ITEM 1A: RISK FACTORS
We are dependent on franchise renewals.
Each of our franchise agreements is 10 years long. At the end of the term of each franchise agreement, each franchisee may, if certain conditions are met, “renew” the franchise relationship by signing a new 10-year franchise agreement. As of December 27, 2025 each of our five brands have the following number of franchise agreements that will expire over the next three years:
Play It Again Sports 13 18 15
Music Go Round 4 5 6
Style Encore 5 7 6
We believe that renewing a significant number of these franchise relationships is important to our continued success. If a significant number of franchise relationships are not renewed, our financial performance would be materially and adversely impacted.
We are dependent on new franchisees.
Our ability to generate increased revenue and achieve higher levels of profitability depends in part on increasing the number of franchises open. Unfavorable macro-economic conditions may affect the ability of potential franchisees to obtain external financing and/or impact their net worth, both of which could lead to a lower level of openings than we have historically experienced. There can be no assurance that we will sustain our current level of franchise openings.
We may sell franchises for a territory, but the franchisee may not open.
We believe that a substantial majority of franchises awarded but not opened will open within the time period permitted by the applicable franchise agreement or we will be able to resell the territories for most of the terminated or expired franchises. However, there can be no assurance that substantially all of the currently sold but unopened franchises will open and commence paying royalties to us.
Our franchisees are dependent on supply of used merchandise.
Our retail brands are based on offering customers a mix of used and new merchandise. As a result, the ability of our franchisees to obtain continuing supplies of high quality used merchandise is important to the success of our brands. Supply of used merchandise comes from the general public and may not be regular or highly reliable. In addition, adherence to federal and state product safety and other requirements may limit the amount of used merchandise available to our franchisees. In addition to laws and regulations that apply to businesses generally, our franchised retail stores may be subject to state or local statutes or ordinances that govern secondhand dealers. There can be no assurance that our franchisees will avoid supply problems with respect to used merchandise.
We may be unable to collect accounts receivable from franchisees.
In the event that our ability to collect accounts receivable significantly declines from current rates, we may incur additional charges that would affect earnings. If we are unable to collect payments due from our franchisees, it would materially adversely impact our results of operations and financial condition.
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Our franchisees’ reliance on a required point-of-sale system, including our efforts to modernize that system, could disrupt franchisee operations and adversely affect our business.
Our franchise system depends on the continued availability, reliability, and performance of the point-of-sale (“POS”) system and related in-store technology that our franchisees are required to use. The POS system supports core store-level operations and provides information used in the administration of our franchise system. As a result, disruptions or performance issues affecting this system could adversely impact franchisee operations.
We are pursuing a strategic initiative to modernize our POS platform to address legacy constraints and improve the franchisee and in-store experience. The replacement or significant modification of a mission-critical POS system is complex and involves operational and execution risk. If we do not successfully design, implement, test, integrate, or deploy enhancements or a new POS system in a manner that minimizes disruption, franchisee operations could be adversely affected.
Implementation challenges could result in system instability, workflow interruptions, data or reporting inconsistencies, or other operational disruptions during development, rollout, or post-deployment stabilization. In addition, our POS environment relies on third-party vendors and internal support resources, and delays or failures by these parties could extend disruption or delay stabilization.
Disruptions associated with our required POS system, including those arising from a failed or poorly executed modernization effort, could strain franchisee relationships, negatively affect the customer experience at franchised stores, harm the reputation of our brands, and adversely affect our financial results.
We operate in an extremely competitive industry.
Retailing, including the sale of apparel, sporting goods and musical instruments, is highly competitive. Many retailers and online marketplaces have significantly greater financial and other resources than us and our franchisees. Individual franchisees face competition in their markets from retailers of new merchandise and, in certain instances, resale, thrift and other stores that sell used merchandise. We may face additional competition as our franchise systems expand and if additional competitors enter the used merchandise market.
We currently, and may in the future, have assets held at financial institutions that may exceed the insurance coverage offered by the Federal Deposit Insurance Corporation, the loss of such assets would have a severe negative affect on our operations and liquidity.
We may maintain our cash assets at certain financial institutions in the U.S. in amounts that may be in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limit of $250,000. In the event of a failure of any financial institutions where we maintain our deposits or other assets, we may incur a loss to the extent such loss exceeds the FDIC insurance limitation, which could have a material adverse effect upon our liquidity, financial condition and our results of operations.
We are subject to restrictions in our line of credit/term loan and note facilities. Additionally, we are subject to counter-party risk in our line of credit facility.
The terms of our line of credit/term loan and note facilities impose certain operating and financial restrictions on us and require us to meet certain financial tests including tests related to minimum levels of debt service coverage and maximum levels of leverage. As of December 27, 2025, we were in compliance with all of our financial covenants under these facilities; however, failure to comply with these covenants in the future may result in default under one or both of these sources of capital and could result in acceleration of the related indebtedness. Any such acceleration of indebtedness would have an adverse impact on our business activities and financial condition.
Sustained credit market deterioration could jeopardize the counterparty obligations of the bank participating in our line of credit facility, which could have an adverse impact on our business if we are not able to replace such credit facility or find other sources of liquidity on acceptable terms.
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We have indebtedness.
We have existing indebtedness in the form of notes payable and term loans (see Note 7 — “Debt”). We expect to generate the cash necessary to pay our expenses and to pay the principal and interest on all of 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. If we do not have enough money to pay our debt service obligations, we may be required to refinance all or part of our existing debt, sell assets, borrow more money or raise equity. In such an event, we may not be able to refinance our debt, sell assets, borrow more money or raise equity on terms acceptable to us or at all. Also, our ability to carry out any of these activities on favorable terms, if at all, may be further impacted by any financial or credit crisis which may limit access to the credit markets and increase our cost of capital.
We are subject to government regulation.
As a franchisor, we are subject to various federal and state franchise laws and regulations. Fourteen states, the Federal Trade Commission and six Canadian Provinces impose pre-sale franchise registration and/or disclosure requirements on franchisors. In addition, a number of states have statutes which regulate substantive aspects of the franchisor-franchisee relationship such as termination, nonrenewal, transfer, discrimination among franchisees and competition with franchisees.
Additional legislation, both at the federal and state levels, could expand pre-sale disclosure requirements, further regulate substantive aspects of the franchise relationship and require us to file our franchise offering circulars with additional states. Future franchise legislation could impose costs or other burdens on us that could have a material adverse impact on our operations. In addition, evolving labor and employment laws, rules and regulations could result in potential claims against us as a franchisor for labor and employment related liabilities that have historically been borne by franchisees.
We may be unable to protect against data security risks.
We have implemented security systems with the intent of maintaining the physical security of our facilities and protecting our employees, franchisees, 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.
Our stock price will fluctuate, and at times these fluctuations may be volatile.
The prices of markets and individual equities tend to fluctuate. These fluctuations commonly reflect events, many of which may be fully or partially outside of our control, that may change investor's perception of our future earnings growth prospects, including changes in economic conditions, ability to execute business strategy, the impacts of public policy, investor sentiment, competitive dynamics, and many other factors. While the sources of stock price fluctuation can be common across companies, the magnitude of these fluctuations can vary for different companies.
We may make additional investments outside of our core businesses.
From time to time, we have and may continue to make investments both inside and outside of our current businesses. To the extent that we make additional investments that are not successful, such investments could have a material adverse impact on our financial results.
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Our business, results of operations, financial condition, cash flows and the market value of our common stock can be adversely affected by pandemics, epidemics or other public health emergencies, such as the outbreak of COVID-19.
Our business, results of operations, financial condition, cash flows and the market value of our common stock can be adversely affected by pandemics, epidemics or other public health emergencies, such as the outbreak of COVID-19.
The extent to which pandemics, epidemics or other public health emergencies may adversely impact our business depends on future developments, which are highly uncertain and unpredictable, depending upon the severity and duration of any such outbreak and the effectiveness of actions taken globally, nationally and locally to contain or mitigate its effects. Any resulting financial impact cannot be estimated reasonably at this time, but may materially adversely affect our business, results of operations, financial condition and cash flows. Even after any pandemic, epidemic or other public health emergency has subsided, we may experience materially adverse effects to our business due to any resulting economic recession or depression. Additionally, concerns over the economic affect of any pandemic, epidemic or other public health emergency may cause extreme volatility in financial and other capital markets which may adversely impact the market value of our common stock and our ability to access capital markets and debt capital. To the extent any pandemic, epidemic or other public health emergency adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this Annual Report.
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ITEM 1B: UNRESOLVED STAFF COMMENTS
None.
ITEM 1C: CYBERSECURITY
We deploy several processes for assessing, identifying and managing material risks from cybersecurity threats. These processes include, but are not limited to, security assessments, physical access restrictions, internal and external penetration testing, endpoint detection and response, and employee security awareness programs and training.
Our cybersecurity processes have been integrated into our overall risk management processes, and we engage assistance from third-parties as we deem necessary or appropriate. We believe that we have processes in place to oversee and identify risks from cybersecurity threats associated with our use of third-party services providers to our business. See Item 1A: Risk Factors for further discussion regarding data security risks.
Our Information Technology team, under the direction of the Chief Financial Officer and Vice President of Technology, with the assistance of industry-leading third-parties with over 20 years of expertise, are tasked with monitoring cybersecurity and operational risks related to information security and system disruption. They have many years of experience in various technology-related functions including security, auditing, compliance and systems.Our Executive Leadership team is briefed regularly on information security, including discussion of processes such as those listed above to monitor the prevention, detection, mitigation and remediation of cybersecurity incidents.
Our Board of Directors is charged with providing oversight of our risk management process. Specifically, the Audit Committee is primarily responsible for overseeing the risk management function, including risks from cybersecurity threats. Periodically, the Audit Committee reviews risk assessments, including cybersecurity risks, prepared by management and/or third-party providers.
There have been no previous cybersecurity incidents which have materially affected us to date, including our business strategy, results of operations or financial condition. However, any future potential risks from cybersecurity threats, including but not limited to exploitation of vulnerabilities, ransomware, denial of service, or other similar threats may materially affect us, including our execution of business strategy, reputation, results of operations and/or financial condition.
ITEM 2: PROPERTIES
We lease 41,016 square feet at our headquarters facility in Minneapolis, Minnesota. We are obligated to pay rent monthly under the lease, and will pay an average of $863,100 annually over the remaining term that expires in 2029. We are also obligated to pay estimated taxes and operating expenses as described in the lease, which change annually. The total rentals, taxes and operating expenses paid may increase if we exercise any of our rights to acquire additional space described in the lease. Our facilities are sufficient to meet our current and immediate future needs.
ITEM 3: LEGAL PROCEEDINGS
We are not a party to any material litigation and are not aware of any threatened litigation that we believe would have a material adverse effect on our business.
ITEM 4: MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5:MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information, Holders, Dividends
Winmark Corporation’s common stock trades on the NASDAQ Global Market under the symbol “WINA”. For dividend information see Note 6 – “Shareholders’ Equity (Deficit).”
At February 23, 2026, there were approximately 40 shareholders of record of our common stock.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Total Number of Maximum Number
Shares Purchased as of Shares that may
Total Number of Average Price Part of a Publicly yet be Purchased
The table set forth in Part III, Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matter” of this Annual Report is also incorporated herein by reference.
Performance Graph
In accordance with the rules of the SEC, the following graph compares the performance of our common stock on the NASDAQ stock market to the NASDAQ US Benchmark TR composite index and to the NASDAQ US Benchmark Retail TR industry index, of which we are a component. The graph compares on an annual basis the cumulative total shareholder return on $100 invested on December 27, 2020 though our fiscal year ended December 27, 2025 and assumes reinvestment of all dividends. The performance graph is not necessarily indicative of future investment performance.
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ITEM 6: [RESERVED]
None.
ITEM 7:MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management’s discussion and analysis of certain significant factors which have affected our financial position and operating results during the periods included in the accompanying consolidated financial statements and should be read in conjunction with those consolidated financial statements. This section of this 10-K generally discusses 2025 and 2024 items and year-to-year comparisons between 2025 and 2024. Discussions of 2023 items and year-to-date comparisons between 2024 and 2023 that are not included in this Form 10-K, can be found in ‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’ in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 28, 2024.
Overview
Winmark – the Resale Company is focused on sustainability and small business formation. As of December 27, 2025, we had 1,378 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 2025, our royalties increased $4.2 million or 5.8% compared to 2024.
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 2025, selling, general and administrative expense increased $3.4 million, or 13.7%, compared to the same period last year.
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 fiscal year ended December 27, 2025:
AVAILABLE
TOTAL TOTAL FOR COMPLETED
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. In 2025, we renewed 98% of franchise agreements up for renewal. This percentage of renewal has ranged between 98% and 99% during the last three years.
Our ability to grow our operating income is dependent on our ability to: (i) effectively support our franchisees 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”.
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In May 2021, we made the decision to no longer solicit new leasing customers and will pursue an orderly run-off of our leasing portfolio. Leasing income net of leasing expense for the fiscal year of 2025 was $2.6 million compared to $1.8 million in 2024. $2.2 million of the $2.5 million of leasing income for the fiscal year of 2025 was related to the settlement of outstanding customer litigation. As of December 27, 2025, the run-off of the portfolio was completed as we no longer had any leasing customers or leased assets. See Note 3 – “Leasing Operations” for information regarding the lease portfolio.
Results of Operations
The following table sets forth selected information from our Consolidated Statements of Operations expressed as a percentage of total revenue and the percentage change in the dollar amounts from the prior period:
Fiscal Year Ended Fiscal 2025
December 27, December 28, over (under)
Revenue:
Merchandise sales 3.8 4.4 (8.8)
Franchise fees 1.8 1.9 (1.3)
Cost of merchandise sold (3.6) (4.2) (8.1)
Selling, general and administrative expenses (33.0) (30.7) 13.7
Income from operations 63.4 65.1 3.1
Interest expense (2.8) (3.5) (14.4)
Interest and other income 1.1 1.4 (14.1)
Income before income taxes 61.7 63.0 3.7
Provision for income taxes (13.3) (13.9) 0.6
Revenue
Revenues for the year ended December 27, 2025 totaled $86.1 million compared to $81.3 million in 2024.
Royalties and Franchise Fees
Royalties increased to $76.4 million for 2025 from $72.2 million for the same period in 2024, a 5.8% increase. The increase is primarily from higher franchise retail sales and from having additional franchise stores in 2025 compared to 2024.
Franchise fees of $1.5 million for 2025 were comparable to $1.5 million for 2024. Franchise fees include initial franchise fees from the sale of new franchises and transfer fees related to the transfer of existing franchises. Franchise fee revenue is recognized over the estimated life of the franchise, beginning when the franchise opens. An overview of retail brand franchise fees is presented in the Operations subsection of the Business section (Item 1).
Leasing Income
Leasing income increased to $2.6 million in 2025 compared to $1.8 million for the same period in 2024. The increase is primarily due to the settlement of outstanding customer litigation when compared to the same period last year.
Merchandise Sales
Merchandise sales include the sale of product to franchisees either through our Computer Support Center or through the Play It Again Sports buying group (together, “Direct Franchisee Sales”). Direct Franchisee Sales decreased to $3.3 million in 2025 from $3.6 million in 2024. The decrease is due to a decrease in technology purchases by our franchisees.
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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 $3.1 million in 2025 from $3.4 million in 2024. The decrease was due to a decrease in Direct Franchisee Sales discussed above. Cost of merchandise sold as a percentage of Direct Franchisee Sales for 2025 and 2024 was 94.6% and 93.8%, respectively.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 13.7% to $28.4 million in 2025 from $24.9 million in 2024. The increase was primarily due to an increase in compensation related expenses and a non-recurring expense related to third-party software licenses for franchisees.
Interest Expense
Interest expense was $2.4 million in 2025 compared to $2.9 million in 2024. The decrease is primarily due to lower average corporate borrowings when compared to last year.
Income Taxes
The provision for income taxes was calculated at an effective rate of 21.6% and 22.0% for 2025 and 2024, respectively. The decrease is primarily due to higher tax benefits on the exercise of non-qualified stock options.
Segment Comparison of Fiscal Years 2025 and 2024
As of December 27, 2025, we have 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 our equipment leasing business. Segment reporting is intended to give financial statement users a better view of how we manage and evaluate our businesses. Our internal management reporting is the basis for the information disclosed for our operating segments. The following tables summarize financial information by segment and provide a reconciliation of segment contribution to income from operations:
Year Ended
Revenue:
Reconciliation to income from operations:
Revenues are all generated from United States operations other than franchising revenue from Canadian operations of $7.8 million and $7.3 million in each of fiscal 2025 and 2024, respectively.
Franchising Segment Operating Income
The franchising segment’s 2025 operating income increased by $0.5 million, or 0.9%, to $52.1 million from $51.6 million for 2024. The increase in segment contribution was primarily due to increased royalty revenues, partially offset by an increase in selling, general, and administrative expenses.
Other Segment Operating Income
The other segment operating income for 2025 increased by $1.2 million, or 89.7%, to $2.5 million from $1.3 million for 2024. The increase in segment contribution was due to the settlement of outstanding customer litigation in the Company’s equipment leasing business.
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Liquidity and Capital Resources
Our primary sources of liquidity have historically been cash flow from operations and borrowings. The components of the Consolidated 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 2025 with $10.5 million in cash, cash equivalents and restricted cash compared to $12.3 million in cash, cash equivalents and restricted cash at the end of 2024.
Operating activities provided $44.9 million of cash during 2025 compared to $42.2 million provided during 2024. The increase in cash provided by operating activities in 2025 was due to an increase in net income and a decrease in non-cash working capital.
Investing activities used $0.2 million of cash during 2025 compared to $0.2 million used during 2024.
Financing activities used $46.6 million of cash during 2025 compared to $43.0 million used during 2024. During 2025, we paid $49.1 million in cash dividends (including a $10.00 per share special cash dividend), and paid $2.4 million to repurchase 7,944 shares of our common stock; partially offset by $5.0 million of proceeds from the exercise of stock options. (See Note 6 — “Shareholders’ Equity (Deficit)”.
We have debt obligations and future operating lease commitments for our corporate headquarters. As of December 27, 2025, we had no other material outstanding commitments. (See Note 12 — “Commitments and Contingencies”). The following table summarizes our significant future contractual obligations at December 27, 2025:
Payments due by period
Less than 1 More than 5
Total year 1-3 years 3-5 years years
Contractual Obligations
(1) Includes interest payable monthly at rates ranging from 4.60% to 4.75%.
(2) Includes interest payable quarterly at 3.18%.
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 December 27, 2025, 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 December 27, 2025, we had no revolving loans outstanding, and had delayed draw term loan borrowings totaling $30.0 million that mature in 2029.
See Part II, Item 8, Note 7 – “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 this report. 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.
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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 and will be adequate to fund our planned operations through 2026.
Critical Accounting Policies
The Company prepares the consolidated financial statements of Winmark Corporation and Subsidiaries in conformity with accounting principles generally accepted in the United States of America. As such, the Company is required to make certain estimates, judgments and assumptions that it believes are reasonable based on information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the periods presented. There can be no assurance that actual results will not differ from these estimates. The critical accounting policies that the Company believes are most important to aid in fully understanding and evaluating the reported financial results include the following:
Revenue Recognition — Royalty Revenue and Franchise Fees
The Company collects royalties from each retail franchise based on a percentage of retail store gross sales. The Company recognizes royalties as revenue when earned. At the end of each accounting period, royalty amounts due are based on franchisee sales information. As of December 27, 2025, the Company’s royalty receivable was $1,279,600.
The Company collects initial franchise fees when franchise agreements are signed and recognizes the initial franchise fees as revenue over the estimated life of the franchise, beginning when the franchise is opened. Franchise fees collected from franchisees but not yet recognized as income are recorded as deferred revenue in the liability section of the consolidated balance sheet. As of December 27, 2025, deferred franchise fee revenue was $7,929,600.
Recent Accounting Pronouncements
See Note 2, “Significant Accounting Policies — Recently Issued Accounting Pronouncements and Recently Adopted Accounting Pronouncements”.
ITEM 7A:QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company incurs financial markets 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 December 27, 2025, 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 December 27, 2025 under this line of credit. The Company’s earnings would be affected by changes in short-term interest rates only in the event that it were to borrow amounts under this facility. With the Company’s borrowings at December 27, 2025, a one percent increase in short-term rates would have no impact on annual pretax earnings. The Company had no interest rate derivatives in place at December 27, 2025.
None of the Company’s cash and cash equivalents at December 27, 2025 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 year ended December 27, 2025, as 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.
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ITEM 8:FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Winmark Corporation and Subsidiaries
Index to Consolidated Financial Statements
Consolidated Balance Sheets Page 20
Consolidated Statements of Operations Page 21
Consolidated Statements of Shareholders’ Equity (Deficit) Page 22
Consolidated Statements of Cash Flows Page 23
Notes to the Consolidated Financial Statements Page 24
Reports of Independent Registered Public Accounting Firm (PCAOB ID: 248) Page 39
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WINMARK CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
ASSETS
Current Assets:
Property and equipment:
Less - accumulated depreciation and amortization (4,602,700) (4,212,100)
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Long-term Liabilities:
Shareholders’ Equity (Deficit):
The accompanying notes are an integral part of these consolidated financial statements.
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WINMARK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Fiscal Year Ended
Revenue:
Provision for credit losses — (1,500) (5,600)
The accompanying notes are an integral part of these consolidated financial statements.
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WINMARK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Shareholders’ Equity (Deficit)
Fiscal years ended December 27, 2025, December 28, 2024 and December 30, 2023
Retained
Earnings
Common Stock (Accumulated
Shares Amount Deficit) Total
Repurchase of common stock — — — —
Repurchase of common stock — — — —
The accompanying notes are an integral part of these consolidated financial statements.
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WINMARK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Year Ended
OPERATING ACTIVITIES:
Provision for credit losses — (1,500) (5,600)
Change in operating assets and liabilities:
Principal collections on lease receivables — 104,700 556,000
Rents received in advance and security deposits — (28,000) (275,200)
INVESTING ACTIVITIES:
FINANCING ACTIVITIES:
Repurchases of common stock (2,418,700) — —
SUPPLEMENTAL DISCLOSURES:
Year Ended
The accompanying notes are an integral part of these consolidated financial statements.
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WINMARK CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 27, 2025, December 28, 2024 and December 30, 2023
1. Organization and Business:
Winmark Corporation and subsidiaries (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®. In addition, the Company sells point-of-sale system hardware to its franchisees and certain merchandise to its Play It Again Sports franchisees. The Company also operates a middle-market equipment leasing business under the Winmark Capital® mark. The Company has a 52/53-week fiscal year that ends on the last Saturday in December. Fiscal year 2025, 2024 and 2023 were 52-week fiscal years.
2. Significant Accounting Policies:
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Winmark Capital Corporation, Wirth Business Credit, Inc. and Grow Biz Games, Inc. All material inter-company transactions have been eliminated in consolidation.
Cash Equivalents
Cash equivalents consist of highly liquid investments with an original maturity of three months or less when purchased. Cash equivalents are stated at cost, which approximates fair value. As of December 27, 2025 and December 28, 2024, the Company had $191,500 and $73,800, respectively, of cash located in Canadian banks. The Company holds its cash and cash equivalents with financial institutions and at times, such balances may be in excess of insurance limits.
Receivables
The beginning balance at December 31, 2023 for accounts receivable arising from contracts with customers was $1,475,300 with ending balances included in “Receivables, net” in the Consolidated Balance Sheets.
The Company provides an allowance for credit losses on trade receivables. The allowance for credit losses was $500 and $500 at December 27, 2025 and December 28, 2024 respectively. If receivables in excess of the provided allowance are determined uncollectible, they are charged to expense in the year the determination is made. Trade receivables are written off when they become uncollectible (which generally occurs when the franchise terminates and there is no reasonable expectation of collection), and payments subsequently received on such receivable are credited to the allowance for credit losses. Historically, receivables balances written off have not exceeded allowances provided.
Restricted Cash
The Company is required by certain states to maintain initial franchise fees in a restricted bank account until the franchise opens. Cash held in escrow totaled $165,000 and $140,000 at December 27, 2025 and December 28, 2024, respectively.
Leasing Operations
The Company uses the direct finance method of accounting to record income from direct financing leases. At the inception of a lease, the Company records the minimum future lease payments receivable, the estimated residual value of the leased equipment and the unearned lease income. Initial direct costs related to lease originations are deferred as part of the investment and amortized over the lease term. Unearned lease income is the amount by which the total lease receivable plus the estimated residual value exceeds the cost of the equipment.
Leasing Income Recognition
Leasing income for direct financing leases is recognized under the effective interest method. The effective interest method of income recognition applies a constant rate of interest equal to the internal rate of return on the lease.
For sales-type leases in which the equipment has a fair value greater or less than its carrying amount, selling profit/loss is recognized at commencement. For subsequent periods or for leases in which the equipment’s fair value is equal to its carrying amount, the recording of income is consistent with the accounting for a direct financing lease.
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Notes to the Consolidated Financial Statements
December 27, 2025, December 28, 2024 and December 30, 2023
For leases that are accounted for as operating leases, income is recognized on a straight-line basis when payments under the lease contract are due.
Generally, when a lease is more than 90 days delinquent (when more than three monthly payments are owed), the lease is classified as being on non-accrual and the Company stops recognizing leasing income on that date. Payments received on leases in non-accrual status generally reduce the lease receivable. Leases on non-accrual status remain classified as such until there is sustained payment performance that, in the Company’s judgment, would indicate that all contractual amounts will be collected in full.
Leasing Expense
Leasing expense includes the cost of financing equipment purchases, the cost of equipment sales as well as depreciation expense for operating lease assets.
Lease Residual Values
Residual values reflect the estimated amounts to be received at lease termination from sales or other dispositions of leased equipment to unrelated parties. The leased equipment residual values are based on the Company’s best estimate.
Allowance for Credit Losses
The Company maintains an allowance for credit losses at an amount that it believes to be sufficient to absorb losses inherent in its existing lease portfolio as of the reporting dates. Leases are collectively evaluated for potential loss. The Company’s methodology for determining the allowance for credit losses includes consideration of the level of delinquencies and non-accrual leases, historical net charge-off amounts and review of any significant concentrations.
A provision is charged against earnings to maintain the allowance for credit losses at the appropriate level. If the actual results are different from the Company’s estimates, results could be different. The Company’s policy is to charge-off against the allowance the estimated unrecoverable portion of accounts once they reach 121 days delinquent.
Inventories
The Company values its inventories at the lower of cost, as determined by the weighted average cost method, and net realizable values. Inventory consists of computer hardware and related accessories, all of which is finished goods merchandise held for resale.
Impairment of Long-lived Assets
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the carrying amount of the asset exceeds expected undiscounted future cash flows, the Company measures the amount of impairment by comparing the carrying amount of the asset to its fair value.
Property and Equipment
Property and equipment is stated at cost. Depreciation and amortization for financial reporting purposes is provided on the straight-line method. Estimated useful lives used in calculating depreciation and amortization are: three to five years for computer and peripheral equipment, five to seven years for furniture and equipment and the shorter of the lease term or useful life for leasehold improvements. Major repairs, refurbishments and improvements which significantly extend the useful lives of the related assets are capitalized. Maintenance and repairs, supplies and accessories are charged to expense as incurred.
Intangible Assets
Intangible assets are amortized over the estimated useful life on a straight line basis. The Company reviews its intangible assets for impairment at its fiscal year end or whenever events or changes in circumstances indicate that there has been impairment in the value of its intangible assets. No impairment was noted during fiscal years ended 2025, 2024, and 2023. Intangible assets of $2.3 million and $2.6 million in the consolidated balance sheets at December 27, 2025 and December 28, 2024, respectively, are all attributable to the franchising segment.
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Notes to the Consolidated Financial Statements
December 27, 2025, December 28, 2024 and December 30, 2023
Goodwill
The Company reviews its goodwill for impairment at its fiscal year end or whenever events or changes in circumstances indicate that there has been impairment in the value of its goodwill. No impairment was noted during fiscal years ended 2025, 2024 and 2023. Goodwill of $0.6 million in the consolidated balance sheets at December 27, 2025 and December 28, 2024 is all attributable to the franchising segment.
Use of Estimates
The preparation of financial statements in conformity with generally accepted U.S. accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The ultimate results could differ from those estimates.
Advertising
Advertising costs are charged to selling, general and administrative expenses as incurred. Advertising costs were $0.8 million, $0.6 million and $0.7 million for fiscal years 2025, 2024 and 2023, respectively.
Accounting for Stock-Based Compensation
The Company recognizes the cost of all share-based payments to employees, including grants of employee stock options, in the consolidated financial statements based on the grant date fair value of those awards. This cost is recognized over the period for which an employee is required to provide service in exchange for the award.
The Company estimates the fair value of options granted using the Black-Scholes option valuation model. The Company estimates the volatility of its common stock at the date of grant based on its historical volatility rate. The Company’s decision to use historical volatility was based upon the lack of actively traded options on its common stock. The Company estimates the expected term based upon historical option exercises. The risk-free interest rate assumption is based on observed interest rates for the expected term. The Company uses historical data to estimate pre-vesting option forfeitures and record share-based compensation expense only for those awards that are expected to vest. For options granted, the Company amortizes the fair value on a straight-line basis. All options are amortized over the vesting periods, which are generally four years beginning from the date of grant.
Revenue Recognition – Franchising
The following is a description of the principal sources of revenue for the company’s franchising segment. The Company’s performance obligations under franchise agreements consist of (a) a franchise license, including a license to use one of our brands, (b) a point-of-sale software license, (c) initial services, such as pre-opening training and marketing support, and (d) ongoing services, such as marketing services and operational support. These performance obligations are highly interrelated so we do not consider them to be individually distinct and therefore account for them under ASC 606 as a single performance obligation, which is satisfied by providing a right to use our intellectual property over the estimated life of the franchise. The disaggregation of the Company’s franchise revenue is presented within the Revenue lines of the Consolidated Statements of Operations with the amounts included in Revenue: Other delineated below.
Royalties
The Company collects royalties from each retail franchise based upon a percentage of retail sales. The Company recognizes royalties at the time the underlying sales occur.
Merchandise Sales
Merchandise sales include the sale of point-of-sale technology equipment to franchisees and the sale of a limited amount of sporting goods to certain Play It Again Sports franchisees. Merchandise sales, which includes shipping and handling charges, are recognized at a point in time when the product has been shipped to the franchisee. Shipping and handling costs associated with outbound freight are accounted for as a fulfillment cost and included in cost of merchandise sold.
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Notes to the Consolidated Financial Statements
December 27, 2025, December 28, 2024 and December 30, 2023
Franchise Fees
The Company collects initial franchise fees when franchise agreements are signed. The Company recognizes franchise fee revenue over the estimated life of the franchise, beginning with the opening of the franchise, which is when the Company has performed substantially all initial services required by the franchise agreement and the franchisee benefits from the rights afforded by the franchise agreement. The Company had deferred franchise fee revenue of $7.9 million and $7.5 million at December 27, 2025 and December 28, 2024, respectively.
Marketing Fees
Marketing fee revenue is included in the Revenue: Other line of the Consolidated Statements of Operations. The Company bills and collects annual marketing fees from its franchisees at various times throughout the year. The Company recognizes marketing fee revenue on a straight line basis over the franchise duration. The Company recognized $1.9 million, $1.8 million and $1.6 million in marketing fee revenue for each of the fiscal years ended December 27, 2025, December 28, 2024 and December 30, 2023, respectively.
Software License Fees
Software license fee revenue is included in the Revenue: Other line of the Consolidated Statements of Operations. The Company bills and collects software license fees from its franchisees when the point-of-sale system is provided to the franchisee. The Company recognizes software license fee revenue on a straight line basis over the franchise duration. The Company recognized $0.4 million, $0.4 million and $0.4 million in software license fee revenue for each of the fiscal years ended December 27, 2025, December 28, 2024 and December 30, 2023, respectively. The Company had deferred software license fees of $1.9 million and $1.9 million at December 27, 2025 and December 28, 2024, respectively.
Contract Liabilities
The Company’s contract liabilities for its franchise revenues consist of deferred revenue associated with franchise fees and software license fees described above.
Commission Fees
The Company capitalizes incremental commission fees paid as a result of obtaining franchise agreement contracts. Capitalized commission fees of $0.6 million and $0.6 million are outstanding at December 27, 2025 and December 28, 2024, respectively and are included in Prepaid expenses and Other assets in the Consolidated Balance Sheets.
Capitalized commission fees are amortized over the life of the franchise and are included in selling, general and administrative expenses. During the fiscal years ended December 27, 2025, December 28, 2024 and December 30, 2023, the Company recognized $120,100, $114,700 and $109,700 of commission fee expense, respectively.
Income Taxes
The Company accounts for incomes taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company recognizes the effect of income tax positions only if those positions are more likely than not to be sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest and penalties related to unrecognized tax benefits in income tax expense.
Sales Tax
The Company’s accounting policy is to present taxes collected from customers and remitted to government authorities on a net basis.
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Notes to the Consolidated Financial Statements
December 27, 2025, December 28, 2024 and December 30, 2023
Earnings Per Share
The Company calculates earnings per share by dividing net income by the weighted average number of shares of common stock outstanding to arrive at the Earnings Per Share — Basic. The Company calculates Earnings Per Share — Diluted by dividing net income by the weighted average number of shares of common stock and dilutive stock equivalents from the potential exercise of stock options using the treasury stock method.
The following table sets forth the presentation of shares outstanding used in the calculation of basic and diluted earnings per share (“EPS”):
Year Ended
Options excluded from EPS calculation — anti-dilutive 14,789 7,578 2,913
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.
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.
Recently Adopted Accounting Pronouncements
Improvements to Income Tax Disclosures – In December 2023, the FASB issued guidance that expands income tax disclosures for public entities, including requiring enhanced disclosures related to the rate reconciliation and income taxes paid information. The guidance is effective for annual disclosures for fiscal years beginning after December 15, 2024, with early adoption permitted. The guidance should be applied on a prospective basis, with retrospective application to all prior periods presented in the financial statements permitted. The Company adopted this guidance for the December 27, 2025 reporting period, with required disclosures included in Footnote 11, Income Taxes, applied on a retrospective basis.
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.
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Notes to the Consolidated Financial Statements
December 27, 2025, December 28, 2024 and December 30, 2023
3. Leasing Operations:
In May 2021, the Company made the decision to no longer solicit new leasing customers in its middle-market leasing business and to pursue an orderly run-off of this 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.
Investment in leasing operations consists of the following:
Operating leases:
Operating lease assets $ — $ 543,800
Less accumulated depreciation and amortization — (543,800)
Net investment in operating leases $ — $ —
As of December 28, 2024, no customers had leased assets totaling more than 10% of the Company’s total assets.
The Company’s key credit quality indicator for its investment in direct financing and sales-type leases is the status of the lease, defined as accruing or non-accrual. Leases that are accruing income are considered to have a lower risk of loss. Non-accrual leases are those that the Company believes have a higher risk of loss. The Company experienced no credit losses in its lease portfolio during the fiscal years ended December 27, 2025, December 28, 2024, and December 30, 2023. At December 27, 2025, no leases remained in the portfolio.
Leasing income as presented on the Consolidated Statements of Operations consists of the following:
Year Ended Year Ended Year Ended
Selling profit at commencement of sales-type leases — — 94,900
4. Receivables:
The Company’s current receivables consisted of the following:
As part of its normal operating procedures, the Company requires Standby Letters of Credit as collateral for a portion of its trade receivables.
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