100
Total	$ 206,400

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Investment in Leasing Operations: Credit Losses (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 25, 2022	Jun. 26, 2021	Jun. 25, 2022	Jun. 26, 2021	Dec. 25, 2021
Activity in the allowance for credit losses for leasing operations
Balance at beginning of period			$ 63,600	$ 270,200
Provisions charged to expense	$ (15,700)	$ (62,700)	(24,600)	(111,400)
Recoveries			1,400
Balance at end of period	40,400	$ 158,800	40,400	$ 158,800
Investment In Leases
Total investment in direct financing and sales-type leases	1,822,900		1,822,900		$ 3,163,000
Allowance for Credit Losses
Total	40,400		40,400		63,600
Investment in leases
Investment In Leases
Collectively evaluated for loss potential	1,822,900		1,822,900		3,163,000
Total investment in direct financing and sales-type leases	1,822,900		1,822,900		3,163,000
Allowance for Credit Losses
Collectively evaluated for loss potential	40,400		40,400		63,600
Total	$ 40,400		$ 40,400		$ 63,600

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Investment in Leasing Operations: Investment Aging (Details) - USD ($)	Jun. 25, 2022	Dec. 25, 2021
Investment in Leasing Operations:
0-60 Days Delinquent and Accruing	$ 1,822,900	$ 3,163,000
Total investment in direct financing and sales-type leases	$ 1,822,900	$ 3,163,000

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Investment in Leasing Operations: Leasing Income (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 25, 2022	Jun. 26, 2021	Jun. 25, 2022	Jun. 26, 2021
Leasing income
Interest income on direct financing and sales-type leases	$ 205,300	$ 482,800	$ 483,800	$ 1,102,500
Selling profit (loss) at commencement of sales-type leases	34,800	356,300	1,298,000	1,430,000
Operating lease income	528,300	476,500	910,100	960,800
Income on sales of equipment under lease	328,700	1,479,900	932,100	2,225,500
Other	114,900	53,100	459,700	366,800
Leasing income	$ 1,212,000	$ 2,848,600	$ 4,083,700	$ 6,085,600

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Intangible Assets: Franchise rights (Details)	1 Months Ended	3 Months Ended	6 Months Ended
	Jun. 25, 2022 USD ($) store	Jun. 25, 2022 USD ($)	Jun. 25, 2022 USD ($)
Intangible Assets
Termination of agreement, number of stores	11
Termination of agreement, consideration paid by Winmark | $	$ 3,540,000
Number of stores in which Winmark reacquired the franchise rights	11
Number of stores that signed franchise agreements	11
Amortization of intangible assets | $		$ 14,800	$ 14,800
Franchise Rights
Intangible Assets
Useful life	10 years

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Intangible Assets: Amortization (Details)	Jun. 25, 2022 USD ($)
Future amortization to be expensed:
2022	$ 177,000
2023	354,000
2024	354,000
2025	354,000
2026	354,000
Thereafter	1,932,200
Total	$ 3,525,200

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Earnings Per Share: (Details) - shares	3 Months Ended		6 Months Ended
	Jun. 25, 2022	Jun. 26, 2021	Jun. 25, 2022	Jun. 26, 2021
Earnings Per Share:
Denominator for basic EPS - weighted average common shares	3,463,886	3,693,503	3,530,902	3,715,088
Dilutive shares associated with option plans	95,345	137,341	106,870	137,446
Denominator for diluted EPS - weighted average common shares and dilutive potential common shares	3,559,231	3,830,844	3,637,772	3,852,534
Options excluded from EPS calculation - anti-dilutive (in shares)	21,488	6,670	16,379	9,654

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Shareholders' Equity (Deficit): Dividends and Repurchase of Common Stock (Details) - $ / shares			6 Months Ended
	Apr. 13, 2022	Jan. 26, 2022	Jun. 25, 2022
Dividends
Cash dividends declared and paid (in dollars per share)	$ 0.70	$ 0.45
Common Stock Repurchase Program
Repurchase of Common Stock
Number of shares repurchased			220,280
Number of additional shares that can be repurchased			84,485

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Shareholders' Equity (Deficit): Stock Options Activity (Details) - Stock options - USD ($)	6 Months Ended		12 Months Ended
	Jun. 25, 2022	Jun. 26, 2021	Dec. 25, 2021
Number of Shares
Outstanding at the beginning of the period (in shares)	355,621
Granted (in shares)	34,940
Exercised (in shares)	(22,280)
Forfeited (in shares)	(6,501)
Outstanding at the end of the period (in shares)	361,780		355,621
Exercisable at the end of the period (in shares)	220,496
Weighted Average Exercise Price
Outstanding at the beginning of the period (in dollars per share)	$ 146.03
Granted (in dollars per share)	198.42
Exercised (in dollars per share)	114.62
Forfeited (in dollars per share)	183.28
Outstanding at the end of the period (in dollars per share)	152.35		$ 146.03
Exercisable at the end of the period (in dollars per share)	$ 119.50
Weighted Average Remaining Contractual Life (years)
Outstanding	6 years 3 months 3 days		6 years 3 months 25 days
Exercisable at the end of the period	4 years 7 months 2 days
Intrinsic Value
Outstanding at the beginning of the period	$ 39,320,600
Outstanding at the end of the period	20,285,200		$ 39,320,600
Exercisable at the end of the period	$ 18,323,800
Weighted average assumptions and results used in estimation of fair value of options granted
Risk free interest rate (as a percent)	2.70%	0.90%
Expected life (years)	6 years	6 years
Expected volatility (as a percent)	27.47%	25.07%
Dividend yield (as a percent)	4.61%	2.74%
Option fair value (in dollars per share)	$ 33.38	$ 32.70

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Shareholders' Equity (Deficit): Additional Information (Details) - Stock options - USD ($)	6 Months Ended
	Jun. 25, 2022	Jun. 26, 2021
Additional disclosures
Compensation expense	$ 771,400	$ 698,100
Total unrecognized compensation expense	$ 4,200,000
Weighted average period for recognition of unrecognized compensation expense	2 years 10 months 24 days

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Debt: Line of Credit (Details) $ in Millions	1 Months Ended
	Apr. 30, 2022 USD ($) loan	Jun. 25, 2022 USD ($)	Mar. 31, 2022 USD ($)
Delayed Draw Term Facility
Line of Credit
Borrowings outstanding		$ 30.0
Maximum borrowing capacity	$ 30.0
Maximum number of loans available over a period of 18 months | loan	5
Time period over which the Company may draw loans	18 months
Minimum principal amount of each draw	$ 3.0
Integral multiple	1.0
Delayed Draw Term Facility | Minimum
Line of Credit
Interest rate (as a percent)		4.60%
Delayed Draw Term Facility | Maximum
Line of Credit
Interest rate (as a percent)		4.75%
Revolving Loans
Line of Credit
Borrowings outstanding		$ 0.0
Maximum borrowing capacity	$ 20.0		$ 25.0
Line of credit available for additional borrowings		$ 20.0

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Debt: Notes Payable (Details) - USD ($)	1 Months Ended	6 Months Ended
	Apr. 30, 2022	Jun. 25, 2022	Sep. 30, 2021	Aug. 31, 2017	May 31, 2015
Note Agreement | Notes Payable.
Notes Payable
Principal amount outstanding		$ 45,600,000
Minimum prepayment		1,000,000.0
Note Agreement | Series A Notes
Notes Payable
Principal amount outstanding		$ 9,000,000.0
Note payable, face amount					$ 25,000,000.0
Debt term		10 years
Interest rate (as a percent)		5.50%
Quarterly principal payment, first five years		$ 500,000
Quarterly principal payment, thereafter		750,000
Note Agreement | Series B Notes
Notes Payable
Principal amount outstanding		$ 6,600,000
Note payable, face amount				$ 12,500,000
Debt term		10 years
Interest rate (as a percent)		5.10%
Quarterly principal payment		$ 312,500
Note Agreement | Series C Notes
Notes Payable
Principal amount outstanding		$ 30,000,000.0
Note payable, face amount			$ 30,000,000.0
Debt term		7 years
Interest rate (as a percent)		3.18%
Shelf Agreement | Senior Notes
Notes Payable
Principal amount outstanding		$ 0
Shelf Agreement term	3 years
Maximum amount of Shelf Notes available for issuance.	$ 100,000,000.0
Minimum prepayment	$ 1,000,000
Shelf Agreement | Senior Notes | Maximum
Notes Payable
Debt term	12 years 6 months

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Operating Leases: Summary (Details) - USD ($)	6 Months Ended
	Jun. 25, 2022	Jun. 26, 2021
Operating Leases:
Remaining lease term	7 years 6 months
Discount rate (as a percent)	5.50%
Rent expense	$ 604,900	$ 580,000

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Operating Leases: Maturities and other (Details) - USD ($)	6 Months Ended
	Jun. 25, 2022	Jun. 26, 2021
Maturities of operating lease liabilities:
2022	$ 374,800
2023	763,300
2024	784,400
2025	806,000
2026	828,200
Thereafter	2,624,300
Total	6,181,000
Less imputed interest	(1,117,500)
Present value of lease liabilities	5,063,500
Operating lease liability
Operating lease liability, current	$ 500,000
Operating Lease, Liability, Current, Statement of Financial Position [Extensible List]	Accrued Liabilities, Current
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flow outflow from operating leases	$ 368,100	$ 358,300

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Segment Reporting: (Details)	3 Months Ended		6 Months Ended
	Jun. 25, 2022 USD ($)	Jun. 26, 2021 USD ($)	Jun. 25, 2022 USD ($) item	Jun. 26, 2021 USD ($)	Dec. 25, 2021 USD ($)
Segment Reporting
Number of reportable business segments | item			2
Total revenue	$ 19,070,800	$ 19,029,600	$ 39,120,600	$ 37,688,500
Total operating income	12,355,100	11,976,900	25,793,300	24,633,900
Total depreciation and amortization	116,900	109,400	219,400	223,200
Total identifiable assets	27,054,300		27,054,300		$ 26,899,000
Operating | Franchising
Segment Reporting
Total revenue	17,858,800	16,181,000	35,036,900	31,602,900
Total operating income	11,742,400	10,546,900	22,943,100	21,271,400
Total depreciation and amortization	81,900	62,300	149,400	128,200
Total identifiable assets	8,401,500		8,401,500		4,907,800
Operating | Leasing
Segment Reporting
Total revenue	1,212,000	2,848,600	4,083,700	6,085,600
Total operating income	612,700	1,430,000	2,850,200	3,362,500
Total depreciation and amortization	35,000	$ 47,100	70,000	$ 95,000
Total identifiable assets	2,399,700		2,399,700		3,600,500
Unallocated
Segment Reporting
Total identifiable assets	$ 16,253,100		$ 16,253,100		$ 18,390,700