Enhanced Investments - Financial Portal

Three Months Ended

March 27, 2021

March 28, 2020

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

Operating cash flow outflow from operating leases

Published: 2021-04-20 00:00:00 ET

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2017 1st Qtr Form 10-Q (00014803).DOCX

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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 March 27, 2021

☐

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, 3,701,807 shares outstanding as of April 16, 2021.

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WINMARK CORPORATION AND SUBSIDIARIES

INDEX

		PAGE

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	CONSOLIDATED CONDENSED BALANCE SHEETS:
	March 27, 2021 and December 26, 2020	3

	CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS:
	Three Months Ended March 27, 2021 and March 28, 2020	4

	CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT):
	Three Months Ended March 27, 2021 and March 28, 2020	5

	CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS:
	Three Months Ended March 27, 2021 and March 28, 2020	6

	NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS	7 - 13

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14 - 19

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	19

Item 4.	Controls and Procedures	20

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	20

Item 1A.	Risk Factors	20

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	20

Item 3.	Defaults Upon Senior Securities	21

Item 4.	Mine Safety Disclosures	21

Item 5.	Other Information	21

Item 6.	Exhibits	21

	SIGNATURES	22

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PART I. FINANCIAL INFORMATION

ITEM 1: Financial Statements

WINMARK CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

(Unaudited)


	March 27, 2021		December 26, 2020
ASSETS
Current Assets:
Cash and cash equivalents	$	7,959,900	$	6,659,000
Restricted cash		25,000		25,000
Receivables, less allowance for doubtful accounts of $1,400 and $800		2,096,900		1,581,900
Net investment in leases - current		8,156,900		8,687,500
Income tax receivable		—		221,200
Inventories		110,200		106,600
Prepaid expenses		839,900		995,200
Total current assets		19,188,800		18,276,400
Net investment in leases - long-term		2,706,900		4,573,600
Property and equipment, net		2,253,300		2,332,800
Operating lease right of use assets		3,172,100		3,226,300
Goodwill		607,500		607,500
Other assets		438,500		435,900
Deferred income taxes		2,330,600		1,890,700
	$	30,697,700	$	31,343,200
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
Current Liabilities:
Notes payable, net of unamortized debt issuance costs of $13,900 and $13,900	$	4,236,100	$	4,236,100
Accounts payable		1,399,300		1,769,600
Income tax payable		3,159,200		—
Accrued liabilities		2,223,500		2,624,000
Discounted lease rentals		959,200		1,096,600
Deferred revenue		1,647,700		1,657,400
Total current liabilities		13,625,000		11,383,700
Long-Term Liabilities:
Notes payable, net of unamortized debt issuance costs of $51,400 and $54,800		16,573,600		17,632,700
Discounted lease rentals		382,200		574,000
Deferred revenue		6,975,700		7,050,900
Operating lease liabilities		5,176,900		5,307,400
Other liabilities		768,500		773,200
Total long-term liabilities		29,876,900		31,338,200
Shareholders’ Equity (Deficit):
Common stock, no par value, 10,000,000 shares authorized, 3,700,723 and 3,756,028 shares issued and outstanding		—		9,281,800
Retained earnings (accumulated deficit)		(12,804,200)		(20,660,500)
Total shareholders’ equity (deficit)		(12,804,200)		(11,378,700)
	$	30,697,700	$	31,343,200

The accompanying notes are an integral part of these financial statements

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WINMARK CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended
	March 27, 2021		March 28, 2020
Revenue:
Royalties	$	14,048,800	$	11,172,500
Leasing income		3,237,000		5,871,200
Merchandise sales		592,400		754,100
Franchise fees		359,000		387,400
Other		421,700		414,800
Total revenue		18,658,900		18,600,000
Cost of merchandise sold		558,800		717,700
Leasing expense		389,500		1,416,200
Provision for credit losses		(48,700)		615,400
Selling, general and administrative expenses		5,102,300		5,748,900
Income from operations		12,657,000		10,101,800
Interest expense		(318,100)		(525,200)
Interest and other income		6,800		5,900
Income before income taxes		12,345,700		9,582,500
Provision for income taxes		(3,034,600)		(2,265,500)
Net income	$	9,311,100	$	7,317,000
Earnings per share - basic	$	2.49	$	1.97
Earnings per share - diluted	$	2.40	$	1.87
Weighted average shares outstanding - basic		3,736,676		3,711,597
Weighted average shares outstanding - diluted		3,874,227		3,911,751

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

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WINMARK CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)


					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)


					Retained
					Earnings
	Common Stock			(Accumulated
	Shares	Amount		Deficit)		Total
BALANCE, December 28, 2019	3,947,858	$	11,929,300	$	519,000	$	12,448,300
Repurchase of common stock	(300,000)		(12,215,500)		(36,772,000)		(48,987,500)
Stock options exercised	2,895		145,900		—		145,900
Compensation expense relating to stock options	—		140,300		—		140,300
Cash dividends ($0.25 per share)	—		—		(912,200)		(912,200)
Comprehensive income (Net income)	—		—		7,317,000		7,317,000
BALANCE, March 28, 2020	3,650,753		—		(29,848,200)		(29,848,200)

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

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WINMARK CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three Months Ended
	March 27, 2021		March 28, 2020
OPERATING ACTIVITIES:
Net income	$	9,311,100	$	7,317,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		113,800		123,100
Provision for credit losses		(48,700)		615,400
Compensation expense related to stock options		385,200		140,300
Deferred income taxes		(439,900)		11,100
Deferred initial direct costs		(1,500)		(8,500)
Amortization of deferred initial direct costs		10,500		37,200
Operating lease right of use asset amortization		54,200		192,100
Tax benefits on exercised stock options		47,100		87,000
Change in operating assets and liabilities:
Receivables		(515,000)		689,000
Principal collections on lease receivables		2,268,700		4,988,400
Income tax receivable/payable		3,333,300		2,046,500
Inventories		(3,600)		(19,200)
Prepaid expenses		155,300		(253,800)
Other assets		(2,600)		(3,600)
Accounts payable		(370,300)		56,200
Accrued and other liabilities		(532,300)		(674,200)
Rents received in advance and security deposits		(95,400)		(885,300)
Deferred revenue		(84,900)		(95,500)
Net cash provided by operating activities		13,585,000		14,363,200
INVESTING ACTIVITIES:
Purchase of property and equipment		(34,300)		(31,200)
Purchase of equipment for lease contracts		(65,500)		(1,706,000)
Net cash used for investing activities		(99,800)		(1,737,200)
FINANCING ACTIVITIES:
Proceeds from borrowings on line of credit		—		45,700,000
Payments on line of credit		—		(5,700,000)
Payments on notes payable		(1,062,500)		(812,500)
Repurchases of common stock		(10,455,200)		(48,987,500)
Proceeds from exercises of stock options		268,800		145,900
Dividends paid		(935,400)		(912,200)
Proceeds from discounted lease rentals		—		1,157,000
Net cash used for financing activities		(12,184,300)		(9,409,300)
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH		1,300,900		3,216,700
Cash, cash equivalents and restricted cash, beginning of period		6,684,000		25,180,300
Cash, cash equivalents and restricted cash, end of period	$	7,984,900	$	28,397,000
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest	$	309,200	$	460,600
Cash paid for income taxes	$	94,100	$	120,900

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:
	Three Months Ended
	March 27, 2021		March 28, 2020
Cash and cash equivalents	$	7,959,900	$	28,347,000
Restricted cash		25,000		50,000
Total cash, cash equivalents and restricted cash	$	7,984,900	$	28,397,000

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 three months ended March 27, 2021 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. Recent Accounting Pronouncements:

Recently Issued Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments, which changes the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. This guidance was to be effective for reporting periods beginning after December 15, 2019, with early adoption permitted. In November 2019, the FASB issued ASU 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) Effective Dates, which deferred the effective dates for the Company, as a smaller reporting company, until fiscal year 2023. The Company currently plans to adopt the guidance at the beginning of fiscal 2023. The Company is continuing to assess the impact of the standard on its consolidated financial statements.

4. 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 three months of 2021 and 2020, respectively:


	March 27, 2021		March 28, 2020
Balance at beginning of period	$	8,708,300	$	9,575,500
Franchise and software license fees collected from franchisees, excluding amount earned as revenue during the period		355,700		372,500
Fees earned that were included in the balance at the beginning of the period		(440,600)		(468,000)
Balance at end of period	$	8,623,400	$	9,480,000

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The following table illustrates future estimated revenue to be recognized for the remainder of 2021 and full fiscal years thereafter related to performance obligations that are unsatisfied (or partially unsatisfied) as of March 27, 2021.


Contract Liabilities expected to be recognized in	Amount
2021	$	1,220,200
2022		1,537,400
2023		1,366,200
2024		1,168,400
2025		952,100
Thereafter		2,379,100
	$	8,623,400

5. 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.

6. Investment in Leasing Operations:

Investment in leasing operations consists of the following:


	March 27, 2021		December 26, 2020
Direct financing and sales-type leases:
Minimum lease payments receivable	$	11,257,700	$	12,536,300
Estimated unguaranteed residual value of equipment		2,505,200		2,950,100
Unearned lease income, net of initial direct costs deferred		(1,152,500)		(1,439,500)
Security deposits		(2,073,600)		(2,169,000)
Equipment installed on leases not yet commenced		457,200		1,634,400
Total investment in direct financing and sales-type leases		10,994,000		13,512,300
Allowance for credit losses		(221,500)		(270,200)
Net investment in direct financing and sales-type leases		10,772,500		13,242,100
Operating leases:
Operating lease assets		593,800		599,100
Less accumulated depreciation and amortization		(502,500)		(580,100)
Net investment in operating leases		91,300		19,000
Total net investment in leasing operations	$	10,863,800	$	13,261,100

As of March 27, 2021, the $10.9 million total net investment in leases consists of $8.2 million classified as current and $2.7 million classified as long-term. As of December 26, 2020, the $13.3 million total net investment in leases consists of $8.7 million classified as current and $4.6 million classified as long-term.

As of March 27, 2021, there were no customers with leased assets greater than 10% of the Company’s total assets.

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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 2021 and the full fiscal years thereafter as of March 27, 2021:


	Direct Financing and Sales-Type Leases
	Minimum Lease		Income
Fiscal Year	Payments Receivable		Amortization
2021	$	7,899,800	$	918,900
2022		3,228,700		226,400
2023		129,200		7,200
	$	11,257,700	$	1,152,500

The activity in the allowance for credit losses for leasing operations during the first three months of 2021 and 2020, respectively, is as follows:


	March 27, 2021		March 28, 2020
Balance at beginning of period	$	270,200	$	580,600
Provisions charged to expense		(48,700)		615,400
Recoveries		—		1,500
Deductions for amounts written-off		—		—
Balance at end of period	$	221,500	$	1,197,500

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:


	March 27, 2021				December 26, 2020
	Investment		Allowance for		Investment		Allowance for
	In Leases		Credit Losses		In Leases		Credit Losses
Collectively evaluated for loss potential	$	10,994,000	$	221,500	$	13,512,300	$	270,200
Individually evaluated for loss potential		—		—		—		—
Total	$	10,994,000	$	221,500	$	13,512,300	$	270,200

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.


	March 27, 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	$	10,994,000	$	—	$	—	$	—	$	10,994,000


	December 26, 2020
	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	$	13,512,300	$	—	$	—	$	—	$	13,512,300

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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 customers to maintain, service, and insure the leased equipment, the use of third party remarketers as well as the analytical review of historical asset dispositions.

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


	Three Months Ended		Three Months Ended
	March 27, 2021		March 28, 2020
Interest income on direct financing and sales-type leases	$	619,700	$	1,128,600
Selling profit (loss) at commencement of sales-type leases		1,073,700		313,200
Operating lease income		484,300		435,400
Income on sales of equipment under lease		745,600		3,261,300
Other		313,700		732,700
Leasing income	$	3,237,000	$	5,871,200

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
	March 27, 2021	March 28, 2020
Denominator for basic EPS — weighted average common shares	3,736,676	3,711,597
Dilutive shares associated with option plans	137,551	200,154
Denominator for diluted EPS — weighted average common shares and dilutive potential common shares	3,874,227	3,911,751
Options excluded from EPS calculation — anti-dilutive	6,987	2,192

8. Shareholders’ Equity (Deficit):

Dividends

On January 27, 2021, the Company’s Board of Directors approved the payment of a $0.25 per share quarterly cash dividend to shareholders of record at the close of business on February 10, 2021, which was paid on March 1, 2021.

Repurchase of Common Stock

In the first three months of 2021, the Company repurchased 58,255 shares of its common stock. Under the Board of Directors’ authorization, as of March 27, 2021, the Company has the ability to repurchase an additional 72,349 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.

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Stock Option Plans and Stock-Based Compensation

Stock option activity under the Company’s option plans as of March 27, 2021 was as follows:


				Weighted Average
				Remaining
	Number of	Weighted Average		Contractual Life
	Shares	Exercise Price		(years)		Intrinsic Value
Outstanding, December 26, 2020	393,488	$	113.19	5.61	$	27,864,900
Granted	10,000		182.21
Exercised	(2,950)		91.10
Outstanding, March 27, 2021	400,538	$	115.08	5.47	$	28,425,900
Exercisable, March 27, 2021	278,583	$	94.89	4.14	$	25,395,100

No options were granted during the three months ended March 28, 2020. The fair value of options granted under the Option Plans during the first three months of 2021 were estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions and results:


	Three Months Ended
	March 27, 2021
Risk free interest rate		0.64	%
Expected life (years)		6
Expected volatility		25.05	%
Dividend yield		2.77	%
Option fair value	$	30.02

All unexercised options at March 27, 2021 have an exercise price equal to the fair market value on the date of the grant.

Compensation expense of $385,200 and $140,300 relating to the vested portion of the fair value of stock options granted was expensed to “Selling, General and Administrative Expenses” in the first three months of 2021 and 2020, respectively. As of March 27, 2021, the Company had $2.8 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 2.5 years.

9. Debt:

Line of Credit

As of March 27, 2021, there were no borrowings outstanding under the Company’s revolving credit facility with CIBC Bank USA (the “Line of Credit”), leaving $25.0 million available for additional borrowings.

The Line of Credit has been and will continue to be used for general corporate purposes. The Line of Credit, which terminates in August 2024, is secured by a lien against substantially all of the Company’s assets, contains customary financial conditions and covenants, and requires maintenance of minimum levels of debt service coverage and tangible net worth and maximum levels of leverage (all as defined within the Line of Credit). As of March 27, 2021, the Company was in compliance with all of its financial covenants.

Notes Payable

As of March 27, 2021, the Company had $12.8 million in principal outstanding from the $25.0 million Series A notes issued in May 2015 and $8.1 million in principal outstanding from the $12.5 million Series B notes issued in August 2017 under its Note Agreement with Prudential Investment Management, Inc., its affiliates and managed accounts (“Prudential”).

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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. The Series A and Series B 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 tangible net worth and maximum levels of leverage (all as defined within the Note Agreement). As of March 27, 2021, 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.

10. Discounted Lease Rentals:

The Company utilized certain lease receivables and underlying equipment as collateral to borrow from financial institutions at a weighted average rate of 5.41% at March 27, 2021 on a non-recourse basis. As of March 27, 2021, $1.0 million of the $1.3 million liability balance is current.

11. Operating Leases:

As of March 27, 2021, 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 8.75 years and the discount rate is 5.5%. The Company recognized $300,900 and $300,400 of rent expense for the periods ended March 27, 2021 and March 28, 2020, respectively.

Maturities of operating lease liabilities is as follows for the remainder of fiscal 2021 and full fiscal years thereafter as of March 27, 2021:


Operating Lease Liabilities expected to be recognized in	Amount
2021	$	544,000
2022		742,900
2023		763,300
2024		784,400
2025		806,000
Thereafter		3,452,600
Total lease payments		7,093,200
Less imputed interest		(1,468,100)
Present value of lease liabilities	$	5,625,100

Of the $5.6 million operating lease liability outstanding at March 27, 2021, $0.4 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 March 27, 2021:

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12. 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, trade and consign merchandise. The leasing segment includes the Company’s equipment leasing and financing 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 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
	March 27, 2021		March 28, 2020
Revenue:
Franchising	$	15,421,900	$	12,728,800
Leasing		3,237,000		5,871,200
Total revenue	$	18,658,900	$	18,600,000

Reconciliation to operating income:
Franchising segment contribution	$	10,724,500	$	7,211,400
Leasing segment contribution		1,932,500		2,890,400
Total operating income	$	12,657,000	$	10,101,800

Depreciation and amortization:
Franchising	$	65,900	$	72,600
Leasing		47,900		50,500
Total depreciation and amortization	$	113,800	$	123,100


	As of
	March 27, 2021		December 26, 2020
Identifiable assets:
Franchising	$	4,728,700	$	4,848,300
Leasing		11,814,700		14,462,600
Unallocated		14,154,300		12,032,300
Total	$	30,697,700	$	31,343,200

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

COVID-19 Pandemic

The emergence of the coronavirus (COVID-19) and new variants of the virus around the world, and particularly in the United States and Canada, continues to present significant risks to the Company, not all of which the Company is able to fully evaluate or even to foresee at the current time. The pandemic affected the Company’s financial results and business operations in the Company’s first fiscal quarters ended March 27, 2021 and March 28, 2020, and economic and health conditions in the United States and across most of the globe have continued to change since the beginning of the pandemic. Notably, a number of the Company’s franchised store locations were temporarily closed to in-store consumer activities from time to time due to various restrictions. Such temporary store closings may reoccur and customer traffic may continue to be impacted depending on the duration and severity of the pandemic, the length of time it takes for normal economic and operating conditions to resume, additional governmental actions that may be taken and/or re-imposition of restrictions that have been imposed to date, and numerous other uncertainties.

Even as governmental restrictions are relaxed and markets reopen, the ongoing economic impacts and health concerns associated with the pandemic may continue to affect consumer behavior, spending levels and shopping preferences. Changes in consumer purchasing patterns may increase demand at our franchised stores in one quarter, resulting in decreased demand in subsequent quarters. We continue to see shifts in product and channel preferences as markets move through varying stages of restrictions and re-opening at different times. In addition, we continue to see an increase in demand in the e-commerce channel and any failure to capitalize on this demand could adversely affect our franchised stores ability to maintain and grow sales and erode our competitive position.

Due to the above circumstances and as described generally in this Form 10-Q, the Company’s results of operations for the three-month period ended March 27, 2021 are not necessarily indicative of the results to be expected for the full fiscal year. Management cannot predict the full impact of the pandemic on the Company’s management and employees, its franchisees or leasing customers nor to economic conditions generally, including the effects on consumer spending. The ultimate extent of the effects of the pandemic on the Company is highly uncertain and will depend on future developments, and such effects could exist for an extended period of time even after the pandemic might end.

Overview

As of March 27, 2021, we had 1,264 franchises operating under the Plato’s Closet, Once Upon A Child, Play It Again Sports, Style Encore and Music Go Round brands and had a leasing portfolio of $10.9 million. Management closely tracks the following financial criteria to evaluate current business operations and future prospects: royalties, leasing activity, and selling, general and administrative expenses.

Our most significant source of franchising revenue is royalties received from our franchisees. During the first three months of 2021, our royalties increased $2.9 million or 25.7% compared to the first three months of 2020.

Leasing income net of leasing expense during the first three months of 2021 was $2.8 million compared to $4.5 million in the same period last year. Fluctuations in period-to-period leasing income and leasing expense can result from the manner and timing in which leasing income and leasing expense is recognized over the term of each particular lease in accordance with accounting guidance applicable to leasing. For this reason, we believe that more meaningful levels of leasing activity are the medium- to long-term trend in the purchases of equipment for lease customers and the size of the leasing portfolio. During the first three months of 2021, we purchased $0.1 million in equipment for lease customers compared to $1.7 million in the first three months of each of 2020 and 2019. Our leasing portfolio (net investment in leases — current and long-term) was $10.9 million at March 27, 2021 compared to $13.3 million at December 26, 2020 and $21.3 million at March 28, 2020. The lower equipment purchases and the decrease in the size of the portfolio across these periods were a direct result of a decrease in the number of our customers installing leased equipment. We continue to explore ways to grow leased assets and add new customers to our leasing portfolio; however, continued low levels of equipment purchases for lease customers and decreases in the size of our portfolio will impact the long-term operating income of our leasing segment.

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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 three months of 2021, selling, general and administrative expenses decreased $0.6 million, or 11.2% compared to the first three months of 2020.

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 three months ended March 27, 2021:


					AVAILABLE
	TOTAL			TOTAL	FOR	COMPLETED
	12/26/2020	OPENED	CLOSED	3/27/2021	RENEWAL	RENEWALS
Plato’s Closet
Franchises - US and Canada	485	—	(1)	484	13	13
Once Upon A Child
Franchises - US and Canada	399	—	(1)	398	3	3
Play It Again Sports
Franchises - US and Canada	274	—	—	274	13	13
Style Encore
Franchises - US and Canada	69	2	—	71	—	—
Music Go Round
Franchises - US	37	—	—	37	—	—
Total Franchised Stores	1,264	2	(2)	1,264	29	29

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 three months of 2021, we renewed 29 of the 29 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, (iii) increase lease originations and minimize write-offs in our leasing portfolio, and (iv) control our selling, general and administrative expenses.

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
	March 27, 2021		March 28, 2020

Revenue:
Royalties	75.3	%	60.1	%
Leasing income	17.3		31.6
Merchandise sales	3.2		4.0
Franchise fees	1.9		2.1
Other	2.3		2.2
Total revenue	100.0		100.0

Cost of merchandise sold	(3.0)		(3.9)
Leasing expense	(2.1)		(7.6)
Provision for credit losses	0.2		(3.3)
Selling, general and administrative expenses	(27.3)		(30.9)
Income from operations	67.8		54.3
Interest expense	(1.7)		(2.8)
Interest and other income	—		—
Income before income taxes	66.1		51.5
Provision for income taxes	(16.2)		(12.2)
Net income	49.9	%	39.3	%

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Comparison of Three Months Ended March 27, 2021 to Three Months Ended March 28, 2020

Revenue

Revenues for the quarter ended March 27, 2021 totaled $18.7 million compared to $18.6 million for the comparable period in 2020.

Royalties and Franchise Fees

Royalties increased to $14.0 million for the first three months of 2021 from $11.2 million for the first three months of 2020, a 25.7% increase. The increase is primarily from higher franchisee retail sales and from having additional franchise stores in the first three months of 2021 compared to the same period in 2020. Lower franchisee retail sales in the first three months of 2020 were directly attributable to the temporary store closings and reduced customer traffic resulting from the COVID-19 pandemic. For illustrative purposes, royalties for the first three months of 2019 were $11.8 million.

Franchise fees of $0.4 million for the first three months of 2021 were comparable to $0.4 million for the first three months of 2020.

Leasing Income

Leasing income decreased to $3.2 million for the first quarter of 2021 compared to $5.9 million for the same period in 2020. The decrease is primarily due to a lower level 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 of $0.6 million for the first quarter of 2021 compared to $0.8 million in the same period of 2020. The decrease is primarily due to a decrease in 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 of $0.6 million for the first quarter of 2021 compared to $0.7 million in the same period of 2020. The decrease was primarily due to a decrease in Direct Franchisee Sales discussed above. Cost of merchandise sold as a percentage of Direct Franchisee Sales for the first quarter of 2021 and 2020 was 94.3% and 95.2%, respectively.

Leasing Expense

Leasing expense decreased to $0.4 million for the first quarter of 2021 compared to $1.4 million for the first quarter of 2020. The decrease was due to a decrease in the associated cost of equipment sales to customers discussed above.

Provision for Credit Losses

Provision for credit losses was $(48,700) for the first quarter of 2021 compared to $615,400 for the first quarter of 2020. Provision levels in the first quarter of 2021 reflected the reduction in lease payments receivable from customers. Provision levels in the first quarter of 2020 reflected the then-estimated impact of the COVID-19 pandemic on the credit quality of customers in our lease portfolio at that time.

Selling, General and Administrative

Selling, general and administrative expenses decreased 11.2% to $5.1 million in the first quarter of 2021 from $5.7 million in the same period of 2020. The decrease was primarily due to decreases in conference and travel expenses due to the COVID-19 pandemic.

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Interest Expense

Interest expense decreased to $0.3 million for the first quarter of 2021 compared to $0.5 million for the first quarter of 2020. The decrease is primarily due to lower 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 24.6% and 23.6% for the first quarter of 2021 and 2020, respectively. The increase is primarily due to lower tax benefits on the exercise of non-qualified stock options and an increase in state taxes.

Segment Comparison of Three Months Ended March 27, 2021 to Three Months Ended March 28, 2020

Franchising Segment Operating Income

The franchising segment’s operating income for the first quarter of 2021 increased by $3.5 million to $10.7 million from $7.2 million for the first quarter of 2020. The increase in segment contribution was due to increased royalty revenues and a decrease in selling, general and administrative expenses.

Leasing Segment Operating Income

The leasing segment’s operating income for the first quarter of 2021 decreased by $1.0 million to $1.9 million from $2.9 million for the first quarter of 2020. The decrease in segment contribution was due to a decrease in leasing income net of leasing expenses, partially offset by a decrease in provision for credit losses.

Liquidity and Capital Resources

Our primary sources of liquidity have historically been cash flow 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 compensation expense related to stock options.

We ended the first quarter of 2021 with $8.0 million in cash, cash equivalents and restricted cash compared to $28.4 million in cash, cash equivalents and restricted cash at the end of the first quarter of 2020.

Operating activities provided $13.6 million of cash during the first three months of 2021, compared to $14.4 million provided during the first three months of last year. The decrease in cash provided by operating activities in the first three months of 2021 compared to 2020 was primarily due to decreases in principal collections on lease receivables.

Investing activities used $0.1 million of cash during the first three months of 2021. The 2021 activities consisted primarily of the purchase of equipment for lease customers of $0.1 million.

Financing activities used $12.2 million of cash during the first three months of 2021. Our most significant financing activities during the first three months of 2021 consisted of $10.5 million to repurchase 58,255 shares of our common stock, payments on notes payable of $1.1 million and $0.9 million for the payment of dividends. (See Note 8 — “Shareholders’ Equity (Deficit) and Note 9 – “Debt”).

As of March 27, 2021, our borrowing availability under our Line of Credit was $25.0 million (the lesser of the borrowing base or the aggregate line of credit). There were no borrowings outstanding at March 27, 2021 under the Line of Credit, leaving $25.0 million available for additional borrowings.

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 our assets, contains customary financial conditions and covenants, and requires maintenance of minimum levels of debt service coverage and tangible net worth and maximum levels of leverage (all as defined within the Line of Credit).

As of March 27, 2021, we had $12.8 million in principal outstanding from the $25.0 million Series A notes issued in May 2015 and $8.1 million in principal outstanding from the $12.5 million Series B notes issued in August 2017 under our Note Agreement with Prudential.

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The final maturity of the Series A and Series B notes is 10 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. The Series A and Series B notes may be prepaid, at our option, 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.

Our obligations under the Note Agreement are secured by a lien against substantially all of our assets, and the Note Agreement contains customary financial conditions and covenants, and requires maintenance of minimum levels of fixed charge coverage and tangible net worth and maximum levels of leverage (all as defined within the Note Agreement).

As of March 27, 2021, we were in compliance with all of the financial covenants under the Line of Credit and Note Agreement.

We expect to generate the cash necessary to pay our expenses, finance our leasing business 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, finance our leasing business 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 26, 2020 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.

We may utilize discounted lease financing to provide funds for a portion of our leasing activities. Rates for discounted lease financing reflect prevailing market interest rates and the credit standing of the lessees for which the payment stream of the leases are discounted. We believe that discounted lease financing will continue to be available to us at competitive rates of interest through the relationships we have established with financial institutions.

While significant uncertainty exists as to the full impact of the COVID-19 pandemic on our liquidity and capital resources, 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, cash generated from discounting sources and our Line of Credit will be adequate to fund our planned operations through 2021.

Critical Accounting Policies

The Company prepares the consolidated condensed financial statements of Winmark Corporation and Subsidiaries in conformity with accounting principles generally accepted in the United States of America. As such, the Company is required to make certain estimates, judgments and assumptions that it believes are reasonable based on information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the periods presented. There can be no assurance that actual results will not differ from these estimates. The critical accounting policies that the Company believes are most important to aid in fully understanding and evaluating the reported financial results include the following:

Revenue Recognition — Royalty Revenue and Franchise Fees

The Company collects royalties from each retail franchise based on a percentage of retail store gross sales. The Company recognizes royalties as revenue when earned. At the end of each accounting period, estimates of royalty amounts due are made based on the most recent franchisee sales information available. If there are significant changes in the actual performance of franchisees versus the Company’s estimates, its royalty revenue would be impacted. During the first three months of 2021, the Company collected $1,900 more than it estimated at December 26, 2020. As of March 27, 2021, the Company’s royalty receivable was $1,983,700.

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The Company collects initial franchise fees when franchise agreements are signed and recognizes the initial franchise fees as revenue over the estimated life of the franchise, beginning when the franchise is opened. Franchise fees collected from franchisees but not yet recognized as income are recorded as deferred revenue in the liability section of the consolidated condensed balance sheet. As of March 27, 2021, deferred franchise fee revenue was $6,689,700.

Leasing Income Recognition

Leasing income for direct financing leases is recognized under the effective interest method. The effective interest method of income recognition applies a constant rate of interest equal to the internal rate of return on the lease.

For sales-type leases in which the equipment has a fair value greater or less than its carrying amount, selling profit/loss is recognized at commencement. For subsequent periods or for leases in which the equipment’s fair value is equal to its carrying amount, the recording of income is consistent with the accounting for a direct financing lease.

For leases that are accounted for as operating leases, income is recognized on a straight-line basis when payments under the lease contract are due.

Generally, when a lease is more than 90 days delinquent (where more than three monthly payments are owed), the lease is classified as being on non-accrual and the Company stops recognizing leasing income on that date. Payments received on leases in non-accrual status generally reduce the lease receivable. Leases on non-accrual status remain classified as such until there is sustained payment performance that, in the Company’s judgment, would indicate that all contractual amounts will be collected in full.

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 26, 2020 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 March 27, 2021, the Company had available a $25.0 million line of credit with CIBC Bank USA. The interest rates applicable to this agreement are based on either the bank’s base rate or LIBOR for short-term borrowings (twelve months or less). The Company had no debt outstanding at March 27, 2021 under this line of credit. The Company’s earnings would be affected by changes in these short-term interest rates only in the event that it were to borrow amounts under this facility. With the Company’s borrowings at March 27, 2021, a one percent increase in short-term rates would have no impact on annual pretax earnings. The Company had no interest rate derivatives in place at March 27, 2021.

None of the Company’s cash and cash equivalents at March 27, 2021 was invested in money market mutual funds, which are subject to the effects of market fluctuations in interest rates.

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Foreign currency transaction gains and losses were not material to the Company’s results of operations for the three months ended March 27, 2021. During fiscal 2020, 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 $388,000. 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 26, 2020. 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 26, 2020.

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

Purchase of Equity Securities by the Issuer and Affiliated Purchasers

The following table summarized the Company’s common stock repurchase during the first quarter of 2021.


				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

December 27, 2020 to January 30, 2021	5,356	$	176.35	5,356	125,248
January 31, 2021 to February 27, 2021	26,749	$	179.18	26,749	98,499
February 28, 2021 to March 27, 2021	26,150	$	180.42	26,150	72,349

(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 is currently limited to 5,000,000 shares, of which 72,349 may still be repurchased.

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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 March 27, 2021, 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 March 27, 2021, 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: April 20, 2021	By:	/s/ Brett D. Heffes
		Brett D. Heffes Chairman of the Board and Chief Executive Officer (principal executive officer)


Date: April 20, 2021	By:	/s/ Anthony D. Ishaug
		Anthony D. Ishaug Executive Vice President Chief Financial Officer and Treasurer (principal financial and accounting officer)