WINA 10-K & 10-Q changes, risk factors and insider trading

We are subject to restrictions in our line of credit/term loan and note facilities. Additionally, we are subject to counter partycounter-party risk in our line of credit facility.

We have implemented security systems with the intent of maintaining the physical security of our facilities and protecting our employees, franchisees, lessees, customers’, clients’ and suppliers’ confidential information and information related to identifiable individuals against unauthorized access through our information systems or by other electronic transmission or through the misdirection, theft or loss of physical media. These include, for example, the appropriate encryption of information. Despite such efforts, we are subject to potential breach of security systems which may result in unauthorized access to our facilities or the information we are trying to protect. Because the techniques used to obtain unauthorized access are constantly changing and becoming increasingly more sophisticated and often are not recognized until launched against a target, we may be unable to anticipate these techniques or implement sufficient preventative measures. If unauthorized parties gain physical access to one of our facilities or electronic access to our information systems or such information is misdirected, lost or stolen during transmission or transport, any theft or misuse of such information could result in, among other things, unfavorable publicity, governmental inquiry and oversight, difficulty in marketing our services, allegations by our customers and clients that we have not performed our contractual obligations, litigation by affected parties and possible financial obligations for damages related to the theft or misuse of such information, any of which could have a material adverse effect on our business.

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 & advertising, professional services, and occupancy. During 2024,2025, selling, general and administrative expense decreasedincreased $0.2$3.4 million, or 0.7%,13.7%, compared to the same period last year.

Our ability to grow our operating income is dependent on our ability to: (i) effectively support our franchise partnersfranchisees so that they produce higher revenues, (ii) open new franchises, and (iii) control our selling, general and administrative expenses. A detailed description of the risks to our business along with other risk factors can be found in Item 1A “Risk Factors”.

In May 2021, we made the decision to no longer solicit new leasing customers and will pursue an orderly run-off of our middle-market leasing portfolio. Leasing income net of leasing expense for the fiscal year of 20242025 was $1.8$2.6 million compared to $4.4$1.8 million in 2023.2024. Our leasing portfolio (net investment in leases), was $0.0$2.2 million atof Decemberthe 28, 2024 compared to $0.1$2.5 million at December 30, 2023. Given the decision to run-off the portfolio, we anticipate thatof leasing income netfor the fiscal year of leasing2025 expensewas will continuerelated to decreasethe throughsettlement of outstanding customer litigation. As of December 27, 2025, the remainderrun-off of the run-offportfolio period.was completed as we no longer had any leasing customers or leased assets. See Note 3 – “Investment in Leasing Operations” for information regarding the lease portfolio.

Royalties increased to $72.2$76.4 million for 20242025 from $70.2$72.2 million for the same period in 2023,2024, a 2.8%5.8% increase. The increase is primarily duefrom tohigher franchise retail sales and from having additional franchise stores in 20242025 compared to 2023.2024.

Leasing income decreasedincreased to $1.8$2.6 million in 20242025 compared to $4.8$1.8 million for the same period in 2023.2024. The decreaseincrease is primarily due to athe decrease in operating lease income and income on salessettlement of equipmentoutstanding undercustomer leaselitigation resultingwhen fromcompared to the runsame offperiod oflast the portfolio.year.

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 $3.3 million in 2025 from $3.6 million in 2024 from $4.8 million in 2023.2024. The decrease is due to a decrease in buying group and technology purchases by our franchisees.

Selling, general and administrative expenses decreasedincreased 0.7%13.7% to $28.4 million in 2025 from $24.9 million in 2024 from $25.1 million in 2023.2024. The decreaseincrease was primarily due to aan decreaseincrease in compensation related expenses.expenses and a non-recurring expense related to third-party software licenses for franchisees.

The provision for income taxes was calculated at an effective rate of 22.0%21.6% and 21.8%22.0% for 20242025 and 2023,2024, respectively. The increasedecrease is primarily due to anhigher increasetax inbenefits on the valuationexercise allowanceof relatednon-qualified tostock foreign tax credits.options.

The franchising segment’s 20242025 operating income increased by $2.2$0.5 million, or 4.5%,0.9%, to $52.1 million from $51.6 million from $49.4 million for 2023.2024. The increase in segment contribution was primarily due to increased royalty revenues.revenues, partially offset by an increase in selling, general, and administrative expenses.

The other segment operating income for 20242025 decreasedincreased by $2.6$1.2 million, or 65.8%,89.7%, to $2.5 million from $1.3 million from $3.9 million for 2023.2024. The decreaseincrease in segment contribution was due to athe decreasesettlement of outstanding customer litigation in leasingthe incomeCompany’s net ofequipment leasing expense.business.

Operating activities provided $42.2$44.9 million of cash during 20242025 compared to $44.0$42.2 million provided during 2023.2024. The decreaseincrease in cash provided by operating activities in 20242025 was due to an increase in net income and a decrease in accruednon-cash andworking other liabilities.capital.

Financing activities used $43.0$46.6 million of cash during 20242025 compared to $43.9$43.0 million used during 2023. Our most significant financing activities over the past two years have consisted of payments on our notes payable, the payment of dividends, and net proceeds received from the exercise of stock options.2024. During 2024,2025, we paid $38.9$49.1 million in cash dividends (including a $7.50$10.00 per share special cash dividend), and paid $9.2$2.4 million onto notesrepurchase payable7,944 (including $4.9 million in prepaymentshares of notesour thatcommon had scheduled amortization payments due in 2025-2027)stock; partially offset by $5.0 million of proceeds from the exercise of stock options. (See Note 6 — “Shareholders’ Equity (Deficit)” and Note 7 — “Debt”).

Our debt facilities include a Line of Credit with CIBC Bank USA and a Note Agreement and Shelf Agreement with Prudential. These facilities have been and will continue to be used for general corporate purposes, are secured by a lien against substantially all of our assets, contain customary financial conditions and covenants, and require maintenance of minimum levels of debt service coverage and maximum levels of leverage (all as defined within the agreements governing the facilities). As of December 28,27, 2024,2025, we were in compliance with all of the financial covenants under the Line of Credit,Credit and the Note Agreement and the Shelf Agreement.

See Part II, Item 8, Note 7 – “Debt” for more information regarding the Line of Credit,Credit and Note Agreement and Shelf Agreement.

As of the date of this report we believe that the combination of our cash on hand, the cash generated from our business,business and our Line of Credit and our Shelf Agreement will be adequate to fund our planned operations through 2025.2026.

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 notedset 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.

Winmark -– the Resale Company is focused on sustainability and small business formation. As of MarchJune 28,27, 2026, we had 1,3831,389 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.

Our most significant source of franchising revenue is royalties received from our franchisees. During the first threesix months of 2026, our royalties increased $1.5$2.9 million or 8.4%8.1% compared to the first threesix 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 threesix months of 2026, selling, general and administrative expenses increased $0.4$1.4 million, or 5.8%9.6% compared to the first threesix 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 threesix months ended MarchJune 28,27, 2026:

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 threesix months of 2026, we renewed 2350 of the 2350 franchise agreements available for renewal.

Comparison of Three Months Ended MarchJune 28,27, 2026 to Three Months Ended MarchJune 29,28, 2025

Revenues for the quarter ended MarchJune 28,27, 2026 totaled $20.8$22.0 million compared to $21.9$20.4 million for the comparable period in 2025.

Royalties increased to $19.3$20.1 million for the firstsecond three monthsquarter of 2026 from $17.8$18.7 million for the firstsecond three monthsquarter of 2025, ana 8.4%7.8% increase. The increase is primarily from higher franchise retail sales and, to a lesser extent, from having additional franchise stores in the firstsecond three monthsquarter of 2026 compared to the same period in 2025.

Franchise fees of $0.3$0.4 million for the firstsecond three monthsquarter of 2026 were comparable to $0.3 million for the firstsecond three monthsquarter of 2025.

LeasingWe had no leasing income decreased to $0.0 million for the firstsecond quarter of 2026 compared to $2.3 million$46,600 for the same period in 2025. Leasing income in the first quarter 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 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 decreasedof to $0.7$0.9 million for the firstsecond quarter of 2026 comparedwere comparable to $0.9$0.8 million in the same period of 2025. The decrease is due to a decrease in technology and buying group purchases by our franchisees.

Cost of merchandise sold includes in-bound freight and the cost of merchandise associated with Direct Franchisee Sales. Cost of merchandise sold decreasedof to $0.6$0.8 million for the firstsecond quarter of 2026 comparedwas comparable to $0.9$0.8 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 firstsecond quarter of 2026 and 2025 was 94.6%95.3% and 94.4%,95.4%, respectively.

Selling, general and administrative expenses increased 5.8%13.9% to $7.9$7.5 million in the firstsecond quarter of 2026 fromcompared $7.4to $6.6 million in the same period of 2025. The increase was primarily due to an increase in compensation related expenses.expenses for the Company’s investments in technology and marketing, the timing of advertising production expense, and outside services.

The provision for income taxes was calculated at an effective rate of 22.0%21.2% and 24.2%16.6% for the firstsecond quarter of 2026 and 2025, respectively. The decreaseincrease is primarily due to less tax benefits on the exercise of non-qualified stock options during the firstsecond quarter of 2026.2026 compared to the second quarter of 2025.

Segment Comparison of ThreeSix Months Ended MarchJune 28,27, 2026 to ThreeSix Months Ended MarchJune 29,28, 2025

The franchising segment’s operating income for the firstsecond quarter of 2026 ofincreased $12.4to $13.6 million was up from $11.4$13.0 million for the firstsecond quarter of 2025. The increase in segment contribution was due to an increase inincreased royalty revenue,revenues, partially offset by an increase in selling, generalgeneral, and administrative expenses.

The other operating segment income for the firstsecond quarter of 2026 was $0.0 million$0 compared to $2.3$42,400 million infor the firstsecond quarter of 2025. The segment contribution in the first quarter of 2025 reflected the settlement of customer litigation.

Our primary sources of liquidity have historically been cash flowflows from operations and borrowings. The components of the consolidatedConsolidated condensedCondensed statementsStatements of operationsOperations 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 firstsecond quarter of 2026 with $19.9$26.0 million in cash, cash equivalents and restricted cash compared to $22.0$28.9 million in cash, cash equivalents and restricted cash at the end of the firstsecond quarter of 2025.

Operating activities provided $11.9$22.6 million of cash during the first threesix months of 20262026, compared to $15.1$24.1 million provided during the firstsame three months ofperiod last year. The decrease in cash provided by operating activities induring the first threesix months of 2026 compared to 2025 was primarily due to an increase in non-cash working capital and a decrease in net income.

Investing activities used minimal$2.3 million of cash during the first threesix months of 2026.2026, compared to $0.1 million used during the same period last year. The 2026 activities primarily consisted of software development costs related to the purchasemodernization of propertyour andpoint-of-sale equipment.system.

Financing activities used $2.4$4.8 million of cash during the first threesix months of 2026. Our most significant financing activities during the first threesix months of 2026 consisted of $3.4$7.1 million for the payment of dividends; partially offset by $1.0$2.3 million of proceeds from the exercise of stock options. (See Note 8 — “Shareholders’ Equity (Deficit)).Deficit.”

As of March 28, 2026, ourOur 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 MarchJune 28,27, 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 MarchJune 28,27, 2026, we had no revolving loans outstanding, and had delayed draw term loan borrowings totaling $30.0 million that mature in 2029.

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-lookingforward looking statements for any reason.