WINMARK CORP

Previous wording

Winmark – the Resale Company is focused on sustainability and small business formation. As of September 27, 2025, we had 1,377 franchises operating under the Plato’s Closet, Once Upon A Child, Play It Again Sports, Style Encore and Music Go Round brands. Our business is not capital intensive and is designed to generate consistent, recurring revenue and strong operating margins.

Current wording

Winmark - the Resale Company is focused on sustainability and small business formation. As of March 28, 2026, we had 1,383 franchises operating under the Plato’s Closet, Once Upon A Child, Play It Again Sports, Style Encore and Music Go Round brands. Our business is not capital intensive and is designed to generate consistent, recurring revenue and strong operating margins.

Previous wording

Our most significant source of franchising revenue is royalties received from our franchisees. During the first nine months of 2025, our royalties increased $2.8 million or 5.1% compared to the first nine months of 2024.

Current wording

Our most significant source of revenue is royalties received from our franchisees. During the first three months of 2026, our royalties increased $1.5 million or 8.4% compared to the first three months of 2025.

Previous wording

Management continually monitors the level and timing of selling, general and administrative expenses. The major components of selling, general and administrative expenses include compensation and benefits, marketing and advertising, professional services, and occupancy. During the first nine months of 2025, selling, general and administrative expenses increased $2.1 million, or 11.0% compared to the first nine months of 2024.

Current wording

Management continually monitors the level and timing of selling, general and administrative expenses. The major components of selling, general and administrative expenses include compensation and benefits, marketing and advertising, professional services, and occupancy. During the first three months of 2026, selling, general and administrative expenses increased $0.4 million, or 5.8% compared to the first three months of 2025.

Previous wording

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 nine months ended September 27, 2025:

Current wording

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 three months ended March 28, 2026:

Previous wording

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 nine months of 2025, we renewed 89 of the 90 franchise agreements available for renewal.

Current wording

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 2026, we renewed 23 of the 23 franchise agreements available for renewal.

Previous wording

Revenues for the quarter ended September 27, 2025 totaled $22.6 million compared to $21.5 million for the comparable period in 2024.

Current wording

Revenues for the quarter ended March 28, 2026 totaled $20.8 million compared to $21.9 million for the comparable period in 2025.

Previous wording

Royalties increased to $57.3 million for the first nine months of 2025 from $54.6 million for the first nine months of 2024, a 5.1% increase. The increase is primarily from higher franchise retail sales and from having additional franchise stores in the first nine months of 2025 compared to the same period in 2024.

Current wording

Royalties increased to $19.3 million for the first three months of 2026 from $17.8 million for the first three months of 2025, an 8.4% increase. The increase is primarily from higher franchise retail sales and, to a lesser extent, having additional franchise stores in the first three months of 2026 compared to the same period in 2025.

Previous wording

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 decreased to $2.4 million for the first nine months of 2025 compared to $2.7 million in the same period of 2024. The decrease is primarily due to a decrease in technology purchases by our franchisees.

Current wording

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 decreased to $0.7 million for the first quarter of 2026 compared to $0.9 million in the same period of 2025. The decrease is due to a decrease in technology and buying group purchases by our franchisees.

Previous wording

Cost of merchandise sold includes in-bound freight and the cost of merchandise associated with Direct Franchisee Sales. Cost of merchandise sold decreased to $2.3 million for the first nine months of 2025 compared to $2.6 million in the same period of 2024. The decrease is due to a decrease in Direct Franchise Sales discussed above. Cost of merchandise sold as a percentage of Direct Franchisee Sales for the first nine months of 2025 and 2024 was 95.1% and 93.6%, respectively.

Current wording

Cost of merchandise sold includes in-bound freight and the cost of merchandise associated with Direct Franchisee Sales. Cost of merchandise sold decreased to $0.6 million for the first quarter of 2026 compared to $0.9 million in the same period of 2025. The decrease was due to the decrease in Direct Franchisee Sales discussed above. Cost of merchandise sold as a percentage of Direct Franchisee Sales for the first quarter of 2026 and 2025 was 94.6% and 94.4%, respectively.

Previous wording

Selling, general and administrative expenses increased 19.0% to $7.0 million in the third quarter of 2025 compared to $5.9 million in the same period of 2024. The increase was primarily due to an increase in compensation related expenses and the timing of advertising production expense.

Current wording

Selling, general and administrative expenses increased 5.8% to $7.9 million in the first quarter of 2026 from $7.4 million in the same period of 2025. The increase was primarily due to an increase in compensation related expenses.

Previous wording

The provision for income taxes was calculated at an effective rate of 23.8% and 23.9% for the third quarter of 2025 and 2024, respectively.

Current wording

The provision for income taxes was calculated at an effective rate of 22.0% and 24.2% for the first quarter of 2026 and 2025, respectively. The decrease is due to tax benefits on the exercise of non-qualified stock options during the first quarter of 2026.

Previous wording

The franchising segment’s operating income for the third quarter of 2025 increased to $14.9 million from $14.8 million for the third quarter of 2024. The increase in segment contribution was due to increased royalty revenues, partially offset by an increase in selling, general, and administrative expenses.

Current wording

The franchising segment’s operating income for the first quarter of 2026 of $12.4 million was up from $11.4 million for the first quarter of 2025. The increase in segment contribution was due to an increase in royalty revenue, partially offset by an increase in selling, general and administrative expenses.

Previous wording

The other operating segment income for the first nine months of 2025 increased to $2.3 million from $1.3 million for the first nine months of 2024. The increase in segment contribution was due to the settlement of outstanding customer litigation in the Company’s equipment leasing business.

Current wording

The other operating segment income for the first quarter of 2026 was $0.0 million compared to $2.3 million in the first quarter of 2025. The segment contribution in the first quarter of 2025 reflected the settlement of customer litigation.

Previous wording

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.

Current wording

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 amortization and compensation expense related to stock options.

Previous wording

We ended the third quarter of 2025 with $39.9 million in cash, cash equivalents and restricted cash compared to $37.3 million in cash, cash equivalents and restricted cash at the end of the third quarter of 2024.

Current wording

We ended the first quarter of 2026 with $19.9 million in cash, cash equivalents and restricted cash compared to $22.0 million in cash, cash equivalents and restricted cash at the end of the first quarter of 2025.

Previous wording

Operating activities provided $36.4 million of cash during the first nine months of 2025, compared to $33.7 million provided during the same period last year. The increase in cash provided by operating activities during the first nine months of 2025 compared to 2024 was primarily due to an increase in net income and a decrease in non-cash working capital.

Current wording

Operating activities provided $11.9 million of cash during the first three months of 2026 compared to $15.1 million provided during the first three months of last year. The decrease in cash provided by operating activities in the first three months of 2026 compared to 2025 was primarily due to an increase in non-cash working capital and a decrease in net income.

Previous wording

Investing activities used $0.2 million of cash during the first nine months of 2025, compared to $0.2 million used during the same period last year. The 2025 activities consisted of the purchase of property and equipment.

Current wording

Investing activities used minimal cash during the first three months of 2026. The 2026 activities consisted of the purchase of property and equipment.

Previous wording

Financing activities used $8.7 million of cash during the first nine months of 2025. Our most significant financing activities during the first nine months of 2025 consisted of $10.0 million for the payment of dividends and $2.4 million to repurchase 7,944 shares of our common stock; partially offset by $3.8 million of proceeds from exercise of stock options. (See Note 8 — “Shareholders’ Equity (Deficit).”

Current wording

Financing activities used $2.4 million of cash during the first three months of 2026. Our financing activities during the first three months of 2026 consisted of $3.4 million for the payment of dividends; partially offset by $1.0 million of proceeds from the exercise of stock options. (See Note 8 — “Shareholders’ Equity (Deficit)).

Previous wording

Our debt facilities include a Line of Credit with CIBC Bank USA and a Note 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 September 27, 2025, we were in compliance with all of the financial covenants under the Line of Credit and the Note Agreement.

Current wording

As of March 28, 2026, our debt facilities include a Line of Credit with CIBC Bank USA and a Note 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 March 28, 2026, we were in compliance with all of the financial covenants under the Line of Credit and the Note Agreement.