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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 July 1, 2023

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, 3,485,661 shares outstanding as of July 17, 2023.

WINMARK CORPORATION AND SUBSIDIARIES

INDEX

PAGE

PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

CONSOLIDATED CONDENSED BALANCE SHEETS
July 1, 2023 and December 31, 2022

3

CONSOLIDATED CONDENSED STATEMENTS OF OPERATION
Six Months Ended July 1, 2023 and June 25, 2022

4

CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)
Six Months Ended July 1, 2023 and June 25, 2022

5

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Six Months Ended July 1, 2023 and June 25, 2022

6

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

12

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

17

Item 4.

Controls and Procedures

18

PART II.

OTHER INFORMATION

18

Item 1.

Legal Proceedings

18

Item 1A.

Risk Factors

18

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

19

Item 3.

Defaults Upon Senior Securities

19

Item 4.

Mine Safety Disclosures

19

Item 5.

Other Information

19

Item 6.

Exhibits

19

SIGNATURES

20

2

PART I.          FINANCIAL INFORMATION

ITEM 1: Financial Statements

WINMARK CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

(Unaudited)

    

July 1, 2023

    

December 31, 2022

ASSETS

Current Assets:

Cash and cash equivalents

$

32,321,500

$

13,615,600

Restricted cash

 

55,000

 

65,000

Receivables, less allowance for doubtful accounts of $1,300 and $800

 

1,592,500

 

1,438,600

Net investment in leases - current

 

90,000

 

344,900

Income tax receivable

 

522,500

 

558,700

Inventories

 

446,900

 

770,600

Prepaid expenses

 

819,700

 

1,310,400

Total current assets

 

35,848,100

 

18,103,800

Net investment in leases — long-term

 

 

5,400

Property and equipment, net

 

1,593,400

 

1,704,600

Operating lease right of use asset

2,580,400

2,716,000

Intangible assets, net

3,171,300

3,348,300

Goodwill

 

607,500

 

607,500

Other assets

461,300

429,700

Deferred income taxes

3,392,000

3,540,400

$

47,654,000

$

30,455,700

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

Current Liabilities:

Notes payable, net of unamortized debt issuance costs of $32,100 and $32,100

$

4,217,900

$

4,217,900

Accounts payable

 

1,638,400

 

2,122,000

Accrued liabilities

 

4,269,000

 

2,611,700

Deferred revenue

 

1,677,700

 

1,643,900

Total current liabilities

 

11,803,000

 

10,595,500

Long-term Liabilities:

Line of credit/Term loan

30,000,000

30,000,000

Notes payable, net of unamortized debt issuance costs of $104,800 and $120,800

36,957,700

39,066,700

Deferred revenue

 

7,338,300

 

6,974,200

Operating lease liabilities

4,013,200

4,287,000

Other liabilities

 

1,154,900

 

1,164,400

Total long-term liabilities

 

79,464,100

 

81,492,300

Shareholders’ Equity (Deficit):

Common stock, no par value, 10,000,000 shares authorized, 3,485,036 and 3,459,673 shares issued and outstanding

 

5,723,600

 

1,806,700

Retained earnings (accumulated deficit)

 

(49,336,700)

 

(63,438,800)

Total shareholders' equity (deficit)

 

(43,613,100)

 

(61,632,100)

$

47,654,000

$

30,455,700

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

    

July 1, 2023

    

June 25, 2022

    

July 1, 2023

    

June 25, 2022

Revenue:

Royalties

$

17,105,800

$

15,981,300

$

33,853,500

$

31,371,400

Leasing income

 

1,019,800

 

1,212,000

 

2,656,800

 

4,083,700

Merchandise sales

 

1,328,100

 

1,027,200

 

2,604,100

 

1,941,500

Franchise fees

 

420,700

 

391,500

 

798,900

 

812,100

Other

 

487,800

 

458,800

 

972,500

 

911,900

Total revenue

 

20,362,200

 

19,070,800

 

40,885,800

 

39,120,600

Cost of merchandise sold

 

1,247,800

 

970,200

 

2,435,100

 

1,834,700

Leasing expense

 

54,300

 

299,600

 

370,700

 

515,600

Provision for credit losses

 

(700)

 

(15,700)

 

(5,300)

 

(24,600)

Selling, general and administrative expenses

 

5,810,000

 

5,461,600

 

12,446,100

 

11,001,600

Income from operations

 

13,250,800

 

12,355,100

 

25,639,200

 

25,793,300

Interest expense

 

(779,100)

 

(712,000)

 

(1,576,700)

 

(1,225,100)

Interest and other income (expense)

 

292,300

 

(13,800)

 

418,000

 

(14,700)

Income before income taxes

 

12,764,000

 

11,629,300

 

24,480,500

 

24,553,500

Provision for income taxes

 

(2,395,200)

 

(2,602,100)

 

(5,169,000)

 

(5,673,800)

Net income

$

10,368,800

$

9,027,200

$

19,311,500

$

18,879,700

Earnings per share - basic

$

2.98

$

2.61

$

5.57

$

5.35

Earnings per share - diluted

$

2.85

$

2.54

$

5.34

$

5.19

Weighted average shares outstanding - basic

 

3,478,628

 

3,463,886

 

3,469,675

 

3,530,902

Weighted average shares outstanding - diluted

 

3,634,688

 

3,559,231

 

3,614,462

 

3,637,772

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 31, 2022

3,459,673

$

1,806,700

$

(63,438,800)

$

(61,632,100)

Stock options exercised

 

3,518

590,400

590,400

Compensation expense relating to stock options

 

475,900

475,900

Cash dividends ($0.70 per share)

 

(2,421,900)

(2,421,900)

Comprehensive income (Net income)

 

8,942,700

8,942,700

BALANCE, April 1, 2023

 

3,463,191

2,873,000

(56,918,000)

(54,045,000)

Stock options exercised

 

21,845

2,384,500

2,384,500

Compensation expense relating to stock options

 

466,100

466,100

Cash dividends ($0.80 per share)

 

(2,787,500)

(2,787,500)

Comprehensive income (Net income)

 

10,368,800

10,368,800

BALANCE, July 1, 2023

 

3,485,036

$

5,723,600

$

(49,336,700)

$

(43,613,100)

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)

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

    

July 1, 2023

    

June 25, 2022

OPERATING ACTIVITIES:

Net income

$

19,311,500

$

18,879,700

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

 

385,100

 

219,400

Provision for credit losses

 

(5,300)

 

(24,600)

Compensation expense related to stock options

 

942,000

 

771,400

Deferred income taxes

 

148,400

 

(185,400)

Operating lease right of use asset amortization

135,600

122,200

Tax benefits on exercised stock options

 

832,300

 

348,000

Change in operating assets and liabilities:

Receivables

 

(153,900)

 

(218,400)

Principal collections on lease receivables

499,800

1,636,100

Income tax receivable/payable

 

(796,100)

 

(549,500)

Inventories

 

323,700

 

(278,200)

Prepaid expenses

 

490,700

 

147,600

Other assets

(31,600)

(2,200)

Accounts payable

 

(483,600)

 

(209,700)

Accrued and other liabilities

 

1,390,000

 

2,213,500

Rents received in advance and security deposits

 

(234,200)

 

(472,700)

Deferred revenue

 

397,900

 

(28,200)

Net cash provided by operating activities

 

23,152,300

 

22,369,000

INVESTING ACTIVITIES:

Purchase of property and equipment

 

(96,900)

 

(43,000)

Reacquired franchise rights

(3,540,000)

Net cash used for investing activities

 

(96,900)

 

(3,583,000)

FINANCING ACTIVITIES:

Proceeds from borrowings on line of credit/term loan

 

 

33,700,000

Payments on line of credit/term loan

 

 

(3,700,000)

Payments on notes payable

(2,125,000)

(2,125,000)

Repurchases of common stock

 

 

(47,847,500)

Proceeds from exercises of stock options

 

2,974,900

 

2,553,700

Dividends paid

 

(5,209,400)

 

(4,052,600)

Net cash used for financing activities

 

(4,359,500)

 

(21,471,400)

NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

 

18,695,900

 

(2,685,400)

Cash, cash equivalents and restricted cash, beginning of period

 

13,680,600

 

11,437,000

Cash, cash equivalents and restricted cash, end of period

$

32,376,500

$

8,751,600

SUPPLEMENTAL DISCLOSURES:

Cash paid for interest

$

1,563,800

$

1,108,100

Cash paid for income taxes

$

4,984,600

$

6,060,800

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

    

July 1, 2023

    

June 25, 2022

Cash and cash equivalents

$

32,321,500

$

8,696,600

Restricted cash

 

55,000

 

55,000

Total cash, cash equivalents and restricted cash

$

32,376,500

$

8,751,600

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 July 1, 2023 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 2023 and 2022, respectively:

    

July 1, 2023

    

June 25, 2022

Balance at beginning of period

$

8,618,100

$

8,508,500

Franchise and software license fees collected from franchisees, excluding amount earned as revenue during the period

 

1,349,500

 

937,900

Fees earned that were included in the balance at the beginning of the period

 

(951,600)

 

(966,100)

Balance at end of period

$

9,016,000

$

8,480,300

The following table illustrates future estimated revenue to be recognized for the remainder of 2023 and full fiscal years thereafter related to performance obligations that are unsatisfied (or partially unsatisfied) as of July 1, 2023.

Contract Liabilities expected to be recognized in

Amount

2023

$

805,700

2024

 

1,567,500

2025

 

1,351,100

2026

 

1,146,700

2027

 

972,000

Thereafter

 

3,173,000

$

9,016,000

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.

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

    

July 1, 2023

    

June 25, 2022

    

July 1, 2023

    

June 25, 2022

Interest income on direct financing and sales-type leases

$

78,700

$

205,300

$

173,500

$

483,800

Selling profit (loss) at commencement of sales-type leases

 

 

34,800

 

 

1,298,000

Operating lease income

674,200

528,300

1,526,800

910,100

Income on sales of equipment under lease

87,400

328,700

645,600

932,100

Other

179,500

114,900

310,900

459,700

Leasing income

$

1,019,800

$

1,212,000

$

2,656,800

$

4,083,700

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, individual franchise agreements were signed for these eleven stores, 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 $177,000 and $14,800 of amortization expense for the six months ended July 1, 2023 and June 25, 2022, respectively.

The following table illustrates future amortization to be expensed for the remainder of 2023 and full fiscal years thereafter related to reacquired franchise rights as of July 1, 2023.

Amortization expected to be expensed in

Amount

2023

$

177,000

2024

 

354,000

2025

 

354,000

2026

 

354,000

2027

 

354,000

Thereafter

 

1,578,300

$

3,171,300

8

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

    

July 1, 2023

    

June 25, 2022

    

July 1, 2023

    

June 25, 2022

Denominator for basic EPS — weighted average common shares

 

3,478,628

 

3,463,886

 

3,469,675

 

3,530,902

Dilutive shares associated with option plans

 

156,060

 

95,345

 

144,787

 

106,870

Denominator for diluted EPS — weighted average common shares and dilutive potential common shares

 

3,634,688

 

3,559,231

 

3,614,462

 

3,637,772

Options excluded from EPS calculation — anti-dilutive

 

2,836

 

21,488

 

4,977

 

16,379

8. Shareholders’ Equity (Deficit):

Dividends

On January 25, 2023, 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 February 8, 2023, which was paid on March 1, 2023.

On April 19, 2023, the Company’s Board of Directors approved the payment of a $0.80 per share quarterly cash dividend to shareholders of record at the close of business on May 17, 2023, which was paid on June 1, 2023.

Repurchase of Common Stock

In the first six months of 2023, the Company didn’t repurchase any shares of its common stock. Under the Board of Directors’ authorization, as of July 1, 2023, the Company has the ability to repurchase an additional 78,600 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 July 1, 2023 was as follows:

    

    

    

Weighted Average

    

Remaining

Number of

Weighted Average

Contractual Life

 

Shares

 

Exercise Price

 

(years)

 

 

Intrinsic Value

Outstanding, December 31, 2022

 

361,628

$

164.70

6.40

$

26,688,183

Granted

 

19,540

317.93

Exercised

 

(25,363)

117.29

Forfeited

 

(3,752)

204.26

Outstanding, July 1, 2023

 

352,053

$

176.20

6.29

$

55,016,100

Exercisable, July 1, 2023

 

217,208

$

141.65

4.83

$

41,447,400

The fair value of options granted under the Option Plans during the first six months of 2023 and 2022 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

    

July 1, 2023

June 25, 2022

Risk free interest rate

 

3.86

%

2.70

%

Expected life (years)

 

6

6

Expected volatility

 

28.04

%

27.47

%

Dividend yield

 

3.00

%

4.61

%

Option fair value

$

76.01

$

33.38

9

All unexercised options at July 1, 2023 have an exercise price equal to the fair market value on the date of the grant.

Compensation expense of $942,000 and $771,400 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 2023 and 2022, respectively. As of July 1, 2023, the Company had $5.1 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 2.6 years.

9. Debt:

Line of Credit/Term Loan

As of July 1, 2023, there were no revolving loans outstanding under the Company’s credit facility with CIBC Bank USA (the “Line of Credit”), leaving $20.0 million available for additional borrowings. As of July 1, 2023, 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 July 1, 2023, the Company was in compliance with all of its financial covenants.

Notes Payable

As of July 1, 2023, the Company had aggregate principal outstanding of $41.3 million under its Note Agreement (“the Note Agreement”) with PGIM, Inc (formerly Prudential Investment Management, Inc.) its affiliates and managed accounts (collectively, “Prudential”) consisting of $6.0 million in principal outstanding from the $25.0 million Series A notes issued in May 2015, $5.3 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 debt service coverage and maximum levels of leverage (all as defined within the Note Agreement). As of July 1, 2023, 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;

10

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 Line of Credit and the 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 Line of Credit and Note Agreement.

As of July 1, 2023, 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 July 1, 2023, 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 6.5 years and the discount rate is 5.5%. The Company recognized $582,300 and $604,900 of rent expense for the periods ended July 1, 2023 and June 25, 2022, respectively.

Maturities of operating lease liabilities is as follows for the remainder of fiscal 2023 and full fiscal years thereafter as of July 1, 2023:

Operating Lease Liabilities expected to be recognized in

    

Amount

2023

$

385,100

2024

 

784,400

2025

 

806,000

2026

 

828,200

2027

 

851,100

Thereafter

 

1,773,300

Total lease payments

5,428,100

Less imputed interest

(929,600)

Present value of lease liabilities

$

4,498,500

Of the $4.5 million operating lease liability outstanding at July 1, 2023, $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 July 1, 2023:

Six Months Ended

    

July 1, 2023

    

June 25, 2022

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flow outflow from operating leases

$

378,200

$

368,100

11

11. Segment Reporting:

For 2022, the Company’s leasing business did not reach any of the quantitative thresholds for a reportable segment, and the Company does not expect the results from its leasing business to be of significance in future periods. The revenues and operating income from the Company’s leasing business are included in Other in its reportable segment disclosures. During 2022, the segment asset information was no longer provided to the Company’s Chief Operating Decision Maker and therefore is not disclosed below. Disclosures for 2022 have been recast to be consistent with the 2023 presentation.

The Company currently has one reportable operating segment, franchising, and one non-reportable operating segment. The franchising segment franchises value-oriented retail store concepts that buy, sell and trade merchandise. The non-reportable operating 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 operating segments. The following tables summarize financial information by segment and provide a reconciliation of segment contribution to operating income:

Three Months Ended

Six Months Ended

    

July 1, 2023

    

June 25, 2022

    

July 1, 2023

    

June 25, 2022

Revenue:

Franchising

$

19,342,400

$

17,858,800

$

38,229,000

$

35,036,900

Other

 

1,019,800

 

1,212,000

 

2,656,800

 

4,083,700

Total revenue

$

20,362,200

$

19,070,800

$

40,885,800

$

39,120,600

Reconciliation to operating income:

Franchising segment contribution

$

12,383,900

$

11,742,400

$

23,591,400

$

22,943,100

Other operating segment contribution

 

866,900

 

612,700

 

2,047,800

 

2,850,200

Total operating income

$

13,250,800

$

12,355,100

$

25,639,200

$

25,793,300

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

Overview

Winmark – the Resale Company is focused on sustainability and small business formation. As of July 1, 2023, we had 1,303 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 2023, our royalties increased $2.5 million or 7.9% compared to the first six months of 2022.

Management continually monitors the level and timing of selling, general and administrative expenses. The major components of selling, general and administrative expenses include salaries and benefits, advertising, conferences, travel, occupancy, legal and professional fees. During the first six months of 2023, selling, general and administrative expenses increased $1.4 million, or 13.1% compared to the first six months of 2022.

12

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 net store growth and renewal activity for the first six months ended July 1, 2023:

AVAILABLE

TOTAL

TOTAL

FOR

COMPLETED

 

    

12/31/2022

    

OPENED

    

CLOSED

    

7/1/2023

    

RENEWAL

    

RENEWALS

    

% RENEWED

 

Plato’s Closet

 

500

 

5

 

(3)

 

502

36

36

100

%

Once Upon A Child

 

406

 

3

 

 

409

15

15

100

%

Play It Again Sports

 

281

 

8

 

(3)

286

15

15

100

%

Style Encore

 

71

 

 

(2)

 

69

7

7

100

%

Music Go Round

 

37

 

 

 

37

N/A

Total Franchised Stores

 

1,295

 

16

 

(8)

 

1,303

 

73

73

 

100

%

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 2023, we renewed 73 of the 73 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 pursue an orderly run-off of our middle-market leasing portfolio. Leasing income net of leasing expense for the first six months of 2023 was $2.3 million compared to $3.6 million in the first six months of 2022. Given the decision to run-off the portfolio, we anticipate that leasing income net of leasing expense will continue to decrease through the run-off period.

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

    

July 1, 2023

    

June 25, 2022

    

July 1, 2023

    

June 25, 2022

 

    

    

Revenue:

Royalties

 

84.0

%  

83.8

%  

82.8

%  

80.2

%

Leasing income

 

5.0

6.4

6.5

10.4

Merchandise sales

 

6.5

5.4

6.4

5.0

Franchise fees

 

2.1

2.0

1.9

2.1

Other

 

2.4

2.4

2.4

2.3

Total revenue

 

100.0

100.0

100.0

100.0

Cost of merchandise sold

 

(6.1)

(5.1)

(6.0)

(4.7)

Leasing expense

 

(0.3)

(1.6)

(0.9)

(1.3)

Provision for credit losses

 

0.1

Selling, general and administrative expenses

 

(28.5)

(28.6)

(30.4)

(28.1)

Income from operations

 

65.1

64.8

62.7

65.9

Interest expense

 

(3.8)

(3.7)

(3.8)

(3.1)

Interest and other income (expense)

 

1.4

(0.1)

1.0

Income before income taxes

 

62.7

61.0

59.9

62.8

Provision for income taxes

 

(11.8)

(13.7)

(12.7)

(14.5)

Net income

 

50.9

%  

47.3

%  

47.2

%  

48.3

%

13

Comparison of Three Months Ended July 1, 2023 to Three Months Ended June 25, 2022

Revenue

Revenues for the quarter ended July 1, 2023 totaled $20.4 million compared to $19.1 million for the comparable period in 2022.

Royalties and Franchise Fees

Royalties increased to $17.1 million for the second quarter of 2023 from $16.0 million for the second quarter of 2022, a 7.0% increase. The increase is primarily from higher franchisee retail sales and from having additional franchise stores in the second quarter of 2023 compared to the same period in 2022.

Franchise fees of $0.4 million for the second quarter of 2023 were comparable to $0.4 million for the second quarter of 2022.

Leasing Income

Leasing income decreased to $1.0 million for the second quarter of 2023 compared to $1.2 million for the same period in 2022. The decrease is primarily due to lower levels of equipment sales to customers.

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 $1.3 million for the second quarter of 2023 compared to $1.0 million in the same period of 2022. The increase is due primarily to an increase in buying group and technology purchases by our franchisees.

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 $1.2 million for the second quarter of 2023 compared to $1.0 million in the same period of 2022. 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 second quarter of 2023 and 2022 was 94.0% and 94.5%, respectively.

Leasing Expense

Leasing expense decreased to $0.1 million for the second quarter of 2023 compared to $0.3 million for the second quarter of 2022. The decrease was primarily due to a decrease in depreciation on operating leases.

Selling, General and Administrative

Selling, general and administrative expenses increased 6.4% to $5.8 million in the second quarter of 2023 compared to $5.5 million in the same period of 2022. The increase was primarily due to increases in advertising related expenses, outside services and amortization expense.

Interest Expense

Interest expense of $0.8 million for the second quarter of 2023 was comparable to $0.7 million for the second quarter of 2022.

Income Taxes

The provision for income taxes was calculated at an effective rate of 18.8% and 22.4% for the second quarter of 2023 and 2022, respectively. The decrease is primarily due to higher benefits on the exercise of non-qualified stock options.

14

Comparison of Six Months Ended July 1, 2023 to Six Months Ended June 25, 2022

Revenue

Revenues for the first six months of 2023 totaled $40.9 million compared to $39.1 million for the comparable period in 2022.

Royalties and Franchise Fees

Royalties increased to $33.9 million for the first six months of 2023 from $31.4 million for the first six months of 2022, a 7.9% increase. The increase in royalties is primarily from higher franchisee retail sales and from having additional franchised stores in the first six months of 2023 compared to the same period last year.

Franchise fees of $0.8 million for the first six months of 2023 were comparable to $0.8 million for the first six months of 2022.

Leasing Income

Leasing income decreased to $2.7 million for the first six months of 2023 compared to $4.1 million for the same period in 2022. The decrease is primarily due to a decrease in selling profit on the commencement of sales type leases and lower levels of interest income from the smaller lease portfolio, partially offset by an increase in operating lease income 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 $2.6 million for the first six months of 2023 compared to $1.9 million in the same period of 2022. The increase is primarily due to an increase in buying group and technology purchases by our franchisees.

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 $2.4 million for the first six months of 2023 compared to $1.8 million in the same period of 2022. 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 2023 and 2022 was 93.5% and 94.5%, respectively.

Leasing Expense

Leasing expense of $0.4 million for the first six months of 2023 was comparable to $0.5 million for the first six months of 2022.

Selling, General and Administrative

Selling, general and administrative expenses increased 13.1% to $12.4 million in the first six months of 2023 compared to $11.0 million in the same period of 2022. The increase was primarily due to an increase in conference expenses, as we returned to holding an in-person conference for our apparel brands for the first time since the Covid-19 outbreak, advertising related expenses, outside services and amortization expense.

Interest Expense

Interest expense was $1.6 million for the first six months of 2023 compared to $1.2 million for the first six months of 2022. 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 21.1% and 23.1% for the first six months of 2023 and 2022, respectively. The decrease is primarily due to higher tax benefits on the exercise of non-qualified stock options. 

15

Segment Comparison of Three Months Ended July 1, 2023 to Three Months Ended June 25, 2022

Franchising Segment Operating Income

The franchising segment’s operating income for the second quarter of 2023 increased to $12.4 million from $11.7 million for the second quarter of 2022. The increase in segment contribution was due to increased royalty revenues, partially offset by an increase in selling, general and administrative expenses.

Other Operating Segment Income

The other operating segment income for the second quarter of 2023 increased to $0.9 million from $0.6 million for the second quarter of 2022. The increase in segment contribution was due to a decrease in selling, general and administrative expenses.

Segment Comparison of Six Months Ended July 1, 2023 to Six Months Ended June 25, 2022

Franchising Segment Income

The franchising segment operating income for the first six months of 2023 increased to $23.6 million from $22.9 million for the first six months of 2022. The increase in segment contribution was due to increased royalty revenues, partially offset by an increase in selling, general and administrative expenses.

Other Operating Segment Income

The other operating segment income for the first six months of 2023 decreased to $2.0 million from $2.9 million for the first six months of 2022. 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.

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 2023 with $32.4 million in cash, cash equivalents and restricted cash compared to $8.8 million in cash, cash equivalents and restricted cash at the end of the second quarter of 2022.

Operating activities provided $23.2 million of cash during the first six months of 2023, compared to $22.4 million provided during the same period last year.

Investing activities used $0.1 million of cash during the first six months of 2023. The 2023 activities consisted of the purchase of property and equipment.

Financing activities used $4.4 million of cash during the first six months of 2023. Our most significant financing activities during the first six months of 2023 consisted of $5.2 million for the payment of dividends and payments on notes payable of $2.1 million; partially offset by $3.0 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 July 1, 2023, we were in compliance with all of the financial covenants under the Line of Credit, the Note Agreement and the Shelf Agreement.

16

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 July 1, 2023, 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 July 1, 2023 was $41.3 million). As of July 1, 2023, we had not issued any notes under the Shelf Agreement. Of the $41.3 million of principal outstanding under the Note Agreement, $11.3 million amortizes over the remainder of 2023 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 31, 2022 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 business, our Line of Credit and our Shelf Agreement will be adequate to fund our planned operations through 2024.

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 31, 2022. There have been no changes to our critical accounting policies from those disclosed on our Form 10-K for the year ended December 31, 2022.

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, 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. 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 31, 2022 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 July 1, 2023, 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 July 1, 2023 under this Line of Credit. The Company had no interest rate derivatives in place at July 1, 2023. 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.

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None of the Company’s cash and cash equivalents at July 1, 2023 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 July 1, 2023. During fiscal 2022, less than 8% 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 $628,000. 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 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 31, 2022.  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.  Except as noted below, 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 31, 2022.

We currently, and may in the future, have assets held at financial institutions that may exceed the insurance coverage offered by the Federal Deposit Insurance Corporation, the loss of such assets would have a severe negative affect on our operations and liquidity.

 

We may maintain our cash assets at certain financial institutions in the U.S. in amounts that may be in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limit of $250,000. In the event of a failure of any financial institutions where we maintain our deposits or other assets, we may incur a loss to the extent such loss exceeds the FDIC insurance limitation, which could have a material adverse effect upon our liquidity, financial condition and our results of operations.

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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 2023.

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

 

April 2, 2023 to May 6, 2023

 

 

$

 

 

78,600

May 7, 2023 to June 3, 2023

 

 

$

 

 

78,600

June 4, 2023 to July 1, 2023

 

 

$

 

 

78,600

(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 July 1, 2023 was limited to 5,400,000 shares, of which 78,600 may still be repurchased.

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)

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 July 1, 2023, 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 July 1, 2023, 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.

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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 19, 2023

By:

/s/ Brett D. Heffes

Brett D. Heffes
Chair of the Board and

Chief Executive Officer
(principal executive officer)