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Table of Contents

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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.

​

​

​

​

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Table of Contents

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

Table of Contents

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

Table of Contents

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

Table of Contents

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

Table of Contents

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.

​

​

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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

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​

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 | ​

​

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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.

​

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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 |

​

​

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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

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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.

​

​

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ITEM 3: Defaults Upon Senior Securities

​

None.

​

ITEM 4: Mine Safety Disclosure s

​

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)
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10.5 | ​ | Omnibus Amendment to Collateral Documents dated April 12, 2022 (Exhibit 10.7) (3)
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31.1 | ​ | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
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31.2 | ​ | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
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32.1 | ​ | Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
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32.2 | ​ | Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
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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

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

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

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

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Table of Contents

SIGNATURES

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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.

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​ | ​ | WINMARK CORPORATION
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Date: July 13, 2022 | By: | /s/ Brett D. Heffes
​ | ​ | Brett D. Heffes Chairman of the Board and Chief Executive Officer (principal executive officer)
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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)

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