WINMARK CORP

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 rulesand 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 nine months ended September 26, 2026 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.

Recently Issued Accounting Pronouncements

Disaggregation –Income Statement Expenses – In November 2024, the Financial Accounting Standards Board (“FASB”) issued guidance requiring additional disclosure of the nature of expenses included in the income statement in response to requests from investors for more information about an entity’s expenses. The new standard requires disclosures about specific types of expenses included in the expense captions presented on the face of the income statement as disclosures about selling expenses. The guidance is effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods within annual reporting periods beginning after December 15, 2027. The requirements will be applied prospectively with the option for retrospective application. Early adoption is permitted. The Company is currently evaluating the impact this new guidance will have on its financial statements and disclosures.

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®. Historically, the Company also operated 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 nine months of 2026 and 2025, respectively:

The following table illustrates future estimated revenue to be recognized for the remainder of 2026 and full fiscal years thereafter related to performance obligations that are unsatisfied (or partially unsatisfied) as of September 26, 2026.

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:

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

5. North American Advertising Fund

During the three months ended September 26, 2026, the Company implemented the Plato's Closet North American Advertising Fund (the “Ad Fund”). Franchisees of Plato’s Closet stores contribute 2% of sales to the Ad Fund. Contributions and expenditures are reported on a gross basis in the Consolidated Condensed Statement of Operations within North American advertising fund revenue and North American advertising fund expense, respectively. Contributions to the Ad Fund will be used to generate Plato’s Closet specific creative, working media and marketing infrastructure improvements to increase brand visibility. A portion of the Ad Fund proceeds will cover reasonable costs incurred by Winmark for administering the Ad Fund, including investments in personnel or contractors and continued investments in marketing activities. The Company recognized $3.8 million of advertising fund revenue and $3.8 million of related advertising fund expense during the three months ended September 26, 2026.

6. Leasing Operations:

In May 2021, the Company made the decision to no longer solicit new leasing customers and pursue an orderly run-off for its leasing portfolio. As of December 27, 2025, the run-off of the portfolio was completed and the Company no longer has any leasing customers or leased assets.

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

7. Intangible Assets & Capitalized Software

Intangible assets consist of reacquired franchise rights. The Company amortizes the fair value of the reacquired franchise rights over the contract term of the franchise. The Company recognized$265,500 and $265,500 of amortization expense for the nine months ended September 26, 2026 and September 27, 2025, respectively.

The following table illustrates future amortization to be expensed for the remainder of 2026 and full fiscal years thereafter related to reacquired franchise rights as of September 26, 2026.

Capitalized software consists of costs incurred related to the modernization of our point-of-sale system. Capitalized software has not yet been placed in service.

8. 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”):

9. Shareholders’ Equity (Deficit):

Dividends

On January 28, 2026, the Company’s Board of Directors approved the payment of a$0.96 per share quarterly cash dividend to shareholders of record at the close of business on February 11, 2026, which was paid on March 2, 2026.

On April 15, 2026, the Company’s Board of Directors approved the payment of a$1.02 per share quarterly cash dividend to shareholders of record at the close of business on May 13, 2026, which was paid on June 1, 2026.

On July 15, 2026, the Company’s Board of Directors approved the payment of a$1.02 per share quarterly cash dividend to shareholders of record at the close of business on August 12, 2026, which was paid on September 1, 2026.

Repurchase of Common Stock

During the first nine months of 2026, the Company repurchased 33,024 shares of its common stock for an aggregate purchase price of $9.8 million. Under the Board of Directors’ authorization, as of September 26, 2026, the Company has the ability to repurchase an additional 37,632 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 September 26, 2026 was as follows:

The fair value of options granted under the Option Plans during the first nine months of 2026 and 2025 were estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions and results:

All unexercised options at September 26, 2026 have an exercise price equal to the fair market value on the date of the grant.

Compensation expense of $1,917,200 and $1,666,900 relating to the vested portion of the fair value of stock options granted was expensed to selling, general and administrative expenses in the first nine months of 2026 and 2025, respectively. As of September 26, 2026, the Company had$7.3 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 3.8 years.

10. Debt:

Line of Credit/Term Loan

As of September 26, 2026, there wereno 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 September 26, 2026, 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 September 26, 2026, the Company was in compliance with all of its financial covenants.

Notes Payable

As of September 26, 2026, the Company had aggregate principal outstanding of $30.0 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 $30.0 million in principal outstanding from the $30.0 million Series C notes issued in September 2021.

The final maturity of the Series C notes is 7 years from the issuance date. 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 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 September 26, 2026, 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.

11. Operating Leases:

As of September 26, 2026, 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 3.25 years and the discount rate is 5.5%. The Company recognized$847,500 and $761,100 of rent expense for the periods ended September 26, 2026 and September 27, 2025, respectively.

Maturities of operating lease liabilities are as follows for the remainder of fiscal 2026 and full fiscal years thereafter as of September 26, 2026:

Of the $2.6 million operating lease liability outstanding at September 26, 2026, $0.7 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 September 26, 2026:

12. Segment Reporting:

The Company currently hasone reportable operating segment, franchising. The franchising segment franchises value-oriented retail store concepts that buy, sell and trade merchandise. During 2026, the Company had no other operating segment, and all revenues and expenses were included in the franchising segment. Comparative 2025 information for the former non-reportable operating segment reflects the Company’s equipment leasing business, for which the run-off was completed as of December 27, 2025. Segment reporting is intended to give financial statement users a better view of how the Company manages and evaluates its business. The Company’s chief operating decision maker (“CODM”) is its Chief Executive Officer. The Company’s CODM primarily reviews revenue and income from operations for purposes of allocating resources and evaluating financial performance. Expenses are reviewed on a consolidated basis. The Company’s internal management reporting is the basis for the information disclosed for its operating segment. The following tables summarize financial information by segment and provide a reconciliation of segment contribution to income from operations: