SEC Form 10-Q filed by Winmark Corporation

7/15/26 11:34:49 AM ET

$WINA

Other Specialty Stores

Consumer Discretionary

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WINMARK CORPORATION_June 27, 2026

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 27, 2026

☐

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, 3,592,169 shares outstanding as of July 13, 2026.

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WINMARK CORPORATION AND SUBSIDIARIES

INDEX


		PAGE

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	CONSOLIDATED CONDENSED BALANCE SHEETS June 27, 2026 and December 27, 2025	3

	CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS Three Months Ended June 27, 2026 and June 28, 2025 Six Months Ended June 27, 2026 and June 28, 2025	4

	CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT) Three Months Ended June 27, 2026 and June 28, 2025 Six Months Ended June 27, 2026 and June 28, 2025	5

	CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS Six Months Ended June 27, 2026 and June 28, 2025	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	17

PART II.	OTHER INFORMATION	17

Item 1.	Legal Proceedings	17

Item 1A.	Risk Factors	17

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	18

Item 3.	Defaults Upon Senior Securities	18

Item 4.	Mine Safety Disclosures	18

Item 5.	Other Information	18

Item 6.	Exhibits	19

	SIGNATURES	20

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PART I. FINANCIAL INFORMATION

ITEM 1: Financial Statements

WINMARK CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

(Unaudited)


		June 27, 2026			December 27, 2025
ASSETS
Current Assets:
Cash and cash equivalents		$	25,834,500		$	10,295,700
Restricted cash			150,000			165,000
Receivables, less allowance for credit losses of $500 and $500			1,843,400			1,483,500
Income tax receivable			436,800			463,600
Inventories			656,900			362,500
Prepaid expenses			1,846,100			1,325,700
Total current assets			30,767,700			14,096,000
Property and equipment, net			1,086,300			1,219,000
Operating lease right of use asset			1,577,700			1,761,500
Intangible assets, net			2,109,300			2,286,300
Capitalized software			2,210,300			—
Goodwill			607,500			607,500
Other assets			526,600			506,400
Deferred income taxes			4,304,800			4,407,400
		$	43,190,200		$	24,884,100

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable		$	2,113,100		$	1,673,900
Accrued liabilities			4,422,500			2,324,800
Deferred revenue			1,669,100			1,667,300
Total current liabilities			8,204,700			5,666,000
Long-term Liabilities:
Line of credit/Term loan			30,000,000			30,000,000
Notes payable, net of unamortized debt issuance costs of $29,800 and $39,000			29,970,200			29,961,000
Deferred revenue			8,417,400			8,350,100
Operating lease liabilities			2,054,800			2,414,200
Other liabilities			2,165,800			2,175,200
Total long-term liabilities			72,608,200			72,900,500
Shareholders’ Equity (Deficit):
Common stock, no par value, 10,000,000 shares authorized, 3,587,079 and 3,571,861 shares issued and outstanding			23,110,400			19,612,800
Retained earnings (accumulated deficit)			(60,733,100)			(73,295,200)
Total shareholders' equity (deficit)			(37,622,700)			(53,682,400)
		$	43,190,200		$	24,884,100

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						Six Months Ended
		June 27, 2026			June 28, 2025			June 27, 2026			June 28, 2025
Revenue:
Royalties		$	20,117,000		$	18,662,100		$	39,379,800		$	36,436,700
Leasing income			—			46,600			—			2,354,500
Merchandise sales			859,300			803,600			1,513,200			1,744,900
Franchise fees			419,500			338,400			762,400			670,400
Other			570,200			566,100			1,160,300			1,129,900
Total revenue			21,966,000			20,416,800			42,815,700			42,336,400
Cost of merchandise sold			818,500			766,500			1,437,000			1,654,800
Selling, general and administrative expenses			7,506,400			6,589,200			15,376,000			14,024,000
Income from operations			13,641,100			13,061,100			26,002,700			26,657,600
Interest expense			(609,800)			(609,800)			(1,223,700)			(1,223,600)
Interest and other income			155,600			254,600			274,400			404,400
Income before income taxes			13,186,900			12,705,900			25,053,400			25,838,400
Provision for income taxes			(2,792,100)			(2,104,700)			(5,403,800)			(5,280,800)
Net income		$	10,394,800		$	10,601,200		$	19,649,600		$	20,557,600
Earnings per share - basic		$	2.90		$	3.00		$	5.49		$	5.81
Earnings per share - diluted		$	2.81		$	2.89		$	5.31		$	5.60
Weighted average shares outstanding - basic			3,582,087			3,539,437			3,577,169			3,539,042
Weighted average shares outstanding - diluted			3,696,010			3,673,135			3,701,516			3,673,039

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)

(Unaudited)


							Retained
							Earnings
		Common Stock					(Accumulated
		Shares		Amount			Deficit)			Total
BALANCE, December 27, 2025		3,571,861		$	19,612,800		$	(73,295,200)		$	(53,682,400)
Stock options exercised		5,810			1,033,900			—			1,033,900
Compensation expense relating to stock options		—			614,100			—			614,100
Cash dividends ($0.96 per share)		—			—			(3,429,000)			(3,429,000)
Comprehensive income (Net income)		—			—			9,254,700			9,254,700
BALANCE, March 28, 2026		3,577,671			21,260,800			(67,469,500)			(46,208,700)
Stock options exercised		9,408			1,235,400			—			1,235,400
Compensation expense relating to stock options		—			614,200			—			614,200
Cash dividends ($1.02 per share)		—			—			(3,658,400)			(3,658,400)
Comprehensive income (Net income)		—			—			10,394,800			10,394,800
BALANCE, June 27, 2026		3,587,079			23,110,400			(60,733,100)			(37,622,700)


							Retained
							Earnings
		Common Stock					(Accumulated
		Shares		Amount			Deficit)			Total
BALANCE, December 28, 2024		3,539,744		$	14,790,500		$	(65,836,600)		$	(51,046,100)
Repurchase of common stock		(7,383)			(2,249,900)			—			(2,249,900)
Stock options exercised		210			47,700			—			47,700
Compensation expense relating to stock options		—			536,600			—			536,600
Cash dividends ($0.90 per share)		—			—			(3,186,000)			(3,186,000)
Comprehensive income (Net income)		—			—			9,956,400			9,956,400
BALANCE, March 29, 2025		3,532,571			13,124,900			(59,066,200)			(45,941,300)
Repurchase of common stock		(561)			(168,900)			—			(168,900)
Stock options exercised		16,448			1,538,600			—			1,538,600
Compensation expense relating to stock options		—			529,000			—			529,000
Cash dividends ($0.96 per share)		—			—			(3,398,500)			(3,398,500)
Comprehensive income (Net income)		—			—			10,601,200			10,601,200
BALANCE, June 28, 2025		3,548,458			15,023,600			(51,863,500)			(36,839,900)

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)


		Six Months Ended
		June 27, 2026			June 28, 2025
OPERATING ACTIVITIES:
Net income		$	19,649,600		$	20,557,600
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property and equipment			187,600			196,300
Amortization of intangible assets			177,000			177,000
Compensation expense related to stock options			1,228,300			1,065,600
Deferred income taxes			102,600			86,400
Operating lease right of use asset amortization			183,800			166,400
Tax benefits on exercised stock options			742,800			971,200
Change in operating assets and liabilities:
Receivables			(359,900)			(371,500)
Income tax receivable/payable			(716,000)			(1,341,400)
Inventories			(294,400)			35,500
Prepaid expenses			(520,400)			472,500
Other assets			(20,200)			(14,300)
Accounts payable			439,200			(371,700)
Accrued and other liabilities			1,737,900			2,178,000
Deferred revenue			69,200			315,700
Net cash provided by operating activities			22,607,100			24,123,300
INVESTING ACTIVITIES:
Capitalized software			(2,210,300)			—
Purchase of property and equipment			(54,900)			(105,900)
Net cash used for investing activities			(2,265,200)			(105,900)
FINANCING ACTIVITIES:
Repurchases of common stock			—			(2,418,700)
Proceeds from exercises of stock options			2,269,300			1,586,300
Dividends paid			(7,087,400)			(6,584,600)
Net cash used for financing activities			(4,818,100)			(7,417,000)
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH			15,523,800			16,600,400
Cash, cash equivalents and restricted cash, beginning of period			10,460,700			12,329,800
Cash, cash equivalents and restricted cash, end of period		$	25,984,500		$	28,930,200
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest		$	1,207,800		$	1,207,800
Cash paid for income taxes		$	5,253,000		$	5,368,500

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Condensed Balance Sheets to the total of the same amounts shown above:
		Six Months Ended
		June 27, 2026			June 28, 2025
Cash and cash equivalents		$	25,834,500		$	28,765,200
Restricted cash			150,000			165,000
Total cash, cash equivalents and restricted cash		$	25,984,500		$	28,930,200

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

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WINMARK CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

1. Management’s Interim Financial Statement Representation:

The accompanying consolidated condensed financial statements have been prepared by Winmark Corporation and subsidiaries (the Company), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. The Company has a 52/53 week year which ends on the last Saturday in December. The information in the consolidated condensed financial statements includes normal recurring adjustments and reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of such financial statements. The consolidated condensed financial statements and notes are presented in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions for Form 10-Q, and therefore do not contain certain information included in the Company’s annual consolidated financial statements and notes. This report should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s latest Annual Report on Form 10-K.

Revenues and operating results for the six months ended June 27, 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 six months of 2026 and 2025, respectively:


		June 27, 2026			June 28, 2025
Balance at beginning of period		$	10,017,400		$	9,687,300
Franchise and software license fees collected from franchisees, excluding amount earned as revenue during the period			1,013,700			1,078,200
Fees earned that were included in the balance at the beginning of the period			(944,600)			(762,500)
Balance at end of period		$	10,086,500		$	10,003,000

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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 June 27, 2026.


Contract Liabilities expected to be recognized in	Amount
2026	$	786,800
2027		1,581,400
2028		1,412,000
2029		1,263,600
2030		1,150,000
Thereafter		3,892,700
	$	10,086,500

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. 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:


		Three Months Ended			Three Months Ended			Six Months Ended			Six Months Ended
		June 27, 2026			June 28, 2025			June 27, 2026			June 28, 2025
Operating lease income			—			46,600			—			93,300
Income on sales of equipment under lease			—			—			—			200,000
Other			—			—			—			2,061,200
Leasing income		$	—		$	46,600		$	—		$	2,354,500

6. 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 $177,000 and $177,000 of amortization expense for the six months ended June 27, 2026 and June 28, 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 June 27, 2026.


Amortization expected to be expensed in	Amount
2026	$	177,000
2027		354,000
2028		354,000
2029		354,000
2030		354,000
Thereafter		516,300
	$	2,109,300

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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.

7. Earnings Per Share:

The following table sets forth the presentation of shares outstanding used in the calculation of basic and diluted earnings per share (“EPS”):


		Three Months Ended				Six Months Ended
		June 27, 2026		June 28, 2025		June 27, 2026		June 28, 2025
Denominator for basic EPS — weighted average common shares		3,582,087		3,539,437		3,577,169		3,539,042
Dilutive shares associated with option plans		113,923		133,698		124,347		133,997
Denominator for diluted EPS — weighted average common shares and dilutive potential common shares		3,696,010		3,673,135		3,701,516		3,673,039
Options excluded from EPS calculation — anti-dilutive		20,546		9,398		14,548		11,380

8. 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.

Repurchase of Common Stock

During the first six months of 2026, the Company did not repurchase shares of its common stock. Under the Board of Directors’ authorization, as of June 27, 2026, the Company has the ability to repurchase an additional 70,656 shares of its common stock. Repurchases may be made from time to time at prevailing prices, subject to certain restrictions on volume, pricing and timing.

Stock Option Plans and Stock-Based Compensation

Stock option activity under the Company’s option plans as of June 27, 2026 was as follows:


							Weighted Average
							Remaining
		Number of		Weighted Average			Contractual Life
		Shares		Exercise Price			(years)			Intrinsic Value
Outstanding, December 27, 2025		315,002		$	238.30
Granted		32,868			377.89
Exercised		(15,218)			149.12
Forfeited		(1,671)			358.52
Outstanding, June 27, 2026		330,981		$	255.65		5.77		$	54,435,200
Exercisable, June 27, 2026		238,613		$	207.37		4.53		$	50,344,300

The fair value of options granted under the Option Plans during the first six 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:


		Six Months Ended			Six Months Ended
		June 27, 2026			June 28, 2025
Risk free interest rate			4.26	%		4.10	%
Expected life (years)			6.7			6.0
Expected volatility			28.78	%		30.14	%
Dividend yield			3.06	%		2.51	%
Option fair value		$	97.36		$	117.14

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All unexercised options at June 27, 2026 have an exercise price equal to the fair market value on the date of the grant.

Compensation expense of $1,228,300 and $1,065,600 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 2026 and 2025, respectively. As of June 27, 2026, the Company had $8.0 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 4.0 years.

9. Debt:

Line of Credit/Term Loan

As of June 27, 2026, 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 June 27, 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 June 27, 2026, the Company was in compliance with all of its financial covenants.

Notes Payable

As of June 27, 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 June 27, 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.

10. Operating Leases:

As of June 27, 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 3.5 years and the discount rate is 5.5%. The Company recognized $557,400 and $484,800 of rent expense for the periods ended June 27, 2026 and June 28, 2025, respectively.

Maturities of operating lease liabilities is as follows for the remainder of fiscal 2026 and full fiscal years thereafter as of June 27, 2026:

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Operating Lease Liabilities expected to be recognized in		Amount
2026		$	417,900
2027			851,100
2028			874,600
2029			898,600
2030			—
Thereafter			—
Total lease payments			3,042,200
Less imputed interest			(278,400)
Present value of lease liabilities		$	2,763,800

Of the $2.8 million operating lease liability outstanding at June 27, 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 June 27, 2026:


		Six Months Ended
		June 27, 2026			June 28, 2025
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flow outflow from operating leases		$	410,400		$	399,300

11. Segment Reporting:

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 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 segments. The following tables summarize financial information by segment and provide a reconciliation of segment contribution to income from operations:


		Three Months Ended						Six Months Ended
		June 27, 2026			June 28, 2025			June 27, 2026			June 28, 2025
Revenue:
Franchising		$	21,966,000		$	20,370,200		$	42,815,700		$	39,981,900
Other			—			46,600			—			2,354,500
Total revenue		$	21,966,000		$	20,416,800		$	42,815,700		$	42,336,400

Franchising segment operating expenses:
Merchandise COGS		$	818,500		$	766,500		$	1,437,000		$	1,654,800
Selling, general and administrative expenses			7,506,400			6,585,000			15,376,000			13,936,300
Total franchising segment expenses		$	8,324,900		$	7,351,500		$	16,813,000		$	15,591,100

Reconciliation to operating income:
Franchising segment income from operations		$	13,641,100		$	13,018,700		$	26,002,700		$	24,390,900
Other operating segment income from operations			—			42,400			—			2,266,700
Total income from operations		$	13,641,100		$	13,061,100		$	26,002,700		$	26,657,600

Depreciation and amortization:
Franchising		$	180,900		$	187,600		$	364,600		$	373,300
Other			—			—			—			—
Total depreciation and amortization		$	180,900		$	187,600		$	364,600		$	373,300

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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 June 27, 2026, we had 1,389 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.

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 2026, our royalties increased $2.9 million or 8.1% compared to the first six months of 2025.

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 six months of 2026, selling, general and administrative expenses increased $1.4 million, or 9.6% compared to the first six months of 2025.

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 June 27, 2026:


										AVAILABLE
		TOTAL						TOTAL		FOR		COMPLETED
		12/27/2025		OPENED		CLOSED		6/27/2026		RENEWAL		RENEWALS		% RENEWED
Plato’s Closet		526		6		(2)		530		17		17		100	%
Once Upon A Child		441		7		(3)		445		21		21		100	%
Play It Again Sports		309		5		(2)		312		8		8		100	%
Style Encore		67		—		(1)		66		1		1		100	%
Music Go Round		35		1		—		36		3		3		100	%
Total Franchised Stores		1,378		19		(8)		1,389		50		50		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 2026, we renewed 50 of the 50 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.

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Results of Operations

The following table sets forth selected information from our Consolidated Condensed Statements of Operations expressed as a percentage of total revenue:


		Three Months Ended				Six Months Ended
		June 27, 2026		June 28, 2025		June 27, 2026		June 28, 2025

Revenue:
Royalties		91.6	%	91.4	%	92.0	%	86.1	%
Leasing income		—		0.2		—		5.6
Merchandise sales		3.9		3.9		3.5		4.1
Franchise fees		1.9		1.7		1.8		1.6
Other		2.6		2.8		2.7		2.6
Total revenue		100.0		100.0		100.0		100.0

Cost of merchandise sold		(3.7)		(3.7)		(3.4)		(3.9)
Selling, general and administrative expenses		(34.2)		(32.3)		(35.9)		(33.1)
Income from operations		62.1		64.0		60.7		63.0
Interest expense		(2.8)		(3.0)		(2.9)		(2.9)
Interest and other income		0.7		1.2		0.7		1.0
Income before income taxes		60.0		62.2		58.5		61.1
Provision for income taxes		(12.7)		(10.3)		(12.6)		(12.5)
Net income		47.3	%	51.9	%	45.9	%	48.6	%

Comparison of Three Months Ended June 27, 2026 to Three Months Ended June 28, 2025

Revenue

Revenues for the quarter ended June 27, 2026 totaled $22.0 million compared to $20.4 million for the comparable period in 2025.

Royalties and Franchise Fees

Royalties increased to $20.1 million for the second quarter of 2026 from $18.7 million for the second quarter of 2025, a 7.8% increase. The increase is primarily from higher franchise retail sales and, to a lesser extent, from having additional franchise stores in the second quarter of 2026 compared to the same period in 2025.

Franchise fees of $0.4 million for the second quarter of 2026 were comparable to $0.3 million for the second quarter of 2025.

Leasing Income

We had no leasing income for the second quarter of 2026 compared to $46,600 for the same period in 2025. As of December 27, 2025, the previously announced run-off of the leasing portfolio was completed and we no longer have any leasing customers or leased assets.

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 $0.9 million for the second quarter of 2026 were comparable to $0.8 million in the same period of 2025.

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 $0.8 million for the second quarter of 2026 was comparable to $0.8 million in the same period of 2025. Cost of merchandise sold as a percentage of Direct Franchisee Sales for the second quarter of 2026 and 2025 was 95.3% and 95.4%, respectively.

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Selling, General and Administrative

Selling, general and administrative expenses increased 13.9% to $7.5 million in the second quarter of 2026 compared to $6.6 million in the same period of 2025. The increase was primarily due to an increase in compensation related expenses for the Company’s investments in technology and marketing, the timing of advertising production expense, and outside services.

Interest Expense

Interest expense of $0.6 million for the second quarter of 2026 was comparable to $0.6 million for the second quarter of 2025.

Income Taxes

The provision for income taxes was calculated at an effective rate of 21.2% and 16.6% for the second quarter of 2026 and 2025, respectively. The increase is primarily due to less tax benefits on the exercise of non-qualified stock options during the second quarter of 2026 compared to the second quarter of 2025.

Comparison of Six Months Ended June 27, 2026 to Six Months Ended June 28, 2025

Revenue

Revenues for the first six months of 2026 totaled $42.8 million compared to $42.3 million for the comparable period in 2025.

Royalties and Franchise Fees

Royalties increased to $39.4 million for the first six months of 2026 from $36.4 million for the first six months of 2025, an 8.1% increase. The increase is primarily from higher franchise retail sales, and, to a lesser extent, from having additional franchise stores in the first six months of 2026 compared to the same period in 2025.

Franchise fees of $0.8 million for the first six months of 2026 were comparable to $0.7 million for the first six months of 2025.

Leasing Income

We had no leasing income for the first six months of 2026 compared to $2.4 million for the same period in 2025. Leasing income in the first six months of 2025 reflected the settlement of customer litigation. As of December 27, 2025, the previously announced run-off of the leasing portfolio was completed and we no longer have any leasing customers or leased assets.

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 decreased to $1.5 million for the first six months of 2026 compared to $1.7 million in the same period of 2025. 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 decreased to $1.4 million for the first six months of 2026 compared to $1.7 million in the same period of 2025. 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 six months of 2026 and 2025 was 95.0% and 94.8%, respectively.

Selling, General and Administrative

Selling, general and administrative expenses increased 9.6% to $15.4 million in the first six months of 2026 compared to $14.0 million in the same period of 2025. The increase was primarily due to an increase in compensation related expenses for the Company’s investments in technology and marketing.

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Interest Expense

Interest expense of $1.2 million for the first six months of 2026 was comparable to $1.2 million for the first six months of 2025.

Income Taxes

The provision for income taxes was calculated at an effective rate of 21.6% and 20.4% for the first six months of 2026 and 2025, respectively. The increase is primarily due to lower tax benefits on the exercise of non-qualified stock options during the first six months of 2026 compared to the first six months of 2025.

Segment Comparison of Three Months Ended June 27, 2026 to Three Months Ended June 28, 2025

Franchising Segment Operating Income

The franchising segment’s operating income for the second quarter of 2026 increased to $13.6 million from $13.0 million for the second quarter of 2025. 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 2026 was $0 compared to $42,400 for the second quarter of 2025.

Segment Comparison of Six Months Ended June 27, 2026 to Six Months Ended June 28, 2025

Franchising Segment Income

The franchising segment operating income for the first six months of 2026 increased to $26.0 million from $24.4 million for the first six months of 2025. 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 2026 was $0.0 million compared to $2.3 million for the first six months of 2025. The segment contribution in the first six months of 2025 reflected the settlement of customer litigation.

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 2026 with $26.0 million in cash, cash equivalents and restricted cash compared to $28.9 million in cash, cash equivalents and restricted cash at the end of the second quarter of 2025.

Operating activities provided $22.6 million of cash during the first six months of 2026, compared to $24.1 million provided during the same period last year. The decrease in cash provided by operating activities during the first six months of 2026 compared to 2025 was primarily due to a decrease in net income.

Investing activities used $2.3 million of cash during the first six months of 2026, compared to $0.1 million used during the same period last year. The 2026 activities primarily consisted of software development costs related to the modernization of our point-of-sale system.

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Financing activities used $4.8 million of cash during the first six months of 2026. Our most significant financing activities during the first six months of 2026 consisted of $7.1 million for the payment of dividends; partially offset by $2.3 million of proceeds from exercise of stock options. See Note 8 — “Shareholders’ Equity Deficit.”

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 June 27, 2026, we were in compliance with all of the financial covenants under the Line of Credit and the Note Agreement.

The Line of Credit provides for up to $20.0 million in revolving loans and $30.0 million in delayed draw term loans. As of June 27, 2026, we had no revolving loans outstanding, and had delayed draw term loan borrowings totaling $30.0 million that mature in 2029.

See Part I, Item 1, Note 9 – “Debt” for more information regarding the Line of Credit and Note 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 27, 2025 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 and our Line of Credit will be adequate to fund our planned operations through 2027.

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 27, 2025. There have been no changes to our critical accounting policies from those disclosed on our Form 10-K for the year ended December 27, 2025.

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 27, 2025 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.

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ITEM 3: Quantitative and Qualitative Disclosures About Market Risk

The Company incurs financial market risk in the form of interest rate risk. Risk can be quantified by measuring the financial impact of a near-term adverse increase in short-term interest rates. At June 27, 2026, the Company’s Line of Credit with CIBC Bank USA included a commitment for revolving loans of $20.0 million. The interest rates applicable to revolving loans are based on either the bank’s base rate or SOFR for short-term borrowings (twelve months or less). The Company had no revolving loans outstanding at June 27, 2026 under this Line of Credit. The Company had no interest rate derivatives in place at June 27, 2026. The Company’s fixed rate debt exposes the company to changes in the market interest rate only to the extent that the Company may need to refinance maturing debt with new debt at a higher rate.

None of the Company’s cash and cash equivalents at June 27, 2026 was invested in money market mutual funds, which are subject to the effects of market fluctuations in interest rates.

Foreign currency transaction gains and losses were not material to the Company’s results of operations for the six months ended June 27, 2026. During fiscal 2025, approximately 9.1% of the Company’s total revenues and a de minimis amount 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 $782,700. 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 27, 2025. 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 set forth 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 27, 2025.

As previously disclosed in our Current Report on Form 8-K filed with the Securities and Exchange Commission on March 16, 2026, the Company is implementing a monthly Software Fee for all locations as well as a North American Ad Fund for all Plato’s Closet locations. As a result of the implementation of these fees, the Company is adding an additional risk factor.

The Company’s implementation of a monthly Software Fee and the introduction of a North American Ad Fund for its Plato’s Closet brand may adversely affect franchisee relationships and system performance.

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The Company periodically implements system initiatives, including technology platforms, advertising programs, and related fees, that are intended to support brand development and operational consistency across its franchised systems. These initiatives, including the implementation of a North American Ad Fund for its Plato’s Closet brand and a monthly Software Fee may increase franchisee operating costs and may not result in immediate or uniform benefits for all franchisees. If franchisees view such initiatives as burdensome, ineffective, or misaligned with their business needs, franchisee satisfaction and compliance may be adversely affected. Any deterioration in franchisee relationships could negatively impact franchisee retention, the pace of new franchise development, and the overall performance of the Company’s franchise systems.

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 2026.


							Total Number of		Maximum Number
							Shares Purchased as		of Shares that may
		Total Number of		Average Price			Part of a Publicly		yet be Purchased
Period		Shares Purchased		Paid Per Share			Announced Plan(1)		Under the Plan

March 29, 2026 to May 2, 2026		—		$	—		—		70,656
May 3, 2026 to May 30, 2026		—		$	—		—		70,656
May 31, 2026 to June 27, 2026		—		$	—		—		70,656

(1)

The Board of Directors’ authorization for the repurchase of shares of the Company’s common stock was originally approved in 1995 with no expiration date. The total shares approved for repurchase has been increased by additional Board of Directors’ approvals and as of June 27, 2026 was limited to 5,400,000 shares, of which 70,656 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.

During the six months ended June 27, 2026, no director or officer of the Company adopted, modified or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement” as each term is defined in Item 408(a) of Regulation S-K.

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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 June 27, 2026, formatted in Inline XBRL: (i) Consolidated Condensed Balance Sheets, (ii) Consolidated Condensed Statements of Operations, (iii) Consolidated Condensed Statements of Shareholders’ Equity (Deficit), (iv) Consolidated Condensed Statements of Cash Flows, and (v) Notes to Consolidated Condensed Financial Statements.
104		The cover page from the Quarterly Report on Form 10-Q of Winmark Corporation and Subsidiaries for the quarter ended June 27, 2026, 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 15, 2026	By:	/s/ Brett D. Heffes
		Brett D. Heffes Chair of the Board and Chief Executive Officer (principal executive officer)


Date: July 15, 2026	By:	/s/ Anthony D. Ishaug
		Anthony D. Ishaug Chief Financial Officer and Treasurer (principal financial and accounting officer)

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